Corporate Fraud and Managers’ Behavior: Evidence from the Press

Government-sponsored enterprises (GSEs) and quasi-autonomous non-governmental organizations (quangos) comprise a powerful organizational sector that has been criticized for its lack of accountability to governments and their citizens. These organizations are established to serve the public as a whole by targeting the needs of particular groups or fulfilling specific functions. Often they use practices adopted from the business sector, and sometimes they enter the marketplace as profit-making enterprises. In light of the contribution of GSE Fannie Mae to the 2008 world economic crisis, the impact of this sector on effective democratic government bears further examination. In this article, I present a systems model that suggests how researchers might comprehensively assess the accountability of organizations in this sector, here termed the “gray sector,” with respect to their government missions. I focus on four systems dimensions: mission, organizational design, organizational outcomes, and the information feedback process. Organizational design and the nature of the sector population are cited as emerging issues of particular importance.     

Corporate social responsibility of financial organizations in the social economy: a case study on savings banks

The implementation of corporate social responsibility policies in firm management processes is becoming increasingly relevant. In the particular case of the financial sector, the incorporation of these policies often has huge repercussions as their role as intermediaries means that firms depend on them for investment which, in turn, affects the way firms perform. Within the financial sector, those organizations form part of the social economy—credit cooperatives and savings banks—are a very particular case as one of the principles on which they are based is their social nature. In this study, we examine the social responsibility situation in these financial organizations, focusing on the case of savings banks. We provide information that will help us better understand the real state of Spanish savings banks with respect to these two areas of social responsibility: The “Obra Social” (or charitable activities) and the incorporation of social and environmental criteria in their business policies.     

Organizational Governance and Ethical Systems: A Covenantal Approach to Building Trust

American businesses and corporate executives are faced with a serious problem the loss of public confidence. Public criticism, increased government controls, and growing expectations for improved financial performance and accountability have accompanied this decline in trust. Traditional approaches to corporate governance, typified by agency theory and stakeholder theory, have been expensive to direct and have focused on short-term profits and organizational systems that fail to achieve desired results. We explain why the organizational governance theories are fundamentally, inadequate to build trust. We advance a conceptual framework based on stewardship theory characterized by “covenantal relationships” and argue that design of governance mechanisms using a covenantal approach is more effective in building trust in organizations. A covenantal relationship is a specialized form of a relational contract between an employee and his or her organization. We argue that regardless of incentives and control mechanisms carefully designed through contractual mechanisms, in the absence of covenantal relationships it is extremely difficult to build trust within organizations. We propose that organizations are more likely to build trust – both at the organizational level and at the interpersonal level – when they create reinforcing and integrated systems that honor implied duties of “covenantal relationships.”     

The “necessaries of life” in British political medicine, 1750–1850

At the beginning of the nineteenth century, the medical concept of “necessaries of life”—i.e., food, heat, clothing, and shelter—became controversial in Britain. The new domain of political economy, in both its Smithian and its Malthusian modes, challenged the view that necessity was either a measurable concept or a deliverable right. For the political economists, “necessity” was relative, a standard erected by class and culture. Many doctors and surgeons resisted that relativism, insisting that the fever epidemics they were responding to could be directly or indirectly attributed to the absence of such “necessaries.” The first half of the article reviews the distinct debates between doctors and economists on these issues in England, Scotland, and Ireland during the first half of the nineteenth century. By mid-century these so-called “necessaries” had largely been de-medicalized and transformed into the status of consumer commodities. The second half of the paper describes the quite different list of necessities that replaced them in public health campaigning and administration during the second half of the century.     

The Impact of Forest Certification on Firm Financial Performance in Canada and the U.S.

The purpose of this article is to examine empirically the impact of environmental certification on firm financial performance (FP). The main question is whether there is a “green premium” for certified firms, and, if so, for what kind of certification. We analyze the short-run and the long-run stock price performance using an event-study methodology on a sample of Canadian and U.S. firms. The results of short-run event abnormal returns indicate that forest certification does not have any significant impact on firm FP regardless of the certification system carried out by firms. Unlike the short-run results, the long-run post-event abnormal returns suggest that forest certification has, on average, a negative impact on firm FP. However, the impact of forest certification on firm FP depends on who grants the certification, since only industry-led certification (Sustainable Forestry Initiative, Canadian Standards Association and ISO14001) are penalized by financial markets, whereas non-governmental organizations–led Forest Stewardship Council certification is not.     

The Accounting Profession: Substantive Change and/or Image Management

The accounting profession’s image and reputation is built upon the members of the profession acting with the “highest sense of integrity” in “the public interest” (AICPA, 2003, www.aicpa.org/about). The Enron debacle initiated the latest crisis facing the profession regarding its image and reputation. The American Institute of Certified Public Accountants (AICPA) is the largest professional body representing the accounting profession and the one to which regulators have looked in establishing and upholding professional standards relating to the public practice of accounting and auditing. One of the AICPA’s responsibilities is to “promote public awareness and confidence in the integrity, objectivity, competence and professionalism of CPAs ....” (AICPA, 2003, www.aicpa.org/about). We analyze the public statements issued by the AICPA (i.e., press releases, speeches of officers, testimony, published articles) during this ethical and identity crisis beginning with the AICPA’s first public statement on the Enron debacle (AIPCA 2001) and concluding with the AICPA recognizing the need for a “new accounting culture” (Melancon 2002). In order to better understand the public discourse, we use image restoration theory (Benoit, 1995), because it provides a typology of strategies for dealing with the public face of crises. We identify the three most common strategies the AICPA employs during this period. Proposals for taking corrective action represent the most commonly employed strategy, but the analysis also indicates an attempt to evade responsibility by claiming defeasibility and to reduce the offensiveness of the situation by employing a bolstering strategy. A second analysis using DICTION, a software package useful in revealing latent dimensions in a text, indicates that early statements tend to use language related to accomplishing specific action while the later statements tend more toward general language that relates to peoples’ everyday lives. The findings raise questions as to substantive nature of the changes proposed by the AICPA, and thus, the extent to which the public interest is being served by them.     

Public-Sector Accounting and E-Governance in Developing Countries: Case of Sri Lanka

This article analyzes how new public financial management system should address the efficiency and effectiveness of the public sector and the emerging accrual basis accounting with e-governance for greater e-transparency on public-sector accounting in Sri Lanka. Despite the setting up of e-framework in 1983, the Sri Lankan public-sector accountancy environment during the last two decades raises concerns about efficiency, effectiveness, and accountability of the e-framework. The findings provide evidence of the importance of the economy and efficiency in the usage of public funds to provide more convenient access to government accounting information for citizens in Sri Lanka.     

Discovering the “customer annoyance iceberg” through evidence controlling

There is no doubt about the relevance of complaint management for customer retention. But complaint management-objectives can only be achieved if complaints registered by the firm give a comprehensive view of the annoyances perceived by customers. In fact, a considerable share of annoyed customers do not complain and many complaint articulations are not registered. Because of these “unvoiced” and “hidden” complaints, registered complaints show only the tip of the “annoyance iceberg” leading to misinterpretations and wrong allocation decisions. As a countermeasure, the concept of evidence-controlling is developed in this paper. Relevant key figures are identified, effective information gathering is demonstrated and managerial implications and open research questions are discussed.     

Why Europe will suffer more

Europeans have a tendency to call the financial crisis a US problem, or a crisis precipitated by the “Anglo-Saxon” model. The data suggest otherwise. Moreover, the corporate sector in Europe has a much lower capacity to finance investment from internal sources of funds, which implies that a recovery of investment in Europe will be much more difficult than in the USA, as long as the banking sector remains weakened by excessive levels of leverage. The cost of the crisis could thus be much larger in Europe than in the USA.     

International issues in entrepreneurship

In recent decades, there has been a substantial increase in private and public investment in entrepreneurship. This trend has important managerial, financial, and public policy implications. There is also considerable interest in understanding the financial practices of early stage companies. The recent global resurgence of leveraged buyouts and the concomitant rise of “private equity” markets have also heightened interest in entrepreneurship (e.g., Cumming et al. 2007). In this essay, we provide focused summaries of the papers in this special issue, which address these issues.      

Economy and “New Economy” in the United States and Germany

The expression “New Economy” is used inconsistently. This article reviews the driving forces of the US boom of the 1990s, examining the changes introduced in the period and before, focusing on the IT sector and new technologies. The “New Economy” is not just the new sectors, but changes in the overall economy emanating from them. These changes will not evaporate in an economic slowdown. Comparisons of the USA with Germany and Europe illustrate that the “New Economy” will also continue to develop there on the foundations already laid.     

Corporate Governance Reforms: Redefined Expectations of Audit Committee Responsibilities and Effectiveness

Comprehensive regulatory changes brought on by recent corporate governance reforms have broadly redefined and re-emphasized the roles and responsibilities of all the participants in a public company’s financial reporting process. Most notably, these reforms have intensified scrutiny of corporate audit committees, whose role as protectors of investors’ interests now attracts substantially higher visibility and expectations. As a result, audit committees face the formidable challenge of effectively overseeing the company’s financial reporting process in a dramatically changed – and highly charged – corporate governance environment. This paper discusses the new expectations of audit committee responsibilities and effectiveness in the wake of corporate governance reforms, key challenges, “whistleblower” provisions and shortcomings, and provides some directions for future research.     

The Paradigm of Knowledge-Oriented Industrial Policy

The paper attempts to synthesize some of the outcomes of the evolution of thinking on industrial policy in the knowledge-based economy and the related advances in policy practice. The term “knowledge-oriented industrial policy” is used in the paper to denote a new brand of public sector interventions targeting various structural aspects of the economy through transmission channels and mechanisms that hinge on the driving forces of knowledge flows and stocks and incorporating a systemic understanding of the policy rationale. The paper outlines the theoretical background, the rationale and the operational framework as well as the design of knowledge-oriented industrial policy whose nature is highlighted by drawing attention to the distinctions between “traditional” and “knowledge-oriented” approaches and instruments. A simplified taxonomy of different categories of knowledge-oriented policy instruments is also presented in the paper. The specific features and effectiveness of these policy instruments are discussed by highlighting their knowledge functions, the policy transmission channels as well as other important characteristics.     

The Effects of Electronic Collaboration in Distributed Project Management

Abstact The emergence and widespread use of collaborative technologies for distributed project management has opened up opportunities for off-shore outsourcing and collaborative development. However, most tools and techniques for project management focus on on-site, long term relationships and sourcing strategies at a time when inter-organizational relationships are becoming more dynamic and geographically dispersed. This paper uses grounded theory to analyze data on virtual teams' projects. The analysis uncovers “effects” in the way in which distributed projects are managed. These effects relate to coordination, communication and adaptation to distributed electronic work environments. Following an analysis of these electronic collaboration “effects”, a model for distributed project management is presented.     

Canada’s Stem Cell Corporation: Aggregate Concerns and the Question of Public Trust

This paper examines one nascent entrepreneurial endeavour intended by Canada’s Stem Cell Network to catalyze the commercialization of stem cell research: the creation of a company called “Aggregate Therapeutics”. We argue that this initiative, in its current configuration, is likely to result in a breach of public trust owing to three inter-related concerns: conflicts of interest; corporate influence on the university research agenda; and the failure to provide some form of direct return for the public’s substantial tax dollar investment. These concerns are common to many efforts to commercialize academic science but are rendered particularly acute in this case given the therapeutic promise of stem cell research and the considerable number of resources related to stem cell research in Canada, which Aggregate Therapeutics is expected to pool. We do, however, believe that the company can be altered to guard against a violation of the public’s trust, and so we present concrete modifications to its structure, which we contend should be given immediate consideration. Matthew Herder is a candidate for the Master of the Science of Law (JSM) degree at Stanford University. Prior to undertaking his studies at Stanford, Matthew completed LLM and LLB degrees at Dalhousie University, clerked at the Federal Court of Canada and articled at McCarthy Tetrault LLP in Toronto, Ontario. Matthew is also a member of the Novel Tech Ethics research team at Dalhousie University. Jennifer Dyck Brian is a Ph.D. student in the Bioethics, Policy, and Law program at the Center for Biology & Society at Arizona State University. Previously, Jennifer worked as research assistant at the Consortium for Science, Policy, and Outcomes at ASU, Wellesley College, and with the Novel Tech Ethics research team at Dalhousie University. Jennifer completed her undergraduate degree at the University of Western Ontario.     

Stakeholder Perspectives on CSR of Mining MNCs in Argentina

This article examines the conceptualisation of corporate social responsibility (CSR) in the context of mining multinationals (MNCs) in Argentina. It explores the suitability of CSR for addressing social, environmental and economic issues associated with mining in the country. The study is based on interviews with four stakeholder groups in the country: government, civil society, international financial organisations, and mining industry. These are analysed using content and interpretative techniques and supplemented by the content analysis of secondary data from headquarters of mining MNCs. Using the concept of corporate social responsibility orientation (CSRO), the study contrasts the perceptions of major stakeholders and examines adaptation of mining companies’ CSRO to local context. It reveals that the CSRO of mining managers in Argentina differs from CSRO developed by global headquarters; and in Argentina companies “negotiate” economic, environmental and legal dimensions of CSR with the government. Although companies “negotiate” philanthropic responsibilities with the communities, ethical responsibilities are defined by the headquarters and not negotiated locally. The analysis suggests that environmental duties are the critical element of CSR in the mining sector in Argentina. This study treats environment as a separate dimension of corporate responsibility defined as to do “what is safe for the environment”.     

Causality Between Corporate Social Performance and Financial Performance: Evidence from Canadian Firms

This study assesses the causal relationship between corporate social performance (CSP) and financial performance (FP). We perform our empirical analyses on a sample of 179 publicly held Canadian firms and use the measures of CSP provided by Canadian Social Investment Database for the years 2004 and 2005. Using the “Granger causality” approach, we find no significant relationship between a composite measure of a firm’s CSP and FP, except for market returns. However, using individual measures of CSP, we find a robust significant negative impact of the environmental dimension of CSP and three measures of FP, namely return on assets, return on equity, and market returns. This latter finding is consistent, at least in the short run, with the trade-off hypothesis and, in part, with the negative synergy hypothesis which states that socially responsible firms experience lower profits and reduced shareholder wealth, which in turn limits the socially responsible investments.     

Challenges for Corporate Ethics in Marketing Genetic Tests

Public discussions of ethical issues related to the biotechnology industry tend to treat “biotechnology” as a single, undifferentiated technology. Similarly, the pros and cons associated with this entire sector tend to get lumped together, such that individuals and groups often situate themselves as either “pro-” or “anti-” biotechnology as a whole. But different biotechnologies and their particular application context pose very different challenges for ethical corporate decision-making. Even within a single product category, different specialty products can pose strikingly different ethical challenges. In this paper, we focus on the single over-arching category of “genetic testing” and compare tests for disease susceptibility and drug response. We highlight the diversity of ethical challenges – grouped under the broad categories of “truth in advertising” and “protecting intellectual property” – raised by the commercialization and marketing of these technologies. By examining social and technical differences between genetic tests, and the associated corporate ethics challenges posed by their commercialization, our intent is to contribute to the nascent business ethics literature examining issues raised by the development and marketing of genetic tests. Bryn Williams-Jones is Assistant Professor in the Département de médecine sociale et préventive and a member of the Groupé de recherche en bioéthique at the Université de Montréal, Canada. An interdisciplinary scholar, Bryn employs analytic tools from applied ethics, health policy and the social sciences to deconstruct the complexity of new technologies and analyse the embedded ethical, social, and political values. Current research focuses on commercial genetic testing (disease susceptibility, pharmacogenetics), biotechnology and intellectual property rights, and conflicts of interest arising with the commercialization of university research and development of industry partnerships. Vural Ozdemir is Director of the Biomarker and Clinical Pharmacology Unit, VA Long Beach Medical Center at the School of Medicine, University of California, Irvine and Co-Chair (together with Bryn Williams-Jones) for the Ethics and Science Policy Committee of the Pacific Rim Association for Clinical Pharmacogenetics. A clinical pharmacologist, Vural’s scientific research focuses on genetic and environmental determinants of inter-individual and inter-ethnic variations in drug safety and effectiveness. Ongoing socio-ethical analyses examine, for example, the role of Mertonian standards in university knowledge-commons and resolution of conflicts arising from the dual role of academic scientists as both actors and narrators in university-industry relationships.     

Testing a Model of Behavioral Intentions in the Republic of Macedonia: Differences Between the Private and the Public Sectors

In this study, we developed a model of unethical behavior intentions, collected data from managers of the private (n = 208) and the public (n = 307) sectors in the Republic of Macedonia, and tested our model across these two sectors. Results suggested that for both sectors, unethical behavior intentions were not related to the love of money and corporate ethical values, whereas irritation was negatively related to life satisfaction. Moreover, corporate ethical values were related to life satisfaction for the private sector only, whereas the love of money and unethical behavior intentions were related to irritation for the public sector only. Managers in the private sector had higher corporate ethical values, lower unethical behavior intentions, lower irritation, and higher life satisfaction than those in the public sector. There was no difference in the love of money. There were more bad apples in the public sector (34.85%) than in the private sector (23.56%). The strongest factor of unethical behavior intentions in the private and the public sectors␣was theft and corruption, respectively. Finally, for the culture-free (etic) model, the love of money was positively related to irritation. Corporate ethical values had a positive “double-whammy” effect: reducing irritation and enhancing life satisfaction. Unethical behavior intentions were positively related to irritation (a mediator), which was negatively related to life satisfaction. Our theory provides new insights regarding doing business in the Republic of Macedonia.

Management training for women: International experiences and lessons for Canada

In Canada, there is growing recognition that women play an increasingly important role in the working world. Management training programs for women have been considered as a route to prepare women to be more effective managers. This paper highlights some of the major issues and concerns being discussed outside Canada by those engaged in management education and training for women — objectives and content of programs, nature of participants, training methods, choice of trainers, organization and evaluation of programs. References are made to a few international programs to illustrate how some of these concerns have been addressed. Implications for training programs in Canada, from both practical as well as research points of view, are discussed.Natalie Lam teaches organizational behaviour, human resources management, and organizational communication at the University of Ottawa. Research interests in cross-cultural management, women in management, and inter-disciplinary research (e.g. organizational issues of physical distribution and materials management). Consultant for private and public sector organizations, such as the Canadian International Development Agency, Bell Northern Research, Institute of Canadian Bankers, and the Canadian Police College.