The Stakeholder Orientation Paradox: Implications for Supplier Sustainability Risk and the Role of Institutional Distance

Abstract

Purpose―Stakeholder orientation is a strategic approach to identify and mitigate supplier sustainability risk (SSR) across different institutional contexts. However, increased orientation may also alter stakeholder expectations and implied obligations, potentially exacerbating risk. We refer to this tension between opposing effects as the stakeholder orientation paradox. Drawing on stakeholder and expectancy theories, this study theorizes and empirically investigates the paradoxical relationship between a firm’s stakeholder orientation and SSR, moderated by the institutional distance between the firm’s home country and the country where the risk arises. Design/methodology/approach―Econometric models are constructed and estimated using a unique panel dataset of 27,545 observations derived from multiple data sources from 2009 to 2023, encompassing 5,911 supply chain sustainability incidents across 170 countries and involving 811 buying firms headquartered in 44 countries. Findings―Our findings reveal a paradoxical positive association between stakeholder orientation and SSR, amplified by institutional distance. Thus, notable evidence supports the need to integrate expectancy theory facets into stakeholder theory considerations as firms (re)shape their efforts to mitigate SSR. Originality/value―This study contributes to the scarce empirical literature on SSR antecedents and advances understanding of counterintuitive stakeholder orientation outcomes. While prior research has highlighted the benefits of stakeholder orientation, our findings suggest that firms need to “walk the talk” to reduce SSR. Furthermore, by exploring the role of institutional distance, we extend the research on stakeholder orientation beyond its typical U.S.-centric scope. Practical implications―As firms strengthen their stakeholder orientation, care must be exercised to avoid over-promising sustainability commitments and under-delivering on supply chain performance. Proactive engagement with diverse stakeholder groups, tailored to distant institutional contexts, can alert firms to emerging problems and prompt immediate action with suppliers before incidents escalate further.