how economic incentives may destroy social ecological and existential values the case of executive compensation executive compensation has long been a prominent topic in the management literature a main question that is also given substantial attention in the business ethics literature even more so in the wake of the recent financial crisis is whether increasing levels of executive compensation can be justified from an ethical point of view also the relationship of executive compensation to instances of unethical behavior or outcomes has received considerable attention the purpose of this paper is to explore the social ecological and existential costs of economic incentives by discussing how relying on increasing levels of executive compensation may have an adverse effect on managerial performance in a broad sense specifically we argue that one dimensional economic incentives may destroy existential social and systemic values that influence the manager s commitment to ensure responsible business conduct and have negative spillover effects that may reduce the manager s performance there are well documented findings that demonstrate that reliance on sources of extrinsic motivation such as economic incentives may displace intrinsic motivation our perspective is a holistic one in the sense that we will explore the influence of sources of extrinsic motivation on the manager s intrinsic commitment to different types of values we will in particular investigate how it may influence the manager s ethical reflection and behavior or lack thereof

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 interrelations of finance and economics theoretical perspectives it is traditional in a discussion piece to organize the material in one of two ways the writer can either take a historical perspective and attempt to explain how it is we got where we are today and where we are likely to go from here or the writer can describe the current state of the art dwelling on particular points of interest or promise in the prevailing research having quite recently done both i thought i would take a somewhat different approach i would like to try to briefly describe the main characteristics of a neoclassical theory of finance that captures the essential themes of modern finance and relate these characteristics to the general themes of economics finance uses the modeling framework constructed in economics but within this scaffolding finance has taken a different methodological perspective it is wrong to characterize finance or financial economics to be formal as simply another of the specialty areas of economics not unlike for example labor economics or development economics or public finance while finance is specialized in its focus on the financial markets the differences between economics and finance only begin there the principal distinction is one of methodology rather than of focus if labor markets behaved like financial markets the theories of finance would be used to study them indeed the line where financial theoretic analysis leaves off and more conventional patterns of economic reasoning begin is an active research issue

broadcast advertising and u s demand for alcoholic beverages quarterly data for 1977 1994 on alcohol consumption and advertising are used to estimate a differential demand system including explanatory variables for broadcast advertising and print advertising the model explains the growth rate of per capita consumption dependent on explanatory variables for prices real income demographic changes and real advertising by media and beverage empirical results also are reported for total consumption of pure alcohol the results for the three beverages and total alcohol indicate that advertising has little or no effect on demand the empirical evidence thus supports the notion that regardless of media advertising affects mainly brand shares

the dark side of buyer power supplier exploitation and the role of ethical climates media increasingly accuse firms of exploiting suppliers and these allegations often result in lurid headlines that threaten the reputations and therefore business successes of these firms neither has the phenomenon of supplier exploitation been investigated from a rigorous ethical standpoint nor have answers been provided regarding why some firms pursue exploitative approaches by systemically contrasting economic liberalism and just prices as two divergent perspectives on supplier exploitation we introduce a distinction of common business practice and unethical supplier exploitation since supplier exploitation is based on power we elucidate several levels of power as antecedents and investigate the role of ethical climate as a moderator this study extends victor and cullen s 1988 ethical climate matrix according to a supply chain dimension and is summarized in an integrated conceptual model of five propositions for future theory testing results provide a frame of reference for executives and scholars who can now delineate unethical exploitation and understand important antecedents of the phenomenon better

corporate autonomy and buyer supplier relationships the case of unsafe mattel toys this article analyses supplier buyer relationships where the suppliers adapt to the buyers needs and expectations to gain mutual advantages in some cases such closely knit relationships lead to violations of the autonomy of one or both partners a concept of corporate autonomy ca is developed to analyze this problem three different facets can be distinguished rule autonomy executive autonomy and control autonomy a case study of mattel s problems with lead contaminated toys produced in china shows that the ca of buyer and supplier can be restricted as a result of a dysfunctional partnership involving a moral dilemma

multinationality and corporate ethics codes of conduct in the sporting goods industry the international operations of firms have substantial impact on the formulation and implementation of business ethical principles such as codes of conduct the international sporting goods industry has been a pioneer in setting up codes and thus provides much relevant experience different sourcing strategies degrees of multinationality and national backgrounds affect the contents of codes moreover international non governmental organizations prove equally effective in triggering sophisticated codes

screening for managerial objectives the debate between agency and stewardship theorists on the nature of managerial objectives in itself implies that a principal may be uninformed about managers objectives this article introduces a model of adverse selection in managerial types where classically opportunistic agents are contrasted with stewards who exhibit intrinsic preferences for the organization s success and experience betrayal crowding out when they are incentivized as if they were agents the analysis characterizes stewardship inefficiencies not previously identified by stewardship theorists this inefficiency is minimized via a menu of contracts that emphasizes the fixed component of pay for stewards moreover steward run firms are more successful than agent run firms

research note additional learning and implications on the role of informative advertising observers argue that evidence for the persuasive role of advertising comes from competitive categories where increases in advertising lead to higher average prices conversely others claim that advertising serves a purely informational role here higher levels of advertising lead to better informed consumers and this should increase competition and stimulate lower prices the objective of this study is to neither confirm nor refute either of these perspectives it is rather to show that increases in informative advertisingalone can lead to both higher or lower prices i further show that the direction of this relationship depends on the level of differentiation between competing firms similar to grossman and shapiro 1984 i examine conditions where the differences between competing products are small but i also examine conditions where the differences are significant the role of advertising is to inform consumers about individual products and higher advertising for a product means that more of the potential market knows about it higher levels of advertising increase the relative importance of fully informed consumers compared to partially informed consumers this dynamic is the basis for explaining why informative advertising can push prices either up or down in a uniformly distributed spatial market

child labor and multinational conduct a comparison of international business andstakeholder codes increasing attention to the issue of child labor has been reflected in codes of conduct that emerged in the past decade in particular this paper examines the way in which multinationals business associations governmental and non governmental organizations deal with child labor in their codes with a standardized framework it analyzes 55 codes drawn up by these different actors to influence firms external societal behavior the exploratory study helps to identify the main issues related to child labor and the use of voluntary instruments such as codes of conduct apart from a specific indication of the topics covered by the code especially minimum age requirements this also includes monitoring systems and monitoring parties most important to company codes are the sanctions imposed on business partners in case of non compliance severe measures may be counterproductive as they do not change the underlying causes of child labor and can worsen the situation of the child workers by driving them to more hazardous work in the informal sector this underlines the importance of a broad rather than a restrictive approach to child labor in codes of conduct the paper discusses the implications of this study offering suggestions for future research

informative advertising with differentiated products in this paper we study the role of promotional expenditures by sellers in a model of product differentiation advertising conveys full and accurate information about the characteristics of products heterogeneous consumers who have no source of information other than advertisements seek to purchase the products that best fit their needs despite the roles played by advertising in improving the matching of products and consumers and in increasing the elasticity of demand faced by each firm we find that the market determined levels of advertising are excessive given the extent of diversity in the market we derive a promotional equilibrium based on a specific information transmission technology paying explicit attention to the structure of consumer information and its impact on firms demand curves this allows us to study the effects of changes in the advertising technology including an increased ability to target messages to specific groups of consumers on the equilibrium in the product market we find that decreased advertising costs may reduce profits by increasing the severity of price competition

exploring the effects of union ngo relationships on corporate responsibility the case of the swedish clean clothes campaign in the current era governments are playing smaller roles in regulating workers rights internationally and transnational corporations tncs non governmental organisations ngos involved in the struggle for workers rights and labour trade unions have started to fill this governance gap this paper focuses on the least researched of the relationships among these three actors the union ngo relationship by analysing the ways in which it affects definitions of tnc responsibility for workers rights at their suppliers factories based on a qualitative study of the union ngo relationship in the swedish garment industry between 1996 and 2005 we propose that there are six main configurations of union ngo relationships by linking these configurations to their effects on tnc responsibility we propose that co ordination relationships between unions and ngos particularly high commitment co ordination relationships are likely to result in a broadening of the definition of tnc responsibility while conflictual relationships both high and low commitment result in a narrowing of the definition of tnc responsibility the study indicates that co operation is generally more beneficial for both unions and ngos than is any form of conflictual relationship in terms of broadening the definition of tnc responsibility

supply chain specific understanding the patchy success of ethical sourcing initiatives as a number of high profile companies have found to their cost corporate reputations can be significantly affected by firms management of sustainability issue including those that are outside their direct control such as the environmental and social impacts of their supply networks this paper begins by examining the relationship between corporate social responsibility reputation and supply network conditions it then looks at the effectiveness of one tool for managing supply network sustainability issues ethical sourcing codes of conduct by examining how the characteristics of three supply networks branded clothes diy wood products and branded confectionary affects the implementation ethical sourcing codes of conduct it ends by setting out conclusions on why implementation of such codes has been so much more successful in some sectors than others and recommendations on effective approaches to managing sustainability issues in supply networks

advertising in competitive markets in this paper small firms sell a homogeneous good to small consumers under conditions of free entry but consumers receive price information only through firms advertising in equilibrium every firm on the continuous price distribution buys less advertising than is socially optimal the result is robust if firms advertise in just one medium if readers of different advertising media are positively correlated excess advertising can occur in media used exclusively to advertise discount prices copyright 1991 by american economic association

duality theory for variable costs in joint production duality methods for incomplete systems of consumer demand equations are adapted to the dual structure of variable cost functions in joint production this allows identification of necessary and sufficient restrictions on technology and cost so that con ditional factor demands can be written as functions of input prices fixed inputs and cost these are observable when variable inputs are chosen and committed to production hence the identified restrictions allow ex ante conditional demands to be studied using observable data this class of production technologies is consistent with all von neu mann morgenstern utility functions when ex post production and or output prices are un certain

suppliers as stewards managing social standards in first and second tier suppliers buyer supplier relationships are often framed as principal agent relationships based on contractual arrangements that temporarily align the goals of both parties the underlying notion is that the relationship between buyers and suppliers is adversarial in nature and that the supplier acting in the role of the agent will take advantage of the principal if not sufficiently controlled we propose that there is empirically also another type of partnership which reflects the propositions of stewardship theory according to this theory suppliers are motivated to work autonomously towards contractually agreed objectives we analyse how the agency and stewardship theories differ regarding their descriptions of autonomy motivation identification authority stakeholder orientation and short versus long term collaboration we analyse the case of a first tier supplier and four second tier suppliers situated in turkey in the area of istanbul which collaborate with the aim of improving their social and environmental performance the results show that the relationship between the partners in this case has become more collaborative over time and can now be described in terms of stewardship theory rather than in terms of agency theory we conclude that the distinction between agency and stewardship relationships is empirically meaningful in the context of supplier buyer relationships and adds a new aspect to our understanding of how to achieve more sustainable supply chains

striking a balance between rules and principles based approaches for effective governance a risks based approach several recent studies and initiatives have emphasized the importance of a strong ethical organizational dna odna to create and promote an effective corporate governance culture of trust integrity and intellectual honesty this paper highlights the drawbacks of an excessively heavy reliance on rules based approaches that increase the cost of doing business overshadow essential elements of good corporate governance create a culture of dependency and can result in legal absolutism the paper makes the case that the way forward for effective corporate governance is to strike an optimal balance between rules based and principles based approaches the recent corporate scandals have demonstrated that the ethical odna is critical to the driving force and basis of legal and regulatory requirements effective governance means adhering to ethical principles not merely complying with rules and is a crucial guardian of a firm s reputation and integrity it is through an effective corporate governance program that is one that optimally captures and integrates the appropriate aspects of rules based and principles based approaches and identifies and assesses the related risks that an organization can reconfigure its odna for improved performance focusing on the ethical odna as the basis of new governance measures provides an opportunity to develop a competitive advantage as it represents a potential source of differentiation strengthens the relationship with all stakeholders of the organization by building a culture of trust and integrity and re instills investor confidence this paper employs dialectical reasoning that links the odna through principles driven rules in developing a risks based approach a comparison from a risk assessment perspective between rules based and principles based approaches is presented although there have been few applications employing dialectical reasoning in business research this methodology can be extremely useful in isolating ethical issues and integrating them into the business process the risks based approach captures the benefits of both rules based and principles based approaches and incorporates trust based principles such as solidarity subsidiarity and covenantal relationships

suppliers compliance with mncs codes of conduct behind the scenes at chinese toy suppliers despite increased academic and practitioner interest in codes of conduct there has been little research into the actual compliance of suppliers in developing countries with the codes of conduct of multinational corporations mncs this paper addresses this lack by analysing chinese suppliers level of compliance with swedish toy retailers codes of conduct based on unannounced and unofficial interviews with employees of chinese suppliers the study shows that all of the nine studied suppliers breached some of the standards in the toy retailers codes with over two thirds of the suppliers not complying with the majority of the studied standards while there are different explanations of this lack of compliance the main explanation seems to be that chinese suppliers successfully deceive toy retailers monitoring organisations by decoupling the formal monitored part of their organisation from the actual operational part of their organisation the paper concludes with a discussion of how to increase compliance with mncs codes of conduct

an econometric estimation of hicksian and marshallian elasticities in indian manufacturing the knowledge of substitution possibilities between different factors of production is essential in evaluating the impact of public policies on productivity employment industrial growth and factor intensity since the advent of flexible functional forms in the early 1970s a large number of studies have estimated the ease of factor substitution however to date most of the empirical evidence on factor substitution is based on a cost function a drawback with the cost function

informative advertising in differentiated oligopoly markets abstract this paper examines the welfare implications of informative advertising in differentiated product oligopoly markets the analysis reconciles the conflicting results in previous studies that find advertising to be undersupplied in homogeneous product markets but oversupplied in differentiated product markets when the degree of differentiation is small in equilibrium purely informative advertising is undersupplied when brands are sufficiently close substitutes and oversupplied when brands are more differentiated product differentiation also has welfare implications for the effect of technological change in the advertising sector in response to an advertising cost innovation equilibrium prices fall and the market converges to the socially optimal resource allocation for brands that are sufficiently close substitutes whereas equilibrium prices rise and divergence occurs when brands are more differentiated

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

an agency theory perspective on the owner manager relationship in tourism based condominiums abstract this paper draws on field study data to provide an examination of the condominium owner manager relationship in the australian tourism context although there has been considerable growth in tourism accommodation owned through strata title no research examining the somewhat idiosyncratic relationship between unit owners and resident managers has been found in the literature the peculiar nature of the relationship underlines its significance as a context in which to apply the agency theoretical model as australian condominium resident unit managers provide letting and caretaker services for condominium unit owners it appears that the relationship can be justifiably viewed as a principal agent exchange mills p k j business res 20 1990 31 the study specifically focuses on strata title condominiums located in major tourism regions this sub sector of the condominium management industry was chosen for study because it exhibits several key attributes distinguishing it from the non tourist based condominium sector for example two different parties represent the principal resident owners and investor owners also a significant proportion of a resident manager s work relates to the management of short term holiday unit letting in light of the particular agency relationship dynamics arising in large tourist based condominium governance several suggestions concerning the legal environment of the industry are provided

the agent ss ethics in the principal agent model this paper evaluates the current use of the principal agent model pam in accounting and finance focusing on the agent ss use of private information the agent ss behavioral norms in the the pam deviate from commonly held ethical values in society from models of man in conventional economic theory and also from behavioral foundations of related business school fields like corporate strategy business ethics and human resource management still it would be unwise to reject the pam solely because of its distasteful ethical assumptions the model does appear to have predictive power but its descriptive or normative qualities remain unexplored the popularity of the pam with its extreme model of man raises fundamental questions about the impact of this model on business school stakeholders and society at large

strength of protection for geographical indications promotion incentives and welfare effects we address the question of how the strength of protection for geographical indications gis affects the gi industry s promotion incentives equilibrium market outcomes and the distribution of welfare geographical indication producers engage in informative advertising by associating their true quality premium relative to a substitute product with a specific label emphasizing the gi s geographic origin the extent to which the names words of the gi label can be used and or imitated by competing products which depends on the strength of gi protection determines how informative the gi promotion messages can be consumers heterogeneous preferences vis a vis the gi quality premium are modeled in a vertically differentiated framework both the gi industry and the substitute product industry are assumed to be competitive with free entry the model is calibrated and solved for alternative parameter values results show that producers of the gi and of the lower quality substitute good have divergent interests gi producers are better off with full protection whereas the substitute good s producers prefer intermediate levels of protection but they never prefer zero protection because they benefit indirectly if the gi producers incentives to promote are preserved for consumers and aggregate welfare the preferred level of protection depends on the model s parameters with an intermediate level of protection being optimal in many circumstances

the ethics of the new finance this paper examines the normative ideas flowing from the contemporary theories that make up the new finance these theories include the irrelevance theorem efficient market hypothesis capital asset pricing model options pricing model and agency theory the behavioral consequences that would ensue if everyone took the normative precepts of the new finance seriously are subjected to a kantian analysis to determine their ethical implications it is concluded that the corporate world in the new finance is a place where the firm can select any operating and financial strategies that it wishes and the investors will respond immediately through a combination of homemade portfolio diversification clever option positions and carefully constructed agency relationships all of which results in a pervasive nihilism recommendations are offered on how these features of the new finance might be avoided or moderated

the role of ethics in executive compensation toward a contractarian interpretation of the neoclassical theory of managerial renumeration the topic of chief executive officer ceo compensation has been a focus of interest for many years the purpose of this article is to explore the ethical dimensions of various generally accepted theories of ceo renumeration we argue that a contractarian approach based on the kantian ethical framework can be used to augment the existing contingent pay models

an empirical analysis of dynamic nonprice competition in an oligopolistic industry this article develops a dynamic model of nonprice competition in an oligopolistic industry and uses it to analyze advertising competition in the u s cigarette industry the model generalizes existing studies by allowing advertising to affect both firm market shares and the total size of the market the model also allows dynamic conjectural variations to arise from the intertemporal links created by the durability of advertising we use these dynamic conjectural variations to distinguish alternative models of competitive interaction we estimate the complete model of firm production demand and advertising choice by using data for u s cigarette producers the results indicate that firm advertising primarily affects the level of market demand with a firm s effect on rival firms market shares arising through variations in the number of brands sold empirical results on firm behavior suggest that firms act as if their advertising choices will alter the future advertising choices of rival firms in both the high tar and low tar cigarette markets

do codes make a difference the case of bank lending and the environment codes of conduct are a conspicuous feature of modern business organization but doubts have been raised regarding their efficacy in ensuring high standards of behavior although some of the issues involved have been discussed at some length in the business ethics literature the amount of systematic empirical evidence on the impact of codes is very limited this paper seeks to make a contribution to that body of knowledge by studying the policies and procedures of a sample of banks which have signed a statement on banking and the environment promulgated by the united nations development programme although some differences are found when compared with a sample of banks which did not sign the statement they are not extensive the implications of the findings for codes of conduct and for future empirical studies are then discussed

business codes of multinational firms what do they say business codes are an oft cited management instrument but how common are codes among multinationals and what is their content in an unprecedented study the codes of the largest corporations in the world have been collected and thoroughly analyzed this paper presents the results of that study of the 200 largest companies in the world 52 5 have a code more than half f these codes describe company responsibilities regarding quality of products and services 67 adherence to local laws and regulations 57 and the protection of the natural environment 56 many codes make reference to principles governing stake holder relations e g transparency 55 honesty 50 and fairness 45 corporate core values e g teamwork 43 appropriate conduct among employees e g discrimination 44 and intimidation 43 and treatment of company property by employees e g conflict of interests 52 corruption 46 and fraud 45 monitoring compliance with the code is addressed in 52 of the codes based on this content study three types of codes are distinguished the stakeholder statute 72 the values statement 49 and the code of conduct 46 the results of this inquiry present a benchmark for the evaluation and development of both individual and international business codes

asian transnational corporations and labor rights vietnamese trade unions in taiwan invested companies according to the reports in the past decade some asian subcontractors mainly taiwan hong kong and korea transnational corporations tend to be labor abusive in their overseas investment destinations like china or southeast asia taking vietnam as an example this paper raises questions as to why taiwanese transnational companies can control workplace unions in a trade union supportive regime given the government s constraint of political rights and the individualized workplace unions the function of trade unions in vietnam is destined to be limited the trade unions turn out be an arm of management rather than representing workers interests in these transnational companies this article also explores the influence of the newly developed codes of conducts from western buyers in the survey of three companies which are required to follow the codes of conduct by buyers trade unions had no more freedom than those in companies without codes of conduct the paper discusses the implications of this research offering strategies for labor rights improvements

green business and blue angels this paper presents a model of a monopolist svoluntary overcompliance with legal environmentalstandards under asymmetric information about thefirm s environmental impacts the key assumptions are the existence of quality premia for environmentalsoundness a positive but imperfect degree ofmonitoring and adaptive consumer expectations conditions necessary for overcompliance to arise in aprofit maximizing equilibrium are derived the effectsof a third party eco labeling system are analyzed itis shown that the existence of an independent labelingauthority increases the likelihood of overcomplianceto be profit maximizing moreover firms might have anincentive to lobby for the introduction of such asystem the effect of consumers risk preferences andan instrument for preventing greenwash companieslying about their environmental performance is alsodiscussed

how corporate social performance is institutionalised within the governance structure since ackerman in corporate social responsiveness the modern dilemma 1973 pleaded for the institutionalisation of corporate social performance csp in business processes researchers have focused on the role of strategy in csp this article demonstrates that csp is institutionalised within the governance structure we will attempt to make this clear by means of a description of the dutch system of corporate governance under certain circumstances dutch companies are already bound to csp due to prevailing legislation a governance perspective shows that csp is institutionalised within a company s governance structure processes of responsiveness since long regarded as a starting point of csp analysis appear to be decision making processes within these processes the expectations of the stakeholders can be institutionalised trust can be built and interests can be incorporated this makes csp context dependent however it is possible to analyse companies by comparing the companies individual governance structures the article concludes that csp analysis can fruitfully extend into analysing in the role of the stakeholders in the influence pathways that are incorporated within the governance structure

oligopolistic pricing and advertising abstract n sellers advertise a homogeneous good to m buyers whose only source of information is this advertising there is a unique nash equilibrium ne in which sellers choose a common advertising level and mix over prices this ne approaches marginal cost pricing as advertising costs decrease and approaches monopoly pricing as advertising costs increase more sellers induce lower prices and less advertising per seller however the social welfare effect can be negative for some advertising technologies the ne advertising level is generically less than socially optimal journal of economic literature classification numbers d00 d4 d43 d8 d83 i00 i1 i13 m37

the nature of the firm agency theory and shareholder theory a critique from philosophical anthropology standard accounts on the nature of the firm are highly dependent on explanations by coase coupled with inputs from agency theory and shareholder theory this paper carries out their critique in light of personalist and common good postulates it shows how personalist and common good principles create a framework that not only accommodates business ethics better but also affords a more compelling understanding of business as a whole