The Only Solution to the Decline in Business Ethics: Ethical Managers

This paper defines business ethics as a seriesof behaviors that adhere to values held by theindividual manager, the manager's supervisorsand subordinates, general society and, mostimportantly, the manager's customers andclients. The concept of business ethics isexplored through several levels of businessorganizations and operating environments.The paper then examines recent evidence of thedecline in business ethics by noting a fewexamples involving Beech-Nut, Hertz, MichaelMilken, E.F. Hutton, Sears, Salomon Brothers,Dalkon Shield, Exxon Valdez, S&L scandal,brokerage analysts. Surveys are cited toindicate that the American public believes thatbusiness ethics are declining.To further analyze the topic, the authorreports on a series of structured interviewswith managers in a variety of organizations.Fourteen senior managers were interviewed: 4from large county government, 3 from stategovernment, 4 from large corporations, 3 fromsmall businesses. The managers were asked theiropinions concerning the decline of businessethics, and for their recommendations topossibly retard the decline. All managers saidthey believed that ethics are in decline andthat the public believes ethics are declining.The recommendations for retarding or reversingthe decline yielded several suggestions: teachethics in schools and business organizations,develop and enforce Codes of Ethical Conductwithin all organizations, establish bettermonitoring and reporting mechanisms, and hireethical managers.The paper builds on theinterview results by coupling the managers'remarks with admonitions from many authors:while teaching ethics and Codes of EthicalConduct are important, the most importantfactor is the ethical behavior of managers(leaders). Ethical leadership is fundamentalsince ethical behavior is an individual – not acorporate – matter. In practice, ethics is notsomething that a manager ``does'; it issomething that the manager ``is.'     

"Flexible" Work Practices and Occupational Safety and Health: Exploring the Relationship Between Cumulative Trauma Disorders and Workplace Transformation

This article matches establishment-level data on workplace transformation (e.g., quality circles, work teams, and just-in-time production) with measures of cumulative trauma disorders at these same establishments to explore the relationship between "flexible" workplace practices and workplace health and safety. The results reveal a positive, statistically significant, and quantitatively sizable relationship between cumulative trauma disorders and the use of quality circles and just-in-time production.     

TESTING FOR INTEGRATION IN EUROPEAN COMMUNITY AGRICULTURAL PRODUCT MARKETS

The degree of spatial market integration in European Community agricultural product markets is investigated. The methodology is based on co-integration analysis. A two-step testing procedure is applied to test the existence of the ‘Law of One Price’ which should be in force if these markets are truly integrated. The results show that market integration has not been achieved in a number of cases even when MCAs are subtracted from the price series used.     

Exact Ruin Probabilities and the Evaluation of Program Trading On Financial Markets

For a compound Poisson process with negative drift and jump distribution consisting of a mixture of exponentials on [0) and on (-, 0), an exact expression is derived for the probability of hitting the level c, c > 0. the problem is motivated by modeling the returns from trading on financial markets.     

AN EMPIRICAL INVESTIGATION INTO THE IMPACT OF PROFIT SHARING SCHEMES OF EXECUTIVIES ON THE CONTENT OF CORPORATE SUBMISSIONS ON PROPOSED ACCOUNTING STANDARDS

This paper examines the comments submitted by UK companies on 20 proposed accounting standards to test the hypotheses that executives favor standards that increase, or dampen the variance of, accounting profit numbers on which their incentive remuneration is based. Test results were generally as hypothesised but only the profit variance outcomes were statistically significant. Allowing for political environment changes affected only the profit variance results. There was no evidence that the relative monetary size of bonus payments was a significant lobbying factor. No significant differences were found between the lobbying preferences of companies with or without executive incentive schemes.     

THE EFFECTS OF THE INSIDER TRADING SANCTIONS ACT OF 1984: THE CASE OF SEASONED EQUITY OFFERINGS

Previous empirical research indicates that corporate insiders tend to increase (decrease) their shareholdings before events that increase (decrease) firm value. More recent evidence suggests, however, that passage of the Insider Trading Sanctions Act of 1984 (ITSA) may have deterred this behavior. Our results indicate that before passage of the ITSA, insiders exploited their access to nonpublic information by selling shares before the announcement of equity issues. However, after passage of the ITSA insiders no longer displayed this behavior. We conclude the ITSA has a deterrent effect, which is more heavily concentrated on insiders at the highest level of the firm who are most visible to regulators and other market participants.     

The Determinants of Enterprise Risk Management: Evidence From the Appointment of Chief Risk Officers

Enterprise risk management (ERM) has captured the attention of risk management professionals and academics worldwide. Unlike the traditional "silo-based" approach to corporate risk management, ERM enables firms to benefit from an integrated approach to managing risk that shifts the focus of the risk management function from primarily defensive to increasingly offensive and strategic. Despite the heightened interest in ERM, little empirical research has been conducted on the topic. This study provides an initial attempt at identifying the determinants of ERM adoption. We construct a sample of firms that have signaled their use of ERM by appointing a Chief Risk Officer (CRO) who is charged with the responsibility of implementing and managing the ERM program. We use a logistic regression framework to compare these firms to a size- and industry-matched control sample. While our results suggest a general absence of differences in the financial and ownership characteristics of sample and control firms, we find that firms with greater financial leverage are more likely to appoint a CRO. This finding is consistent with the hypothesis that firms appoint CROs to reduce information asymmetry regarding the firm's current and expected risk profile.     

MEASURING HEDGE EFFECTIVENESS FOR FAS 133 COMPLIANCE

Financial Accounting Standard (FAS) 133 requires business entities to document their anticipation of hedge effectiveness in order to qualify for hedge accounting treatment of gains and losses from financial derivatives. In the absence of specific guidelines, the accounting industry has espoused the "80–125" rule for determining hedge effectiveness. But the authors observe that meaningful assessment of anticipated hedge effectiveness must consider two distinct aspects of a firm's hedging strategy: (1) the strength of the hedging relationship, which is determined by the choice of the hedging instrument; and (2) the position taken in the hedging instrument relative to the holdings of the hedged item. They take both aspects of hedging into consideration in developing alternative measures of hedge effectiveness and distinguishing between the potential and attained effectiveness of a particular hedge. This approach enables the user to evaluate the relative merits of alternative hedging strategies to support risk management decisions, and also to document a selected hedging strategy's anticipated effectiveness for purposes of compliance with FAS 133. While the authors endorse a fairly broad interpretation of hedge effectiveness, their approach can also be used in the narrower context of an "80–125" rule.