Business ethics and commercial morality: Report of the Royal Commission into Commercial Activities

This section is focused on some areas of concern which were identified in The Report of the Royal Commission into Commercial Activities of Government and Other Matters (1990–1992). In the Report a number of situations were examined in which some individuals acted without recourse to any ethical guidelines. Most of the people mentioned in the Report held responsible positions in either Government or the private sector, and all were very well known in the community. The Report of the Royal Commission made a number of findings of serious impropriety on the part of several individuals, although there was comparatively little evidence of illegal or corrupt conduct. This section shows what happened to a governmental system in an Australian state when a number of Ministers and their advisors placed their personal or party advantage over their constitutional obligation to act in the community's interests.Those who cannot remember the past are condemned to repeat it.George Santayana (1863–1952)Michael Small is a Senior L1ecturer in the Curtin Business School, Western Australia. Earlier positions have included appointments with the Commonwealth Attorney-General's Department and more recently as Senior Lecturer in the Australian Police Staff College.     

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.     

Means or ends? Ethical decision frameworks in the Western Australian Public Service

The paper analyses results from a questionnaire-based survey of ethical behavior of members of the Western Australian Senior Executive Service. Relating to definitions of deontology (duty) and teleology (ends over means) the study examines the validity of three hypotheses on ethical behaviour/decision making frameworks. Longitudinal data is related to the 1983–90WA Inc period. The study establishes that SES managers apply ethical frameworks in order to understand the meaning of: ethical behaviour and that there are groups of managers with distinct understandings of what constitutes ethical behavior which is reflective of particular ethics theories. Three groups of managers are identified: (1) emphasises teleology (2) focuses on external influences (rules, standards and codes) and (3) encompasses both teleology and external influences and, to a lesser extent deontology. Only this latter group is regarded as having an appropriate repertoire of potential responses to any given ethical dilemma. There is no support for the view that those beginning employment in the public service post 1984 adversely affected the ethical decision making frameworks of other senior managers.Allan Peachment holds a doctorate from Lancaster University and is a National Fellow of the Royal Institute of Public Administration of Australia. For co-authors, Geoff Soutar, Margaret McNeil and Caron Molster, see other papers.     

Does Greater Amount of Information Always Bolster Attitudinal Resistance?

Previous research suggests that attitudinal resistance to information that challenges a prior evaluation increases with the amount of information underlying the prior evaluation. We revisit this proposition in a context in which a set of important claims about a target brand are presented either alone—a lower amount of isolated information—or along with other favorable, but less important claims—a higher amount of embedded information. Results from two experiments show that when the challenge occurs immediately after the initial evaluation, a greater amount of embedded initial information does produce greater attitudinal resistance. However, when the challenge occurs after a delay, a lesser amount of isolated information produces greater attitudinal resistance. The findings qualify previous assumptions about the role of prior information in attitudinal resistance, and support a constructive view of judgment revision and attitudinal resistance.     

Socialization of business practitioners: learning to reflect on current business practices

An approach to ethical coursework in business schools which draws upon Schon's concept of the reflective practitioner is described. It is argued that an approach which promotes reflective practice guards against the dualism in models of ethical decision making which oppose philosophical and psychological perspectives. Workshop activities which can be used to facilitate students' ability to reflect on ethical situations are discussed. In particular, the critical incident technique encourages students to analyse strategies they have used to cope with ethical dilemmas in terms of their previous or contemporary experiences and value systems, and to examine these on the basis of philosophical principles.Joy Cullen is a Senior Lecturer in Education at Massey University, New Zealand. She has an MA with first class honours and a Ph.D. in educational psychology. Her teaching and research interests are in the areas of cognition and learning.Michael W. Small (see Business Ethics and Commercial Morality: Report of the Royal Commission into Commercial Activities).     

Exportkreditgarantien und –bürgschaften in der Diskussion

Öffentlich gesicherte Exportgarantien und –bürgschaften bilden die Grundlage der staatlichen Ausfuhrförderung in Deutschland. Wie sind Exportkredite aus ordnungspolitischer Sicht zu bewerten? Welche Risiken werden in der Praxis abgedeckt? Gibt es Anlass, die mittel– und langfristige Exportfinanzierung der Unternehmen zu reformieren?Dr. Karl–Wolfgang Menck, 63, ist wissenschaftlicher Mitarbeiter im Forschungsschwerpunkt Handel und Entwicklung im Hamburgischen Welt–Wirtschafts–Archiv (HWWA) in Hamburg.     

Preferential hiring and the question of competence

It is widely believed that preferential hiring practices inevitably result in hiring less qualified candidates for jobs. Indeed, this follows analytically from some definitions of preferential hiring (e.g. George Sher's). This paper describes several preferential hiring strategies that do not have this consequence. Sher's definition is thus shown to be inadequate and an alternative definition is proposed. Michael Philips is professor of philosophy at Portland State University, and a visiting professor at the University of British Columbia (1989–91). His articles in ethics and applied ethics have appeared in Mind, The American Philosophical Quarterly, Ethics, Philosophical Studies, The Philosophical Quarterly, The Canadian Journal of Philosophy and other journals. He is currently completing a book on ethical theory.     

Ethical aspects of “Japanese leadership style”

This article describes three characteristics of the Japanese Leadership Style (JLS): self-realization, appreciation of diverse abilities, and trust in others, which have both positive and negative ethical implications. In addition to illustrating how JLS allows Japanese corporations to avoid some of the ethical problems plaguing U.S. corporations, the authors will explain how these characteristics engender the loyalty and initiative of Japanese employees which promote incremental innovation and competitive advantages. Implicit in this discussion is the premise that both the American and Japanese business communities, by analyzing their own ethical issues and leadership styles, can learn from each other.Iwao Taka is a Visiting Research Fellow in the Department of Legal Studies at The Wharton School. He is an Assistant Professor in the International School of Economics and Business Administration, Reitaku University in Japan. His publications include Business Ethics: A Japanese View, Intuitive Decision-Making and Creative Destruction, and Japanese Entrepreneurship after World War II.Wanda D. Foglia, Esquire, is a Teaching Fellow in the Department of Legal Studies at The Wharton School where she is pursuing a Ph.D. in Criminology. A former Assistant District Attorney, her research focuses on approaches for promoting the individual's commitment to ethical and law-abiding behavior. She has recently coordinated a Project to Integrate Ethics Into the Wharton Undergraduate Curriculum.     

Risk Management for E-Cash Systems with Partial Real-Time Audit

We analyze coin-wallet and balance-wallet under partial real-time audit, and compute upper bounds on theft due to the fact that not all the transactions are audited in real time, assuming that everything else is perfect. In particular, we assume that the audit regime holds for innocent payees. Let v be the maximum allowed balance in a wallet, and 01 be the fraction of transactions that are audited in real time in an audit round. Assume one unit transactions. We show that the upper bound on expected theft for coin-wallet is lim₀^–2, while for plausible (similar) parameter choice the bound for a balance-wallet is O(exp(mv)), where 1<m. The former is nicely bounded for small transactions, however, the bound for balance-wallet can become huge in those cases where we require very small false alarm probability. We conclude that partial audit, may be suitable for coin-wallets with low denomination coins, and possibly for balance-wallet, when we may tolerate a relatively high false alarm rate, but it may be too risky for balance-wallet, where very low false alarm rate is required.     

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.     

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.     

Ethics in organizations: A framework for theory and research

In a climate of increasing interest and activity within the field of business ethics, as yet there exists no coherent conceptual framework for organizational theory and research. From a review of current thinking and previous writings a framework of concepts is suggested to help set an agenda for empirical research. The elements of this are, first, a taxonomy of ethical domains: the foci of organizations' and their agents' ethical concerns and conduct. Second, it is considered how ethical functioning might be analysed in terms of causal relationships between expressive forms, voluntary action and instituted forms. Third is discussed ethical process, the means by which ethical awareness is aroused. Fourth and last, the paper examines how normative evaluations might apply to the ethical condition of organizations and their agents, meaning change or stability in reputation and integrity. At each stage of the argument possible objectives for research are developed.Professor Nigel Nicholson is Chairman of the Organisational Behaviour Group and Director of the Centre for Organisational Research at London Business School. Previously, he led investigations into Individual and Organisational Change at Sheffield University's Social & Applied Psychology Unit, and has also held visiting appointments at American, Canadian and German universities. He has published 8 books and over 65 articles on a wide range of topics, and been honoured with an award from the Academy of Management for his contribution to theory.     

Public Bad Prevention by Majority Voting on Redistribution – Experimental Evidence

We present an experimental study on voting behavior in groups of seven persons where public bad prevention depends on redistributing income by qualified majority voting. Although a payoff-maximizing voting pattern exists which guarantees a qualified majority – thus maximizing both individual and group payoffs – the qualified majority is failed in 27% (relatively costly public bad), respectively 46% (relatively cheap public bad) of all decisions. Controlling for different degrees of social distance when casting votes (i.e. anonymous versus with identification) we find that social distance matters when stakes are relatively low, inducing less efficient outcomes for the group when voting behavior is revealed. The endogenously determined status of subjects with respect to redistribution (unlucky subjects lose, lucky subjects win) systematically influences subjects' voting strategies and the collective outcomes, such that a higher number of unlucky subjects leads to less efficient outcomes for the group.     

Ethical banking: The case of the Co-operative bank

The aim of this paper is to present a significant current British case of the application of an ethical approach to banking practice — it relates to issues of stakeholder dialogue, corporate strategy, and marketing.The Co-operative bank traces its organisational origins to the 1870s, and its founding principle to the beginnings of the co-operative movement in the 1830s.In today's fiercely competitive and rapidly changing financial services market, dominated by four major players, the bank has only a 2% share and its advertising spend and marketing profile have been low.Against this background, the bank searched for a positioning statement which would counter its low profile; express where it wanted to be; and give direction to its necessarily limited marketing and communications budget.What slowly evolved was an ethical banking strategy which built on the bank's differences from the others, and which benefited from an opportunity which was being ignored by them. The key concept was a commitment to the responsible sourcing and distribution of funds. A quantitative research project was undertaken with 30 000 customers which revealed major support for the overall strategy, and which was used to prioritise the practical issues of greatest concern. The outcome was an ethical banking policy which communicated what we are and what we stand for and strict guidelines on who we will, or will not do business with.Professor Brian Harvey is The Co-operative Bank Professor of Corporate Responsibility at Manchester Business School, University of Manchester and Honorary Secretary of the European Business Ethics Network. His books have been published by Prentice Hall, Macmillan & Kluwer, of whose series Issues in Business Ethics he is joint Editor.     

Bridging The Digital Divide: Financial and Ethical Challenges

The digital divide – the widening gapbetween people who can use computers and theInternet to advance themselves, and those who,because of poverty, education, or otherbarriers, cannot – offers some unique financialand ethical challenges. Fallows (2000), inThe Invisible Poor, reports on the stateof the U.S. economy as it affects the poor. Among other issues, Fallows argues thateconomic growth separates the classes, ratherthan bringing them together. Attali (2000)suggests a possible solution to this economicgap. Attali believes that ...the only concreteway to reduce the poverty gap is within thecontext of free market economy. It can be doneby combining the two success stories of thelast decade: entrepreneurship and technology,more specifically: microfinance and theInternet. This article addresses some issues related tohow technology, particularly in the area offinancial services, has affected the ability ofthe poor to better themselves. Ethicalchallenges that accompany Information Agepoverty are examined in the context of effortsto narrow the digital divide.     

Evidence of creative destruction in the U.S. economy

Schumpeter discusses the importance of innovation and new firm entry in a capitalistic economy as a means to creatively destruct oligopolies and generate new economic wealth. He warns of R&D becoming the arena of professional engineers in large corporations; Schumpeter feared the obsolescence of entrepreneurship would result in an increasing concentration of wealth among large corporations and toward socialism.Using a longitudinal data base of U.S. corporations over the period 1961–1980, this paper statistically tests several aspects of Schumpeter's analysis. Overall our results give some support to Schumpeter's creative destruction hypothesis, though there exists some sensitivity to the measure of size used. We find most of the firms exiting the ranks of the largest 500 firms (as measured by assets) are those with ranks in the 401–500 range; there is also evidence of churning as the same firms enter and exit the top 500 over time. Additionally, we find that merger has gained prominence as the reason why firms exit the top 500. Among our conclusions is that further work is needed on the role of mergers in the growth-and decline-of entrepreneurial firms.     

Measuring Ethical Ideology in Business Ethics: A Critical Analysis of the Ethics Position Questionnaire

Individual differences in ethical ideology are believed to play a key role in ethical decision making. Forsyths (1980) Ethics Position Questionnaire (EPQ) is designed to measure ethical ideology along two dimensions, relativism and idealism. This study extends the work of Forsyth by examining the construct validity of the EPQ. Confirmatory factor analyses conducted with independent samples indicated three factors – idealism, relativism, and veracity – account for the relationships among EPQ items. In order to provide further evidence of the instruments nomological and convergent validity, correlations among the EPQ subscales, dogmatism, empathy, and individual differences in the use of moral rationales were examined. The relationship between EPQ measures of idealism and moral judgments demonstrated modest predictive validity, but the appreciably weaker influence of relativism and the emergence of a veracity factor raise questions about the utility of the EPQ typology.     

Merger Control in the New Economy

This paper addresses the potential for conflict between antitrust authorities in the arena of merger control in the new economy. By new economy we mean two related developments. First, the internationalization of the economy, i.e. the ability to sell and produce products world-wide, and secondly, markets with certain characteristics such as network effects and other aspects of natural monopoly. We focus on three types of substantive issues in merger control – market definition, assessment of competitive effects, and the role of remedies. We argue that the scope for conflict varies significantly across these three arenas. In particular, conflict over market definition is less likely. By contrast, the assessment of competitive effects and the role of remedies are areas where conflict between antitrust authorities may be more likely in new economy-type markets.     

The Risk Reduction Role of Advertising

This study shows theoretically and empirically that exposure to advertising increases consumers tendency to purchase the promoted product because the informative content of advertising resolves some of the uncertainty that the risk averse consumers face and thus reduces the risk associated with the product. We call this effect the risk-reduction role of advertising. The risk-reduction model implies that advertising effectiveness depends on (a) the risk preference parameter, (b) the precision of the advertising message, (c) the familiarity of the consumer with the product, (d) the consumers sensitivity to products attributes (and thus, her involvement level with the product), and (e) the diversity of products offered by multiproduct firms. These findings suggest that ads spending should be higher (a) for new and relatively unknown products, (b) for high-involvement products, (c) when ads can be quite precise, and (d) when the firm offers a diverse product-line. It also implies that ads should target consumers (a) who are more sensitive to risk, (b) who are more involved, and (c) those who are not familiar with the promoted product.The model allows ads to affect choices also through a direct effect on the utility (i.e., the standard approach to formulate the effect of advertising). In our empirical example (where the products are television shows) the risk-reduction effect is significant and strong and the direct effect is negligible behaviorally. We discuss the welfare implications of these findings, and illustrate the quantitative differences in managerial implications between our model and the traditional one.     

Comment on The Microsoft Antitrust Policy Case

This paper both responds to Economides analysis and attempts to address the Microsoft case from a broader than U.S. perspective. The importance of the roles played by disloyalty payments, compatibility requirements, information asymmetry and the rather static nature of market definition, particularly in the context of allegations of tying, in the Microsoft case are highlighted. In contrast to the position in the U.S., the European Commission acts for all EU member states and has its disposal the possibility of imposing large fines. However, structural remedies are not available to the European Commission. Comity procedures, by allowing for the inclusion of foreign surplus in domestic welfare functions, offer a model for international co-operation in the future application of competition laws.