Contractual Deterrence and the Ethical Supply Chain

Abstract

Human rights, environmental, and labor abuses are endemic in global supply chains. With formal remedies having a limited effect, lead firms and suppliers are stuck playing an "evasion game": lead firms increasingly demand ethical standards under impossible price terms and suppliers invent new ways to evade that pressure while appearing compliant in order to remain solvent. The result is little more than a superficial appearance of an ethical supply chain. This Article explores how to break this evasion game through a new theory of contract that I term "contractual deterrence." Building on an established theory of criminal justice, and adapted to incorporate rewards and cooperation, this Article shows how lead firms and suppliers can use contractual incentives to promote justice and prosperity in global supply chains. Through a variety of mechanisms, such as increased trust, transparent standards, and a commitment to contractual fairness, contractual deterrence utilizes vectors of influence already embedded in contractual relations to build a partnership that incentivizes both lead firms and suppliers to remain committed to ethical practices. The resulting contractual relationships between lead firms and suppliers are more equitable, prosperous, and effective in curbing the largest abuses that plague supply chains worldwide.