LINKING UNDERGRADUATE BUSINESS DEGREE SPECIAUZATION To ETlUCAL BEHAVIOR: AN EMPIRICAL INVESTIGATION Shane R. Premeaux Sonya A. Premeaux Jeanne Daboval A.KM. Matiur Rahman McNeese State University Lake Charles, Louisiana According to Widener University's School of Management professors Reilly Ber- nard and Myroslaw Kyj any behaviors that lessen, deter or stand in the way of the goal (of maximizing shareholder equity) are considered "inefficiencies" to be elimi- nated by responsible corporate managers ([4], p. 23). In an effort to assure maximi- zation of shareholder equity managers sometimes behave unethically [9]. Unethical incidents and moral impunity are often daily occurrences. Examples of these ques- tionable business practices include: Rockwell International defrauding the Air Force, Hertz overcharging customers and Ocean Spray's indictment for pollution ([5], p. 56). Such unethical actions usually result in extreme criticism of those in business and often results in public outcries for managers to behave more ethically. Education may be one method of improving the ethical foundation of business students, which may in tum lead to more ethical behavior. The current ethical impact of a business edu- cation on those in various degree specializations may provide the baseline on which to judge if anyone degree specialization is doing a better job of providing a solid ethical foundation. Undergraduate business degree specializations were investigated to determine if such a baseline exists, and to assess the ethical outlook of those edu- cated in the various business specializations. The question addressed here is, "Does an individual's undergraduate business de- gree specialization have any effect on the ethical behavior of that person?" Specifi- cally, does the ethical behavior of managers educated in the areas of finance, economics, marketing, management, and accounting differ significantly? No study to date has directly addressed the link between ethical behavior and business degree specializa- tion. Such a linkage could possibly be useful in understanding the formation of ethi- cal behavior patterns of managers with different educatiomil backgrounds. If in fact students majoring in certain business disciplines are more ethical in their responses to ethical vignettes it is possible that the ethical foundation provided in certain business disciplines better prepares students to act in a responsible, ethical manner. Research Design For the results to be useful in linking business degree specialization with ethical behavior by managers, the data collected must represent a wide variety of business 30 Journal ofBusiness Strategies Vol. 10, No.1 scenarios. A series of vignettes were used to gather data related to ethical linkages. These vignettes are firmly grounded in ethical theory and the ethical response options provided with each vignette were utilized by Fritzsche and Becker in their 1984 study of ethical linkages. Each vignette describes a business decision containing a potential ethical dilemma [7]. Respondents to the mail survey were asked to assume the role of decision maker and indicate how they would resolve each situation. Vignettes al- low the injection of a greater amount of background information and detail into ethi- cally questionable issues. These types of research vignettes are thought to elicit higher quality data than is possible from simple questions [1]. Four categories of ethical problems which represent a wide variety of ethical issues were included in this study [1]. The four categories investigated are coercion and control, conflict of interest, physical environment, and personal integrity.. A coercion and control issue exists when some external force attempts to compel a manager to make a specific decision by using threats, extortion, or other sources of power. A conflict of interest situation arises when a manager has more than one interest that, if mutually pursued, may result in injury to individuals or to the firm [3]. The physical environment vignette is a spe- cial case of conflict of interest in which the environment is affected. Finally, per- sonal integrity problems occur when decisions raise issues of conscience [1]. The original vignettes were developed by Fritzsche and Becker, and were once again pretested on a group of individuals working in the field of ethics. The ethics group consist of philosophers, business practitioners, and business professors in each of the business disciplines involved. The vignettes were revised in line with the pre- test results and the comments received from the ethics group. The revised vignettes were placed in the questionnaire in random order. Respondents were asked to indi- cate the likelihood of behaving in accordance with a requested behavior of question- able morality. A 0- to lO-point Likert scale anchored with "definitely would not" (0) and "definitely would" (10) phrases was used. Mter making a decision, the respon- dent was asked why the particular decision was made. Five copies of the questionnaire were mailed to a systematic random sample of 200 practicing human resource managers. One hundred and sixteen human resource managers assisted in this investigation. The sample was drawn from slightly over 1300 human resource managers who are affiliated with the Personnel Accreditation Institute. It was believed that a reasonably accurate representation of the actual population was secured. However, smaller firms were slightly under-represented among those who participated in this study. Non-response bias should not be a problem because the survey procedure continued until each segment of the population was well represented, with the exception of economics majors. Supplementary analysis indicated that the non-respondents did not differ materially from the respondents. The pretest results were also quite similar to those of the sample population. The human resource managers were asked to give a copy of the questionnaire to five employees, one with an undergraduate business degree in accounting, economics, finance, management, and marketing. Only managers who had been with the company for five years or more were surveyed. Three hundred and sixty-one usable question- Spring 1993 Premeaux, et al.: Linking Undergraduate Business Degree 31 naires were received, which yielded a response rate of 36.1 percent. Not all manag- ers responded to each question, thus the category frequencies related to each question are somewhat less than 361. Mean scores were computed for every rationale selected in each vignette on a lO-point scale. Analysis of variance (ANOVA) was used to determine whether significant differences existed between the rationales espoused by respondents with different degree specializations. Differences across responses were analyzed using the Scheff6 a posteriori test with a significance level of p<.lo. The demographic data obtained from the respondents indicate that a wide spec- trum of managers in each of the degree specializations, with the exception of econom- ics, participated in the survey. Because of the limited responses from those with an economics specialization, the finance and economics categories were collapsed. Twenty- nine percent of the respondents had undergraduate degrees in accounting, 2 percent had degrees in economics, 22 percent had finance undergraduate degrees, 30 percent had management degrees, and 17 percent had marketing degrees. Sixty-one percent of the respondents were from the ranks of middle management. An additional 27 percent occupied top management positions. Ninety-four percent of the respondents had college business degrees and 67 percent had masters degrees. Ninety-eight per- cent of the accountants were CPAs. The respondents' age distribution was relatively uniform across categories from 30 to 49, with a minor drop-off in the 50 to 59 age group. Findings Open-ended questions were designed to determine the rationale for each ethical decision made by the respondents. The responses to these open-ended questions were aggregated into common response categories. Individual responses tended to be well thought out and somewhat complex, but there was no evidence of a patterned response. Few multicategorical responses were received, but when a complete response contained elements from several response categories, it was classified according to the first re- sponse category discussed. The findings are discussed by the type of ethical dilemma faced. Initially, the vignette eliciting the response is presented, followed by the ques- tion posed to the respondent, then a table containing the rationales for each response by those in each separate degree specialization is presented. Brackets enclose responses that did not differ significantly from each other per the Scheff6 test. Coercion and Control Collusive efforts of local manufacturers have barred the Rollfast Bicycle Company from entering a large Asian market. Rollfast management expects to net 5 million dollars annually from bicycle sales if it could penetrate the market. Last week a businessman from the country contacted Rollfast management and assured them that he could smooth the way for the company to sell in his country for a "grease" fee of $500,000. 32 Journal ofBusiness Strategies Vol. 10, No.1 If you were responsible, would you pay the bribe or so-called "grease" fee? Basically, the higher the mean scores the greater the acceptability of bribes, re- gardless of the rationale selected. Overall, only 114 of the respondents definitely ruled out paying a bribe. The majority of those surveyed exhibited a slight tendency to- ward paying the bribe or the so-called "grease fee." The six response categories re- lating to the reason for the action taken in the coercion and control vignette are shown in Exhibit 1. The response categories were classified according to the respondent's undergraduate business specialization. The fifty respondents selecting the "against com- pany policy" rationale would not pay the bribe, as is obvious from the mean ratings of between .47 and .51. The sixty-four respondents selecting the "illegal under the Corrupt Business Practices Act" rationale would also not pay the bribe. The ninety- four respondents selecting the "unethical bribe" rationale are more likely to pay the bribe than those who preferred the first two rationales, but are still unlikely to pay the bribe. The accounting group selecting this rationale were even less likely to pay the bribe than the other three groups. The thirty-five respondents selecting the "no one is hurt" rationale are much more likely to pay the bribe than those subscribing to the other three rationales, with accountants being the group who were least likely to pay the bribe, even if no one is hurt. The sixty-five respondents selecting the "is an acceptable practice in other countries" rationale were, as a group, likely to pay the bribe, with the accounting and marketing groups somewhat less likely to pay. Finally, the thirty-six respondents selecting the rationale that it "is not unethical, but just the price paid to do business" were most likely to pay the bribe, with the accounting group less likely than the other three groups. The views of both accountants and marketers were significantly different from the views of others in the group in relation to bribes being an acceptable practice in other countries. However, overall accountants were less tolerant of bribes, even when bribes were an acceptable practice in other countries. None of the four "Other" responses appear to have anything to do with ethical considerations. Conflict of Interest Bill Smith has recently accepted a job with an aggressive microcomputer manu- facturer. Microcomputer manufacturers are engaged in intense competition to become the first to develop a software package which utilizes the English language, and thus is easily used by the average customer. Smith's former employer is rumored to be the leader in this software development. When Smith was hired he was led to be- lieve his selection was based on his management potential. However, the morning beginning the third week of his new job, Smith received the following memo from the company president: "Please meet with me tomorrow morning at 8:15 for the purpose of discussing the progress your former employer has made in the development of language driven software." If you were Smith, would you provide your new employer with the software information? Spring 1993 Premeaux, et aZ.: Linking Undergraduate Business Degree Exhibit 1: Rationale for Coercion and Control Responses 33 Response ACCT Mean' Freq FIN/ECON Mean' Freq MGMT Mean'Freq MKTG Mean' Freq Totals Against company {.47 policy Illegal under { .48 Corrupt Business Practices Act 22 23 .51 13 .49 14 .49 10 .48 18 .47 .45 5} 50 9} 64 Bribe, unethical No one is hurt Is an acceptable practice in other countries 1.72 31 3.61 14 {2.54 20 {5.43 12 {6.74 10 2.51 29 5.78 6 6.77 29} 2.43 14} 94 5.96 3} 35 5.68b 15 65 Is not unethical, 6.04 just the price paid to do business Totals 5 106 {7.83 7 76 7.81 18 110 7.54 6} 36 52 344 TOTAL Total specific responses 344 Other responses 4 Overall Total 348 A High average indicates that the respondents would pay the bribe, which would probably be interpreted as unethical. 'The braces enclose responses that did not differ significantfy from each other per the Scheffe test. A 0- to 10-point Likert scale anchored with "definitely would not" (0) and "definitely would" (to) was used. bThere are no significant differences between the Accounting and Marketing groups. In interpreting Exhibit 2 it is important to remember that the higher the mean scores the more likely that individuals would provide the software information. Overall, the majority of those surveyed exhibited a slight tendency toward providing the soft- ware information. Six response categories for the conflict of interest vignette are pre- sented in Exhibit 2. For the first and fourth rationales, the responses of accountants did not differ significantly from those with other business specializations. There was basic agreement that the information would not be provided if the rationale were that it was unethical for Smith to provide information and unethical for the employer to 34 Journal ofBusiness Strategies Vol. 10, No.1 ask, and a near neutral response was received for providing some but not all of the information. Accountants who believed that it was unethical for the employer to mislead Smith when he was hired, and that protecting Smith's reputation was im- portant, were more adamant that the information should not be provided than those in the other groups. While those in the non-accounting group were nearly neutral in their decision regarding providing the information based on whether a security agreement was in force, accountants leaned more toward it being less acceptable as a rationale. Respondents in the group who would probably provide the information rationalized that doing so would show loyalty to the new employer, and thereby help assure continued employment. However, accountants who chose this rationale were not so willing to accept it as an appropriate course of action, as were members of the other groups. Forty-two of the respondents chose the "Other" response option and listed ration- ales different from those provided. Seven of these respondents stated that they did not believe that the scenario was reasonable, thirteen of the respondents believed that there was no conflict of interest, and the remaining respondents gave rationales which appear to have nothing to do with ethical considerations. Physical Environment Master Millers has developed a special milling process which yields a wheat flour which when used for bread provides a lighter more uniform texture than convention- ally milled wheat flour. Unfortunately, the process gives off more dust than the emission control equipment presently installed can handle and still maintain emissions within legal limits. Due to lack of availability, the company is unable to install new emissions control equipment for at least two years; however, if it waited that long to introduce the new process, competitors would very likely beat it to the market. The general manager wants to use the new process during the third shift which runs from 10 p.m. to 6 a.m. By using the process at that time, the new flour could be intro- duced and the excess pollution would not be detected due to its release in the dark. By the time demand becomes great enough to utilize a second shift, new emission control equipment should be available. If you were responsible, would you approve the general manager's request? Once again, the higher the mean scores the more likely that the general manager's request to use the special milling process would be approved. Overall, the majority of those surveyed exhibited a slight tendency toward approving the request to use the special milling process over the short term. Exhibit 3 contains the six response cat- egories for the environment vignette. The responses of accountants did not differ sig- nificantly from other respondents for the fifth rationale. Those who rationalized that .the pollution would not really hurt the environment were likely to grant permission to use the new process. However, the majority of those surveyed would not approve the new process. Like several other instances accountants were more adamant about not compromising. Committing an illegal act, threatening the environment, and possibly getting caught were viewed as less viable options by accountants. While those in the Spring 1993 Premeaux, et al.: Linking Undergraduate Business Degree Exhibit 2: Rationale for Conflict of Interest Responses 35 Response ACCT Mean- Freq FIN/ECON Mean- Freq MGMT Mean-Freq MKTG Mean- Freq Totals Unethical for Smith {.81 to provide and un- ethical for employer to ask Unethical for em- 1.62 ployer to mislead Smith when he was hired Protect Smith's 1.39 reputation Provide some but {5.48 not all information 32 28 12 13 .89 18 {Z.14 17 {1.67 7 5.59 11 .84 15 2.17 22 1.71 8 5.54 14 .82 2.04 1.68 5.49 6} 71 7} 74 3} 30 5} 43 Decision based on 3.90 whether security agreement in force To keep job, 6.18 loyalty to new employer Totals 8 4 97 {4.77 5 {7.23 14 72 4.74 16 7.18 28 103 4.69 7} 36 7.20 12} 58 40 312 TOTAL Total specific responses 312 Other responses 42 Overall Total 354 A High average indicates that the respondents would provide the software information, which would probably be interpreted as unethical. -The braces enclose responses that did not differ significantly from each other per the Scheffe test. A 0- to 10-point Likert scale anchored with "definitely would not" (0) and "definitely would" (10) was used. non-accounting group were nearly neutral in their decision to use the process, since it was impossible to install the equipment, accountants viewed using the process as somewhat less acceptable. Finally, the views of accountants, and those in the finance group, were significantly different from the views of others in relation to going ahead with the 36 Journal ofBusiness Strategies Vol. 10, No.1 process if there is a large potential for gain with little risk. Basically, more of those in the accounting and finance groups had greater reservations than those in the other groups regarding this option. Twenty-six of the respondents chose the "Other" option and listed rationales dif- ferent from those provided. Nine of these respondents stated that harm to the envi- ronment is never acceptable under any circumstances, seven of the respondents believed that technology is such that a relatively quick solution could have been found, and the remaining respondents gave rationales which appear to have nothing to do with ethical considerations. Personal Integrity Jack Ward is working in product development for an auto parts contractor. Ward's firm received a large contract last summer to manufacture transaxles to be used in a new line of front wheel drive cars which a major auto manufacturer plans to intro- duce in the near future. The contract is very important to Ward's firm, which has recently fallen on hard times. Just prior to obtaining the contract, half of the firm's employees, including Ward, had been scheduled for an indefinite layoff. Final testing of the assemblies ended last Friday and the first shipments are scheduled for three weeks from today. As Ward began examining the test reports, he discovered that the transaxle tended to fail when loaded at more than 20% over rated capacity and sub- jected to strong torsion forces. Such a condition could occur with a heavily loaded car braking hard for a curve down a mountain road. The results would be disastrous. The manufacturer's specifications call for the transaxle to carry 130% of its rated capacity without failing. Ward showed the results to his supervisor and the company president who indicated that they were both aware of the report. Given the low like- lihood of occurrence and the fact that there was no time to redesign the assembly, they decided to ignore the report. If they did not deliver the assemblies on time, they would lose the contract. Ward must now decide whether to show the test results to the auto manufacturer. If you were Ward, would you notify the automobile manufacturer? For the final vignette, the higher the mean scores the more ethical the decision, and the greater the likelihood that Ward would notify the automobile manufacturer. Overall, the majority of those surveyed exhibited a very strong tendency toward noti- fying the automobile manufacturer. As is evident from the information in Exhibit 4, this vignette yielded a high degree of personal integrity among the majority of the respondents regardless of their undergraduate degree specialization. There was gen- eral consensus in relation to the overall acceptability of three of the five rationales. The majority of those in all groups viewed that Ward has an additional responsibility to report the problem, and that loyalty is irrelevant. All groups also believed that the risk of injury or death is unacceptable, and because of the chances of injury or death Ward should not remain silent. Accountants would definitely not remain silent if doing so would be either dishonest or criminal. Respondents with different educational back- grounds would also go public, but not with the same degree of conviction that ac- Spring 1993 Premeaux, et af.: Linking Undergraduate Business Degree 37 countants exhibited. Both accountants and marketers would definitely not risk the firm's image, profitability, and long run potential by remaining silent. To a lesser degree those with undergraduate specializations in economics, [mance, and manage- ment would also not risk similar repercussions. Of the twenty-one "Other" responses, eight individuals believed that the risk of injury or death is always most important, five individuals felt that the case did not illustrate a personal integrity issue, and the remaining respondents gave rationales which appear to have nothing to do with ethical considerations. Exhibit 3: Rationale for Physical Environment Responses ACCT FIN/ECON MGMT MKTG Response Mean" Freq Mean" Freq Mean" Freq Mean"Freq Totals It would be illegal .96 31 { 1.36 30 1.41 28 1.35 13} 102 Concern for the 1.21 23 { 1.53 18 1.51 18 1.49 6} 65 environment-life Risk of getting 1.34 20 { 1.74 14 1.69 17 1.61 5} 56 caught with result- ing negative conse- quences too great Not their fault, 4.11 7 {5.57 3 5.49 12 5.31 7} 29 equipment would be installed if available The pollution {7.01 5 7.06 5 7.06 27 7.01 16} 53 would not really hurt the environment Large potential { 6.41 13 6.49 8} {7.51 5 7.63 2} 28 gain with low risk Totals 99 78 107 49 333 TOTAL Total specific responses 333 Other responses 26 Overall Total 359 A High average indicates that the respondents would allow the use of the new milling process, which would probably be interpreted as unethical. "The braces enclose responses that did not differ significantly from each other per the Scheffe test. A 0- to 10-point Likert scale anchored with "definitely would not" (0) and "definitely would" (10) was used. 38 Journal ofBusiness Strategies Discussion Vol. 10, No.1 Fortunately, the majority of those responding had a preference toward the "ethi- cal" end of the scale. However, it is also obvious from the unethical business prac- tices which have come to light in recent years that more needs to be done to instill in all business majors a stronger ethical foundation. While it is true that ethical reason- ing does not assure ethical behavior, it at the very least, may indicate a greater aware- ness of the importance of ethics in business. Since accountants exhibited a greater tendency toward more ethical reasoning than those with other business specializations, it may be possible to gain some insight into the contribution of their educational ex- periences to their ethical reasoning. Although other factors could influence ethical behavior such as working in different capacities within the company Or an individual's level of experience, it is quite revealing that a linkage appears to exist between un- dergraduate business degree specialization and ethical behavior. With all of the emphasis on ethical issues in the last decade it is somewhat surprising that managers with accounting backgrounds appear to be somewhat more ethical in their rationalizations than managers with educational backgrounds in finance, man- agement, and marketing. Basically, accounting-trained managers were somewhat more likely to choose ethical positions than were managers trained in other business disci- plines. The results of this study represent only one observation for each type of ethi- cal dilemma examined, and only reveals what managers said they would do in vari- ous scenarios. Possibly, managers with accounting undergraduate degrees are prone to behave more ethically because they are exposed to the "Code of Professional Conduct of the AICPA." No other business field has such a readily available, universally accepted code of conduct. The professional code of conduct for accountants encourages be- havior in line with society's strict ethical requirements [6]. The Code outlines the responsibilities of those in the accounting profession, and encourages members to act in the public interest, with integrity, exercising objectivity and independence, and al- ways observe the profession's technical and ethical standards [6]. Fewer unethical occurrences are regularly noted in accounting than in other areas of business, but those in the accounting profession are not ethically blameless [8]. Some ethicists have suggested that managers need more than codes of ethics to be- have ethically [9]. Kenneth R. Andrews concluded in his study of the GTE Corpora- tion that, "education can highlight the importance of ethics and clarify ways in which rationale business decisions can include ethical considerations, but behavior change can only come about when the organization as a whole provides both the environment and the mechanisms for supporting ethical practices ([2], p. 47)." Possibly, CPAs are more ethically aware than other managers because in addition to their code of conduct, they are continually performing work that is subject to public scrutiny. Are managers with accounting backgrounds really more ethical, or were the ac- countants surveyed just more ethical in their rationalizations? It would be quite use- ful to isolate the reason or reasons for the ethical gap between those with backgrounds Spring 1993 Premeaux, et al.: Linking Undergraduate Business Degree 39 in accounting and those in other business fields. Possibly, an effort should be made to encourage the development of a general code of business ethics, or a code of eth- ics specific to each business discipline. However, an effort should definitely be made to create more ethical managers regardless of their undergraduate business degree spe- cializations. Exhibit 4: Rationale for Personal Integrity Responses Response ACCT Mean- Freq FIN/ECON Meao- Freq MGMT Mean- Freq MKTG Mean- Freq Totals Ward has no addi- { 3.21 tional responsibi- lity, loyalty will keep him quiet Risk of injury or {3.83 death too low to halt sale 5 6 3.29 3.84 3 2 3.31 11 3.81 5 3.26 6} 25 3.79 3} 16 The company has 9.86 27 a responsibility to the public--criminal and dishonest to re- main silent {8.16 18 8.19 12 8.03 7} 64 Risk to firm's 9.91b 13 image, profitability, and long-run potential too great to remain silent {8.64 11 8.53 25} 9.68b 13 62 Chances of causing{9.48 51 injury or death too great to remain silent 9.37 44 9.41 44 9.48 24} 163 Total specific responses 330 Other responses 21 Overall Total 351 Totals 102 78 97 53 330 TOTAL A High average indicates that the respondents would notify the automobile manufacturer, which would probably be interpreted as unethical. "'The braces enclose responses that did not differ significantly from each other per the Scheffe test. A 0- to 10-point Likert scale anchored with "definitely would not" (0) and "definitely would" (10) was used. bThere are no significant differences between the Accounting and Marketing groups. 40 Journal ofBusiness Strategies References Vol. 10, No.1 1. Alexander, C.S., & Becker, H.J. "The Use Of Vignettes In Survey Research." Public Opinion Quarterly, Vol. 42 (1978), pp. 93-104. 2. Andrews, K.R. "Ethics In Policy and Practice at GlE Corporation." in James K, ed. Cor:porate Ethics: A Prime Business Asset-A Report on Policy and Practice in Com- pany Conduct. New York: The Business Roundtable (1988), p. 47. 3. Beauchamp, T.L., & Bowie, N.E. Ethical Theory and Business. Englewood Cliffs, N.J., Prentice-Hall (1979). 4. Bernard R.J. & Kyj, M.J. "Ethical Business and the Ethical Person." Business Hori- zons, Vol. 33 (November-December 1990), p. 23. 5. Byrne, J.A. "Businesses Are Signing Up for Ethics 101." Business Week, (February 15, 1988), p. 56. 6. Code of Professional Conduct and Bylaws. "The Code of Professional Conduct of the AlCPA." New York: American Institute of Certified Public Accountants (1988), pp. 1-55. 7. Fritzsche, D.J. & Becker, H. "Linking Management Behavior To Ethical Philosophy: An Empirical Investigation." Academy of Management Journal, Vol. 27 (March 1984), pp. 166-175. 8. Hammaker, Paul M., Horniman, A.B., & Rader, L.T. Standards of Conduct in Business. Charlottesville, VA: The Center for the Study of Applied Ethics (1977), pp. 11-19. 9. Hyman, M.R., Skipper, R., & Tansey, R. "Ethical Codes Are Not Enough." Business Horizons, Vol. 33 (March-April 1990), pp. 15-22. Linking Undergraduate Business Degree Specialization To Ethical Behavior: An Empirical Investigation