By showing disapproval of unethical follower behavior (UFB), leaders help creating an ethical climate in their organization in which it is clear what is morally acceptable or not. In this research, we examine factors influencing whether leaders consistently show such disapproval. Specifically, we argue that holding leaders accountable for their actions should motivate them to disapprove of UFB. However, this effect of accountability should be inhibited when leaders personally benefit from UFB. This prediction was supported in a lab experiment. Furthermore, (...) a follow-up study showed that followers in fact accurately predict when leaders will most likely disapprove of UFB. These findings imply that followers can thus get away with unethical behavior in some situations and they are capable of accurately predicting such situations. (shrink)

Stakeholder theory advocates that firms bear responsibility for the implications of their actions. However, while a firm affects or can affect stakeholders, stakeholders can also affect the corporation. Previous stakeholder theorising has neglected the reciprocal nature of responsibility. The question can be asked whether—in a spirit of reciprocity, loyalty and fairness—stakeholders should treat the corporation in a fair and responsible way. This study based on different definitions of stakeholders argues that various stakeholder attributes differ for different categories of stakeholders. This (...) analysis presumes that the attribute of stakeholder reciprocity can probably be restricted to real stakeholders, labelled stakeowners: genuine stakeholders with a legitimate stake, the loyal partners who strive for mutual benefits. Stakeowners own and deserve a stake in the firm. Stakeholder reciprocity could be an innovative criterion in the corporate governance debate as to who should be accorded representation on the board. Corporate social responsibility should imply corporate stakeholder responsibility. (shrink)

The popular press and academic research has focused primarily on the characteristics of corporate leaders. Subordinates have been studied much less frequently than leaders and yet they play a pivotal role in destructive leadership processes. An area holding significant potential to bring clarity to subordinates’ ability to withstand (or succumb) to pressures from superiors is dispositional affect. In our exploratory study, we examine how specific affective states influence subordinates’ unethical behavior. We performed an experiment with 63 mid-level managers having significant (...) work experience. Participants were given ethical scenarios and asked to assess their intentions to comply with their superiors’ requests to engage in unethical conduct. The participants also completed the positive affect negative affect schedule (PANAS) which provides measures of affective states. Our results provide support for theory-based predictions. The findings of our study make important contributions and have implications to both practice and theory. First, we identify certain affective states that encourage subordinates to adopt the behavior of a conformer or colluder and thus be susceptible to their superiors’ unethical directives. Second, our results suggest the need for training programs to assist employees in managing affect in the work place and consideration of organizational changes that provide a culture of empowerment of its employees. Third, unlike a large majority of prior research, we measured naturally occurring affective states rather than providing a contrived (and potentially exaggerated) triggering event to elicit affective states. Fourth, we examined specific affective states rather than examining only general positive and negative valence categories. (shrink)

In this article, we contribute to sociological literatures on morality, professional and institutional contexts, and morally stigmatized ‘dirty work’ by emphasizing and exploring how they mutually inform one another in lawyers’ work activities. Drawing on interview data with 58 practitioners in the commercial legal industry in Singapore, we analyze how they experience professional and institutional constraints on the expressions of morality in their work. Our findings illustrate how a dominant managerial and economic focus maintains and reproduces a constrained form of (...) morality, limited to instrumental, utilitarian and commercial ends, and subordinated to lucrative client and firm interests. We discuss our findings in terms of the need to research and reform professions in ways that support more rounded and unconstrained moral reflexivity and autonomy in how work is undertaken and valued. This in turn has implications for how organizations and professions might achieve alternative moral institutional orders, and for legal work to avoid the moral and social taints of dirty work. (shrink)

The aim of this paper is to investigate among a group of non-profit organizations: a) the effect of ethical leadership on volunteers’ satisfaction, affective organizational commitment and intention to stay in the same organization; b) the role played by job satisfaction as a mediator in the relationship between ethical leadership and volunteers’ intentions to stay in the same organization, as well as between ethical leadership and affective commitment. An anonymous questionnaire was individually administered to 198 Italian volunteers of different non-profit (...) organizations. The questionnaire contained the Ethical Leadership Scale, the Volunteers Satisfaction Index, the Affective organization Scale, as well as questions regarding the participants’ age, sex, type of work, level of education, length of their volunteer works, intention to volunteer in the following months in the same organization. The construct as well the effects of EL on volunteers is approached in light of the Social Exchange Theory and the Social Learning Theory. Structural equation models were used to test hypothesized relationships. The results confirm the role of mediation of volunteer satisfaction in the relationships between the variables studied. In particular, ethical leadership was found to be positively associated both with volunteers’ intention of staying and with their affective commitment. In the first case this relationship is fully explained by the mediation of the volunteers’ satisfaction, while the latter is explained by both direct and indirect factors. To the authors’ knowledge, this the first attempt to understand the role played by ethical leadership on volunteers’ behavior and, more in general, in the management of non-profit organizations. Findings are relevant both for practitioners and managers of non-profit organization, since they suggest the relevance of the perception of ethical leadership by volunteers, as well as for scholars, since they further deepen the knowledge on EL and its effects on the followers. Limits of the study: the questionnaire was administered only among a group of non-statistical sample of volunteers. Furthermore, the study reached only volunteers from Italian non-profit organization. (shrink)

Drawing on social exchange theory, this study examines a mechanism, namely organizational social capital, through which self-sacrificial leadership is related to two types of employee behaviours: organizational citizenship behaviours and counterproductive behaviours. The results of two different studies in Egypt showed that self-sacrificial leadership is positively related to OSC which, in turn, is positively related to OCBs and negatively related to CPBs. Overall, the findings suggest that self-sacrificial leaders are more likely to achieve desirable employee behaviours through improving the quality (...) of social relationships among employees. (shrink)

The research theorizes how hubris impacts ethical decision making and develops empirical evidence that earnings manipulation is more likely at firms led by CEOs influenced by hubris. The theory posits that hubris impairs moral awareness by causing decision makers to ignore external factors that otherwise drive such awareness. Additionally, these individuals apply a flawed subjective assessment of the decision they face which further impairs moral awareness. The predicted result is that hubris leads managers to invoke an amoral decision process which (...) causes a higher incidence of unethical behavior among these individuals. An empirical study investigates the relationship between CEO hubris and the unethical practice of earnings manipulation. This study finds a significant correlation between CEO hubris and earnings manipulation at the firms they lead, an outcome broadly consistent with the theory developed. (shrink)

It appears that in the 30 years that business ethics has been a discipline in its own right a model of business ethics has not been proffered. No one appears to have tried to explain the phenomenon known as 'business ethics' and the ways that we as a society interact with the concept, therefore, the authors have addressed this gap in the literature by proposing a model of business ethics that the authors hope will stimulate debate. The business ethics model (...) consists of three principal components that are interconnected by five sub-components. The introduced model makes a contribution to the creation of a conceptual framework for business ethics. A few tentative conclusions may be drawn from the introduced model of business ethics. The model aspires to be highly dynamic. The ultimate outcome is dependent upon the evolution of time and contexts. It is also dependent upon and provides reference to the behaviours and perceptions of people. The model proposes business ethics to be a continuous and an iterative process. There is no actual end of the process, but a constant reconnection to the initiation of successive process iterations of the business ethics model. The principals and sub-components of the model construct the dynamics of this continuous process. They provide guidance on what and how to explore our common efforts to understand the phenomenon known as business ethics. The model provides opportunities for further research in the field of business ethics. (shrink)

We develop a model of ethical decision making that integrates the decision-making process and the content variables considered by individuals facing ethical dilemmas. The process described in the model is drawn from Janis and Mann’s [1977, Decision Making: A Psychological Analysis of Conflict Choice and Commitment (The Free Press, New York)] work describing the decision process in an environment of conflict, choice and commitment. The model is enhanced by the inclusion of content variables derived from the ethics literature. The resulting (...) integrated model aids in understanding the complexity of the decision process used by individuals facing ethical dilemmas and suggests variable interactions that could be field-tested. A better understanding of the process will help managers develop policies that enhance the likelihood of ethical behavior in their organizations. (shrink)

The purpose of this paper is to advance research on CSR beyond the stalemate of economic versus ethical models by providing an alternative perspective integrating existing views and allowing for more shared dialog and research in the field. It is suggested that we move beyond making a normative case for ethical models and practices of CSR by moving beyond the question of how to manage organizational self-interest toward the question of how accurate current conceptions of the organizational self seem to (...) be. Specifically, it is proposed that CSR is not a question of how self-interested the corporation should be, but how this self is defined. Economic and ethical models of CSR are not models of opposition but exist on a continuum between egoic and post-egoic, illusory and authentic conceptions of the organizational self. This means that moving from one to the other is not a question of adopting different paradigms but rather of moving from illusion and dysfunction to authenticity and functionality, from pathology to health. (shrink)

What might happen if business leaders across the globe viewed their work as a sacred calling in a religious sense? Might not the world be a far better place? This paper is an effort to stimulate debate and discussion on this topic. Concepts addressed include: (a) ethics in business, (b) ethical standards in business settings, (c) the role of law, (d) levels of corporate responsibility, (e) the role of religion in business ethics, (f) the idea of business as a calling (...) in a religious sense, (g) the elements of modern corporate culture, (h) creating an ethical corporate culture, (i) demonstrating corporate social responsibility, and (j) providing servant leadership. The introduction to the paper shows how these concepts interrelate; its conclusion offers a challenge to business leaders to answer their call to business in the truest sense. (shrink)

Servant leadership has been theorized as a model where the moral virtue of humility co-exists with action-driven behavior. This article provides an empirical study that tests how these two apparently paradoxical aspects of servant leadership interact in generating follower engagement, while considering the hierarchical power of the leader as a contingency variable. Through a three-way moderation model, a study was conducted based on a sample of 232 people working in a diverse range of companies. The first finding is that humble (...) leaders showed the highest impact on follower engagement regardless of their hierarchical position. Less humble leaders in lower hierarchical positions seem to be able to compensate for that through a strong action-oriented leadership style. Most notably for leaders in high hierarchical positions, the moral virtue of humility seems to strengthen the impact of their action-oriented leadership the most. These findings provide empirical support and a better understanding of the interplay between the moral virtue of humility and the action-oriented behaviors of servant leadership. (shrink)

A growing body of literature documents the important role played by moral outrage or moral anger in stakeholders’ reactions to cases of corporate social irresponsibility. Existing research focuses more on the consequences of moral outrage than a systematic analysis of how appraisals of irresponsible corporate behavior can lead to this emotional experience. In this paper, we develop and test, in two field studies, an extended model of moral outrage that identifies the cognitions that lead to, and are associated with, this (...) emotional experience. This research contributes to the existing literature on reactions to corporate social irresponsibility by explaining how observers’ evaluation of irresponsible corporate behavior leads to reactions of moral anger. The paper also helps clarify the difference between moral outrage and other types of anger and offers useful insights for managers who have to confront public outrage following cases of irresponsible corporate behavior. Finally, the analysis of the causes of stakeholders’ anger at irresponsible corporations opens important avenues for future research that are presented in the paper. (shrink)

For almost 10 years, the Business Ethics Index (BEI) has measured consumers’ perceptions of business ethical behavior in the USA and numerous other countries. This article expands the BEI to five Latin American countries (Brazil, Bolivia, Mexico, Argentina, and Colombia). The BEI of Argentina and Bolivia were similar in magnitude to the USA, whereas those for Brazil, Colombia, and Mexico were distinctly higher. The component sub-indices showed divergent patterns. The major ethical concerns for Brazil and Bolivia concerned service, whereas Mexico (...) and Argentina complained about overpricing. (shrink)

Although case-based training is popular for ethics education, little is known about how specific case content influences training effectiveness. Therefore, the effects of (a) codes of ethical conduct and (b) forecasting content were investigated. Results revealed richer cases, including both codes and forecasting content, led to increased knowledge acquisition, greater sensemaking strategy use, and better decision ethicality. With richer cases, a specific pattern emerged. Specifically, content describing codes alone was more effective when combined with short-term forecasts, whereas content embedding codes (...) within context was more effective when combined with long-term forecasts, leading to greater knowledge acquisition and sensemaking strategy use. (shrink)

This study examines the antecedents of corporate scandals. Corporate scandals are defined as rare events occurring at the apex of corporate fame when managerial fraud suddenly emerges in conjunction with a significant gap between perceived corporate success and actual economic conditions. Previous studies on managerial fraud have examined the antecedents of illegal acts in isolation from strategic decisions and in terms of CEOs’ individual responses to the external context. This study frames the antecedents of corporate scandals in terms of the (...) interplay of CEOs’ personal traits with corporate strategy and stakeholders’ cohesion. With this aim, this study builds on extant theory to examine the case of Banca Popolare di Lodi, an Italian bank involved in a corporate scandal in year 2005. The model contributes to advance understanding of the complex dynamics underlying the emergence of corporate scandals. (shrink)

The purpose of this paper is to provide a basis for a systematic development of signaling theory on CSR initiatives. The paper proposes signaling theory as a framework supportive of a strategic CSR approach; maps extant research on signaling through CSR initiatives; offers a comprehensive assessment of the most diffused CSR initiatives and discusses their eligibility as signaling devices; and outlines a research agenda to further develop and test signaling theory in business ethics. Specifically, the study reconsiders some key assumptions, (...) identifies key gaps in empirical validation, and proposes directions to extend multiple signal, signaling pattern, and target cases. (shrink)

This study investigates the processes involved in the shaping of a society's economic ethos. The discussion of ethics and economics has a very long history across multiple disciplines. The founder of modern economics, Adam Smith, likewise had a keen interest in this topic. However, with the development of economic science, scholarly assessment has shifted toward positive analysis while normative analysis has been left mainly to philosophers. By utilizing the newly developed morality of profit-making scale, the authors sought to understand how (...) respondents' economic ethical worldview shifts over time. Specifically, we theorized that the news media's copious negative coverage of the gasoline price crisis of 2006 would significandy impact individuals' MPM worldview. The results show that respondents' explicit attitudes toward MPM were significantly impacted. However, respondents' more deeply held, implicit economic ethical worldview was only slightly impacted. The authors argue that only patient, long-term explanation and argumentation can permanently affect a society's economic ethos. Implications and future research directions for business researchers are oudined. (shrink)

This paper interrogates the relation between reciprocity and ethics as it concerns participation in the world of work and organizations. Tracing discussions of business and organizational ethics that concern themselves, respectively, with the ethics of self-interest, the ethics of reciprocity, and the ethics of generosity, we explore the possibility of ethical relations with those who are seen as radically different, and who are divested of anything worth exchanging. To address this we provide a reading of Franz Kafka’s famous novella The (...) Metamorphosis and relate to it as a means to extend our understanding of business and organizational ethics. This story, we demonstrate, yields insight into the unbearable demands of ethics as they relate to reciprocity and generosity. On this basis, we draw conclusions concerning the mutually constitutive ethical limitations of reciprocity and generosity as ethical touchstones for organizational life while simultaneously accepting the seemingly insurmountable difficulties of exceeding those limits. In such a condition, we argue, ethics is not best served by adopting idealistic or moralizing positions regarding generosity but rather by working in the indissoluble tensions between self and other. (shrink)

What drives managerial perks? The commonly accepted view of perks suggests that they are a misuse of firm resources for managers’ private benefit, and thus perk consumption is unethical. However, an alternative view argues that perks can motivate managers to work hard and thus add to the value of the firm : from this perspective, perk consumption is an ethical form of behavior. The fundamental difference between the two positions has critical implications for practice, and this article tests these competing (...) views to determine the circumstances in which one view dominates the other. Using hand-collected data on perks in Chinese-listed companies, we find strong empirical support for the incentive view, which is more likely to be held in firms with moderate ownership concentration. This article not only contributes to the literature on business ethics, but also has critical implications for managerial incentive practices in emerging economies. (shrink)

In this paper, we investigate a large-scale financial statement fraud to better understand the process by which individuals are recruited to participate in financial statement fraud schemes. The case reveals that perpetrators often use power to recruit others to participate in fraudulent acts. To illustrate how power is used, we propose a model, based upon the classical French and Raven taxonomy of power, that explains how one individual influences another individual to participate in financial statement fraud. We also provide propositions (...) for future research. (shrink)

This study seeks effective ways for managing employees with a high Machiavellian personality in organizations by identifying how to enhance their pro-organizational attitudes and behaviors [organizational citizenship behavior ] through transformational leadership. Drawing upon the dual-focused model of TFL, we suggest that exerting TFL upon employees high in Machiavellianism involves ethical dilemmas in that individual-focused and group-focused TFL have contrasting effects on leading pro-organizational attitudes/behaviors among these pro-individual employees. Analysis of data from 184 employees working in South Korea shows that (...) Machiavellianism negatively relates to affective commitment, OCB toward the organization, and OCB toward individuals, but positively to continuance commitment. More importantly, the results reveal that group-focused TFL can effectively manage employees high in Machiavellianism by mitigating the negative relations between Machiavellianism and affective commitment and between Machiavellianism and OCB-O. However, individual-focused TFL strengthens these negative relations as well as the negative relation between Machiavellianism and OCB-I. This study thus shows that to lead employees high in Machiavellianism in a pro-organizational direction, group-focused TFL rather than individual-focused TFL needs to be employed. (shrink)

The education of students and professionals in business ethics is an increasingly important goal on the agenda of business schools and corporations. The present study provides a meta-analysis of 25 previously conducted business ethics instructional programs. The role of criteria, study design, participant characteristics, quality of instruction, instructional content, instructional program characteristics, and characteristics of instructional methods as moderators of the effectiveness of business ethics instruction were examined. Overall, results indicate that business ethics instructional programs have a minimal␣impact on increasing (...) outcomes related to ethical perceptions, behavior, or awareness. However, specific criteria, content, and methodological moderators of effectiveness shed light on potential recommendations for␣improving business ethics instruction. Implications for␣future research and practice in business ethics are discussed. (shrink)

While a large amount of work has been done to understand public good and to construct conceptual models explaining the antecedents of collective action, current literature is flawed in that most of them only examine the lower-level public good and attribute people's participation in collective action to external variables. It pays little to the developmental nature of collective action. Utilizing Ken Wilber's theory of integral psychology, this paper proposes a holistic definition of public good, emphasizing its different levels of development. (...) The paper also introduces an integral model of collective action that explains the antecedents of collective action in terms of not only the external individual behavior and social factors but also the internal aspects of individuals, organization, and society. (shrink)

Research on positive psychology demonstrates that specific individual dispositions are associated with more desirable outcomes. The relationship of positive psychological constructs, however, has not been applied to the areas of business ethics and social responsibility. Using four constructs in two independent studies (hope and gratitude in Study 1, spirituality and generativity in Study 2), the relationship of these constructs to sensitivity to corporate social performance (CSCSP) were assessed. Results indicate that all four constructs significantly predicted CSCSP, though only hope and (...) gratitude interacted to impact CSCSP. Discussion focuses upon these findings, limitations of the study, and future avenues for research. (shrink)

This paper examines the effect of financial shared service centers (FSSCs) on corporate misconduct. Using a sample of Chinese public companies with hand-collected FSSC data, we find that the adoption of FSSCs is negatively associated with the likelihood and frequency of corporate misconduct. The results hold to a battery of robustness tests. Moreover, we show that the negative association between FSSCs and corporate misconduct is more pronounced in firms that have no management equity ownership, disclose internal control weaknesses, and have (...) more subsidiaries. Additional analyses indicate that FSSCs can help mitigate both disclosure-related and nondisclosure-related misconduct. (shrink)

This article tracks Corporate Social Responsibility (CSR) as an emergent organizational process that places the employee at its center. Predominantly, research on CSR tends to focus on external pressures and outcomes leading to a neglect of CSR as a dynamic and developing process that relies on the involvement of the employee as a major stakeholder in its co-creation and implementation. Utilizing case study data drawn from a study of a large multinational energy company, we explore how management relies on employees' (...) interaction with CSR as the process of initiation → implementation → maturation develops. Employee involvement grows from a minor element in the CSR initiation stage to a vital contributory factor in CSR's success in the later stages of the process. The article offers new insights into a processual and interactional approach to CSR that accounts for the actions of different actors involved at each stage. Most unusually, it also recognizes the dual impact this has on broader issues concerning the management and involvement of employees through CSR actions, and gaining legitimacy in the eyes of not only external stakeholders but internal too. (shrink)

The present study describes the development of an ongoing and systematic index to measure consumers’ sentiments towards business ethical practices. The Business Ethics Index (BEI) is based on the well established measurements of consumer sentiments, namely the ICS (Index of Consumer Sentiment) and CBCCI (Conference Board Consumer Confidence Index). The BEI is comprised of 4 measurements representing the dimensions of “personal-vicarious” and “past-future.” Data from 503 telephone interviews were used to calculate a BEI of 107. This indicates an overall positive (...) consumer sentiment towards the ethical behavior of business. Future calculations of the BEI are planned which will allow for the estimation of the latent dynamics of trends in consumer sentiments toward American business ethics. (shrink)

Despite acknowledgment that performance failure among new salespeople is a prevalent issue for organizations, researchers do not fully understand the consequences of repetitive periods of failure on new salespeople’s unethical selling behaviors. Further, little is known about how a sales force’s reward structure and managerial attempts to intervene following failure affect new salespeople’s behavior. Combining an experiment with longitudinal growth models, we show that repetitive periods of failure increase unethical behaviors, and interventions intended to remind the salesperson to behave in (...) the customer’s best interests attenuate this effect under a non-contingent reward structure. However, counter to managerial assumptions, under a contingent reward structure these customer-oriented interventions actually backfire by amplifying the original relationship between repetitive failure and unethical behaviors. The results have potentially important managerial implications for those who manage new salespeople learning how to sell or during other failure-prone periods. (shrink)

Theoretical justification for the Business Ethics Index (BEI) from the emerging economics of trust literature is discussed. The BEI results for 2007, 2008, and 2009 are presented. While the Personal/Past BEI component shows no significant difference from the previous years, the Vicarious/Past component shows a dramatic drop to levels previously never recorded.However, when it came to the perception of the future business ethical behavior, respondents were significantly more optimistic than in previous measurements.This finding was more than a little surprising given (...) the depth of the economic crisis. A possible explanation is that consumers hopefully perceived the economic crisis as already abating and/or that at least the worst was over. (shrink)

Ethical dissonance arises from conflicts between beliefs or behaviors and affects ethical factors such as normality or conformity. This paper proposes a weak signal-oriented framework to investigate ethical dissonance from experiences linked to human–machine interactions. It is based on a systems engineering principle called human-systems inclusion, which considers any experience feedback of weak signals as beneficial to learn. The framework studies weak signal-based scenarios from testimonies of individual experiences and these scenarios are assessed by other people. For this purpose, the (...) framework proposes several databases as sources of weak signals, formalization tools of experience feedback of weak signals, models of references of conformity, ethical factors, and a list of examples of ethical dissonance. It also includes sequential steps to make the latter credible regarding the results from the experimental protocols. The framework was used to investigate ethical dissonance by analyzing experiences pertaining to achieving inclusive mobility. The first example focuses on ethical dissonance in terms of hindrance that goes against autonomous mobility due to a misunderstanding of how the system functions in terms of negative and positive emotions. Two other examples present possible ethical dissonance when the use of safety systems such as car driver-assistance systems, may create danger. Investigating ethical dissonance can then help system-inclusive design or evaluation processes by taking into account scenarios from weak signal-based experiences and making them credible. (shrink)

The compliance-based approach and the integrity approach have been the mainstream responses to corporate scandals. This paper proposes that, despite each approach comprising necessary elements, neither offers a comprehensive solution. Compliance and integrity, far from being mutually exclusive, reinforce each other. Working together, in a correct relationship, they build a harmonized system that yields positive synergies and which also advocates prudence. It enables the generation of a culture of compliance that tends to minimize the technical and ethical errors in decision (...) making. In order to explore an applied harmonized approach, we analyze the audit committee, a specific and broadly accepted regulatory instrument. Formed by non-executive members, regulation requires these members to be dedicated, qualified, and independent as a guarantee of efficiency. We show how the compound of those elements produces positive effects in a context of solid governance. We conclude that it is the strong relationship between efficiency and prudence, in the creation of a culture of compliance, which enables the minimization of errors. (shrink)

Prior studies have provided explanations for the presence, use and dissemination of codes of corporate ethics or codes of corporate conduct of business corporations. Most such explanations are functional in nature, and are descriptive as they are derived from the codes and their associated documents. We search for more underlying explanations using two complementary theories: first, social contract theories explaining the exogenous and endogenous reasons of organizational behavior, and then institutional theory explaining why organizations take similar measures in response to (...) institutional pressures. Based on our explanations, we contend that the codes and their use and dissemination are arising from underlying social and institutional pressures for firms to continuously validate their existence in the face of increasing changes and recurrent uncertainties. (shrink)

We use a lab experiment to examine whether and how leaders influence workers’ (un)ethical behavior through financial reporting choices. We randomly assign the role of leaders or workers to subjects, who can choose to report an outcome via automatic or self-reporting. Self-reporting allows for profitable and undetectable earnings manipulation. We vary the leaders’ ability to choose the reporting method and to punish workers. We show that workers are more likely to choose automatic reporting when their leader voluntarily does so and (...) can assign punishment. Even workers who choose self-reporting tend to cheat less when their leader chooses automatic reporting. Nonetheless, most leaders do not opt for automatic reporting in the first place: they often choose self-reporting and punish workers who rather choose automatic reporting. Collectively, our results reveal a dual effect of leadership on ethical behaviors in organizations: workers behave more ethically if their leader makes ethical choices, but often leaders do not make ethical choices in the first place. Hence, leading by example can backfire. (shrink)

This article examines the proposition that a major cause of the major financial accounting scandals that received much publicity around the world was unethical leadership in the companies and compares the role of unethical leaders in a variety of scenarios. Through the use of computer simulation models, it shows how a combination of CEO's narcissism, financial incentive, shareholders' expectations and subordinate silence as well as CEO's dishonesty can do much to explain some of the findings highlighted in recent high profile (...) financial accounting scandals. Furthermore, it shows that the nature and impact of ethical leadership depends greatly on the institutional setting and can be expected to vary greatly by country and culture. In certain circumstances ethical leadership can have either a negligible or even opposite effect to that expected. (shrink)

This paper explores the potential for systematic scrutiny of the language of top management to reveal signals of possible deceptive conduct. The language used in letters signed by Ramalinga Raju, Chair of the Indian multi-national company Satyam, are analysed using a multi-method quantitative approach. We explore the language in Raju’s annual report letters from 2002–2003 to 2007–2008; and in his letter of January 7, 2009 in which he confessed to deceptive conduct. We analyse the frequency of personal pronouns, the tone (...) of positivity or negativity, the frequency of words of extreme emotion and aspects of the characteristics of language use indicated by the DICTION 5.0 text analysis master variable, CERTAINTY. The text of Raju’s letters appears to have been influenced by his self-confessed deceptive behaviour. Raju’s word choice changed noticeably in his five annual report letters prior to the collapse of Satyam as the scale and impact of his financial misstatements increased. The methods presented should be considered for adoption by auditors and regulators—as a way of assessing whether signals emerging from language use warrant closer (including audit) scrutiny of a firm’s financial reporting and governance. They should also be considered for use by monitors of entity risk, such as credit rating agencies and financial analysts. (shrink)