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. (shrink)

In recent years, firms have greatly increased the amount of resources allocated to activities classified as Corporate Social Responsibility (CSR). While an increase in CSR expenditure may be consistent with firm value maximization if it is a response to changes in stakeholders' preferences, we argue that a firm's insiders (managers and large blockholders) may seek to overinvest in CSR for their private benefit to the extent that doing so improves their reputations as good global citizens and has a "warm-glow" effect. (...) We test this hypothesis by investigating the relation between firms' CSR ratings and their ownership and capital structures. Employing a unique data set that categorizes the largest 3000 U. S. corporations as either socially responsible (SR) or socially irresponsible (SI), we find that on average, insiders' ownership and leverage are negatively related to the firm's social rating, while institutional ownership is uncorrelated with it. Assuming that higher CSR ratings is associated with higher CSR expenditure level, these results support our hypothesis that insiders induce firms to over-invest in CSR when they bear little of the cost of doing so. (shrink)

There are important synergies for the next generation of ethical leaders based on the alignment of modified or adjusted mental models. This entails a synergistic application of moral imagination through collaborative input and critique, rather than "me too" obedience. In this article, we will analyze the Milgram results using frameworks relating to mental models (Werhane et al., Profitable partnerships for poverty alleviation, 2009), as well as work by Moberg on "ethics blind spots'' (Organizational Studies 27(3): 413-428, 2006), and by Bazerman (...) and Chugh on "bounded awareness" (Harvard Business Review, 2006; Mind & Society 6: 1-18, 2007) Using these constructs to examine the Milgram experiment, we will argue that the ways in which the experiments are framed, the presence of an authority figure, the appeal to the authority of science, and the situation in which the naïve participant finds herself or himself, all create a bounded awareness, a narrow blind spot that encourages a climate for obedience, brackets out the opportunity to ask the moral question: "Am I hurting another fellow human being?" and may preclude the subject from utilizing moral imagination to opt out of the experiment. We will conclude that these forms of almost blind obedience to authority are correctable, but with difficulty. We will argue that linking the modification of mental models to an unbinding of awareness represents an important synergistic relationship and one that can build effectively on the lessons learned from our experience with moral imagination. (shrink)

This study investigates the effects of internal and external corporate governance and monitoring mechanisms on the choice of corporate social responsibility (CSR) engagement and the value of firms engaging in CSR activities. The study finds the CSR choice is positively associated with the internal and external corporate governance and monitoring mechanisms, including board leadership, board independence, institutional ownership, analyst following, and anti- takeover provisions, after controlling for various firm characteristics. After correcting for endogeneity and simultaneity issues, the results show that (...) CSR engagement positively influences firm value measured by industry-adjusted Tobin’s q. We find that the impact of analyst following for firms that engage in CSR on firm value is strongly positive, while the board leadership, board independence, blockholders’ ownership, and institutional ownership play a relatively weaker role in enhancing firm value. Furthermore, we find that CSR activities that address internal social enhancement within the firm, such as employees diversity, firm relationship with its employees, and product quality, enhance the value of firm more than other CSR subcategories for broader external social enhancement such as community relation and environmental concerns. (shrink)

I broadly explore the question by examining several common criticisms of CEO pay through both philosophical and empirical lenses. While some criticisms appear to be unfounded, the analysis shows not only that current compensation practices are problematic both from the standpoint of distributive justice and fairness, but also that incentive pay ultimately exacerbates the very agency problem it is purported to solve.