CSR codes and the principal-agent problem in supply chains: four case studies

The benefits of corporate social responsibility (CSR) affect the entire supply chains a firm participates in. However, not every firm is in a position to force the implementation of CSR in its supply chains as some, especially small and medium-sized enterprises (SMEs), lack the necessary power. Chain directors can implement it acting as a principal, whereas the other chain members can act as agents. In the principal-agent framework, two main problems occur due to information asymmetry: adverse selection and moral hazard. This paper examines how a code of conduct (i.e. Social Accountability 8000) can help address the principal-agent problem, for SMEs, between chain directors and partners. The research method involves four case studies on CSR practices as implemented by Italian and Dutch SMEs within their supply chains. (C) 2010 Elsevier Ltd. All rights reserved.