Abstract:

Scholars have wrestled with the legal boundary of the firm for generations. The legal boundary limits the extent to which a firm can be held liable for the torts, contractual, and regulatory obligations of other corporations. The existence of a legal boundary suggests that the law limits incentives for firms to control the climate and other environmental harms caused by their corporate suppliers. Yet recent research demonstrates that many of the largest corporations impose environmental requirements on their suppliers that exceed the legal requirements imposed on these suppliers. This suggests that some factors other than the threat of liability may be encouraging corporations to try to reduce the environmental harm caused by their suppliers. In this paper, we refer to the attributions of responsibility to firms by customers, employees, and other stakeholders as imposing a "moral boundary" on corporate action that may be more constraining than the legal boundary. Drawing on three surveys with 2,400 respondents, this Article evaluates the extent to which the public may influence this moral boundary of the firm-whether potential employees, retail customers, community members, and other stakeholders hold firms morally accountable for the environmental harms of their suppliers even if they are not legally accountable. The survey results suggest that they do: these stakeholders assign moral blame to corporate buyers for the emissions of their first-and second-tier suppliers, although the moral boundary is nuanced: the assignment of blame has limited effects on consumer behavioral intentions, increases with the control the buyer exercises over the supplier, and decreases from tier one to tier two suppliers. The Article concludes that corporate managers may be protecting the reputation-driven economic interests of their firms when they adopt environmental supply chain requirements, and it suggests the need for research on whether the moral boundary interacts with the legal boundary in ways that lead to an efficient balance between the legal boundary's incentives to take financial risks, externalize harms, and exercise limited control over third parties, and the moral boundary's incentives to be cautious about financial risks, internalize harms, and exercise a greater degree of control over third parties.