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  • Journal of Business Research 55 (2002) 951 – 962

Journal of Business Research 55 (2002) 951 – 962 Perceived risk, moral philosophy and marketing

Perceived risk, moral philosophy and marketing ethics: mediating influences on sales managers’ ethical decision-making

John Cherry a , John Fraedrich b, *

a Department of Marketing, Southeast Missouri State University, Cape Girardeau, MO 63701, USA b Department of Marketing, College of Business, Southern Illinois University, Carbondale, IL 62901-4629, USA

Received 1 October 1999; accepted 13 October 2000

Abstract

This study extends previous research in ethical decision-making in marketing. Using Hunt and Vitell’s [J Macromark 6 (1986) 5] model, perceived risk is operationalized as the result of insufficient time and information for decision-making where substantial magnitude and probability for loss is present. Results from a national study of sales managers indicate that risk perceptions affect the relative balance of nonconsequential and consequential evaluations in forming ethical judgments and intentions. For all subjects, nonconsequential evaluations contribute more to ethical judgments than consequential evaluations. However, structural analyses of the Hunt and Vitell model reveal that under higher risk, managers attach greater importance to nonconsequential evaluations than managers who felt less risk. Lower risk is related to greater use of consequential evaluations in the formation of ethical judgments and intentions. Finally, subjects in the high-risk treatment group exhibited significantly harsher ethical judgments and less intention to perform the ethically questionable behavior. D 2002 Elsevier Science Inc. All rights reserved.

Keywords: Risk; Moral philosophy; Ethics; Sales

1. Introduction

This investigation explores the psychological and moral tensions that exist when ideals and values are tested against the economic consequences of marketing decisions. For some, ideals and values may be compatible with economic exigency. Others may sense a difficult trade-off between personal moral values and the requirements of the market- place — not simply ‘‘issues of right versus wrong, but conflicts of right versus right’’ (Badaracco, 1993). For all, however, it is posited that uncertainties and risks in the marketplace do act to influence moral reasoning. Therefore, it seems reasonable to suggest that a better understanding of the influences on moral reasoning — in this study, risk perception — can lead to the practical end of developing the ethical reasoning processes of managers. While it may be untenable to suggest that managers explicitly adhere to formal philosophical maxims, it may

* Corresponding author. Tel.: +1-618-453-7786; fax: +1-618-453-

7747.

E-mail address: fraedric@siu.edu (J. Fraedrich).

be useful to examine the antecedents of moral justification:

the nature and grounds of ethical choices, as well as the context of ethical decision-making. If we derive a clas- sification of managerial thought and understand the assumptions used by managers, we enhance our ability to challenge and clarify managers’ ethical reasoning. With this set of tools, we may be able to point the way to the higher ground of ethical business conduct. Numerous studies have strongly established the influence of formal moral philosophical reasoning in the context of ethical decision-making. The General Theory of Marketing Ethics (Hunt and Vitell, 1996), and other theoretical works (e.g., Ferrell and Gresham, 1985; Ferrell et al., 1989) have been directly or indirectly supported through substantial empirical analysis. Moral philosophical constructs such as deontological and teleological evaluations have been pos- itively related to ethical decision-making, occasionally with conflicting results. As noted above, however, it is probably an overstatement to suggest that marketers use formal moral philosophies per se. However, it does seem reasonable to analyze marketers’ ethical reasoning in terms of more broadly construed categories of consequential and noncon- sequential reasoning. This re-construal retains an important

0148-2963/02/$ – see front matter D 2002 Elsevier Science Inc. All rights reserved. PII: S 0148-2963(00)00215-0

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distinction among moral theories, most of which, according to Nozick (1981), have been fitted into these two ‘‘powerful and appealing’’ modes (p. 494). This study addresses the following questions: what are the relative influences of nonconsequential and consequential considerations in forming ethical judgments and intentions? Do they always have the same influence, or are there situational or other variables that mediate their impact on judgments, intentions, and behaviors? Can a situational variable, e.g., perceived risk, provide insights into a deci- sion-maker’s propensity to favor one or another approach to moral reasoning? The objective of this study is to examine the influence of perceived risk in the process of ethical decision- making and to ascertain the influence of risk on the emphasis given to nonconsequential and consequential considerations in the presence of an ethical dilemma. In pursuit of this objective, we first discuss classifications and empirical research in moral philosophy. Next, we review the literature concerning risk perception, and con- clude with a review of empirical works related to marketing ethics. Hypotheses are developed, the findings are dis- cussed, and we conclude with a discussion of implications and limitations of the research.

2. Moral and ethical theories

Philosophers and ethics researchers have found it useful to make a fundamental distinction among ethical theories. On one hand, consequentialist ethical theories typically focus on the ends of actions; the rightness of an action is totally determined by the consequences of actions (Ferrell and Gresham, 1985). Nonconsequentialist theories, on the other hand, concern themselves with questions of moral obligation, emphasizing the means and motives by which actions are justified. These are labeled in the current literature as teleological and deontological theories, respect- ively (Frankena, 1963; Beauchamp and Bowie, 1979; Lacz- niak, 1983; Ferrell and Gresham, 1985; Hunt and Vitell, 1986; Robin and Reidenbach, 1987). Two widely identified variants of teleological theories are egoism and utilitarianism. Ethical egoism holds that indi- viduals should promote their own greatest good (Hunt and Vitell, 1986). Utilitarianism asks simply ‘‘what alternative will produce at least as good a balance of good over evil as any available alternative?’’ In contrast with consequential teleological theories, non- consequential theories stress that the rightness of an act is not determined by its consequences. Instead, certain actions are correct in and of themselves because they stem from fundamental obligations (Ashmore, 1987; Laczniak and Murphy, 1993). Perhaps the best known among these are deontological theories. Based upon the Greek word deon meaning duty, deontology expresses the moral obligation to (among other things) pay our debts and tell the truth because it is the ‘‘right thing to do’’ (Reidenbach and Robin, 1990).

While Kant acknowledged that people may perform good works and derive pleasure in the process, he denied that such consequences should be their motivation. Essentially, people can do good things for bad reasons, and when they do so, these actions, to Kant, have no moral worth. Research in ethical decision-making in marketing pro- vides substantial evidence of nonconsequential and con- sequential moral reasoning, and their influence on ethical judgments. Moral philosophy plays a central role in theor- etical models of ethical decision-making (Hunt and Vitell, 1986; Ferrell and Gresham, 1985; Ferrell et al., 1989). Several empirical studies of moral reasoning have estab- lished firm links between ethical judgments and intentions

(Fritzsche and Becker, 1984; Robin and Reidenbach, 1988; Vitell and Hunt, 1990; Mayo and Marks, 1990; Fraedrich and Ferrell, 1992; Hansen, 1992; Hunt and Vasquez-Par- raga, 1993; Harris and Sutton, 1995; Akaah, 1997; DeCo- ninck and Lewis, 1997; Schminke et al., 1997; Thong and

Yap, 1998). While few studies examine actual subsequent behaviors in situations having ethical content, taken collec- tively they suggest that the study of moral philosophy is a viable approach.

3. Review of risk literature

Although expected utility theory has long enjoyed a central position in the analysis of decisions under risk, its predictive ability has increasingly been called into question. Perhaps the most well known alternative is Kahneman and

Tversky’s (1979) Prospect Theory, which states that individ- uals are risk averse in the domain of gains and risk seeking in the domain of losses. One difficulty in testing prospect theory, however, relates to its prima facie nature; in the face of gains, individuals will choose a ‘‘sure thing’’ over a risky one, other things being equal. In actual decision situations, however, other factors including role expectations, organizational reward structure, and moral and ethical norms may influence one’s choice (Urbany and Dickson, 1990). While the propensity of managers to take risks and the cultural approval of risk taking are well noted in the literature

(Kogan and Wallach, 1964; Jackson et al., 1972; Rowe, 1977; MacCrimmon and Wehrung, 1985, 1986; March and Shapira, 1987), some researchers have observed that the identification of a generalized risk propensity remains an elusive goal. Simply classifying risk averters and risk takers ignores some important characteristics of risky decision contexts, e.g., the effects of mood (Wright and Bower, 1992), problem framing (Tversky and Kahneman, 1981; Schneider, 1992), dispersion of effects (Gioffre et al., 1992), and ambiguity and temporal sequence of information (Viscusi et al., 1991). Organizational characteristics such as monitoring, evaluating, and rewarding outcomes achieved may actually encourage or discourage risky behavior (Ouchi, 1977; March and Shapira, 1987; Beets and Killough, 1990). Sitkin and Pablo (1992) have proposed that by specifying the organizational, psychological, and

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historical antecedents of risk propensity, one can arrive at a set of situationally grounded predictions for risk taking and aversion. In an especially rigorous study of decision-making under risk, MacCrimmon and Wehrung (1986) have identified — in addition to the most common components of risk, i.e., magnitude and probability of loss — three common risk determinants. Lack of time and information for decision- making, and lack of control over alternative courses of action reflect the elements that contribute most to subjective perceptions of risk. Managers commonly attempt to adjust risky situations by delaying or delegating decisions to gain time, information, and/or control in the attempt to improve the set of alternatives from which to choose.

4. Empirical studies of risk factors, ethical norms, and decision-making

Arguing in favor of his ‘‘moderate deontology,’’ Etzioni (1988) provides considerable evidence that economic fac- tors and moral commitments jointly affect behavior, as well as each other (p. 64). In a review of moral reasoning and behavior, Blasi (1980) concluded that the empirical literat- ure points to a significant relationship between moral thinking and moral behavior. Hegarty and Sims (1978, 1979) found that a combination of risk-related factors, including rewards and punishments affect individual behav- ior. As extrinsic rewards were increased, ethical behavior decreased. Hovden and Larsson (1987) describe a sample of Swedish safety executives who reasoned (teleologically) about the inherent risks in their decision-making, and at the same time invoked deontological reasoning about indi- viduals’ rights to be informed of dangers, the obligations to punish those responsible for accidents, and their duty to protect citizens. Song and Yarbrough (1978) have identified the construct ‘‘tax ethics,’’ a mixture of deontological and teleological norms, which is related to tax accountants’ compliance with professional standards. A particularly striking finding from the studies of decision-making under risk has to do with inherent limi- tations within such decision-making. March and Shapira (1987) cite evidence that managers do not weigh all aspects of a risky situation: heuristics, availability, and recency all function to delimit the considerations factored into decision- making situations (Kahneman and Tversky, 1979; Hogarth, 1980; Tversky and Kahneman, 1981). Janis and Mann (1977) report that decision-makers, faced with immediate threats, exhibit varying levels of arousal, fail to use available information, and gravitate towards ‘‘simple-minded decision rules’’ (p. 59). Such ‘‘hypervigilant’’ states, in their account, lead to emotional arousal and are associated with errors in judgment and decreased efficiency in cognitive functioning. One consequence of this arousal is that decision-makers may exhibit ‘‘defensive avoidance’’ in business, career, and marital decisions. These too involve errors in interpreting

new information, distorting the implications of unwelcome information, and general impairment of cognitive efficiency. In contrast, less risky situations elicit more coping res- ponses, lowered levels of affective arousal, and fuller use of available information (Monat et al., 1972) regarding the possible outcomes of decision-making. Janis and Mann

conclude that a decision-maker facing a dilemma involving the threat of serious losses and a short deadline for making a choice will exhibit relatively poor thinking in multivalued decisions, or those that require evaluating the consequences of alternative courses of action (p. 61). Possibly the best known and most extensively tested of ethical decision-making models, the Hunt and Vitell (1986) (HV) model postulates that at the ‘‘heart’’ of the ethical decision-making process, an ethical judgment is formed based on deontological and teleological evaluations. Ulti- mately, these ethical judgments and an individual’s teleolo- gical evaluations influence behavior through the mediating variable of intentions. While the HV model has enjoyed substantial validation

(Singhapakdi and Vitell, 1990, 1991; Vitell and Hunt, 1990; Hunt and Vasquez-Parraga, 1993; Harris and Sutton, 1995; Akaah, 1997; DeConinck and Lewis, 1997; Thong and Yap,

1998), it remains to consider (1) the relative influence of nonconsequential and consequential evaluations on ethical judgments under higher (lower) risk, and (2) the relative influence of ethical judgments and consequential evalua- tions on intentions under higher (lower) risk. Specifically, will perception of risk change the relative influence of nonconsequential evaluations and consequential evaluations on ethical judgments, and will risk change the relative effect of ethical judgments and consequential evaluations on behavioral intentions? In cases where risk was not manipulated directly, some evidence is reported (Mayo and Marks, 1990) that in an inherently risky marketing research scenario (1) teleological evaluations were more important than deontological evalua- tions in forming ethical judgments, and (2) teleological evaluations were more important than ethical judgments in forming behavioral intentions. Thong and Yap (1998) report similarly that individuals’ teleological evaluations are more influential of ethical judgments than are deontological evaluations. On the other hand, most other findings (Vitell and Hunt, 1990; Hunt and Vasquez-Parraga, 1993; Akaah, 1997; DeConinck and Lewis, 1997), leaving risk weakly manipulated or uncontrolled altogether, found conversely that deontological evaluations and ethical judgments were more predictive of judgments and intentions, respectively.

5. Hypotheses

A central question that arises from the studies cited remains: how does perceived risk influence nonconsequen- tial and consequential evaluations, ethical judgments, and behavioral intentions? In view of the earlier discussion, it

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seems reasonable to expect that perceived risk will affect the constructs in the HV model, and more importantly, the structural parameters linking the predictors and the criteria within the model. While the latter set of issues has remained unaddressed in the marketing ethics literature, it is expected that:

Hypothesis 1: Individuals who perceive greater (lesser) amounts of risk in an ethical dilemma will differ from those who perceive less (more) risk in their overall pattern of decision-making.

Hypothesis 2: Individuals who perceive greater risk in the ethical dilemma will show a stronger link (higher path coefficient) between nonconsequential evaluations and ethical judgments than those who perceive less risk.

Hypothesis 3: Individuals who perceive less risk in the ethical dilemma will show a stronger link (higher path coefficient) between consequential evaluations and ethical judgments than those who perceive more risk.

Hypothesis 4: Individuals who perceive greater risk in the ethical dilemma will show a stronger link between ethical judgments and intentions than those who perceive less risk.

Hypothesis 5: Individuals who perceive less risk in the ethical dilemma will show a stronger link between consequential evaluations and intentions than those who perceive more risk.

In an early study of the ethical judgments of marketing managers, Fritzsche and Becker (1983) concluded that as consequences become more severe, individuals’ ethical judg- ments become more ‘‘ethically positive.’’ A subsequent

study, (Fritzsche, 1988) found that subjects indicated less intention to behave unethically as the risk factors within a set of ethical scenarios increased in severity. Two other studies,

(Laczniak and Inderrieden, 1987; Dabholkar and Kellaris,

1992) similarly found that the seriousness of negative out- comes is significantly linked to ethical judgments and inten- tions. In one of the few studies to actually link risk, judgments, and behaviors, Bellizzi and Hite (1989) observed that supervisory reaction is more severe as risk — in this case, negative outcomes — become more pronounced. Jones (1991) has proposed that situational characteristics of an ethical dilemma, including magnitude, probability, and temporal immediacy of consequences, produce a condition

of ‘‘moral intensity.’’ Jones’ theory, and subsequent empir- ical investigations of the moral intensity construct (Morris and McDonald, 1995; Singhapakdi et al., 1996) suggest strongly that risk perceptions are related to ethical judg- ments, intentions, and perceptions of an ethical issue. In a study that parallels Jones’ moral intensity construct, Robin et al. (1996) examined the links between perceived import- ance of an ethical issue, and ethical judgments and inten- tions. They found that as advertising managers judged an ethical issue to be lower (higher) in importance, they also felt the behavior in question was less unethical (more unethical). Also, as managers judged an ethical issue to be

lower (higher) in importance, they indicated higher (lower) intentions to undertake the action. Singhapakdi et al. (1999) have shown that perceived moral intensity is positively related to perceptions of ethical issues, and ultimately reduces intentions to act unethically. Therefore, it is expected that:

Hypothesis 6: Individuals who perceive greater risk in an ethical dilemma will express more severe ethical judg- ments of the unethical behavior than individuals who perceive less risk.

Hypothesis 7: Individuals who perceive greater risk in an ethical dilemma will express less intention to engage in the unethical behavior than individuals who perceive less risk.

Hypothesis 8: Individuals who perceive greater risk in an ethical dilemma will express significantly higher per- ceptions that the dilemma presents an ethical issue than individuals who perceive less risk.

6. Methodology

A national mailing list of sales managers was used to generate a random sample. Sales managers were deemed suitable for this research because the scenario described in the research instrument involves sales practices and decisions that they, as opposed to salespeople, could conceivably face. Of the 1809 questionnaires actually delivered, 479 question- naires were returned, with a total of 419 complete question- naires — a response rate of 23% (419/1809). The data depict the typical respondent as a married male, between the ages of 45 and 54, with a bachelor’s degree, and approximately 26 years’ work experience. The research instrument for this study was a self-administered questionnaire with a vignette and several sets of questions to measure all variables, includ- ing demographics. Information on demographic variables was collected primarily to determine the similarity of earlier and later respondents (used as a surrogate for nonrespond- ents). The extrapolation procedure described by Armstrong and Overton (1977) revealed no significant differences between earlier and later respondents on either the sample demographics or the major constructs measured in the study. An additional check for demographic differences between the high- and low-risk treatment groups reveals that such varia- bles as sex, age, education, and job tenure are not signific- antly different between the groups (Table 1).

6.1. The risk manipulation

To test the hypotheses of the study, subjects were pre- sented with a vignette containing an ethical decision situ- ation: whether to pay a bribe to gain entry into a foreign market. Two of MacCrimmon and Wehrung’s (1986) risk determinants — lack of time and lack of information — were manipulated across two treatment groups to derive high- and

J. Cherry, J. Fraedrich / Journal of Business Research 55 (2002) 951–962

Table 1 Demographic profile of the sample

955

Variable

Grouping

All (n=419)

High-risk

Low-risk

c 2

P

 

group (n=215)

group (n=204)

Sex

male

378

194

184

0.000

.990

female

41

21

20

Marital status

single

23

6

17

6.285

.043

married

370

196

174

divorced

26

13

13

Age

18 – 24

3

0

3

10.457

.063

 

25

– 34

15

10

5

35

– 44

127

58

69

45

– 54

167

90

77

55

– 64

91

52

39

65

and over

16

5

11

Education

high school

31

17

14

3.781

.436

some college

82

41

41

bachelor’s degree

160

75

85

some grad school

87

46

41

graduate degree

59

36

23

Job tenure (years)

26.46

27.56

25.31

(t 416 =1.757; P=.080)

low-risk settings, and subjects were randomly assigned to the groups. For the high-risk group, the vignette contained information to indicate the lack of time and information relative to the decision. The low-risk group received a questionnaire identical in all other aspects except that the levels of time and information for making the decision regarding the payment were greater. Regardless of risk level, a financial sanction (possible loss of bonus) related to the individual’s action was included. In this way, perceptions of

Table 2

Correlations table

risk were based upon possible adverse financial consequen- ces, as opposed to social censure or other outcomes. Measures of perceived risk indicated that the high- and low-risk scenarios successfully produced a manipulation of

the risk variable, based on responses to the two-item scale:

‘‘...the

risk involved is ‘very high/very low’ and ‘unac-

ceptable/acceptable.’’’ Overall, subjects in the high-risk group indicated significantly higher perceptions of risk

(t 417df =5.32, P<.000).

 

Nonconsequential

Consequential

Ethical

Intention

Ethical

Perceived

evaluation

evaluation

judgment

to pay

issue

risk

Nonconsequential evaluation

6.1492

0.521

0.882

0.827

*

*

Significance

(1.4534)

0.574

0.793

0.812

*

*

Consequential evaluation

0.558

23.1491

0.539

0.510

*

*

Significance

0.000

(9.4117)

0.648

0.649

*

*

Ethical judgment

0.834

0.604

5.9708

0.760

*

*

Significance

0.000

0.000

(1.4123)

0.799

*

*

Intention to pay

0.814

0.597

0.776

6.1440

*

*

Significance

0.000

0.000

0.000

(1.5683)

*

*

Ethical issue

0.624

0.377

0.580

0.581

1.7112

*

Significance

0.000

0.000

0.000

0.000

(1.4981)

*

Perceived risk

0.527

0.538

0.526

0.543

0.339

2.5060

Significance

0.000

0.000

0.000

0.000

0.000

(1.7339)

Alpha

0.92

0.70

0.92

0.97

*

0.76

Correlations for entire sample below the diagonal. Means (standard deviations) for entire sample reported on the diagonal. Z-score correlations above the diagonal; upper figure in each cell=high-risk group, lower figure=low-risk group.

  • 956 J. Cherry, J. Fraedrich / Journal of Business Research 55 (2002) 951–962

Table 3 Multivariate test of significance: high- and low-risk groups and predictors of ethical judgments and intentions

Test

Value

F

Significance

Pillai’s trace

0.050

3.604

0.002

Wilk’s lambda

0.950

3.604

0.002

Univariate tests of significance

Variable

F

Significance

Group

Mean

S.D.

n

Nonconsequential evaluation a

8.687

0.003

High risk

6.35

1.32

215

 

Low risk

5.94

1.56

204

Consequential evaluation b

4.227

0.040

High risk

24.28

9.57

215

 

Low risk

22.41

9.07

204

Ethical judgment c

5.978

0.015

High risk

6.13

1.33

215

 

Low risk

5.80

1.48

204

Intention d

18.937

.000

High risk

6.46

1.18

215

 

Low risk

5.81

1.84

204

Ethical issue e

5.241

0.023

High risk

1.55

1.30

215

 

Low risk

1.88

1.67

204

a 1=ethical, 7=unethical. b Lower score=more positive, higher score=more negative.

  • c 1=ethical, 7=unethical.

  • d 1=likely/possible/definitely would, 7=unlikely/impossible/definitely wouldn’t. e 1=ethical issue agree, 7=ethical issue disagree.

6.2. Measures used in the studies

To measure nonconsequential evaluations, the question- naire used two semantic differential items, anchored by ‘‘ethical/unethical’’ and ‘‘acceptable/unacceptable,’’ in

response to the statement: ‘‘regardless of the consequences,

for you to make the payment would

be...’’

Consequential

evaluations were measured with a scale derived using Fish- bein and Azjen’s (1975) elicitation procedure, which has been

successfully used by Dubinsky and Loken (1989). Respond- ents were presented with a set of six statements of possible outcomes, with negative items reverse scored. For each item, the respondent indicated the likelihood of the outcome. This score was weighted by the respondent’s corresponding evalu- ation of the ‘‘goodness’’ or ‘‘badness’’ of each outcome, to form a composite measure of consequential evaluations. Ethical judgments were measured using a four-item semantic differential scale (Dabholkar and Kellaris,

Table 4 Model comparison and parameter estimates

Model

c 2

df

P

gfi

agfi

rmr

A: restricted

58.474

7

.000

.931

.804

.145

B: unrestricted

3.339

2

.188

.996

.957

.069

c 2

55.135

5

.000

One degree-of-freedom tests: paths 1 – 4 compared with restricted model Freed path:

 

c 2 change

P

P1: nonconsequential evaluation!ethical judgment

 

14.295

.000

P2: consequential evaluation!ethical judgment

8.219

.004

P3: ethical judgment!intention

6.272

.012

P4: consequential evaluation!intention

3.919

.048

Path loadings

Parameter

High risk

t

Low risk

t

P1: nonconsequential evaluation!ethical judgment

 

.82

20.081

a

.62

12.002

a

P2: consequential evaluation!ethical judgment

.10

2.564

a

.29

5.574

a

P3: ethical judgment!intention

.11

1.202

.30

4.515

a

* nonconsequential evaluation!intention

.65

7.153

a

.47

7.599

a

P4: consequential evaluation!intention

.09

1.741

.18

3.580

a

Squared multiple correlation: ethical judgment

.78

.68

Squared multiple correlation: intention

.65

.74

gfi=goodness of fit index; agfi=adjusted goodness of fit index; rmr=root mean square residual. a P<.05.

J. Cherry, J. Fraedrich / Journal of Business Research 55 (2002) 951–962

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1992). Intentions were indicated using a semantic differ- ential scale (Fritzsche and Becker, 1984). Respondents were asked: ‘‘In the scenario you just read, if you were responsible, what are the chances that you would make the payment?’’ To Fritzsche and Becker’s original ‘‘definitely would/definitely would not,’’ have been added the items ‘‘likely/unlikely’’ and ‘‘possible/impossible.’’ The latter two semantic differential items were added to improve the reliability of the measure. The vignette(s) appear in the Appendix A.

6.3. Perceived ethical content

A final concern was whether respondents sensed the presence of an ethical issue. A single item for the ethical content check yielded a mean for all respondents of 1.71 (1=agree; 7=disagree that the scenario presents an ethical

issue). Apparently, all subjects felt the presence of an ethical issue in the scenario. All multiple-item measures included in the study dem- onstrated acceptable reliability, as measured by coefficient alphas ranging from 0.7 to 0.92. These are reported, along with correlations among the constructs, in Table 2.

7. Results

Multivariate analysis of variance (MANOVA) was used to test for differences between the high- and low-risk groups on the constructs of the model (Table 3). The main effect of risk on the variables in Hypotheses 6, 7, and 8 was significant. Box’s test of equality of covariance matrices shows no difference between the covariance mat- rices across treatment groups (Box’s M=11.60, P=.327).

J. Cherry, J. Fraedrich / Journal of Business Research 55 (2002) 951–962 957 1992) . Intentions

Fig. 1. Model and parameter estimates.

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Subsequent univariate tests revealed that subjects in the high-risk treatment group responded with more severely negative ethical judgments, less intention to make the payment, and felt more strongly that the scenario presented an ethical issue — in support Hypotheses 6, 7, and 8. In addition, subjects in the high-risk group reveal significantly more negative nonconsequential evaluations, as well as more negative consequential evaluations. To test Hypotheses 1 through 5, that high- and low-risk subjects would display relatively different overall response patterns in their ethical reasoning — not merely differences among the constructs themselves — a structural model was estimated to test for differing parameter values across the high- and low-risk groups. Z-scores were used as inputs to offset the differing scales of measurement used for the constructs. Correlations among the Z-scores, as well as means and standard deviations are presented for both high- and low-risk groups in Table 2. Hypothesis 1 states that individuals in the high- and low- risk groups will differ in their overall pattern of responses to the ethical dilemma. To test the null hypothesis of no difference across the structural parameters of the model, the model was first estimated with all parameters con- strained to be equal across the high- and low-risk groups (Model A, restricted model). Data in Table 4 show the restricted model to be a poor fit (c 7df 2 =54.47, P=.000). A second model (Model B) was estimated with all parameters freed; this model indicates a reasonably good fit between the data and model (c 2df 2 =3.339, P=.188). The resulting chi- square change suggests the fit for Model B is significantly better than for Model A, and therefore Hypothesis 1 (sub- jects’ overall response patterns across the high- and low-risk scenarios are different) is supported. To examine Hypotheses 2 through 5, a series of one degree of freedom pairwise comparisons of high- and low- risk groups was conducted separately for each hypothesized

Table 5 Summary of hypothesis tests

path. In each case, the restricted model (A) was compared to a nested model having each specific parameter freed for estimation, one at a time. Any chi-square difference in the two models would come directly from the difference in fit attributed to the freed path — a significant chi-square difference figure for the two models would suggest the path estimates are significantly different. All four of the paths in Hypotheses 2 through 5 proved different between high- and low-risk groups; three of four in the direction expected (Fig. 1). Parameter estimates from Model B, reported in Table 4, reveal that subjects in the high-risk group show greater emphasis on nonconsequential evaluations in forming eth- ical judgments than subjects on the low-risk group, in support of Hypothesis 2. Conversely, subjects in the low- risk group showed significantly greater emphasis on con- sequential evaluations in forming their ethical judgments than subjects in the high-risk group, in support of Hypo- thesis 3. Hypothesis 4 predicted that subjects in the high- risk group will show greater influence of ethical judgments on intentions than their low-risk counterparts. The parameter for subjects in the high-risk group was not significant, however, and no support is found for this prediction. Parameter estimates of the direct influence of consequen- tial evaluations on intentions show that subjects in the low- risk treatment group make greater use of consequential evaluations in forming intentions than subjects in the high-risk group, in support of Hypothesis 5. An unexpected finding suggested by modification indi- ces from the structural analysis is that nonconsequential evaluations have a significant direct influence on behavioral intentions for both high- and low-risk groups — a relation- ship not suggested by the Hunt and Vitell theory. The apparently strong relationship between nonconsequential evaluations and intentions is possibly attributable to com- mon methods variance, and/or construction of the question-

Hypothesis 1:

Individuals who perceive greater (lesser) amounts of risk in an ethical dilemma will differ from those who perceive less (more) risk in their overall pattern of decision-making.

supported

Hypothesis 2:

Individuals who perceive greater risk in the ethical dilemma will show a stronger link (higher path coefficient) between nonconsequential evaluations and ethical judgments than those who perceive less risk.

supported

Hypothesis 3:

Individuals who perceive less risk in the ethical dilemma will show a stronger link (higher path coefficient) between consequential evaluations and ethical judgments than those who perceive more risk.

supported

Hypothesis 4:

Individuals who perceive greater risk in the ethical dilemma will show a stronger link between ethical judgments and intentions than those who perceive less risk.

not supported

Hypothesis 5:

Individuals who perceive less risk in the ethical dilemma will show a stronger link between consequential evaluations and intentions than those who perceive more risk.

supported

Hypothesis 6:

Individuals who perceive greater risk in an ethical dilemma will express more severe ethical judgments of the unethical behavior than individuals who perceive less risk.

supported

Hypothesis 7:

Individuals who perceive greater risk in an ethical dilemma will express less intention to engage in the unethical behavior than individuals who perceive less risk.

supported

Hypothesis 8:

Individuals who perceive greater risk in an ethical dilemma will express significantly higher perceptions that the dilemma presents an ethical issue than individuals who perceive less risk.

supported

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959

naire. This relationship is not unique to this study, however. Of the studies which measure these and similar constructs, only a few (Vitell, 1986; Mayo and Marks, 1990; Hunt and Vasquez-Parraga, 1993) report correlation matrices, and they also find a strong association among deontological evaluations, ethical judgments, and intentions. The study’s hypotheses and findings are summarized in Table 5.

8. Discussion of findings and implications

Taken collectively, the findings suggest that, regardless of risk perception, nonconsequential evaluations ‘‘out- weigh’’ consequential evaluations in forming ethical judg- ments for all the respondents in the study. This finding supports several previous studies of the Hunt and Vitell theory, which report that, in the relative sense, nonconse- quential evaluations generally outweigh consequential eval- uations in forming ethical judgments. In the absolute sense, however, the results also suggest that heightened risk perception — in support of Janis and Mann’s account of decision-making — tends to increase the impact of non- consequential evaluations in forming ethical judgments. At the same time, reduced risk perceptions apparently cause consequential evaluations of outcomes and consequences to have a ‘‘greater voice’’ both in the formation of ethical judgments and behavioral intentions. This latter finding should hold considerable interest for those who believe that teleological reasoning about outcomes may erode an organization’s ethical culture. Bellizzi and Hite (1996), for example, argue that when consequences play more of a role in decision-making than the act itself, sales managers may be inclined to overlook and even to encourage unethical sales force behaviors. Hunt and Vasquez-Parraga (1993) argue that behavior-based control systems for mon- itoring, directing, and compensating employees — as opposed to outcome-based systems — should require that sales managers follow an internalized set of deontological norms that focus on the intrinsic characteristics of acts that make them right or wrong. To the extent that employees adhere to ethical reasoning based on the intrinsic properties of certain behaviors, they will better support an organization’s long-term goals and contribute to a more ethical organiza- tional climate (Hunt and Vasquez-Parraga, 1993). For decision-makers who nevertheless are more comfort- able weighing the relevant costs and benefits of their choices, it is advisable to consider the practical difficulties of con- sequences-based ethical reasoning. Smart (1961) has argued that the utilitarian (teleologist) can never anticipate all the consequences for all the parties involved; consequences are like ‘‘ripples in a pond.’’ A case in point has to do with a number of much publicized incidents from recent years involving U.S. auto manufacturers. In the case of the Pinto, and later, the Chrysler minivan, cost/benefit calculations suggested it was the better choice not to make design changes in the interests of safety — even when safety concerns had

come to decision-makers’ attention. The conclusion reached in both these cases was that it would cost less to settle anticipated lawsuits than to modify the design of the vehicle. In hindsight, it is clear that the outcome-based reasoning of the parties involved failed to anticipate the extent of the damages or the public relations problems that eventually followed. It may be argued in these cases that the automakers either did not perceive the ethical dimensions of the situation, or that they believed that the primary issues are basically economic issues, with no moral worth. If either is correct, it only serves to amplify Belizzi’s concern about the ways in which out- come-based decision processes may overlook some of the unpleasant ethical side effects of critical decisions. At the same time, this would point to the need for organizational ethical guidelines that focus strongly on the intrinsic prop- erties of choices and acts. As noted, the results of the study find a relatively greater voice for nonconsequential evaluations in making ethical judgments. This does not necessarily imply, however, that outcome-based evaluations may always be expected to recede to the background. While the manipulation of risk did not actually reverse the relative importance of nonconse- quential and consequential evaluations, the results of the study show clearly that lower perceptions of risk lead to significantly more favorable ethical judgments of bribery, and greater inclination to make such payments. As comfort levels in an ethical dilemma increase, or the apparent balance of possible outcomes becomes more favorable, it is plausible to speculate that consideration of outcomes may actually over- take a sales manager’s beliefs about the intrinsic rightness or wrongness of paying a bribe. In addition, it seems likely that when less risk is felt, as in decisions concerning everyday routine tactical and implementation matters, employees will probably be subject to more ethical lapses — the giving of small gifts, for example. The findings of this study have significant implications for the design of effective organizational codes of ethics. To understand better how to use risk as a deterrent, it is important to consider the source of risk. To the extent that risk is the product of situational ambiguity — lack of time, information, and/or control — employees may tend to more strongly endorse and adhere to nonconsequential precepts within ethical codes, seeing them as a set of rules and principles to simplify ethical decision-making. Accordingly, it may be in the firm’s best interest to preserve this element of uncertainty. Business people may show strong support for the organiza- tion’s ethical principles, perhaps because of moral convic- tions, but also because of general unease about possible risks, the difficulty of anticipating all the outcomes of their deci- sions, and for the heuristic value of ethical codes founded on nonconsequentially based rules and imperatives concerning the intrinsic properties of certain behaviors. Ghosh and Crain (1995) argue that the Internal Revenue Service’s conscious efforts to make the audit environment more uncertain are effective in controlling unethical tax

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reporting. The challenge for designers of ethical codes is to establish guidelines that operate effectively as a deterrent by creating risk perceptions based on appropriate tangible information, i.e., organizational procedures and values, and unambiguous information about the strength of the firm’s position — without unintentionally encouraging outcome-based evaluations of the ethical dilemma.

8.1. Limitations of the study

The choice of a single scenario raises concerns about the generalizability of the results. Because of the situational quality of moral deliberation, it would be unwarranted to suggest that similar results would hold for all situations having ethical content. Additionally, it is possible that the sample for this study — sales managers — may exhibit different responses to ethical dilemmas and risky decisions than market researchers, or retail sales personnel, for example. The results reported here should be tested against other samples using a variety of scenarios. A more serious limitation has to do with the measure of nonconsequential evaluations. A more detailed approach to measuring man- agers’ beliefs about rights, duty, and justice would provide a stronger comparison with teleological evaluations, and the influence of risk perception on each.

9. Implications for future research

One question that designers of organizational ethics codes might consider is ‘‘What kinds of moral philosophies will be most effective in maintaining ethical behaviors?’’ It

may be reasonable to assume, on the basis of our results, that deontological arguments dealing with the intrinsic properties of ethical reasoning — concerns for justice and the rights of the parties involved, as opposed to desired outcomes — are more persuasive, especially under higher risk conditions, if only because they are easier to remember, and ‘‘fit’’ better with the high-risk decision-making mind-set (Janis and Mann, 1977). The relative accessibility from memory of consequential and nonconsequential moral rea- soning in the context of organizational ethical codes remains an open question. Another question, which may have far-reaching implica- tions for ethics research in business, deals with the means by which researchers have historically operationalized the decision-making process. At first glance, it would seem that higher risk entailing harsher consequences and uncertain probabilities deals entirely with teleological judgments. If this is true, how then can decision-makers emphasize the intrinsic moral worth of the behavior without regard for consequences as risk goes up? The answer may be that they don’t, entirely. Possibly, the measurement for nonconsequen-

tial evaluation (‘‘it is unacceptable

...’’)

may be deeply

confounded with subjects’ affective responses to the ethical

dilemma.

It is plausible to speculate that the nonconsequential statements such as: ‘‘it is just wrong to pay a bribe...’’ and ‘‘one has no obligation to make the payment’’ have an immediacy — similar to a ‘‘gut-level’’ response — which suggests something besides the cognitive complexities of deontological thought. In his Ethics, Dewey (1932) makes the observation that much of human behavior is met with an unmediated stamp of approval or disapproval. This leads him to conclude that an ethic of approbation and condem- nation — in addition to deontological and utilitarian (tele- ological) reflection — is a third independent variable of ethical theory. In the Fishbein and Ajzen (1975) theory judgments of evaluative character are subordinated into a cognitively driven attitude model. Affect, however, may better be conceptualized as a valenced feeling state, and not merely an evaluative judgment. The limitations of capturing and recording unmediated affective processes are well noted (Cohen and Areni, 1991). Although attempts to measure cognitively unmediated affective responses have proven problematic, advances in this area should greatly enhance our understanding of moral reasoning. Finally, some have suggested that purely consequential analyses do not imply ‘‘moral’’ imperatives, but merely ‘‘hypothetical’’ ones (Mascarenhas, 1995). Do managers who emphasize outcomes perceive their actions as ‘‘less moral’’ and does this self-perception lead to unethical behaviors? In the demanding arena of sales management and personal selling, sales personnel continuously find themselves balancing conflicting duties and expectations. Bribery, in particular, has emerged as an especially significant area of concern in a survey of managers (Hunt et al., 1984). A question that remains to be addressed has to do with whether such conflicts lead to a form of emotional exhaustion — a product of role ambiguity and role conflict, among other factors — with resultant dec- reased feelings of job satisfaction, organizational commit- ment, and increased turnover intentions (Babakus et al.,

1999).

The answers to these questions will have far-reaching implications for better sales-force management, and ulti- mately, for the design of more effective organizational ethical codes. Future research in ethical decision-making should incorporate, beyond formal moral philosophical abstractions, the emotional dimensions of ethical dilemmas facing the organization’s most visible decision-makers.

Appendix A. (measures indicated in CAPS)

This survey is aimed at understanding how people think about business problems. In this questionnaire, there are no ‘‘right’’ answers in the way there are right answers to math problems. In exchange for your help, your privacy is guaranteed: your responses in this questionnaire will be completely anonymous.

J. Cherry, J. Fraedrich / Journal of Business Research 55 (2002) 951–962 961

A.1. (HIGH-RISK SCENARIO)

Rollfast Bicycle has been barred from entering the market in a large Asian country by the concerted efforts of local bicycle manufacturers. Rollfast could expect to net very substantial profits from sales if it could penetrate the market. Last week a businessman from the country in question contacted you and stated that entry into this market could be had for an ‘‘under-the-table’’ payment that you personally could afford. However, the payment must be received by the end of the day, tomorrow. You have been with Rollfast for a number of years, and while you’ve always been a solid performer, you never quite closed that ‘‘breakthrough’’ deal. If you can close this one, though, it seems clear you can take an early retirement. However, if you are caught you will more than likely be out of a job. You have no information concerning what is ‘‘usually’’ done in these situations, and since the payment is expected tomorrow, you have no time to gather additional information. About all you do know is that the payment is not actually illegal.

A.2. (LOW-RISK SCENARIO)

Rollfast Bicycle has been barred from entering the market in a large Asian country by the concerted efforts of local bicycle manufacturers. Rollfast could expect to net very substantial profits from sales if it could penetrate the market. Last week a businessman from the country in question contacted you and stated that entry into this market could be had for an ‘‘under-the-table’’ payment that you personally could afford. However, the payment must be received by the end of next month. You have been with Rollfast for a number of years, and while you’ve always been a solid performer, you never quite closed that ‘‘breakthrough’’ deal. If you can close this one, though, it seems clear you can take an early retirement. However, if you are caught, there is some chance of losing your annual bonus. You know the payment is not actually illegal, and you are aware of occasions in the past when such payments have been made with no financial penalties imposed on anyone involved.

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