This week’s research articles consider what’s involved when balancing the management of truth versus risk.
The ethical responsibility of “managing the truth” in organisations
Our aim is to analyse the position of the leader in relation to the ethical dimension of truth-telling within the organisation under his/her control. Based on Michel Foucault’s study of truth-telling, the authors demonstrate that the role of the leader toward the corporation and the imperative of organisational performance place the leader in an ambiguous position: he/she is obliged to take the lead in “telling the truth” internally and externally, but also to bear the consequences of this “truth-telling” for the organisation and for himself/herself.
In this process of construction and implementing the truth, the leader is organiser and figurehead of the corporation’s truth-telling practices: determining the frontiers between truth that can be said and that which should remain hidden, both inside and outside the corporation; establishing a dialogue based on truth (i.e., an authentic, sincere relationship with all partners); guaranteeing that the rules of truth-telling are respected; and offering a truth which is compatible with the firm’s economic and ethical interest.
Invested with the authority—the office—of managing truth within the corporation, the leader can be considered to be the “Chief Truth Officer.” From this perspective, the authors demonstrate that this role requires specific skills, like courage and practical wisdom.
Jean-Philippe Bouilloud, Ghislain Deslandes & Guillaume Mercier. 2019. The Leader as Chief Truth Officer: The Ethical Responsibility of “Managing the Truth” in Organizations.
Journal of Business Ethics, 157(1), 1–13.
Categorisation of whistleblowers using the whistleblowing triangle
In view of recent studies that identified certain interest groups as potential whistleblowers, the authors propose an integrative conceptual framework to examine whistleblower behaviour by whistleblower type. The framework, dubbed the whistleblowing triangle, is modelled on the fraud triangle and is comprised of three factors that condition the act of whistleblowing: pressure, opportunity, and rationalisation.
For a rich examination, the authors use a qualitative research framework to analyze 11 whistleblowing cases of corporate financial statement fraud in Canada that were publicly denounced between 1995 and 2012. The analysis indicates that whistleblowers are not only insiders (employees, managers, and shareholders involved in management) but also outsiders [financial analysts (short sellers), auditing firms, journalists, politicians, customers, and investors]. It also suggests that a dynamic relation may exist between whistleblowers.
In addition, the findings show that most whistleblowers opt for external channels when they fail to receive an adequate response from management, seek media exposure, are interested in financial benefits resulting from the act of whistleblowing (short sellers), or are interested in protecting their investment. Lastly, the authors propose categorising whistleblowers into four conceptual types: protective, skeptical, role-prescribed, and self-interested.
Nadia Smaili & Paulina Arroyo. 2019. Categorization of Whistleblowers Using the Whistleblowing Triangle.
Journal of Business Ethics, 157(1), 95–117.
The risk of fraud in family firms
There is a dearth of business ethics research on family firms, despite the importance of such firms to the US economy (Vazquez in J Bus Ethics, 2016. doi: 10.1007/s10551-016-3171-1). The authors answer Vazquez’s (2016) call to examine the intersection of family-firm research and business ethics, by investigating whether external auditors assess higher risk of fraud in family firms.
The authors test the contradictory predictions of two dominant theoretical perspectives in family-firm research—entrenchment theory and alignment theory. The authors conduct an experiment with highly experienced external audit professionals, who assess the risk of fraud and make client acceptance decisions for family firms versus non-family firms with different strength of corporate governance: strong versus weak audit committees (ACs).
The authors find that auditors assess the risk of fraud as higher for family firms than for non-family firms, consistent with the predictions of entrenchment theory. Auditors are also less likely to make client acceptance recommendations for family firms. The strength of the AC moderates the family-firm effect, whereby auditors assess family firms with weak ACs to have the highest fraud risk and to be the least desirable audit clients.
The findings suggest that auditors perceive more severe agency conflicts to be present in family firms than in non-family firms, consistent with entrenchment theory, according to which family members may behave opportunistically to extract rents and potentially expropriate the firm’s resources at the expense of minority shareholders.
Gopal Krishnan & Marietta Peytcheva. 2019. The Risk of Fraud in Family Firms: Assessments of External Auditors.
Journal of Business Ethics, 157(1), 261–278.
Ethical code effectiveness in football clubs
As football (soccer) clubs are facing different ethical challenges, many clubs are turning to ethical codes to counteract unethical behaviour. However, both in- and outside the sport field, uncertainty remains about the effectiveness of these ethical codes.
For the first time, a longitudinal study design was adopted to evaluate code effectiveness. Specifically, a sample of non-professional football clubs formed the subject of the inquiry. Ethical code effectiveness was assessed by the measurement of the ethical climate. A repeated-measurements ANOVA revealed a positive evolution of the ethical climate within the studied football clubs. This evolution could not be ascribed to the mere presence of an ethical code. However, several potential code effectiveness determining characteristics were also included in the research design. Some of these accounted partly for the evolution of the ethical climate of the football clubs.
Results suggest that football clubs should incorporate their ethical code into a broader ethical programme, with attention for professionalization initiatives, stakeholder management, ethical leadership, and whistle-blowing protection.
Bram Constandt, Els De Waegeneer & Annick Willem. 2019. Ethical Code Effectiveness in Football Clubs: A Longitudinal Analysis.
Journal of Business Ethics, 156(3), 621–634.
The Role of CSR in Crises
Despite widespread discussion of the impact of corporate social responsibility (CSR) activities on consumer perceptions, little research has examined how consumers cope with CSR-based crisis response messages as a bolstering strategy. To fill this gap, the authors propose a framework integrating situational crisis communication theory with the persuasion knowledge model, applying the model to an experiment with a 2 (topic knowledge − crisis type: accidental vs. intentional) × 2 (persuasion knowledge− CSR motives: intrinsic vs. extrinsic) × 2 (agent knowledge−CSR history: long vs. short) between-subjects factorial design.
In Study 1, the authors found interaction effects between CSR motives and crisis type on word-of-mouth intention and purchase intention. In addition, inferences about CSR motives interacted with perceptions about CSR history on purchase intention.
In Study 2, the authors replicated study 1 and found that crisis responsibility mediated the main effect of crisis type on behavioural intentions, but neither the main effect of CSR motives and CSR history nor the interactions effects among those variables were mediated by crisis responsibility.
The results indicate that consumer inferences from a company’s CSR-based crisis communications play a significant role in increasing consumer behavioural intentions in two situations: when a crisis is accidental and when a CSR history is short. Ethical and theoretical implications are discussed.
Chang-Dae Ham and Jeesun Kim. 2019. The Role of CSR in Crises: Integration of Situational Crisis Communication Theory and the Persuasion Knowledge Model.
Journal of Business Ethics, 158(2), 353–372.
Investors’ and analysts’ perceptions of CSR
We conjecture that corporate social responsibility (CSR) can be indicative of managerial ethics and integrity and examine whether equity investors and financial analysts consider CSR performance when they assess firms’ disclosures of actual and forecasted earnings.
The authors find that only adverse CSR performance affects investors’ assessments of these disclosures. In contrast, the authors find that both positive and adverse CSR performance affect analysts’ forecast revisions in response to firms’ disclosures. The authors also find that firms with adverse CSR performance exhibit lower disclosure quality and earnings persistence, but do not find that firms with positive CSR performance exhibit higher levels of both measures. This asymmetric result is consistent with investors’, but not analysts’, assessments of the effect of CSR performance on corporate disclosures.
The results are robust to using a three-stage least squares approach to address endogeneity concerns and to a battery of robustness and sensitivity analyses. Overall, the findings suggest that investors and analysts consider CSR when assessing the information in earnings-related corporate disclosures.
Audrey Hsu, Kevin Koh, Sophia Liu and Yen H. Tong. 2019. Corporate Social Responsibility and Corporate Disclosures: An Investigation of Investors’ and Analysts’ Perceptions.
Journal of Business Ethics, 158(2), 507–534.