A New Look at Diversity

A New Look at Diversity

van Dijk, H., van Engen, M., & Paauwe, J. (2012). Reframing the Business Case for Diversity: A Values and Virtues Perspective. Journal of Business Ethics, 111, PP. 73-84

This article addresses the concerns of discrimination in the work place with respect to recruitment and selection as well as performance management (Dijk, Engen, & Paauwe, 2012). The reason that this issue is so important is that diversity in the work place empowers minority groups and mitigates inequalities (Noon, 2007), and empirical studies are more frequently supporting  the benefits of diversity in the work place (Kochan et al., 2003). This article first discusses the equality case and the business case for diversity and how they tend to be mutually exclusive (Dijk, Engen, & Paauwe, 2012). It then discusses diversity skepticism and diversity opportunism (Dijk, Engen, & Paauwe, 2012). Diversity can be used as a tool and tossed aside quickly when the advantages wane (Derry, 1996).

Dijk, Engen, and Paauwe then a moral perspective known as virtue ethics (Dijk, Engen, & Paauwe, 2012). In order to avoid discrimination in recruitment and selection, the focus on virtues desired in a candidate, for the specific job, need to be listed (Dijk, Engen, & Paauwe, 2012). Then identifiers that will be used to evaluate candidates need to be listed (Dijk, Engen, & Paauwe, 2012). The article describes how performance management also tends to be biased against minorities in how standards are set by the majority therefore tending to favor the majority (Dijk, Engen, & Paauwe, 2012). As a result, establishing the prime virtues for each job and appropriate indicators that indicate the mastering of virtues for performing the job and development goals (Dijk, Engen, & Paauwe, 2012).

Finally, the article stresses the need for firms to express equality is one of its core values (Dijk, Engen, & Paauwe, 2012). They also stress that the values and virtues perspective does not need to replace policies that already promote and express their concern for equality (Dijk, Engen, & Paauwe, 2012).

Managers should heed these suggestions in that following these policies can increase the firm’s social acceptance and increase employee loyalty (Dijk, Engen, & Paauwe, 2012).

References:

Derry, R. (1996). Toward a feminist firm: Comments on John Dobson and Judith White. Business Ethics Quarterly, 6, PP.101-109.

Kochan, T., Bezrukova, K., Ely, R., Jackson, S., Joshi, A., Jehn, K., et al. (2003). The effects of diversity on business performance: Report of the diversity research network. Human Resource Management, 42, PP. 3-21.

Noon, M. (2007), The fatal flaws of diversity and the business case for ethnic minorities. Work, Employment & Society, 21, PP. 773-784.

van Dijk, H., van Engen, M., & Paauwe, J. (2012). Reframing the Business Case for Diversity: A Values and Virtues Perspective. Journal of Business Ethics, 111, PP. 73-84.

The Cut and Paste Society: Isomorphism in Codes of Ethics

(Holder-Webb and Cohen)Holder-Webb, Lori; Cohen, Jeffrey. Journal of Business Ethics. Jun2012, Vol. 107 Issue 4, p485-509. 25p. 8 Charts. DOI: 10.1007/s10551-011-1060-1

This blog was very hard to write. Even though other articles were much shorter, I chose this article because I felt strongly about the topic. Those feelings make it difficult to condense this study into a blog. Here is my attempt.

This article explores whether the Sarbanes-Oxley (SOX) Act of 2002 encourages companies to write a Code of Ethics that expresses the company’s true values, or if companies feel it is another regulation that requires a rubber stamp response. Section 406 of the SOX Act of 2002 requires publicly traded companies to disclose if they have a Code of Ethics and explain why, if they do not disclose one. In 2004, the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ) began mandating companies that trade on their exchanges to have a published Code of Ethics.

This study was based around the year 2004. The sampling only included companies that are publicly traded; United States based; listed on Compustat; and did not provide financial services. The final sample exists of 66 companies. Of this sample, 14% use the template 1 type (checklist) of Codes of Ethics and 86% use the template 2 type (categorized). In the template 2 Code of Ethics, five of the twelve categories were used by 100% of the companies, four were used by between 95-98%, and five were used by between 44-74%. This convergence indicates that most company’s Code of Ethics are written to meet the required standards, instead of establishing company standards; form over substance. Section 406 of SOX states that a company’s Code of Ethics should be independent and greatly vary from other businesses within their industry. Only two sections of the Code of Ethics are concrete: financial reporting and record maintenance. Coercive forces are responsible for the non-decoupling language of these sections.

In this study, Holder-Webb and Cohen set out to answer three research questions.

1.      Does the content of Codes of Ethics exhibit convergence across organizations consistent with isomorphic pressures? (Holder-Webb and Cohen)

2.      Does the language of Codes of Ethics exhibit convergence across organizations consistent with isomorphic pressures? (Holder-Webb and Cohen)

3.      Do Codes of Ethics substitute decoupling language for concrete language leading to enforceable provisions? (Holder-Webb and Cohen)

Three types of pressures lead to isomorphic behavior: coercive (regulatory or cultural), normative (taught behavior), and mimetic (copycat/follower). Since Ethics was not aggressively taught in colleges at the beginning of the 21^st century, the authors focused on coercive and mimetic pressures.

The authors recognize that companies in the same industry have isomorphic Codes of Ethics. By using document-recognition/comparison software, the authors tested the Codes of Ethics published by the sample companies to determine Code originality. The authors determined that in most companies’ Codes of Ethics, coercive pressures lead to convergence in the content, and mimetic pressures lead to convergence in the language.

Nearly 40% of the sample firms’ Codes of Ethics did not contain any original language. Approximately 27% of the sample firms’ Codes of Ethics contained less than 5% original content. A mere nine of the sample firms’ Codes of Ethics contained 20% or less of original content.  

How do these companies end up with the same, or extremely similar, Codes of Ethics? It is determined that they get them by internet searches. If a company is willing to go online and copy another company’s Code of Ethics, how ethical can that company be?

This study showed that a majority of firms used decoupling language to keep the Code of Ethics ambiguous and open to firm interpretation. This kept management from being confined by concrete language and afforded the company to use the ambiguity of the document to control employees.

A 2008 Google Search determined that a minimum of 50 publicly traded companies’ Code of Ethics was identical to the one in Template 1. I do not know if this is from laziness or lack of caring, but I do know that I am going to be paying a lot more attention to the Code of Ethics for any company in which I invest or am employed.

In my opinion, what the authors proved was that the majority of companies do not give enough credence to ethics to take the time to write their own Code of Ethics to establish the company’s values.

Use Those "Binders Full of Women" to Fill the Boardroom

Green, Jeff. Bloomberg Businessweek, October 29 -November 4, 2012. “The Boardroom’s Still the Boys’ Room”. Pp. 25-26.

 While America’s workforce is so diverse in gender and culture, its corporate boards are still overwhelmingly filled with men.  Jeff Green of Business Week reports in “The Boardroom’s Still the Boys Room”, that it the problem is in the system and perhaps they can use Mitt Romney’s ‘binders full of women’ to increase board diversity  (Green, 2012, p. 25).  Rather than finding qualified talent, board members tend to recruit their friends to corporate boards using their “male-oriented traditional networks” according to Christine Allen, who sits on three boards. Yet, 45 percent of male directors blame a lack of experienced and qualified female candidates (Green, 2012, p. 25).

While other countries are forging ahead by putting quotas and terms limits in place to change the face of corporate board membership, the United States (U.S.) still lags behind, “11^th among other industrialized nations” (Green, 2012, p. 25). U.S. companies seem to be drifting in the opposite direction with only 12.6 percent of Standard and Poor’s (S&P) 1500 companies board membership being  women and only 21% of new members being female; 9 percent less than 5 years ago according to the Spencer Stuart Board Index (Green, 2012, p. 25).

Imposing term limits has enabled the United Kingdom (U.K.) to raise their female to male ratio to 17.3 percent in 2012, up from 12.5 in 2012 (Brady, 2012). Another problem in the U.S. is that once appointed to a board no one wants to leave, and why would they with an average pay of $227,250 per year for a few weeks of work? The average age of board members on S&P 500 Index companies is 62.6 years, with only 4 percent of those companies imposing mostly 10-15 years term limits (Brady, 2012).

Oddly enough, it is appears to be pension funds that are leading America’s push to increase board diversity.  The California Public Employees’ Retirement System and Global Market Insite (GMI) are collaborating to develop “their own binder of sorts”, of about 400 candidates to date in a central database called the Diverse Director Data Source (Green, 2012).

Additionally, companies with women board members perform better than similar “businesses with all-male boards by 26 percent worldwide over a period of six years, according to a report by the Credit Suisse Research Institute” (Perlberg, 2012). “Stocks of companies with women on boards tend to be a little more risk averse and (companies) have on average a little less debt” (Perlberg, 2012).

Some countries have set significantly high quotas of 40% of women-filled seats, which is resulting in less experienced boards.  A group in the U.S., 2020 Women on Boards, has set a goal to push for 20% of board sets to be filled by women (Green, 2012, p.26). U.S. companies can step up to the plate and set self-imposed term limitations and quotas themselves rather than wait to be forced to do it by entities such as, pension funds, interest groups, and government. As an added benefit, the changes may result in diverse ideas and better company performance.

References

Green, Jeff. Bloomberg Businessweek, October 29 -November 4, 2012. “The Boardroom’s Still the Boys’ Room”. Pp. 25-26.

Brady, Diane. Businessweek, September 20, 2012. “To Get Women on Company Boards, Make Men Leave”.  http://www.businessweek.com/articles/2012-09-20/to-get-women-on-company-boards-make-men-leave

Perlberg, Heather. “ Stocks Perform Better if Women Are on Company Boards”.  July 31, 2012. http://www.bloomberg.com/news/2012-07-31/women-as-directors-beat-men-only-boards-in-company-stock-return.html

 

Can Greece recover?

Can Greece recover?

Rady, Dina Abdel Moneim, Greece Debt Crisis: Causes, Implications and Policy Options, Academy of Accounting and Finance Studies Journal, Volume 16, Special Issue, 2012, PP 87-96

This article starts by describing how deep in debt Greece is (Rady, 2012). By 2010, Greece government debt was 147.3% of its GDP with maturing debt of $72.1 billion (Rady, 2012). This is compared to the EU’s restrictions of budget deficits of no more than 3% of GDP and external debt of no more than 60% of GDP (Rady, 2012). The author cites reasons for the problem in Greece as:
1) Improper economic policies of higher spending accompanied by lower revenues (Rady, 2012).
2) Poor trade policies of focusing Greece’s economy on the services sector (Rady, 2012). Services are the first thing cut when economies turn down (Rady, 2012).
3) Greece’s failure to remain internationally competitive with wage agreements raising nominal wages by 12% during a period of low inflation (Rady, 2012).
4) The 2008 global recession which cut demand for services provided by Greece which made getting more financial assistance more difficult (Rady, 2012).
5) the inability of Greece to devalue the Euro which would cheapen Greece’s debt (Rady, 2012).
The conclusion of this article is that, if Greece defaults on its debt, other southern European nations will be adversely affected (Rady, 2012). What is needed to prevent a default is tighter and stronger control by the EU, tax increases, and spending cuts (Rady, 2012). Greece also needs to promote the growth exports and more competitive wages (Rady, 2012).

Drug Cartels and Terrorists are Using Foreign Ties to Gain Access to U.S. Banking

United States authorities are investigating multiple banks for sanction violations and money laundering. HSBC is being made an example to send the message that the Unites States is not going to turn a blind eye to these activities. Standard Charter Bank reached a $340 million settlement with U.S. regulators for violating sanctions by doing $250 billion in transactions with Iran. Germany’s Commerzbank and Royal Bank of Scotland are facing charges of sanction violations. Wells Fargo & Co.’s Wachovia Bank paid a $160 million settlement in 2010. (Staff2)

After its investigation, Mexico fined HSBC a record $27.5 million (over one-half of the Mexico branch’s 2011 profits. (Staff3) “Mexico loses an estimated $50 billion per year – almost 5 percent of its gross domestic product – in illicit money outflows of different types, including money laundering, corruption, and tax evasion, according to Global Financial Integrity, a nonprofit research and advocacy group in Washington, DC.” (Flannery)

Six HSBC executives testified at the hearing, including David Bagley, who announced his resignation as head of group compliance during his testimony. (Hamilton and Voreacos) The U.S. Senate Subcommittee ruled that HSBC was guilty of conducting 25000 transactions totaling $19 billion with Iran between years 2001 and 2007. (Staff2) The Mexico subsidiary helped drug cartels buy planes through laundered money in Cayman Island accounts. HSBC Mexico set up a Cayman Island branch that handled 50 thousand accounts worth $2.1 billion. (Rushe) Although there was a Cayman Island branch on the books, no offices or staff existed. The Senate Subcommittee issued a 335-page report that detailed how the financial institution repeatedly failed to comply with money-laundering regulations and government sanctions, and allowed terrorists and drug lords to filter billions of dollars through the North America branch of the London based company. Additionally, the bank violated U.S. sanctions when it conducted business with Libya, Sudan, Syria, North Korea, Cuba, and Burma. (Hamilton and Voreacos)

HSBC opened more than 2500 bearer share corporations, the majority opened in Miami, Florida, with assets of $2.6 billion that generated $26 million in annual revenues. Bearer share corporations can secretly change ownership, which makes them a great way of laundering funds. (Staff)

HSBC was fined $100,000 in April 2000 for making a transfer that benefitted the Taliban, yet in the years between 2006 and 2010, HSBC shipped $1 billion to Al Rajhi in Saudi Arabia, despite its links to terrorist financing. The investigation showed that HSBC was aware that it was violating U.S. sanctions by doing business with Iran. An outside audit by Deloitte LLP, confirmed that HSBC completed 25,000 transactions involving Iran that totaled over $19 billion. Approximately 1800 of these were u-turn transactions. Until 2008, U.S. regulations permitted banks to conduct u-turn transactions that go through sanctioned countries but do not originate or end in one of those countries. Regulators discovered that banks were falsifying documents to hide where the transactions are beginning and ending in order to bypass regulations. (Hamilton and Voreacos)

HSBC is also under investigation by the U.S. Justice Department, the Manhattan, New York District Attorney, the U. S. Federal Reserve, and the U.S. Treasury. Although HSBC has allocated $700 million for fines, it has been estimated that the fine from the U.S. Senate alone may be as high as $1 billion. HSBC admitted failure to report 39 suspicious transactions and reporting 1729 suspicious transactions after they were completed. (Staff3) “Paul Thurston, chief executive of retail banking and wealth management, who was sent in to try and clear up HSBC’s Mexican banking business in 2007, said he was “horrified” by what he found.” Mr. Thurston also stated the Bank has doubled oversight funding and adopted Global compliance structure. (Rushe)

Only after the head of the Subcommittee, Senator Levin, declared he felt there might be significant reason for regulators to consider revoking HSBC’s charter, the bank’s senior executives promised changes and displayed remorse for their actions, or lack of actions. The head of HSBC’s retail banking and wealth management unit stated that HSBC will close the Mexico unit’s U.S. dollar accounts in the Cayman Islands. (Rushe)

Works Cited

Flannery, Nathaniel Parish. "Could HSBC Face the World's First Billion Dollar Money Laundering Settlement?" 30 September 2012. Forbes. 23 October 2012 <http://www.forbes.com/sites/nathanielparishflannery/2012/09/30/could-hsbc-face-the-worlds-first-billion-dollar-money-laundering-settlement>.

Hamilton, Jesse and David Voreacos. "HSBC Executive Resigns at Senate Money-Laundering Hearing." 23 July 2012. www.businessweek.com. 15 October 2012 <http://www.businessweek.com/printer/articles/287462?type=bloomberg>.

Rush, Dominic. "HSBC 'sorry' for aiding Mexican drugs lords, rogue states and terrorists." 17 July 2012. The Guardian. 23 October 2012 <http://www.guardian.co.uk/business/2012/jul/17/hsbc-executive-resigns-senate>.

Staff. "Senate report: HSBC 'allowed drug money laundering'." 17 July 2012. BBC News Business. 23 October 2012 <http://www.bbc.co.uk/news/business-18866018?print=true>.

Staff3. "Mexico fines HSBC $27.5m for lax money-laundering control." 25 July 2012. BBC News Latin America & Caribbean. 25 October 2012 <http://www.bbc.co.uk/news/world-latin-america-18993476?print=true>.

"Unicredit 'in US Iran sanctions breach investigation'." 26 July 2012. BBC News Business. 23 October 2012 <http://www.bbc.co.uk/news/business-19384702?print=true>.

The Effects of Leader-Member Exchange on Whistle Blowing

Bhal, K., & Dadhich, A. (2011). Impact of Ethical Leadership and Leader-Member Exchange on Whistle Blowing: The Moderating Impact of the Moral Intensity of the Issue. Journal of Business Ethics, 103(3), 485-496. doi:10.1007/s10551-011-0876-z

 

Corporate governance has become even more complex after the mandatory requirements of the Sarbanes –Oxley Act -2002 were implemented.   Along with extra accounting and reporting requirements, corporations were also required to establish a system for fraud reporting (whistleblowing) (Bhal and Dadhich, 2011). Bhal and Dadhich present a hypothesis testing study that explores the factors that support whistleblowing and how they impact the corporate systems established. The article presents three experimental studies conducted on post graduate engineers in India, which tests ethical leadership and quality of leader-member exchange (LMX) and the morale intensity as in relates to the magnitude of the consequences (MOC) of fraudulent behavior.  Interpersonal interactions or coworkers and the support and encouragement of immediate ethical leaders have a significant impact on the decision to report fraudulent behavior. 

The authors present the following hypotheses:

·         “H1 Ethical leader behavior will be positively related to whistleblowing by the subordinates” (Bhal and Dadhich, 2011, p. 487).

·         “H2 Leader-member exchange quality will be positively related to whistle blowing by subordinates” (Bhal and Dadhich, 2011, p. 487).

·         “H3 Whistleblowing will be highest for ethical leaders in situations with high magnitude of consequences” (Bhal and Dadhich, 2011, p. 488).

·         “H4 The positive relationship between high quality leader-membership exchange and whistle blowing would be stronger for situations with high magnitude of (negative) consequences” (Bhal and Dadhich, 2011, p. 488).

The first study designed around presenting scenarios and asking participants to indicate the level of ethical leadership, high or low and the LMX as low or high. The dependent variable, whistle blowing, was used in a measure of willingness to report without fear and comfort level of delivering bad news of ethical wrong doing. The results of the first study showed that both ethical leadership and the leader-member exchange were successful in predicting whistleblowing (Bhal and Dadhich, 2011).

The second study involved the testing of hypothesis three using vignette scenarios again and crossed the ethical and unethical leadership with low and high magnitude of consequences. The results showed that the effects of ethical leadership and MOC are significant. Moreover, that the interaction between leadership and MOC significantly predicts whistleblowing.

The third study involved the testing of hypothesis 4 (H4), estimating the marginal means for whistleblowing where ethical leadership and MOC were independent variables and whistle blowing as the dependent variable. The results of testing illustrated that the interaction between LMX and whistleblowing is most significant when the magnitude of consequences is also high (Bhal and Dadhich, 2011).

The authors explain limitations in the testing with consideration that engineers were used in the study as participants. In fact, all of the participants were from India, which brings up the concern that India’s culture is characterized by collectivism where relationships are more personal than professional, making reporting more difficult. Additionally, regulations in India concerning fraudulent behavior are considerably weak. Another weakness in the study, not noted as such, is that the average age of the study participants is 26. The post-graduate student engineers most likely had little work experience. A selection of a wider cross-section of participants would add credibility to the well-thought out study.

Practical implications for managers regarding these findings are that the more likely the organization encourages ethical behavior and high consequences along with encouragement for reporting without retaliation, the more likely the corporation will prevent unethical behavior from occurring in the first place.

Innovation and Incentives

Is Innovation spurred by Incentives?

Barros, Henrique M. & Lazzarini, Sergio G. Do Organizational Incentives Spur Innovation?, Brazilian Administration Review (BAR). Sept., 2012, Vol. 9 Issue 3, p308-328

 

This article sets out to show a positive correlation between performance-based incentives and firm innovation (Barros & Lazzarini, 2012). It goes beyond previous studies and theories that state a positive correlation between performance-based pay and innovation by introducing performance-based promotion into the focus (Barros & Lazzarini, 2012). The importance of this is that firms can use this as a tool to increase innovation and, as a result, improve their competitive stance (Barros & Lazzarini, 2012).

This article sets forth two hypotheses (Barros & Lazzarini, 2012). One is that performance-based pay will positively influence firm innovation (Barros & Lazzarini, 2012). The second is that performance-based promotions will positively influence firm innovation (Barros & Lazzarini, 2012). Surveys are then performed on 370 Brazillian firms to evaluate the hypotheses (Barros & Lazzarini, 2012).

The study determines that there is a moderate positive correlation between performance-based pay and innovation, but there is a positive correlation between performance-based promotion and firm innovation (Barros & Lazzarini, 2012). The study also showed that insignificant difference between whether there was a medium level or high level of status incentives used (Barros & Lazzarini, 2012).

This study indicates that the use of, at least, moderate promotions as incentives to employees to seek new innovation is effective in improving firm innovation (Barros & Lazzarini, 2012). The study also showed, through controls, that firms with a board of directors are inclined to be more innovative (Barros & Lazzarini, 2012). Also, larger firms are less likely to be innovative (Barros & Lazzarini, 2012).