Recent large-scale corporate scandals have turned business ethics
and corporate moral responsibility into a major concern of managers,
business schools, and the general public. Companies such as Tyco
International, Ltd., Adelphia Communications, MCI (formerly Worldcom)
and Enron have experienced significant damage to their reputations due
to the malfeasance of high-level corporate executives. Results from the
2004 Harris-Fombrun Reputation Quotient 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
and deceptive 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,"
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 in business ethics and social
responsibility has been limited (e.g., Donaldson, 2003). Extant
empirical studies 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 (e.g., Bucar and Hisrich, 2001). Those studies have merits
in their own right. However, they may not directly fulfill 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 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 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 moral dilemmas with suppliers, customers
and employees?
BACKGROUND OF THE STUDY
Ethical decision 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. 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 (e.g., power distance, individualism) 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 (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 expending
company resources (Friedman, 1987). The other opposing school of thought
is stakeholder theory (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 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
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 based on the exploratory survey method
and generally does not guard against the effect of social desirability
bias, which may contaminate 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 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 the
spurious 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 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.
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 situations in a way that both options available to
participants were perfectly legal. We were also aware that participants
might choose the option that has less financial risk involved. To
control for the risk factor, which is not the focus of our study, we
framed all three situations to make sure that both options would not
bring any financial difficulty to the company (i.e., profitable vs. more
profitable deals in vignette #1; already high customer satisfaction vs.
higher customer satisfaction in vignette #2; already high company
profitability vs. higher profitability in vignette #3).
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 and Zeelenberg,
2003). The additional information for the participants in experimental
group #1 was the duty of the top managers to maximize profits and
shareholders' wealth (i.e., shareholder value manipulation). The
additional information for those in experimental group #2 was the
reciprocation between the company and the stakeholders (i.e.,
reciprocity 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 courses, was also reordered to neutralize 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, 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 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 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
RESULTS
Table 2 shows the descriptive 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, 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 such likelihood (control group vs. experimental group
#2). The shareholder value and reciprocity manipulations also appeared
to nullify 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 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).
DISCUSSION
General Implications
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 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
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 and great potential, it has recently experienced a
financial shock, which suddenly disrupted its cashflow and put the
company on the verge of bankruptcy. This major business deal with your
company will provide a lifeline 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 employee
turnover rate in the past decade. After critically reviewing the
company's business operations, 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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