Shareholder value ideology, reciprocity and decision making in moral dilemmas.

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 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 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 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 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 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 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 force to preserve the harmony in stakeholder relationships and to reduce the likelihood that managers will exploit profit opportunities at other stakeholders' expense.

Managerial Implications

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 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 throughout the business community in future years unless the business community and business schools revisit and revise the way they cultivate 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 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 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, 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 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 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. However, being hypothetical, the business situations used in this experiment may not be fully generalized 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.

Conclusion

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 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.

APPENDIX

Vignette #1: Situation at Company X