Shareholder value ideology, reciprocity and decision making in moral dilemmas.
Recent large-scale corporate scandals A corporate scandal is a scandal involving allegations of unethical behavior by people acting within or on behalf of a corporation. A corporate scandal sometimes involves accounting fraud of some sort. have turned business ethics business ethics, the study and evaluation of decision making by businesses according to moral concepts and judgments. Ethical questions range from practical, narrowly defined issues, such as a company's obligation to be honest with its customers, to broader social and corporate moral responsibility into a major concern of managers, business schools, and the general public. Companies such as Tyco International For the unrelated division of Mattel, see .
Tyco International Ltd. NYSE: TYC is a diversified manufacturing conglomerate incorporated in Bermuda, with United States operational headquarters in New Jersey. , Ltd., Adelphia Communications, MCI (1) (Media Control Interface) A high-level programming interface from Microsoft and IBM for controlling multimedia devices. It provides commands and functions to open, play and close the device.
(2) (Microwave Communications Inc. (formerly Worldcom) and Enron have experienced significant damage to their reputations due to the malfeasance The commission of an act that is unequivocally illegal or completely wrongful.
Malfeasance is a comprehensive term used in both civil and Criminal Law to describe any act that is wrongful. of high-level corporate executives. Results from the 2004 Harris-Fombrun Reputation Quotient quotient - The number obtained by dividing one number (the "numerator") by another (the "denominator"). If both numbers are rational then the result will also be rational. survey listed Enron and MCI as having the worst reputations from the list of the 60 most visible companies rated in America (Reputation Management, 2005). Tyco and Adelphia were also ranked among the ten worst companies. The fraudulent The description of a willful act commenced with the Specific Intent to deceive or cheat, in order to cause some financial detriment to another and to engender personal financial gain. and deceptive de·cep·tive
Deceptive or tending to deceive.
de·ceptive·ness n. practices of these and other corporations, once again, have researchers seeking an answer to the question of "what influences managers' decisions in moral and ethical dilemmas An ethical dilemma is a situation that will often involve an apparent conflict between moral imperatives, in which to obey one would result in transgressing another.
This is also called an ethical paradox ," so that they may offer some insights to the business community on how to prepare future executives and managers to face challenges and the public's increasing expectation of corporate moral responsibility.
Unfortunately, empirical research Noun 1. empirical research - an empirical search for knowledge
inquiry, research, enquiry - a search for knowledge; "their pottery deserves more research than it has received" in business ethics and social responsibility has been limited (e.g., Donaldson, 2003). Extant ex·tant
1. Still in existence; not destroyed, lost, or extinct: extant manuscripts.
2. Archaic Standing out; projecting. empirical studies Empirical studies in social sciences are when the research ends are based on evidence and not just theory. This is done to comply with the scientific method that asserts the objective discovery of knowledge based on verifiable facts of evidence. in this research area have focused mainly on measuring and comparing the attitudes and ethical beliefs of managers, entrepreneurs, employees at different organizational levels, business students and academic faculty, and the results have been somewhat inconclusive INCONCLUSIVE. What does not put an end to a thing. Inconclusive presumptions are those which may be overcome by opposing proof; for example, the law presumes that he who possesses personal property is the owner of it, but evidence is allowed to contradict this presumption, and show who is (e.g., Bucar and Hisrich, 2001). Those studies have merits in their own right. However, they may not directly fulfill ful·fill also ful·fil
tr.v. ful·filled, ful·fill·ing, ful·fills also ful·fils
1. To bring into actuality; effect: fulfilled their promises.
2. the need of the business community to understand the driving forces that may influence corporate conduct, especially in the face of moral dilemmas, by managers whose decisions may have broad-scale consequences to multiple stakeholders Stakeholders
All parties that have an interest, financial or otherwise, in a firm-stockholders, creditors, bondholders, employees, customers, management, the community, and the government. such as shareholders, suppliers, employees, customers, the business community, society and, potentially, the economy as a whole.
To help fill the research gap, this study identifies two potential factors that may play a major role in managers' decision making when they face moral dilemmas. They are the ideology of shareholder value and the norm of reciprocity The norm of reciprocity is invoked in techniques used in advertising and other propaganda whereby a small gift of some kind is proffered with the expectation of producing a desire on the part of the recipient to reciprocate in some way, for example by purchasing a product, making a . The ideology of shareholder value is the belief that managers have a duty to maximize profits and shareholders' wealth, while the norm of reciprocity is the social norm that business should play its part in supporting stakeholders since stakeholders play a major role in supporting business (i.e., reciprocal relationships between business and stakeholders). This study aims to answer the following research question: How do the ideology of shareholder value and the norm of reciprocity influence managerial decision making in stakeholder stakeholder n. a person having in his/her possession (holding) money or property in which he/she has no interest, right or title, awaiting the outcome of a dispute between two or more claimants to the money or property. moral dilemmas with suppliers, customers and employees?
BACKGROUND OF THE STUDY
Ethical decision Real life ethical decisions are studied in sociology and political science and psychology using very different methods than descriptive ethics in ethics (philosophy). Not ethics proper making literature has evolved around two major themes: 1) ethical perceptions and attitudes and 2) social responsibilities of business. The research stream in ethical perceptions and attitudes operates at a micro level by attempting to unveil behaviors or actions that individuals in the business community perceive as ethical or unethical unethical
said of conduct not conforming with professional ethics. . The main thesis of this research stream is that cultural, organizational and individual differences influence individuals' ethical attitudes and perceptions. Prior research has found that the national origin of business students has an impact on their reactions to ethical dilemmas involving employees, supervisors, customers, suppliers, and business rivals (e.g., Nyaw and Ng, 1994), and that cultural dimensions Cultural dimensions are the mostly psychological dimensions, or value constructs, which can be used to describe a specific culture. These are often used in Intercultural communication-/Cross-cultural communication-based research.
See also: Edward T. (e.g., power distance, individualism individualism
Political and social philosophy that emphasizes individual freedom. Modern individualism emerged in Britain with the ideas of Adam Smith and Jeremy Bentham, and the concept was described by Alexis de Tocqueville as fundamental to the American temper. ) were significantly related to ethical attitudes toward business practices (e.g., Hood and Logsdon, 2002; Volkema, 2004). Ethical perceptions, values and judgments were also found to significantly differ by organizational functionalities such as marketing and research (Hunt et al., 1989), by hierarchical levels and the length of tenure with the organization (Harris, 1990), by work group characteristics (Jennings et al., 1996) and by individual characteristics such as entrepreneurship (e.g., Bhide, 1996; Bucar and Hisrich, 2001) and locus of control locus of control
A theoretical construct designed to assess a person's perceived control over his or her own behavior. The classification internal locus indicates that the person feels in control of events; external locus (e.g., Key, 2002).
The second research stream takes a more macro approach by attempting to identify the social responsibilities of business. One school of thought is shareholder theory, based on property/ownership rights and free-market economics--led by theorists such as Friedman (1982, 1987) and Nozick (1987)--arguing for maximizing profits and shareholders' wealth within the legal and basic human rights boundary and through non-deceptive means as the only social responsibility of business. The argument of shareholder theory is based on property and ownership rights and free-market economics. It suggests that since shareholders are owners of publicly-held companies, managers of the companies are responsible for shareholders' welfare and should act in the shareholders' best interest, and managers' spending on other social goals is considered illegitimately il·le·git·i·mate
1. Against the law; illegal.
2. Born out of wedlock.
3. Grammar Not in correct usage.
4. Incorrectly deduced; illogical.
5. expending company resources (Friedman, 1987). The other opposing school of thought is stakeholder theory As originally detailed by R. Edward Freeman (1984), stakeholder theory identifies and models the groups which are stakeholders of a corporation, and both describes and recommends methods by which management can give due regard to the interests of those groups. (e.g., Freeman, 1984; Evan and Freeman, 1988), arguing that business is responsible for the well-being of all stakeholders, including customers, suppliers, employees, shareholders, and communities, who are identified by their interests in the business. Therefore, managers are considered agents of all stakeholders and are responsible for protecting the rights of stakeholders and balancing the legitimate interests of the stakeholders when making business decisions.
Despite being the dominant frameworks for management scholars and practitioners, both shareholder and stakeholder theories have not been empirically supported by conclusive Determinative; beyond dispute or question. That which is conclusive is manifest, clear, or obvious. It is a legal inference made so peremptorily that it cannot be overthrown or contradicted. performance evidence. For example, Berman, Wicks, Kotha and Jones (1999) found the employee and product safety/quality dimensions of stakeholder management were significantly related to corporate profitability while the community, diversity and environment dimensions were not, and O'Toole (1991) found no significant difference in economic consequences of stakeholder and conventional management approaches. Thus, these two competing normative nor·ma·tive
Of, relating to, or prescribing a norm or standard: normative grammar.
nor theories have evolved in the literature to a great degree through philosophical debates and discussions (e.g., Marcoux, 2003; Smith, 2003). Although recent corporate scandals may have shifted the momentum and public support towards stakeholder theory, the stakeholder-shareholder debate is likely to continue, given the normative nature of both theories.
Previous ethical perception and attitude research has been of an empirical nature, predominantly pre·dom·i·nant
1. Having greatest ascendancy, importance, influence, authority, or force. See Synonyms at dominant.
2. based on the exploratory survey method and generally does not guard against the effect of social desirability bias Social desirability bias is the inclination to present oneself in a manner that will be viewed favorably by others. Being by nature social creatures, people are generally inclined to seek some degree of social acceptance, and as with other psychological terms, "social desirability" , which may contaminate con·tam·i·nate
1. To make impure or unclean by contact or mixture.
2. To expose to or permeate with radioactivity.
con·tam·i·nant n. the research findings (Zerbe and Paulhus, 1987). In the extreme, survey studies intended to explore the differences in ethical perceptions and attitudes across various groups of individuals may uncover the differences in degrees of social desirability across the groups. On the other hand, research on the social responsibilities of business, centered on shareholder and stakeholder theories, tends to take forms of philosophical debates and arguments. Although shareholder and stakeholder theories may provide some guidelines guidelines,
n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. for managers' decision making, conclusive empirical evidence is still lacking due, in part, to the methodology of normative inquires in which empirical pursuits are not emphasized (Donaldson, 2003).
This study utilizes a hybrid of empirical and normative inquires, regarded as an appropriate methodology for research in business ethics and social responsibilities by Donaldson (2003) and Trevino and Weaver (1994). We contend that the ideology of shareholder value is a product of the normative shareholder theory, while the norm of reciprocity is a social fabric holding businesses and multiple stakeholders together and thus to some degree underlines the normative stakeholder theory. We empirically test the effect of the ideology of shareholder value and the norm of reciprocity on manager's decision making in stakeholder moral dilemmas, using experimental design as research methodology. The random assignment in the experiment, where subjects are randomly assigned to control and experimental groups, helps to cancel out Verb 1. cancel out - wipe out the effect of something; "The new tax effectively cancels out my raise"; "The `A' will cancel out the `C' on your record"
wipe out the spurious spu·ri·ous
Similar in appearance or symptoms but unrelated in morphology or pathology; false.
simulated; not genuine; false. effects of social desirability and other potential biases inherent in the control and experimental groups and/or in the experimentation itself (Babbie, 1995). Thus, this study makes both empirical and methodological contributions to business ethics research, typically based on the exploratory survey method and susceptible to social desirability bias.
THEORY AND HYPOTHESES
Ideology of Shareholder Value and Decision Making in Stakeholder Moral Dilemmas
The ideology of shareholder value has emerged in the investment community in which shareholder value is perceived as the most important corporate goal overshadowing other alternative corporate goals and has become the ultimate yardstick of publicly-held companies' performance (Cappelli et al., 1997). We argue that the ideology of shareholder value governs the decision making of managers who subscribe to Verb 1. subscribe to - receive or obtain regularly; "We take the Times every day"
buy, purchase - obtain by purchase; acquire by means of a financial transaction; "The family purchased a new car"; "The conglomerate acquired a new company"; it in three major ways. First, it helps the managers to set priorities among stakeholders, more specifically placing shareholders above other stakeholders. Second, it gives managers professional and, perhaps, moral legitimacy to make decisions in favor of shareholders when managers face stakeholder moral dilemmas, narrowly defined as the situations in which the decisions made in favor of one stakeholder are not favorable fa·vor·a·ble
1. Advantageous; helpful: favorable winds.
2. Encouraging; propitious: a favorable diagnosis.
3. to other stakeholders and the actions guided by such decisions are considered legal conducts. Such professional and moral legitimacy helps managers cope with potential cognitive disturbance inherent in their decisions, which may be harmful to other stakeholders in some ways.
Third, it impairs the managerial decision-making process. Generally, the decision-making process consists of defining and analyzing the problem, developing alternative solutions, selecting the most beneficial alternative, and converting the decision into action (Drucker, 1954). In stakeholder moral dilemmas, the ideology of shareholder value acts as a perceptual per·cep·tu·al
Of, based on, or involving perception. filter and leads managers to frame the problem around the conflict of interests between shareholders and other stakeholders, which arguably ar·gu·a·ble
1. Open to argument: an arguable question, still unresolved.
2. That can be argued plausibly; defensible in argument: three arguable points of law. is not always the case. Consequently, managers are cognitively constrained con·strain
tr.v. con·strained, con·strain·ing, con·strains
1. To compel by physical, moral, or circumstantial force; oblige: felt constrained to object. See Synonyms at force.
2. , and possible alternative solutions are not properly developed. In other words Adv. 1. in other words - otherwise stated; "in other words, we are broke"
put differently , once managers subscribe to the ideology of shareholder value, it is difficult for managers to define and analyze the problem accurately and to see other feasible alternative solutions except for making decisions in the best interest of shareholders. This argument is congruent con·gru·ent
1. Corresponding; congruous.
a. Coinciding exactly when superimposed: congruent triangles.
b. with McKinley, Zhao and Rust's (2000) line of reasoning Noun 1. line of reasoning - a course of reasoning aimed at demonstrating a truth or falsehood; the methodical process of logical reasoning; "I can't follow your line of reasoning"
logical argument, argumentation, argument, line in their downsizing (1) Converting mainframe and mini-based systems to client/server LANs.
(2) To reduce equipment and associated costs by switching to a less-expensive system.
(jargon) downsizing study that under the influence of this ideology of shareholder value, managers fail to see other possible alternatives and perceive downsizing as the only effective option. The above arguments lead to the following hypothesis:
Hypothesis 1: Managers" subscription to the ideology of shareholder value is positively related to the likelihood that their decision outcome in a stakeholder moral dilemma will maximize profits and shareholders' wealth at the expense of other stakeholders, including (H1a) suppliers, (H1b) customers, and (H1c) employees.
Norm of Reciprocity and Decision Making in Stakeholder Moral Dilemmas
The norm of reciprocity or "ongoing give and take" prescribes that individuals should attempt to repay what others have provided them, and the sense of obligation embedded Inserted into. See embedded system. in this norm is pervasive in human culture (Cialdini, 1998). The acceptance of the norm of reciprocity among individuals in social systems thus plays an important role in maintaining the stability of the systems (Gouldner, 1960). From egoistic e·go·ist
1. One devoted to one's own interests and advancement; an egocentric person.
2. An egotist.
3. An adherent of egoism. standpoints, when individuals reciprocate re·cip·ro·cate
v. re·cip·ro·cat·ed, re·cip·ro·cat·ing, re·cip·ro·cates
1. To give or take mutually; interchange.
2. To show, feel, or give in response or return.
v. good deeds deed
1. Something that is carried out; an act or action.
2. A usually praiseworthy act; a feat or exploit.
3. Action or performance in general: Deeds, not words, matter most. received from others, they enhance their chances of receiving benefits in the future (Gouldner, 1960), and thus reciprocation reciprocation /re·cip·ro·ca·tion/ (re-sip?ro-ka´shun)
1. the act of giving and receiving in exchange; the complementary interaction of two distinct entities.
2. an alternating back-and-forth movement. is regarded as an optimal strategy for long-term self-benefits (Axelrod, 1984; Rappaport and Chammah, 1965).
We argue that the norm of reciprocity can affect the outcomes of managers' decision making in stakeholder moral dilemmas in two ways. First, consistent with Cialdini's (1998) argument, the norm of reciprocity creates the sense of moral obligation that managers should make an effort to protect the interests of and/or return favors to stakeholders who have made significant contributions to the business. Therefore, in stakeholder moral dilemmas where the attempt to protect the interest of one stakeholder may lead to the losses of other stakeholders, managers who submit to the norm of reciprocity tend to balance the gains and losses of all stakeholders involved. Second, the norm of reciprocity acts as an unwritten LAW, UNWRITTEN, or lex non scripta. All the laws which do not come under the definition of written law; it is composed, principally, of the law of nature, the law of nations, the common law, and customs. warranty that when managers help stakeholders to protect their interests, the managers can count on their supports in the future if needed. In addition, given the increasing uncertainty in today's business Today's Business is a show on CNBC that aired in the early morning, 5 to 7AM ET timeslot, hosted by Liz Claman and Bob Sellers, and it was replaced by Wake Up Call on Feb 4, 2002. landscape, depositing stakeholders' supports for potential uses in the future through reciprocations can be crucial to the long-term survival and prosperity of any company. This argument is in line with the egoistic and long-term optimal strategy argument (Axelrod, 1984; Gouldner, 1960; Rappaport and Chammah, 1965). The preceding arguments suggest Hypothesis 2, and building on Hypotheses 1 and 2, we also propose Hypothesis 3.
Hypothesis 2: Managers' submission to the norm of reciprocity is negatively related to the likelihood that their decision outcome in a stakeholder moral dilemma will maximize profits and shareholders' wealth at the expense of other stakeholders, including (H2a) suppliers, (H2b) customers, and (H2c) employees.
Hypothesis 3: The ideology of shareholder value and the norm of reciprocity have an opposite effect rather than an interaction effect on the decision outcome in stakeholder moral dilemmas with (H3a) suppliers, (H3b) customers, and (H3c) employees.
We used an experimental design as the research method to test the proposed hypotheses and used vignettes as the research instrument in our experiment. Vignettes have been used frequently to study respondent In Equity practice, the party who answers a bill or other proceeding in equity. The party against whom an appeal or motion, an application for a court order, is instituted and who is required to answer in order to protect his or her interests. attitudes, ethics ethics, in philosophy, the study and evaluation of human conduct in the light of moral principles. Moral principles may be viewed either as the standard of conduct that individuals have constructed for themselves or as the body of obligations and duties that a , and decision making (e.g., Hoffman, 1998). In their study involving police and nurse respondents In the context of marketing research, a representative sample drawn from a larger population of people from whom information is collected and used to develop or confirm marketing strategy. , Alexander and Becker (1978) found support for the use of vignettes as a means of producing more reliable and valid measures of respondent attitudes than opinion surveys. Key (1997) developed six vignettes or scenarios (inappropriate managerial behavior, regulatory non-compliance, financial manipulation, product misrepresentation misrepresentation
In law, any false or misleading expression of fact, usually with the intent to deceive or defraud. It most commonly occurs in insurance and real-estate contracts. False advertising may also constitute misrepresentation. , employee fraud, and product liability) to analyze managerial discretion in the area of individual policy decisions. Her findings provided support for the validity of the vignettes and the existence of individual differences in discretion. A literature review conducted by Watson, Polonsky and Hyman (2002) found over 30 studies that used vignettes or scenario-type surveys to study marketing decision making and ethical issues. Therefore, the use of vignettes in this study is supported by extant literature Extant literature refers to texts that have survived from the past to the present time. Extant literature can be divided into extant original manuscripts, copies of original manuscripts, quotations and paraphrases of passages of non-extant texts contained in other works, . In this section, we describe the participant profile, experimental design (i.e., random assignment of experimental and control groups, vignettes, experimental manipulation and manipulation check) and the statistical model for data analysis.
Participants and Experimental Design
Participants were 379 students enrolled in introductory junior-level, senior-level and graduate-level management courses during the fall and spring semesters at a Master's-level university. The courses were selected based on enrollment, course level, and prerequisite pre·req·ui·site
Required or necessary as a prior condition: Competence is prerequisite to promotion.
n. string to avoid duplicate participants. The participant characteristics included (a) 52% men and 48% women, (b) 93% under the age of 30 and 7% that were 30 years and older, (c) 88% White and 12% non-White students, (d) 29% juniors, 60% seniors, and 11% graduate students, (e) 61% currently employed, and (f) average managerial work experience and overall work experience of 1 and 5 years, respectively (see Table 1).
Using a posttest-only control group design (Campbell and Stanley, 1963), participants were randomly assigned to three experimental groups and one control group. Through the random assignment of experimental and control groups, the experimental and control groups are assumed to be probabilistically prob·a·bil·is·tic
1. Of, relating to, or based on probabilism.
2. Of, based on, or affected by probability, randomness, or chance: "The Big Bang universe is . . . equivalent (Trochim, 1999). The effects on experiment outcomes of potential biases (including social desirability) inherent in the experiment are assumed to cancel one another, and thus the pretest pre·test
a. A preliminary test administered to determine a student's baseline knowledge or preparedness for an educational experience or course of study.
b. A test taken for practice.
2. is not necessary (Babbie, 1995). All participants were asked to read three different vignettes. The vignettes described three separate business situations, reflecting three stakeholder moral dilemmas. All three vignettes had three common elements: (1) the information about the role of participants, (2) the information about the decision situation, and (3) the information to indicate that the options available would not jeopardize jeop·ard·ize
tr.v. jeop·ard·ized, jeop·ard·iz·ing, jeop·ard·izes
To expose to loss or injury; imperil. See Synonyms at endanger. the company's financial health.
First, in each vignette Vignette
A symbol or pictorial representation of the corporation on a stock certificate. Usually a complicated and artistic design, it is meant to make the counterfeiting of stock certificates as difficult as possible. , the participants assumed the role of top managers and were asked to make a decision between two options: (a) maximizing profits and shareholders' wealth at the expense of three other stakeholders, specifically: suppliers (vignette #1), customers (vignette #2) and employees (vignette #3) or (b) attaining reasonable profits along with promoting the well-being of all three stakeholders.
Second, the vignettes presented the detailed information about the decision in the given business situation. In vignette #1, participants were asked whether they would continue the business relationship with a long-serving supplier, which was in a major financial crisis and needed the purchasing deal to resolve the crisis, or switch to a new supplier, which offered comparable supplies at a slightly lower price. For vignette #2, participants were asked whether they would keep all of the cost savings their company recently achieved through efficiency improvements, or pass on some cost savings by way of discounts/promotions to customers who had already been satisfied with the quality and the current price of the company's products. In vignette #3, participants were asked whether they would lay off long-serving employees to fully increase the company's operational efficiency leading to greater profits, or keep the employees and forgo this opportunity to instantly increase profits (see the Appendix for the full description).
Third, the options available to the participants in each vignette would not lead to the company's illegal conduct and financial difficulty. While legal and moral issues could be intertwined in various scenarios, in this study we focused only on the moral side and not the legal side of managerial decision making. Thus, we carefully set the three hypothetical Hypothetical is an adjective, meaning of or pertaining to a hypothesis. See:
The vignettes presented to the participants in both the experimental and control groups had the same business situations. However, the additional information, providing experimental stimuli or manipulations, was bundled into the vignettes that were presented only to the participants in the experimental groups. This manipulation technique involving differing information inputs given to participants in control and experimental groups has been adopted by previous researchers (e.g., Joshi and Arnold, 1998; van Dijk van Dijk can refer to:
In international trade, the granting of mutual concessions on tariffs, quotas, or other commercial restrictions. Reciprocity implies that these concessions are neither intended nor expected to be generalized to other countries with which the contracting parties manipulation), and the additional information of both manipulations was presented to those in experimental group #3 (see the Appendix for more detail).
The sequence of vignettes, presented to participants enrolled in fall and spring semester se·mes·ter
One of two divisions of 15 to 18 weeks each of an academic year.
[German, from Latin (cursus) s courses, was also reordered to neutralize neutralize
to render neutral. the potential effect of the vignette sequence on the decision outcomes. In addition, the manipulation check was successfully performed with 87% of the participants in the experimental groups, indicating that they took the additional information (experimental stimuli) into consideration when they made the decisions. Participants that did not respond to our manipulations were dropped from the study. The results of chi-square and t tests indicated that there were no significant difference in terms of academic status, gender, ethnicity ethnicity Vox populi Racial status–ie, African American, Asian, Caucasian, Hispanic , age group, work experience, and managerial experience between the participants in the study and those who were dropped out.
Variables, Data Coding and Statistical Model
The decision outcomes favorable and unfavorable to stakeholders (i.e., suppliers, customers, and employees) in the three vignettes were the dependent variables and were coded as 0 and 1, respectively. Shareholder value and reciprocity manipulations were the independent variables and were coded as 0 and 1 for their absence from and presence in the vignettes, respectively. Control variables included gender, age group, years of managerial experience, years of work experience, levels of courses (from which participants were drawn), and ethnicity. Male and female were coded as 1 and 0, respectively. Age group, categorized cat·e·go·rize
tr.v. cat·e·go·rized, cat·e·go·riz·ing, cat·e·go·riz·es
To put into a category or categories; classify.
cat into six groups (below 20, 21-24, 25-29, 30-39, 40-49, and 50 years and above), was coded as 1, 2, 3, 4, 5, and 6, respectively, while course levels (i.e., introductory junior, senior, and graduate) were coded as 1, 2, and 3, respectively. Ethnicity, simply categorized into White and non-White, was coded as 1 and 0, respectively, whereas years of managerial work and years of work experience were kept as continuous variables. In addition, since we had binary dependent variables, we used logistic regression In statistics, logistic regression is a regression model for binomially distributed response/dependent variables. It is useful for modeling the probability of an event occurring as a function of other factors. analyses and the following statistical model to test our hypotheses:
Decision Outcome = constant + [b.sub.1]Shareholder Value + [b.sub.2]Reciprocity + [b.sub.3](Shareholder Value x Reciprocity) + [b.sub.4]Course Level + [b.sub.5]Gender + [b.sub.6]Age Group + [b.sub.7]Managerial Experience + [b.sub.8]Work Experience + [b.sub.9]Ethnicity + errors
Table 2 shows the descriptive statistics descriptive statistics
see statistics. results, including the percentage of favorable and unfavorable decision outcomes in vignette #1 (supplier-related), vignette #2 (customer-related), and vignette #3 (employee-related) in the experimental and control groups. The descriptive data indicated that participants in the control group had the tendency to maximize profits and shareholders' wealth even at the expense of employees (71.29% of them decided to lay off employees for more profits). Conversely con·verse 1
intr.v. con·versed, con·vers·ing, con·vers·es
1. To engage in a spoken exchange of thoughts, ideas, or feelings; talk. See Synonyms at speak.
2. , the participants in the control group tended to make decisions in favor of customers and suppliers, although compromising some profits (79.21% decided to pass on cost saving to customers through promotions/discounts, and 61.39% decided to purchase from their current supplier at a slightly higher price to rescue the supplier from potential bankruptcy). The descriptive data also revealed that the shareholder value manipulation seemed to increase the likelihood that the participants would make a decision unfavorable to suppliers, customers and employees in order to increase profits (control group vs. experimental group #1), whereas the reciprocity manipulation seemed to lessen less·en
v. less·ened, less·en·ing, less·ens
1. To make less; reduce.
2. Archaic To make little of; belittle.
To become less; decrease. such likelihood (control group vs. experimental group #2). The shareholder value and reciprocity manipulations also appeared to nullify nul·li·fy
tr.v. nul·li·fied, nul·li·fy·ing, nul·li·fies
1. To make null; invalidate.
2. To counteract the force or effectiveness of. each other as the percentage of favorable/unfavorable decision outcomes in experimental group #3 were almost the same as in the control group for all three dilemmas.
Table 3 shows the results of logistic regression analyses. The overall chi-square test chi-square test: see statistics. of model #1 and the improvement of the goodness-of-fit (measured by the difference of-2 log likelihood in the full and control models) were both statistically significant (p < 0.01). The model #1 results indicated that in the supplier-related dilemma, the ideology of shareholder value was positively related to the likelihood that participants would make a decision unfavorable to suppliers in order to pursue more profits (p < 0.05), while the norm of reciprocity was negatively related to such likelihood (p < 0.05), providing support for Hypotheses la and 2a. The overall chi-square test of model #2 was not significant, providing no support for Hypotheses lb and 2b. This indicates that in the customer-related dilemma, there was no significant difference in decision outcomes of participants in the control group and of those in the experimental groups, despite the shareholder value and reciprocity manipulations. For model #3, the overall chi-square test and the improvement of the goodness-of-fit were both statistically significant (p < 0.01 and p < 0.05, respectively). Model #3 results also indicated that the norm of reciprocity was negatively related to the likelihood that participants would make the decision to lay off employees in order to increase profits (p < 0.05), while the ideology of shareholder value was not significantly related to such likelihood, yielding support for Hypothesis 2c but not for Hypothesis 1c. The interaction between the ideology of shareholder value and the norm of reciprocity was also not significant across all three dilemmas. Given that Hypotheses la and 2a were supported, coupled with no significant interaction effect, Hypothesis 3a (the opposite effect of the ideology of shareholder value and the norm of reciprocity in the supplier-related dilemma) was supported while Hypotheses 3b and 3c were not. In addition, the results of model #3 analysis indicated that participants in higher-level courses were more likely to lay off-employees to increase profits and shareholders' wealth (p < 0.01).
The results of this study suggest that the ideology of shareholder value and the norm of reciprocity affect managerial decision making in stakeholder moral dilemmas differently when the decision outcome affects different stakeholders. From the experiment, the ideology of shareholder value significantly increased the likelihood of participants' decision outcome to increase profits at the expense of suppliers (not customers and employees), while the norm of reciprocity significantly decreased the likelihood of participants' decision outcome to increase profits at the expense of suppliers and employees (not customers). This provides mixed support for our ideology of shareholder value and norm of reciprocity hypotheses.
A possible explanation is that the notions that "a business exists to serve its customers" (Drucker, 1954) and that "employees are expendable, and a company does not owe employees their jobs" (O'Reilly, 1994) may be widely institutionalized in·sti·tu·tion·al·ize
tr.v. in·sti·tu·tion·al·ized, in·sti·tu·tion·al·iz·ing, in·sti·tu·tion·al·iz·es
a. To make into, treat as, or give the character of an institution to.
b. in the business community (more specifically, in the business school where this experiment was conducted). The evidence of these assertions is noticeable as customer relationship management programs and employee downsizing/ layoff Layoff
1. When a company eliminates jobs regardless of how good the employees' performance. 2. A risk reduction, made by investment bankers, that minimizes the potential downside associated with a commitment to purchase and sell a stock issue unsubscribed by stockholders holding practices are prevalent in today's business arenas. Thus, the room for the ideology of shareholder value and the norm of reciprocity to significantly impact the decision outcomes pertaining per·tain
intr.v. per·tained, per·tain·ing, per·tains
1. To have reference; relate: evidence that pertains to the accident.
2. to customers and employees is reduced. On the other hand, the importance of suppliers to business success, although advocated by a number of scholars and practitioners (e.g., Gattorna, 1998), may not have been institutionalized to the degree that the importance of customers and the dispensability dis·pens·a·ble
1. Not essential; unimportant: dispensable items of personal property.
2. of employees have, leaving more room for the effects of our shareholder value and reciprocity manipulations. This viewpoint is also supported by the descriptive statistics (see Table 1), indicating that participants in the control group had a strong predisposition predisposition /pre·dis·po·si·tion/ (-dis-po-zish´un) a latent susceptibility to disease that may be activated under certain conditions.
1. to make a decision in customers' favor, although compromising some profits (79.21%), and to lay off employees in order to pursue economic outcomes (71.29%). The control group showed only a moderate tendency to make a decision in suppliers' favor while compromising some profits (61.39%). This implies that not all stakeholders are created equal, and that participants in this study do view relationships with suppliers, customers and employees differently. It appears that customers are viewed as the highest priority while employees are the lowest priority of stakeholders involved in the business.
In sum, the ideology of shareholder value and the norm of reciprocity to some degree are opposing forces Those forces used in an enemy role during NATO exercises. See also force(s). in influencing managerial decision making in stakeholder moral dilemmas. The ideology of shareholder value acts as a driving force to maximize profits and shareholders' wealth, although at the expense of other stakeholders. On the other hand, the norm of reciprocity acts as a stabilizing stabilizing,
v to hold a limb motionless in order to ground its energy; a standard isometric resistance technique, it releases tension and lengthens muscle fibers. force to preserve the harmony in stakeholder relationships and to reduce the likelihood that managers will exploit profit opportunities at other stakeholders' expense.
The findings of this study provide some implications to the business community. First, given that the norm of reciprocity is a stabilizing force in stakeholder relationships, if the business community wants to advocate the stakeholder approach, the norm of reciprocity between business and stakeholders should be established. Second, to ensure their long-term survival in today's increasingly turbulent and competitive business environment, suppliers may develop the norm of reciprocity with buyer firms. Under the norm of reciprocity, suppliers are able to count on buyer firms' support if needed and buyer firms are more willing to support suppliers, knowing that suppliers will reciprocate such good deeds when they can. Third, given the prevalence of corporate restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). and employee layoffs in today's business world, employees may consider developing the norm of reciprocity with management to increase their layoff survival chances. Since the norm of reciprocity generally is a cooperative norm, employees' cooperation and involvement in their company's initiatives may strengthen the reciprocity norm, which in turn increases the likelihood that they will survive layoffs if their company undergoes corporate restructuring. Finally, as students-arguably future business leaders and managers (e.g., Gbadamosi, 2004; Ryan and Scott, 1995)--progress in their academic business programs, they may be very willing to maximize profits and shareholders' wealth through employee layoff practices. Students' propensity to make layoff decisions to increase profits may continue to develop as they advance in their future careers. Therefore, it is likely that downsizing and employee layoffs as a tool to enhance profits and shareholders' wealth will continue to pervade per·vade
tr.v. per·vad·ed, per·vad·ing, per·vades
To be present throughout; permeate. See Synonyms at charge.
[Latin perv throughout the business community in future years unless the business community and business schools revisit re·vis·it
tr.v. re·vis·it·ed, re·vis·it·ing, re·vis·its
To visit again.
A second or repeated visit.
re and revise the way they cultivate cul·ti·vate
tr.v. cul·ti·vat·ed, cul·ti·vat·ing, cul·ti·vates
a. To improve and prepare (land), as by plowing or fertilizing, for raising crops; till.
b. their future business leaders and managers.
Limitations and Future Research
There are some limitations inherent in this study, which may provide directions for future research. First, external validity External validity is a form of experimental validity. An experiment is said to possess external validity if the experiment’s results hold across different experimental settings, procedures and participants. is a concern given that our sample primarily consisted of traditional college-aged business students from one university rather than managers of intact business organizations. Although the use of students as surrogates for real-world managers can raise an external validity question, the use of a student sample in our study is supported by the extant literature in decision making. Previous decision-making research suggested that the suitability of the use of students as surrogates for managers was context-specific (Hughes and Gibson, 1991) and that in the context of decision making, students and practicing managers exhibited very similar patterns of judgment (e.g., Randall and Gibson, 1990; Remus, 1986; Wyld and Jones, 1997). Nevertheless, future research with practicing managers and business professionals in various organizational settings will provide a necessary external validity test for the findings of this experiment.
Second, participants in this experiment were asked to make yes/no decisions. As a result, our dependent variables were binary, limiting our statistical analysis choice to logistic regression analysis despite more powerful statistical techniques available. Nevertheless, yes/no decisions better reflect the realism of managerial decisions Managerial decisions
Decisions concerning the operation of the firm, such as the choice of firm size, firm growth rates, and employee compensation. than decisions with a range or scale, given that business leaders and managers often need to make yes/no decisions (e.g., Sharp and Salter salt·er
1. One that manufactures or sells salt.
2. One that treats meat, fish, or other foods with salt.
Noun 1. , 1997; Tichy, 2002).
Third, although the pretest is not required in our study due to the random assignment of experimental and control groups, incorporating the pretest into the experimental design may still be desirable and potentially enhance the rigor rigor /rig·or/ (rig´er) [L.] chill; rigidity.
rigor mor´tis the stiffening of a dead body accompanying depletion of adenosine triphosphate in the muscle fibers. of research design. In addition, there might be other factors not addressed in this study, such as personal values and personal experience pertaining to some stakeholders, which may influence the participants' decisions. Nevertheless, we believe that the use of randomized ran·dom·ize
tr.v. ran·dom·ized, ran·dom·iz·ing, ran·dom·iz·es
To make random in arrangement, especially in order to control the variables in an experiment. experimental and control groups (i.e., probabilistically equivalent groups) coupled with the use of control variables (i.e., managerial experience, work experience, ethnicity, etc.) in the logistic regression analysis substantially mitigates this problem.
Finally, the three vignettes in this experiment were based on hypothetical business situations, allowing us to directly test our proposed hypotheses and enhance the internal validity Internal validity is a form of experimental validity . An experiment is said to possess internal validity if it properly demonstrates a causal relation between two variables  . . However, being hypothetical, the business situations used in this experiment may not be fully generalized gen·er·al·ized
1. Involving an entire organ, as when an epileptic seizure involves all parts of the brain.
2. Not specifically adapted to a particular environment or function; not specialized.
3. to the situations that managers encounter in their day-to-day business. We made an attempt to reduce this limitation by building the hypothetical situations on the issues of switching suppliers, giving customers discounts/promotions and laying off employees, which seem common in today's business world. Future research may address this limitation by using vignettes that are empirically derived from actual business incidents or grounded in real-world business cases.
This study contributes to the business ethics and ethical decision-making literature in two major ways. First, it empirically investigates the effects of the ideology of shareholder value (arguably a product of shareholder theory) and the norm of reciprocity (which reflects stakeholder theory) on managerial decision making in stakeholder moral dilemmas. Thus, it provides some empirical evidence to the field of shareholder and stakeholder theories in which philosophical debates and discussions are predominant pre·dom·i·nant
1. Having greatest ascendancy, importance, influence, authority, or force. See Synonyms at dominant.
2. and empirical research is much needed. Second, this study highlights the potential problems of social desirability bias in business ethics studies typically based on the attitude surveys and proposes an experimental design as an alternative research method to mitigate such problems.
Vignette #1: Situation at Company X
As a top manager of Company X, you have to make a major purchasing decision. You have received two lucrative offers: one from Company A and the other from Company B. Both Company A and B are well-recognized suppliers in the industry. Company B is your current supplier who has provided parts and supplies to your company for several years without any operational problems. Although Company A has not done business with your company before, you know that parts and supplies of Company A and B are very comparable in terms of quality and that Company A has as good a reputation as Company B in terms of reliability, service and honesty. There will not be any operational problems if you decide to work with Company A. Although both offers are considered very good deals, you have noticed that Company A slightly underbids Company B. If you purchase the supplies from Company A, you will make some savings, which will to some degree enhance the bottom-line profits. However, your information-gathering team has informed you that this deal is very important to Company B's survival. Although Company B has strong business fundamentals business fundamentals
The general background within which an economy operates including earnings, sales, wage rates, taxes, and inflation. Improving business fundamentals are generally viewed as bullish for stocks, although stock prices at any given point and great potential, it has recently experienced a financial shock, which suddenly disrupted its cashflow and put the company on the verge On the Verge (or The Geography of Yearning) is a play written by Eric Overmyer. It makes extensive use of esoteric language and pop culture references from the late nineteenth century to 1955. of bankruptcy. This major business deal with your company will provide a lifeline life·line
a. An anchored line thrown as a support to someone falling or drowning.
b. A line shot to a ship in distress.
c. A line used to raise and lower deep-sea divers.
2. and will get Company B back to its normal business track. On the other hand, Company A is very strong financially, reflecting its better offer than Company B's. If you take the offer from Company A, you will further increase your company profits, but as a result Company B will likely go out of business and its employees will lose their jobs. If you take the offer from Company B, you will save Company B from its bankruptcy at the expense of your company's profits. As a top manager of Company X, you realize that your job and your major obligation are to maximize the company's profitability and wealth, and eventually shareholder's wealth. However, you believe that Company B served your company well in the past and if you make a decision in favor of Company B this time, Company B would provide even greater support to your company in the future when it can. (1) You need to make a decision which offer would you take?
a. Company A's offer, or
b. Company B's offer
Vignette #2: Situation at Company Y
Customers regard the quality of Company Y's products as No. 1 in the industry, and are satisfied with the quality they get and the prices they pay for the company's products. This is reflected in the company's prominent status in the industry and consistently high and well above-average profitability. Recently, the company has discovered ways to make products more efficiently while maintaining the same level of quality, resulting in significant cost savings. With such cost savings, the company can significantly increase the bottom-line profits. However, you know that if the company passes on some cost savings to customers in terms of promotions and discounts, a countless number of customers will be very delighted and extremely satisfied at the expense of the company's profits. As a top manager of Company Y, you have to decide whether to greatly increase your company's profit by not giving any promotions/discounts or to further increase customer satisfaction by giving promotions/discounts to customers. You realize that as a top manager, your job and your major obligation are to maximize the company's profitability and wealth, and eventually shareholder's wealth. However, you believe that customers supported your company's products well in the past, and if you make a decision in their favor this time, they would provide even greater support for your company's products in the future when they can. What would be your decision in this situation?
a. Not to give customers promotions/discounts
b. To give customers promotions/ discounts
Vignette #3: Situation at Company Z
Company Z has been on the path of prosperity with consistently high and well above-average profitability. Most employees have been with the company for several years, and the company had a negligible This article or section is written like a personal reflection or and may require .
Please [ improve this article] by rewriting this article or section in an . employee turnover rate in the past decade. After critically reviewing the company's business operations Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets , you realize that the company only needs about 80% of current employees to keep the business running and sufficiently growing in years to come. Eliminating 20% of current employees will instantly result in a significant increase in the company's bottom-line profits at the expense of those employees. If you keep the unneeded jobs, the company will not operate at its highest possible level of efficiency and will forgo the opportunity to potentially increase its profits. As a top manager of Company Z, you have to decide whether to keep the current size of your workforce or to downsize/layoff 20% of current employees. You realize that as a top manager, your job and your major obligation are to maximize the company's profitability and wealth, and eventually shareholder's wealth. However, you believe that employees served your company well in the past and if you make a decision in their favor this time, they would provide even greater efforts to serve your company in the future when they can. What would be your decision in this situation? a. To keep the current size of employees
b. To downsize/lay off 20% of current employees
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(1) The information in italics is the shareholder value manipulation (presented only to participants in experimental groups #1 and #3), whereas the information in italics and bold is the reciprocity manipulation (presented only to participants in experimental groups #2 and #3).
Assistant Professor of Management
North Dakota State University North Dakota State University, at Fargo; land-grant and state supported; coeducational; chartered and opened 1890 as North Dakota Agricultural College, achieved university status in 1960.
James G. Pesek
Professor of Management
Clarion University of Pennsylvania Clarion University of Pennsylvania is a liberal arts university in Clarion, Pennsylvania, and one of fourteen universities of the Pennsylvania State System of Higher Education (PASSHE).
Table 1. Selected Sample Profile Demographics Percent Gender Male 52 Female 48 Age Less than 30 years 93 30 years and above 7 Ethnicity White 88 Non-White 12 Class Standing Juniors 29 Seniors 60 Graduate Students 11 Currently Employed Yes 61 No 39 Table 2. Descriptive Statistics Decision Outcomes Vignette #1 (Supplier-related) Unfavorable Favorable Decision Decision Control Group: No Manipulation 38.61% 61.39% Exp. Group #1: Shareholder Value Manipulation 54.76% 45.24% Exp. Group #2: Reciprocity Manipulation 26.25% 73.75% Exp. Group #3: Both Manipulations 40.00% 60.00% Decision Outcomes Vignette #2 (Customer-related) Unfavorable Favorable Decision Decision Control Group: No Manipulation 20.79% 79.21% Exp. Group #1: Shareholder Value Manipulation 27.38% 72.62% Exp. Group #2: Reciprocity Manipulation 18.75% 81.25% Exp. Group #3: Both Manipulations 24.00% 76.00% Decision Outcomes Vignette #3 (Employee-related) Unfavorable Favorable Decision Decision Control Group: No Manipulation 71.29% 28.71% Exp. Group #1: Shareholder Value Manipulation 77.38% 22.62% Exp. Group #2: Reciprocity Manipulation 57.50% 42.50% Exp. Group #3: Both Manipulations 69.33% 30.67% Table 3. Results of Logistic Regression Analyses Dependent Variable: Vignette #1 Decision Outcome (Supplier-related) Control 1 (B (b)) Model 1 (B (b)) Control Variables Course Level -0.34 ([dagger]) -0.35 ([dagger]) (1.20) (0.20) Gender -0.30 -0.35 (0.23) (0.24) Age Group 0.00 0.05 (0.24) (0.24) Managerial Experience -0.04 -0.06 (0.07) (0.07) Work Experience 0.02 0.03 (0.04) (0.04) Ethnicity 0.19 0.14 0.40 (0.41) Independent Variables Shareholder Value (H1) 0.63* (0.31) Reciprocity (H2) -0.70* -0.34 Interaction Term Shareholder Value x 0.04 Reciprocity (H3) (0.48) Chi-Square 7.69 23.04** -2 Log Likelihood (Log L) 435.48 420.13 D (a): -2Log [L.sub.control] - 15.35 ** (-2Log [L.sub.model]) Dependent Variable: Vignette #2 Decision Outcome (Customer-related) Control 2 (B (b)) Model 2 (B (b)) Control Variables Course Level -0.07 -0.07 (0.23) (0.23) Gender 0.31 0.31 (0.27) (0.27) Age Group -0.01 -0.01 (0.28) (0.28) Managerial Experience -0.06 -0.06 (0.08) (0.08) Work Experience 0.02 0.03 (0.05) (0.05) Ethnicity 0.34 0.31 (0.50) (0.50) Independent Variables Shareholder Value (H1) 0.19 (0.36) Reciprocity (H2) -0.25 -0.39 Interaction Term Shareholder Value x 0.28 Reciprocity (H3) (0.54) Chi-Square 2.94 4.77 -2 Log Likelihood (Log L) 347.82 345.99 D (a): -2Log [L.sub.control] - 1.83 (-2Log [L.sub.model]) Dependent Variable: Vignette #3 Decision Outcome (Employee-related) Control 3 (B (b)) Model 3 (B (b)) Control Variables Course Level 0.65 ** 0.69 ** (0.22) (0.23) Gender -0.07 -0.10 (0.25) (0.25) Age Group -0.3 -0.27 (0.25) (0.25) Managerial Experience -0.05 -0.07 (0.06) (0.07) Work Experience 0.01 0.02 (0.04) (0.04) Ethnicity 0.72 ([dagger]) 0.73 ([dagger]) (0.40) (0.41) Independent Variables Shareholder Value (H1) 0.23 (0.36) Reciprocity (H2) -0.74* -0.34 Interaction Term Shareholder Value x 0.15 Reciprocity (H3) (0.50) Chi-Square 13.05 * 21.62 ** -2 Log Likelihood (Log L) 391.25 382.68 D (a): -2Log [L.sub.control] - 8.57 * (-2Log [L.sub.model]) (a) Improvement of goodness-of-fit. (b) Logistic regression coefficients. ([dagger]) p < 0.10, * p < 0.05, ** p<0.01.