Exploring Codes of Conduct in the Supplier Selection Decision at Financially Distressed Firms

Abstract

Building on the ethical decision-making literature and the concept of decision frames, this study provides an exploration of the decision-making process of purchasing managers at financially distressed firms. Codes of Conduct (CoC) and the way they are enforced are explored in terms of their ability to inform and guide purchasing managers in their decisions. Four experiments involving a total of 648 purchasing managers at manufacturing firms were conducted. The results indicate that purchasing managers at firms in financial distress were 2.67 times more likely to select unethical suppliers. As a potential remedy, it is found that the enforcement of the firm’s CoC can decrease this tendency by between 64 and 79 percent. However, enforcing CoCs is not straightforward and the simultaneous presence of enforcement methods that induce opposing decision frames was found to harm, rather than support, ethical supplier choices vis-á-vis situations where only one enforcement method is present. These findings develop an improved understanding of purchasers’ decision-making processes and offer insights on how to effectively guide these decisions.