How voluntary and mandatory due diligence requirements affect corporate compliance : insights from motivational crowding theory

Abstract

The concept of mandatory due diligence legislation is gaining momentum worldwide. As such, businesses are now not only confronted with voluntary but also mandatory requirements. These voluntary and mandatory requirements have different underlying regulatory structures in the field of human rights and environmental due diligence. This paper aims to get a better understanding of how due diligence requirements in the field of human rights and environmental risks set by multi-stakeholder initiatives (MSIs) and governments affect corporate compliance. To achieve this aim, this paper builds upon motivational crowding theory. Motivational crowding theory is based on experimental findings that show that, depending on the circumstances, intrinsic and extrinsic motivation can be crowded in or crowded out in response to external intervention. It was found that requirements set by MSIs and governments may have different effects on intrinsic and extrinsic motivation of businesses. Governments are advised to incorporate intrinsically motivated businesses in regulatory design, use sanctions that are severe enough to crowd in extrinsic motivation, use rewards and praise for those companies that do their due diligence well, as well as explicitly position mandatory due diligence as a tool designed for laggards. MSIs can, then, promote, in cooperation with governments and international organizations as important stakeholders, a learning environment for pioneers whereby new and better practices can be put in place.