Challenges for Global Supply Chain Sustainability: Evidence from Conflict Minerals Reports

Abstract

The vertically integrated corporation of the 20th century has been replaced by disaggregated global supply chains across many industries. Dis-integration can reduce costs, but also limits the ability to monitor and control critical processes, including labor practices and the sourcing of supplies. This article asks: What organizational factors distinguish corporations that are able to vouch for their supply chains from those that are not? Section 1502 of the Dodd–Frank Act of 2010 gave companies over three years to determine and report on whether their products contained “conflict minerals” from the Democratic Republic of Congo area. Our analysis of every conflict minerals report submitted to the Securities and Exchange Commission by over 1,300 corporations found that almost 80% admitted they were unable to determine the country of origin of such materials, and only 1% could certify themselves conflict-free with certainty beyond reasonable doubt. Internationally diversified firms and those with large and more dispersed supply chains were less likely to declare their products conflict-free: complexity reduces the visibility of a firm’s supply chain. Our results suggest that widespread outsourcing may have reduced the corporate sector’s capacity to account for the practices that yield its products.

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