Dealing with defaulting suppliers using behavioral based governance methods: an agency theory perspective

Purpose The purpose of this paper is to explore factors influencing the effectiveness of buyer initiated behavioral-based governance methods (BBGMs). The ability of BBGMs to improve supplier performance is assessed considering power imbalances and the resource intensiveness of the BBGM. Agency Theory is used as an interpretive lens. Design/methodology/approach An explorative multiple case study approach is used to collect qualitative and quantitative data from buying companies involved in 13 BBGMs. Findings Drawing on Agency Theory several factors are identified which can explain BBGM effectiveness considering power differences and the resource intensiveness of the BBGM. The data show that even high resource intensive BBGMs can be implemented effectively if there are benefits for a powerful supplier. Cultural influences and uncertainty of the business environment also play a role. Originality/value This study develops a series of propositions indicating that Agency Theory can provide valuable guidance on how to better understand the effectiveness of BBGMs. Underlying mechanisms are identified that explain how power imbalance does not necessarily make improvement initiatives unsuccessful.