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The Journal of Applied Management and Entrepreneurship, 2013, Vol. 18, No. 2
Volume 18, Number 2
iii
Print ISSN: 1077-1158
Online ISSN: 2326-3709
Journal of Applied Management
And Entrepreneurship
Jane W. Gibson, Editor
Nova Southeastern University
The Journal of Applied Management and Entrepreneurship is owned and published by Nova
Southeastern University. Editorial content is controlled by Nova Southeastern University, a
private, not-for-profit University in Fort Lauderdale, Florida.
The Journal of Applied Management and Entrepreneurship, 2013, Vol. 18, No. 2
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The Journal of Applied Management and Entrepreneurship, 2013, Vol. 18, No. 2
Editorial Review Board
Jane Whitney Gibson
Nova Southeastern University
Editor
Franz Lohrke
Samford University
Fred Luthans
University of Nebraska
Barry Barnes, Student Perspective Editor
Nova Southeastern University
Terrell Manyak
Nova Southeastern University
Shawn Carraher, Book Review Editor
Indiana Wesleyan University
John James Cater III, Executive Interview Co-Editor
University of Texas at Tyler
Steven Harvey, Production Editor
Nova Southeastern University
Roland E. Kidwell, Executive Interview Co-Editor
University of Wyoming
Richard T. Mowday
University of Oregon
Bahaudin G. Mujtaba
Nova Southeastern University
Jennifer D. Oyler
Texas A&M University—Commerce
Editorial Board
Stephanie S. Pane Haden
Texas A&M University—Commerce
Kathryn M. Bartol
University of Maryland—College Park
John A. Parnell
University of North Carolina—Pembroke
Arthur G. Bedeian
Louisiana State University
Peter B. Petersen
Johns Hopkins University
Russell Clayton
University of North Carolina at Asheville
Lyman W. Porter
University of California—Irvine
W. Jack Duncan
University of Alabama at Birmingham
Robert Preziosi, Founding Editor
Nova Southeastern University
Robert Ford
University of Central Florida
Shelley Robbins
Capella University
Regina A. Greenwood
Nova Southeastern University
Joseph C. Santora
ENPC, School of International Management
Mario Hayek
Texas A&M University—Commerce
Dana V. Tesone
University of Central Florida
John Humphreys
Texas A&M University—Commerce
David D. Van Fleet
Arizona State University
Donald F. Kuratko
Indiana University
Daniel A. Wren
University of Oklahoma
David Lamond
Victoria University
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Table of Contents
A Message from the Editor ............................................................................................................. 1 The Effects of Organizational Bureaucracy and Capital Constraints on the Development of
Entrepreneurial Cognitions ............................................................................................................. 3 Juan Ling, Georgia College and State University Jay I. Chok, Claremont Colleges The Influence of Communication and Information Quality on Trust in the Small
Business Supply Chain ................................................................................................................. 21 William C. McDowell, East Carolina University Michael L. Harris, East Carolina University Shanan G. Gibson, East Carolina University A Nonprofit’s Practical Guide to Resolving Ethical Questions.................................................... 39 J. Brooke Hamilton, University of Louisiana at Lafayette Lise Anne D. Slatten, University of Louisiana at Lafayette Shifting Strategic Imperatives: A Stages of Leadership Perspective on the Adoption
of Corporate Entrepreneurship ...................................................................................................... 59 Shelley Morrisette, Shippensburg University William Oberman, Shippensburg University Antecedents of Problem-Solving Cross-Cultural Negotiation Style:
Some Preliminary Evidence .......................................................................................................... 83 Robert L. Engle, Quinnipiac University Mohammed N. Elahee, Quinnipiac University Ekrem Tatoglu, Bahcesehir University Executive Interview Advice from the Front Lines of Sustainability: You Have to Take the Stairs, There is No
Elevator A Conversation with Daniela Suter, The Migros Group of Switzerland ..................... 103 Diane M. Phillips, Saint Joseph’s University The Journal of Applied Management and Entrepreneurship, 2013, Vol. 18, No. 2
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Executive Interview Entrepreneurship Progress and Developments in Vietnam An Interview with the
Bureau Chief, Director General of the Ho Chi Minh City Ministerial Office of the
Ministry of Industry and Trade ................................................................................................... 116 Lam D. Nguyen, Bloomsburg University of Pennsylvania Bahaudin G. Mujtaba, Nova Southeastern University The Journal of Applied Management and Entrepreneurship, 2013, Vol. 18, No. 2
The Journal of Applied Management and Entrepreneurship, 2013, Vol. 18, No. 2
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A Message from the Editor
It is my pleasure to welcome you to the April 2013 issue.
We begin this issue with an article by Juan Ling and Jay Chok, “The Effects of
Organizational Bureaucracy and Capital Constraints on the Development of Entrepreneurial
Cognitions.” Their article explores the antecedents of entrepreneurial cognitions and specifically
looks at how organizational bureaucracy and capital constraints influence entrepreneurial
cognitions. Their model concludes that organizational bureaucracy leads to career independence
which in turn leads to craftsman-oriented entrepreneurial motivation while capital constraints
lead to a desire for financial independence which in turn leads to managerial-oriented
entrepreneurial motivation.
Next, William McDowell, Michael Harris, and Shanan Gibson present “The Influence of
Communication and Information Quality on Trust in the Small Business Supply Chain.” The
writers use 156 surveys from approved vendors for a large southwestern U.S. university to
examine the relationship of communication and information quality with trust in small business.
While none would deny the importance of trust in organizations, this research adds to our
knowledge about how small businesses actually develop trust in their partners. A number of
implications for practice emerge from these findings.
Following on the heels of the article on trust in small business, our third article, “A
Nonprofit’s Practical Guide to Resolving Ethical Questions,” by authors J. Booke Hamilton and
Lise Anne D. Slatten look at trust and ethics in nonprofit agencies. They offer an interesting
case about an executive director who quietly fires an employee guilty of fraud without notifying
the obligatory authorities. Recent findings from neuroscience and social psychology are used to
show limitations in the way that people make ethical decisions in times of crisis. Their
conclusions suggest that executives must realize their personal limitations in making the right
decisions under pressure and to be motivated to consult others in the process.
Shelley Morrisette and William Oberman’s article, “Shifting Strategic Imperatives: A
Stages of Leadership Perspective on the Adoption of Corporate Entrepreneurship,” follows. The
authors suggest that organizations will have to adopt different approaches to leadership in
response to recent, shifting strategic imperatives leading to a corporate entrepreneurship
approach. Traditional leadership schools are reviewed as is the concept of corporate
entrepreneurship. Transformational leadership is seen as key in the process and the authors
present five stages of transformational leadership, each of which may be appropriate under
certain conditions.
The final article by Engle, Elahee, and Tatoglu is entitled “Antecedents of ProblemSolving, Cross-Cultural Negotiation Style: Some Preliminary Evidence.” These authors survey
results from 106 U.S. business students and 127 Turkish business students to look at problem
solving negotiation style, meta-cognitive cultural intelligence, relationship management style and
task management style. Findings confirmed the relationship between cultural intelligence and
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problem solving negotiation style. This and other findings have practical implications for the
type of training programs that should be offered to negotiators.
This issue offers two interesting executive interviews that I hope you will enjoy. The first
is “Advice from the Front Lines of Sustainability: You Have to Take the Stairs, There is No
Elevator,” by Diane Phillips who interviews Daniela Suter, Head of Sustainability for Migros
Corporation in Switzerland. Suter’s wisdom, charm and passion for sustainability come through
in this interview in which she talks about how individual unit sustainability goals evolved into
corporate initiatives that extend through all hierarchy levels down to the suppliers.
The second interview is also of an international executive, Director General Phan The
Hao of the Ho Chi Minh City Ministerial Office, Ministry of Industry and Trade and was written
by Lam Nguyen and Bahaudin Mujtaba. This interview serves to both educate us about current
developments in Vietnamese industry as well as to consider the interviewee’s thoughts about
developing entrepreneurial spirit and talents in a developing country, particularly in the public
sector.
I hope you enjoy reading this issue of JAME; as always I can be reached for comment at
[email protected]
Jane Whitney Gibson, Editor
Ft. Lauderdale, FL
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The Effects of Organizational Bureaucracy and Capital Constraints
on the Development of Entrepreneurial Cognitions
Juan Ling, Georgia College and State University
Jay I. Chok, Claremont Colleges
Executive Summary
Research efforts at exploring the role of dispositional traits in entrepreneurship have
shown inconsistent results. A breakthrough came when entrepreneurial researchers started
investigating entrepreneurial cognitions. Although we second the importance of entrepreneurial
cognitions, we find that prior research has focused on investigating the consequences of
cognitions while the antecedents of cognitions are underexplored. The aim of this paper is to
explore the antecedents of entrepreneurial cognitions. We provide an integrative model that
delineates how two contextual conditions, organizational bureaucracy and capital constraints,
affect the development of entrepreneurial cognitions. The intervening process variables include
the desire for career vs. financial independence and the craftsman- vs. managerial-oriented
entrepreneurial motivation. Managerial implications and suggestions for future research are also
discussed.
"Entrepreneurs are made, not simply born." Sorensen (2007: 409)
Introduction
Entrepreneurship researchers have long focused on finding unique dispositional traits
among entrepreneurs and assumed that entrepreneurs form a class of their own (e.g., Evans &
Leighton, 1989; Parker, 2004; Shane, 2003; Simon, Houghton, & Aquino, 2000). Although they
raised the possibility that genetic factors influence entrepreneurial behavior, the studies that
relate traits to entrepreneurs have shown inconsistent results (Mitchell, Busenitz, Lant,
Mcdougall, Morse, & Smith, 2002; Wood, 2012; Zhao & Seibert, 2006). Furthermore, the
differences in personality among entrepreneurs may be greater than those between entrepreneurs
and non-entrepreneurs (Gartner, 1985). Yet, entrepreneurship researchers persist in thinking that
entrepreneurs are members of a homogeneous group that is unique (Mitchell, Busenitz, Bird,
Gaglio, McMullen, Morse, & Smith, 2007). This insight has led to a new stream of research
known as entrepreneurial cognitions (Walsh, 1995).
Entrepreneurial cognitions are defined as “the knowledge structures that people use to
make assessments, judgments, or decisions involving opportunity evaluation, venture creation,
and growth” (Mitchell et al., 2002: 97). Entrepreneurial cognition research has shown that
entrepreneurs use these cognitions as simplified mental models to piece together information that
non-entrepreneurs would perceive as unconnected (Baren, 2000; Keh, Foo, & Lim, 2002;
Markman, Balkin, & Baron, 2002). Further, entrepreneurs use ways of thinking that differ from
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non-entrepreneurs to identify new products or services, evaluate opportunities, and allocate
resources to create new ventures and expand businesses (Mitchell et al., 2002). According to the
entrepreneurial cognition literature, there are three types of entrepreneurial cognitions or
cognitive scripts (Leddo & Abelson, 1986: 121) - arrangements, willingness, and ability
(Mitchell, Smith, Seawright, & Morse, 2000).
Walsh (1995) argued that psychologists usually paid attention to the link between
cognitions and consequences while the origins of cognitions are underexplored. This can also be
applied to entrepreneurial cognition research. The entrepreneurial cognition literature has
focused on theorizing and examining the effects of entrepreneurial cognitions on a series of
outcomes in the field of entrepreneurship. For example, Mitchell, Smith, Seawright, and Morse
(2000) provided evidence that entrepreneurial cognitions are universal across countries. They
found that entrepreneurial cognitions were related to the venture creation decision. Simon and
Houghton (2002) developed a conceptual model of how specific entrepreneurial cognition
constructs affected the decision to pioneer. Keh, Foo, and Lim (2002) investigated how
entrepreneurs used their cognitive processes to evaluate opportunities under risky conditions.
Gatewood, Shaver, Powers, and Gartner (2002) found that entrepreneurial cognition was related
to the motivation to stay with an entrepreneurial task. Smith, Mitchell, and Mitchell (2009)
proposed that entrepreneurial cognition leads to new transaction commitment, which results in
new value creation.
However, the antecedents of entrepreneurial cognitions have received relatively less
attention. Mitchell, et al. (2007) appealed that how individuals acquire their entrepreneurial
cognitive structures is one of the central questions in the field of entrepreneurial cognition.
Consistent with this argument, we aim to explore the antecedents of entrepreneurial cognitions.
This paper is based on the central tenet of social cognitive theory, which is concerned with the
influence of the person-environment interaction. According to social cognition theory,
individuals are influenced by the “configuration of forces” that involve two factors – one is
“cognition” and “motivation” and another is “situation” (Fiske & Taylor, 1984: 4-5). The stream
of entrepreneurship research requires a deeper mechanism to explain the influence of situational
factors on the development of entrepreneurial cognitions.
We provide an integrative model that delineates how two situational factors,
organizational bureaucracy and capital constraints, affect the development of entrepreneurial
cognitions. Organizational bureaucracy and capital constraints have been found to be the two
main contextual factors that impact entrepreneurship (Desai, Gompers, & Lerner, 2005;
Sorensen, 2007). Organizational bureaucracy is characterized by rigidly defined roles, elaborated
hierarchies, and inflexible routines (Schumpeter, 1950; Merton, 1968). Capital constraints refer
to the lack of access to debt or equity financing (Smith-Daniels & Smith-Daniels, 1987). We
argue that organizational bureaucracy is related to the development of willingness and ability
scripts whereas capital constraints are associated with the development of arrangements and
ability scripts. The intervening process variables (Lawrence, 1997) are shown as follows.
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On the one hand, individuals in bureaucratic organizations experience both enabling
and coercive forces (Adler, 2012), which lead to a desire for career independence (Tucker,
1988). The desire to have an independent career then leads to a motivation to do something for
themselves, which is termed as craftsman-oriented entrepreneurial motivation (Cooper and
Dunkelberg, 1986). The craftsman-oriented entrepreneurial motivation, in turn, affects two types
of entrepreneurial cognitions – willingness and ability scripts.
On the other hand, the abilities to deal with capital constraints such as bricolage (LeviStrauss, 1967) and the capability to raise capital (Deeds, Decarolis, & Coombs, 1997) lead to a
desire for financial independence (Tucker, 1988). The desire to achieve financial independence
then results in a motivation to seek economic gain and build an organization, which is called the
managerial-motivated entrepreneurial motivation (Cooper and Dunkelberg, 1986). The
managerial-oriented entrepreneurial motivation, in turn, affects two types of entrepreneurial
cognitions – ability and arrangements scripts. Our integrative conceptual model is illustrated in
Figure 1.
FIGURE 1
Conceptual Model of the Effects of Organizational Bureaucracy and
Capital Constraints on Entrepreneurial Cognitions
The Black Box
Enabling
Bureaucracy
Organizational
Bureaucracy
Desire for Career
Independence
Craftsman-oriented
Entrepreneurial
Motivation
Entrepreneurial
Cognitions
Willingness
Scripts
Coercive
Bureaucracy
Ability
Scripts
Bricolage
Capital
Constraints
Ability to
Raise capital
Desire for
Financial
Independence
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Managerial-oriented
Entrepreneurial
Motivation
Arrangements
Scripts
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Theory Background and Proposition Development
Entrepreneurial Cognitions
Entrepreneurship can be conceptualized as an intersection of individuals, opportunities,
and modes of organizing, where individuals identify opportunities and exploit them through
various means (Busenitz et al., 2003; Stevenson & Jarillo, 1990). Since entrepreneurship is a
nexus of individuals who seek out possibilities, make use of new ways of doing things, create
opportunities, and provide products or services to other people in a marketplace, some
psychological constructs have been increasingly found to be useful in helping explore
entrepreneurial phenomena (Mitchell et al., 2002). Cognition is one of such useful constructs,
which has deep roots in psychology. Psychologists have long had an interest in the mechanisms
by which information is acquired, stored, retrieved and organized (Lord and Maher, 1990).
Walsh (1995) defined cognitions as “mental templates that individuals impose on an information
environment to give it form and meaning” (281). That is, cognitions consist of “organized
knowledge about a given concept or type of stimulus” (Fiske and Taylor, 1984: 149). Similarly,
Mitchell et al. (2002) viewed cognitions as “mental models that are ordered in such a way as to
optimize personal effectiveness within given situations” (97).
Built on the above definitions, Mitchell et al. (2002) integrated the two concepts of
entrepreneurship and cognitions and defined entrepreneurial cognitions as follows, “the
knowledge structures that people use to make assessments, judgments, or decisions involving
opportunity evaluation, venture creation, and growth” (97). Mitchell et al. (2000) introduced
three types of entrepreneurial cognition, willingness, ability, and arrangements scripts.
Willingness scripts reflect individuals’ motivation to enact and fulfill script requirements. Ability
scripts emphasize the skills, knowledge, expertise, competence that are required to carry out and
achieve the goals of scripts. Arrangements scripts are the knowledge structures people possess
about access to materials, tools, techiniques, and resources (Mitchell et al., 2000; Mitchell et al.,
2002).
Entrepreneurial cognition is a concept that needs to be researched. Entrepreneurs possess
richer and more fully interconnected cognitions in certain domains, which can enhance our
understanding about why entrepreneurs are distinct, how they think, and why they act in a
particular way (Baron & Ward, 2004; Mitchell et al., 2002). Further, Walsh (1995) argued that
psychologists have usually focused on investigating the consequences of cognitions while the
origins of cognitions are under-explored. In line with this argument, we aim to investigate the
origins of underlying cognitions in this paper. To delimit the theoretical boundaries, we focus on
the origins of cognitions in the entrepreneurship context.
The Contextual Approach
Although dispositional traits may have an impact on entrepreneurship, entrepreneurial
cognition and activity are also shaped by the context. Social cognition theory holds the personThe Journal of Applied Management and Entrepreneurship, 2013, Vol. 18, No. 2
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in-situation premise (Fiske & Taylor, 1984). According to social cognition theory, the ways
people think are the result of the interaction between a person and a situation. We believe that
situational factors are important drivers of entrepreneurial cognition. There has been a flurry of
interest in addressing the importance of the context in the entrepreneurship research domain
recently (Choi & Shepherd, 2005; Habbershon, 2006; Zahra, 2007). Among the contextual
factors, organizational bureaucracy and capital constraints have been identified as two main
contextual conditions affecting entrepreneurial outcomes (Brittain & Freeman, 1986; Evans &
Leighton, 1989; Desai, Gompers, & Lerner, 2005; Sorensen, 2007).
Organizational bureaucracy is an important concept in organization theory, which
suggests that bureaucratic organizations have such characteristics as highly routine tasks, rigidly
defined roles, formalized policies and regulations, and centralized authority (Schumpeter, 1950;
Merton, 1968; Weber, 1957). More recently, Adler and his colleagues (Adler & Borys, 1996;
Adler, McGarry, Irion-Talbot, & Binney, 2005; Adler, 2012) have argued that there have been
two distinct views of organizational bureaucracy – one basically positive, labeled enabling
bureaucracy, and the other basically negative, labeled coercive bureaucracy. Organizational
bureaucracy is not always coercive like an “iron cage” but can become a positive force taking the
form of enabling (Adler, 2012).
Adler and Borys (1996) proposed that enabling bureaucracy provides clear direction,
guidance, and responsibilities. Formal rules and well-designed procedures help organizations
retain organizational memory and stabilize organizational capabilities, which facilitate
employees’ learning and enable employees to get their work done more efficiently. High
formalization of tasks and work processes improves efficiency and job performance (Deming,
1986), decreases role conflict and ambiguity (Jackson & Schuler, 1985; Podsakoff, Williams, &
Todor, 1986), increases employee satisfaction (Stevens, Diedriks, & Philipsen, 1992), and
promotes product and process innovations (Craig, 1995; Damanpour, 1991). Recent research in
this vein has also provided support for this “enabling” perspective. For example, Sinder, Hoy,
and Sweetland (2004) investigated six high schools in Ohio and developed the theoretical
underpinning of enabling structures. Their results suggested that management fosters innovation,
problem-solving, and cooperation among employees through formalization and functioning.
Wouters and Wilderom (2008) conducted a longitudinal field study of a logistics department of a
beverage manufacturing firm and found that the development process characterized by building
skills, local practices, and know-how is perceived by employees as enabling of task
accomplishments.
In contrast to enabling bureaucracy, coercive bureaucracy decreases job satisfaction and
suppresses creativity and autonomy (Adler & Borys, 1996). It has been long assumed that
employees in bureaucratic organizations face bureaucratic constraint and lose control over
numerous aspects of their work (Briscoe, 2006). They lack motivation to put time and effort into
complex nonroutine tasks to engage in innovation. For example, Merton (1940) highlighted the
rigid nature of bureaucracy and pointed out that bureaucracy resulted in trained incapacity.
Clawson (1980) argued that bureaucracy increased managerial control on labor intensive jobs
and had no function to increase productivity. More recently, drawing on a survey of 1,155
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lawyers in Canada, Wallace (1995) found that employees who work in bureaucratic
organizations experience inherent conflicts between bureaucratic and professional goals and few
structural characteristics could explain professional commitment. Griffin and O’Leary-Kelly
(2004) proposed that bureaucracy implies dysfunctionality in organizations. Organizations with a
high level of bureaucracy cannot quickly and effectively respond to changes and challenges in
the environment because of overpoliticization of their decision making processes.
Adler (2012) argued that people in bureaucratic organizations experience enabling and
coercive bureaucracy simultaneously. We propose that enabling and coercive bureaucracy leads
people to develop two types of entrepreneurial cognition - willingness and ability scripts.
Enabling bureaucracy shapes individuals’ cognitions about standardized work procedures,
formalized tasks and jobs, decreased role conflict and ambiguity, and increased efficiency and
innovation (Kwon, 2008; Podsakoff, Williams, & Todor, 1986; Sinder et al., 2004). In addition,
it helps individuals learn from organizational memory and individuals can apply what they learn
to their venture, which increases their self-efficacy and competence and stimulates their
motivation to launch new ventures (Mitchell et al., 2000).
Coercive bureaucracy also facilitates the development of willingness and ability cognitive
scripts. Coercive bureaucracy requires employees to conform to detailed rules and rigid
procedures to routinize work procedures and decision making (Adler & Borys, 1996). Research
shows that employees in bureaucratic organizations leave to engage in entrepreneurial activity
(Brittain & Freeman, 1986; Collins & Moore, 1964). For instance, Collins and Moore (1964), in
their widely cited study about founders of manufacturing firms in Michigan, described their
respondents as individuals who often had difficulty in submitting to authority and performing
within required parameters. Consequently, these people needed to escape from hierarchical
relationships and then set up their own businesses. Likewise, in a study comparing entrepreneurs
and public sector employees, Tucker (1988) also investigated why an individual would prefer to
go into business given that entrepreneurs are likely to fail several times before succeeding. Along
with this line of research, we argue that people who experience coercive bureaucracy are
motivated to leave to create their own businesses so as not to be constrained by fixed rules and
procedures. These people believe their abilities and skills are constrained by coercive
bureaucracy as well. So coercive bureaucracy leads people to acquire willingness and ability
scripts. Taken together, organizational bureaucracy in the form of enabling and coercive
bureaucracy leads to two types of entrepreneurial cognition.
Proposition 1: Organizational bureaucracy leads to the development of willingness and
ability scripts.
Proposition 1a: Enabling bureaucracy leads to the development of willingness and ability
scripts.
Proposition 1b: Coercive bureaucracy leads to the development of willingness and ability
scripts.
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Capital constraints are also a critical factor affecting entrepreneurial cognition. According
to Michell et al. (2000), “the constraints of people in given situations were shown to be part of
their scripts, as suggested by social cognition theory” (976). We argue that capital constraints
influence the development of entrepreneurial cognition through bricolage and the ability to raise
capital. Levi-Strauss introduced the concept of bricolage, which means making do with whatever
is at hand (Levi-Strauss, 1967: 17). Capital constraints serve as a barrier to new entrants (Ruef,
Aldrich, & Carter, 2003). To start a new business, people must integrate all the resources at hand
such as material, finance, information, human, and technology to achieve synergy. Bricolage
emphasizes an individual’s ability to draw from a pool of assets and resources to assemble
products or work processes to respond to external situations (Bechky & Okhuysen, 2011; Miner,
Bassoff, & Moorman, 2001).
In addition to bricolage, the ability to raise capital has an impact on entrepreneurialoriented outcomes. It is well documented that one of the reasons new ventures fail is insufficient
funding (Deeds et al., 1997). The ability to raise capital has become one of the hottest topics in a
wide range of areas because of the tough economy (Kashyap, Rajan, & Stein, 2008). Individuals
must have the ability and competence to access and raise capital if they have the desire to launch
new ventures; otherwise their new ventures would fail in the face of fierce competition
(Hargadon & Kenny, 2012; Matherne, 2010). Stam and Elfring (2008) suggested that social
networks can help people access information and resources, which have an effect on new venture
performance.
Although few studies to date have explored the impact of capital constraints on
entrepreneurial cognition, there has been a line of research investigating the capital constraintsentrepreneurship linkage. For example, Evans and Leighton (1989) argued that the availability of
personal capital was positively associated with the choice to become an entrepreneur. More
specifically, people who have greater assets are more likely to engage in self-employment given
that entrepreneurs face liquidity constraints. Similarly, Praag, Wit, and Bosma (2005) posited
that a significant proportion of individuals who want to enter the entrepreneurial population are
usually hindered by a lack of capital. Desai, Gompers and Lerner (2005) found that capital
constraints positively affected entrepreneurship in Central and Eastern Europe but had a minimal
impact in Western Europe. That is, political, legal, and regulatory factors that negatively affected
capital market development had an impact on entrepreneurial behavior in Central and Eastern
Europe, but not in Western Europe. Based on a field study of 29 small companies, Baker and
Nelson (2005) found that bricolage explained the ability of the small companies to create
something from nothing by exploiting and constructing resources that other companies ignored.
Based on the above analysis, we believe that capital constraints lead to the development
of two types of entrepreneurial cognition, ability and arrangements scripts, through bricolage and
the ability to raise capital. Both the ability to integrate resources at hand and the ability to raise
capital require the development of ability scripts. Bricolage and the ability to raise capital help
individuals access to more capital and apply combinations of the assets and resources at hand to
entrepreneurial opportunities (Baker & Nelson, 2005; Bechky & Okhuysen, 2011). As addressed
earlier, arrangement scripts are the knowledge structures used to allocate resources in order to
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engage in an entrepreneurial activity (Mitchell et al., 2000). Both bricolage and the ability to
raise capital represent arrangements needed to engage in an entrepreneurial activity. So we
propose that the abilities to deal with capital constraints including bricolage and the skill to raise
capital lead people to develop ability and arrangement scripts.
Proposition 2: Capital constraints lead to the development of ability and arrangements
scripts.
Proposition 2a: Bricolage leads to the development of ability and arrangements scripts.
Proposition 2b: The ability to raise capital leads to the development of ability and
arrangements scripts.
Intervening Process Variables
We have addressed that organizational bureaucracy and capital constraints are key
contextual factors in the entrepreneurial literature. However, the effects of organizational
bureaucracy and capital constraints on entrepreneurial cognitions are unclear. There is a black
box that contains intervening process variables through which organizational bureaucracy and
capital constraints affect the development of entrepreneurial cognitions (see Lawrence (1997) for
black box studies).
In this paper, we seek to open the black box of organizational bureaucracy, capital
constraints, and the development of entrepreneurial cognitions. Tucker (1988) found that the
decision to engage in an entrepreneurial activity was related to the desire to be independent.
Likewise, Kent (1985) asserted that the desire for independence is one of the entrepreneur’s
principal motives. The desire to be independent can be couched within the traditions of macrooriented entrepreneurial research. We propose that organizational bureaucracy and capital
constraints can influence the individuals’ desire for independence in distinct ways. We break
down individuals’ desire to be independent into two components, namely the desire to achieve
career independence and the desire to achieve financial independence. Both desires are induced
by different contextual conditions (i.e. organizational bureaucracy and capital constraints). The
analyses for the two paths are elaborated below and diagrammed in Figure 1.
The desire to achieve career independence is induced by an individual’s prior interaction
with organizational bureaucracy in the forms of enabling and coercive bureaucracy as evidenced
by Collins and Moore (1964) and Tucker (1988). Bureaucratic working conditions may affect the
attitudes and mental states of employees towards entrepreneurial exit (Sorensen, 2006). Working
within a bureaucratic organization enables people to learn from organizational memory and
acquires idiosyncratic or tacit knowledge about the organization’s processes (Adler & Borys,
1996; Williamson, 1991). Such firm-specific human capital will generate a higher rent within the
organization but is probably going to be less valuable on the job market, because knowledge
about a specific organization is not of much use to other organizations. This contrasts with
general human capital, which consists of knowledge that can be broadly applied to any
organization (Becker, 1994; Williamson, 1991). If an individual decides to leave the organization
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where his or her human capital generates the high rent, the best alternative would be to launch a
new venture that takes advantage of his or her specific human capital (Dimov & Shepherd, 2005;
Gimeno, Folta, Cooper, & Woo, 1997). As a result, enabling bureaucracy increases an
individual’s desire for career independence.
Coercive bureaucracy also increases an individual’s desire for career independence.
There is a general loss of positional power that arises from working within an organizational
bureaucracy (Weber, 1946). Specifically, people in bureaucratic organizations are usually not
free to do the work they want to do and are frequently subject to the command of higher
authorities. Smith and Miner (1983) pointed out that entrepreneurs typically have difficulty in
dealing with authority figures, and accordingly cannot function well in bureaucratic
organizations. Thus, people in bureaucratic organizations may resent rigid rules and the loss of
power arising from organizational bureaucracy. They have the need to “balance the operation”
(Emerson, 1962) by doing what they want to do and avoiding working for others. Hence,
coercive bureaucracy leads people to have a desire for an independent career. In sum,
organizational bureaucracy increases an individual’s desire for career independence.
Proposition 3: Organizational bureaucracy leads to the desire for career independence.
Proposition 3a: Enabling bureaucracy leads to the desire for career independence.
Proposition 3b: Coercive bureaucracy leads to the desire for career independence.
By contrast, we believe that capital constraints can generate the desire to achieve
financial independence. The presence of capital constraints reminds an individual that it is
necessary to achieve financial independence, and then he or she needs to assume the financial
and organizational responsibilities of starting a business. When an individual possesses the
competence to combine the resources at hand to identify and act on opportunities, he or she is
able to achieve financial independence (Baker & Nelson, 2005; Bechky & Okhuysen, 2011).
Similarly, when an individual has the ability to raise capital, capital constraints cannot become a
barrier to entry, which enables the individual to increase the desire for financial independence
(Hargadon & Kenny, 2012; Praag, Wit, & Bosma, 2005). From this point of view, we propose
that capital constraints generate the desire for financial independence. Specifically, bricolage and
the ability to raise capital increase an individual’s desire to achieve financial independence.
Proposition 4: Capital constraints lead to the desire for financial independence.
Proposition 4a: Bricolage leads to the desire for financial independence.
Proposition 4b: The ability to raise capital leads to the desire for financial independence.
Individuals who follow different paths to become entrepreneurs may vary in their
motivations and in their attitudes and perceptions about their business (Cooper & Dunkelberg,
1986). Indeed, Brittain and Freeman (1986) provided examples, from the semiconductor
industry, of entrepreneurs who started new enterprises to leverage on the idiosyncratic
capabilities they acquired in their prior employing organizations. May (1995) also documented
that founder CEOs acquired firms that correspond to their specific skill set. In other words,
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entrepreneurs who desire career independence are specialists at heart who are motivated to start
new enterprises in order to do their own business. Cooper and Dunkelberg (1986) conceptualized
it as craftsman-oriented entrepreneurial motivation. Craftsman-motivated individuals are
motivated to do the kind of work they want to do and to avoid working for others. They are
motivated by personal challenges and lifestyle needs (Chaganti, DeCarolis, & Deeds, 1995).
Similarly, drawing upon Emerson’s (1962) idea of balancing operation, we argue that the
individuals who had worked in an organizational bureaucracy would be most motivated to do the
work that they want because they had been denied that opportunity in the bureaucratic
workplace. In addition, they attempt to balance the low autonomy and positional power induced
by organizational bureaucracy via the craftsman type of work. The desire for career
independence thus results in craftsman-oriented entrepreneurial motivation (Tucker, 1988; Smith
& Miner, 1983).
In contrast with the desire for career independence, the desire to achieve financial
independence naturally leads to managerial-oriented entrepreneurial motivation. By definition,
managerial-oriented entrepreneurial motivation is the motivation to seek economic gain and to
build an organization (Cooper and Dunkelberg, 1986). In other words, individuals with the desire
to achieve financial independence generated by capital constraints consider economic gain the
chief means to build wealth. So they have a motivation to make more money and build a
successful organization. Therefore, we believe that the desire for career independence leads to
craftsman-oriented entrepreneurial motivation while the desire for financial independence leads
to managerial-oriented entrepreneurial motivation.
Proposition 5a: The desire for career independence results in craftsman-oriented
entrepreneurial motivation.
Proposition 5b: The desire for financial independence leads to managerial-oriented
entrepreneurial motivation.
We further argue that the craftsman-oriented entrepreneurial motivation leads to the
development of willingness and ability scripts while the managerial-oriented entrepreneurial
motivation results in the development of ability and arrangements scripts. As mentioned earlier,
entrepreneurial cognitions are knowledge scripts used to assess new opportunities, which
underlie venture creation and business growth thereof (Mitchell et al., 2002). By definition,
individuals with high craftsman-oriented entrepreneurial motivation want to be free to do their
own work and enjoy being their own boss (Cooper & Dunkelberg, 1986). It, therefore, follows
that craftsmen have to spend a disproportionate amount of time developing entrepreneurial
cognitions. Specifically, people with craftsman-oriented entrepreneurial motivation are willing to
be their own boss and start a new venture. They also spend plenty of time learning knowledge,
skills, and abilities related to engaging in an entrepreneurial activity. So the craftsman-oriented
entrepreneurial motivation leads people to develop willingness and ability scripts.
By contrast, individuals with high managerial-oriented entrepreneurial motivation want to
build organizations and seek economic gain (Cooper & Dunkelberg, 1986). They consider
entrepreneurial cognitions immediately relevant to their work interests and are willing to invest a
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disproportionate amount of time in attaining entrepreneurial cognitions. Specifically, people with
managerial-oriented entrepreneurial motivation attempt to acquire abilities and expertise that are
conducive to the success of a new venture. They also arrange different types of resources to
attain economic gain (Lim et al., 2010). Hence, managerial-oriented entrepreneurial motivation
affects the development of ability and arrangements scripts.
Proposition 6a: Craftsman-oriented entrepreneurial motivation leads to the development
of willingness and ability scripts.
Proposition 6b: Managerial-oriented entrepreneurial motivation leads to the development
of ability and arrangements scripts.
To summarize, we aim to develop a conceptual model that delineates how the two
contextual factors, organizational bureaucracy and capital constraints, lead people to develop
entrepreneurial cognitions such as willingness, ability, and arrangements scripts. Enabling and
coercive bureaucracy results in the development of willingness and ability scripts while bricolage
and the ability to raise capital lead to the development of ability and arrangements scripts. We
further explore the black box that shows mechanisms through which organizational bureaucracy
and capital constraints affect the development of entrepreneurial cognitions. The specific
intervening process variables in the black box are the desire for career vs. financial independence
and the craftsman- vs. managerial-oriented entrepreneurial motivation. Taken all together, we
propose that:
Proposition 7a: Organizational bureaucracy in the forms of enabling and coercive
bureaucracy leads to the desire for career independence, which, in turn, results in craftsmanoriented entrepreneurial motivation. Craftsman-oriented entrepreneurial motivation is then
related to the development of two types of entrepreneurial cognitions – willingness and ability
scripts.
Proposition 7b: The abilities to deal with capital constraints such as bricolage and the
ability to raise capital lead to the desire for financial independence, which, in turn, results in
managerial-oriented entrepreneurial motivation. Managerial-oriented entrepreneurial motivation
is then related to the development of two types of entrepreneurial cognitions – ability and
arrangements scripts.
Discussion
Entrepreneurial cognition has become a valid construct in the field of entrepreneurship
(Mitchell et al., 2002). Although a growing body of research documents its importance (e.g.,
Baron & Ward, 2004; Lim et al., 2010), the origins of entrepreneurial cognition are underexplored. Our paper contributes to the literature by exploring the antecedents of entrepreneurial
cognition. We provide a conceptual framework that delineates how organizational bureaucracy
and capital constraints indirectly influence the development of entrepreneurial cognitions
through a series of factors including the desire for career vs. financial independence and the
craftsman- vs. managerial-oriented entrepreneurial motivation.
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Social cognition theory (Fiske & Taylor, 1984) suggests that the ways people think is the
result of the person-environment interaction. In line with this theory, we have taken a contextual
approach to investigate the effects of organizational bureaucracy and capital constraints on the
development of entrepreneurial cognitions. While personality traits may play a role in
entrepreneurship, we believe that contexts also matter. Specifically, in this paper, we believe that
organizational bureaucracy and capital constraints have an impact on entrepreneurial cognitions.
There have been two distinct views of organizational bureaucracy – enabling and
coercive bureaucracy (Adler & Borys, 1996; Adler et al., 2005). Adler (2012) pointed out that
people in bureaucratic organizations may experience enabling and coercive bureaucracy
simultaneously. Consistent with this argument, we propose that both enabling and coercive
bureaucracy lead people to develop entrepreneurial cognitions such as willingness and ability
scripts. Capital constraints (Smith-Daniels & Smith-Daniels, 1987) are also a critical contextual
factor affecting entrepreneurial cognitions. We believe that bricolage and the ability to raise
capital are associated with the development of arrangements and ability scripts.
Because previous studies investigating organizational bureaucracy, capital constraints,
and entrepreneurship have shown inconsistent results (e.g., Desai, et al., 2005; Evans &
Leighton, 1989; Saxenian, 1994; Sorensen, 2007), the mechanics of the relationships can be
considered a “black box” with theoretical gaps. We aim to open the black box and explicate how
organizational bureaucracy and capital constraints affect the development of entrepreneurial
cognitions in distinct ways. The intervening process variables (Lawrence, 1997) are the desire
for career vs. financial independence and craftsman- vs. managerial-oriented entrepreneurial
motivation.
We have introduced elements of psychology into entrepreneurship and explored the
potential underpinnings of entrepreneurial cognitions while opening the black box. Regarding the
elements of psychology, we put forward two concepts - the desire for independence and the
entrepreneurial motivation. The desire for independence can be divided into the desire for career
independence and financial independence (Tucker, 1988) while the entrepreneurial motivation
can be divided into craftsman-oriented and managerial-oriented entrepreneurial motivation
(Cooper & Dunkelberg, 1986) according to organizational bureaucracy and capital constraints,
respectively. Through these psychological conduits, organizational bureaucracy and capital
constraints can have distinct effects on the development of entrepreneurial cognitions. As such,
we have attempted to explore the black box of the relationship between contexts and the
development of entrepreneurial cognitions.
Future Research
Our study suggests some directions for future research. First, our contention that two
contextual factors, namely organizational bureaucracy and capital constraints, affect
entrepreneurial cognitions warrants empirical examination. Future research can test the
relationship between organizational bureaucracy, capital constraints, and entrepreneurial
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15
cognitions with the integrative model we have proposed. In addition, it would also be interesting
to explore how organizational bureaucracy and capital constraints might shape observable action
like proactivity, risk-taking and innovation either directly or indirectly via entrepreneurial
cognitions.
Second, future research may dig deeper into the black box and further explore the
association between contexts and the development of entrepreneurial cognitions. For example, it
is possible that there are multiple dimensions of the desire for career independence. While we
argue that both enabling and coercive bureaucracy lead to the desire for career independence, we
did not explore how the two types of bureaucracy affect the different dimensions of this desire.
Depending on the mixture of enabling and coercive bureaucracy an individual experiences within
an organization, he or she may have a stronger desire on one dimension of career independence
while a weaker desire on another. As a result, the individual’s portfolio of ability and willingness
scripts may depend indirectly on the mixture of enabling and coercive bureaucracy he or she
experiences. Furthermore, other psychological processes or dynamic factors could also have
effects on this link.
Third, the relationship between contextual factors and entrepreneurship is an interesting
topic. It raises some intriguing research issues. For instance, researchers in entrepreneurship
would wonder whether such contingent factors as environmental and social influences can have
moderating effects on the relationship between institutional conditions and entrepreneurial
cognitions. Not all entrepreneurial action derives from organizational bureaucracy or capital
constraints. Future research can frame this argument within a larger entrepreneurial context.
Next, some researchers have investigated the difference between novice and habitual
entrepreneurs (e.g., Westhead, Ucbasaran, & Wright, 2005; Westhead, Ucbasaran, Wright, &
Binks, 2005). Our study focuses on novices at this moment. Future research can explore habitual
entrepreneurs and their expertise.
Finally, both contexts and personality traits may play a role in developing entrepreneurial
cognitions. Future research could explore a more comprehensive theoretical model involving
both contextual and trait factors to yield better explanations for the development of
entrepreneurial cognitions.
Conclusion
In conclusion, organizational bureaucracy and capital constraints affect the
development of entrepreneurial cognitions in two different ways. Organizational bureaucracy
generates the desire for career independence, which leads to craftsman-oriented entrepreneurial
motivation. Craftsman-oriented entrepreneurial motivation, in turn, results in the development of
willingness and abilitity scripts. Capital constraints engender the desire for financial
independence, which leads to managerial-oriented entrepreneurial motivation. Managerialoriented entrepreneurial motivation, in turn, results in the development of ability and
arrangement scripts.
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About the Authors
Juan Ling is an assistant professor of Management at Georgia College and State
University. She earned her Ph.D. degree in Business Administration at the University of
Kentucky. She has published articles in such journals as Journal of Applied Psychology,
Organizational Psychology Review, Western Journal of Human Resource Management, and
Handbook of Research on Contemporary Theoretical Models in Information Systems. Her
research interests include social networks, team dynamics, and entrepreneurship. She has taught
Organizational Behavior, Human Resource Management, Compensation and Benefits, and
Principles of Management.
Jay Chok is an assistant professor at the Claremont Colleges. He received his PhD in
Business Administration from the University of Southern California. He is broadly interested in
the institutional arrangements that connect firms with other entities and the rules that influence
how these arrangements work. His current research explores this theme in the bioscience
industries with an emphasis on questions related to entrepreneurship and strategy. He has
published articles in Research Policy and Financial Management, among other publications.
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The Influence of Communication and Information Quality
on Trust in the Small Business Supply Chain
William C. McDowell, East Carolina University
Michael L. Harris, East Carolina University
Shanan G. Gibson, East Carolina University
Executive Summary
This study examines the influence of communication and information quality on
organizational trust in the small business supply chain. It was hypothesized that these two
information exchanging variables would have a positive relationship with trust in the relationship
between both the vendor and the primary organization. The results support these hypotheses
indicating that indeed more communication between these organizations and higher levels of the
quality of information received does result in a higher level of trust between these organizations
in their working relationships. These results are important for both continued research into small
business as well as for practitioners.
Introduction
It is recognized that organizations use alliances and partnerships to leverage performance
vis-à-vis environmental uncertainty. Indeed, an emerging body of research focuses on
partnerships undertaken by small businesses (Beekman & Robinson, 2004; Gelinas & Bigras,
2004; Richter, 2004). We know, for instance, that partnering with small firms offers benefits to
incumbent firms (Afuah, 2001). However, while we understand the legitimacy benefits that
small firms can obtain through such partnerships, we know less about the specific processes by
which small-business partnerships improve the quality of their collaborations.
We have moved from Gulati's (1998) challenge to unravel the "interesting yet vexing"
problem of alliance performance. We know that partner-specific skills accumulate over time
leading to improved performance over the duration of an alliance (Lavie & Rosenkopf, 2006;
Soda, Usai, & Zaheer,2004) and that the embeddedness obtained through trusted, deep
partnerships enhances performance (Andersson, Forsgren, & Holm, 2002). However, despite
this repository of research, a great many alliances fail (Gulati, Sytch, & Mehrota, 2008) while
others persist despite failing to produce desired benefits (Inkpen & Ross, 2001). Improving the
quality of such alliances is often attributed to improvements in trust, information sharing and
communication (Johnston, McCutcheon, Stuart, & Kerwood, 2004).
Even so, a great deal of our research on alliances emphasizes outcomes specific to larger,
publicly traded firms. This bias in the strategy literature related to performance manifests
because performance measures for such firms are more readily available than are such measures
for small firms. Small firms are often left unstudied (or perhaps under-studied) in strategic
research. While understandable, this lack of focus may generate findings regarding firm-alliance
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performance relationships that do not, in fact, generalize to small businesses. We know, in
general, that small businesses often lack the managerial expertise of larger counterparts
(Chaganti & Parasuraman, 1996), and we know that small businesses typically lack resource
endowments which might sustain them during periods of uncertainty (Porter, 1991). We further
recognize the importance of partnerships and alliances for small businesses, both for the
resources they bring, and also for the legitimacy they confer (Lerner, 1999). What we know less
about is how small business managers and owners utilize communication and information
sharing as a conduit to developing more trusting partnerships.
Taken together, these findings suggest the importance of examining the characteristics of
trust, communication and information quality for small businesses. Lacking the resources of
their larger partners, small businesses find themselves highly reliant on the quality and
trustworthiness of their larger partners (McDowell, Harris, & Zhang, 2009). This study seeks to
examine how small business managers rely on communication and information quality as
correlates to trust (see Figure 1).
Figure 1: Communication, Information Quality and Trust in the Small Business
Supply Chain
Communication
Trust
Information Quality
The remaining sections proceed through four areas. First, we discuss the relevance of a
small business emphasis in research. Second, we examine extant literature and detail a theorygrounded model specifying an expected relationship between communication, information
quality and emergent trust in partnerships. We then proceed to details of the study at hand.
Finally, we conclude this with a discussion of our findings and discuss future research directions.
Literature Review
Small Business
The existence and performance of small businesses are critical to the economic health of
a nation. Current research provides evidence that small businesses provide flexibility (Gelinas &
Bigras, 2004), learning opportunities (Beekman & Robinson, 2004), job creation (Audretsch,
2003), along with innovation and rapid sales growth possibilities (Connell, 2009; Lerner, 1999).
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Indeed, research suggests that small businesses comprise the plurality of employment and
businesses in the United States (Shah, 2010).
Despite the relevance of small business, significant institutional challenges persist for
small business entrepreneurs. Mortality rates for small businesses are quite high and these rates
increase for minority business owners (Robb, 2002). Small businesses often face significant
challenges obtaining capital (Carter & Rosa, 1998; Verheul, Risseeuw & Bartelse, 2002).
Further, small businesses often lack the technical and managerial expertise found in larger
businesses (Chaganti & Parasuraman, 1996). In part because of these factors, and to some extent
exacerbating these factors, small businesses often face a struggle to establish legitimacy which
prior research has found to be important for access to capital and other resources necessary for
operation and growth (Connell, 2009; Lerner, 1999).
While strategy researchers often focus on large firms, Porter (1991) contends that
strategic focus is even more critical for small firms given their lack of resources and resulting
inability to weather business cycle interruptions. While trust in business partners manifests as
crucial for firms of all size, smaller firms lack equitable ability to scan for trustworthy partners.
For example, Heffernan (2004) found the search for evidence of trustworthiness, what he termed
“search trust,” from indirect sources during the pre-relationship stage among businesses is
essential for the formation of partnerships. Small businesses may lack the network of
knowledgeable peers or resources to engage in third-party searches and the full due-diligence
required to have assurance of the credibility and trustworthiness of potential business partners.
Further, their smaller resource endowments suggest that smaller firms have less negotiating
power prior to partnering, leaving them vulnerable to adverse selection and opportunism from
unscrupulous larger partners. Since small business owner-managers operate from a weaker
starting point prior to partnering, it becomes incumbent upon such firms to utilize their withinpartnership competencies to cultivate and fortify trustworthy partnerships. As suggested by
Adams, Khoja, and Kauffman (2012), the paradox for small businesses is that while the supplierbuyer relationship is essential for success, these organizations often lack the power and resources
to effectively implement such practices.
Trust
Trust is an important aspect of the relationship between organizations. Previous research
has demonstrated that there is a relationship between trust and performance within organizations
(McAllister, 1995), and it continues to be an area of research for those examining small business
(Benton & Maloni, 2005; Costa e Sliva, Bradley, & Sousa, 2012). Trust within interorganizational relationships has even been touted as one of the most “fragile and tenuous”
aspects of relationship management because of the potential for trouble between the
collaborating actors (Handfield & Nichols, 1999, p. 10). Trust can be defined as the expectation
that the other party’s performance will be as expected and beneficial and that the treatment by
the other party will be fair and reasonable. This definition is composed of two parts. The
cognitive aspect is determined by the perceived fulfillment of the expected performance
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(Deutsch, 1958; McAllister, 1995). The affective aspect is the intrinsic value or the genuine care
or concern between the parties (Lewis & Weigart, 1985; McAllister, 1995).
A high level of trust can reduce the perception of risk and increase the confidence to
invest in the relationship; this is especially important for SMEs that might be judged as too risky
for partnership by larger organizations (Jiang, Henneberg & Naude, 2011). Indeed, a large-scale
meta-analysis by Debufalo (2012) found that across 52 published studies of trust in supply chain
relationships (subsuming 96 independent samples and in excess of 69,000 subjects), interorganizational trust positively impacts outcomes such as continuity, joint responsibility,
relationship satisfaction, willingness to invest, and organizational performance outcomes.
Much of the previous research has been focused on how trust affects the relationships
between the organizational actors, not just on how it affects performance (Johnston et al., 2004).
This research has found that organizations that have greater trusting relationships are able to
cooperate efficiently and effectively for success (Johnston et al., 2004), are able respond to
changes or problems and, therefore, can more easily solve problems (Uzzi,1997), and have
higher performance and satisfaction among member firms (Benton & Maloni, 2005). In regards
to small businesses, strong inter-organizational relationships with suppliers, based on high levels
of coordination, communication, and trust, has been shown to lead to more effective strategic
alliances (Capo´-Vicedo, Mula, & Capo´, 2011). Thus, trust is an important aspect of interorganizational networks regardless of organizational size and resources.
While trust has been shown to be important for organizations and their continued success,
an area that needs continued examination is what leads these organizations to perceive the
relationship between organizations is in fact a trusting relationship. Again, if trust is defined as a
cognitive aspect, the fulfillment of expected performance, and the affective aspect, the genuine
care between the actors (Deutsch, 1958; Lewis & Weigart, 1985; McAllister, 1995), then it
should be expected that organizations that demonstrate actions and behaviors that support these
areas will be perceived as trustworthy. The following sections cover two constructs examined in
small business research and examine these in light of inter-organizational trust in small
businesses.
Communication
Considerable research has been conducted on communication and its importance within
inter-organizational relationships. Communication is defined as “the formal as well as informal
sharing of meaningful and timely information between firms” (Anderson & Narus, 1990, p. 44).
Four categories of communication are defined as part of this definition. These include
information content, medium, feedback, and frequency (Mohr & Nevin, 1990). In their study on
supply chain relationships, Ellram and Hendrick (1995) found that partnering organizations
continually share information needed for mutual understanding, operational information
necessary for smooth operations, and information regarding high corporate-level issues
important for good coordination. In addition, Anderson and Narus (1990) in their examination of
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supply chain partnerships found that the sharing of information is very important for
interorganizational relationships.
Communication can be such a vital link to organizational success that it is proposed as a
method to revive stalling or failing interorganizational relationships. Zeng and Chen (2003)
indicate that, in some instances, organizational actors working within an interorganizational
relationship may make decisions that are individually benefiting, yet not beneficial to the
relationship or the other partners in the relationship. As a result, they indicate that a potential
solution is to take steps to improve the communication within the relationship.
One problem with this potential solution is that research suggests that communication is
better with lower control and less integration (Mohr, Fisher, & Nevin, 1996). In this scenario,
the importance must be put on generating more communication without trying to regulate it
through more controls or integration. What is necessary is a norm of information exchange
between member firms where information that might be useful or helpful is given and received
frequently and openly (Heide & John, 1992) rather than simply because of controls that try to
force information exchange.
Similar to trust, communication has been found to be a predictor of greater performance
(Benton & Maloni, 2005). Prahinski and Benton (2004), however, found that the effect of
communication on performance is influenced by the commitment of the supplier. In essence, if a
supplier is not committed to the relationship or to the buyer firm within this supplier partnership,
the communication strategies employed will not be effective. The communication strategy must
reside within a supportive supplier partnership climate (Mohr & Nevin, 1990).
Good communication between the supplier and the buyer within the supply chain
indicates a determination by both parties involved to provide the necessary information for
continued working relationships. Building on the idea that both parties within the supply chain
desire high performance, it is posited that greater levels of communication will contribute to
greater levels of the expected performance. Path-goal theory (House, 1971) forwards the notion
that in order for a leader to move a follower on to performance, communication by the leader to
the follower must be exactly what is expected. Thus, the buyer not only communicates what is
expected, but by ensuring that that communication occurs in a meaningful and timely way,
buyers are expressing a genuine concern that their supplier receives the communication
necessary in order to perform as expected.
Research has shown that the supply chain practices of SMEs are much less sophisticated
and based more on personalized communication rather than complex processes (Devins, Gold,
Johnson, & Holden, 2005). As such, a small business owner is often more likely to use social
tactics to communicate and build trust in relationships (Morrissey & Pittaway, 2006).
Consequently, it is expected that higher levels of communication will lead to higher levels of
trust within the relationship.
Hypothesis 1: There is a positive relationship between communication and trust in the
small business supply chain relationship.
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Information Quality
Good information, or information quality, is vital to organizational success (Huber &
Daft, 1987). Information quality is defined as the degree to which the information the individual
organization receives from the other organization is accurate, timely, adequate, complete, and
credible (Daft & Lengal, 1986; Huber & Daft, 1987; Monczka, Peterson, Handfield, & Ragatz,
1998). Information is a vital component of collaboration through cooperation, and it must be
systematically available for the effective completion of required tasks (Guetzkow, 1965). Not
only is information exchange necessary for performance, but Schuler (1979) finds support for
increases in satisfaction when information is systematically available within an organization. In
examining collaborative relationships, Devlin and Bleackley (1988) found the exchange of
quality information predicts the success of a partnership.
Better information flows have important benefits for interorganizational relationships
such as reducing costs and efficient resource utilization (Martin, 1995). Due to the desire to
obtain and capitalize on these benefits, organizations are developing better methods for
transferring important information (Gopal & Cypress, 1993). Higher quality information flows
between organizations allow these organizations to plan more strategically and respond more
successfully to the demands of the partner. This greater information exchange creates a better,
more efficient chain which benefits both parties (Chapman & Carter, 1990; Raturi, Meredith,
McCutcheon, & Camm, 1990).
In their study on supply chain relationships, Ellram and Hendrick (1995) found that
partnering organizations continually share information needed for mutual understanding,
information necessary for smooth operations, and information regarding high corporate level
issues important for good coordination. In addition, Anderson and Narus (1990) found in their
examination of supply chain partnerships that sharing of information is very important for interorganizational relationships.
The question now concerns what is the relationship of this information quality to trust.
Again, if trust is composed of the two parts, expectations and concern, it should be anticipated
that greater information quality should lead to higher levels of trust. When organizations receive
information that is timely, accurate, adequate, complete, and credible, it indicates the buyer is
informing the supplier of what is necessary for performance; this indicates a level of clearly
denoted expectations. In addition, by fully communicating this necessary information, the
behaviors and actions by the buyer confirm that they do, indeed, desire for the supplier to
perform well in servicing their needs. Thus, both dimensions of the trusting relationship are
satisfied.
Small businesses should adopt a strategic approach to supply chain management based on
integrated relationships. This type of relationship can be best achieved through trust,
collaboration, and sharing information (Harrington, Kirkwood, & Srai, 2012). If done properly,
small businesses can use this information to enhance both their strategic and operational
practices (Towers & Burnes, 2008). Therefore, it is hypothesized that greater information quality
will lead to greater levels of trust within the relationship.
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Hypothesis 2: There is a positive relationship between information quality and trust in
the small business supply chain relationship.
Methodology
Sample
The data collected for this study was obtained through an electronic survey of approved
vendors for a large university in the southwestern United States. A total of 156 surveys were
completed out of 498 administered, indicating a 31% response rate. There were 139 usable
surveys after removing those with incomplete information.
Measures
The size of the organization can impact the relationship between the supplier and the
buyer (Redondo & Cambra Fierro, 2007). In order to determine the size of the supplier
organization, the primary contact individual was first asked to specify the size of the
organization by giving the number of employees (Kimberly & Evanisko, 1981). In this study,
the average size of the organization was 34 employees. Also, the duration of the relationship
was asked. The average length of service working with the university was 6.39 years. In
addition, the length of service within the vendor’s organization can indicate the person’s
tendency to observe, accept, and adopt the values and norms of the organization (Chao, O’LearyKelly, Wolf, Klein & Gardner, 1994). The primary contact had an average of 9.44 years of
employment with the vendor firm.
The level of organizational trust was measured using Morgan and Hunt’s (1994) six item
scale examining the confidence of the vendor in the university as the buyer. This measure
reflects the reliability of the buyer to the supplier in this vendor relationship. Trust (previous α =
.949) is examined using a seven point Likert-type scale with responses ranging from strongly
disagree (1) to strongly agree (7). These items include “In our relationship with this buyer, our
major buyer is always honest and truthful… our buyer can be counted on to do what is right…we
have confidence in our buyer…we can count on them to have high integrity…we can count on
them to be reliable…we can count on them to be trustworthy.”
Communication was measured using Heide and John’s (1992) four questions on
communication, employing a seven point Likert-type scale with responses ranging from strongly
disagree (1) to strongly agree (7). The questions included, “Exchange of information in this
relationship takes place frequently and informally, and not according to a pre-specified
agreement…in this relationship, any information that might help the other party will be provided
for them…both parties in the relationship will provide proprietary information if it can help the
other party… both parties keep each other informed about events or changes that may affect the
other party.”
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Information quality was examined using five dimensions of information. These include
accuracy, timeliness, adequacy, completeness and credibility (Daft & Lengal, 1986; Huber &
Daft, 1987; Monczka et al., 1998). Using Mohr and Spekman’s (1994) five questions on
information quality (previous α = .910) respondents indicated their level of trust on a seven point
Likert type scale ranging from (1) not timely (accurate, adequate, etc.) to (7) very timely
(accurate, adequate, etc.).
Data and Scale Analysis
The data were screened and prepared using Kline’s (1997) recommended procedures.
After a full analysis, cases with missing data points and outliers identified with the frequency
distribution of standard scores were removed. Univariate normality was assessed by examining
each item for skewness and kurtosis. The test showed a normal distribution. Cronbach’s alpha
was used to establish the reliability of the scales (Henson, 2001; Nunnally & Bernstein, 1994).
The coefficient alpha for each scale was well above Nunnally and Bernstein’s (1994) suggested
reliability coefficient of .70. These reliability estimates are found in Table 1.
Table 1. Factor Pattern/Structure Coefficient for All Constructs
Variable
Item #
Trust
Factor
h2
Communication
Factor
h2
Information Quality
Factor
h2
1
.932
.868
.733
.537
.847
.717
2
.966
.933
.857
.734
.964
.929
3
.967
.935
.702
.493
.930
.865
4
.969
.939
.849
.721
.958
.918
5
.960
.921
n/a
n/a
.906
.821
6
.982
.963
n/a
n/a
n/a
n/a
Total Variance
Explained
Initial Eigenvalue
92.156
72.300
84.911
5.560
2.486
4.250
Second Eigenvalue
.175
.702
.357
α = .984
α = .794
α = .955
Alpha
The item scores were assessed to evaluate the consistencies of the measurement items
with construct validity. A confirmatory factor analysis (Ahire & Deveraj, 2001) using LISREL
examined the latent variable with its corresponding items. The latent constructs were analyzed
using principle components factor analysis to extract the analysis pattern. Using the K1 rule
(Kaiser, 1960), each item extracted only one factor. Therefore, there is only one latent construct
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per list of variables (Hattie, 1985). The factor pattern/structure coefficients as well as the
communalities, eigenvalues, and Cronbach’s alphas are presented in Table 2. In addition, the
overall means, standard deviations, Cronbach’s alphas, and correlations of the latent variables
are found in Table 2.
Table 2. Means, Standard Deviations, Cronbach’s Alphas, and Correlations
Construct
Means
S.D.
1
2
Trust
6.013
1.119
(.984)
Communication
5.322
1.185
.722*
(.794)
Information Quality
5.804
1.062
.678*
.572*
3
4
5
(.955)
Note. * Correlations are significant at the 0.01 level (2-tailed).
Reliability coefficients are presented on the diagonal.
Results
This study examined the relationship of communication and information quality with
trust in small businesses. The first hypothesis stated that there is a positive relationship between
communication and trust in the small business supply chain relationship. In addition, hypothesis
two stated that there is a positive relationship between information quality and trust in the small
business chain relationship. These hypotheses were tested using a two step regression analysis
with the size of the organization, the length of tenure as a manager, and the length of tenure with
the organization as control variables. Step two included the two predictor variables
communication and information quality.
Model one, with only the control variables regressed onto trust, resulted in an ANOVA
with an F statistic of .947 that was not statistically significant at the p < .05 level. The second
model, which included the control variables with communication and information quality,
resulted in an ANOVA with an F statistic of 45.010 that was statistically significant at the p <
.01 level. Model one indicated an R2 of .020 and model two indicated an R2 of .627 with an
adjusted R2 of .613 and a ∆R2 of .606 that was statistically significant at (p < .01). The
hypothesized relationships of both communication and information quality with trust were
examined using standardized and unstandardized coefficients, statistical significance, and
confidence intervals. The results of the regression analysis indicate that both communication and
information quality are statistically significantly related to trust in the small business supply
chain (p < .01); thus giving support to both hypotheses one and two. The results of this
regression analysis can be seen in Table 3.
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Table 3. Results of Simultaneous Regression Analysis for Prediction of Trust in the Small Business
Supply Chain
Variable
B
SE B
β
95% CI
95% CI
Lower
Upper
VIF
Step 1:
# of Employees
.000
.000
-.040
-.001
.001
1.011
# Years as Manager
.002
.013
.015
-.023
.027
1.055
# Years with Company
.022
.014
.134
-.006
.051
1.045
# of Employees
.000
.000
-.024
-.001
.000
1.012
# Years as Manager
.007
.008
.049
-.008
.023
1.067
# Years with Company
.005
.009
.033
-.012
.023
1.066
Communication
.503
.065
.499*
.374
.631
1.492
.428
.072
.386*
.286
.570
1.505
Step 2:
Information Quality
2
Note. R for first model = .020
*p < .01
N = 139
2
R for second model = .627
2
ΔR = .606
Two-tailed tests.
Discussion and Implications
Alliances and partnerships are crucial for the survival and adaptation of organizations.
While research seems fairly consistent supporting the importance of trust in organizations,
specific conduits through which small businesses develop trust in their partners remains less
studied. Because small businesses lack the resource endowments of large firms, they may not
have access to the partner screening and alliance management functions of larger organizations.
This situation causes smaller firms to place more emphasis on tacit knowledge in making
decisions about strategic relationships (Thakkar, Kanda, & Deshmukh, 2011). As a result, small
businesses rely very strongly on reputational information when forming perceptions of trust;
whereas larger organizations are more likely to rely upon determinations of fiscal well-being,
competence, customer-orientation, and product-related features (Viitaharju & Lahdesmaki,
2012). Additionally, small business owners and managers, on average, lack the formal business
education and training to draw upon in screening and selecting potential partners. As a result,
trust is frequently formed on the basis of perceived integrity, benevolence, credibility, and shared
values (Skandrani, Triki, & Baratili, 2011).
In order to survive, small businesses often find themselves as partner takers, not partner
makers. Small business managers and owners are more likely to have partners of necessity and
less likely, therefore, to start their relations with a high level of trust in their partners.
Nevertheless, the development of trusting relations remains crucial and the small business owner
or manager needs to utilize in-partnership (as opposed to pre-partnership) managerial techniques
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to develop trust. Whereas a large business can screen out potentially risky partners, the small
business must learn to evaluate and adapt to partners on the fly.
The present study has explored communication and information quality as correlates to
trusting partnerships. Existing theory informs on the importance of these concepts and our study
demonstrates that the expected relationship manifests in a small business sample. In this study,
informal and freely exchanged communication is present in trusting partnerships. This is
consistent with the findings of Viitaharju and Lahdesmaki (2012) who found that within
asymmetrical European business relationships, both suppliers (small businesses) and retailers
(typically large organizations), identified communication that is proactive and of a personal
nature, as well as the giving and receiving of feedback, as antecedents of trust. Additionally,
trusting partnerships were also more likely to report the presence of high quality information
exchange. While our study is cross-sectional, and thus not conducive to claims of causality,
prevailing theory suggests that communication and high quality information are signaling
techniques through which partners develop cognitive and affective trust. Our evidence supports
these theorized interactions.
A drawback of the current study is that it focuses entirely on a sample of U.S. vendors to
a U.S. university; the nature of trust and collaboration in more diverse business to business
partnerships cannot be assumed to be the same. However, findings from Europe also emphasize
the importance of strategic supply chain relationships in firm success and innovation.
Specifically, Lasagni (2012) found, based on a six country study, that more innovative small
businesses involve both customers and suppliers in the design process to ensure knowledge
sharing and strategic cooperation.
Recent international research on the antecedents of trust further reinforces the importance
of communication and information quality. Viitaharju and Lahdesmaki (2012) found the nature
of communication to be an important antecedent of trust in a European sample, and Yen, Wang,
and Horng (2011) found that effective communication had a positive influence on perceived trust
among buyer-supplier dyads in Taiwan. Similarly, Skandrani, Triki, and Baratili (2011) found
that accurate information and communication were both essential components of trust within
supply chain relationships among a Tunisian sample. Finally, a multi-nation study by Jiang,
Henneberg, and Naude (2011) concluded that trust, in conjunction with reliance, is an important
part of businesses crafting successful and sustainable relationships. Despite the consistency of
our findings with those from both western and emerging nations, the definition of trust as it
exists among differing cultures was not examined. Given the development of international
business to business partnerships, further studies in this arena could be very enlightening.
Four important practitioner implications emerge from our study. First, small business
owners and managers should carefully evaluate the communication patterns present in their
partnerships. Where communication is either infrequent or non-voluntary (e.g. only occurring
within the parameters of established contracts), small business owners and managers should
endeavor to improve the quality and quantity of communication. Second, these business owners
and managers should scrutinize the quality of information exchange from their partners. When
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information is inaccurate, late, insufficient, or not credible immediate attempts should be made to
improve the quality of information flows. Third, communication and information quality are
two-way streets. In addition to scrutinizing the partner’s communication and information
quality, small business owners should diagnose their own organization’s information exchange
performance. Indeed, poor communication from a business partner may be affected by poor
initial communication from the small business. Finally, small business owners must recognize
that when communication and information quality cannot be improved, the partnership may
indeed be a low-trust partnership. Given this, the small business operator must carefully assess
the value of such a low-trust partnership in the firm’s partnership portfolio.
Conclusion
This study supports the theorized relationship between information quality, informal
communication and trusting partnerships. However, given the exploratory nature of the study
and the challenges inherent in studying small business, many subjects remain to be investigated
in future research. Informal and voluntary communication was emphasized as they are most
clearly linked with cognitive and affective trust formation. However, information quality also
correlates positively with trusting partnerships and it seems reasonable that both informal and
formal communication play a role in establishing information quality. Indeed, if information
quality requires timeliness, accuracy and completeness, it stands to reason that some preestablished norms for such communication might be useful. To that end, we believe future
studies should explore the presence of formal and informal communication, not only for their
direct impact on trust but also for the potential indirect impact on information quality.
A related future direction involves not just the type of communication, but also the
medium(s) utilized for communication. It is well established in organizational behavior theory
that certain channels of communication prove more useful in communicating data, while others
are more efficacious in communicating information or context. Since information quality shapes
cognitive and affective components of trust, and given that poor medium selection creates
unnecessary message noise, future researchers should examine the role of medium (verbal,
written, electronic, etc.) alongside message (data or information) as antecedents to information
quality and thereby development of trust.
Another future research direction includes examining more fully the demographic
characteristics of the owners, managers, and other individuals overseeing these organizations and
the impact on trust in supply chain relationships. While this study did not specifically examine
the response patterns of minority or women owned organizations, future examination of the
differences between these groups may prove interesting. Two important differences are that both
women and minority owned businesses have higher mortality rates than businesses owned by
men or non-minorities (Robb, 2002), and they have historically faced other challenges such as
less access to capital (Treichel & Scott, 2006). Thus, future research should examine if these
groups put more emphasis on building the more personal aspects of the relationship to give them
an overall advantage.
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Communication is a two-way street. This study focused on the small business operator’s
general perception of communication patterns and information quality. In reality,
communication can be highly symmetric (relatively even from both parties) to highly
asymmetric (one side communicates far differently than the other). Buyers and suppliers must
work together to create a lasting long-term alliance and this can be achieved by sharing
information and processes and increasing commitment to the relationship (Adams, Khoja, &
Kauffman, 2012). Put simply, effective supply chain management can lead to a strategic
advantage for small business owners; therefore it is important that we have a thorough
understanding of the best practices that promote more advantageous, sustainable and long-term
relationships.
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About the Authors
William C. McDowell is an Associate Professor in the College of Business at East
Carolina University. He is the current Vice-President for Programs for the national Small
Business Institute®. His research interests include entrepreneurship, family business, and small
business management.
Michael L. Harris is an Associate Professor and Director of the Small Business Institute®
in the College of Business at East Carolina University. He is the Immediate Past President of the
national Small Business Institute®. His research interests include entrepreneurial attitudes and
intentions, rural and minority entrepreneurship, and entrepreneurship education.
Shanan G. Gibson is the Associate Dean for Student and Faculty Development and an
Associate Professor in the College of Business at East Carolina University. She is the current
President of the Southeastern Chapter of the Institute for Operations Research and Management
Sciences. Her research interests include entrepreneurship and human resource management
issues, such as work analysis and technology acceptance.
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A Nonprofit’s Practical Guide to Resolving Ethical Questions
J. Brooke Hamilton, University of Louisiana at Lafayette
Lise Anne D. Slatten, University of Louisiana at Lafayette
Executive Summary
To maintain society’s trust, nonprofit executives and board members may benefit from
understanding the decision criteria appropriate for difficult situations. After discussing a case
that raises disclosure issues echoed in recent ethical failures in nonprofits, the authors review
research in neuroscience and social psychology on limitations in the ways people make ethical
judgments under the pressure. Understanding these limitations may help executives and board
members avoid such failures. The strengths and vulnerabilities of the law and an organization’s
mission as decision criteria are considered, as well as the inclusion of ethics standards to decide
the right thing to do. Four ethics tests based in traditional ethical theory but couched in language
that fits comfortably into business and professional settings are described for use. Suggestions
for future research and training are also offered. Though focused on nonprofits, the authors’
analysis could be applied to government and for profit organizations as well.
Introduction
Mrs. B, a veteran nonprofit executive director of a large non profit social services agency
in a major U.S. city, faced a difficult decision. A fraudulent diversion of emergency housing
funds for indigent families had been uncovered just as her agency was emerging from a two-year
probationary period imposed by their funding source because of a previous theft. The attention
she had given to strengthening accounting controls had not been successful. Given the county
government’s hostility toward the agency and the even tougher sanctions it would face for a
second serious failure - the existence of the agency, or at the least its ability to raise funds, was
threatened. Times were hard for those in need and sympathy for them limited. In spite of the
harm the poor would suffer and the loss of her employees’ jobs should the agency be decertified,
her obligation to both the federal funding programs and the county government was clear. Any
fraud or misuse of funds was to be reported immediately and the county district attorney was to
be notified of any possible criminal activity. This incident, though significant, was not likley to
be detected unless the agency itself reported it. The evidence was limited to temporary
requisitions that could be shredded before the next audit. The offending employee, Mr. L, a
gifted young man who had shown great potential, could be fired quietly. If Mrs. B decided to
conceal the fraud, however, she would not be able to warn future employers of his misdeeds
when they requested a reference. She could not risk information about Mr. L’s activities getting
back to one of her funding agencies. Stewardship obligations over current and future grant
funding, she was confident, could be handled by further tightening signature requirements. As
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she pondered the situation, Mrs. B considered whom she should involve in making this decision
and what standards to apply to decide what would be the right thing to do.
After discussing the situation with two trusted staff members1, Mrs. B decided to fire Mr.
L quietly without notifying the board, the funding agencies, or the county’s district attorney of
the fraud. After the passage of 20 years, the authors have no indication that the fraud or the
concealment of it was ever detected. A conversation four years after the event with a staff
member aware of what had happened indicated that additional controls had not been put in place
to prevent a reoccurrence nor had any effort been made to change the culture of the organization.
Mrs. B’s decision not to involve the board seems contrary to the reasons to have a board
in a nonprofit organization (hereafter NPO). Concealing the fraud seems contrary to the law, the
organization’s mission, and ethics. A simple explanation for these decisions is that Mrs. B is an
unethical or weak person who ignored board responsibility and abandoned ethics and respect for
the law in the face of pressure. The discussion that follows offers a more complex look at why
Mrs. B may have made the decision she did and whether involving the board would have
produced a different outcome. Recent findings from neuroscience and social psychology show
limitations in the ways people make ethical judgments under the pressure of a crisis and that
these limitations apply to single and multiple decision makers. We examine the strengths and
limitations of the law and an organization’s mission as decision criteria and discuss the inclusion
of ethics standards as tests that executives and board members can use to determine the right
thing to do. Four ethics tests based in traditional ethical theory but couched in language that fits
comfortably into business and professional settings are described as an example of how ethics
can be applied to the case. Future research is suggested on whether multiple decision makers,
including board members, should be involved rather than a single decision maker. We offer
suggestions for future research on organizational processes and training for actual nonprofits.
We also suggest research on whether an ethics vocabulary suited to use in business and
professional situations can be helpful to NPOs for resolving vexing ethical situations. This
discussion is important because in the current environment of a transparent, wired, global
marketplace (Seidman, 2007), NPOs are expected to fulfill their mission with greater attention to
ethics and accountability, which increases the need for more documentation, paperwork,
outcomes monitoring and new management methods (Bishop, 2004).
Ethics Issues in Nonprofit Organizations Today
NPOs today have a wide reach and impact life in communities around the world via the
many tax-exempt organizations operating under Section 501(c) of the IRS tax code (Wilcox,
2006; Salamon, 2003) and the explosive growth of nongovernmental organizations (NGOs) who
have established offices in world capitals (Watkins, Swidler, & Hannan, 2012). These entities
1
While it is customary in a case-driven discussion to withhold the outcome until after the issues have been
reviewed, the dynamics of this discussion dictate telling the full tale at the beginning. This order does not preclude
nonprofit boards and staff from considering the case before knowing the outcome as an exercise to increase their
understanding of ethical decision processes.
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provide a variety of activities that enhance life for many people and engage in the effective
delivery of multiple social services. Despite this significant contribution to civil society, there
have been numerous recent examples of scandal and poor decision making. Ethical issues
deserving attention include matters related to accountability, conflict of interest, and disclosure
(Kaufman & Grobman, 2005).
Among the numerous reports of nonprofit misdeeds since the 1990s, actions at Covenant
House, United Cancer Council, United Way of America, and others have been the subject for
investigations and in-depth newspaper articles (Bothwell, 2001; Chisolm, 1995). A decade ago,
the American Red Cross came under fire for their mishandling donations after the 2001 terrorist
attacks and in 2010, thousands pledged funds to help with relief efforts after the earthquake in
Haiti only to find out later that it would be months before the funds were actually delivered
(Mollenkamp, 2010). In 2012, the national Komen for the Cure Foundation was accused of
promoting a conservative political agenda by deciding to stop funding breast cancer screenings
and other forms of support to Planned Parenthood (Wallis, 2012).
Two recent cases involve the kind of disclosure issues facing Mrs. B and her
organization. The Pennsylvania State University’s former president and administrators, including
legendary football coach Joe Paterno, stand accused of withholding from their Board of Trustees
and law enforcement information that implicated former Penn State assistant coach Jerry
Sandusky in the abuse of young boys recruited from the nonprofit The Second Mile (Maher &
Miller, 2012; Perez-Pena, 2012). In the second case, a study by the Scripts Howard News
Service shows that 15,389 or 41% of nonprofits in the United States that raised over $1 million
in charitable contributions reported zero in fundraising expenses (Hargrove & Naeem, 2012;
Ranjani, Yetman, & Yetman, 2006). Nonprofits do not owe taxes but are legally required to
report their fundraising expenses on their annual tax forms. Failure to do so prevents donors
from comparing how much of their money was being spent by each NPO on administrative costs
and other expenses.
These types of management failures could exist in any organization but are generally
observed in those that lack a strong ethical culture (Ethics Resource Center, 2010). In NPOs, the
board of directors and the executive director, in conjunction with senior management, play a
fundamental role in establishing ethical and accountable practices. Due to the social contract
that supports the existence of NPOs, decision-making and actions in these organizations should
be guided by the ethical values centered on integrity, openness, accountability, service and
charity (Jeavons, 2005). Stakeholders of all types, including donors, government officials,
volunteers, clients, private foundations, and the general public, are exerting pressure on
organizations to demonstrate a commitment to ethical behavior (Pritchett, 2012). A number of
factors are in play: shaken public trust in the nonprofit sector, misdeeds by those entrusted with
the leadership of these organizations, and recent government interest in some form of regulation
have created a call for addressing issues associated with accountability and credibility (Slatten,
Guidry, & Austin, 2011).
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The National Council on Nonprofits (2012) has long recognized the importance of ethics
and ethical behavior in the sector, noting that cultivating a culture of accountability and
transparency is fundamental to successful nonprofit organization operations. Ethical lapses in
NPOs are out of character for NPOs and bring trust-eroding media attention. The stakes are
high: donors will only give to those organizations they trust will use the funds wisely; volunteers
will give time to causes that are advanced by nonprofits acting ethically; and clients and
customers will engage to receive services and recommend those services to others, when those
organizations have proven they are accountable for their actions. Unethical behavior also
invites government regulation and changes in the current legal and tax privileges (Mason, 1992).
The 2007 version of the National Business Ethics Survey (NBES) of employees of US
organizations showed that NPOs had similar reporting rates and reported ethical issues similar to
those of employees of government organizations and private sector organizations (Ethics
Resource Center, 2012). The fact that the results were so alike suggests a healthy skepticism
regarding claims that a special sense of mission or type of employee attracted to NPOs makes
NPOs less likely to suffer ethical lapses. The similarity also suggests that NPOs should look for
guidance in surveys and analyses of ethical challenges facing government and the private sector
organizations. The 2011 NBES reports on 14 types of misconduct as summarized in Table 1.
Note that 12% of workers reported witnessing lying to outside stakeholders, the type of issue that
Mrs. B’s case involves.
Table 1: Types of Misconduct Observed by Employees in 2011
Type of Misconduct
%
Misuse of company time
33%
Abusive behavior
21%
Lying to employees
20%
Company resource abuse
20%
Violating company internet use policies
16%
Discrimination
15%
Conflicts of interest
15%
Inappropriate social networking
14%
Health or safety violations
13%
Lying to outside stakeholders
12%
Stealing
12%
Falsifying time reports or hours worked
12%
Employee benefits violations
12%
Sexual harassment
11%
Excerpted from the National Business Ethics Survey, 2011, p.39 at www.ethics.org
© 2012 Ethics Resource Center
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While the NBES focuses on employees of for-profit organizations, nonprofit
organizations should take their cue from these findings, embrace best practices for ethics and
accountability, and work toward fostering a strong ethical culture (Ethics Resource Center,
2010). At the core, the values of NPOs are rooted in sympathy, virtue, compassion and
voluntarism (Schultz, 2004). Schultz (2004) sees the difference between the profit and nonprofit
sectors as one related to mission: one fulfills its mission by making a profit while the other
makes a profit or engages in the generation of revenue in order to fulfill a mission. NPOs with
strong ethical cultures are committed to a mission based on strong ethical practices. On an
ongoing basis, these groups offer training and education to ensure that these practices are
understood and followed. They also engage in efforts that update their policies and practices
when the need arises. Some even have special standing committees in place to focus on
whistleblower policies, grievance procedures, financial policies related to internal controls and
purchasing, and conflict of interest policies for staff, volunteers, and board members. Most
importantly, people at all levels of the organization are consistently implementing these practices
in their work and in their actions. Our discussion in what follows, however, indicates that
mission may not always be a sufficient criterion for making ethical judgments.
Insights into Mrs. B’s Decision
Authority for making decisions in most NPOs is divided between the Board of Directors
and the Executive Director appointed by the board. The function of the board is to represent the
interests and ethics of the community, to insure that the mission of the organization is carried
out, and to protect the tax-exempt status, and other privileges afforded the NPO (Mason, 1992;
Miller, 2002; Robinson, 2001; Young, 2001). When there are ethical lapses or financial
problems, the question immediately becomes, “Where was the Board?” (Robinson, 2001).
Block (2004) asserts that chaos and crisis characterize many nonprofit boards due to
external forces pressuring the organization to do more than it can or because of “organizational
discord” between staff and the board. It may also be that the board does not understand its role,
is made up of overcommitted people, is captured by a charismatic director, or is denied critical
information. Moyers (2012) suggests that boards may not be able to recruit the right kinds of
members, those who believe in the goals, have the needed skills, are able to commit time and
resources, and understand their role.
For guidance in deciding who to involve in making the decision, Mrs. B could have
consulted the by-laws of her organization and the literature on board responsibilities and staff
authority. Given the possible consequences for her organization, however, Mrs. B. may have felt
a need to keep the information about the fraud to herself. Indeed, recent research on ethical
decision making in neuroscience and social psychology highlights two important limitations in
the way the human brain works when making ethical judgments (Haidt, 2007; Hamilton &
Knouse, 2011; Narvaez, 2008) that may have motivated her to decide that firing Mr. L quietly
was the ethical action under the circumstances.
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The first limitation is that individuals who are making ethical decisions under duress are
likely to be driven back in their moral development into a Security Ethic mindset that prioritizes
issues relating to security over all other ethical values (Narvaez, 2008). Keeping the individual
and/or the organization safe is what is judged to be good and the virtues of loyalty, respect for
authority, and getting the job done are more important than honesty. The ability to feel empathy
for others who are harmed may be severely attenuated or heightened as the individual or
organization carries out the actions seen as necessary for the safety of the group or nation
(Margolis & Molinsky, 2008). This concern for security is a powerful force because it is based in
the emotions of seeking (curiosity), rage, and fear. In times of stress it is difficult to overcome
these emotions by using reason and imagination to question current behavior and see other
possible ways of acting (Narvaez, 2008). If Mrs. B was acting on the basis of this security
mindset, Narvaez’s (2008) research suggests that she would think that breaking the law would be
the ethical action to take.
Had she been aware of the effects of this limitation on her ability to make ethical
judgments, Mrs. B could have sought the opinion of board members whose commitment to
mission is balanced by commitment to other needs of the community and by a longer term
outlook that would provide a perspective on the problem not limited by the sense of crisis she
was feeling. Unfortunately the virtues of loyalty to the organization and respect for authority
that the security mindset requires may lead her to brand any opinion contrary to hers as disloyal
and lacking commitment to getting the job of the organization done (Narvaez, 2008).
Involving board members whose livelihood and sense of worth does not depend primarily
on their work with the NPO, however, may not be sufficient to insure a decision that meets the
standards of law, mission, and ethics. Organizations and even whole societies may react to the
threat of harm from disclosing the fraud by looking the other way or even cooperating in a coverup designed to protect it (Narvaez, 2008). Given the threat to the existence of the organization,
her board could have been driven back to the Security Ethic as well and agreed with her decision.
Staff and administrators at Penn State may have decided not to report the accusations against
Sandusky for fear of harming the reputation and prestige of the university and out of loyalty to
their legendary head football coach.
Understanding the danger of falling into this security mindset when making ethical
decisions in a crisis, however, may help prevent ethical failures. If board members and
executives are aware that ethical people under pressure may take on a security mindset that limits
their empathy for others, as well as their ability to imagine and evaluate alternative actions, they
may be motivated to involve others with a different perspective in the discussion. Executive
directors who recognize that they are characterizing previously loyal and supportive board
members as disloyal, and board members who are accused of disloyalty for taking an ethical
stand, may be able to understand that this is a common human failure and act to rectify it. This
belief in the importance of understanding the workings of human cognition in order to be more
effectively ethical is shared by many researchers in the field (Bazerman & Tenbrunsel, 2011;
Haidt, 2012; Narvaez, 2008).
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A second limitation to the ability to make sound ethical decisions that may provide an
explanation for Mrs. B’s decision is the human tendency to rationalize rather than reason, often
without being aware that it is being done. Evolutionary biology suggests that role specialization
and cooperation were essential to the success of early human groups operating in a harsh
environment and competing with other groups for scarce resources (Boehm, 2012). Within the
group, gossip among the members was used to establish the reputation of other members for
cooperation and humans became skilled at judging the actions of others to determine whether
they could be trusted to contribute to group survival. Individuals also became skilled at
protecting their own reputations by being able to rapidly give persuasive explanations for why
their actions were beneficial to the group, regardless of whether these characterizations were
accurate (Boehm, 2012). Individuals who rationalized without realizing that they were doing so
were much more persuasive (Boehm, 2012). The value of such cooperativeness has contributed
over time to the development of a human brain that enables us to judge others accurately, but
fool ourselves and sometimes others with justifications for the rightness of our actions (Haidt,
2007 & 2012). This account suggests that since evolution has fitted us to reason well about
whether others are doing the right thing but not so well about the ethics of our own actions, Mrs.
B should be wary of making this decision without discussing it with others. She should invoke
the wisdom of the crowd by discussing it with her board and with community leaders outside the
board.
What Standards Could Nonprofits Use to Determine the Right Thing to Do?
Following the law as a standard for the right thing to do. On one level, the answer to
the question regarding the standards Mrs. B and board members could use in deciding how to act
seems quite simple. The organization has contracts with the funding agencies and with the
county government that are legally binding and require full disclosure of any fraud. So the law
provides a clear standard for making the decision. In general, the law provides guidance on what
society considers essential to managing human conduct, a minimum standard for what people
and organizations are required to do or refrain from doing that is enforced by sanctions.
As the recent 40-year anniversary of the Watergate scandal reminds us, however, people
in positions of authority do not always consider the law to be the only or final arbiter of what to
do. President Nixon’s top White House officials, and even the President himself, ordered an
illegal break-in and then a cover-up because they felt these actions were important to the goals of
the administration, to the re-election campaign, and to the country as a whole. Even when the
law provides a clear standard, people justify ignoring it and still feel they are acting ethically.
This is most clearly the case when the law is judged to be unjust, as in the instances of civil
disobedience by heroes, such as Mahatma Gandhi and Dr. Martin Luther King Jr. When the
laws or regulations are not seen as unjust, they may be viewed as flawed instruments, (“Just
more of those bureaucratic hoops to be jumped through.”), and imposed upon the organization
from anonymous outside forces. Following the edicts of distant authorities may be much less
motivating than fulfilling the immediate needs of clients that are presented in the agency office
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every day. Research has also shown that most people will disobey or cheat a little if they
convince themselves that they are still good persons (Ariely, 2012; Brooks, 2012). As long as
Mrs. B and the board see the failure to follow the law as not causing very much harm, (“No one
will know and we will prevent it from happening again.”), they may still see themselves as
fundamentally good. President Nixon reminded us famously that he was “not a crook.”
Using the mission as a standard for the right thing to do. The mission of the
organization as reflected in its charter can also be used as a standard for making decisions about
how the staff and board should act. The mission lays out the goals of the organization and either
implicitly or explicitly affirms a commitment to following the laws and ethical standards of
society. Regular discussions of the mission should be designed to strengthen the emotional
connection of board and staff to these goals.
Mission, however, can function as an argument to override the law and “conventional”
ethics when the cause to be served is seen to be more important than following these standards of
society. President Nixon is said to have been conducting five wars in covering up the Watergate
break-in, “against the anti-Vietnam movement, the news media, Democrats, the judiciary, and
history itself”(Bernstein & Woodward, 2012), all of which he considered vital to the interests of
the United States and the free world. Mrs. B and the board could perceive the continued
existence of their agency and the avoidance of a loss of funding as essential to helping their
clients and the new entrants into the middle class who make up much of the agency’s staff.
It is tempting to say that these limitations of law and mission when making ethical
judgments are weaknesses in individuals and that an ethical executive would never have chosen
to violate either of these standards by quietly firing the guilty employee to shield the
organization. The evidence suggests, however, that with regard to ethical judgments these
limitations apply to all of us. In the same way the human body resists attempts to lose weight
because it evolved in times of recurring scarcity rather than our current overabundance
(Freedman, 2011), our brains evolved in a different environment from the one we now inhabit
(Greene, 2003). The older brain structures worked well in providing immediate and strongly
emotive judgments necessary for survival in the competition for scarce resources but may not
always provide proper guidance for today’s world of global interconnection (Saletan, 2012). Just
as the development of the institutions of governments, law, and ethics reduced the 15% level of
violent deaths in prehistory to a current level of less than 1% (Pinker, 2011), it is necessary to
continue to search for additional organizational processes, policies, and rewards to help insure
that less than perfect people make good decisions. Even heroes like Gandhi and King have
flaws. Providing a set of ethical standards that can be readily used in professional workplace
situations is one of those organizational aids. Ethics can supplement the law and mission by
providing standards for deciding when violating the law would be ethical or not and how narrow
or broad the interpretation of the organization’s mission should be.
Using ethics as a guide. To use ethical standards effectively, it is important to begin
with an understanding of the meaning of ethics and how it operates to guide human conduct.
Ethics is defined as the principles, rules, values, and virtues or habits of behaving, that allow us
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to live and work together and pursue common and individual interests (Appiah, 2008; Haidt,
2007; Tenbrunsel & Smith Crowe, 2008). Ethics involves both societal and group guidelines for
living together and the values, virtues, and principles individuals use to guide their lives (Appiah,
2008). These guidelines for how to act are essential to the orderly functioning of any given
society, though individuals can dissent from the consensus in their society or group on what is
right or wrong. Heroes such as Martin Luther King Jr. dissent and bring about change in the
consensus, while villains such as Charles Manson dissent and are punished for it. Some ethical
principles, values, and virtues are universally recognized at a generalized or “thin” level. Lying,
for example, is wrong, respect for life is right. Different societies, groups within a society, and
different individuals may interpret these general standards differently in specific or “thick”
circumstances (Walzer, 1994). Killing in war is right for most but killing to “stand your
ground,” as defined in the laws of some states in the US is more controversial. This variance in
people’s perceptions of what is required by and what is important in ethics is a source of ongoing
ethical and political disagreement (Haidt, 2012).
Some individuals and groups are certain that their ethical judgments are right, in spite of
different/conflicting ethical judgments that are strongly held by equally sincere people (Burton,
2008). Many contemporary scholars agree, however, that ethics is a dialectical process carried
on in a dialogue involving our experiences and beliefs as individuals with those of the groups
and societies with which we interact (Appiah, 2008; Haidt, 2007, 2012). Rather than making
ethics simply relative to what an individual believes or wants, this interactive aspect makes it
critical that an individual be able to justify his/her beliefs to those in society who are affected by
the individual’s actions. Mrs. B and her board, if the board had been involved, would have to
justify or provide reasons why concealing fraud was the right or good thing to do in those
circumstances. To be recognized as valid, these reasons need to be based on patterns of
argument developed by religion, philosophy, or the evolution of societies that members of a
society recognize as valid for determining what is right or wrong.
Suggested Ethics Vocabulary
The western philosophical tradition has developed a number of approaches to deciding
what is right or wrong. These are often reduced in ethics courses and in business and
professional training to three (Gentile, 2011): 1) the utilitarian approach, which judges on the
basis of the greatest good for the greatest number, 2) the deontological approach, which requires
that what is right be a rule that can be applied to everyone, and 3) the virtue approach, which
judges an action based on whether it is consistent with a person’s character or a way of acting
that promotes human excellence or happiness. Each of these approaches provides valuable
insight into what would make an action right or wrong. The difficulty in organizational settings
like NPO board deliberations is that the language used to apply these three approaches does not
fit comfortably with the way people usually talk. Mrs. B and her board could overcome this
difficulty by using four translations of traditional ethical principles into more business and
professionally friendly language. The translations are available to NPOs at EthicsOps.com
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(Hamilton, 2012) and have been employed successfully by trainers in a variety of professional
fields.
The smell test. Nonprofit executives and board members who have been through ethics
training in industry will likely be familiar with the “Smell Test” (Table 2). Also called the
publicity test or newspaper test, this approach directs a person to ask how he/she would feel if
the proposed action (for example, concealing the fraud) were published in the newspaper and
became public knowledge. An alternate version asks whether the person would be comfortable
explaining the action to his/her spouse or grandmother. This is an effective and quick test for
ethics. It relies on the person’s sense of shame, a powerful emotion for most of us, when others
know that we have acted unethically. It also requires that the person test out various rational
explanations for the rightness of the action to see if others are likely to accept them. If Mrs. B
were to apply the Smell Test to her situation, she would undoubtedly see that others in our
society would not think it was right to hide the contractually required information by firing the
employee quietly.
Table 2: The Smell Test
Introduce the Test
“What would the action or situation smell like if we read about in a news newspaper or
blog?” “Could I explain it to my spouse or grandmother?”
Apply the Test &
Draw a Conclusion
If we would be embarrassed if the action became public it is unethical because it violates
the way others expect us to behave.
A limitation of the Smell Test, however, is that it does not provide any insight into why
the action is right or wrong. Understanding why something is wrong is valuable because it may
provide insight into how the action could be altered to achieve the benefits that made it initially
attractive (protecting the agency from being denied funds) while avoiding what makes the action
wrong (hiding important information from others). The society or individual that the person
imagines as the audience for this information also limits the reliability of the test. Someone
living in a racist society would conclude that apartheid was ethical, and Ma Barker as a spouse or
grandmother would say it was ethical to rob banks.
The best outcomes test. Because she is concerned about preserving the good outcomes
that her agency provides for its clients, Mrs. B should be open to using the Best Outcomes Test
(Table 3). Traditionally called the Utilitarian approach, Best Outcomes asks whether the action
(firing the employee quietly) will produce the best outcomes for all those who are affected.
Since everyone is equal as a human being and everyone wants to be happy, the right action will
produce the most happiness and the least unhappiness for all those who are affected by it. She
and the board would determine the main alternatives for dealing with the situation (disclosing the
fraud, or firing the employee quietly) and who will be affected by these actions (the agency and
its employees, the clients, the larger society made up of the funding agencies and the tax payers
who provide the revenues, and the future employers of the dismissed employee).
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Table 3: Best Outcomes Test
Introduce the Test
Will this action produce the best outcomes for everyone affected?
Apply the Test
Identify the possible actions and those who will be affected
For each action, determine the benefits and costs to everyone affected.
Predict probable outcomes based on facts and experience
Include short-term and long-term consequences
Consider relative value or “marginal utility” of the outcomes to individuals affected
Draw a Conclusion
Select the action that produces the greatest benefits over harms for all affected.
A brief analysis might suggest that since the fraud can be concealed successfully, the best
outcomes would be to avoid the harms to the agency and the clients who need its services. Since
the amount diverted was small, the harms to the society from concealment would be negligible.
Disclosing the fraud would seriously harm the agency and its clients and would not seem on this
brief analysis to provide any offsetting benefits to society. Concealing the fraud, therefore,
seems to provide the best outcomes.
Though attractive, this analysis falls victim to two common mistakes when using the Best
Outcomes test, the short-term error and the limited stakeholder error (Hamilton, 2012). Best
Outcomes reasoning requires that both short term and long term consequences of the actions be
considered. Though concealing the fraud has short-term benefits that seem to produce no short
term harm, it has long-term harms that should be considered. If the agency does not disclose that
controls put in place after the previous fraud did not keep it from happening again and does not
accept the consequences of that failure by entering into a new probationary period, it is highly
likely that the agency’s permissive culture will continue. A follow-up contact with employees at
the agency several years after the decision to conceal the fraud confirmed that the permissive
culture had not changed. Another harmful, long-term consequence of not disclosing the fraud is
that it prevents the funding agencies from seeking more secure ways of providing the services
needed. The harm that a talented thief can do in his future employment must also be considered.
The quick analysis of concealing the fraud succumbs to the limited stakeholder error by
failing to consider the effect on Mrs. B and those of her staff and board who are aware of it. Will
they be less or more likely to overlook future failure? It also commits the limited stakeholder
error by ignoring the harm to future employers by the quietly dismissed thief. The advantage of
the Best Outcomes test, on the other hand, is that it focuses the discussion on outcomes by
requiring a realistic assessment of how much good will is brought about by each of the
alternatives. Ethics is concerned with promoting good outcomes for the society and individuals
as well as avoiding actions that are wrong.
The everybody test. A third test that Mrs. B and her board could use is the Everybody
Test (Table 4). This standard could be introduced into their discussion by asking what things
would be like if everybody did this action: “What if all agencies failed to disclose fraud and fired
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fraudulent employees quietly?” Since everyone is equal as a human being, what is right for one
person should be right for everybody in the same circumstances.
Table 4: Everybody Test
Introduce the Test
What if everyone did that?
Apply the Test
Describe the action to show the general category and/or specific features
Does it fall in a general category such as “not telling the truth”
Does it have specific characteristics such as “not telling the truth to save a life”
Does it avoid words that already contain an ethical judgment like “lying” or “murder”
Ask, “What would happen if everyone did it?” If others acted this way in similar situations,
would it:
Become impossible for anyone to do it because of the reaction to everyone acting that way
(if all nonprofit organizations concealed fraud would funding sources quit funding them)?
Create a world or business climate unacceptable to us because everyone was doing it (do I
want to operate in a business climate in which agencies don’t honor their contracts)?
Ask, “What if they did it to us, would that be ethical?” If it is not ethical for others to do it
to us, then it is unethical for us to do because everyone is equal.
Draw a Conclusion
If it is impossible for everyone to do it because of the reaction to this universal practice or
if I don’t want to live in a world in which everyone acts that way, or it is unethical for
others to do this to me, then it is unethical for me to act that way.
The Everybody Test is not the same as the “everyone else is doing it” justification. In
most cases it is not true that everyone, both the ethical and the unethical people, are doing an
action that is unethical (Gentile, 2011). In one of our other cases of nondisclosure by nonprofits,
for example, 41% of nonprofits failed to report any fundraising expenses to the IRS, but that was
not everybody since 59% did report expenses. Given that ethics is a set of guidelines for how to
act in a society, an action would not be unethical if everyone were doing it since its universal
adoption shows it is considered to be a good or permissible way to behave. This test asks what
would happen if everyone in similar situations really were to act the way we would like to act. It
gains its force from the belief that as human agents we are all equal so if an action, like
concealing fraud in a particular situation, is ethical for one person or organization it is ethical for
everyone in a similar situation. As someone in the discussion might say, “If we think it is right
for our agency to conceal fraud in order to avoid a loss of funding, then we should expect every
other agency to do the same thing.”
To apply the Everybody Test, Mrs. B and the board would first need to describe the
ethically relevant aspects of the action being considered. Concealing the fraud could fall into
two categories of action that are ethically questionable, failing to honor a contract or promise (to
reveal incidents of fraud to the funding agencies) and not telling the truth (by giving a false
report that the funds were used properly). Actions in these and other categories usually
considered wrong can be ethical, however, because of special circumstances. Failing to honor a
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contract because of an inability to perform certain terms of the contract, such as in bankruptcy
and lying to save an innocent life, could be ethical if the circumstances are recognized as
justifying an exception. In Mrs. B’s case the special circumstances are to save her agency and
the clients from harm.
Then Mrs. B and the board should ask what would happen if all agencies acted to conceal
fraud in order to save themselves and their clients from harm. Would such a universal practice
be impossible to sustain because funding agencies would view this failure to disclose as a reason
to quit funding all such agencies? Or would such a universal practice create a climate in the
society that Mrs. B and the board would find unacceptable to them because nonprofits could not
be trusted to fulfill their contracts or tell the truth? The adoption of the practice of concealing
fraud could have two results: 1) it would become impossible for any agency to do it, and 2) it
would be unacceptable to Mrs. B and her board if all agencies did it. If universal adoption of the
practice of concealing fraud would have either of these results then it would be unethical for
Mrs. B and the board to conceal fraud. If they thought it ethical for them but not for others to
conceal fraud they would be claiming an exception for themselves that they would be unable to
justify since all such agencies should be required to follow the same ethical standards.
Another step in applying the Everybody Test is to ask whether Mrs. B and the board
would consider it ethical for another agency or one of their employees to conceal fraud from
them. If it is not ethical for others to do it to them, it is not ethical for them to do it to others.
This approach is an application of the Golden Rule of “do unto others” that is common to all
cultures. If Mrs. B were to hire another agency’s quietly fired defrauding employee and be
victimized as well, she and the board would not think it was ethical for that other agency to
quietly fire him/her.
The choices test. A fourth ethics test is the Choices Test, which could be introduced into
the discussion by asking: “Are all those affected able to choose what they value?” (Table 5).
Since everyone is equal and each person knows best what he/she likes, wants, and thinks is
valuable, then each person should be free to choose and have the information to choose what
they value. Others should not be able to choose for them unless they are unequal, for example,
by virtue of being children who gradually gain the ability to make choices for themselves. A
person may also have given up their claim to make their own choices by virtue of some prior
agreement or contract in which they gave up choosing for themselves in order to secure some
other benefit, such as employment or a place in a group or team.
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Table 5: Choices Test
Introduce the Test
Are all those affected able to choose what they value?
Apply the Test
Am I giving others freedom to choose what they value?
Am I forcing or coercing others to choose something they do not value
Are there prior choices (contracts, promises) that limit anyone’s freedom?
Am I giving others the information necessary to know what they value?
Do they have information (or reasonable access to information) to know which alternative
best fulfills what they value.
A practical test: would they choose differently if they had additional information?
Draw a Conclusion
It is unethical for me to deny others the freedom and information necessary to choose what
they value.
Freedom is a complex concept and the subject of much philosophical controversy. As an
operational definition for ethics, however, a person is free to choose if he/she is not being forced
or coerced to make a choice that is contrary to what he/she values. Applying this definition to
the case shows that concealing the fraud would not violate the freedom of the funding agencies
or the future employers because they are not being forced or coerced to act contrary to what they
value. If the fraud is concealed, the funding agencies are still free to choose to continue or
discontinue giving money to Mrs. B’s agency. No one is forcing or coercing them to make either
choice. If the fraud is not disclosed, future employers are still free to hire or not hire the
defrauding employee, Mr. L, because no one is forcing or coercing them to hire or not hire him.
The requirement for freedom to choose does, however, have a bearing in the case. Since Mrs. B
has made a prior agreement with the funding agencies to reveal fraud, she has limited her
freedom in order to receive the benefit of the funding and is not longer free in this regard. It
would be unethical for her to conceal this instance of fraud.
The second step in the Choices Test shows that concealing the fraud is not ethical
because the funding agencies and future employers will lack critical information to choose how
to act according to their values. Without the information about the fraud, the funding agencies
do not have information that will allow them to decide whether they value the services of Mrs.
B’s agency enough to continue to fund it. The future employers may decide that the defrauding
employee has qualities that they like and that they can put sufficient controls in place to prevent
any further criminal activity. Or they can decide that Mr. L is not worth the risk. Without the
information about the fraud, however, neither the employers nor the funding agencies can make
their own choice of what is important to them.
A helpful way to apply the Choices test would be for Mrs. B and the board to ask whether
there are any parties that would have chosen any differently if they had additional information or
had more freedom to choose. Both the funding agencies and future employers would likely have
acted differently if the fraud had been revealed. In applying the test in other situations it also
may be necessary to consider who has the obligation to provide the information, the person
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acting or the person(s) affected. The answer may depend on whether those being affected know
that the information exists, on how available it is, and on how significant the harm of not having
it is.
There are other ethics approaches that could also be used to guide Mrs. B and the board
in their discussion of whether disclosure of the fraud is ethically required (Hamilton, 2012). All
of these tests are valid ways of arriving at ethical judgments, though some may be more pertinent
to any given circumstance than others. The four tests discussed in detail herein are good
candidates for staff and board member use since they capture aspects of ethics that most people
in western societies recognize as essential—concern about outcomes, application of ethical
requirements to everyone equally, and the importance of making one’s own choices.
Implications for Further Research and Training
The information provided about limitations to ethical decision-making and of possible
ethics vocabulary gives rise to suggestions for further research and the development of training
for nonprofit executives and boards. Given the findings from neuroscience and social
psychology, it is important for those involved with NPOs to be aware of the danger of ethical
lapses caused by these characteristics of human decision making—the limitation that security
level emotions and thinking dominate in times of crisis, and the limitation of the self-justifying
response in an individual’s ethical reasoning about his/her own situation. Boards and executive
directors should discuss these tendencies and put into place organizational processes and
decision making requirements that help prevent them from being the only or main influence on
ethical judgments. Structural elements to counter the limitations range from simple to complex,
depending on the size, scope, and mission of the organization. Simple systems could include
establishing and annually affirming the standards of behavior for board members and staff. A
review of small, short sections of the bylaws at every board meeting would ensure that the board
was following the bylaws and using the correct procedures when providing management
oversight. Boards should be recruited and structured to maintain a level of independence from
the management in order to protect their objectivity.
An ethics code and ethics policies help in decision making, particularly in discussing hard
choices. Invoking the code can also provide for access by staff members to the board when the
executive director does not bring ethics issues before the board. The board has the ultimate
fiduciary responsibility for the organization and should be proactive in their responses to crises.
Operating informally rather than following procedure, however, is not uncommon among NPOs.
It is a major responsibility of board members to make sure that the details of governance are not
overlooked and that an adequate control system is a priority. During board retreats and
mandatory ethics training, organizational consultants and trainers should be engaged to present
training modules on these limits to ethical decision making.
With regard to the use of law as a standard for decision making, Mrs. B and the board
should include a recurring discussion in their annual board retreat and in training sessions for
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new board and staff on the importance of respect for the law. This training needs to engage the
emotive as well as the rational faculties of board and staff. The power to motivate actions that
promote security in a time of crisis is primarily emotive. Fear is a powerful emotion and
knowledge of what the law requires is not enough to motivate a person to act contrary to his/her
fear of losing security. Discussions about following the law in difficult circumstances must
connect the board and staff to other emotions of loyalty to society, such as patriotism, and fear of
losing that connection to society because of criminal activity.
Regarding mission as a basis for nonprofits to make decisions, a powerful way to make
this connection is to arrange for board and staff to interact with clients who have been helped by
meeting them in person, through video exchanges, or through images. The human brain
responds more strongly to immediate and observed events, even if they are less important than
distant events that are only described (Greene, 2003). Habitat for Humanity chapters, for
example, often include housing recipients on the board and as staff members and invite
recipients to board and staff retreats to make this emotive connection immediate.
Mission should also be connected to the needs of the wider society. Involving the local
government’s community development specialists in their activities, for example, provides this
connection for the Habitat board and staff. Participating in ongoing activities to reinforce this
rational and emotive connection of the mission of their agency to the society that provides the
support should influence Mrs. B and the board to follow the law and honor their contracts by
disclosing the fraud, even if there are serious consequences for the agency. Rather than
protecting the immediate interests of their clients and the agency, this commitment to the law and
mission may motivate them to consider the long-term need to better serve both immediate
stakeholders and the wider society by improving the agency’s system of internal controls.
Conclusion
Nonprofit organizations are feeling the pressure to act ethically from regulators,
watchdog groups, charity rating agencies, and advocacy organizations, thus creating a call to
action that requires nonprofit leaders to focus their constant attention on ethical issues (see, for
example, Pritchett, 2012). In NPOs today, employee misconduct continues, sloppy
recordkeeping is often the norm, litigation is pervasive, financial matters are not fully discussed
at board meetings, organizations are losing the trust of their constituencies, and boards are not
paying attention to important governance matters. Executive directors and staff members are
frequently faced with making the more difficult choices, often involving right versus right.
However, adhering to high ethical standards on a daily basis does not simply happen. To
maintain ethical integrity, NPOs need a system for developing and sustaining ethical behavior
and accountability.
In order to successfully fulfill their role in society, nonprofits should have organizational
structures and policies backed by ongoing training to insure that responsibility for significant
ethical decision-making is shared by both executives and board members. Though tempted to
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rely on their own experience and commitment to the organization’s goal to make the best
decision themselves, executives must be trained and motivated to say, “The limitations of my
brain won’t let me do that very well, so I won’t make that decision without consulting others,
especially when I’m under pressure to protect the organization.” Nonprofit executives and board
members should also be trained to apply ethical standards, the law and the NPO’s mission
statement when discussing ethical issues in order to align their actions with the expectations of
the society and the clients whose needs they ultimately serve.
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About the Authors
Dr. J. Brooke Hamilton is a Professor of Management in the B.I. Moody III College of
Business, University of Louisiana at Lafayette. He received B.A and M.A. degrees in
Philosophy from Georgetown University and his Ph.D. from Emory University. He taught at
Tuskegee University for seven years and worked in his family's manufacturing business in
marketing and management for fourteen years. After completing his M.B.A.in 1990, he returned
to academe, teaching Business and Society and Professional Ethics. His research concentrates on
recent findings from neuroscience and social psychology on ethical action processes, and on
developing practical ethical standards for use in business.
Dr. Lise Anne D. Slatten is an Assistant Professor of Management in the B.I. Moody III
College of Business Administration at the University of Louisiana at Lafayette. She earned her
M.B.A. at Tulane University and a Doctorate of Management degree from Case Western Reserve
University. Her time is spent teaching management fundamentals and strategic management
courses. Her research areas include nonprofit certification and accreditation, nonprofit
governance and management, and managing risk in nonprofit organizations. Prior to teaching,
Slatten spent 20 years working in the nonprofit sector; including 10 years as the executive
director of a grant making nonprofit organization.
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Shifting Strategic Imperatives: A Stages of Leadership Perspective
on the Adoption of Corporate Entrepreneurship
Shelley Morrisette, Shippensburg University
William Oberman, Shippensburg University
Executive Summary
Over the last few decades, organizations have encountered mammoth shifts in the
competitive environment. For example, globalization, explosive growth in technology, and
recent upheaval in the finance/banking industries have significantly complicated the operation of
organizations. As these competitive pressures have evolved into new paradigms, new strategic
imperatives have emerged, requiring organizations to rethink methods of leadership that may be
most effective in promoting a sustained competitive advantage. Consequently, there is an
increasing recognition that organizations may have to adopt a more entrepreneurial culture,
characterized by transformational leadership and more progressive approaches to strategic
endeavors. This article describes how organizations will have to adopt different approaches to
leadership in response to these shifting strategic imperatives, leading to a corporate
entrepreneurship approach. The description, in turn, is synthesized into an examination of
different stages of leadership, with associated observations about the relative merits of each stage
given the new strategic imperatives.
Introduction
Leadership is a concept that continues to receive widespread attention. Indeed, those
with an expressed interest in understanding leadership range from CEOs to social scientists; from
politicians to under-employed workers; from scholars to students. This eclectic range of interest
could partially explain the ambiguity of meaning and conceptualizations associated with
leadership (Janda, 1960). Perhaps Bennis (1959) said it best:
“Always, it seems, the concept of leadership eludes us or turns up in another form to
taunt us again with its slipperiness and complexity. So we have invented an endless proliferation
of terms to deal with it…and still the concept is not sufficiently defined.” (p. 259)
It is beyond the purview of this article to add fire to the leadership definition debate. In
particular, there is no intention to question whether leadership is even a scientific construct
(Alvesson & Sveningsson, 2003; Miner, 1975). Instead, this article is premised on the notion
that leadership is real, that leadership is an integral component of organization effectiveness, and
thus, that leadership is strategically oriented, directed at keeping the organization alive. In fact,
the foundation of this article is predicated on the argument that the one universal phenomenon of
leadership is that the ultimate, intended outcome is organization survival. In the interest of
clarity, we recognize that if an organization is surviving, it does not necessarily mean that
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leadership is occurring. Alternatively, if an organization ceases to survive, that does not
necessarily mean that leadership did not exist. The implicit underpinning of this article is that
the very core or essence of leadership (however it is defined, practiced, or constructed) is about
individuals (i.e., leaders) taking care of the organization to help ensure perpetuity.
The Role of Leadership in Organizational Survival
During the “Great Recession,” which officially ended in the summer of 2009, the net job
loss in the United States from business failures totaled 800,000 (Shane, 2012). While the
recession may have officially ended, its effects linger and the global financial crisis seems to
have no end. The economic environment is tough. Large and small businesses are struggling.
Industrial giants like GM and Chrysler have been forced to accept government bailouts.
However, a strong argument can be made that the blame for most business failures lies not with
the business environment, but with business leadership. An exhaustive examination of potential
causes for business failure is beyond the scope of this article. However, given the increased
attention devoted to the role of leadership in perpetuating business performance, it is edifying to
consider salient catalysts associated with leadership in the context of organizational demise.
From an internal perspective, the complacency of leadership may serve as a potential precursor
to business failure (Richardson, Nwankwo, & Richardson, 1994). In a general sense,
management and leadership may miss the potential warning signs associated with organizational
demise (Sherrer, 2003). For example, leadership may fail to recognize ebbs in employee
motivation that may contribute to the failure rate of organizations (Richardson et al., 1994).
Further, leadership may fail to identify strategic shifts in the external environment of the
organization. Indeed, the shifting competitive paradigms, coupled with the internal management
of organizational resources, collectively represent significant facets of an organization’s
operations, and, thus, key variables contributing to the ultimate success of the organization
(Bryson, 1988; Kaplan & Norton, 2004; Tushman & Reilly III, 1996)
Prior to delving into the role of leadership approaches in response to shifting strategic
imperatives and evolving competitive paradigms, it would be useful to briefly review traditional
perspectives on leadership.
Traditional Leadership Schools
Open any leadership textbook and it is likely to be organized around an overly simplistic
traditional set of five schools of leadership (i.e., Trait, Behavior/Skills, Power/Influence,
Contingency, and Integrative) (See Table 1).
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Table 1. Schools of Leadership
Dimensions
Trait
Behavior/Skills
Power/Influence
Contingency
Integrative
School
Category
Sources
Descriptive
Descriptive
Prescriptive
Prescriptive
Both
Stogdill (1948),
Mann (1959),
Stogdill (1974)
Ohio State Studies
French & Raven
University of Michigan (1959)
Studies
Fiedler (1964),(1967) Burns (1978)
Fiedler & Garcia
Bass (1985)
(1987)
Howell & Avolio
(1993)
Base
Discipline
History
(Biography)
Behavioral Psychology Political Science
Management
Frame of
Reference
Which traits
determine great
leaders?
Which behaviors
determine great
leadership
performance?
How does use of power How well does a
enable people to lead? leader’s style fit the
context?
What type of all
encompassing
leader is successful?
Strengths
1) Intuitively
appealing
2) Century of
research
3) Highlights
leader component
4) Identified some
benchmarks for
what we want in
leader
1) Focuses on leader
developing behaviors
and skills
2) Intuitively appealing
3) Wide view of
leadership
4) Easy to adapt to
leadership education
and training
1) Influence/power/
situational approach is
well known and used
in training
2) Easy to understand
and apply
3) Prescriptive value
4) Emphasizes leader
flexibility
1) Intuitively
appealing
2 Leadership as a
process between
leader and followers
3) Broad view
4) Places emphasis
on follower needs
Intended
Message
Leaders are born,
not made.
Act like a leader and
you will be a leader.
Correct use of power
creates leaders.
1) Supported by
empirical research
2) Focuses on how a
context impacts a
leader
3) Predictive and thus
provides information
for better decisions
4) Does not require
leader to always be
effective
For every situation, a
leadership style.
Psychoanalysis
Everything matters
for leadership to
occur.
Current Status Research in the
Early fixation on
Emphasis on training Very easy to execute This is where
area continues, but specific behaviors has away from positional empirical research
leadership training
it only has a “nice ended. Most research power to personal
but nearly impossible and development is
to know”
now examines a
power and to influence to apply in real life. most involved.
acceptance
broader range of
techniques. Ethics
Context is always
Several integrative
behavior or behavior
playing a big part in
changing and it is
theories of
types.
use of power.
impossible for
leadership are now
leaders to change
in vogue. These
styles constantly.
include:
transformative,
charismatic, servant,
etc.
Research continues in Experimental
Research pushing
Current
Researchers still
Researchers like the
Application
trying to find
focus on range of
many forms.
researchers like the
this approach.
trait(s) to explain behavior, but
Application is used to ease of application.
Practitioners
Practitioners believe moving toward
performance, but researchers do not like help develop leaders
practice is not
the difficulties of
who will use power
it is too complicated applying theories
paying attention. dealing in this domain. ethically.
to use.
without support.
Table 1 outlines each of the five schools, providing salient details associated with each
school. While there has been tremendous progress in identifying leadership traits, the research
fails to provide necessary insights due to methodological and conceptual limitations. These
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limitations include failure to delimit a definitive list of leadership traits, failure to take situations
into account, subjective determinations of the most important leadership traits, failing to look at
trait relationships and leadership outcomes, and finally, it is not a useful approach for training
and developing leaders (Draft, 2008; Durbin, 2004: Lussier & Achua, 2010; Northouse, 2007;
Yukl, 2006). The most important limitation is the abstract nature of most trait research (i.e., the
failure to link personal traits to performance). More precisely there is no underpinning theory to
link trait research to administrator outcomes such as identification and effectiveness (Stogdill,
1948). Another limitation of trait research is the examination of one trait in isolation (Yukl,
2006). This method fails to consider how traits interact to influence behavior (i.e., individuals
rely on multiple traits, emotions, skills, talents, and beliefs to produce behavior and position
performance). The Behavioral School of leadership suffers from many of the problems identified
with the Trait School of leadership, based on the inherent tendency to look for simple
explanations to complex situations (Yukl, 2006). For example, most related research focuses on
individual behaviors in isolation, rather than examining patterns of leadership behaviors (Yukl,
2006). Additionally, from 1950 to 1985 behavioral research focused almost exclusively on two
broad categories of leader behavior: 1) consideration for followers and 2) initiating structure of
the organization. The results of this extensive research were mixed (Northouse, 2007). Thus,
behavioral research also finds itself out of favor as a consequence of failing to link theory to
leadership performance and prediction (Yukl, 2006).
The Power/Influence School of leadership focuses on leaders’ attempts to influence
follower attitudes and behaviors. The basic tenets of this school deal with the trade-offs between
position power (i.e., legitimate, reward, coercive, information, and ecological) and personal
power (i.e., expert and referent) (French & Raven, 1959). The most noteworthy questions or
issues being researched in this school are: 1) the optimal mix of leader power, 2) the misuse of
power by leaders, 3) power’s corruptive influence on leaders, 4) follower influence on leaders,
and 5) the question of how power should be distributed in organizations (Yukl, 2006). While
there is little disagreement that the use/misuse of power is an important aspect of leadership,
contemporary research is not moving towards practitioner application as a result of poor support
of related assumptions. Thus, while leaders are being trained in ethical use of power and
influence techniques, once again, this school does not provide a theory for supporting leadership
performance and prediction.
The Contingency School of leadership tries to match leaders to situations by addressing
questions of how leadership style fits the context. In other words, leadership is contingent on the
setting, as well as the leader style. This school of leadership is supported by many empirical
studies that help explain why certain leaders (and leadership styles) succeed in specific
situations. The findings of this research provide support for predicting when leaders will be
successful and how to select leaders for specific contexts. It also provides reasons for leadership
failure and changing organizational contexts. Yet, while there is a great deal of empirical (i.e.,
laboratory) support there is very little practical support for this school of leadership. (Draft,
2008; Durbin, 2004: Lussier & Achua, 2010; Northouse, 2007; Yukl, 2006). This lack of support
leads to the criticism of sparse external validity to the findings of the research. Specific
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challenges to this theory include: 1) criticism of Fiedler’s (1967) Least Preferred Coworker
(LPC) scale, 2) projection problems with the respondent use of the LPC scale, 3) impossibility to
change leadership style to meet each change in context, 4) leader/follower confusion over style
changes, and 5) organizational problems when there is a mismatch between leader style and the
situation. Therefore, while predictive in the laboratory settings, the theory cannot be reliably
extrapolated into leadership practice.
Since the 1980s the Integrative School of leadership has gained wide acceptance. (Lussier
& Achua, 2010; Yukl, 2006). This is due, in part, to the uncertainty, change, and globalization
of competition that now pervade the business environment. The new strategic imperatives
dictate that organizations must adapt with lightening speed or cease to exist. Organizations must
learn and unlearn at an ever-increasing speed, while at the same time transform internal cultures,
innovate, involve employees to go above and beyond in the quest for the organization’s goals
and objectives. The Integrative School’s focus returns to the leader as a conduit for channeling
organizational demands to followers. These transformative (i.e., transformational) leaders are
much more in-tune with who they are than most people and have a much higher purpose in life.
They are able to influence followers to accept their (and the organization’s) purpose in life
through vision articulation and role modeling. Thus, the self interest of the follower is replaced
with organizational-collective interest and common mission attainment. While the most studied
archetypes of this school are charismatic and transformational leaders, there are additional types
that include: autocratic, authoritarian, steward and servant leaders who are “transformational” to
their followers (discussed in more detail later in conjunction with Table 2) (Choi & Mai-Dalton,
1998; Farling, Stone & Winston, 1999; Hernandez, 2007). Transformational leaders can be
directive or participative (Smith, Montagno & Kuzmenko 2004), but while transformational
leaders share and align their followers’ interests, servant (and to a lesser extent --- steward)
leaders put the interests of their followers before their own (Hernandez, 2007; Smith, Montagno
& Kuzmenko 2004) To date, this school holds out some promise for leadership practice, theory,
training, and identification. Bass (2008) classifies this school as “New Leadership”. He further
states that since the 1980s considerable commentary, but little empirical research on this topic
has occurred. Additionally, he correctly notes that the underlying cause for the emergence of
transformational leaders (and research) is the crisis and tempestuous times in which we live.
Yet, there is little agreement about which transformational type should be leading embattled
organizations in these turbulent times. Examining a corporate entrepreneurship approach to
leadership within the current, shifting strategic paradigms may provide insight into alternative
approaches to leadership that may prove more effective in sustaining organizational survival.
The embattled organization must consider the external and internal environments
(Morris, Kuratko & Covin, 2008). By external environment we mean things such as technology,
economic, competitive, labor, resource, customer, legal and regulatory, and global environments.
The internal environment includes structures, systems, processes, and culture that determine the
overall climate of the organization. These dramatic changes have profound implications for
organizations and how they are led. The embattled organization struggles to survive, much less
grow and prosper.
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The corporate entrepreneurship model specifies that organizations abandon conventional
practices (Morris, Kuratko & Covin, 2008). Leaders face shortened decision windows and
diminished opportunities, meaning that they must become more flexible and entrepreneurial (i.e.,
encouraging opportunity seeking and innovation in a systematic manner throughout the
organization (Burns, 2005)). Traditional models of bureaucracy, hierarchical management
systems, and companies operating in a command and control philosophy will not work in the
contemporary environment (Morris, Kuratko & Covin, 2008).
Corporate Entrepreneurship: An Overview
Organizations navigating the shifting strategic imperatives in the new millennium face
increasingly complex competitive challenges (Scherrer, 2003; Wright & Dana, 2003), with ever
increasing globalization being perhaps the most critical (Bose & Oh, 2004; David, 2007; Wright
& Dana, 2003). Globalization itself alters other aspects of the environment, driving global
economic growth (Sethi, 2009) and expanding democratization (Monbiot, 2001). Other
challenges include technology, economic, competitive, labor, resource, customer, legal and
regulatory environments as well as the internal environment of the organization which must
adapt to these outside forces.
Given the shifting strategic imperatives, business models from prior decades are no
longer adequate to position organizations for contemporary competitive realities characterized by
uncertainty and instability (Sherrer, 2003). Companies cannot remain static, but must
continuously adjust, adapt or redefine themselves (Morris, Kuratko, & Covin, 2008). External
change and challenges are forcing internal change within all organizations. One of the
significant changes large and established organizations are embracing is corporate
entrepreneurship (CE) (Morris, Kuratko & Covin, 2008). Guth and Ginsberg (1990) stress that
CE involves two major aspects: 1) new venture creation within an existing organization and 2)
transformation of the organization through strategic renewal. Indeed, CE represents a viable
strategic option for leaders who are intent on securing a sustainable competitive advantage. This
assertion is premised on those in positions of leadership driving organizational activities that lead
to specific formal and informal practices (within a specific firm context) resulting in a
measurable, multi-attribute firm performance. However, leadership styles that were effective
when the organization pursued other strategies may no longer work when the firm adopts a
posture of corporate entrepreneurism. Indeed, necessary leadership roles and activities can vary
even for different types of corporate entrepreneurship (Dess, et al., 2003
Corporate entrepreneurship (CE) is the term most commonly used to describe
entrepreneurial behavior in large and medium organizations (Sharma & Chrisman, 1999). The
objective is to gain a sustainable competitive advantage by encouraging innovation within all
levels of the organization. Even as late as the 1980s many academics believed it was difficult for
entrepreneurial activity to take place in large, established, and bureaucratic organizations (Morse,
1986).
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The literature on CE stretches back more than 30 years, yet there is no universally
accepted definition or consensus on what the term means. Vesper (1984) suggested that CE was
composed of three things: 1) the creation of new business units by an established firm, 2) the
development and implementation of entrepreneurial strategic thrusts, and 3) the emergence of
new ideas from various levels in the organization. Zahra (1991:263) defined corporate
entrepreneurship as “activities aimed at creating new businesses in established companies.” Guth
and Ginsburg (1990:6) expanded on this definition to include “transformation of organization
through strategic renewal.” More recently Zahra et al. (1999) suggested that there are many
facets to entrepreneurship at the firm level reflecting different combinations of content, sources
and foci of entrepreneurship. These views cover a broad spectrum of activities. Birkinshaw
(2003) endeavors to condense these activities into four schools of thought. The first school of
thought, corporate venturing, is concerned with larger companies needing to manage new,
entrepreneurial businesses separately from its core business. Generally this means investment by
larger, more established firms investing in smaller firms through many forms of corporate
venturing (Chesbrough, 2003). Additionally, it deals with organizational structures needed to
encourage new businesses while aligning them to the company’s existing activities (Burgelman,
1983; Drucker, 1985; Galbraith, 1982). Finally, it looks at how companies can manage
disruptive technology (Christensen, 1997).
The second school of thought, intrapreneurship, embodies the approaches that firms
undertake to encourage individual employees to act in an entrepreneurial way within an
established firm (Covin & Miles, 1999). It focuses on systems, structures, and cultures that
inhibit entrepreneurship within an organization. The term was introduced and popularized by
Pinchot (1985). It is based on the character and personality of a “hybrid” --- “entrepreneur and
company man” (Pinchot, 1985). The third school of thought, bringing the market inside, focuses
the structural changes needed to encourage entrepreneurial behavior and argues for a market
approach to resource allocation (Covin & Miles, 1999). It specifically investigates such marketbased techniques such as spin-offs and venture capital projects (Foster & Kaplan, 2001; Hamel,
1999). The fourth and final school of thought, entrepreneurial transformation, investigates how
large firms must adapt to ever-changing environment if they are to survive (Covin & Miles,
1999). To accomplish these goals organizations must adapt their structures, cultures, and
architectures to encourage risk-taking activities in employees (Ghosal & Bartlett, 1997; Kanter,
1989; Peters & Waterman, 1982; Tushman & O’ Reilly, 1996).
The Role of Leadership in Promoting Corporate Entrepreneurship
Key to a successful organizational shift to an entrepreneurial organization is the
inculcation of an entrepreneurial orientation (EO) (Lumpkin & Dess, 1996; Dess & Lumpkin,
2005). EO is made up of five factors: autonomy, innovativeness, pro-activeness, competitive
aggressiveness, and risk-taking. Corporate entrepreneurship cannot flourish when these five
factors are not in play and these factors cannot be in play if they are not supported by an
organization’s leadership, culture, and structure. Even if formal planning is not always necessary
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for an entrepreneurial venture to emerge (Heirot & Loughman, 2009), leadership is. EO cannot
be created by fiat. People cannot be ordered to become entrepreneurial. The role of the
entrepreneurial leader is to make people want to become autonomous, innovative, proactive,
aggressive, and risk-taking – and to sustain them indefinitely in that state. Leaders must employ
a variety of mechanisms to do this. Building upon McGrath & MacMillan (2000), Gupta,
MacMillan, & Surie (2004) delineated the five roles that must be played by the entrepreneurial
leader. Three of these are related to “scenario enactment” (“envisaging and creating a scenario of
possible opportunities,” 2004:247) and include framing, absorbing uncertainty, and path clearing.
Two are related to “cast enactment” (assembling resources) and include building commitment
and specifying limits. To enact an entrepreneurial vision or scenario, the leader must understand
how to optimally frame challenges to motivate, yet not overwhelm, his/her followers, provide a
sense of security to lessen the fear of failure, and be able to cut a swath through organizational
minefields for his/her team. At the same time, the leader must build and maintain commitment in
an atmosphere free from self- imposed limitations. These are not skills most managers pickup
while climbing the ranks of a bureaucratic organization. The skills needed to do this – to
articulate a vision, to get organizational members to see the value in the vision, to trust in the
leader – are the skills of transformational leadership (Bass, 1985; Podsakoff, MacKenzie,
Moorman, and Fetter, 1990)
Although Renko, Tarabishy, Carsrud, & Brannback (forthcoming) view EO as a strategic
posture not necessarily related to leadership and see entrepreneurial leadership narrowly focused
on role-modeling and direct influence, one cannot instill EO in an existing organization without
broader transformational leadership. Indeed, Engelen, Gupta, Strenger, & Brettel, (2012) have
demonstrated the key role played by transformational leadership behaviors in moderating the
relationship between EO and firm performance.
Transformational leadership. Transformational leadership is generally seen as a
combination of four factors: idealized influence (what is typically thought of as charismatic
behavior – role modeling, image-building, etc.), inspirational motivation (the ability to establish
and achieve acceptance of a shared vision and values), intellectual stimulation (the ability to get
followers to think creatively and challenge their own beliefs), and individualized consideration
(providing followers with support at an individual level and establishing interpersonal trust)
(Bass, 1985; 1998; Bass & Avolio, 1993). Each of these components plays a key role in leading
organizational transformation. Inspirational motivation through effective communication of a
new vision is obviously critical for an organization seeking to change to a more entrepreneurial
orientation. However, it cannot stand alone. Individualized consideration is an important factor
in establishing the trust (Posdakoff, MacKenzie, Moorman, & Fetter, 1990) necessary for
followers to buy into a vision of an organization in which autonomous, risk-taking behavior is
celebrated and to accept the leader’s willingness to “absorb” uncertainty (i.e., provide a relatively
safe environment for risk-taking).
In terms of empowering organization members to be independent, innovative, and risktaking, the charismatic leadership reflected in the idealized influence component of
transformational leadership has been found to be a double-edged sword. Kark, Shamir & Chen
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(2003) found that transformational leadership leads not only to higher levels of empowerment
among workers, but also to greater dependence on the leader – particularly when followers
develop a sense of personal identification with the leader. Charismatic leadership can be very
useful at the top of entrepreneurial organizations, but for such leadership to devolve into a cult of
personality would be disastrous. Above all, leaders of entrepreneurial organizations want
independent followers who can think for themselves.
Perhaps the most important transformational leadership behavior for fostering corporate
entrepreneurship is intellectual stimulation. Although all four behaviors may contribute to
innovation and creativity, intellectual stimulation would seem to be the most directly related
(Sosik, Kahai, & Avolio, 1998). The transformational leader encourages followers to question
current assumptions and seek creative responses to emerging opportunities. Motivation, riskacceptance, autonomy, and aggressiveness mean nothing without innovative ideas. They just
provide a quicker route to extinction. Alas, intellectual stimulation too is a double-edged sword
for the leader. Followers encouraged to think for themselves and question assumptions may
come to question the leader as well (Posdakoff, MacKenzie, Moorman, & Fetter, 1990), perhaps
in fundamental ways. The entrepreneurial leader must be prepared for this questioning and use it
to grow personally and to clarify the direction of the organization.
Although the emphasis may vary by level, corporate entrepreneurship requires
transformational leadership at all managerial levels (Cohen, 2002; Moriano, Molera, Topa, &
Mangin, 2011). At the top level, Ling, Simsek, Lubatkin, & Veiga (2008) have investigated the
relationships among CEO transformational leadership, top management team (TMT), and
corporate entrepreneurship. Their findings indicate that transformational leadership behavior on
the part of the CEO directly impacts three characteristics of TMT members, which in turn are
associated with corporate entrepreneurship. Transformational CEOs are more likely to
decentralize responsibilities to members of TMTs, they tend to increase TMT members’ level of
risk propensity, and they are more likely to base TMT member’s compensation on the long term
performance of the organization. All three characteristics were found to be significantly related
to corporate entrepreneurship as measured by Zahra’s (1996) instrument.
Although the decentralization of responsibilities and the creation of long term
performance incentives may seem to be within the command authority of a CEO and related to
what may considered transactional leadership, it can take strong transformational leadership
skills to implement them in an initially unenthusiastic organization. They are part of creating an
organizational structure conducive to corporate entrepreneurship, a structure that reconciles the
necessity of control with the imperative of creative innovation. (See Hayton, 2004 for a review
of the literature on corporate entrepreneurship and HR management practices.)
The third characteristic, increasing team members’ risk propensity, along with the
concomitant factors of autonomy and pro-activeness, would seem somewhat more complicated
and require changes to organization culture and structure, as well as direct leadership influence.
Beyond the difficult transactional issues with creating incentive systems to encourage risk-taking
and proactive behaviors is the transformational issue of creating among followers a psychology
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that empowers (Spreitzer, 1995) them to accept these behaviors. Leaders at all levels face the
same challenge.
In the entrepreneurial organization, transformational leadership must extend much further
than the relationship between the CEO and the TMT. Mid-level managers play an absolutely
critical role (Hornsby, Kuratko, Shepard, & Bott, 2009). They must be “empowered to lead”
(Spreitzer, de Janasz, & Quinn, 1999), perceive that the entrepreneurial environment proclaimed
by the CEO actually exists (Hornsby, Kuratko, & Zahra, 2002), and believe that entrepreneurial
activity is worth the effort and risk (Kuratko, Hornsby, & Goldsby, 2004). They are the
necessary middlemen bridging the gap between the high flown ideas of the CEO and TMT and
the place where the work gets done – “work[ing] at the interface between the thinking about
organizational activity and the actual doing” (Lassen, Waerens,& Boer, 2009: 17). They
transmit the vision of the top leaders to the masses and distill and convey innovation and
information from below to the upper echelons (Floyd & Woolridge, 1992; Nokana & Takeuchi,
1995). They grow the social capital necessary for corporate entrepreneurism to succeed (Zahra,
Nelson, & Bognar, 1999). Being the middleman is probably the most difficult of positions. If
leadership from the top has been “insufficiently transformational” for them, mid-level leaders
must overcome lingering suspicions and entrenched patterns of thought before they can engage
in transformational leadership vis-à-vis their own subordinates. Drawing upon Bandura’s (1977)
social cognitive theory, Goldsby, Kuratko, Hornsby Houghton, & Neck (2006) describe a
technique of “self-leadership” in which mid-level managers can train themselves through selftalk to eschew “obstacle thinking” and adopt “opportunity thinking.”
It should also be noted that national culture may impact the nature of the relationship
between transformational leadership and entrepreneurship. Jung, Chow, & Wu (2003) found that
among Taiwanese managers, a sense of empowerment associated with transformational
leadership actually decreased the level of innovation. The authors conjectured this was related to
the high power distance nature of Taiwanese culture and the sense of confusion felt in the
absence of directive leadership.
The vital question for corporations today is: Do we have the leaders and potential leaders
who can emerge as effective drivers of corporate entrepreneurship?
CE Leadership and Executive Types
Smothers (2011) argued that leadership style is driven by the leader’s underlying
assumptions about human nature. Pitcher (1993) makes the point most succinctly --- “if you want
to change corporate North America, you have to change executives, not culture, not the structure,
but the people.” Pitcher (1993) identifies three types of executives --- technocrats, artists, or
craftsmen. Her major point is that technocratic executives are triumphing in corporate
boardrooms and are driving out leadership (i.e., craftsmen) and entrepreneurship (i.e., artists).
Czarniawska-Joerges and Wolff (1991) echo this message by stating that manager-types (i.e.,
technocrats) are in vogue because they seem to have all the short-term answers. Morrisette and
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Schraeder (2008) extend the research of Pitcher and Czarniawska-Joerges and Wolff by
identifying four types of executives. There are, arguably, a multitude of factors that determine
the form” or style of executives within a firm. One important factor to consider is the role or
character set favored by those in supervisory positions. These four basic roles/character sets that
executives all possess to a greater or lesser degree include managers, diplomats, leaders, and
entrepreneurs. An executive will possess all four character sets, but rely on his or her dominant
role to “view the world” and more importantly to make decisions. Below is a brief synopsis of
the four character types: (Czarniawska-Joerges & Wolff, 1991; Morrisette & Hatfield, 2006;
Morrisette & Schraeder, 2008; Pitcher, 1993).
Manager types are analytical, controlled, questioning, objective planner/organizers.
They use methodical, conservative, number-crunching, and objective-thinking to create their
view of the world. Their work involves charts, graphs, and quantitative reasoning to make and
back-up decisions. They focus on short-term goals and their aim is incremental improvement
and efficiency.
Leader types are responsible, patient, straightforward, honest, caretakers of the
organization. They use experience, good judgment, inspiration to insure the success and survival
of the organization. They make use of tacit knowledge, years of on-the-job training, practiced
mastery of their jobs, and expert power, yet are enlightened, forward-looking and set long-term
goals. The rationale for this is grounded on the assertion that leaders know through their
experience that the world is filled with risk and they must constantly be looking outward and
willing to make and implement hard decisions (i.e., change) to insure organization success.
Entrepreneur types are bold, daring, intuitive, visionary change agents. They are
always searching for new and better ways to grow the business. They are also unpredictable,
imaginative, mercurial, artists who are opportunity-obsessed futurists. They want to improve
organizations by using innovation and intuition instead of analysis and judgment. Their mantra
is breaking new ground with visionary new agendas.
Diplomat types are conforming, conciliatory, harmonious, orthodox conductors of an
organization. They seek the status quo, coupled with unanimous agreement within the
organization. Diplomats are backward-looking, formal, and tend to lack vision. They are also
loyal and cooperative. Diplomats keep organizations together by ensuring that peers,
subordinates, and outside stakeholders are informed and taken care of.
The essence of role-type theory associated with this typology of characteristics asserts
that executives can have any combination of these four groups of characteristics, but generally
one type or “strength” dominates the others (Czarniawska-Joerges & Wolff, 1991; Morrisette &
Hatfield, 2006; Morrisette & Schraeder, 2008; Pitcher, 1993). This is not to say that an
individual cannot have two, three, or even four “strengths”, but it is highly unlikely. The general
occurrence for most executives is that after a great deal of education, life-learning, trial and error,
and success and failure one’s dominant characteristics set becomes a true “talent,” or a recurring
pattern of thought, feeling, or behavior that can be productively applied to life and work. Thus,
executives have certain dominant characteristics such as being conservative, analytical, shortThe Journal of Applied Management and Entrepreneurship, 2013, Vol. 18, No. 2
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term focused, objective, methodical, no-nonsense, and cerebral. These characteristics become a
talent after many years, often becoming a way of looking at the world or one might even say
philosophy of life. Managers possess “leadership,” “entrepreneurial,” and “diplomatic”
characteristics, but these characteristics may be less obvious, especially if one’s dominant
characteristic (i.e., managerial talent) set is a real strength (i.e., is much stronger than the other
roles).
These four types of characteristics dynamically interact to determine the type of the
administrator or executive. It is not difficult to see what happens when the most prevalent type
(i.e., managers) dominate the top positions of a firm, especially if they are unaware of blindspots and weaknesses in their way of looking at the world (Czarniawska-Joerges & Wolff, 1991;
Pitcher, 1993). For example, they tend to attack every problem from their strength by number
crunching, quantitative, objective, cerebral, and intense analysis. They are suspicious of
intuition and visions or even experience and judgment. Thus, they usually surround themselves
with people of similar mind-sets and the corporation begins to decline due to lack of bold
thinking, innovation, good judgment, and long-term vision. This is especially true if they drive
out top executives who have leadership or entrepreneurial talent (Czarniawska-Joerges & Wolff,
1991; Morrisette & Hatfield, 2006; Morrisette & Schraeder, 2008; Pitcher, 1993).
Toward Corporate Entrepreneurship: A Stages of Leadership Perspective
For a firm to develop CE it must be transformational (i.e., its leaders must be
transformational) (Burns, 2005; Morris, Kuratko & Covin, 2008) To get more out of employees
or garner commitment rather than just compliance from workers, there is a growing sentiment
that organizations need transformational/charismatic leaders (Burns, 2005; Morris Kuratko &
Covin, 2008) Additionally, embattled corporations need entrepreneurial talent to become
opportunity obsessed, particularly if they aspire to become successful in these turbulent
environments (i.e., changing technologies, economies, competition, labor markets, resource
markets, customers, and legal and regulatory requirements). If this is, indeed, the case, then the
obvious question becomes, “what type of administrator and stage in leadership progression (see
Table 2) evokes the most transformational leader?” In reality, the stage in the leadership
progression is likely to define the ultimate type of administrator than an individual will become.
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Table 2. Transformational Leadership
Continuum of
Leadership
Leader Type
Leader
Characteristics
Worker Roles
Power Shifts
Mantra
Current Status
Examples
Stage 1
Autocratic
Cluster
Directive
Autocratic
Command
Stage 2
Authoritarian
Cluster
Directive
Authoritarian
Control
Stage 3
Democratic
Cluster
Participatory
Participative
Participation
Stage 4
Democratic
Cluster
Participatory
Stewardship
Empowerment
Stage 5
Democratic
Cluster
Participatory
Servant
Service
Necessary
minions
Leader
completely
controls
He who has the
power, rules and
using this power
is the mark of a
leader
Still popular in
North Korea, but
completely out
of step with
current
organizational
situations
worldwide.
Obedient
subordinates
Leader mainly
controls
Team players
Responsible
agents
Employees
mainly control
Fully supported
allies
Employees
completely
control
Service (and
self-sacrifice)
are the
hallmarks of
leadership
Only anecdotal
evidence of this
type of leader
success.
Henry XIII,
Louis XIV,
Hitler, Franco,
Mao, cult
leaders, and
other despots
and dictators
The prudent use
of power
determines
organizational
success
Unpopular in
academic and
many
professional
circles, but
practiced in
many
organizations,
due to culture,
training, and
effectiveness.
Military leaders
and
organizations,
religious
organizations
(LDS, Catholic
church etc.) and
most industrial
companies
(Ford, US Steel,
etc.)
Leader and
workers share
control
To succeed, we
must work
together (i.e.,
each contributes
to their abilities)
With the advent
of information
age, this type of
leader became
popular.
Research
supports this
leader-type in
only minor
circumstances.
Many start-up
companies, small
knowledgeworker
organizations,
green companies,
and progressive
organizations.
We are equals
and thus, all
contribute equally
to firm success
Currently gaining
acceptance as the
ideal leader-type,
but little
empirical
support. Very
little actual
professional
application
Some start-up
companies,
smaller
organizations,
and some
entrepreneurial
organizations.
Gandhi, Jesus
Christ, volunteer
organizations,
non-profit
organizations,
and
decentralized
religious groups.
Table 2 portrays transformational leadership as a progression. At this point, it is
important to note that autocratic or authoritarian leadership styles do not fit the CE definitions
discussed above, nor fit the shifting strategic environments faced by contemporary
organizations. Yet, transformational leaders can be directive or participative (Bass & Bass,
2008). Many critics see transformational leaders as authoritarian and autocratic (Bass & Bass,
2008), but there are many examples of transformational leaders sharing vision-building, asking
for consensus about simplifying ideas, or encouraging followers to give one another support
when they need it (Bass, 1998). Instead, it is implicit that leadership styles need to progress
beyond authoritarianism to be fit the CE profile. Toward that end, participative leaders fit the
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CE profile. Participation refers only to sharing in the decision making process (Berlow & Heller,
1983). There are various gradations of directive and participatory leadership for all supervisors.
Tannenbaum & Schmitt (1958) suggest that direction and participation are two parts of a
continuum. At one end directive leaders decide and announce decisions to their followers (i.e.,
autocratic and authoritarian). These leaders expect unquestioning compliance (Tannenbaum &
Schmitt, 1958). At the other end of the continuum leaders delegate to the followers what is to be
done and the leader’s participation is minimized. Similar continua were advanced by many
others (Hersey & Blanchard, 1969a, 1969b; Heller & Yukl, 1969; Vroom & Yetton, 1974). This
entire continuum is about power and control moving from the leader to the follower (Daft, 2008).
Continuing on the directive/participation continuum, stewardship is where leaders not
only allow followers to participate in decision making and power-sharing, but also promote a
sense of personal responsibility in followers that leads to long-term wellbeing of the organization
(Hernandez, 2008). Stewardship is defined as the attitudes and behaviors that place the long-term
best interests of a group ahead of the personal goals that serve an individual’s self-interests
(Hernandez, 2008). Stewardship exists to the extent that organizational actors take personal
responsibility (Hernandez, 2008). The issue of balance is critical because while working towards
communal welfare, leaders aim to balance the obligations to stakeholders inside and outside the
organization while upholding a broader commitment to societal an universal moral norms.
While steward leadership might be considered an exemplar for CE creation, it would be difficult
to attempt in larger, more bureaucratic organizations. The reason --- stewardship is not created
through formal rules but rather is facilitated through leaders gaining interpersonal and
institutional trust (Hernandez, 2008). Steward leaders must provide intrinsic motivation in
followers, which in turn, encourages followers to act in service to the organization. Thus, for the
process of stewardship to occur social exchanges between leader and follower(s) are required
(Hernandez, 2008).
While often depicted in idealistic terms, servant leadership requires leaders to put the
interests of their followers ahead of their own. As formulated by Greenleaf (1977) leaders must
curb their egos, convert their followers into leaders, and become first among equals. Leaders
should think of themselves as servants building relationships that help followers grow (Buchen,
1998). Leaders who are stewards are similar, but not the same as servant leaders. Leaders as
stewards (discussed above) try to balance the interests of all different constituents of their
organizations and community (Bass, 1965; Donaldson, 1990). Servant leaders are specifically
concerned about constituents with less power and more need for help (Greenleaf, 1977). Once
again servant leadership is probably beyond the behavior of most corporate firms, given the
concomitant limitations associated with larger organizations. Specifically, most corporations
may be too big and diverse to reach the servant continuum. Servant leadership requires a strong
moral commitment and a belief in a purpose higher than acquiring more material goods for
oneself (Greenleaf, 1977). The biggest criticisms of servant leadership are lack of a clear
definition, specific attribute size, and limited empirical support (Russell & Stone, 2002).
The progression from directive to participatory leadership originates at the point where
the recognition of leadership begins (i.e., autocratic, cult, military, and despotic leaders) (Berlow
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& Heller, 1983; Daft, 2008; Hersey & Blanchard, 1969a, 1969b; Heller & Yukl, 1969;
Tannenbaum & Schmitt, 1958; Vroom & Yetton, 1974) . This progression also includes the
continuum from autocratic/authoritarian leadership cluster to democratic leadership cluster
(Bass, 2008) (see Table 2). The autocratic/authoritarian cluster encompasses being arbitrary,
controlling, power-oriented, coercive and punitive (Smither, 1991). Stripped of negatives, it
means leaders taking full responsibility for decisions and control of folowers’ performance.
Autocratic leaders stess obedience, loyalty, and strict adherence to rules (Bass, 2008). Powerful
autocratic leaders throughout history have been praised for establishing order (Smither, 1991).
Authoritarian sports coaches may be disliked by their players, but play well under them (Bernath,
1991). The dark side of autocratic/authoritarian leaders is abusiveness, creating fear and distrust,
using arbitrary punishment and ignoring follower input (Smither, 1991; Tepper, 2000). The
overlap between directive – participatory leadership style and autocratic – democratic clusters is
the essence of our theory (see Table 2). Although investigations use many terms whose
meanings do not entirely overlap, correlations generally will be high among decriptions of
various autocratic/authoritarian cluster and directive leadership. Additionally the correlation
between the democratic cluster and participatory leadership is significant (Bass, 2008). Thus,
autocratic/authoritarian leaders are transformational (Bass, 2008).. Through the use of unchecked power they were able to transform their environments, though not necessarily with
follower support and commitment. Additionally, many social scientists describe their behavior
in pejorative terms (Smither, 1991).
Authoritarian leadership has been the most prevalent type of leadership in the Industrial
Age because it required managers to take full responsibility for decisions and subordinate
performance (Smither, 1991)/ These leaders believe their assignment is to make decisions and
see that their decisions are carried out. They do not share power. They may be exploitive in
their relations with others (Likert, 1961). Wallechinsky (2003) listed the 10 worst living political
dictators who surpressed freedom and human rights. Numerous books have been written about
autocratic CEOs (Bass, 2008). Individuals such as Henry Ford, John D. Rockefeller, and Alfred
Sloan ruled their organizations with the prudent use of power and expected their subordinates to
obey. Even today, three decades into the Information Age, this style of leadership is practiced in
numerous medium and large organizations. The hallmark of this stage is control through
hierarchy, specified roles and boundaries, bureaucracy, and top-down power utilization. Many
leaders, such as Thomas Watson of IBM, Andrew Carnegie, J.P. Morgan, and George Patton
were authoritarian, while transforming the world and their organizations.
With the advent of the Information Age and the quickening rise of capitalism and
democracy in the world, participative leadership has become the exemplar of leadership scholars
(Black & Gregersen 1997) The reasons for this are many. Sargent & Miller (1971) found better
communications with followers in participatory leaders. Employee participation is seen as
acceptance of industrial democracy (Jaeger & Pekruhl, 1998). Participation imples that
employees have a voice in deliberations (Wright, Philo, & Pritchard, 2003). Finally, many
scholars believe that participatory leadership equalizes power and provides an avenue for
consensus (Black & Gregersen 1997).
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We believe that given the shifting strategic environments faced by organizations, the new
competitive paradigm may necessitate that individuals with the participative style are the
necessary floor for organizations in their quest to become more entrepreneurial. While this type
of leadership is only practiced in a few medium and large organizations, the new competitive
paradigm creates a context in which all organizations need to practice the participative stage of
leadership style to become more entrepreneurial. However, it should be acknowledged that
leaders and organizations may not be ready to share power with workers. Thus, this type of
leadership may only be practiced in very small companies, start-ups, and progressive
organizations.
The fourth stage of the progression is leadership as a steward of the organization. The
focus of stewards is to empower followers to lead the organization. In other words the followers
are in control of the organization and stewards help them do their jobs. Thus, power has shifted
away from steward/leaders to followers. Steward leaders are only concerned with helping
workers grow, develop, and achieve personal and organizational goals. While a few scholars
(Hernandez, 2008) believe this is the next progression of leadership, it may not be possible for
large, complex organizations (and individuals) to operate under these rules for political,
economic, social, legal, psychological, and individual reasons. In other words, humans are too
human to function in a system such as this, at least given the current environment. Empirical
research into steward leadership is non-existent. Construct identification is fuzzy at the present
thus, scholars and practitioners should be justifiably suspect of its findings.
The final stage of the leadership progression is the leader as servant of the organization.
The fifth stage of leadership is a further extension of steward leadership. Servant leaders believe
that it is their moral duty to serve followers with complete fairness, justice, and humility
(Greenleaf, 1977). Because they serve the organization, they are not in-charge (except for
referent power). Instead, their service is one of self-sacrifice to the organization and all of its
members (Greenleaf, 1977). Once again, no empirical proof for this theory exists (Russell &
Stone, 2002). Additionally, construct definitions are fuzzy and attribute delineation have not
reached consensus (Russell & Stone, 2002). While this is wonderful ideal of what a leader
should be, it may be impractical in today’s world for many reasons. First, leadership training
and development would have to be completely changed and modified. Next, organizational
politics and structures would have to be reshaped. Finally, and most important, basic humanity
would need to undergo dramatic changes.
Conclusion
This article has endeavored to examine the importance of evolving leadership approaches
within the context of shifting strategic environments faced by contemporary organizations. This
examination was achieved through a synthesis of numerous important developments, facets, and
characteristics of leadership and the current context of organizations.
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Salient observations that served as a catalyst for the synthesis were as follows. First, the
major mission or goal of a leader is to keep the organization alive. Second, the Integrative
School of leadership (i.e., transformational leadership) appears to hold the most promise for
leadership training and development. Next, organizations are under assault due to technology,
customers, competitors, globalization, and legal, regulatory and ethical issues. Consequently, to
survive they must adopt entrepreneurial practices and activities. Entrepreneurial activities in
corporations (and organizations) are driven by the top administrators. Currently most
organizations (75%) are being lead by administrators who major strength is managing, not
leading (Morrisette & Hatfield, 2006). Thus, there is a serious problem with most corporations
because they lack the leadership and entrepreneurial talent to adopt entrepreneurial activities and
practices. The likelihood of adopting effective CE practices may be enhanced through the
intentional adoption of transformation leadership.
Transformational leadership has five stages. Due to society’s restraint on power,
organizations have moved from Stage 1 (Autocratic) to Stage 2 (Authoritarian), but neither of
these stages will support CE practices. We believe that organizations must progress to Stage 3
(Participative) leadership to successfully apply entrepreneurial activities. Additionally, we
believe while Stages 4 and 5 (Stewardship and Servant) are leadership ideals, they are not
relevant for widespread CE adoption yet.We base our belief on the lack of empirical research and
construct identification supporting Steward and Servant leadership. However, as competitive
environments continue to evolve and strategic imperatives propel organizations to more intense
levels of CE, Stewardship and Servant approaches to leadership may become more prevalent.
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About the Authors
Shelley Morrisette is associate professor and coordinator of the Entrepreneurship
program at the John L. Grove College of Business, Shippensburg University. He received his
Ph.D. in Strategic Management and Entrepreneurship from the University of Mississippi. He
spent 27 years in business as an executive and entrepreneur. Dr. Morrisette teaches graduate and
undergraduate courses in entrepreneurship. His research interests include entrepreneurship,
strategy and leadership.
William Oberman is associate professor and chair of the Management and Marketing
Department at the John L. Grove College of Business, Shippensburg University. He received his
Ph.D. in Business Environment & Public Policy and Strategic Management from the Joseph M.
Katz Graduate School of Business, University of Pittsburgh. In addition to Shippensburg, he has
taught leadership, business & society, ethics, strategic management, and organizational behavior
at the University of Pittsburgh, the University of New Mexico, and the Pennsylvania State
University. His research interests include the ethics of leadership, business-government relations,
and corporate social responsibility.
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Antecedents of Problem-Solving Cross-Cultural
Negotiation Style: Some Preliminary Evidence
Robert L. Engle, Quinnipiac University
Mohammed N. Elahee, Quinnipiac University
Ekrem Tatoglu, Bahcesehir University
Executive Summary
This paper postulates a model identifying the antecedent factors such as cultural
intelligence and several personality traits that lead negotiators to adopt problem-solving style in
international business negotiations. The paper also proffers a series of hypotheses drawn from
the model and empirically tests the hypotheses. A hierarchical regression model analyzing selfreported data collected from Turkey and the US provides support for the proposed model. The
findings further indicate that a higher level of cultural intelligence and relationship orientation
will result in the adoption of problem solving negotiation style by negotiators. The paper
concludes with a discussion on the implications of the findings and directions for future research.
Introduction
Negotiation is one of the most common human activities in business as well as in the
normal activities of everyday life. We engage in negotiation on a daily basis for creating,
maintaining, strengthening, and even terminating relationships. In fact, no business transaction
can occur without being preceded by some form of negotiation. Because of its omnipresence in
our everyday life, negotiation is one of the most widely studied human phenomena, as can be
evidenced by the prevalence of a voluminous literature on negotiation.
Negotiation has been studied from various disciplinary perspectives such as business,
communications, conflict resolution, diplomacy, global environment, law, world peace, etc. One
common theme that we find in different genres of negotiation literature is that negotiation
behavior can be broadly categorized in two principal forms: competitive or win-lose and
cooperative or win-win negotiation, which is also known as problem-solving behavior (e.g.,
Lewicki et al., 2008). While we find a plethora of deductive and inductive work on these two
types of negotiation behavior, there is hardly any empirical work that investigates what leads to,
or influences, such behavior. This paper is an attempt to partially address this gap in the literature
by identifying the antecedents to problem solving behavior in cross-cultural negotiations. In so
doing, we focus on cultural intelligence and various individual characteristics.
Based on the premise that our negotiation behavior is influenced to a significant extent by
our level of cultural intelligence and individual characteristics, this paper specifically attempts
to:
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1) present a conceptual model depicting the relationship among cultural intelligence, certain
personality factors, and cooperative negotiation behavior;
2) empirically test the relationship depicted in the model by analyzing data from Turkey and the
United States (US)- two countries that represent very different cultures; and.
3) examine the differences, if any, between US and Turkish negotiation behavior and what
factors may cause such differences.
We draw from the literature on psychology, cross-cultural communication, conflict
resolution, and management to develop the conceptual model that is explicated in the following
section. Following the example of Hofstede (2001), we use the term “culture” in this paper in
the sense of “national culture.” It is well established that negotiation is, by nature, a very
complex process as different negotiating parties have different priorities and they pursue
different interests, objectives, and communication style. In a cross-national context, negotiation
is even more difficult since the negotiators, in addition to all the complexities of domestic
negotiations, encounter the added component of cultural diversity (Adler, 1997) that often make
people to perceive and interpret the reality differently.
The impact of culture on negotiations is well documented (e.g., Hofstede & Usinier,1989;
Elahee, Kirby & Nasif, 2002; Adler & Graham, 1989). Culture has been found to have
influenced our negotiation behavior in myriad ways such as the exercise of power (Brett, 2000),
the pattern of concession making (Hendon, Roy & Ahmed, 2003), the propensity to engage in
unethical behavior (Volkema, 1999), etc. While commenting on the influence of culture on
negotiations, Janosik, (1987) identified four distinct possibilities. First, culture as a learned
behavior affects negotiation in that it shapes one’s notion of reciprocity and justice, attitude
about acceptable outcomes, or concepts about the appropriate timing for certain bargaining
behaviors. Second, culture as “shared values” produces a common bargaining style among the
people of a particular culture. Third, culture, in addition to representing “shared values”, also
represents dialectic (i.e., the tensions that exist among values embedded in a given culture).
Culture as a dialectic may cause seemingly incompatible negotiation behavior among the people
within the same culture (e.g., “harmonious cooperation” versus “warrior-like ethics” among the
Japanese). Finally, culture, as a carrier of dominant social and contextual factors, affects the
negotiation style and outcome of the people of a given culture in a particular situation. In this
paper, we specifically focus on “cultural intelligence”, a relatively new concept and one about
which our understanding is very limited. Similarly, our understanding of the impact of
personality traits on negotiation style is also somewhat limited given the paucity of research on
this topic. By focusing on these twin sets of antecedent factors, this paper seeks to enhance our
understanding of the complex realm of negotiations.
It should be clarified here that the primary purpose of this study is not on uncovering the
cultural differences in negotiation styles of US and Turkish business people. Rather, the thrust of
this research endeavor is on identifying the factors that lead to problem solving behavior in
negotiations and examining how these factors may affect the negotiation style. A secondary
objective is to uncover the differences in negotiation behavior, if any, between Turkish and US
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negotiators. It should also be noted here that there are different types of negotiations involving
two, as well as more than two parties. The antecedents to negotiation behavior in a multi-party
(i.e., more than two parties) negotiation could be quite different from those in a dyadic (i.e., two
party) negotiation. This paper is delimited to identifying the antecedent variables to problem
solving behavior in the context of dyadic negotiations only. Any discussion involving multiple
parties or negotiation process is thus beyond the scope of this study.
Literature Review and Hypotheses
Cultural Intelligence
Cultural intelligence (CQ) is defined as a multidimensional construct that encompasses
an individual’s capability to function and manage effectively in culturally diverse settings (Early
& Ang, 2003). This definition can be seen to be consistent with Schmidt and Hunter’s (1998)
definition of general intelligence “the ability to grasp and reason correctly with abstractions
(concepts) and solve problems”(p. 3). It also can be seen as fitting the more global approach to
intelligence as suggested by theories of practical and multiple intelligences (Sternberg &
Wagner, 1986). Cultural intelligence is seen as one of these “multiple intelligences”. It is also
seen as conceptually and measurably distinct from others such as general or analytical
intelligence (IQ), social intelligence (SI), and emotional intelligence (EQ) (Elenkov & Pimentel,
2008), with a distinguishing characteristic that cultural intelligence applies to multiple cultural
settings while social and emotional intelligence may not apply in another cultural setting
(Thomas, 2006).
As conceived by Earley and Ang (2003) and developed by Van Dyne, Ang, and Koh
(2008), the factors that make up the discrete construct of cultural intelligence (Total Cultural
Intelligence or TCQ) include Metacognitive CQ; Cognitive CQ; Motivational CQ; and
Behavioral CQ. Metacognitive CQ refers to the conscious awareness which an individual has
regarding cultural interactions. Cognitive CQ is seen as reflecting the knowledge of a group’s
values, beliefs, and norms. Motivational CQ reflects the capability to direct energy to learning
about cultural differences. Finally, behavioral CQ reflects the capability to choose appropriate
verbal and physical actions when interacting with people of different cultures.
Such a construct would seem to be particularly appropriate to apply to the process of
conducting cross-cultural business negotiations. Cellich and Jain (2004) argue that while
negotiations can be difficult in any business setting, cross-cultural business negotiations are
especially difficult due to cultural differences between the parties involved. Bernard (2009)
suggested that cultural intelligence should be one of the foundations on which successful
international business negotiations is based. Huang (2010) reinforces this view by addressing the
need to have the cultural intelligence necessary to address the many cross-cultural
communication factors that are critical for successful cross-cultural negotiations.
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As suggested by Van Dyne, Ang, and Koh (2008), the dimension of meta-cognitive
cultural intelligence may be seen as a critical dimension of CQ. This is because being aware or
conscious of differences and using different approaches based on cultural dissimilarities is
virtually required in all successful cross-cultural negotiations where a true problem-solving
approach is used (Cellich & Jain, 2004). Therefore our first hypothesis is:
H1:
Higher meta-cognitive CQ scores will result in higher problem solving crosscultural negotiation style score.
Relationship and Task Management Styles
Blake and Mouton (1964, 1985) argued that relationship orientation and task orientation
are critical components in identifying management and leadership styles. In its most simple
form, they saw relationship orientation as a concern for others and task management as a concern
for results or productivity. Blake and Mouton argue that an exclusive concern for production at
the expense of the needs of those engaged in production leads to dissatisfaction and conflict, thus
adversely affecting performance. But they also point out that an excessive concern for
relationship that may help avoid conflict and maintain good relationships in the short run could
be detrimental to the achievement of goals and objectives in the long run.
Researchers have labeled these two concepts of relationship orientation and task
orientation as personality factors (Dunham, 1984). Such personality factors have been found to
play important roles in management and leadership effectiveness (Blake & Mouton, 1964, 1985),
team building (Sulaiman, Mahbob, & Hassan, 2012), coaching behaviors (Curtis, 2002),
negotiation of public contracts (DeCaro, DeCaro & Bowen-Thompson, 2010), and international
negotiations (Naoko & Tanner, 1992; Martin, Herbig, Howard & Borstorff, 1999). In the latter
case of international negotiations, both papers suggest the importance of building relationships
first before negotiators begin exchanging task-related information.
Thus, it can be argued that both relationship-orientation and task-orientation are of
importance in the negotiation process. This may be similar to what Blake and Mouton (1964)
labeled on their “managerial grid” as “9.9”, suggesting that such high scores in both orientations
result in a manager with a concern for people as well as concern for the task to be performed.
Curtis (2002) saw the “9.9” manager as being skilled in promoting participation, involvement,
and commitment among the people with whom he or she is working as well as confronting others
in a constructive and sensitive manner in order to solve conflicts that might develop – a situation
that is not uncommon in business negotiations. Yukul (2012), in his review of the leadership
literature and development of a behavioral taxonomy, described “task-oriented behavior” to
include clarifying priorities, roles, procedures, and objectives and resolving work-related
problems. He describes “relations-oriented behavior” as including the showing of concern for
individual team members, listening carefully and encouraging cooperation and developing
mutual trust. He views both of these behavioral categories as contributing to an individual’s
ability to maximize their team’s performance.
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In cross-cultural business negotiations where a problem-solving approach is seen as the
most effective approach to a successful negotiation, it can be hypothesized that both relationship
and task orientations can individually contribute to a problem solving negotiation style so that a
person who is very high in one of these orientation and low in the other (regardless of which one
is high or low) could still be seen as having at least some degree of problem solving style
orientation. It can also be taken a step further and be argued, that an individual who has both a
high relationship orientation and a high task orientation could have a very strong problem
solving negotiation style. Thus, we propose the following hypotheses:
H2:
The higher the relationship orientation of subjects, the higher will be their
problem solving cross-cultural negotiation styles score.
H3:
The higher the task orientation of subjects, the higher will be their problem
solving cross-cultural negotiation style score.
H4:
The higher the combined relationship and task orientations scores of a subject,
the higher will be their problem solving cross-cultural negotiation style score.
Big Five Personality Dimensions
While there is little agreement among psychologists as to the definition of personality,
within the area of industrial and organizational psychology, we find the existence of a generally
agreed upon structure of personality dimensions known as the “Big Five” (Heggestad, 2007).
The Big Five taxonomy of personality dimensions is hierarchical with five areas representing the
highest hierarchical level. Beginning with Norman (1963) and continuing through the validation
work of McCrae and Costa (1987) and beyond, research in this area has centered on the
improved classification and measurement of these dimensions. McCrae and Costa (1987)
labeled the five trait dimensions as: neuroticism versus emotional stability; extraversion or
urgency; openness to experience; agreeableness versus antagonism; and conscientiousness versus
un-directedness. Since the seminal work of McCrae and Costa (1987), researchers tended to relabel the neuroticism versus emotional stability by recognizing just the positive pole – emotional
stability. The other labels that are generally used today are: extraversion, openness to experience
(or just openness), agreeableness, and conscientiousness (e.g., see Zhao, Seibert & Lumpkin,
2010). Some traits that have been identified within each of the five personality dimensions
(Heggestad, 2007) are listed in Table 1.
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Table 1: Personality Traits included in the “Big Five”
Big Five Dimensions
Facets
Emotional Stability
Confident, relaxed, unexcitable
Extroversion
Sociable, energetic, active, assertive
Openness
Intellectual, innovative, artistic, complex
Agreeableness
Trusting, helpful, generous
Conscientiousness
Organized, neat, thorough, systematic, efficient
Researchers have reported that personality can be used to predict work performance.
Conscientiousness and emotional stability in particular have been cited as highly predictive of
job performance for all job types (Smith & Canger, 2004). High levels of emotional stability
has been related to such adjectives as relaxed, calm, even tempered, unemotional, secure, and
patient, while low levels of emotional stability (neuroticism) is described as emotional, nervous,
impulsive, jealous, impatient, and insecure (McCrae & Costa, 1987).
Of the Big Five dimensions, in this study we particularly focus on emotional stability as
the role of emotion in negotiation is well documented (e.g., Adler, Rosen & Silverstein, 1998;
Ogilvie & Carsky, 2002). While other personality factors may also play an important role in
shaping one’s negotiation style, in developing the model presented later in the paper, we had to
rely on existing evidence reported in the published literature. Therefore, four other personality
dimensions have not been included in our model.
Ward and Fischer (2008) found a significant positive relationship between emotional
stability and the ability of business persons to generally adapt when working in a foreign
country, and Smith and Canger (2004) suggest that those individuals with low levels of
emotional stability will tend to have problems developing personal relationships. This leads us to
propose the following hypotheses:
H5a: Emotional stability will moderate the relationship orientation impact on problem
solving style with higher levels of emotional maturity positively contributing to the problem
solving cross-cultural negotiation style score.
H5b: Emotional stability will moderate the task orientation impact on problem solving
style with higher levels of emotional maturity positively contributing to the problem solving
cross-cultural negotiation style score.
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H5c: Emotional stability will moderate the impact of the combined score of relationship
and task orientation on problem solving style with higher levels of emotional stability positively
contributing to the problem solving cross-cultural negotiation style score.
These hypotheses can be visualized most clearly in the following model relationships:
Figure 1: Study Model
Methodology
Cultural Distance Measurement
Turkey and the US were selected for this study for a number of reasons. After Israel,
Turkey is perhaps the closest diplomatic, economic, and military ally of the US in the region of
the Middle-East. Turkey is strategically located and is often considered a gateway to the markets
of Middle-East and Central Asia. Also, since 2002, the Turkish economy has been growing at an
impressive rate and it has already emerged as the 16th largest economy in the world (CIA
Worldfactbook, 2013). Any insights gained on Turkish negotiation style would, therefore, be of
great importance to both academics and practitioners. But most importantly, we selected Turkey
and the US because of the cultural distance between the two countries. Cultural distance (CD)
was calculated using the formula described by Morosini, Shane, and Singh (1998). Hofstede’s
(2001) power distance, uncertainty avoidance, masculinity, and individualism dimensions were
used to create the CD score:
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CDj =
where:
CDj: is the cultural difference for the jth country.
Iij: Hofstede’s score: ith cultural dimension and jth country.
l: Indicates USA
The results indicated a cultural distance score between the U.S. and Turkey of 18.4 with
the average for the Hofstede’s 67 countries and regions being 17.0. It was felt this country that
was greater than the 67 country mean would be appropriate to examine the proposed model
relationships in two very different cultures.
Instrument
For collecting data, we developed a self-administered questionnaire that had two sections.
The first section had a series of 5 point Likert scale items that were designed to measure the
respondents’ cultural intelligence, task orientation, relationship orientation, and emotional
stability. The 2nd section of the questionnaire contained some demographic questions for
classification purposes. To facilitate data collection in Turkey, the instrument was translated to
Turkish using the standard translation-back translation method. The Questionnaire was translated
from English to Turkish and back translated by a different person with corrections made and
checked.
Cross-cultural problem solving negotiation orientation was measured using questions
developed by Cellich and Jain (2004). However, since there is no report in the literature that
these questions were evaluated for validity and reliability, factor analysis and Cronbach alphas
were calculated with the result being that the 7 questions suggested by Cellich and Jain (2004)
were reduced to four questions. For Turkey, these four questions had factor loadings ranging
from .496 to .687 while for the US, they ranged from .409 to .600. Cronbach alphas for this
construct were .69 for Turkey and .61 for the U.S. Nunnally and Bernstein (1994) suggested
that Cronbach alpha values below .7 and over .6 are acceptable for new instruments. The four
questions used were in the form of “I would try to learn the real needs of the other party before
making a concession.” measured using a Likert scale with “1” being “Strongly Disagree” and
with “5” being “Strongly Agree”. In order to frame these questions, the following brief scenario
and directions preceded these questions:
“Imagine you are working for a global telecom firm. You are being sent to Turkey as a
lead negotiator to sell some telecom equipment manufactured by your firm. Your boss has given
you wide latitude to make decisions on the spot. You have been thoroughly briefed about the
positions, goals, and interests of your firm. However, as is common in most negotiations, you do
not know much about your Turkish counterpart’s position, interests and priorities. Being able to
close a deal would be very important for your firm and for your own career advancement.
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Please indicate to what extent the following statements reflect your likely negotiation
behavior with your Turkish counterpart.”
Relationship orientation and task orientation questions came from Northouse (2004) and
each of these constructs consisted of 10 items. Since no documentation on validity and
reliability were available, factor analysis and Cronbach alphas were done with the result that 4
questions were identified for each construct with factor loadings ranging from .455 to .792 for
the US and from .448 to .735 for Turkey. Cronbach alphas tended to once again be satisfactory
for a new instrument with relationship orientation being .67 for the US and .70 for Turkey and
task orientation having alphas of .68 for the US and .67 for Turkey. Each subject was asked to
consider “how often you tend to engage in the described behavior when working in a group or
team situation” and the questions were in the form of “Help others feel comfortable in the
group” and measured using a Likert scale with “1” being “Never” and “5” being “Always”.
Emotional Stability was measured using the ‘Big Five Personality Scale’ developed by
Gosling, Rentfrow, and Swan (2003) ,who point out, the Big Five structure enjoys considerable
support among international psychologists whose research has resulted in a range of instruments.
These instruments have as many as 240 item scales and as few as 5 item scales that can be used
depending on a number of factors including the purpose or objective of administering the
instrument (diagnoses of a suspected psychological illness or general employment selection
process), and the need for very high levels of psychometric preciseness, and the concern of the
researcher over the length of the questionnaire being administered and possible subject
concentration and fatigue given a large number of questions. Gosling et al. (2003) developed
and tested the 10 item measurement used in this study and found satisfactory convergence
validity with the often used and highly regarded Big Five Inventory (BFI) of John and Srivastava
(1999). They point out the BFI in-turn shows high convergent validity with other self-report
scales and peer rating scales of the Big Five. They also found the 10-item scale (TIPI) to have
test-retest reliability, satisfactory patterns of predicted external correlations, and convergence
between self-rated and observer ratings.
Meta-cognitive cultural intelligence was measured using the self-report instrument
developed and validated by Van Dyne, Ang, and Koh (2008). During their validation process,
they identified the 20 items with the strongest psychometric properties. Nested model
comparisons demonstrated the superiority of the hypothesized four-factor CQ model. The
instrument was then tested for generalizability across samples and analysis using structured
equation modeling (SEM) demonstrated good fit also finding acceptable Cronbach alphas. They
also completed an analysis of generalizability across time, generalizability across countries,
generalizability across methods (observer report and self-report), as well as discriminant validity,
incremental validity, and predictive validity (with cultural decision-making, interactional
adjustment, and mental well-being as dependent variables). The study concluded that the
construct appears to have a clear, robust, and meaningful structure. Shannon and Begley (2008)
confirmed that the psychometric properties of the Van Dyne, Ang, and Koh (2008) model were
stable. The meta-cognitive dimension consisted of four questions in the form of: “I am
conscious of the cultural knowledge I use when interacting with people with different cultural
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backgrounds” being measured using a Likert scale with “1” being “Strongly Disagree” and “7”
being “Strongly Agree.”
Sample
The sample for the study consisted of 233 university business students from the United
States and Turkey. In each country the questionnaire was administered in classroom
environments and participation was voluntary. Only the responses from the citizens of the focal
counties (US and Turkey) were included in the analysis. In the US, a total of 106 usable
questionnaires were generated representing a response rate of greater than 90% of those who had
the opportunity to participate. In Turkey, 127 usable questionnaires were obtained with greater
than 90% response rate.
Although the use of a student sample is often viewed with skepticism by many experts,
the use of student samples is very common in social science research. For example, in a review
of the characteristics of all papers published in the Journal of Applied Psychology from 20012010, Shen et al. (2011) showed that 40% of the published papers used student samples. Some
experts also argue that student samples provide better results than adult volunteers (Burnett &
Dunne, 1986; Lynch, 1999).
Results
As indicated in Table 2, the sample consisted of 233 university business students
consisting of 133 men and 100 women from the US and Turkey. The average age was
approximately 21.5 years with a mean of 3 years of university completed. This sample came
from one university in each of the selected countries.
Table 2
Study Sample
USA Turkey
Total Subjects 106
127
Men
65
68
Women
41
59
Age
20.3
22.4
Education*
2.8
3.2
*Number of years in university
The means of problem solving negotiation style (ProbSol), meta-cognitive cultural
intelligence (Meta CQ), relationship management style (Relation), and task management style
(Task) ranged from 4.10 to 4.78 for the USA and from 3.85 to 4.65 for Turkey (see Table 3).
The combination scores of relationship plus task management styles (RelTsk) were 8.47 and 7.85
for the USA and Turkey respectively. The combination relationship and task management style
interaction with emotional stability (RelTsk*ES) scores were 44.55 and 34.18 for the USA and
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Turkey respectively. With all variables, except Meta CQ with no difference, the US mean scores
were significantly higher than those of Turkey (p<.001).
Table 3
Descriptive Statistics
Variables
USA
Turkey
Mean/SD
Mean/SD
ProbSol
4.18*/0.57 3.85/0.67
Meta CQ
4.78/0.96
4.65/1.14
Relation
4.38*/0.52 4.00/0.62
Task
4.10*/0.49 3.86/0.63
RelTsk
8.47*/0.86 7.85/1.12
RelTskT*ES 44.55*/10.9 34.18/10.9
* Mean Significance p<.001
The correlations for the entire sample population between variables are reported in Table
4. All correlations except Meta CQ and Emotional Stability, and Task and Emotional Stability
were significant (p<.05) with the highest correlation being .595 between relation and task
management styles.
Table 4
Correlations: Core Model Variables
All Subjects (233)
Meta CQ Relation Task Emotional Problem
Stability
Solving
Meta Cognitive CQ
1
Relation
1
.243
Task
1
.291
.595
Emotional Stability
.052
.075
1
.170
Problem Solving
1
.423
.460
.451
.213
Bold p<.05
For the entire sample, the first model of the hierarchical regression (see Table 5) included
the control variables and shows a significant country effect on Problem Solving explaining 6.2%
of the variance. Model 2 added the non-moderated variables in the model with meta-cognitive
cultural intelligence (Meta Cog CQ) and the combination relationship and task management
styles variable (RelTsk) along with country explained 34.7% of the variance in cross-cultural
negotiation problem solving styles (Problem Solving). Model 3 introduced all variables
potentially moderated by the personality factor of emotional stability including the moderation of
task alone (Tsk*EmSt), relationship alone (Relation*EmSt), and the combination of relationship
and task (RelTsk*EmSt). The results of Model 3 suggest that country is no longer a significant
variable and that meta-cognitive cultural intelligence and the combination of relationship and
task management style to be significant. In addition, Model 3 suggests that additional significant
variance in problem solving style is added by the moderation of emotional stability on the
combination relationship and task management style with the entire model explaining 35.2% of
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the variance in problem solving style. In order to evaluate multiple collinearity, Variance
Inflationary Factors (VIF) were examined between all variables and none were found to be
higher than 2.96 suggesting acceptable relationships for regression analysis.
Table 5
Hierarchical Regression
All Subjects (233)
Standardized Betas and Significance
Model 1 Model 2 Model 3
Country
-.257*** -.124*
-.085
Gender
-.014
.001
-.032
Age
-.025
-.038
-.051
Education
.035
.028
.024
Meta Cog CQ
.300*** .294***
Relationship
.015
.015
Task
-.025
-.014
RelTsk
.385*** .336***
Relation*EmSt
.066
Task*EmSt
-.060
RelTsk*EmSt
.162**
Problem Solving
DV
DV
Adj. R²
.062
.347
F-score
16.34
42.06
F-score sig.
.000
.000
Δ Adj. R²
.062
.285
*p>.05; **p>.01; ***p>.001
DV
.352
42.92
.000
.005
The next step (Table 6) was to examine the same set of variables and models for the US
sample alone. Model 1, using only the three control variables of gender, age, and education, did
not show any significant impact on problem solving style. Model 2 showed meta-cognitive
cultural intelligence and relationship management style to have a significant impact explaining
30.2% of the variance in problem solving style. Model 3 found meta-cognitive cultural
intelligence and the combination relationship and task management style moderated by
emotional stability to be significant and explain 31.8% of the variance.
The final step was to examine the model variables using the Turkey sample alone. Model
1 shows no significant impact of the control variables (Table 7). Model 2 shows a significant
impact of meta-cognitive cultural intelligence and the combination relationship and task
management style to be significant and explain 31.1 % of the variance in problem solving style.
Model 3 did not change the results of Model 2, with no moderated variables being significant.
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Table 6
Hierarchical Regression
U.S. Sample
Standardized Beta and Significance
Model 1 Model 2 Model 3
Gender
.023
.110
-.112
Age
.052
-.073
-.013
Education
.020
0.53
.076
Meta Cog CQ
.450*** .463***
Relationship
.261**
.162
Task
.064
.089
RelTsk
.114
.160
Relation*EmSt
.080
Task*EmSt
-.071
RelTsk*EmSt
.284***
Problem Solving
DV
DV
Adj. R²
-.012
.302
F-score
0.57
23.77
F-score sig.
Ns
.000
Δ Adj. R²
.302
*p>.05; **p>.01; ***p>.001
DV
.318
25.31
.000
.016
Table 7
Hierarchical Regression
Turkey Sample
Standardized Beta and Significance
Model 1 Model 2 Model 3
Gender
-.039
-.064
-.064
Age
-.102
-.046
-.046
Education
.020
-.008
-.008
Meta Cog CQ
.246**
.246**
Relationship
-.075
-.075
Task
.076
.076
RelTsk
.445*** .445***
Relation*EmSt
.062
Task*EmSt
.067
RelTsk*EmSt
.067
Problem Solving
DV
DV
Adj. R²
-.010
.311
F-score
0.59
29.47
F-score sig.
Ns
.000
Δ Adj. R²
.311
*p>.05; **p>.01; ***p>.001
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DV
.311
29.47
.000
.000
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Discussion
These results suggest that Hypotheses 1, which stated that higher meta-cognitive CQ
scores will result in higher problem solving cross-cultural negotiation style score, was supported
for both the US and the Turkish samples. This finding is consistent with what has been
suggested from the current literature on cross-cultural management that a greater cultural
intelligence would allow negotiators to have an empathetic understanding of the other party
through their awareness of cultural differences, and as such, may facilitate a win-win approach in
the negotiation behavior of the parties. The similar findings in both Turkey and the US, which
are culturally quite dissimilar, indicate that a higher meta-cognitive cultural intelligence among
the negotiators regardless of their cultural background is likely to lead to a more win-win
outcome in a negotiation.
Our findings support hypothesis 2 which stated that the higher the relationship
orientation of subjects, the higher the problem solving cross-cultural negotiation styles scores of
the subject would be. However, this was supported only in the US sample, and not in the Turkish
sample. A possible explanation of these Turkish results may be due to the observation that
Turkey tends to be a relative strong collectivist society with a score of 37 (in contrast the US has
a score of 91 indicating a very strong individualist orientation; Hofstede, 2001). A collectivist
culture is one where it is expected that group members avoid open conflict and maintain group
harmony (Hofstede, 2001). Thus, it is natural and expected that relationship behaviors are
practiced. However, it is the additional presence of a majority of individuals that also focus on
task orientation that result in a statistically significant impact on the cross-cultural problemsolving negotiation style. Therefore, as is seen in Table 7, it is the interaction of relationship
AND task that is statistically significant. Further research is needed to confirm this
interpretation and gain a better understanding of the relationship between relationship and task
orientations and cooperative negotiations style in Turkey.
Hypothesis 3, which stated that the higher the task orientation of subjects, the higher
would be the problem solving cross-cultural negotiation style score of those subjects, was not
supported with either sample. It is quite possible that task-orientation propel negotiators to
follow a style that is more distributive. Since task orientation may direct negotiators to focus on
short-term results and productivity, a win-win result may not be of importance to negotiators
with a task-orientation.
However, hypothesis 4, which stated that the higher the combined relationship and task
orientations scores of subjects, the higher the problem solving cross-cultural negotiation style
score would be, was supported with the Turkish sample but not supported with the US sample.
This finding is somewhat unexpected given what we found with respect to Hypotheses 2 and 3
that found a positive relationship between relationship orientation and problem solving
negotiation style in the US, but not in Turkey and no direct relationship between task orientation
and problem solving negotiation style in either country. However, we find a different picture
when we look at the combined score of relationship and task orientation in the two focal
countries. This would seem to support the “9, 9” Blake and Mouton (1964, 1985) concept that
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suggests that high orientation in both task and relationship management styles may be the most
universally effective combination. It is also quite possible that the interaction effect of these two
orientations is moderated by some other factors which are not captured in our model. Another
possible explanation behind this divergence in the result could be attributed to some cultural
factors that need to be identified. It is also conceivable that the role of combined relationship and
task-orientations is more prominent in an individualistic society such as the US than in a
collectivistic society like Turkey. Further research is thus needed in this area.
We did not find any support for hypotheses 5a and 5b, which stated that emotional
stability will moderate the impact of relationship orientation (5a) and task orientation (5b) on
problem solving style with higher levels of emotional maturity thus positively contributing to the
problem solving cross-cultural negotiation style score. However, partial support was found for
hypothesis 5c, which stated that emotional stability will moderate the combined score of
relationship and task orientation impact on problem solving style, with higher levels of emotional
stability positively contributing to the problem solving cross-cultural negotiation style score. It
was supported in the US sample, but not in the Turkish sample. This finding raises more
questions than it answers. The analysis of data shows a greater coefficient for combined score of
relationship and task-orientation for the Turkish responses, but not for the US responses, despite
the added boost given by emotional stability. This suggests that some other factors may be
playing a role which is not captured by the model. It is also quite possible that the moderating
effect of emotional stability may vary from culture to culture, thus showing a higher score for the
US data as compared to the Turkish data. The impact of relationship orientation and emotional
stability, when combined with task orientation, is more than offset in Turkish culture by the
presence of some other yet to be identified factor(s).
Conclusion
The findings have significant implications for selection of negotiators as well as for
designing training programs for negotiators. Our findings confirm the existence of a positive
relationship between cultural intelligence and problem solving negotiation style. If a firm is thus
interested in achieving win-win outcomes, it should design its managerial training in a way that
would help managers hone their cultural intelligence. Our analysis also provides support,
although somewhat limited, for the advantage that a combination of high relationship and taskorientations might have in creating a win-win dyadic negotiation environment. In addition, it
appears emotional stability may have a positive moderation effect on the relationship and taskorientation combination in some cultural settings. These findings call for focused training of
managers to enhance their relationship orientation and emotional stability for ensuring the
adoption of problem-solving style, and consequently, maximizing joint benefits from
negotiations.
As stated earlier, the findings also give rise to new questions. Further research needs to
be conducted to ascertain why, with respect to problem solving negotiation style, relationship
orientation and emotional stability play a higher role in the US than in Turkey. Future
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researchers also need to study why this role reverses and becomes more important in Turkey than
in the US when task orientation is combined with relationship orientation. Future researchers
should also study if other personality factors impact style in international negotiations. Future
researchers should also identify other mediating and moderating variables that impact the
adoption of a particular negotiation style.
With the convergence of cultural values among young people across cultures, which is
often driven by globalization, it is quite possible that within the same culture, the negotiation
style of younger managers would differ significantly than that of older managers. Future
researchers should thus examine how personality factors and cultural intelligence may impact
negotiation style across different age groups.
This study was delimited to dyadic negotiations only. Future researchers should also
investigate the impact of personality traits and cultural intelligence factors on multi-party
negotiations. Since negotiation is a multi-stage process, it will also be interesting to investigate
how personality traits and cross-cultural intelligence may affect negotiation style in different
stages. Finally, to ensure external validity of the model presented and tested in this paper, future
researchers should also test this model in the context of other countries.
While much work lies ahead, it is expected that this paper would generate further interest
among researchers to identify the other antecedent factors not captured in our model that impact
the adoption of a particular negotiation style. While the proposed model is not an all-inclusive
model, it is hoped that it would provide the basis for furthering our understanding of the complex
and multi-faceted relationship between cultural intelligence and negotiation style as well as
between various personality factors and negotiation style.
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About the Authors
Dr. Robert L. Engle is professor of international business at Quinnipiac University,
Hamden, CT, USA. Prior to joining academia, Dr. Engle worked for Bayer Pharmaceuticals
where he held the positions of Vice President of Marketing & Sales Operations for the U.S, and
Vice President of Global Sales Force Management in Leverkusen Germany. He holds a
doctorate in management from Nova Southeastern University, an MBA from Quinnipiac
University, a master in education from Towson University, and a baccalaureate in management
from the University of Baltimore. He has over 50 publications and was recently recognized as
Quinnipiac’s Faculty Scholar of the Year by the Charter Oak Society.
Dr. Mohammed N. Elahee is a professor and Chair of the Department of International
Business at Quinnipiac University, Hamden, CT, USA. He obtained his Ph.D. from the
University of Texas Pan-American MBA from the University of New Brunswick-Fredericton,
Canada. He also taught at The University of Dhaka, Bangladesh; Universidad de Monterrey,
Mexico; ESC-Rennes, France; and at the Sa’dat Academy for Management Sciences in Cairo,
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Egypt. Professor Elahee received a teaching excellence award at Quinnipiac University as well
as at the Universidad de Monterrey, Mexico. He has published in many reputed international
business journals and presented in leading international and national conferences all over the
world. Dr. Elahee is co-author of a text on International Business that has also been translated to
Chinese and published in China.
Dr. Ekrem Tatoglu is a professor of International Business and Chair of International
Trade and Business at Bahcesehir University, Istanbul, Turkey. He earned his PhD from
University of Leeds, U.K. His research interests include global management strategies, FDI in
emerging countries and international entry mode strategies. He published numerous scholarly
articles in various international business/marketing journals including Management International
Review, Journal of World Business, International Business Review and International Marketing
Review. He also co-authored a book entitled Dimensions of Western Foreign Direct Investment
in Turkey published by Quorum Books.
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Executive Interview
Advice from the Front Lines of
Sustainability: You Have to Take
the Stairs, There is No Elevator
A Conversation with Daniela Suter, The Migros
Group of Switzerland
Diane M. Phillips, Saint Joseph’s University
Executive Summary
Headquartered in Zurich, Switzerland, the Migros Corporation was founded in 1925 and
is one of Switzerland’s largest corporations and biggest employers. Today, the company makes
25 billion CHF per year in annual revenue (1 CHF or “Swiss Franc” = about $1.09 USD), attains
659 million CHF in operating income, and counts more than 2 million households as members of
its cooperative (representing more than 60 percent of the Swiss population). Migros employs
about 86,000 individuals. The Migros Group is primarily a retail organization and is known for
its grocery stores, department stores, and discount stores. It has business operations in food,
household products, clothing, furniture, restaurants, sports, and electronics. The Group also has
business operations in a variety of other areas such as banks, schools, insurance offices, gas
stations, recreation parks, and hotels.
Gottlieb Duttweiler was the founder of Migros and remained at its helm until his death in
1962. His original mission was founded on the notion that a business should be run to benefit
the broader society and culture while also providing high quality products that customers can
trust. Today, the business is run as a cooperative with a broad set of environmental and social
objectives. Individuals can purchase a “share” in the business, which gives them voting rights.
Profits are then put back into the corporation to help support their other business units, like the
Klubschule (club school) for example, which would operate at a loss if it were not for the
infusion of funds from the corporation. The Klubschule is the educational division of the
company – it offers low-cost classes in languages, health and fitness, new media, and other
work-related skills for the 21st Century.
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Daniela Suter is the Head of Sustainability for the non-food part of the business. This
includes such business units as sports, tools & equipment, electronics, furniture, garden, personal
care, clothing, toys, and household products. In other words, as Suter puts it, “anything you
can’t eat or shouldn’t eat.” This portion of the business accounts for 4 Billion CHF in annual
turnover. Ms. Suter started her career in international logistics, working for fashion and textilebased companies and selling household fabrics and textile supplies to customers around the
world. Later, she worked as a garment buyer and when she visited places like India, she saw
things that she didn’t like; things she didn’t want to see. In the 18 years since coming to Migros,
she has developed a strong sense of how business operations could critically impact global
cultures and systems. During this time, she came to believe that transparency and verification of
the supply chain are of critical importance to an organization’s success.
At the same time she was developing this expertise, the Migros Corporation was making
a strong commitment to the concept of sustainability. In 1970, the corporation created the
Migros Sano Initiative, an effort to provide more healthy and humanely sourced products to
consumers. Throughout the 1970s, Migros implemented a variety of ecological programs and
energy conservation programs throughout its far-reaching operations. At the time, this was a
courageous, innovative, and risky move. To put this into perspective, these decisions were made
in an era when business leaders and the public had not even heard of the concept of
sustainability. “Silent Spring” by Rachel Carson was published in 1962, the first Earth Day had
just occurred in April 1970, and the UN was still more than a decade away from issuing its
definition of sustainability (this happened in 1986). Thus, although some ardent
environmentalists had started discussing the importance of protecting the Earth’s natural
resources, the issue of sustainability and its implications for business were still at least 30 years
away from becoming a normal part of today’s business lexicon.
The initiatives that Migros has in place are extensive and detailed. Importantly, Migros
put these initiatives in place long before most other companies even thought about them. More
than 35 years ago, Migros started monitoring its energy usage and systematically reduced its
overall energy consumption, focusing specifically on its crude oil consumption. Since 1957, it
has invested more than 3.8 billion CHF in social causes and projects (in 2011 it invested 117
million CHF). The Migros Fund, founded in 1979, is one initiative. Providing funding of 1
million CHF per year, it is an internationally-focused organization that provides grants (usually
between 40,000 to 100,000 CHF) to a variety of causes as diverse as electricity generation in
Madagascar, a carpentry workshop in Brazil, and medical care for mothers in Tanzania.
Suter joined the Migros Corporation in 1994 where she was hired with the specific
purpose of setting up a procurement system for buying direct from manufacturers, rather than
buying via a set of brokers and agents. In 2010, the Migros Corporation created a new position:
“Head of Sustainability Near Non-Food and Specialized Markets.” Suter was a logical choice
for the position because she was able to put her expertise in textile production – with all of its
social and ecological implications – to work. Since taking over this leadership role, Suter has
pushed Migros to make even stronger social and ecological commitments in its various business
units. She has established and implemented a series of sustainable goals, benchmarks, and
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verification systems. At Migros, they don’t just talk about sustainability, they do it. “It’s just the
right thing to do,” she says.
The commitment to social and environmental causes has accelerated in recent years.
Since 2006, all business flights have been offset by purchases of carbon offsets. In 2007, Migros
joined the WWF Climate Group and approved a 3-part climate protection project. The parts
include the reduction of Migros’ overall carbon footprint, the support of consumers in climatefriendly consumption, and the reduction of operating emissions. This project now serves as a
guiding force for its many sustainability-related decisions. Despite aggressive growth targets for
expansion, by 2020 Migros plans to reduce its carbon emissions by 20% and its energy usage by
10%. Importantly, these targets are so comprehensive and far-reaching that they even
incorporate the carbon footprint for the products sold at Migros stores. Because of its longstanding commitment to the environment and social causes, the Migros Corporation won the
Energy Globe Award and the Swiss Ethics Award in 2011.
One thing that motivates Suter is the belief that because Migros is one of the biggest
corporations in Switzerland, it has a greater responsibility and should be held to a higher
standard of behavior and performance. Never satisfied with achieving a given sustainability goal
or benchmark, Suter is always thinking about ways to improve transparency and engage in
continuous improvement of the corporation’s sustainability goals. “It’s part of our DNA. It’s
like fact… like the sun and the moon.”
Author: Why did you decide to take the position in sustainability at Migros? Was
it a new position?
Suter: Migros had always been one of my favorite stores, one of my favorite companies.
It was always a goal to one day work at Migros and when the option came open in 1994, I
applied. My background seemed to fit, so I went to Migros. The official position in
sustainability was created in 2010; it did not exist before that.
Author: What did you like? What did you admire?
Suter: Maybe it has to do with my father; he was a member of the cooperative from the
very early days on. He remembered all of the political issues connected with Migros at the time.
Migros would cater to the small man in the street, the housewife who had to manage on a very
tight budget. The philosophy of our founder, Gottlieb Duttweiler, was let’s go straight to the
producers and bring the goods straight to the customers, not with many steps in-between. To
bridge this gap and to thereby offer a product that everybody needed at a very low price. At the
time, this was not very popular with all of the brands and buyers. People were afraid, so people
tried to boycott Migros. It was very political. One of the reasons, by the way, for Migros buying
up some industries, was that otherwise, we wouldn’t get delivered. Yes, that’s a long way back.
Some of that just stays with you… this commitment, this sympathy you have for sticking
together.
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Author: And, an independence streak.
Suter: Yes, absolutely.
Author: So was your position a new position? Did you replace somebody?
Suter: I did replace someone in 1994; the position was there already. But, I came into
the company with a very, very specific objective, which was to create and build up direct
purchasing from producers in the Far East. Up until that time, we used to buy from agents, from
importers. We had a collection to choose from, we made our choice and we paid our money. But
we had no idea about how production was happening and under what circumstances. The knowhow was not there.
Author: Why did you have that as your goal?
Suter: I have quite a bit of experience in international trade, from the logistics side and I
also had experience with the textile companies. So, international trade, I was familiar with that.
But, production-wise, I was used to Swiss production, very good quality, a very good social
environment, etc.
Author: Were they surprised when you got there and you started to change
everything with these new objectives and goals?
Suter: I don’t think so because they had already realized that this was necessary and this
was where they wanted to go, so they started looking for the right person to do that. I changed it
very quickly, actually. Within a very short time I had about 60 percent of my collection coming
in direct from India and China, from the Far East. Yes, and I really started to see change
happening in these places.
Author: Like what?
Suter: Oh, I remember one production operation in Hong Kong, on the 5th floor, in some
old building, you would find dying machines and printing machines. Today, that’s unheard of.
It was just quite different from the situation you find in Switzerland. I used to go to India and
this one picture still sticks with me all the time. Just as we were leaving one production facility,
outside in the shade of a big tree, there was this man ironing shirts. Of course, not with an
electric iron, but with an iron where you still have to feed hot coals inside.
Author: I’ve seen those in antique stores.
Suter: Antique stores?! I’ve seen them working! I have seen goods traveling on open
carts, carried by oxen or bicycles. You see these things.
Author: What was it about some of that stuff that really stuck in your mind or
made you stop and think?
Suter: The working conditions, to start with. You only see them as a visitor, so you
know that all of the behind the scenes details are probably worse. You have so many people in
one room, no air conditioning, not even a fan. It makes you think. Then we went to see dying
facilities and all of the chemicals that were there. It was not controlled. People working in
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surroundings that were absolutely and clearly a hazard. And I had the impression that they did
not know about the health hazards. It’s not that they knew, but didn’t care. They just didn’t
know about it. Some dying techniques or bleaching techniques, which would not be used in
Europe any more, I was seeing that all over in India, so yes, it does make you think.
Author: Was there something in particular that really made it stand out to you,
more than other people who have seen these things? I mean, there are a lot of buyers that
go there and see those things.
Suter: Well, I can only talk about myself, but maybe it was that the contrast was so
sharp between situations I found in Europe and production operations I found in India or in
China. The contrast was just so tremendous. And there was no reason why it should be so bad,
because the knowledge is there. Globally, the knowledge is there.
Author: How was sustainability handled before your position was created?
Because when you started, the position was one thing, and then it evolved into something
different.
Suter: That was in ’94. At the time, maybe it was happening more individually. You
know, in each department, the initiatives were there, the programs were there, things were being
developed. We had a program at the time, it was called Migros Sano and that was on the food
side. It focused on ecological issues like vegetables, fruit, and meat production. It happened
individually, not working towards a common goal. That came later. It has always been an
imperative of ours to work in a sustainable fashion, in a responsible fashion. It was a priority of
our founder, dating back to the 1950s. So when I say that it’s in our DNA, it’s always been there
in a more or less concrete sort of way, but it was not so structured and organized.
So, prior to 1994, we had quite a few people, actually, engaged in sustainability issues.
Our colleagues from the Standards Department make the “laws” and our colleagues in Category
Management make sure they get executed. They check all of the standards, like the ecological
standards, the social standards, the safety standards. People in Category Management are
responsible for introducing the standards to the suppliers, making sure the suppliers work
according to the standards. And, we have label coordinators who manage a label like they would
run a brand.
We have labels that are known outside of Switzerland, but we also have a few labels that
are strictly Migros. Like ECO, the set of standards used for textiles. Like TerraSuisse, which is
an overall certification that the product comes from Switzerland. But, there was always this gap
between the sustainability people and the category management people. This position that I am
holding now and my colleagues are holding on the food side was created to bridge this gap. To
make sustainability go through all of the hierarchy levels, through the whole system down to the
suppliers, and to push it along further and more intensively and in a more committed way.
Author: What was it, do you think, that prompted Migros to make it more official,
because prior to 2010, there was a lot happening, people were doing all sorts of sustainable
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things…. Was there some kind of an event? Or, maybe a lightbulb went off in someone’s
head?
Suter: We had a new head of marketing and I think he just wanted to speed things up, to
progress more quickly, more strictly in a way. It very much has to do with his commitment.
You know, on one side we have this price battle happening… cheaper and cheaper and
cheaper. On the other hand, we have added value concepts covering ecological and social added
value aspects. Our philosophy is to offer customers a choice of the whole width of opportunities
that go from a very low price if you are on a budget to a more added value, sustainable option if
you are willing to spend a bit more, if you are willing to have your share in sustainability. We
are there to make sure customers know what it is about and to know what they are buying when
they are buying a product. It’s very difficult to pin it down to one person or one department
because sustainability is happening at all levels.
Author: When you started to make these steps to move your area towards more
sustainable practices, did you experience any challenges when you were doing that?
Suter: Oh, absolutely! Sustainability comes at a price. It’s sometimes easier to just
negotiate the price than to negotiate the standards and the way things are done and the social
issues. Migros is not a very big customer in the world market. Maybe we are a bit more
demanding than the others, and we find ourselves sometimes in situations where suppliers are
not interested in fulfilling our standards and in fulfilling our requirements. So, yes, a lot of
discussion goes into it. A lot of work in making sure that suppliers understand our aims and our
goals. Sustainability can be quite demanding and tiresome, and it always comes at a price.
Author: That seems like mainly externally-related challenges. Were there any
internally-related challenges?
Suter: Yes! If you’re a buyer, you need to make sure you get your goods at a good
price, at the right quality, on time. And then, the sustainability guys come along and they say it
has to be produced socially and ecologically and we want to check. It may delay the process or it
may just push up the price, so it’s not always easy. I think the key issue is to have longstanding
partnerships, work with suppliers, and share your goals, your ideas, your objectives.
Author: How did you handle some of these challenges?
Suter: Externally, by talking to people, by letting them know what we want to achieve,
by showing them also how they can improve, and by proving it’s about saving money. It’s
always the easiest way if they can see an economic advantage, a profit to be made, out of using
the right chemicals, using them correctly, treating their workers in a social way so they have
fewer workers getting sick. It’s about having stable relationships.
Internally, by helping the buyers, by conveying why we do this. During the last 18
months, we’ve spent a lot of time offering courses, information, and workshops. Loads! We just
need a chance to explain what we’re doing, why we’re doing it, what the challenges are out
there. For example, if you tell them what the situation is in the cotton fields, in the spinning
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mills, in the dying factories, then they are more willing to share the same goals, they see why it
makes sense and they will make an effort to come to grips with all of the challenges involved in
buying garments.
Author: How has your background prepared you for your current position at
Migros?
Suter: I am a textile person, through and through. And I know a lot about production, so
I am not sitting behind a desk and trying to maneuver things from behind the desk. I know
what’s happening in the mills and I think that has served me very well in my actual position. I
have applied that experience now to paper production, natural cosmetics, energy friendly
electronics, all of it. If you’re very familiar with production, it is almost always a stepping stone
to any other product or any other category. You just apply the same systematic process; you try
to apply the same sorts of questions. I find it’s a lot like learning languages. The first language
is tough, the second is a little easier, and the third is even easier as you go along!
Author: What prompted Migros to create this position in sustainability? Was it
internal pressure? External pressure? Other reasons?
Probably both. Sustainability issues are very prominent. I think that the ideas were
already there in Migros, of course, but they needed developing more quickly, more strictly.
Author: What are some of the first things that Migros did in the area of
sustainability? Why did they do these things?
Suter: If I remember correctly, it was the Migros Sano program. Sano is “healthy” in
Italian. That was strictly a food-related program. It was certainly a forerunner of the organic
movement. That happened in the 1970s. I became aware of it when it was already 25 years old.
So it goes to show all of the effort that’s been made, but not necessarily resulting in awareness,
which is a shame. Even being a Migros person, I only became aware of it 25 years after it
started.
Migros started this program because there were certain issues about how animals were
being treated, how meat was produced. I think we’re almost kind of shy when it comes to telling
our story. Nevertheless, customers and people still put their trust in Migros. So, there must be
something about the way we work and the way we communicate and the way we do things that
makes them put their confidence and their trust in Migros. We are definitely the most trusted
brand in this country.
Author: Yes? You’ve done studies about that?
Suter: Oh, yes. We do lots of studies! Here are just two. First, the Reader’s Digest did
a nationwide study of Swiss consumers and found that Migros was the most trusted brand in the
country. We also rank extremely high for “most trusted sustainable” brands. A second study
that came out a few years ago asked people to identify the most influential Swiss person of all
time. The results were, #1: Albert Einstein, #2: Gottlieb Duttweiler, and #3: Roger Federer!
How about that?
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Author: What are some things that Migros is doing now in sustainability? With an
organization as large and diversified as Migros, how do you decide where to start? How
are priorities established?
Suter: By making a sustainability strategy and executing it. Of course, we have a very
detailed sustainability strategy focusing on our main priorities. For the low-hanging fruit, we
started with energy savings with our electronic devices. There is a trade association and they
have developed a label. They certify the products that are especially energy friendly. So what
we did is we picked the more energy friendly products and thereby increased the amount of
energy friendly products that are out there in the households. We made sure people knew what
they are buying and why they should use those energy friendly products. Other operations are
more tricky, like organic cotton. We don’t buy cotton, we buy garments. The supply chain in
textiles is very volatile, very diversified. To go all the way back to the actual cotton fields, it’s
not that easy. Organic cotton production is about 0.7% of the total cotton production. So, for a
certain time it was very difficult to get a hold of and we had to make sure that it was really
certified, with all of the issues that are really out there... It’s also more costly than conventional
cotton.
On the positive side, there is growing demand for it because all of the big fashion
companies have made a clear statement that they want to go organic or also use sustainably
grown cotton. What we have found to be a challenge is the high number of labels and
certificates, all requiring audits. Suppliers tell us that they have a social audit being made on
their premises every three weeks… and they all ask the same things. We need to stop that. So
what we are actually striving for is a system that allows us to recognize sustainable performance
and the value it represents. So if somebody has done a successful audit for another retailer or
brand, we would not do another audit, provided we knew that the criteria applied were equivalent
to ours. You need to know what all of these different standards are, the private owned and the
international standards, what they fulfill and what they will not fulfill. Let me give you one
example of how we solved this problem. We started this GSCP program – the Global Social
Compliance Programme. Actually, it serves as a benchmark system, as a comparison. Its
gathering speed very much.
It is open to all trades, food and non-food. And, it’s free of charge to join and to
download all the tools. Everybody can join in and look at how it’s done. You can have your
own profile checked and see how you fit in, see how you compare to others. Once you enter this
equivalence process, there is a membership fee. We believe it will reduce these audits and
reduce the immense amounts of money going in to it and still have a better picture of what’s
happening out there. We were a founding member and one of our people is the vice-chair of the
Executive Board. Now the suppliers can certify that their operations are sustainable. It
definitely gives them an advantage over their competitors who are not as ecologically or socially
advanced.
There are also certain issues where you really need to inspire your customers as well and
make them aware of the role that they are playing. Take detergents, for example. They will do a
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good job, wash your laundry, clean at 30Co, so there is no need for washing it at 60Co. It will be
our job to inform and convince customers of new possibilities in technology. You can still get
good results, but in a sustainable way. Customers can and should play a role by the choices they
make.
Author: Should customers lead the process or should organizations lead the
process?
Suter: Organizations should lead the process. In a way, organizations and customers
should be partners in the process, but the individual cannot move as much as big organizations
can. Because we know and we have the power, that’s why we should do it. An organization can
switch more directly and more quickly. But, it would be a great thing to know that the customers
care enough to join the journey.
Author: How much has Gottlieb Duttweiler’s original vision about business
impacted you and/or your work?
Suter: Gottlieb Duttweiler’s spirit is still so present, so much a part of our culture that
yes, we quote him all the time. One that I like very much is that a company should be offering
more than just products and services, but it has a commitment towards society. Here it is from
1959:
“We recognize and accept the fact that the bigger a company is the stronger it must
commit itself to a greater good. A commitment that exceeds commercial aspects but is directed
to finding solutions for problems faced by mankind.”
His vision was to go directly to the producers. To have this sort of direct influence in the
supply chain, this was very much his vision. That’s what we follow to this day.
Author: In what ways do you think that a cooperative structure makes it easier to
engage in sustainability? And, in what ways do you think a cooperative structure makes it
harder to engage in sustainability?
Suter: In a cooperative, you do not have the direct impact. We have to convince our
cooperatives, we have to find common ground, we have to find solutions that are being carried
by all of them. Having this pressure to work towards a consensus, the solutions you find are
usually more stable. They may take a little longer, but they’re more stable. It’s very much like
the Swiss nation itself, actually. In fact, they’re very much alike.
We have a political system of a direct democracy and a wide base of political parties. So
in this political system, it takes a lot of persuading, a lot of communication to get the issues
before the public and to get the vote of yes or no. I find it takes longer to get everyone to come
to a decision, but the decisions are more stable, are carried by the majority in the public. By
taking a little longer and coming to our decisions, maybe we don’t jump at every opportunity, we
miss the odd opportunity, but when it’s installed, it’s quite firm.
I think we are so used to this way of direct democracy in Switzerland that we tend to see
the long-term perspective much more than the short-term perspective, and I don’t think anyone
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would understand why the Swiss people recently voted against a compulsory 6 weeks of
holidays. I think in many other countries, people would jump at the opportunity to have an
additional week of holiday. But the Swiss people, because they are used to having a voice and
having a share in the decision, they would also think about the consequences of the decision
maybe in a little bit more detail than people in states that do not know this direct democracy.
Author: What do your customers know about the sustainability efforts at Migros?
What do you wish they knew?
Suter: I think they know that Migros makes a great effort and they put their trust in
Migros. I don’t think they can be expected to know all of the technical background. I think that
is up to us to do a good job.
What would I wish for them to know better or know more? Maybe I would just like them
to have a more active approach to want to know, to ask questions, to make basic choices about
what they buy and what they don’t buy. I am always happy when through our “info line”
questions about sustainability come along.
Author: With so much “greenwashing” out there, it is sometimes hard for a
consumer to tell which companies are doing the right thing and which aren’t. What advice
do you have for consumers who want to be more sustainable?
Suter: I think it’s very much an issue of who you put your trust in, who has credibility,
who has authenticity. As a customer, you should try to get some information, but I don’t think
it’s feasible that customers, although they might be very into sustainability, could have full
information about all of the certifications, all of the programs, all of the issues. At the end of the
day, you make a choice about a brand or a retailer you put your trust in.
Author: In general, what is Migros’ value proposition for its customers?
Suter: Migros stands for an excellent product at a very good price. Consumers can be
sure it has been produced socially and ecologically and sustainably. It’s all about being
produced with respect for the environment, respecting people, respecting animals. It’s always
been like that with Migros.
Author: I think it’s interesting that the value proposition is tied to sustainability.
Suter: Yes, we always try to offer the best possible product at the best possible price.
But it’s very much a quality thing also, quality and strong commitment to sustainability, which is
defined as respect. This was written down even before we started this explicit sustainability
journey… by saying that things are produced with respect. We care.
Author: How have you made this position in sustainability “your own?”
Suter: It just fit. It just fit so well with my views with the way I work. I think by
helping my colleagues, by showing them the way, by helping our suppliers, I have made my
mark.
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For our business partners, there is so much pressure in their work, we want to support
them, we want to take some weight off their shoulders. All I ask of my colleagues is that they
request suppliers to join us in these efforts. We do all the rest, we take care of the details, we do
the training, we do the controlling, we have the information and the know-how. And by helping
our suppliers, we create excellent relationships.
Also, I think the fact that I know all about the production side helped. It raises a new
competence in sustainability. I come from a production side and I understand all of the issues
that come along with production. I come from a different angle.
Author: What impacts have you seen from some of these decisions you’ve made?
Have you gone back to some of these suppliers in India or China and seen some of the
changes you’ve put forward?
Suter: Yes, of course. Much of the effort has been made on the social side. Of course
we see changes happening. Like better infrastructure, better abilities, people know more about
their rights. There’s a whole new awareness out there and you see things have changed
dramatically because of this. I first went to India in 1995 and if I go there now the changes are
dramatic.
I was there last year in August. The people are more sure of themselves. They’re also
better trained. You will find a new generation of management – they have learned about running
a company, about HR issues, about sustainability. Because of Migros, because of competitors
like us. We see now that from the supplier’s point of view, sustainability gives them a
competitive edge. So if they work with Migros or with retailers and brands that take a very
advanced view on quality and sustainability, it already qualifies them for working with dozens of
other firms.
Author: It’s interesting that you have such a strong drive toward sustainability
when you are so production oriented. It seems like someone with your background would
worry about quality control, cost control, those kinds of issues, not so much these
environmental or social issues.
Suter: They’re not a contradiction in terms. I think if you look at production seriously
and you look at the things that are happening there, you find situations that you don’t like, that
you want to change. I think that’s how many other people started out. I heard this speech from a
guy at Hess Natur (a leading organic and ethically-sourced clothing manufacturer). When he had
his first child, he wanted to buy all organic baby clothing, and he couldn’t find it. That’s what
set him going. It happens on a very individual personal level.
Author: “Transparency” seems to be a big buzzword these days in business. How
important is it at Migros?
Suter: It’s very important indeed because our responsibility does not end when we pay
our bill. I think we need to know, we need to want to know what’s happening all along the
supply chain. That’s why we want to have this transparency, not just at the last step, but all the
way. It’s not easy. But again, it has a lot to do with trust, with people wanting to or being
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prepared to open up their books and show with whom they work and what they do. That’s one
thing.
The other thing is that we have such a good reputation and we have to protect that
reputation. The press or NGOs will always focus on the big brands and retailers when an issue
comes up. Taking care of our reputation really demands that we know what’s happening along
the supply chain and we ask it of our suppliers. In the long run, people will open up and become
more transparent. You can already see it happening.
Author: Do you have a set of standards and goals that you’re trying to achieve?
Suter: We have a whole list of goals for our organization and standards for the social
and environmental behaviors of our suppliers. It’s almost all measured by the share of our
products that we have. For example, we now do about 7% of our garments in organic cotton.
We want to have double that share by 2015. And we’re well on our way.
Author: What motivates you in your work? What inspires you in your work?
Suter: What motivates me? I can change things for the better. I can help people along, I
can measure the impact at the end of the day, in a very strong way. It just makes a difference,
what I do. And it’s very rewarding. To be engaged in this movement is fantastic.
What inspires me is working together with colleagues who have so much competence in
different fields. It’s very inspiring. It’s very inspiring also being in touch with other retailers
and brands in a pre-competitive sort of way. We might choose different ways or we might
choose a different focus, but we all are on the way towards a better planet. To be able to
participate in these goals, it’s very fascinating.
Author: You’re smiling!
Suter: It’s such a bonus to be able to give your life another direction to work in a field
that is so demanding in a way but is so inspiring and motivating. I learn a lot. I think that is
probably the main aspect, that I learn so much. I’ve always been interested in gathering
information and gathering knowledge.
Author: So you’re still a student?
Suter: I’ve always been a student all my life. I hope to remain one!
Author: To what extent do you share your findings or your accomplishments with
your stakeholders?
Suter: Partially. Certain issues come up and we share our notes and we share our
experiences. I would not go out and discuss with them our strategies or anything. There has to
be, of course, a loyalty to my own company. But actually, we are very open in a pre-competitive
way. If an issue impacts all of us in the same way, why not try to solve it together?
We also have our magazine, our Migros Magazine, which goes out to over 2 million
households. We regularly cover sustainability issues like stories about a farm in India or about
an organic producer in Mali.
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Author: Do you have a favorite quote about leadership? Who is your favorite
leader from history? Do you have a favorite book about leadership?
Suter: Well, it would have to be Gottlieb Duttweiler because he dared. He made
mistakes and he corrected them. He was always a few steps ahead of his time and he was very
committed. To have somebody who has been dead for 50 years and is still so present, that’s
quite an achievement. He said the following: “Freiwilligkeit ist der Preis für Freiheit.” Basically
it means that we should commit to do more than what is absolutely necessary, ahead of time and
without compromise. This is especially the case in economically challenging times.
I have a favorite book and it’s by Malik and it’s called Managing Performing Living. He
talks a lot about responsibility. He makes it sound very simple.
Author: What advice do you have for other organizations who want to become more
sustainable?
Suter: You have to take the stairs, there is no elevator. It’s one step after another and
there is no easy way. This is so true for sustainability. And sometimes there are setbacks and
you have to start again, but in the end the sustainability journey starts with just one step after the
other.
About the Author
Diane M. Phillips is an associate professor of marketing at Saint Joseph’s University in
Philadelphia, USA. Dr. Phillips is also a guest professor at the Institute for Retail Management
at the University of St. Gallen, Switzerland. She received her Ph.D. from Penn State University
and focuses her research in the broad area of consumer psychology. More specifically, she
examines consumer attitudes, satisfaction, emotional responses, and consumer decision making.
These models are then applied in several contexts, including customer relationship management,
sustainability, and advertising effectiveness. Her research has been presented at a variety of
international conferences, including the Association for Consumer Research, the American
Marketing Association, the European Applied Business Research Conference, and the GRONEN
Sustainability Conference. Her research has also been published in a variety of outlets, including
the Journal of Consumer Psychology, Advances in Consumer Research, The Journal of Applied
Management and Entrepreneurship, and the American Journal of Business Research.
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Executive Interview
Entrepreneurship Progress and
Developments in Vietnam
An Interview with the Bureau Chief, Director General
of the Ho Chi Minh City Ministerial Office of the
Ministry of Industry and Trade
Lam D. Nguyen, Bloomsburg University of
Pennsylvania
Bahaudin G. Mujtaba, Nova Southeastern University
Executive Summary
Entrepreneurship plays an important role in the global economy. It is one of the powerful
forces that can strengthen economies and foster innovation. Therefore, understanding
entrepreneurial attitudes is of utmost importance. Policymakers need to understand more about
the entrepreneurial attitudes of people, especially young business generations, and develop
policies accordingly. In the U.S., entrepreneurship has long been the cornerstone of the nation’s
success in economic growth and innovation (Reynolds and White, 1997). In Vietnam, however,
entrepreneurship has not received adequate attention because the country had been under a
centrally planned economic system where state-owned enterprises kept control and government
frequently interfered in market activities (Nguyen, 2011).
Since its adoption of “doi moi”, or renovation, in 1986, Vietnam has opened up its
economy to the world, and attracted a large volume of foreign investment. The business
environment has improved significantly as a result of the government commitment to global
integration. The economic reforms and global integration have resulted in positive changes in
Vietnam: steady economic growth, reduced poverty and more prosperity over the past decade.
Furthermore, since the country’s formal normalization of diplomatic relations with the United
States in 1995, followed by the U.S.-Vietnam bilateral trade agreement (BTA) in 2001, Vietnam
has attracted many domestic and foreign investors with its large, skilled and low-cost workforce
(Business Monitor International, 2011: 23). Trade between Vietnam and the U.S. has grown
tremendously, from about $451 million in 1995 to $21.8 billion in 2011 (United Stated Census
Bureau, 2012). More state-owned enterprises have been privatized, and the private sector has
become an important component of the economic system.
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Vietnam today is a developing country that has been one of the fastest growing and the
most promising economies in Asia. Vietnam achieved an average annual GDP growth of 7.6%
between 2000 and 2009 (Business Monitor International, 2011:13). The IMF recently projected a
5.1% GDP growth in 2012 for Vietnam (International Monetary Fund, 2012). After the
normalization of diplomatic relations between the U.S. and Vietnam, Vietnam’s economy grew
very fast and since becoming a member of World Trade Organization, the economic growth
increased 30 percent compared to the previous year. In 2011, Vietnam reached $96 billion in
export. There are 16 goods, each of which has more than $1 billion in export value. Many
agricultural products are the world’s top export items such as rice (2nd), pepper (1st), rubber (4th),
and coffee (3rd).
The Vietnamese economy is at the heart of the fast-growing Southeast Asia region and
the Ministry of Industry and Trade plays a crucial role in contributing to the nation’s economic
growth and accomplishing the overall goals set by the Communist Party of Vietnam and the
Government. The purpose of this executive interview is to shed some light on the topic of
entrepreneurship and how it is understood by a high-ranking official from the Ministry of
Industry and Trade in Vietnam. Because it is only the opinion of one individual, it is not an
intention of the interviewers to generalize the findings.
Director General Phan The Hao was born and grew up in a farming family rooted deeply
in the revolutionary tradition of Vietnam. After finishing high school, he joined the Vietnam
People's Army (VPA) from 1967 to 1974. After being honorably discharged, he went to the
National Economics University in Hanoi to complete his undergraduate degree. In 1979, he
started working at the Ministry of Foreign Economic Relations, which has now been changed to
the Ministry of Industry and Trade. He also studied at the Academy of Politics and Public
Administration in Ho Chi Minh City for more than 2 years. Over the years, he had the following
positions:
-
Manager-Department of Export, Bureau of Planning, Ministry of Foreign Economic
Relations
-
Deputy Chief-Bureau of Import-Export, Ministry of Trade
-
Bureau Chief-Director General of the Ho Chi Minh City Ministerial Office -Ministry
of Industry and Trade
Authors: Entrepreneurship is said to require some degree of vision, and creativity?
What characteristics do you encourage in the development of young Vietnamese so they
can be successful in both private and public sector businesses?
Phan The Hao: Some of the main characteristics of young entrepreneurial Vietnamese
should include the following:
-
Career goals
-
Passion
-
Work satisfaction
-
Well rounded knowledge
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-
Work Skills
-
Interpersonal skills
-
Language skills, at least master one foreign language
An individual who possesses these characteristics can be successful in both private and
public sector businesses.
Authors: What are some of the growing industries in Vietnam at this time?
Phan The Hao: Agriculture, forestry, and fishery: rice, coffee, rubber, pepper, cashew
nuts, fish and shrimp, wood products; light industry: textiles, shoes; and heavy industry:
electricity, oil and gas.
Authors: You have been working in the public sector for many years now in
Vietnam. Why did you decide to work with the government? What are some differences in
working in the public sector and private sector organizations?
Phan The Hao: It depends on individual opinions but as far as I am concerned, there are
two different categories of thought:
-
Working in the public sector: Income is still low but individuals have opportunities to
improve their knowledge in all areas (economic, cultural and social). They also have
opportunities to research deeply in one specific area and become a law-policy making
specialist/expert for the country and that could be expanded to other countries. They can
feel proud of themselves to be working in the public sector to serve the people.
-
Working in the private sector: Income can be very high or insufficient. The private sector
usually lacks stability. Those who are determined to make their own fortunes, do not
mind risk taking, remain flexible, and stay aggressive are more likely to become wealthy
and financially powerful business owners. However, they are also prone to failure, which
may result in unthinkable behaviors and actions that could potentially cause more harm to
the country and people.
Authors: Would you consider yourself an entrepreneur? Can entrepreneurs be a
good asset in the public sector? Why or why not?
Phan The Hao: I was trained in the military quite early in my life and by the age of 20 I
became a member of the Communist Party and swore to devote my life to serve the party and the
country for a better life, happiness and fairness of our society. My entrepreneurial spirit is always
with the public sector. I hope to contribute a small part to the growth of my country.
Authors: Some people believe that entrepreneurs experience too much stress in
their lives? Is this true of just entrepreneurs or can stress impact anyone in the workplace?
What are your suggestions for effectively dealing with stress in the workplace?
Phan The Hao: Those who want to be successful must overcome obstacles and have the
willingness to grow and move forward, have solid viewpoints and understand that hard work and
continuous effort will lead to success. They must go through the entrepreneurial experience, deal
with stress and tough challenges so that they can solve problems in various situations and take
advantage of the opportunities when they come. Courage is success. Being scared of hardship
will more likely lead to failure.
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Therefore, there may be one person who feels comfortable with stress and deals with it
successfully while the other may feel stressed and fails to deal with it effectively even they are
both in the same work environment. It is the difference in individual perception that makes it
different. People are different in their perceptions of responsibility, work and achievements.
Authors: Many traditional educators believe that it is impossible to teach
entrepreneurship. What is the Ministry of Industry and Trade doing to encourage
entrepreneurship in Vietnam?
Phan The Hao: If an educator said it was impossible to teach entrepreneurship, he would
be completely against science and education. In education there exists a methodology that allows
students to follow their fields of interest or to pursue what is the most appropriate for their ability
and skills. Thus, senior years at all levels such as high school, college and university often
require field-specific teaching and training.
Authors: Based on your thinking and experiences, can cheating and corruption be
more common in the corporate world or in the public sector?
Phan The Hao: Cheating and corruption are two different concepts: Cheating is not
telling the truth, purposely taking things away from other people. Corruption is the use of power
or status in exchange for money or materials of public sector organizations. Thus, cheating
usually occurs in business (people who lack of ethics and cunning). Corruption usually occurs in
public sector organizations and administrative agencies.
Authors: In many developed countries, education is becoming too expensive and the
average student cannot afford it without scholarships or bank loans that will need to be
paid back soon after graduation. What role does education play in helping Vietnamese
entrepreneurs?
Phan The Hao: Like other developing countries, Vietnam’s economy is still facing many
challenges and resources are limited. Many students who have great learning and research ability
do not have financial aids to help them pay for their education. The role of the government in
helping entrepreneurs start up their businesses is very important. Providing students with
financial aid to help them complete their degrees and providing loans to students with
entrepreneurial mindsets to start up their businesses are great models and initiatives.
Authors: Based on your thinking, is there a relationship between education and the
entrepreneurial nature of a country?
Phan The Hao: Education is an investment in human capital for generations. It is
through education that human beings increase knowledge, conquer nature, and gain scientific
skills to enforce the social development. So each country should invest in the education of its
youth and skill development of its workforce.
Authors: Tell us a little about how technology and international trade can impact
our lives.
Phan The Hao: Everything begins with education. Education is the foundation of a
nation’s socio-economic development. Almost all countries in the world pay great attention to
education. Technology, education and trade have a close and effective relationship. Applied
scientific technology should be shared by many countries through trade to maximize the returns.
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Authors: You, as a leader, have worked with many individuals from across the
globe. Which countries and cultures offer the best environment for commerce and
entrepreneurship? Why?
Phan The Hao: The majority of Vietnamese think that education in developed countries
such as United States., United Kingdom, and Australia, is the best for young entrepreneurs.
Those who have been educated and trained in such systems will be successful.
Authors: What can government officials and politicians do in the area of
entrepreneurship and commerce to make sure their countries are economically developed
and competitive with the rest of the world?
Phan The Hao: In such a globalized and competitive world of business, in order to
develop high quality and safe products with the lowest cost, businesses need a good environment
for growth. To help businesses achieve these goals, government needs to support development
policies such as providing investment capital and a good reward system. In addition, it should
engage in trade cooperation with other countries to open more markets. The government should
also train scientists and managers who can apply science and technology to manufacturing to
help increase core competencies and eventually gain competitive advantages.
Authors: What are some strategies that developing economies, like Vietnam, can use
to develop more entrepreneurial-minded citizens and educators?
Phan The Hao: For such a long time in the past, the Vietnamese education system
taught students that Vietnam was a beautiful and rich country with abundant natural resources.
This created a sense of entitlement in young generations. However, Vietnam is still a poor
developing country in the world so it should have a strategic plan for economic development so
that by the year 2020, Vietnam will become a developed country. Therefore, the government
needs to encourage entrepreneurship.
Authors: What are some things that the American community should know about
the people of the Vietnam, their hopes and their desires? Are there investment
opportunities there for foreigners? Can American entrepreneurs be successful business
persons in Vietnam?
Phan The Hao: After the normalization of the diplomatic relation between the two
countries, Americans have understood the good nature of Vietnamese people: gentle, intelligent,
and tolerant. We don’t look back at the past. Instead, we look forward into the future. Vietnam is
welcoming American businesses and Vietnamese Americans who want to invest in Vietnam.
Vietnam’s export to the U.S. has been increasing remarkably. Vietnamese entrepreneurs in the
U.S. understand Americans and the legal systems there. U.S. privately-owned enterprises have
been increasingly investing in Vietnam and American entrepreneurs can definitely be successful
in Vietnam.
Vietnam nowadays is a reliable destination for all countries. Vietnam is known for its
security and political stability, favorable natural conditions, clear and flexible legal systems and
policies, and supportive and fair business environment for investors. All businesses, domestic
and foreign, are subject to the same laws and policies.
Authors: Finally, what advice can you offer to new and young students in
entrepreneurship who will be seeking to open their businesses? What lessons should they
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learn first, or should they just jump into the first opportunity if they have the funds to start
a business?
Phan The Hao: Young entrepreneurs are a huge force and an invaluable asset of a
country. They should be trained with adequate knowledge and skills. When starting their
businesses, they need to apply and adapt flexibly to the fast-changing and highly competitive
external environment. They need to analyze both the external and internal environments
carefully and thoroughly before jumping on a quick decision. They need to avoid short term
decision-making. However, they should not be hesitant in taking the opportunity once it comes.
By being alert and passionate, they will be successful.
Authors: We appreciate your time; we know with your many commitments, you are
a busy leader. Thank you very much for taking the time to share your views and how
leaders across the globe can speed up their progress through commerce and
entrepreneurship. Are there any other thoughts you would like to share with the readers?
Phan The Hao: All the questions were great and I hope your readers will benefit from
our discussion.
About the Authors
Dr. Lam D. Nguyen is an associate professor of management at the AACSB-accredited
College of Business at Bloomsburg University of Pennsylvania. He has served as a Visiting
Professor at Webster University Thailand and at the University of Economics, Ho Chi Minh City
in Vietnam. He possesses a solid practitioner experience in business. This includes various
managerial and leadership positions that he held in Vietnam as well as in the U.S. Nguyen has
presented his research at many prestigious conferences and published in peer-reviewed journals.
His areas of research are job satisfaction, leadership, entrepreneurship, ethics, and cross cultural
differences. He can be reached through email at: [email protected]
Dr. Bahaudin G. Mujtaba is a professor of management and human resources at Nova
Southeastern University’s H. Wayne Huizenga School of Business and Entrepreneurship. He has
visited Vietnam four times over the past few years and is impressed with the enormous economic
and entrepreneurial opportunities. His areas of research are cross-cultural management,
management training, and leadership development. Dr. Mujtaba is the author of several books on
coaching, change management, diversity, and cross cultural management. Mujtaba can be
reached at: [email protected]
The Journal of Applied Management and Entrepreneurship, 2013, Vol. 18, No. 2
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The Journal of Applied Management and Entrepreneurship, 2013, Vol. 18, No. 2
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The Journal of Applied Management and Entrepreneurship, 2013, Vol. 18, No. 2