Addressing CSR issues in supplier-buyer relationships: Agency theory perspective

Abstract

Growing concern with environmental impact of the goods and services worldwide put organizations under the pressure to behave responsibly and take actions to minimize environmental footprint of their operations. Given the fact that organizations outsource their activities to third parties and the end product embodies the result of joint efforts of the whole supply chain, it is of great importance to ensure conformance to environmental requirements at each level of the supply chain. Specifically, this study is exploring methods and mechanisms used by buyers to ensure sufficient environmental performance of their suppliers.

Relationship between buyer and supplier embodies principal agent relationships, where buyer is a principal and supplier is an agent, therefore, the agency theory was chosen as a central theoretical framework for this research. The goal of this study is to find efficient and effective supplier management mechanisms to address principal-agent problems arising within the context of corporate environmental responsibility. Specifically, this study aims to understand which type of contract behavior-based or outcome-based is more efficient at managing environmental aspects of buyer-supplier relationships.

Through literature review and case studies, this thesis identifies mechanisms utilized to address agency theory problems and elaborates on their efficiency. In addition, key findings of this study provide important insights on the patterns of such mechanisms use with respect to company and industry characteristics.