The Limitations of Supply Chain Disclosure Regimes

Abstract

Although the past few decades have seen numerous cases of human rights violations within corporate supply chains, companies are frequently not held accountable for the abuses because there is a significant governance gap in the regulation of corporate activity abroad. In response, governments have begun to pass mandatory disclosure laws that require companies to release detailed information on their supply chains in the hopes that these laws will create pressure that will improve corporate accountability.

In this paper, we argue that supply chain disclosure regimes are unlikely to have a large effect on consumer behavior, and as a result, their effectiveness at reducing human rights abuses will likely be limited. This is not only because scholarship on mandatory disclosure regimes in other areas has suggested that these regimes are frequently unsuccessful, but also because these problems are likely to be exacerbated in the human rights context. We argue that this is due to the fact that supply chain disclosures do not provide information on actual products, the information in the disclosures only provides weak proxies for human rights outcomes, and the risks associated with supply chains vary dramatically across industries.

In order to test our argument, we engaged a leading market research firm to field a series of experiments that were designed to test how well consumers understand supply chain disclosures. In our experiments, the nationally representative sample of respondents consistently rated disclosures reporting low levels of due diligence almost as highly as disclosures that reported a high level of due diligence. Based on these results, we argue that consumer-oriented supply chain disclosure regimes designed to improve corporate human rights behavior should be reconsidered.

Keywords: Human Rights, Supply Chain, Disclosure, Survey Experiment, Empirical Legal Research