Abstract

With increasing public attention on corporate sustainability, environmental, social, and governance (ESG) controversies such as toxic waste spills and modern slavery are becoming more prominent in global supply chains. This paper investigates whether buying firms with heterogeneous global supply bases are more prone to ESG controversies and proposes a structural characteristic of the supply network that can mitigate the buying firms’ exposure to such controversies. We characterize heterogeneity in global supply bases by the diversity of supplier countries and ESG performance variation among suppliers. Building on the literature on small-world networks, we introduce a supply network structural characteristic that we call “ego small-worldness” and suggest that ego small-worldness of a buying firm can mitigate the impact of the heterogeneity in its supply base on ESG controversies. Our analysis of the Fortune 500 firms during the period of 2010 through 2018 reveals that buying firms with heterogeneous global supply bases indeed suffer more from ESG controversies while ego small-worldness weakens the relationship between the diversity of supplier countries and ESG controversies. Our findings contribute to the literature on sustainable supply chains and small-world networks by highlighting ego small-worldness as an effective governance mechanism for global supply bases.