When it comes to fraud, a company’s position in the supply chain, whether upstream or downstream of fraudulent activity, had little influence on managers’ decisions to intervene. Instead, the strongest factors were the values expressed by a firm’s leadership, as outlined in a study released by Florida Atlantic University (FAU), Portland State University, and the WHU – Otto Beisheim School of Management.
“Traditional supply chain controls ask, ‘How do we keep our own company from committing fraud?’” says Steven Carnovale, supply chain management expert and associate dean of graduate programs in FAU’s College of Business. “Our research asks a different question: ‘What causes companies to step in when they discover someone else is committing fraud?’ Supply chains are interconnected, and the actions—or inactions—of one company can affect many others, including consumers.”
Key takeaways:
· The study introduces the concept of supply chain guardianship, or the idea that companies can help protect consumers and business partners by identifying, reporting, and taking corrective action against fraudulent behavior beyond their own operations.
· Leadership played a key role in shaping employees’ sense of empowerment to act. Organizations where leaders clearly communicated ethical priorities were more likely to encourage intervention, while employees at firms that lacked this tone were more likely to rationalize that misconduct was “someone else’s problem” and were less likely to act.
· Preventing harmful products from reaching consumers requires more than compliance systems alone. Researchers recommended that companies establish clear expectations before a crisis occurs, define who is responsible for responding to supply chain fraud, and create cultures where employees feel supported when they raise concerns.
