Cracking the code: the effects of codes of conduct and decision frames on supplier selection in financially distressed firms

Abstract

PurposeFirms are increasingly required to make ethical choices when selecting suppliers for their supply chains, and the decisions often rest on individual purchasing managers within the firm. This study builds on the literature on ethical decision-making and the concept of decision frames to investigate the decision-making process of purchasing managers in financially distressed firms. Codes of Conduct (CoC) and how they are enforced (financial rewards and codified procedures for oversight) are studied in terms of their effectiveness in informing and guiding purchasing managers in their supplier selection decisions.Design/methodology/approachFour sequential experiments were conducted with a total of 648 purchasing managers from manufacturing firms.FindingsThe results indicate that purchasing managers in firms facing financial distress are more than four times more likely than purchasing managers in the control groups to select the less ethical supplier in favor of better operational performance. As a potential remedy, it is found that enforcing the firm's CoC help to counteract this tendency and increase ethical supplier selection decisions by 2.1- to 2.6-fold. However, CoC enforcement that invokes multiple conflicting decision frames simultaneously is more likely to impair than promote ethical supplier selection decisions, compared to situations where only one enforcement method is present.Originality/valueThese findings develop an improved understanding of purchasers' decision-making processes and shed light on how to effectively use CoCs to guide these decisions.