Relevant Theoretical Background For The Study Business Essay

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While the Madoff case is well known, a similar case in dimension and scale can be seen with the scheme of Tom Petters, the architect of a 3.7 billion, ten-year long deceit that was discovered in September 2008. The same is true of Robert Allen Stanford, whose scheme emerged in February 2009 and is thought to have lasted ten years, involving the enormous sum of $8 billion, as well as S. Rothstein, who admitted to managing an approximate 1.2 billion dollars Ponzi scheme at the end of 2009. [1] Cases as the ones mentioned above brought the failure of corporate governance, involving frequently business ethics, which conducted to the rapid development of the focus on business ethics at the international level (Tseng, Duan, Tung, & Kung, 2010).

What drives these top managers, presidents of corporations to act unethical?

This so called "dark side" research has tried to comprehend the reason why top managers get involved into fraudulent or "deviant" job behaviour. According to (Spector & Fox, 2002, p. 271) work deviance represents a certain type of behaviour that contravenes fundamental corporation rules and prejudices corporations together with its members. Thus, several deviance constructs have appeared in the theoretical background, among which can be mentioned workplace deviance (Lawrence& Robinson, 2007), aggression/violence (Hershcovis et al., 2007, pp. 228-238; Spector & Fox, 2006, pp. 29-46), counterproductive work behaviour (Spector&Fox, 2005a, 2005b; Norbert et al., 2010, pp. 70-96), social undermining (Duffy et. al., 2012), as well as retaliation (Rehg, et. al., 2008). Although the biggest part of these previously mentioned researches focus solely on employees' behaviour, contemporary researches draw attention to Executives and Presidents of corporations (top managers) as perpetrators of destructive leadership (Krasikova, et al., 2013) and deviant acts. This thesis considers theories and researches on destructive leader/executive behaviour, focusing on executive compensation abuse.

According to Rhody, (2004), executive greed as well as lack of responsibility represent important issues in organisations nowadays. Resnick (2004) advised that the negligence of apparently unimportant ethical indiscretions, ignorance of messages or major conditions within a company might in the end conduct to major financial problems for corporations.

As for Strier (2005), he stated that, in recent years, news of corporate financial fraudsters badly affected shareholders' faith in executive leaders. In this vein, Strier concluded, "The entire investment community . . . no longer know whom, if anyone, they can trust" (2005, p. 80). Due to various scandals, researches on ethics having to do with executive payment are becoming more and more substantial, to these being added the attention of mass-media and that of regulatory authorities. On the one hand, several scholars examined the design of executive payment packages (Michaelson, 2008) meanwhile some have focused on issues targeted towards curbing excessive compensation for low performances (Andersen, 2007). The executive payment issue was given two contradictory arguments by McDonnell (2008). Thus, according to McDonnell the payment disparities existing among executive managers and respective employees additionally to the inadequacy of corporate governance appeared as initial major causes of this phenomenon.

Problem Area

Generally, there is a widespread problem regarding executive compensation abuse, most of the time having to do with a lack of executive processes directed towards discouraging this particular abuse (Strier, 2007; Keller & Stocker, 2008). According to Micewski and Troy (2007) leaders, executives must behave ethically, respectively, must perform in the benefit of the stakeholders and employees of the corporation. They also offer an example in this respect. For instance, executive compensation abuse occurs when an executive's own benefits surpass the stakeholders' and the employees' interests. However, no matter what is the size of the corporation, Geiger & Cashen, (2007) consider that a leader is forced to place both stakeholders' and employees' necessities ahead of the executives' interests. Doing the other way round represents executive compensation abuse (Bebchuk & Fried, 2010; Keller & Stocker, 2008).

The research of this dissertation will consider ethical and unethical executive behaviour related to executive compensation abuse, assessed through a qualitative research that will examine the experiences of stakeholders of a corporation as far as the executive compensation abuse is concerned. The research will be done from the phenomenological approach perspective through an interview data (Wilding & Whiteford, 2005). Accordingly, 25 individuals are going to be chosen for interviews. The author also takes into consideration examining the issue from the triangulation point of view: combining qualitative and quantitative researches.


The main purpose of this research will be to analyse the experiences of several stakeholders who had encountered such executive compensation abuses. The first step will be to conduct several semi-structured interviews among minimum 35 stakeholders of a corporation, and only afterwards, as second step, to choose 25 of them and analyse their perceptions and experiences according to their interviews. The final goal is revealing particular minuses and negative issues that lead to executive compensation abuses.

Respondents' answers will be transcribed with great care and confidence will be taken very seriously. After the interviews are transcript and coded, their outcomes will be examined with the SPSS program.


Leadership ethics theories

According to De George (1987, p. 201), the business ethics as an academic study area is quite recent being acknowledged starting with 1970s and early 1980s (Bos, 2007, p. 119). Additionally, it is considered to have emerged so recently according to Zhenzhong (2009, p. 245), that it has no history yet. Still, in this literature overview one understood that there are plenty of studies in this field, researches and efforts studying the business ethics starting from various either similar or contrasting points of view. This is the main reason why, categorizing the scholars in this research field and classifying the literatures involving the 'business ethics' on their keyword list proved a very challenging action.

Therefore, ethics were very prolific in definitions and meanings (Tsalikis & Fritzsche, 1989, p. 696).

The first definition to be spotted is that of De George (1987, p. 204) who considered that the area of business ethics was represented generally speaking as the interaction arising between ethics and business. Futher on, Velasquez (2006 cited in Schwartz, 2007, p. 217) gave another business ethics field as a specialized research of moral right and wrong. Within a very recent definition, Crane and Matten gave a definition regarding ethics as a topic concerning the research of morality in the same time applying particular norms and principles through reasoning for determining right and wrong in a certain circumstance (Crane & Matten, 2010, p. 8). Thus, morality comes before ethics and ethics comes before business ethics.

Figure 1. Relationship between Morality, Ethics, and Business Ethic

Source: Crane, A. and Matten, D. 2010. Business Ethics. 3rd ed. Oxford: Oxford University Press, p. 9.

Figure no. 1 provides the relationship existent between morality, ethics and ethical theories constituting the normative parts of business ethics as an erudite area of research.

Therefore, in decision-making process, ethics and morality can not be separated, as they are very important for executives. Thus, there are some scholars who consider that executives must use corporate social responsibility (CSR) (Hopkinson 1968). More recently, Senser (2007) also pleaded in favour of ethical practices as CSR considering them the extension of modern stakeholder approach. Schwartz (2007) was the academic who analysed historical relations to ethical business via leadership and management approaches. Schwartz noted scientific management principles were key drivers of modern ethics and leadership practice. Thus, Scharwtz and Torpman proved that there exists an interconnection between leadership and ethics.

Applied ethics and virtue ethics theories

Virtue ethics induces value in the character of decision maker. According to this viewpoint: "actions are morally correct if they are undertaken by actors with virtuous character and then formation of virtuous character is the first step towards morally correct action and behaviour. From virtue ethics, virtue are sets of acquired traits that enable person to lead to a good life and in business obtained by being in relationship with others in a community of practice. Good life is central notion in ethics of virtue and in business good life means far more than being a profitable company and brings money to a company" (Crane & Matten, 2010, pp. 110-111).

Significance of business ethics

Modern theories and practices

Additional ethical considerations

Executive compensation issues