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Journal of Marketing Channels

ISSN: 1046-669X (Print) 1540-7039 (Online) Journal homepage: https://www.tandfonline.com/loi/wjmc20

Ethics and Social Responsibility in Marketing Channels and Supply Chains: An Overview

O. C. Ferrell & Linda Ferrell

To cite this article: O. C. Ferrell & Linda Ferrell (2016) Ethics and Social Responsibility in Marketing Channels and Supply Chains: An Overview, Journal of Marketing Channels, 23:1-2, 2-10, DOI: 10.1080/1046669X.2016.1147339

To link to this article: https://doi.org/10.1080/1046669X.2016.1147339

Published online: 30 Mar 2016.

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Journal of Marketing Channels, 23:2–10, 2016 Copyright C© Taylor & Francis Group, LLC ISSN: 1046-669X print/1540-7039 online DOI: 10.1080/1046669X.2016.1147339

Ethics and Social Responsibility in Marketing Channels and Supply Chains: An Overview

O. C. Ferrell and Linda Ferrell Jack C. Massey Graduate School of Business, Belmont University, Nashville, Tennessee, USA

The purpose of this overview is to present a framework that provides the context for understanding corporate social responsibility and ethics in marketing channels and sup- ply chains. First, definitions of ethics, social responsibility, and sustainability are provided from a supply chain perspective. Next, an overview of the International Organization for Standardization is provided as an important benchmark to manage ethics, compliance, and social responsibility. In addition, there is an overview of the five articles that have been included in this special issue that address contemporary issues. These issues include the need for private governance in the supply chain, following up on audit results, a theoretical model to demonstrate how sustainable supply chain management influences consumers’ brand evaluations and intended behaviors, nonprofit franchising to achieve a social pur- pose, and the integral role of corporate social responsibility in apparel retail supply chains.

Keywords: compliance, corporate social responsibility, International Organiza- tion for Standardization, marketing channels, marketing ethics, supply chain ethics, supply chain management, sustainability

Supply chains and marketing channels have evolved to include many autonomous entities that require leader- ship, cooperation, and the management of power and conflict. Although there are many dimensions to mar- keting channels and supply chain management, we are focused on ethics and social responsibility. Too often var- ious members of the supply chain have been myopic and just focused on their own performance or the perfor- mance of the entire supply chain. Supply chains need to be viewed from a holistic perspective that shares concerns about risks andmaintains constant vigilance to anticipate unforeseen circumstances. Although many risks related to the environment may be top priority, ethical risks are often not recognized before the development of a

Note: The review process for this article was handled by Neil Herndon, Editor-in-Chief of the Journal of Marketing Channels.

Address correspondence to O. C. Ferrell, Jack C. Massey Gradu- ate School of Business, Belmont University, 1900 Belmont Boulevard, Nashville, TN 37212–3757, USA. E-mail: [email protected]

crisis event. This special issue of the Journal of Market- ing Channels focuses on ethics and social responsibility in marketing channels and supply chains.

A marketing channel is described by Coughlan et al. (2006) as “a set of intermediaries involved in the process of making a product or service available for consumption” (p. 2). Marketing channels are a part of supply chains. Understanding marketing channels advances knowledge and research into supply chain management. Marketing channel members or intermediaries are in a position to exert power in developing values and norms to create eth- ical cultures. Mentzer et al. (2001) describe supply chain management as the following:

the systematic, strategic coordination of the traditional business functions and the tactics across these busi- ness functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole. (p. 18)

ETHICS AND CSR INMARKETING CHANNELS AND SUPPLY CHAINS 3

The relationships among all businesses in the sup- ply chain—both upstream and downstream—are built on trust. The foundation of this trust is built on expectations of ethical and socially responsible decisions.

Our approach has been to obtain submissions on a variety of topics that can advance knowledge in this area. Hopefully, this special issue will encourage addi- tional research and contributions. The relationships, con- flicts, and risks embedded in marketing channels and sup- ply chains create many ethical issues and dilemmas. The impact on diverse stakeholders requires strategic deci- sions. This creates the need to develop socially responsi- ble initiatives to address stakeholder concerns. Therefore, both supply chain members and managers of the market- ing channel require effective strategic programs to assess risks, enforce standards, and address social responsibil- ity issues. Ethics and social responsibility can be viewed from the perspective of trust and long-term relationships to enhance performance (Wagner et al., 2011). Enduring relationships should create shared values and committed parties that address responsibility to stakeholders.

Although there is growing concern about these issues, the current state of the field is fragmented with a major- ity of articles focusing on specific issues rather than a more holistic approach. Social, political, and economic institutions structure ethical issues and social responsibil- ity considerations in the supply chain. The unique nature of marketing channels places responsibility on leaders to monitor and demand compliance on standards of appro- priate conduct from all participants. Because marketing channel members are interdependent, leaders should use their power to work together for the common good (Pal- matier et al., 2015). The spiderweb of relationships creates the need for oversight of conduct tomaintain the integrity of the entire supply chain.

The purpose of this overview of the special issue is to provide perspectives and a framework to expand upon how the articles in this issue make a contribution to ethics and social responsibility in marketing channels and sup- ply chains. Because supply chains are often global, we explore how the International Organization for Standard- ization (ISO, n.d.) standards can be used to develop and establish standards and audit ethics and social respon- sibility across many autonomous entities that engage in activities impacting stakeholders. In addition, we provide insights that can help identify research gaps and future research to advance understanding.

ETHICS, SOCIAL RESPONSIBILITY, AND SUSTAINABILITY

Supply chains are not a recent development. Over 2,000 years ago, products such as frankincense, myrrh, and spices were highly desired and were transported from

the far corners of the then known world. The use of the hub-and-spoke structure, partnerships, packaging, and the development of a value chain is similar to supply chains today (Hull, 2008): the difference is supply chains today are not constructed around trusted neighbors with simple products. Today advances in transportation, com- munication, and technology drive supply chain efficiency and effectiveness. Marketing channels are interdependent with both upstream and downstream cooperation needed to serve stakeholders. In addition, the complexity of sup- ply chains requires ethical and socially responsible stan- dards tomaintain quality, security, and safety.We address the importance of standards in the next section.

Supply chains and marketing channels are part of an interconnected business world that creates partners in a value chain. Many issues evolve and are associated with different levels of risk. It is important to prioritize risk and manage those risks by collaborating with various entities in the supply chain and all stakeholders (Klee, 2014). Supply chain issues are often addressed as a series of silos related to sourcing, environmental sustainability, labor, product quality, trust, conflict, corruption, and so on. Our current state of knowledge is fragmented with a focus on specific issues rather than a holistic approach. To gain a holistic approach it is important to recog- nize how various fragmented areas of concern should be viewed from the standpoint of the entire supply chain. This requires an understanding of channel relationships including power and conflict (Palmatier et al., 2015).

Ethical decision-making is complex and should be viewed fromboth a descriptive and normative perspective. A supply chain ethical decision-making model provides insights into the various components that affect decision making (Ferrell et al., 2013). There is an individual ethi- cal judgment about right or wrong, but the individual is influenced by the nature of social, political, and economic institutions and by the culture, compliance, and complex- ity characteristics of the supply chain. In addition, each entity involved in the supply chain operates in an organi- zation within an ethical culture. Ethical issues and dilem- mas should be resolved not only within organizations but also across the supply chain. This requires channel mem- bers to exert power to control conflict, manage decisions, and develop an ethical culture.

Supply chain terminology is important to develop a holistic understanding about ethics and social responsi- bility. Social responsibility and ethics, as well as sustain- ability, are often used interchangeably but have different meanings. Supply chain ethics relates to managerial deci- sions about what is right or wrong; social responsibility deals specifically with the obligation to maximize positive effects andminimize negative effects of those decisions on stakeholders (Ferrell et al., 2015).

Examples of social responsibility concerns include social issues, employee well-being, legal responsibilities,

4 O. C. FERRELL AND L. FERRELL

sustainability, philanthropy, consumer protection, and corporate governance. The concepts of ethics and social responsibility are complementary because ethical decision-making directly affects decisions that are evalu- ated based on their impact on various stakeholders that relates directly to being socially responsible. For exam- ple, an ethical decision about maintaining product quality and safety directly affects key stakeholders such as retail- ers and consumers.

Sustainability is one component of social responsibil- ity that is a high-priority issue in supply chains. A review of the literature indicates that much academic research focuses on sustainability and supply chains (Beske & Seuring, 2014; Hofmann et al., 2014). Sustainability relates to the potential for the well-being of the natu- ral environment and the interaction between individuals, organizations, and business strategies. The term sustain- ability may be interpreted in many ways, including eco- nomic connotations about the continuance of the busi- ness strategy. Mehdi and Bienstock (2014) provide an integrated definition and framework for corporate sus- tainability. Their framework incorporates sustainability into corporate strategy and external communications to corporate stakeholders. The result is to integrate eco- nomic, ecological-environmental, and equity social con- cerns in strategic decisions and processes. This also means adhering to compliance and regulatory policies as well as developing leadership to guide an organization as a thought leader.

In a search to provide guidance for research and prac- tice, it is important to recognize the differences and var- ious nuances of the terms ethics, social responsibility, and sustainability. A firm can embrace sustainability as its main priority and still face risk and other ethical and social issues that are necessary to effectively man- age a supply chain. With most research fragmented, it is important to organize existing knowledge and various approaches to ethics and social responsibility in the sup- ply chain. In a search to determine global integration in defining and measuring these risks, we find that the ISO has made much progress. These standards are extremely meaningful in coordinating a global supply chain. We review some of the standards that are relevant to ethics and social responsibility.

INTERNATIONAL ORGANIZATION FOR STANDARDIZATION PROVIDES SUPPLY

CHAIN STANDARDS

Marketing channels and supply chains need to be man- aged strategically to avoid misconduct. Most members of the supply chain are not experts at managing risks associated with their own organization or coordinating other members of the marketing channel. This creates the

need to establish global standards to address sustainabil- ity (environment), product quality, social responsibility, and risk and compliance management systems to handle subject matter. The most widely used standards are avail- able through the ISO. These standards are becoming an important benchmark to manage ethics, compliance, and social responsibility.

ISO is an independent, nongovernmental membership organization and the world’s largest developer of volun- tary international standards. These standards are devel- oped by industries including those participants of supply chains through a consensus process. Professionals who are experts from over 163 member countries help develop the standards that are appropriate for their sectors. One way to view ISO standards is that they are best practices for private governance. In other words, the standards may involve complying with government regulations but are not involved in any way with government regulatory enti- ties. The standards continue to expand, covering almost all aspects of business operations. As the standards are developed for global businesses, they are very appropriate for the risks associated with managerial decisions related to marketing channels and supply chains (ISO, n.d.).

ISO 9000 is a set of quality assurance standards used to guarantee consistent global standards in organizations. Organizations that choose to become certified in this stan- dard commit to design and ensure safe processes and quality products for internal and external stakeholders. The standards provide frameworks for documenting busi- ness records, testing products, fixing defects, and training employees. ISO 9000 is helpful for organizations to create quality standards that are consistent with other organi- zations across the world. Customers and business part- ners can trust that certified organizations adhere to cer- tain quality and safety standards, providing them with a competitive advantage in their operations (Ferrell et al., 2014, p. 261).

ISO 14000 is a series of environmental standards that encourage organizations to become more sustainable. These standards provide companies with uniformity in implementing an environmental management system and improving their environmental performance. ISO 14000 provides assurance to stakeholders that the organization’s environmental impact is being measured, managed, and improved. Because of its uniform standards, ISO 14000 ensures consistency among certified organizations across the world in spite of differing environmental regulations (Ferrell et al., 2014, pp. 261–262; ISO, n.d.). As sustain- ability becomes a greater priority in supply chainmanage- ment, marketing channel members that obtain ISO 14000 certification will be more likely to create favorable impres- sions among their customers.

Another set of standards important for responsible supply chainmanagement is ISO 26000. ISO 26000 is a set of corporate social responsibility (CSR) guidelines that

ETHICS AND CSR INMARKETING CHANNELS AND SUPPLY CHAINS 5

organizations can use to advance a shared understand- ing of social responsibility. Because these are guidelines, organizations cannot be certified in this area. However, companies that adopt these guidelines signal to stake- holders that they make social responsibility a top orga- nizational priority. The intent of these guidelines is to integrate social responsibility throughout the organiza- tion and stakeholder relationships. These shared views of social responsibility encourage organizations to promote transparency, communication, and trust with their vari- ous stakeholders (Bowens, 2011; Lazarte, 2013).

ISO 31000 is a series of risk management standards. Because they are guidelines, organizations can adhere to them but not receive certification from external bodies. This set of standards is important because businesses can use them as a benchmark to monitor how their own risk management systems compare. ISO 31000 standards also share guidelines for both internal and external audit pro- grams. They provide five requirements for an effective risk management system, including continual improvement, full accountability for risks, application of risk manage- ment in decision making, continual communications, and full integration of the risk management system into the organization’s governance structure (Hutchins, 2013).

ISO 19600 is one of the newer standards organiza- tions can adopt to monitor and improve their compliance management systems. Like ISO 26000 and ISO 31000, these compliance management standards are guidelines and therefore are not certifiable. The purpose of these standards is to allow organizations, including small- and medium-size firms, to improve how they approach com- pliance management. ISO 19600 focuses on both manda- tory and voluntary standards that emphasize continual communication, measurement, and improvement. Orga- nizations that comply with these guidelines can assure their stakeholders that they have identified ethical and compliance risk areas, analyzed sources of noncompli- ance against the risks and the consequences of noncom- pliance, and carefully evaluated the level of risk they are willing to accept (Hortensius, 2014; Tolar&Mazur, 2014).

Because ISO is an independent nongovernmental organization and the largest developer of voluntary inter- national standards, it is providing leadership and spe- cific measures for supply chain management. These stan- dards facilitate private governance systems that can be integrated across all participants in marketing channels and supply chains. The standards address specific issues such as quality, but there are also standards such as ISO 19600 for compliance, ISO 14000 for sustainability, and ISO 26000 for social responsibility that facilitate a holistic evaluation of organizations and could be used to monitor the risk areas of the entire supply chain.

As members of the supply chain select new members, evaluate current participants for suppliers, or attempt to initiate socially responsible purchasing decisions, the ISO

standards can be a key factor in avoiding risks. Chan- nel managers can use their power and provide rewards for using ISO standards. In reality ISO is a standardized audit to address concerns. For example, from the ISO 9000 series, suppliers can refer to being ISO certified or having an “ISO9000”compliant qualitymanagement sys- tem. Being ISO certified provides the opportunity to qual- ify partners based on the standards they apply to their operations.

In summary, it is important to know that ISO is more of an audit than a certification. ISO does not certify orga- nizations or supply chains, although external certification bodies will certify organizations for some standards. In other words, the objective of ISO is to provide standards that, if implemented, will help suppliers to meet expecta- tions and comply with regulations. There can even be a requirement to monitor consumer expectations and atti- tudes about the quality of products. By using ISO stan- dards the supply chain member can establish a systematic approach to managing the risks and provide a statement of conformity for best practices.

CONTRIBUTIONS PROVIDED BY THE SPECIAL ISSUE

Five articles are included in this special issue on “Ethics and Social Responsibility in Marketing Channels and Supply Chains” with this overview. The articles address different aspects of the issues that exist in this important area.We have provided some background that can be used to place each article in a domain area that contributes to ethics and social responsibility. Although the topics cov- ered do not overlap and are not necessarily integrated to provide comprehensive coverage of marketing channels and supply chains, they make a significant contribution to knowledge. All of the articles selected important top- ics that address contemporary issues managers face. In addition, all of the articles should be important to aca- demics who are conducting research in the area of ethics and social responsibility in marketing channels and sup- ply chains.

“Private Governance in the Supply Chain” by Deb- bie M. Thorne and Floyd F. Quinn, both of Texas State University, tackle the topic of the need for private gover- nance in the supply chain. ISO standards are an example of a private governance approach to managing ethics and social responsibility. The authors use the example of Boe- ing to illustrate how a lack of effective governance and a complex tiered supply chain grounded its Dreamliner 787 fleet and cost it millions of dollars. Although many multinational companies such as Boeing eagerly embrace outsourcing, the complexities involved—such as tiered outsourcing and linguistic and cultural differences— require strong oversight on their part for the entire supply

6 O. C. FERRELL AND L. FERRELL

chain. It is the biggest and most recognizable member of the supply chain that is expected to ensure effective over- sight and take responsibility for any issues.

A strong contribution the authors make is pointing out that globalization, electronic commerce, and even lean supply chain practices such as just-in-time inventory opti- mization introduce complex risks in the supply chain that must be mitigated. Thus far risk management in the sup- ply chain has been largely regulated by laws. The authors argue for private governance controls that include analy- sis of both economic and noneconomic risks and socially responsible expectations for corporate conduct in the sup- ply chain. They cite how increasing pressures for worker rights and environmental concerns are prompting mem- bers in the marketing channel to adopt their own private governance standards.

The authors take a closer look at private governance in the supply chain by examining four supplier codes of conduct from global electronics firms. Content as well as process elements were analyzed to determine how they handle private governance. The authors’ data reveal that supplier codes of conduct are inconsistent, lacking sig- nificant oversight and penalties for noncompliance over- all. They argue that supplier codes of conduct can only be effective in private governance if they are based on norms and values diffused throughout the supply chain. This requires the establishment of shared standards of conduct.

“Ethics in the Supply Chain: Follow-Up Processes to Audit Results” by Tracy Gonzalez-Padron, University of Colorado at Colorado Springs, identifies a key issue in supply chain auditing: the lack of follow-up. One of the major supply chain issues for companies involves prop- erly following up on audit results. The article identifies four key issues related to supply chain auditing: (a) how to manage information from the supply chain, (b) how to motivate suppliers to pay for audits and complete ques- tionnaires, (c) how to deal with results, and (d) how to increase awareness for a responsible supply chain among buyers. The purpose of this research is to provide guid- ing questions for future research in managing an ethi- cal supply chain through supplier audits. These audits could relate to private governance standards provided by ISO.

Supplier audits are becoming increasingly important with emerging ethical concerns such as cybersecurity and sourcing products from conflict-affected areas. Under- standing how the supply chain audit is managed is cru- cial for the successful implementation of a supply chain audit. This article identifies three members of the sup- ply chain: primary members that carry out value-adding activities to produce the product, supporting members that provide resources to the primary members includ- ing third-party certification, and a third type of actor such as the internal functions of procurement and ethics

compliance. Third-party certification can be especially important in the increasingly globalized supply chain, particularly when multiple tiers of suppliers are used with or without the knowledge of the brand manufacturer. Another major challenge occurs with power asymmetries in the supply chain. As the article explains, too much power on the supplier’s or buyer’s part could cause buyers to treat supplier audits more leniently or cause buyers to violate compliance standards to meet buyer demand.

The author suggests that understanding transaction cost economics in the supply chain will help the actors make better decisions. The article describes the pivotal role trust plays in auditing and follow-up but differen- tiates between interorganizational trust and individual- level trust. Because seemingly strong interorganizational trust can mask low trust among individual actors, the author recommends increasing awareness of responsi- ble supply chain practices among the actors. She also identifies five capabilities necessary for responsible sup- ply chains: (a) interfirm dialog, (b) risk management, (c) external stakeholder collaboration, (d) cross-functional integration, and (e) continuous improvement. Using this information, she is able to recommend a research agenda for further study of the challenges in supplier auditing.

“Sustainable Supply Chain Management and the End User” by Brian Gillespie and Mary Margaret Rogers, both of the University of New Mexico, presents a the- oretical model to demonstrate how sustainable supply chain management influences consumers’ brand evalua- tions and intended behaviors. ISO 9000 has standards for monitoring consumer attitudes and evaluations of prod- uct quality. This article proposes that simply focusing on upstream activities of the supply chain is no longer suf- ficient. Sustainable supply chain practices are required to create favorable consumer perceptions of firms through- out the supply chain. In particular, the authors were inter- ested in investiga

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