The indefensibility of insider trading

The article, Inside Trading Revisited, has taken the stance that insider trading is neither unethical nor economically inefficient. Attacking my arguments to the contrary developed in an earlier article, The Ethics of Inside Trading (Journal of Business Ethics, 1989) this article constructs careful arguments and even appeals to Adam Smith to justify its conclusions. In my response to this article I shall clarify my position as well as that of Smith to support my counter-contention that insider trading is both unethical and inefficient. Patricia H. Werhane is the Henry J. Wirtenberger Professor of Business Ethics at Loyola University, Chicago. She is the author or editor of seven books including Ethical Issues in Business,edited with Tom Donaldson, in its third edition, Persons, Rights, and Corporations, Profits and Responsibility,and Philosophical Issues in Human Rights,edited with David Ozar and A. R. Gini. She is past president of the Society for Value Inquiry, founding member, past president and Executive Director of the Society of Business Ethics, and Chairperson of the Ethics Advisory Council of Arthur Andersen & Co. She serves on the editorial boards of the Journal of Business Ethics,the Journal of Value-Based Management, and Public Affairs Quarterly,and is Editor-in-Chief of Business Ethics Quarterly.Her book, Adam Smith and his Legacy for Modern Capitalismis forthcoming with Oxford University Press.     

Fallback Bargaining

Under fallback bargaining, bargainers begin by indicating their preference rankings over alternatives. They then fall back, in lockstep, to less and less preferred alternatives – starting with first choices, then adding second choices, and so on – until an alternative is found on which all bargainers agree. This common agreement, which becomes the outcome of the procedure, may be different if a decision rule other than unanimity is used. The outcome is always Pareto-optimal but need not be unique; if unanimity is used, it is at least middling in everybody's ranking. Fallback bargaining may not select a Condorcet alternative, or even the first choice of a majority of bargainers. However, it does maximize bargainers' minimum satisfaction. When bargainers are allowed to indicate impasse in their rankings – below which they would not descend because they prefer no agreement to any lower-level alternative – then impasse itself may become the outcome, foreclosing any agreement. The vulnerability of fallback bargaining to manipulation is analyzed in terms of both best responses and Nash equilibria. Although a bargainer can sometimes achieve a preferred outcome through an untruthful announcement, the risk of a mutually worst outcome in a Chicken-type game may well deter the bargainers from attempting to be exploitative, especially when information is incomplete. Fallback bargaining seems useful as a practicable procedure if a set of reasonable alternatives can be generated. It leapfrogs the give-and-take of conventional bargaining, which often bogs down in details, by finding a suitable settlement through the simultaneous consideration of all alternatives.     

The Methods Used to Implement an Ethical Code of Conduct and Employee Attitudes

In the process of implementing an ethical code of conduct, a business organization uses formal methods. Of these, training, courses and means of enforcement are common and are also suitable for self-regulation. The USA is encouraging business corporations to self regulate with the Federal Sentencing Guidelines (FSG). The Guidelines prescribe similar formal methods and specify that, unless such methods are used, the process of implementation will be considered ineffective, and the business will therefore not be considered to have complied with the guidelines. Business organizations invest enormous funds on formal methods. However, recent events indicate that these are not, by themselves, yielding the desired results. Our study, based on a sample of 812 employees and conducted in an Israeli subsidiary of a leading multinational High-Tech corporation headquartered in the US, indicates that, of the methods used in the process of implementation, one of the informal methods (namely, the social norms of the organization) is perceived by employees to have the most influence on their conduct. This result, when examined against employee tenure, remains relatively stable over the years, and stands in contradistinction to the formalistic approach embedded in the FSG. We indirectly measure the effectiveness of the percieved most influential implementation process methods by analyzing their impact on employee attitudes (namely, personal ethical commitment and employees' commitment to organizational values). Our results indicate that the informal methods (manager sets an example or social norms of the organization) are likely to yield greater commitment with respect to both employee attitudes than the formal method (training and courses on the subject of ethics). The personal control method (my own personal values) differs significantly from all the other methods in that it yields the highest degree of personal ethical commitment and the lowest degree of employees' commitment to organizational values.     

Ein Leuchtturm für die Wirtschaftswissenschaften

Von den ökonomischen Eigenschaften eines Gutes hängt es ab, ob es öffentlich bereitgestellt werden sollte oder privat angeboten werden kann. Diese lange Zeit herrschende Ansicht in den Wirtschaftswissenschaften hat sich jedoch insbesondere seit Coase gewandelt. Welche Folgen ergeben sich hieraus für die aktuelle Wirtschaftspolitik?Dr. Oliver Schmidt, 31, ist internationale Fachkraft (Entsender: Deutscher Entwicklungsdienst (DED)) bei der Association of Microfinance Institutions in Uganda (AMFIU) in Kampala, Uganda.     

Teaching Business Ethics with Computer-based Multimedia? A Cautionary Analysis

Still shots, videos, music, and movie clips can be helpful in bringing some excitement to the study of business ethics. For several years, Professor McAdams has been using The Great Gatsby as a text for discussing American commercial values. That discussion serves as an introduction to a larger examination of contemporary business ethics. Recently, Professor Duclos and her students converted that socratic exploration of Gatsby's contemporary relevance to a PC-based, multimedia show employing the efficient and manageable PowerPoint software presentation package. Computer-based multimedia added flavor to the presentation, but developing this lengthy lesson required hundreds of hours, substantial hardware/software and a high tolerance for frustration.     

Epistemological and ethical considerations in conceptualizing and implementing human resource management

As an example of applied social science, the field of human resource management is used to show that ethical problems are not only those of carrying out research, of professional conduct, and of the distribution fairness of social science knowledge. A largely overlooked ethical issue is also the implicit choices that are made as an integral part of research and implementation. First, an analysis is undertaken of the implicit assumptions, values and goals that derive from the conception of human problems in work organizations as managing human resources. Secondly, it is argued that such a conception is in fact a socially constructed reality with real consequences and not a reflection of objective states of human and social nature with which we have to live. Thirdly, to the extent that our implicit assumptions are in part based upon conceptual choices that are made by individuals or as a collective act of a discipline or work organization, the development of an ethical framework that could guide such choices becomes a crucial challenge for business ethics.H. Peter Dachler currently holds the chair for organizational psychology at the University of St. Gall, Switzerland. He received his graduate training in industrial/organizational psychology at the University of Illinois at Urbana and subsequently taught in the Department of Psychology at the University of Maryland, College Park. He was a fellow for two years at the International Institute of Management in the Science Center, Berlin, and is on the editorial boards of various international and American scientific journals. He has published mainly in the areas of motivation, leadership, organization theory, and the theoretical and practical implications of a constructionist epistemology for employee assessment, participation and leadership. Georges Enderle is a senior lecturer for business ethics at the University of St. Gall, Switzerland. Since 1983 he has been Director of the Institute for Business Ethics. He is the author of Sicherung des Existenzminimums im nationalen und internationalen Kontext — eine wirtschaftsethische Studie [Securing the minimal standard of living in the national and international context: A business ethics perspective]. He has written various articles on business ethics.     

Coveted or Overlooked? The Psychology of Bidding for Comparable Listings in Digital Auctions

This article elaborates on, and provides evidence of the herd behavior bias -- the tendency to gravitate toward, and bid for, auction listings with one or more existing bids, ignoring comparable or even more attractive unbid-for listings available at the same time -- exhibited by buyers in digital auctions. Some listings attract many bidders and become coveted, the center of bidding attention, while other equivalent or even superior listings are overlooked, receiving no bids at all. Empirical analysis using data from digital auctions across different product categories shows that this herd behavior bias is attenuated with increasing bid price, but increases with the difficulty of evaluating quality. The practical implications of these findings, and promising research opportunities in this area are also discussed.     

Teaching Business Ethics: Theory and Practice

Business ethics teaching can be improved when ethicists integrate the ethical theories they apply to business with the organizational design of the course. By utilizing three techniques – implementing a Total Quality Management-style survey and review, nominating and electing class virtues, and telling personal stories of moral action – classes can be organized to operate by the social contract, rights, stakeholder, and virtue theories that dominate business ethics literature. Classes then become laboratories for the practical articulation and application of the theories as well as providing real examples of the theories in action. This methodology produces benefits for the particular class and for the development and refinement of the theories themselves.This paper describes each of the three pedagogical techniques; and then explicitly relates them to these leading business ethics theories to demonstrate how the integration can lead to a community seeking and discovering moral truth in the classroom.     

Procedural learning,consumer decision making,and marketing communication

We examine the applicability of Anderson's (1982) procedural learning framework to consumer decision making within the context of how marketing communications influence people's procedural knowledge about selecting decision criteria for a buying decision. In particular, we explore the importance of explicit, conditional if-then statements (e.g., if you are choosing amongst ..., then you should ...) in which the recommended decision-making operation is compatible with prior procedural knowledge. We test this framework in an exploratory study on advertising effects on women's decision criteria for fitness centers.     

Disentangling Effacement,Omnivore, and Distinction Effects on the Consumption of Cultural Activities: An Illustration

Recent studies of cultural activities in America have stressed the importance of three sorts of phenomena: (1) a boundary-effacement effect in which members of different classes are to some degree homogeneous in their preferences (colloquially, some things are liked or disliked by everybody); (2) an omnivore effect in which upscale people tend more than their more downscale counterparts to engage in or appreciate a broad variety of cultural activities (some people like everything); and (3) a distinction effect in which more upscale consumers use certain cultural habits as a way of marking their status-related differences from more downscale people (different people from different backgrounds like different things to different degrees). However, in arguing for one or another of these three phenomena and often favoring just one perspective over the others, various authors have tended to lose sight of how the three effects may operate simultaneously. We address the resulting confusion by proposing a simple conceptual schema that embraces all three phenomena in a manner not heretofore recognized and by providing an illustration of how we might disentangle these three effects in an empirical analysis of cultural activities.     

Karoushi: Stress-death and the meaning of work

The present article is concerned with some of the human factors involved when overtime and overwork become part of the regular and accepted pattern of work, with sometimes tragic results. While the economic miracle of Japan can be much admired, it has not been without human cost. Only recently, national and global attention is being focused on a new and deadly phenomenon in Japan:Karoushi, which the Japanese define as death from overwork, and which I choose to re-define as stress-death related to feelings of helplessness.It is my tentative hypothesis thatkaroushi is not directly caused by overwork, as popularly assumed. Rather, I believe that overwork is only one factor, and that stress-death is actually caused by the cumulative, long-range effects of working in a situation where one feels trapped and powerless to effect any change for the better, which in turn leads to attitudes of hopelessness — attitudes which are exacerbated, rather than ameliorated, by environmental and managerial factors.Dr. Walter Tubbs received his Ph.D. in Neuropsychology and Philosophy after doing work at Stanford and Drew Universities. After involvement in brain research at Stanford, he practiced stress-management counseling and biofeedback training at Loma Linda University, and taught for 13 years at the University of Redlands in California. He has been in Japan for 11 years as a Senior Researcher.     

Self-management and protection of consumers in Yugoslavia

Yogoslav socialist society has applied the system of self-management also to the protection of consumers. Social compacts as guaranteed by the Constitution of 1974 and the Law of Associated Labour of 1976 may be negotiated among organizations of producers, trade, and consumers. A system of specific consumer codexes containing standards of quality, price, advertising, claim-handling, etc., has spread in Yugoslav society. A new draft consumer code is available for adoption by all consumer and associated labour organizations as from 1977.

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Zusammenfassung Die jugoslawische sozialistische Gesellschaft hat das System der Selbstverwaltung auch zum Schutz des Verbrauchers entwickelt. Kollektivverträge, wie sie in der Verfassung von 1974 und dem Gesetz über die selbstverwaltete Arbeit von 1976 zugrundegelegt sind, können zwischen Organisationen der Produzenten, des Handels und der Verbraucher abgeschlossen werden. Ein System spezieller »Verbraucherkodizes«, die Regeln über Qualität, Preis und Werbung enthalten sowie die Behandlung von Verbraucherbeschwerden vorsehen, überzieht die jugoslawische Gesellschaft. Ein neuer Muster-»Verbraucherkodex« steht seit 1977 allen Konsumentenorganisationen und Vereinigungen der assoziierten Arbeit offen.

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Jelena Vilus is Professor of Law at the Institute of Comparative Law, Terazije 41, 11000 Beograd, Yugoslavia.     

Kosten und Streitwert in Verfahren wegen unlauteren Wettbewerbs aus verbraucherpolitischer Sicht

Zusammenfassung Der Beitrag berichtet über die Ergebnisse einer rechtstatsächlichen Untersuchung über Streitwert und Kosten in Verfahren wegen unlauteren Wettbewerbs, die vom Max-Planck-Institut für ausländisches und internationales Wettbewerbsrecht, München, durchgeführt wurde. Bei der Bestandsaufnahme von Streitwerten in Verfahren wegen unlauteren Wettbewerbs in über 3000 einschlägigen Fällen bestätigte sich der allgemein vorherrschende Eindruck, daß die Streitwerte in Wettbewerbssachen im Vergleich zu den «normalen» Zivilverfahren außerordentlich hoch sind. Für die gem. 13 Abs. 1 a UWK klagebefugten Verbrauchervereine folgt daraus, daß die Kostenbelastung bei einem Unterliegen im Prozeß schon bei durchschnittlicher Streitwerthöhe zu einem ernsten Problem werden kann. Die Einstellung der Gerichte zur Gewährung der Streitwertbegünstigung gem. § 23 a UWG ist uneinheitlich; von einigen Gerichten wird in dieser Hinsicht eine sehr restriktive Auffassung vertreten. Eine Auswertung der im Verlauf der Untersuchung bekanntgewordenen Fälle, in denen der Verbraucherschutzverein in Berlin von der ihm gewährten Streitwertbegünstigung wegen Unterliegens in der Sache Gebrauch machen mußte, hat ergeben, daß die Belastung der gewerblichen Wirtschaft weder nach ihrem Umfang noch den sachlichen Umständen ihrer Realisierung nach als unbillig oder gar unzumutbar angesehen werden kann.

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The present article deals with the results of a study on litigation value and the costs of unfair competition litigation. In German procedural law, litigation value is the sum representing the value of the plaintiff's interests involved in the case, or — if it is not a personal interest, but, as is the case with claims made by consumer associations, rather a general one — the public interest involved in the claim as expressed in monetary value. This value determines the magnitude of the costs (court costs and lawyer fees) that the losing party has to pay.According to the prevailing opinion, litigation value in unfair competition litigation is usually very high, compared with normal litigation in civil cases. By gathering the data of more than 3000 cases, the study was able to verify this impression. For consumer associations, which, according to § 13 sec. 1 a UWG, have the right to act as a plaintiff in cases of special interest for consumers, this means that the costs of losing a case, even one of average importance, can be ruinous. Courts have, however, the possibility to split up the litigation value, that is, fix a low sum as litigation value regarding the poor party (which in this case would be the consumer association), while the normal value remains valid for the other party. The main effect of the splitting-up is that the poor party, if the case should be lost, only has to pay both court costs and lawyer's fees according to the low value, while the other party, even if he won the case, has to pay the difference. As the study reveals, this regulation meets with varying degrees of approval from the courts' side; some courts seem to be fairly restrictive in handling it. Due to this, consumer associations cannot know beforehand if they will be granted the benefit of value-splitting, and thus have to refrain from any further procedural activities if they do not feel able to take the full risk — this effect, of course, from the consumer's point of view, is a very unfavourable one. On the other hand, it is argued that the obligation to bear part of the costs will place an unfair burden on the innocent winner. However, an enumeration of those cases in which one important consumer association, the Verbraucherschutzverein in Berlin, had to take advantage of the above mentioned litigation value assessment, shows that the effect for the opponent has not been as damaging as could have been expected.

     

Saturday Review's annual advertising awards

Saturday Review's long, commendable effort to identify corporations willing to promote the general good through their advertising was damaged in 1977 because of procedural changes in the awards. Prior to 1977 the named judges made the important distinction between public-service (non-image) and public-relations (corporate image) advertising. But in 1977 the judges were not named and the public service/public relations distinction was eliminated, replaced by the single category of public spirited ads. Most of these ads, however, were not public spirited, but were public relations ads. But in 1978 this deception was ended by the empaneling of a new kind of jury, one drawn from the S.I. Newhouse School of Public Communications. James Richard Bennett is Professor of English at the University of Arkansas, Fayetteville. He is the editor of Style, a Journal of Stylistics. He won the Fulbright Teaching Award in Yugoslavia in 1968–69. His most important publication is: Prose Style: A Historical Approach Through Studies, 1971.I wish to thank Professor Leonard White of the Department of Economics at the University of Arkansas for his advice concerning several of the ads discussed herein.     

Die Bedeutung der monetären Analyse für die Europäische Zentralbank

Die geldpolitische Strategie der Europäischen Zentralbank beruht auf der wirtschaftlichen und der monetären Analyse von Risiken für die Preisstabilität im Euroraum. Sollte der monetären Analyse eine prominente Rolle zugewiesen werden?Eva-Ulrike Feldkord, 31, Dipl.-Volkswirtin, ist wis senschaftliche Mitarbeiterin in der Abteilung Internationale Makroökonomie im Hamburgischen Welt-Wirtschafts-Archiv (HWWA).     

Small firm mutual funds: Additional evidence on the small firm effect

Returns generated with small firm mutual fund data are used to examine the extent to which identification of a small firm effect is due to the difficulty in measuring the direct and indirect transaction costs involved in investing in the common shares of small capitalization stocks. Little if any evidence of the excess risk-adjusted returns is obtained for either of the period 1978–1983, when the small firm effect was observed, or the period 1984–1989, when it was not. The small firm effect may therefore be attributed to (1) higher direct transaction costs including bid-ask spread and broker fees and (2) higher indirect transaction costs including portfolio management expenses and market impact costs.The authors thank an anonymous referee for helpful comments on an earlier version of this paper, and Brett Salazar for valuable assistance in data collection. Errors remain our own.     

Information processing and innovative choice

In this paper we examine how the information processing of subjects who make an innovative choice (innovators) differs from that of subjects who make a noninnovative choice (noninnovators). The task involves selection of an alternative within a range of prerated product category innovativeness. We propose that subjects who seek 1) impersonal/uncontrollable sources, 2) higher levels of information, 3) more detailed (versus summary) data, and 4) noncomparative (versus comparative) data are more likely to make innovative choices. The research method is a computerized process tracing experiment utilizing Search Monitor (Brucks 1988).The authors wish to express their gratitude to Merrie Brucks for the use of and help with Search Monitor and to Eric Johnson, Dave Schmittlein, and Mita Sujan for helpful comments on an earlier version of this paper.     

Ethical Beliefs and Management Behaviour: A Cross-Cultural Comparison

A cross-cultural empirical study is reported in this article which looks at ethical beliefs and behaviours among French and German managers, and compares this with previous studies of U.S. and Israeli managers using a similar questionnaire. Comparisons are made between what managers say they believe, and what they do, between managers and their peers' attitudes and behaviours, and between perceived top management attitudes and the existence of company policy. In the latter, significant differences are found by national ownership of the company rather than the country in which it is situated. Significant differences are found, for both individual managers by nationality, and for companies by nationality of parents, in the area of organizational loyalty. The attitude towards accepting gifts and favours in exchange for preferential treatment, as a measure of societal values, is also found to show significant differences between national groups. However, no significant differences are found for measures for group loyalty, conflict between organizational and group loyalty and for conflicts between self and group/organization. The findings have implications for cross-border management decision strategies regarding such issues as receiving and giving of gifts, and the management of relations between local employees and international organizations which may be affected by differences in attitude to corporate loyalty.     

Talk of the Network: A Complex Systems Look at the Underlying Process of Word-of-Mouth

Though word-of-mouth (w-o-m) communications is a pervasive and intriguing phenomenon, little is known on its underlying process of personal communications. Moreover as marketers are getting more interested in harnessing the power of w-o-m, for e-business and other net related activities, the effects of the different communications types on macro level marketing is becoming critical. In particular we are interested in the breakdown of the personal communication between closer and stronger communications that are within an individual's own personal group (strong ties) and weaker and less personal communications that an individual makes with a wide set of other acquaintances and colleagues (weak ties).We use a technique borrowed from Complex Systems Analysis called stochastic cellular automata in order to generate data and analyze the results so that answers to our main research issues could be ascertained. The following summarizes the impact of strong and weak ties on the speed of acceptance of a new product:The influence of weak ties is at least as strong as the influence of strong ties. Despite the relative inferiority of the weak tie parameter in the model's assumptions, their effect approximates or exceeds that of strong ties, in all stages of the product life cycle.External marketing efforts (e.g., advertising) are effective. However, beyond a relatively early stage of the growth cycle of the new product, their efficacy quickly diminishes and strong and weak ties become the main forces propelling growth. The results clearly indicate that information dissemination is dominated by both weak and strong w-o-m, rather than by advertising.The effect of strong ties diminishes as personal network size decreases. Market attributes were also found to mediate the effects of weak and strong ties. When personal networks are small, weak ties were found to have a stronger impact on information dissemination than strong ties.     

Wisdom Paradigms for the Enhancement of Ethical and Profitable Business Practices

Many organizations continually search for new business models and ways to conduct business ethically, yet profitably. Kirk Cheyfitz (2003) proclaims that organizations should not waste time trying to create new business models because the rules of commerce never change. Instead of searching for new business models, organizations can improve business practices by looking at different paradigms or mental models for seeing how to build practices that lead to long-term success. The employment elements of wisdom as paradigms for developing sound structures and practices that will encourage management behaviors that are ethical and lead to profitability. First, a theory of wisdom is developed. Then, the elements of wisdom are applied to the design of a general business structure and to refocusing some basic business practices.