Our first research tidbits of the year starts with articles considering leadership behaviour at the very top of the decision chain.

Normalisation of questionable behaviour: The financial crisis in Iceland
In this paper, the authors explore the 2008 financial crisis in Iceland through the lens of Donaldson’s concept of normalisation of questionable behaviour. The authors study the report published by the Special Investigation Commission, an investigation initiated by the Icelandic Parliament near the end of 2008.

The report provides a detailed and systematic account of the processes leading up to the crisis. The aim is to determine the extent to which the behaviours of professionals in the Icelandic financial sector can be explained as a gradual fading of moral concerns to the point that they perceived the sale of high-risk products to unassuming customers for their own short-term benefit to be morally unproblematic. In doing so, the authors consider both character and circumstance explanations of moral misbehaviour.

The authors expand on Donaldson’s initial description of normalisation of questionable behaviour by applying the concept of moral neutralisation, which is defined by criminologists Sykes and Matza as the process of convincing oneself that an option that initially conflicted with one’s own moral beliefs is actually morally acceptable. The authors find indications that individuals in the Icelandic financial sector did engage in moral neutralisation in their attempts to frame their own actions in an acceptable light.

In this study, the authors identify one way of neutralising away moral dissonance not captured in the original theoretical framework. Icelandic bankers justified their behaviour by claiming that they did not break any relevant rules or regulations when they engaged in what were later labelled questionable activities. The name for this kind of justification is claim of having breached no rule.

Øyvind Kvalnes and Salvör Nordal. 2019. Normalization of Questionable Behavior: An Ethical Root of the Financial Crisis in Iceland.
Journal of Business Ethics, 159(3), 761–775.

 

Misleading country rankings perpetuate destructive business practices 
Countries are ranked on many criteria, the results of which can have far-reaching ethical and practical implications, particularly for emerging nations seeking role models. One highly influential ranking, the World Economic Forum’s Global Competitiveness Report (GCR), has been criticised for containing multiple methodological, conceptual, and logical flaws that bias competitiveness rankings toward countries that favour neoliberalism.

Using datasets not afflicted by such flaws, the authors examine Bergsteiner and Avery’s (J Bus Ethics 109(4):391–410, 2012) prediction that competitiveness scores of the USA and the UK are substantially overstated. Results of re-ranking 104 countries using 29 economic, environmental, and social datasets from reputable sources support this assertion, with the USA showing the greatest discrepancy on a 100-point scale between its 2013–2014 GCR score (5) and this study’s 2013 score (57), and the UK falling from GCR score 9 to 40.

The authors explore reasons for this discrepancy, including examining the relationship between a country’s neoliberal traditions and its rankings on the indicators.

 

Harald Bergsteiner and Gayle C.  Avery. 2019. Misleading Country Rankings Perpetuate Destructive Business Practices. 
Journal of Business Ethics, 159(3), 863–881.

 

Bribery in MNEs 
We examine how corporate bribery is impacted by cultural distance between multinational enterprises (MNEs) home and host countries, and organisational distance to core values between MNE entry modes and MNE headquarters. Tension between external and internal legitimacy helps to explain why cultural and organisational distances will affect MNE bribery.

The empirical analysis used data from cross-border transactions by MNEs that were sanctioned by US regulatory officials between 1978 and 2011.

The authors find statistical support for all hypotheses capturing main and moderating effects and suggest that MNEs may be seriously risking their legitimacies from transactions in corruption-prone host countries.

Vijay S. Sampath and Noushi Rahman. 2019. Bribery in MNEs: The Dynamics of Corruption Culture Distance and Organizational Distance to Core Values. 
Journal of Business Ethics, 159(3), 817–835.

 

Corporate welfare policy and firm-level productivity 
We study how changes in unemployment risk affect firms’ productivity and whether firm-initiated policies can mitigate the moral hazard problem created by increases in unemployment insurance benefits (UIBs) that might decrease workers’ incentives to work hard. The authors focus on state-specific changes in UIB levels as a quasi-natural experiment.

While a large body of research has examined UIBs, including their effect on unemployed workers, few studies investigate whether UIBs have any impact on a firm’s overall productivity. Using data on firm-level total factor productivity and state-level UIBs, the authors find a negative association between productivity and UIBs.

The authors also find that the negative association is weaker for firms with higher employee-welfare indices than for firms with lower indices, suggesting that the adverse effect of higher UIBs on productivity is mitigated by policies that benefit workers’ welfare. More specifically, the authors find that among policies that are under the umbrella of corporate social responsibility, a subset of employee-welfare policies (e.g., work/life benefits) are more effective in managing moral hazard problems than other policies.

Masako Darrough, Heedong Kim and Emanuel Zur. 2019. The Impact of Corporate Welfare Policy on Firm-Level Productivity: Evidence from Unemployment Insurance.
Journal of Business Ethics, 159(3), 795–815.

 

Governance and incentives: Is it really all about the money?
Governance theories impact how corporations are run, which in turn impacts societal well-being. This dynamic is commonly accepted, as evidenced by the flood of articles exploring the links between corporate governance and corporate social responsibility (e.g., Hong et al. in J Bus Ethics 136:199–213, 2016).

This article supplements current corporate governance theories with Catholic social thought (CST) to address burgeoning societal issues such as the increasing trust gap, income inequality (the compensation gap), and an overemphasis on financial compensation as the primary way to motivate senior managers.

The authors propose a shift away from agency theory and stakeholder theory, both of which, with their limited depictions of the motivations of managers, have contributed to excessive executive compensation. Instead, the authors develop an alternative—justice stewardship theory—which integrates organisational justice theory, the principles of stewardship theory, and the insights of 150 years of CST.

Robert E. Till and Mary Beth Yount. 2019. Governance and Incentives: Is It Really All about the Money? 
Journal of Business Ethics, 159(3), 605–618.

 

Justice in pay: Executive compensation and employee remuneration
This paper investigates a series of normative principles that are used to justify different aspects of executive compensation within business firms, as well as the remuneration of lower-ranking employees. The authors look at how businesses perform pay benchmarking; employees’ engagement, fidelity and loyalty (and their effects on pay practices); and the acceptability of what the authors call both-ends-dipping, that is, receiving both ex ante and ex post benefits for the same work.

The authors make two observations. First, either different or incoherent principles are used to justify the pay of executives compared to employees, or the same principles are applied differently. Second, these differences or inconsistencies tend to be to the benefit of executives and/or to the detriment of employees.

The authors conclude by asking whether there is any reason for thinking differently about executive pay than we do about employee pay. The analysis leads us to question the principles justifying current executive compensation and to wonder if these principles are potentially being instrumentalised to serve other ends.

Michel Magnan and Dominic Martin. 2019. Executive Compensation and Employee Remuneration: The Flexible Principles of Justice in Pay. 
Journal of Business Ethics, 160(1), 89–105.