Shareholder value ideology, reciprocity and decision making in 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 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 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 filter and leads managers to frame the problem around the conflict of interests between shareholders and other stakeholders, which arguably is not always the case. Consequently, managers are cognitively constrained, and possible alternative solutions are not properly developed. In other words, 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 with McKinley, Zhao and Rust's (2000) line of reasoning in their 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 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 standpoints, when individuals reciprocate good deeds received from others, they enhance their chances of receiving benefits in the future (Gouldner, 1960), and thus reciprocation 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 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 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.

RESEARCH METHOD

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 attitudes, ethics, and decision making (e.g., Hoffman, 1998). In their study involving police and nurse respondents, 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, 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. 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 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 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 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 the company's financial health.

First, in each vignette, 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.