Corporate Governance, Ethics, and the Backdating of Stock Options

Backdating of stock options is an example of an agency problem. It has emerged despite all the measures (i.e., new regulations and additional corporate governance mechanisms) aimed at addressing such problems? Beyond such negative controlling measures, a more positive empowering approach based on ethics may also be necessary. What ethical measures need to be taken to address the agency problem? What values and norms should guide the board of directors in protecting the shareholders’ interests? To examine these issues, we first discuss the role values and norms can play with respect to underlying corporate governance and the proper role of directors, such as transparency, accountability, integrity (which is reflected in proper mechanisms of checks and balances), and public responsibility. Second, we discuss various stakeholder approaches (e.g., government, directors, managers, and shareholders) by which conflicts of interest (i.e., the agency problem) can be addressed. Third, we assess the practice of backdating stock options, as an illustration of the agency problem, in terms of whether the practice is legally acceptable or ethically justifiable. Fourth, we proceed to an analysis of good corporate governance practice involving backdating options based on a series of ethical standards including: (1) trustworthiness; (2) utilitarianism; (3) justice; and (4) Kantianism. We conclude that while executive compensation schemes (e.g., stock options) were originally intended to help remedy the agency problem by tying together the interests of the executives and shareholders, these schemes may have actually become “part of the problem,” and that the solution ultimately depends upon whether directors and executives accept that all of their actions must be based on a set of core ethical values.     

Corporate Governance,Ethics, and the Backdating of Stock Options

Backdating of stock options is an example of an agency problem. It has emerged despite all the measures (i.e., new regulations and additional corporate governance mechanisms) aimed at addressing such problems? Beyond such negative controlling measures, a more positive empowering approach based on ethics may also be necessary. What ethical measures need to be taken to address the agency problem? What values and norms should guide the board of directors in protecting the shareholders’ interests? To examine these issues, we first discuss the role values and norms can play with respect to underlying corporate governance and the proper role of directors, such as transparency, accountability, integrity (which is reflected in proper mechanisms of checks and balances), and public responsibility. Second, we discuss various stakeholder approaches (e.g., government, directors, managers, and shareholders) by which conflicts of interest (i.e., the agency problem) can be addressed. Third, we assess the practice of backdating stock options, as an illustration of the agency problem, in terms of whether the practice is legally acceptable or ethically justifiable. Fourth, we proceed to an analysis of good corporate governance practice involving backdating options based on a series of ethical standards including: (1) trustworthiness; (2) utilitarianism; (3) justice; and (4) Kantianism. We conclude that while executive compensation schemes (e.g., stock options) were originally intended to help remedy the agency problem by tying together the interests of the executives and shareholders, these schemes may have actually become “part of the problem,” and that the solution ultimately depends upon whether directors and executives accept that all of their actions must be based on a set of core ethical values.     

Productivity and impact in advertising research since the millennium: a profiling and investigation of drivers of impact

What does it take to become a top advertising scholar in productivity? What drives impact in advertising research? This article sets out to answer these two questions by assessing the productivity and impact among scholars and their work in advertising since the millennium. As a two-part study, we begin by benchmarking and profiling the top 1% scholars in the field based on their research publications in the three top advertising journals (Journal of Advertising, Journal of Advertising Research, and International Journal of Advertising). Next, we employ a three-perspective conceptual model to identify the salient drivers of impact in advertising research. By content analyzing 1443 articles in the three journals published between 2000 and 2014, we show that certain universalistic and particularistic factors (to a lesser extent) significantly predict paper citations. Our findings reveal how advertising academia is advancing and showing signs of internationalization in the new millennium, which provides implications for the field's advancement and scholarship.     

Distinguishing Economically from Legally Formal Firms: Targeting Business Support to Entrepreneurs in South Africa’s Townships*

Although the government of South Africa (SA) has formally adopted a policy of proactive support of entrepreneurship, providing business assistance to all of its entrepreneurs is beyond SA’s financial and human resource capabilities. This study utilizes the results of an in‐depth survey of entrepreneurs in SA’s townships to find: (1) The business and owner traits that predict revenues and job creation among the township entrepreneurs, (2) The key issues that challenge township entrepreneurs; and (3) What the answers to these issues imply about the appropriate content and recipients of business assistance to township entrepreneurs. A distinction is helpful in framing this study’s approach. In SA, registered (licensed) businesses are legally formal firms. In contrast, economically formal firms have institutionalized processes that lead to success as a profit‐making firm. We use this distinction in our analysis of the data and framing of the implications for business assistance strategy in SA.     

Consumer choices under product option framing: Loss aversion principles or sensitivity to price differentials?

The effects of options framing can be theoretically explained by loss aversion principles as well as by potential alternative explanations (e.g., sensitivity to price differentials). This paper examines the interaction effects between option framing and two types of cognitive constraints (availability of cognitive resources and additional redundant product information) on consumer choices for adding or deleting optional product features. In the process, the research attempts to provide empirical support for one theoretical model (e.g., loss aversion principles) versus the other (e.g., sensitivity to price differentials). The results support the hypotheses that consumers choose a higher number of product options when starting from a fully loaded model than from a base model, and that this effect is magnified when consumers make choices under high cognitive constraints. In essence, the results empirically support the theoretical premise of the effects of option framing being driven by loss aversion principles than by diminished sensitivity to price differentials. © 2008 Wiley Periodicals, Inc.     

Effects of pricing and promotion on consumer perceptions: it depends on how you frame it

This research examined the extent to which different promotional frames increased perceptions of deal value. Price discounts dominate the sales promotions employed by marketers. The framing literature suggests discounts have robust positive effects on consumer perceptions of deal value. However, the current research showed that negative quality inferences moderated discount framing effects and undermined deal value, particularly when no assurance of product quality was provided. Every-day-low-price offers were also vulnerable to negative quality inferences, while free gift frames maintained quality perceptions and increased deal value. Product trial acted to further magnify promotional framing effects, according to a confirmation bias. These findings were consistent with an attribute framing mechanism.     

On ChatGPT and beyond: How generative artificial intelligence may affect research,teaching, and practice

How does ChatGPT, and other forms of Generative Artificial Intelligence (GenAI) affect the way we have been conducting—and evaluating—academic research, teaching, and business practice? What are the implications for the theory and practice of marketing? What are the opportunities and threats, and what are some interesting avenues for future research? This editorial aims to kick off an initial discussion and stimulate research that will help us better understand how the marketing field can fully exploit the potential of GenAI and effectively cope with its challenges.     

The ethos of business students

Business schools are the “nurseries” of the corporate world. This article offers an empirical analysis of the business student ethos on the basis of research conducted at three Dutch universities. A theoretical framework in the tradition of virtue ethics and dubbed “moral ethology” is used to identify the values business schools convey to their students. The central research question is: What types of ethos do Dutch business students have? Forty-three undergraduate students participated in Q-methodological research, a mixed qualitative–quantitative small-sample method. Five different types of ethos were generated: Do-Good Managers, Market Managers, Searching Managers, Balancing Managers, and Radical Market Managers. Some general characteristics that apply to all the types of ethos were identified, such as the search for efficiency. It is argued that business schools should pay much more attention to the values that are endorsed in both life and business and should help students to address situations in which values are neglected.     

The Promotion of Renewable Energies and Sustainability

The Renewable Energies Act (Erneuerbare–Energien–Gesetz – EEG) is the German governments main instrument for implementing the energy objectives of its sustainability strategy. Is the EEG really an adequate instrument for this purpose? Does it consider both effectiveness and efficiency? Are the different aspects of sustainability evenly addressed? What possible alternatives are there regarding changes towards other promotional systems or shifting from a national to a European framework?

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Verena Leïla Holzer, Research Assistant, Department of Economic Policy, University of Potsdam, Germany.     

Content Analysis of the ‘Clean Your Plate Campaign’ on Sina Weibo

ABSTRACT

At the beginning of 2013, a Beijing non-profit group launched a ‘Clean Your Plate Campaign’ on Sina Weibo, a Chinese Twitter-like microblogging site, with aims to reduce food waste. This paper examines social media users’ reactions during two periods of the first three years of the campaign. Upon examination of topic content, supporting participation was the most popular topic in January 2013 and showcasing individual achievement was the most frequently discussed topic in March 2016, with socialising as the common purpose for posting in both months. Users mentioning the campaign most in January 2013 belonged to private organisations, with posts from ordinary people becoming more predominant by March 2016. This study sheds light on the use of social media to raise public awareness regarding food waste in China. The findings will help campaigns aiming to promote food waste reductions or other social movements that use social media as a platform for citizen involvement.     

Narrow framing: Professions,sophistication, and experience

We document support for the narrow framing effect proposed by Tversky, A. and Kahneman, D. (1981). Our findings that traders in an options market frame complicated investment decisions into simpler ones support the narrow framing effect. Traders' professionalism, sophistication, and trading experience are negatively correlated with the degree of narrow framing, implying that these factors help to reduce investors' behavioral bias. Our study bridges the gap between the psychological literature and financial literature in terms of the relationship between experience/sophistication and narrow framing. The article sheds light on the decision‐making process in an options market, and the relationship between narrow framing and sophistication/experience. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:203–229, 2010     

How to Get the Lisbon Strategy Back on Track

Halfway through the Lisbon process, achievements have in many respects fallen distinctly behind the ambitious aims set by EU heads of state and government in March 2000. What has gone wrong? What changes are required to get the process back on track? Is a Lisbon strategy, even a reformed one, really needed?     

Cause-Related Marketing: An Exploratory Study of Campaign Donation Structures Issues

ABSTRACT

Over the past decade, cause-related marketing (CRM) has become a popular and unique promotional tool for brands. Academic research indicates outcomes of such campaigns are generally positive for all stakeholders. Consumers feel they are making a difference, firms benefit from improved public image and increased sales, and the cause or nonprofit organization receives increased publicity and funding. However, there are ethical issues involved when linking a firm with a nonprofit organization as well as potential negatives (Smith and Stodghill 1994; Andreasan 1996; Meyer 1999; Polonsky and Wood 2001). An exploratory research study was undertaken to understand the impact of the structural elements of cause-related marketing campaigns, including how the donation is quantified, the size of the donation relative to the price of the product, the presence of donation deadlines and caps, and the level of promotion used to publicize the campaign. Findings suggest that the structural elements of cause-related marketing campaigns do influence consumers' perceptions of the campaigns. Based on these results, implications for CRM campaign managers and future research ideas are provided. This information will help practitioners, including marketing managers, advertising managers and advertising creative professionals to design the most effective communication tactics for a cause-related marketing campaign.     

BLACK–SCHOLES REPRESENTATION FOR ASIAN OPTIONS

Asian options are securities with a payoff that depends on the average of the underlying stock price over a certain time interval. We identify three natural assets that appear in pricing of the Asian options, namely a stock S, a zero coupon bond B^T with maturity T, and an abstract asset A (an “average asset”) that pays off a weighted average of the stock price number of units of a dollar at time T. It turns out that each of these assets has its own martingale measure, allowing us to obtain Black–Scholes type formulas for the fixed strike and the floating strike Asian options. The model independent formulas are analogous to the Black–Scholes formula for the plain vanilla options; they are expressed in terms of probabilities under the corresponding martingale measures that the Asian option will end up in the money. Computation of these probabilities is relevant for hedging. In contrast to the plain vanilla options, the probabilities for the Asian options do not admit a simple closed form solution. However, we show that it is possible to obtain the numerical values in the geometric Brownian motion model efficiently, either by solving a partial differential equation numerically, or by computing the Laplace transform. Models with stochastic volatility or pure jump models can be also priced within the Black–Scholes framework for the Asian options.     

Bank ethics: An exploratory study of ethical behaviors and perceptions in small,local banks

This article addresses five research questions: What specific behaviors are described in the literature as ethical or unethical? What percentage of business people are believed to be guilty of unethical behavior? What specific unethical behaviors have been observed by bank employees? How serious are the behaviors? Are experiences and attitudes affected by demographics? Conclusions suggest: There are seventeen categories of behavior, and that they are heavily skewed toward internal behaviors. Younger employees have a higher level of ethical consciousness than older employees. The longer one works for a company, the more one may look to job security as a priority; this can lead to rationalizing or overlooking apparently unethical behaviors. More emphasis is needed on internal behaviors with particular attention on the impact that external behaviors have on internal behaviors.     

Promotion and Prevention Contracts in Distributor–Supplier Relationship Using Matched Dyadic Data

ABSTRACT

Purpose: This article aims to introduce and distinguish two features of contract design – prevention and promotion contracts – and compares their effects on opportunism within the distributor–supplier relationship. It also examines the moderating role of ex post contract enforcement strategies.

Methodology/approach: The authors test the proposed theoretical model by collecting matched data from distributors and suppliers in China. Moreover, partial least squares regression is used to analyze the data and test the hypothesis model.

Findings: The results show that a prevention contract leads the distributor to vigilantly avoid mistakes and punishments, thereby deterring him from behaving opportunistically. Alternatively, a promotion contract motivates the distributor to make an effort to attain potential long-run payoffs instead of short-term profits, subsequently restraining his opportunism. Overall, the promotion contract is more effective in curbing distributor opportunism than the prevention contract. In addition, the inhibitory effect of a prevention contract on opportunism is reinforced along with a severe contract enforcement strategy. By contrast, a promotion contract effectively mitigates opportunism with a swift contract enforcement strategy.

Originality/value/contribution: This study untangles two distinctive features of contract design – prevention-framed and promotion-framed contracts – and compares their effects on opportunism management. This study also provides a profound understanding of contract effectiveness by revealing the interaction effect between ex ante contract design and ex post contract enforcement.

Research implications: Researchers are encouraged to explore contract effectiveness from a framing perspective. In particular, ex post contract enforcement strategies should be included in research frameworks related to contract governance. Suggestions for further research on the effects of prevention and promotion contracts on different forms of opportunism are also proposed.

Practical implications: This article provides several insightful implications for managers in designing and enforcing contract in business-to-business marketing. Managers can strategically achieve control and motivation effects by consciously making framing decisions in the contract design, further curbing opportunistic behaviors. Moreover, managers can select a contract enforcement strategy in accordance with the contract type to maximize the effects of the specific contract.     

Research Methods in Taxation Ethics: Developing the Defining Issues Test (DIT) for a Tax-Specific Scenario

This paper reports on the development of a research instrument designed to explore ethical reasoning in a tax context. This research instrument is a version of the Defining Issues Test (DIT) originally developed by Rest [1979a, Development in Judging Moral Issues (University of Minnesota Press, Minneapolis, MN); 1979b, Defining Issues Test (University of Minnesota Press, Minneapolis, MN)], but adapted to focus specifically on the environment encountered by tax practitioners. The paper explores reasons for developing a context- (and profession-) specific test, and details the manner in which this was undertaken. The study on which it is based aims to compare the reasoning of tax practitioners in the tax-specific context and in the general social context covered by the original DIT, and to compare this with the reasoning of non-specialists in these two contexts. The paper therefore also considers the issues that arise when using such tests to compare reasoning in different domains or to compare groups. The focus on instrument development to measure ethical reasoning in a specific domain will contribute to the literature on research methods in the area of the DIT and will facilitate cross-study comparisons.     

Political consumerism between individual choice and collective action: social movements,role mobilization and signalling

The notion of political consumerism has two implications. First, consumers wield some kind of power that they can use to effect social change through the marketplace. Second, political consumerism refers to and somehow combines the rationalities of two subsystems, politics and the economy. Yet regarding their everyday, individualized shopping decisions, consumers do not appear to command a great deal of power. What kind of influence, then, can individual economic decisions have on producers? Is that influence robust enough to attribute power to consumers? And if consumers do indeed have power, how can we conceive the implied translation of political concerns into the monetary logic of the economy? An answer to those questions needs to take into account the societal context of political consumerism. This paper analyses how political consumerism relates to the functional differentiation of modern society and how social movements are fundamental to understanding it. Through what I shall call role mobilization, social movements turn the role sets of their supporters into transmission belts for political objectives, and by authoritatively communicating those objectives, they provide signals to producers, who otherwise would not know a great deal about their consumers’ preferences.     

Review Essay

What Do We Produce in the “Knowledge Factory”and for Whom? A Review Essay of The Knowledge Factory by Stanley Aronowitz