Position Paper, Values, ethics and sustainability

Bus Soc Rev. 2019;124:325–343. | 325 wileyonlinelibrary.com/journal/basr

DOI: 10.1111/basr.12178

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ORIGINAL ARTICLE

Beyond market, firm, and state: Mapping the ethics

of global value chains

Abraham A. Singer 1 | Hamish van der Ven 2

© 2019 W. Michael Hoffman Center for Business Ethics at Bentley University. Published by Wiley Periodicals, Inc., 350 Main Street, Malden,

MA 02148, USA, and 9600 Garsington Road, Oxford OX4 2DQ, UK.

1Department of Management, Quinlan

School of Business, Loyola University

Chicago, Chicago, Illinois

2Department of Political Science and

School of Environment, McGill University,

Montreal, Canada

Correspondence

Abraham A. Singer, Department of

Management, Quinlan School of Business,

Loyola University Chicago, Chicago, IL

60660.

Email: asinger2@luc.edu

Abstract

The growth of global value chains (GVCs) and the emer-

gence of novel forms of value chain governance pose two

questions for normative business ethics. First, how should

we conceptualize the relationships between members of a

GVC? Second, what ethical implications follow from these

relationships, both with respect to interactions between

GVC members and with respect to achieving broader trans-

national governance goals? We address these questions by

examining the emergence of transnational eco‐labeling as

an increasingly prominent form of GVC governance that is

redefining the relationship between nominally independent

firms. On the first question, we argue that GVCs occupy

a middle ground between intrafirm and interfirm transac-

tions, thereby posing a challenge to theoretical frameworks

that attempt to apply ethical standards based on transaction

types. On the second question, we argue that this unique

institutional status leads to a range of novel ethical con-

siderations and dilemmas for GVC members. Lead firms,

their suppliers, and third‐party standard‐setters all confront

new ethical quandaries when third‐party eco‐labeling is in-

troduced to a GVC. The nature of these quandaries means

that, while GVCs may be well‐positioned to serve as instru-

ments of transnational governance, they are frequently not

well‐oriented to do so. Our analysis marks an initial attempt

to map the ethical considerations that apply to members of 326 |

1 | INTRODUCTION

In this article, we argue that the nature of the modern globalized economy presents a challenge for

how we understand ethics and moral responsibility in economic activity. One of the interesting recent

developments in normative business ethics has been the increasing appeal to institutional kinds as a

means of understanding moral obligation (see Hsieh, 2017). On this view, understanding actors’ moral

duties requires understanding the institutional context and position they find themselves within. Such

approaches often distinguish between what a manager owes her workers and what she owes her com-

petitors by noting that corporate hierarchies and competitive markets are different sorts of institutional

contexts, imposing distinct normative concerns on different actors. While there are disagreements

around the edges regarding what sorts of ethical obligations each distinction implies (Heath, 2014;

Jaworski, 2013; Singer, 2019), there is a growing agreement that these distinctions are important for

normative business ethics.

However, the past decades of economic globalization have witnessed the emergence and grow –

ing complexity of global value chains (GVCs) that are messier and more difficult to characterize

(Gereffi, 2014; Gereffi, Humphrey, & Sturgeon, 2005). GVCs encompass the full range of activities

that multiple firms in multiple countries undertake to bring a product or service from its conception

to its end use (Gereffi & Fernandez‐Stark, 2016). They are a product of the vertical disintegration of

multinational corporations whereby larger and wealthier firms focus on innovation, marketing, and

high value‐added segments of manufacturing, while contracting “non‐core” functions like volume

production to independent firms, often based in markets where labor is cheaper (Gereffi et al., 2005).

For example, a cotton t‐shirt may be designed in Canada, but use cotton from China, be spun into

yarn in Indonesia, assembled in Bangladesh, and sold by retail outlets in the United Kingdom (Rivoli,

2009). Because these activities occur between independent firms in disparate countries, but in a co-

ordinated manner, it is less clear how to make sense of them as institutions. Insofar as understanding

the ethical nature of such activity requires us to understand what kind of actors are situated in what

kind of institutions, this intractability poses a problem for understanding the  ethical responsibilities

this class of activity entails. The ethical obligations of members of a GVC, both to each other and to human society more broadly,

are further complicated by the emergence and mainstream acceptance of third‐party actors into the

social and environmental governance of GVCs. Practices like transnational eco‐labeling, where an in-

dependent organization awards a certification or label based on the ability of GVC members to uphold

a unitary standard of environmental performance across firms and borders, further blur transactional

boundaries and ethical obligations within GVCs. In the preceding t‐shirt example, the introduction of an

eco‐label like the bluesign® standard for environmental friendly and safe textile production increases the

network density

1 of a GVC and introduces new ethical considerations to the t‐shirt vendor, its suppliers,

and third‐party eco‐labeling organizations (ELOs). In choosing to use an eco‐label, the t‐shirt vendor

a GVC, and in doing so, places the literature on normative

business ethics and transnational governance in a closer

conversation.

KEYWORDS

business ethics, corporate social responsibility, eco‐labeling, global value

chains, transaction costs, transnational governance

SINGER AND VAN DER VEN | 327

adopts some ethical accountability for the environmental practices of its GVC partners. Suppliers, in

turn, may feel ethically or materially compelled to uphold environmental standards far above what is

required under domestic law in their home country. However, third‐party ELOs must strike a balance

ensuring that their standards are stringent enough to compel behavioral change along a GVC, yet per –

missive enough that their eco‐label will be widely used. Through the introduction of third‐party eco‐

labeling, each GVC member becomes increasingly connected by the shared goal of ensuring that t‐shirt

production follows meaningful rules to reduce its environmental impact. The task we undertake in this article is therefore twofold. First, we ask how we should conceptual-

ize the relationship between members of a GVC. Are GVCs like larger, more dispersed firms, or are

they merely global “nexuses of contracts,” a large number of agents voluntarily transacting in an open

market? Or are they something distinct? Second, we ask what ethical implications follow from these

relationships, both with respect to interactions between GVC members and with respect to achieving

broader transnational governance goals, like avoiding environmental degradation. In response to the

first question, we argue that GVCs occupy a middle ground between “market” and “administered”

transactions. As we explain, GVCs normally fall into one of the three categories of what Williamson

(1979) and others refer to as unilateral, bilateral, and trilateral governance structures. To the second

question, we take what Rubenstein (2015) calls a “cartographical” approach and map out the various

ethical considerations and dilemmas that arise for GVC members when their relationships fall into one

of the aforementioned categories. Such a map shows that different types of GVC governance create

different ethical considerations and dilemmas, and that these concerns are faced by different actors

depending on the structure of the value chain. We make no claim to definitively settle questions of value chain ethics. Our aim is to show how

questions regarding the regulative integrity of third‐party standard setters, firms’ responsibilities for

their supplier’s actions, and power‐imbalances between firms are brought to the fore when the nature of

GVCs is better understood. To do this, we use the example of eco‐labeling as a way of illustrating the

questions and concerns that GVCs raise.

2 Taken together, these concerns suggest serious limitations

on the utility of GVCs as instruments of transnational governance, which we define as the processes

through which “non‐state actors adopt rules that seek to move behavior toward a shared, public goal

in at least two states” (Roger & Dauvergne, 2016). In short, while eco‐labeling offers the tantalizing

prospect of governing environmental problems across borders by leveraging the power and reach of

GVCs, the ethical quandaries that confront each individual party within a GVC may ultimately hinder

the potential of eco‐labeling to achieve broader environmental outcomes.

2 | ETHICAL STANDARDS AND TRANSACTIONAL TYPES

One of the most important developments in business ethics over the past \

decade has been the recogni-

tion that behavior and activity within firms are normatively distinct fr\

om those that happen between

or outside of firms (Smith, 2019). In this section, we explain the imp\

ortance of recognizing different

institutional forms and transaction types for doing normative theory, an\

d the way transaction costs

have been used to make sense of this institutional variety. In the next \

sections, we explore how GVCs

complicate this picture and how to make sense of them.

2.1 | The normative significance of distinguishing institutions

Following Shipman (1999), we refer to within‐firm activity as being\

composed largely of “adminis-

tered transactions” and between‐firm activity as “market transa\

ctions.” In a market transaction, two

SINGER AND VAN DER VEN 328 |

or more parties meet each other in a more or less uncoordinated manner, in order to engage in the co-

operation based on a mutually agreed upon price. In an administered tran\

saction, two or more parties

engage in the cooperation through the coordination, and often the compul\

sion, of some outside third‐

party. Activity within firms is the archetypical example of an administe\

red transaction, as cooperation

is being coordinated through the direction of a manager, in contrast to \

the market where activity is

coordinated by rising and falling prices (Coase, 1937), though activit\

y effected through state coercion

would also be an administered transaction.

The basic insight is that what one agent owes to another will differ, depending on whether they are

engaging in a market transaction or an administered transaction. There are various ways one might

view the implications of this insight. If one takes a more classical “applied ethics” approach, one must

understand the institutional context under discussion in order to know how best to apply Kant’s cat-

egorical imperative (e.g., Lee, 2018), Aristotelian virtue ethics (e.g., Alzola, 2008), or the utilitarian

calculus. Determining whether the relationship is an administered transaction or a market transaction

is important for knowing how and where to apply one’s preferred moral theory. Another way of approaching business ethics, however, which focuses on this distinction between

transactional types, eschews the “applied ethics” paradigm entirely. In this view, business ethics is not

about applying an external moral principle to a set of practices, but engaging in “immanent critique”

and applying the morality that is implicit in a set of arrangements to the practices one is interested

in (Heath, 2014). Business ethics, in such an approach, is constituted by understanding the specific

sorts of moral obligations and permissions that attach to commerce and critically assessing extant

business practices on that ground. This approach is based on the Rawlsian idea that schemes of social

cooperation entail implicit principles of how the benefits of cooperation ought to be distributed among

cooperators (Rawls, 1971, p. 3–4) and the sociological insight that we cooperate through functionally

differentiated domains of interaction, where particular forms of behavior are encouraged in order to

achieve particular ends (e.g., Luhmann, 1996). Business ethics, in this view, must be based on an un-

derstanding of these implicit norms and the behavioral logic of a given institution; the ethics of how

to act within one domain of interaction must be tailored to the goals of that institution and the sorts of

behavior encouraged therein. On a particularly influential version of this approach, business ethics ought to be based on the value

of efficiency, which is the relevant social value of the functionally differentiated sphere of commercial

activity, or the “implicit morality of the market” (McMahon, 1981). To what degree “efficiency” ought

to be supplemented by other values, like fairness or justice, has been a source of debate (Norman, 2011;

Singer, 2019). More important for our purposes, is the recognition that the “market” is, itself, charac-

terized by institutional variegation. Whereas markets are characterized by competition and adversarial

modes of interaction, within which economic activity is coordinated through rising and falling prices,

the firms that populate markets are characterized by the supersession of the market’s pricing mechanism

in favor of hierarchically planned and organized cooperation (Coase, 1937). Thus, whether we approach

business ethics by applying the Kantian categorical imperative, or by considering what market effi-

ciency or fairness demands, we must recognize the distinction between cooperation coordinated through

markets and cooperation coordinated through corporate hierarchy. For a long time, the inability to observe this distinction led the academic study of business ethics

into an impasse, leading to ethical theories that were either impractically strong or entirely too lax

(Heath, 2006, 2007). Stakeholder theory (e.g., Donaldson & Preston, 1995), for example, in asking

managers to consider a fiduciary obligation to all their stakeholders took the norms that characterize

intrafirm cooperation and attempted to apply them to the entire universe of business decisions. While

not without its merits, such an approach does not take the adversarial nature of market competition

seriously enough, ignoring how such adversarialism differs from the administered transactions within

the corporation.

SINGER AND VAN DER VEN | 329

Some approaches to business ethics, moreover, have been far too lax and permissive, taking the

adversarialism, instrumentalism, and strategy that characterizes between‐firm market competition and

applying them to the cooperation that happens within firms (e.g., Alchian & Demsetz, 1972). Such

an approach to business ethics is unable to take seriously the nature of power or culture within a firm

(Anderson, 2017). Why would businesses have any sort of responsibility toward the parties cooper –

ating within the firm? After all, if the activity within a firm is just like that which happens between

firms, why should a boss treat an employee any different than she would treat a competitor? In contrast, the growing consensus is that business ethics should not be understood in monistic

terms. Rather, it must be marked by a plurality of ethical standards to fit the plurality of institutional

forms and roles found therein (Martin, 2013). One needs an “adversarial ethic” (Applebaum, 1999)

that explains and delimits the competitive interactions between market actors, informed by the ends

that adversarialism is meant to achieve. Such an adversarial ethics for market competition, not unlike a

norm of sportsmanship, would explain what counts as an ethical or unethical competitive strategy, and

would explain other duties that market competitors have, such as minimizing the negative externalities

of one’s strategic actions. But in addition to adversarial ethics, one also needs an ethics of cooperation

that adjudicates what sort of obligations members of firms have vis‐à‐vis one another in the realm of

administered interactions; this would touch on questions variously associated with “organizational

justice” (Colquitt, 2001), questions about procedures and distribution that relate to issues like employ –

ment ethics, responsible and ethical accounting, fiduciary duties, corporate governance, and so on.

By recognizing an economy’s various institutions, we get the conclusion that business ethics will be a

much more nuanced and a varied project, informed by both our understanding of the economic activity

in question and the moral theories we apply to them (Heath, 2014).

2.2 | GVCs, transaction costs, and institutional variety

What this means is that theoretically prior to the normative question of\

how a business actor ought

to act in a particular situation is the conceptual question of what sort\

of situation the business actor

finds themselves in the first place. This is why the normative question \

about the obligations that firms

have vis‐à‐vis their GVC partners raises an interesting puzzle. GVCs are, by definition, inclusive of

multiple firms, each with different cultures, hierarchies, decision make\

rs, and stakeholders to whom

they are responsible. However, they are also not exactly like market int\

eractions: firms within GVCs

generally do not compete or haggle with one another in the same way market participants do, and

they often submit to some common rules, norms, or operating procedures, \

whether these are informal

or standardized by coordinating bodies and governing institutions. Inter\

actions within a value chain,

simply put, are neither pure “administered transactions” nor pure \

“market transactions”; relationships

are not as cooperative as those found within a firm, nor are they as adv\

ersarial as those found in the

open market. To answer questions related to ethical obligations within v\

alue chains, then, we first

need to locate GVC between market and administered transactions.

To this end, it is worth noting that the concepts of “administered transaction” and “market trans-

action” find their grounding in a distinction drawn from transaction cost economics. According to

the school of economic thought, the manner in which a given transaction will occur is ultimately

determined by what method best reduces transaction costs (Williamson, 1985). When the chance for

opportunism is low, when transactions do not require asset‐specific investments, and when the cost

of price‐discovery or contract specification is low, one expects the transaction to occur through the

market and price‐coordination (or what Williamson refers to “market governance”). With transactions

with such properties, transacting parties are best protected by recourse to the market, using the exit

option, standard contract law, and so forth.

SINGER AND VAN DER VEN 330 |

However, when transactions place parties in a position to act opportunistically toward one another,

when they require large or costly asset‐specific investment, when specifying contractual terms will be

difficult and time‐consuming, and when we expect the transaction to be a recurrent one, one expects

the transaction to be brought “in‐house” and done through administered transaction (or “unified gov –

ernance,” owing to its bringing both parties within the fold of a common entity). The idea here is that

when transactions feature such characteristics, the market does not offer enough protection for each

of the parties to go through with the transaction, since each will be worried about being vulnerable in

the future. To facilitate the transaction, the market’s price mechanism is superseded; hierarchy, rules,

and governance structures are introduced in order to mitigate potential opportunism and assure parties

that the transaction will be completed according to the agreed‐upon terms. The takeaway is that the choice among the various institutional possibilities for coordinating a

transaction will be determined in large by the comparative efficiency of each. Markets will tend to

have the relative advantage of allowing parties to transact with one another with minimal imposi-

tion by outside parties; firms can provide assurance and minimize the cost of specifying contractual

terms. Both contribute to an efficient economy but do so by positioning parties in different ways

relative to one another. This recognition of different institutional logics is crucial for understanding

the various moral considerations that attach to business actors. The problem, however, is that “market

governance” and “unified governance” are ideal types, and polar ones at that. On the picture painted

above, a capitalist economy would consist solely of firms with internally administered transaction and

markets which situate parties competitively. The reality is, of course, much messier. While this sort

of approach is helpful in clarifying a number of things about business ethics, the fact is that interfirm

activity is often much more collaborative, and intrafirm activity is much more competitive and adver –

sarial, than this depiction captures.

3 | BETWEEN THE FIRM AND THE MARKET

The market is much more structured than the adversarial picture paints: \

Professional associations

tie together firms who might otherwise be competitors; buyers and sellers form relationships that

allow them to interact with less contractual precision and opportunistic\

worry than might otherwise be

predicted; and increasingly, firms coordinate their efforts to achieve s\

hared social or environmental

objectives that are constituted by evolving and dynamic norms about the \

obligations of markets to

serve broader societal objectives (Bernstein & van der Ven, 2017). Bec\

ause of this, and less frequently

noted by business ethicists interested in such things, Williamson (1985) recognized that there will be

transactions in the middle range, exhibiting the possibility of opportun\

ism that would render a pure

market transaction too precarious, but at low enough levels such that es\

tablishing a hierarchical gov-

ernance structure would be too costly. By attending to these sorts of “middle range” interactions, we

can bring an institutionally sensitive approach to business ethics more \

in line with the reality of busi-

ness practice and use this more nuanced picture to make sense of the eth\

ics of GVCs.

Accordingly, transaction cost economics identifies two additional transaction categories: “trilateral

governance,” where a known procedure for third‐party‐arbitration is introduced to adjudicate the oc-

casional conflicts that may arise; and “bilateral governance,” which is closer to unified governance,

but where both parties retain autonomy, collectively bargaining with one another to establish binding

procedures for determining price corrections and other changes in the terms of the transaction. To this,

we might add (following studies of value chains [Albers, Gehring, & Heuermann, 2003]) the idea of

“unilateral governance,” where firms maintain their autonomy, but one lead firm (because of its size,

market share, power, etc.) is largely responsible for determining prices and procedures for interfirm

SINGER AND VAN DER VEN | 331

value chain management. Others have referred to this governance structure as “dictatorial collabo-

ration,” insofar as one firm has the capacity to force others to follow its edicts (Drake & Schlachter,

2008), while others characterize this more neutrally in terms of “centrality,” insofar as one organiza-

tion occupies a central and commanding position in the chain (Vurro, Russo, & Perrini, 2009).

These various modes of governance are depicted in Figure 1. Again, we hasten to note that these

are still ideal types and abstractions, as all models and categories of social phenomena are. Still, these

categories are helpful because they help us get away from thinking of commerce purely in terms of

market and firm. Many market transactions will be coordinated, governed, and adjudicated in various

ways, and many formal governance structures will not be fully unified, and will still maintain the

distinction and autonomy of the participant firms. These can all, however, be understood in terms of

their comparative ability to mitigate costs associated with both market transactions and bureaucratic

governance—their relative efficiency. This also helps us grasp the increasingly complex picture of GVCs. Some will be completely un-

organized and happen unplanned through the market (pure market transactions). Some will be loosely

organized, governed to the extent that they require appeals to, and submission to, third parties for

the resolution of conflict and standardization of practices (trilateral value chain governance). Some

require rules, procedures, and standards that are determined through the more or less collective deci-

sions of the value chain participants (bilateral value chain governance). Others will be governed by

a single lead firm, which determines the rules, procedures, and standards that will apply to the other

firms in the chain (unilateral value chain governance). And some will simply fall under the governance

structure of one firm (multi‐sector, multi‐jurisdictional, and supra‐national corporate governance). For the purposes of our argument, we bracket the question of whether one sort of GVC governance

structure is more ethical than the others. Just as we accept the existence of competitive markets and

firms for the purposes of determining what business ethics consists of (in this world with roughly this

institutional configuration) we also accept the existence of these various forms of GVCs. We are inter –

ested in the ways in which (a) the coinciding rise of GVCs and norms of environmentally responsible

business practices create new relationships that fall between the firm/market distinction and (b) how

FIGURE 1 Modes of inter and intrafirm governance

SINGER AND VAN DER VEN 332 |

these new relationships create new and different kinds of ethical questions. To illustrate some of these

questions, we now turn to the case of transnational eco‐labeling.

4 | THE RISE OF TRANSNATIONAL ECO‐LABELING

Transnational eco‐labels first appeared just over four decades ago in\

response to changing norms

about the environmental responsibilities of businesses. Eco‐labels of\

fer a straightforward solution

to societal demand for product‐level environmental information across\

a range of ethical concerns

related to value chains, from water and energy conservation to health and safety concerns (van der

Ven, 2019). The rise of eco‐labels is therefore enmeshed in the rise\

of GVCs. As consumers and

downstream sellers of goods grew more spatially distant from their suppl\

iers, they sought novel forms

of transnational governance to ensure consistent environmental standards\

across countries, firms, and

cultures. The approach has gained significant traction in recent years. At present, there are roughly

463 distinct eco‐labels operating in 199 countries and 25 industrial \

sectors (Ecolabel Index, 2019).

Far and away the most common contemporary form of eco‐labeling is third‐party labeling where

firms and their suppliers contract neutral, legally independent organizations to develop and enforce

environmental standards across a GVC. Third‐party eco‐labels mitigate the risk of corporate environ-

mentalism being perceived as inadequate and/or illegitimate by offering an ostensibly impartial set of

rules and an objective/independent system for verifying compliance with those rules (Abbott, Levi‐

Faur, & Snidal, 2017).

3 Often, though not always, these labeling schemes are endorsed by environ-

mental non‐governmental organization (ENGOs). For example, the World Wildlife Fund for Nature is

a sponsor and supporter of both the Forest Stewardship Council and the Marine Stewardship Council

certifications for forest products and seafood. Importantly, we need not assume that the development

of third‐party eco‐labeling had to do with a thicker ethical obligation to sustainability or environmen-

talism; what the historical record seems to show is that such practices grew out of learned experiences

and straightforward business decisions to minimize risk and maximize profits. Indeed, as a business strategy, eco‐labeling offers a number of benefits to a firm’s bottom line.

First, it can help avert the risk of ENGO naming‐and‐shaming campaigns. Such campaigns can have

a discernible negative effect on both sales and stock prices, particularly for firms with recognizable

brand names (Bartley & Child, 2011). It took Nike many years to rehabilitate its brand after non‐

governmental organization (NGO) campaigns exposed child labor in its factories in the 1990s. The

same effects hold for instances of environmental malfeasance. Second, it offers industry leaders the

prospect of garnering “club goods” or exclusive benefits that provide an advantage over competing

firms (Potoski & Prakash, 2005, 2010). In competitive sectors, having an eco‐label can be an im-

portant source of market differentiation that helps attract the so‐called “green consumers.” However,

it is worth noting that the role of consumers in creating demand for eco‐labels is openly debated,

since consumer‐demand is significantly moderated by confusion over the proliferation of environ-

mental labels and standards in recent years (Prag, Lyon, & Russillo, 2016). Third, it can help firms

realize hitherto unexplored production efficiencies within their own value chains. For example, the

act of calculating a single product’s carbon footprint along a GVC can reveal new opportunities to

reduce energy consumption and attendant carbon emissions (van der Ven, Bernstein, & Hoffmann,

2017). Fourth, it can help mitigate information asymmetries and improve lines of communication

with suppliers. When lead firms ask their suppliers to adhere to a third‐party environmental manage-

ment system (e.g., ISO 14001), they are simultaneously reducing their environmental footprints, while

controlling and verifying the production unit’s adherence to standardized and centralized procedures

(Thauer, 2014). Of course, there are also barriers to the market uptake of eco‐labels. Most notably,

SINGER AND VAN DER VEN | 333

higher production costs, problems associated with GVC coordination or complexity, and inadequate

communication across the value chain (Seuring & Müller, 2008).

In recent years, eco‐labeling has gone mainstream with uptake from some of the biggest businesses

in the world (van der Ven, 2019). However, how the mainstreaming of third‐party eco‐labeling affects

one’s categorization of GVCs remains unclear. As a start, we can safely assume that third‐party eco‐

labeling has increased the network density of GVCs by requiring new levels of information‐sharing

and coordination between GVC members in different firms and countries (Vurro et al., 2009). This

may be construed as a modest shift away from purely market‐based transactions and toward adminis-

tered transactions. Yet there remains ample room for variation on the spectrum between market and

administered transactions (Gereffi et al., 2005). Some GVCs are clear examples of trilateral value

chain governance: Firms that want to cooperate with one another on shared environmental standards

do so by submitting themselves to standards created by a third‐party ELO. Others more closely re-

semble bilateral governance insofar as GVC members negotiate in which eco‐labeling standards adopt

together. Still others hold characteristics of unilateral value chain governance, as in GVCs with strong

centrality or those dominated by a single “lead firm” (where one GVC member wields disproportion-

ate economic clout) (Vurro et al., 2009). In such situations, decisions to adopt a third‐party eco‐label

are made unilaterally without consulting other value chain members, thereby imposing an element of

hierarchy to nominally market‐based transactions (van der Ven, 2018). In short, the effect of third‐

party eco‐labeling on the relationships between GVC members varies according to the unique charac-

teristics of each value chain. Accordingly, so too do the types of ethical considerations that apply. This

makes deriving a unitary ethical standard for the interactions between GVC members problematic

since GVCs occupy a dynamic space between transaction types. Understanding the diversity of GVC governance structures also brings to light new questions about

the ethics of using GVCs as instruments of transnational governance (or means through which gov –

ernance is accomplished). At first glance, it may be tempting to view eco‐labeling and comparable

forms of transnational governance as an alternative to multilateral environmental agreements, which

have achieved only incremental progress on key environmental issues in recent years (Hale & Held,

2011). Yet, the decision to substitute firms into a role conventionally occupied by governments brings

its own set of ethical questions, many of which are specific to particular GVC governance structures.

5 | NOVEL ETHICAL CONSIDERATIONS FOR

GVC MEMBERS

As noted in the introduction, ethical analysis begins with the implicit \

morality to the institutionalized

forms of cooperation in which we find ourselves enmeshed. With all comme\

rcial activities, efficiency

will be a crucial value. However, as we also noted, governance instituti\

ons and conscious cooperation

also introduce questions about organizational justice and fairness. The institutional mix that character-

ize GVCs means that these various concerns will be at play in intertwini\

ng and sometimes conflicting

ways, a complexity that is only heightened when the transnational govern\

ance of GVCs is taken into

account. Mapping the full array of these ethical questions is a task too\

broad for any single article.

However, in the following sections, we begin this process. In this secti\

on, we highlight the most sali-

ent ethical quandaries that eco‐labeling poses to particular GVC memb\

ers under particular govern-

ance structures. In the next section, we consider how the diverse types \

of GVC governance affect the

ethics of using GVCs as instruments of transnational governance.

SINGER AND VAN DER VEN 334 |

5.1 | Third‐party ELOs and the ethics of neutrality

Third‐party (ELOs) have obligations to construct and enforce their \

standards in a neutral and impartial

manner. This may seem obvious, but consider that third‐party ELOs als\

o have economic incentives

to create and enforce standards in a way that attracts and retains clien\

ts because they derive revenue

from certification and logo licensing fees. For example, the marine stew\

ardship council (MSC) derived

roughly 70% of its total income in F2013/14 from royalties accrued throu\

gh logo licensing (MSC,

2014). Some might perceive this as a conflict of interest, since the MS\

C stands to financially benefit

from making its eco‐label more easily achievable and licensable. Others counter that there are proce-

dural safeguards in place to prevent this from happening (van der Ven, \

2015). In either case, there is

some degree of incentive to create easily achievable standards and overl\

ooking noncompliance issues

in order to profit from certification and labeling activities (Cashore,\

Auld, Bernstein, & McDermott,

2007; Mayer & Gereffi, 2010). These incentives are fueled by corporate demand for eco‐labels with

low exigencies that would allow firms to use them as a “legitimacy front” (Mueller, Santos, & Seuring,

2009). Moreover, ELOs exist to provide the requisite levels of assuranc\

e necessary to secure coopera-

tion among various actors and their claim to do so effectively comes fro\

m their presumed impartiality.

In this manner, third‐party ELOs have ethical obligations that resemble the regulatory ethics of

public administrations better than adversarial market ethics or cooperative intrafirm ethics. They

must take steps to institutionally ensure their impartiality and inoculate themselves from the pressure

of market competition and intrafirm loyalty. These institutional precautions also generate beyond‐

compliance norms, which demand a commitment to norms that are derived from their status as pro-

fessional regulators, particularly in handling conflicts of interest and avoiding using such offices for

private gain (Lewis & Gilman, 2005; Stark, 1997). Past research has shown that not all ELOs perform

these tasks equally well (van der Ven, 2015, 2019). The temptation to create superficial eco‐labeling

standards may be greater in GVCs characterized by unilateral governance (van der Ven, 2018). Under

such conditions, third‐party ELOs may be overly dependent on a single lead firm to adopt and use its

label and push eco‐labeling up and across its GVC. The tension between maintaining neutrality and

ensuring the usage and uptake of their eco‐labels may make upholding regulatory ethics particularly

challenging for third‐party ELOs here.

5.2 | Lead firms and the ethics of reputation

The existence of third‐party eco‐labels also places novel ethical \

expectations on lead firms in GVCs,

particularly under conditions resembling unilateral governance. Consumer\

s and advocacy groups are

all too aware of the leverage held by lead firms to advance their enviro\

nmental values. Often, activists

and NGOs seek ways to encourage lead firms to adopt particular third‐\

party eco‐labeling standards,

sometimes by lobbying the most recognizable brands or the ones best posi\

tioned to pressure their

GVC (Dauvergne & Lister, 2013; van der Ven, 2018). Do lead firms have \

a moral requirement to

respond to pressure and to try and enforce standards on their downstream\

suppliers? The fact that they

have the ability to do so—and, as we discussed below, the fact that t\

here might not be other actors ca-

pable of doing so—may suggest that they do (Hsieh, 2013). However, \

even if such actions were to be

purely supererogatory, there is a strong business case for lead firms to\

pursue such actions regardless.

Should a lead firm prove reluctant to adopt a particular eco‐label, activists and consumers can hold

them responsible for the environmental indiscretions of suppliers and impose material and reputa-

tional costs through boycotts, naming‐and‐shaming campaigns, or shareholder activism. Apple, Gap,

and Nestle are among the big brands that have been shamed into addressing supply chain issues in

recent years, often after their share prices have taken a beating (van der Ven, 2019). Accusations of

SINGER AND VAN DER VEN | 335

ethical misconduct nearly always fall on the lead firm irrespective of its legal relationship to suppliers.

Even when dealing with independent firms in purely market transactions, lead firms can be found

guilty by the association. This then places novel ethical expectations on lead firms to manage their

value chains or risk material and reputational consequences.

5.3 | Upstream suppliers and the ethics of nonlocal norms

Relatedly, upstream suppliers face novel ethical obligations under gover\

nance structures where they

have little input into decisions to adopt a third‐party eco‐label.\

In unilateral governance structures,

lead firms have the ability to punish suppliers who jeopardize their brand through poor environ-

mental practices. This creates an expectation for a minimum standard of environmental conduct that

transcends borders. Significantly, these obligations arise irrespective \

of whether suppliers operate

in a socio‐political context where there is strong social or political pressure for ethical environmen-

tal behavior. Rules, laws, and norms about corporate environmentalism ar\

e weak or nonexistent in

many countries, particularly those that export raw commodities or manufactured goods from unskilled

labors. Yet suppliers in such environments face consequences nonetheless\

should they commit en-

vironmental transgressions that stand to harm a lead firm’s brand. For e\

xample, a small Indonesian

oil palm plantation may face very little pressure from government regula\

tors to rigorously track its

greenhouse gas emissions, yet it may feel obliged to do so if it means continuing t\

o sell palm oil to

its largest buyers.

In this way, the ethical obligations of lead firms in markets on the other side of the world can be

exported to their suppliers in ways that have not been appreciated. In Heath’s market failures model

(2014), for instance, a business has the ethical responsibility to meet its contractual obligations, obey

the law, and to comply with the spirit of the laws and the underlying logic of the market (i.e., to avoid

profiting off of market failure and exploiting regulatory loopholes). However, the regulations that

some businesses face may come from beyond the nation‐state and may include the regulations taken

on by the virtue of one’s business commitments. Thus, a careful examination of GVCs shows how an

upstream supplier takes on the ethics of the entity that sets the standards (be it a third‐party ELO, lead

firm, or the two working in tandem); it must not merely obey the spirit of the laws in the jurisdiction

it operates in, but must meet the standards set for the value chain generally. This is particularly true in

buyer‐driven value chains where levels of asset‐specificity are low, like agricultural products (Gereffi

& Korzeniewicz, 1994). The fragmented and competitive nature of the global production often means

that suppliers must do whatever is necessary to maintain relationships with lead firms and their inter –

mediaries. For suppliers in sectors with low levels of asset‐specificity, this means diligently following

whatever standards are imposed or risking replacement by competitors (Dauvergne & Lister, 2010).

6 | GVCS AND TRANSNATIONAL BUSINESS ETHICS:

PROSPECTS AND LIMITATIONS

Leveraging the reach and power of GVCs through practices like eco‐lab\

eling raises the tantalizing

prospect of deterritorializing business ethics. Prominent work in politi\

cal theory and transnational

governance encourages analysts to look beyond the state toward existing \

transnational networks, and

bring democracy and social justice to bear on these institutions that go\

vern the crisscrossing alle-

giances and porous borders of our post‐Westphalian world (Bohman, 20\

07; Held, McGrew, Goldblatt,

& Perraton, 1999). As we see in the case of eco‐labeling, GVCs hold \

the potential to be powerful

instruments of transnational governance. The hierarchy that exists within certain GVCs creates a

SINGER AND VAN DER VEN 336 |

powerful tool to establish and enforce rules and standards across border\

s in the service of public ends

like environmental protection. A decision by a lead firm to source exclu\

sively to a particular eco‐

labeling standard holds the potential to fundamentally transform global production systems around

certain staple commodities. Such transformations may already be underway\

in sugarcane, palm oil,

cocoa, and cotton. Yet, as we shall see, the usage of GVCs for transnati\

onal governance raises impor-

tant ethical quandaries.

6.1 | Business ethics in a post‐Westphalian world

The transnational nature of value chains raises something of a puzzle fo\

r the study of business ethics.

Put simply, the best models of business ethics are ill‐equipped to lo\

cate the norms and obligations of

value chains as creatures that are both supragovernmental and commercial\

. The market failures ap-

proach to business ethics (Heath, 2014), for instance, tacitly assumes\

a relatively enclosed national

framework: the ethics are derived from the norms implicit to the institu\

tional configuration of a par-

ticular society. There are many theoretical and critical strengths to th\

is approach. However, the preva-

lence of GVCs and the diversity of their governance structures show us t\

hat it is not at all clear that

there is a singular configuration of social institutions to find such im\

plicit overarching norms or more

localized ethical standards. In fact, what we have is a messier world wh\

ere business relationships and

activities extend across and between various social institutions, which \

are built around plural, diverg-

ing, and dynamic norms.

Other frameworks, which place the post‐Westphalian nature of our political world at their center,

do not fare much better. Scherer and Palazzo’s (2011) model of “political corporate social responsi-

bility” (PCSR) attempts to do precisely this, claiming that corporations occupy the place of govern-

ments in many parts of the world and therefore ought to abide a deliberative democratic standard of

legitimacy. This perspective has been subject to criticism by many who think that the procedure of

deliberative democracy is ill‐suited for business ethics (e.g.,  Hussain & Moriarty, 2018; Sabadoz &

Singer, 2017). What transnational eco‐labeling in GVCs suggests, however, is that the problem is not

merely the standard of deliberation. The nature of the post‐Westphalian world that PCSR theorists

focus upon means that businesses will have an obligation toward, and interests in, businesses around

the world, which extend beyond the interests or needs of a particular community. Corporations may

occupy the space states used to hold, but that does not make them state‐analogs for our new trans-

national world. Rather, they are precisely part of the transnational network of institutions that has

displaced the Westphalian state. Instead of thinking of corporations and ELOs as acting within enclosed social institutions or being

the substitute for the failure or absence of such institutions, we think of them as components of what

Ruggie (2004) refers to as the broader “global public domain” that characterizes contemporary trans-

national governance. Businesses and third‐party ELOs are actors who play a role in the “governance”

of the environment alongside states, NGOs, and international organizations, for better or for worse.

GVCs are the mechanisms or instruments through which they govern. GVCs are particularly im-

portant instruments of transnational governance in the context of an increasingly fragmented global

governance architecture, where multiple overlapping institutions play a role in addressing environ-

mental challenges, often through conflicting approaches (Biermann, Pattberg, Asselt, & Zelli, 2009).

Transnational governance through GVCs offers the twin possibility of circumnavigating slow‐moving

international negotiations or serving as complimentary laboratories of experimentation that provide

governments with innovative approaches to the environmental policy (Hoffmann, 2011). At the same time, the case of transnational eco‐labeling highlights a number of ethical problems in-

herent in governing through GVCs. The question of whether transnational governance through GVCs

SINGER AND VAN DER VEN | 337

should be viewed as an appropriate response to, for instance, environmental degradation in a globally

interconnected economy warrants serious discussion.

6.2 | Are GVCs appropriate instruments of transnational governance?

One overarching concern is that value chain ethics may reify fundamental\

ly unsustainable modes of

production. Many GVCs exist, in part, because lead firms seek to outsour\

ce production to countries

where environmental regulations and labor standards are weak or nonexist\

ent. Producing goods or

extracting commodities in such environments is cheaper and helps firms m\

aximize profit, but it lacks

many of the environmental advantages of more localized production such a\

s having firsthand knowl-

edge of environmental externalities.

Eco‐labels take a step toward eliminating the most environmentally damaging forms of transborder

trade, but they are no substitute for sound domestic environmental regulations. There are any number

of reasons why an eco‐label may fall short of influencing firm behavior in a manner analogous to

government regulation. For one, the credibility of the procedures through which ELOs create and

manage their environmental standards varies widely (van der Ven, 2015, 2019). Whereas some eco‐

labels create robust rules based on scientific evidence and through consultation with a balanced range

of stakeholders, others are highly politicized, superficial, or represent narrow groups of interests.

Moreover, the existence of best practices for third‐party ELOs has come under scrutiny for importing

its own normative baggage into what constitutes a credible and impactful eco‐label (Bernstein & van

der Ven, 2017; Loconto & Fouilleux, 2014). Systems of representation and accountability in ELOs are frequently poor substitutes for their

counterparts in public systems of environmental governance. This can affect the level of stringency

in the eco‐labeling standard. Often, the behavioral change required for a firm to attain an eco‐label in

a foreign market may be well below the threshold set by baseline environmental regulations in many

industrialized democracies. Indeed, in some cases, the standard for winning an eco‐label is simply

compliance with the law. The recent turn in sustainable forest management standards toward legality

verification is an example of the comparatively low bar set by eco‐labels (Cashore & Stone, 2014). All of which is to say: Though value chains may be well‐positioned to create certain types of

global governance, it is not at all obvious that they are well‐oriented to do so. GVCs are often created

to exploit the lax enforcement of social and sustainability standards, but not to solve them. This does

not necessarily detract from the ethical obligations such networks may have. However, taking this

orientation seriously suggests that focusing our critical energies on such actors may be misguided or

overly idealistic.

6.3 | Are GVCs capable instruments of transnational governance?

Leaving aside whether transnational ELOs and their corporate partners ar\

e motivated to create mean-

ingful environmental change, it is not clear that they have the capacity to do so. There are acknowl-

edged problems with the enforcement of eco‐labeling standards across \

GVCs. Auditing of certified

firms is notoriously inconsistent. Past research has found that some auditors are far more likely to

overlook poor performance than others and the robustness of auditing sta\

ndards tends to vary by re-

gion (Auld & Renckens, 2017; Tysiachniouk & McDermott, 2016).

A second problem is the sheer complexity of many GVCs. A part of the attraction of transnational

governance through GVCs is that applying ethics as a governance mechanism within businesses might

be more efficient than constructing exogenous monitoring systems. However, while a lead firm may

purchase goods from a single supplier, that supplier may subcontract the production out to any number

SINGER AND VAN DER VEN 338 |

of smaller producers. Simply mapping a GVC is complicated, let alone getting its constituent mem-

bers to consistently follow a set of rules. As a response to this challenge, many third‐party ELOs have

established traceability mechanisms that track the movement of certified goods across each stage of

a value chain. However, such mechanisms are costly, imperfect, and not universally applicable to all

types of goods. Or, put simply, GVCs are often subjected to the same types of monitoring costs that

other governance systems have.

Lastly, and not unrelated to the preceding capacity challenge, is the fact that GVCs are not well‐

suited to reflect upon, or ameliorate, the bad effects that are potentially inherent to their industries.

For instance, while eco‐labeling may improve the sustainability of certain goods relative to others

in the same sector, it does not address broader questions of whether entire classes of products are

inherently unsustainable. Efforts to promote sustainable palm oil, for example, obscure the fact that

oil palm plantations are responsible for large‐scale deforestation in Southeast Asia and render the

soil unsuitable for the future agricultural use. Creating a sustainable variant of palm oil may provide

enough ethical coverage to allow the harmful production and consumption to continue (McMichael,

2012). Similar critiques have been leveled at campaigns for “ethical oil” from the Canadian tar sands

or organic cigarettes. In such cases, eco‐labels can justifiably be charged with masking broader issues

inherent with particular goods and not just the ways in which they are produced. Looking to GVCs

to discharge ethical duties of public regulatory bodies, is akin to ask the fox to treat its den like a

henhouse. In light of these limitations, one must ask whether value chain ethics can ever foment sustainable

production in the way that a more regionalized and vertically integrated mode of production could,

or in a manner analogous to statutory institutions. Viewed optimistically, eco‐labeling is a pragmatic

approach to transnational governance in an increasingly fragmented international system where the

regulatory reach of the state is no longer sufficient to address urgent transboundary environmental

problems. Viewed pessimistically, eco‐labeling is actively preventing a broader transformation toward

a less‐fragmented and more regionalized system of production. Eco‐labels do just enough to convince

environmentalists, consumers, and business executives that GVCs can be sustainable, all the while

allowing production costs to remain low and reducing the demand for manufacturing and resource

extraction in more regulated countries.

6.4 | Are GVCs fair instruments of transnational governance?

Legitimate ethical questions may also be raised about whether transnatio\

nal governance through

GVCs can achieve its stated goals in a fair and just manner. Transnation\

al eco‐labeling in particular

has been accused of subsuming the power of small businesses and supplier\

s in the Global South

(McDermott, Irland, & Pacheco, 2015). Conformance with third‐party \

eco‐labeling standards tends to

place a heavy administrative and financial burden on suppliers. They mus\

t keep records of their pro-

duction practices, conduct routine inspections, and pay for routine audits. In many cases, small sup-

pliers are ill‐equipped to afford these costs. A consequence is that \

large industrial production facilities

are often better positioned to comply with third‐party environmental \

standards than smaller producers

(Mutersbaugh, 2005). One can, therefore, envision a scenario in which \

small, well‐managed, and sus-

tainable operations are replaced by large industrial ones that demonstra\

te a better commitment to the

environment in the article, but not in practice. Similarly, one could ea\

sily envision producers switch-

ing to less‐regulated and more environmentally harmful goods to avoid\

incurring expenses associated

with third‐party environmental standards.

SINGER AND VAN DER VEN | 339

7 | CONCLUSION

GVCs pose a number of questions to normative business ethicists. If one \

accepts that an actor’s ethi-

cal obligations are influenced by whether it is engaged in market or adm\

inistered transactions, then

GVCs pose a conceptual challenge because neither description is entirely\

accurate. On the one hand,

the members of a GVC are often legally independent entities engaged in a\

simple market‐based ex-

change of goods and services. On the other hand, value chains often exhi\

bit high levels of coordina-

tion, with participants abiding by common production standards and freel\

y sharing information with

one another. The institutional nature of GVCs is further complicated by \

the introduction of third‐party

ELOs that seek to apply a unitary set of rules to govern the environment\

al conduct of all value chain

members. So which ethical standard applies?

We find that GVCs are best characterized as occupying a middle ground between purely market

and administered transactions, alternately conceptualized as trilateral, bilateral, or unilateral gover –

nance. The specific category of value chain governance depends on the nature of the value chain in

question, and particularly, the role played by lead firms and the presence or absence of independent

organizations in performing key governance functions. Different forms of value chain governance

create a plurality of novel ethical obligations for different members of a value chain. Third‐party ELOs

are asked to perform a quasi‐governmental role by maintaining their impartiality despite material

incentives to do otherwise. This is particularly challenging under conditions of unilateral governance

where the very survival of the eco‐label may depend on the support of a single firm. Lead firms, by the

virtue of their position within GVCs, are pushed willingly or unwillingly into a leadership position by

adopting eco‐labels to fend off their critics and mitigate reputational risk from their suppliers. Finally,

suppliers are confronted with ethical obligations that extend well beyond abiding by local norms or

following domestic environmental regulations. At first glance, transnational governance through GVCs offers the prospects of a newer, more

trenchant form of business ethics, which is capable of transcending national borders, enforced by the

economic clout of lead firms, and prompted by core business concerns like protecting the share price.

However, as we have seen, the complexity, myopic interests, and varying structures of value chains

give rise to a number of novel ethical quandaries. Notably, the potential that value chain ethics could

entrench fundamentally unsustainable modes of global production, further reduce the power of devel-

oping‐world suppliers, and displace more impactful forms of state‐led environmental governance are

all reasons to question the ethics of relying solely on GVCs to accomplish public goals. The academic study of business ethics often finds itself navigating the twin dangers of cynicism

and naïveté: The tendency to be overly dismissive of ethical considerations, to the point that they no

longer deserve the name; or the tendency to foist ethical standards on businesses to such a degree that

they can never live up to them. Attending to GVCs as novel and distinct institutional configurations

is an important part of redeeming business ethics as a critical and realistic project; we cannot rightly

think that we are generating normative standards that are both capacious and appropriate if we do not

fully understand the variety of institutional configurations that exist in the world. However, as we have

seen, value chain ethics do not escape these twin tendencies: We can easily ask too little or too much

of these growingly influential and complex configurations, precisely because they are not perfectly

tractable in current theories of business ethics. To capture the ethical obligations of value chain actors,

business ethicists must attend to value chains neither as markets, firms, subjects of states, nor as re-

placements for states, but as networks of commercial actors that occupy the supragovernmental space

within a unique web of governance structures.

SINGER AND VAN DER VEN 340 |

While our analysis provides only an initial survey of the types of ethical considerations that apply

to GVC members and to the usage of GVCs for transnational governance, it nonetheless marks an

important first step in bridging the disparate literature on normative business ethics, transnational

governance, and GVC governance. For the former, our analysis sets forward a schematization of GVCs

that will be important for contemplating appropriate ethical standards under a range of configurations.

For the latter two literatures, we introduce important “should” questions—that is, should actors within

GVCs behave a certain way toward one another and should GVCs be used as instruments of transna-

tional governance—that have heretofore been overlooked.

ENDNOTES

1 Defined as “the degree of completeness of the ties between the actors in a network” (Vurro et al., 2009).

2 We want to emphasize this. The discussion of eco‐labels is not intended as evidence to confirm or infirm hypotheses or

propositions. It is better understood as illustrative and inductive, a way of checking our normative and conceptual notions

against the way real‐world practices actually work. For more on this see Carens (2004).

3 However, the impartiality of auditing systems for third‐party eco‐labels has recently come under scrutiny. See the special

issue by Abbott et al. (2017).

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How to cite this article: Singer AA, van der Ven H. Beyond market, firm, and state: Mapping

the ethics of global value chains. Bus Soc Rev. 2019;124:325–343. https ://doi.org/10.1111/

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