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The effects of business ethics and corporate social responsibility on intellectual capital voluntary disclosure

Journal of Intellectual Capital

ISSN : 1469-1930

Article publication date: 9 March 2021

Issue publication date: 17 December 2021

This study aims to examine the potential effect that business ethics (BE) in general and corporate social responsibility (CSR) more specifically can exert on the voluntary disclosure (VD) of intellectual capital (IC) for the ethically most engaged firms in the world.

Design/methodology/approach

The research design is based on an inductive approach. As part of the global quantitative investigation, the authors have analyzed the impact of BE and CSR on the transparent communication of the IC. The data under analysis have been investigated using multiple linear regression.

Based on a sample of 83 enterprises emerging as the most ethical companies in the world, the results have revealed that the adoption of ethical and socially responsible approach is positively associated with the extent of VD about IC. This finding may help attenuating the asymmetry of information and the conflict of interest potentially arising with corporate partners. Hence, IC-VD may stand as an evidence of ethical and socially responsible behaviors.

Practical implications

Global and national regulators and policymakers can be involved by these results when setting social reporting standards because they suggest that institutional and/or cultural factors affect top management's social reporting behavior in the publication of the IC information.

Social implications

Direct and indirect stakeholders, if supported by ethical and socially responsible behaviors of the company, could assess more in detail the quality of the disclosed information concerning the IC.

Originality/value

Most of the studies that have been conducted in this field have examined the effect of BE and CSR on the firm's overall transparency, neglecting their potential effect on IC disclosure. This study is designed to fill in this gap through testing the impact of ethical and socially responsible approaches specifically on IC-VD.

• Business ethics
• Corporate social responsibility
• Voluntary disclosure
• Intellectual capital
• Transparency

Rossi, M. , Festa, G. , Chouaibi, S. , Fait, M. and Papa, A. (2021), "The effects of business ethics and corporate social responsibility on intellectual capital voluntary disclosure", Journal of Intellectual Capital , Vol. 22 No. 7, pp. 1-23. https://doi.org/10.1108/JIC-08-2020-0287

Emerald Publishing Limited

Copyright © 2021, Matteo Rossi, Giuseppe Festa, Salim Chouaibi, Monica Fait and Armando Papa

Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode

1. Introduction

Over the last few decades, firms have been generating value not only from securities and financials but also from other intangible elements, such as skills of employees (human capital), novelty in technology (structural capital), relationships with customers (direct relational capital) and reputation on the market (indirect relational capital or social capital), all forms of potential intellectual capital (IC), whose contribution, however, is probably riskier than industrial assets ( Su, 2014 ; Cruz-González et al. , 2014 ). In fact, the impact of IC on the business results is uncertain, and in addition, it is often more difficult to identify and measure its characteristics ( Murray et al. , 2016 ).

The uncertainty about its representation and measurement still poses issues related to accounting, evaluation and governance ( Hussi, 2004 ; Guthrie et al. , 2006 ; Hamed and Omri, 2014 ). To limit these problems, managers may choose voluntary disclosure (VD) to reduce the asymmetry of the information ( Branco and Rodrigues, 2008 ).

IC is a driving factor and creator of lasting value ( Lin et al. , 2015 ; Vaz et al. , 2019 ), and disclosure by applying ethical and social principles improves the trust of information and reduces the conflict of interest ( Alves et al. , 2012 ; Chung et al. , 2015 ; Al Maskati and Hamdan, 2017 ). These behaviors may exert a positive effect on the global quality of the IC-VD ( Melloni, 2015 ), and in this study, more specifically, VD of nonfinancial information about IC are assumed to be positively influenced by ethical and socially responsible behaviors of the company's decision-makers ( Corvino et al. , 2019 ).

In this respect, interest in the development of business ethics (BE) and corporate social responsibility (CSR) in accounting, evaluation and management has gained increasing attention in the academic literature ( Nahapiet and Ghoshal, 1998 ), and the last 20 years (or even more) of empirical research on these issues have generated vast literature ( Gray et al. , 1995 ; Chen and Gavious, 2015 ; Singh and Gaur, 2020 ). Accordingly, the quality of the information published by companies about their IC has received an ever more peculiar interest in managerial research ( Ousama and Fatima, 2012 ; Muttakin et al. , 2015 ; Devalle et al. , 2016 ; Bellucci et al. , 2020 ), with specific concerns about the effect of BE and CSR on the quality of the disclosed information on voluntary or mandatory basis, also considering several financial scandals that have added doubts about relevance and reliability of some company data ( Lehnert et al. , 2016 ).

Subsequently, a critical question is the following: is it adequate, opportune and reliable to take into consideration only the accounting information that mandatorily concern IC, especially considering that this entity is so difficult to identify and measure? This issue seems deserving huge attention particularly in the current context, constantly and continuously marked by the rise of BE and CSR, with consequent effect also on the relevance of the quality of the disclosed information.

For example, the legitimacy theory provides some contributions regarding environmental reputation, and the related effect of VD on reputational capital ( Alvino et al. , 2020 ). In this respect, the reputation of the company is a social construct stemming from the process of legitimization ( Bond et al. , 2016 ).

However, empirical studies investigating the effect of BE and CSR on VD have proved mixed results, mostly because of the different meaning about ethics and responsibility in each institutional and cultural context ( Ting et al. , 2020 ). The current study aims to combat this diversity and its consequences in terms of value creation, analyzing more specifically the potential effect of BE and CSR on the VD of IC ( Giacosa et al. , 2017 ).

The perimeter of the research regards the companies that are ranked by the Ethisphere Institute – most probably the global leader in the world for defining and advancing the standards of ethical and social practices that fuel corporate character, market trust and business success – as the most ethical companies in the world. More precisely, the contribution of the study is in checking whether the companies' behavior about IC disclosure is influenced by BE and CSR, aspect that has been often neglected in other studies.

In this respect, a research concerning companies displaying high level of ethical and socially responsible commitment has been conducted, with two main ambitions. First, results should enable to explicitly identify the characteristics that are more likely to influence the diffusion of information about IC in the annual reports through adoption of BE and CSR; second, it should help exploring the contribution of the several company characteristics as assessed in terms of ethics-based scoring.

The empirical evidence emerging from the research has demonstrated that the adoption of approaches that are based on BE and CSR noticeably help in enhancing the disclosure extent of the IC information as figuring in annual reports. Thus, this study should serve to provide further recommendations to the companies intending to adopt codes of ethics, or to put forward CSR practices, encouraging these behaviors also from the point of view of the IC disclosure (and consequent accounting, evaluation and management).

The structure of this paper is organized as follows; Section 2 presents the basic theoretical background and the hypotheses that have been developed: in this section, the relationship between the potential effect of BE and CSR on the VD of IC has been analyzed. Section 3 displays the methodology that has been adopted, while the empirical results are exposed and discussed in Section 4 ; finally, the discussions of the findings, the concluding remarks and their implications are provided in Section 5 .

2. Theoretical background and hypotheses development

As aforementioned, the following investigation is about the effect of BE and CSR on IC-VD, also for clarifying the distinct influences that may arise from concepts that sometimes are considered in ambiguous connection ( Fassin et al. , 2011 ). Therefore, the first step of the research is about a general analysis of the studies focusing on the association between ethical as well as socially responsible behaviors and IC-VD as core aspect of a more global knowledge management approach that cutting-edge enterprises should adopt to succeed ( Serenko and Bontis, 2013 ).

2.1 Theoretical background

To present main reasons and usefulness of the VD of information about IC, the theory of planned behavior has been adopted as fundamental approach. In fact, although extensive research has focused on the variables that externally and internally may influence the managers' decision about disclosing information on IC, few studies have examined in this respect the psychological factors and have used a theoretical decision-making framework ( Coluccia et al. , 2017 ; McPhail, 2009 ).

The theory of planned behavior, largely used to explain the process of individual decision-making behavior ( Ajzen, 1991 ), can emerge as a theoretical framework for investigating the psychosocial factors stimulating the managers' decision to disclose IC information in a mandatory and/or voluntary way. In addition, this model has demonstrated its superiority over other theoretical approaches in many contexts of VD, including IC ( Zhang et al. , 2019 ).

This theory assumes that when individuals, considering altogether internal attitudes and external considerations, perceive a manageable activity as capable of providing business benefits, such as those that may arise from IC-VD, they receive intention, support and encouragement in adopting that specific behavior, also making assumptions about their ability to perform the task ( Passaro et al. , 2018 ; Mura et al. , 2012 ).

For example, Armitage and Conner (2001) examined 185 empirical studies that were conducted prior to 1997, finding that about 39 and 27% of the variance of intention and behavior, respectively, was caused by the theory of planned behavior. In fact, this theory is a rational decision-making model, which is mainly used to predict the potential behavioral intentions of the managers (in this specific case, adopting VD of IC).

Three key independent variables are at the basis of this framework: (1) the attitudes toward a particular behavior; (2) the perceptions of others' approval or disapproval of a particular behavior (subjective norms) and (3) the perceived behavioral control about easiness or difficulty in performing a particular behavior ( Ajzen, 1991 ). This configuration is adopted as methodological basis for the theoretical model in which assessing the following hypotheses.

2.2 Hypotheses development (H1) : BE and VD of IC

Transparent and reliable communication is essential to reflect the true image of a company ( Bhimani, 2008 ): with this regard, financial transparency is a necessary condition for a firm that is involved in the BE process. In the specific context of disclosure, several authors have recognized that BE rooted in organizational culture has a tremendous influence on the development of IC-VD ( Branco and Rodrigues, 2008 ).

For example, Jo et al. (2008) have analyzed the development of ethical standards in the business to improve the quality of the disclosed information, finding that entrepreneurs and managers that consider the promotion of ethical behaviors are urged to ensure permanent disclosure of the company's IC. Later, Navid et al. (2015) have found that unethical behaviors are at the basis of corporate financial scandals, workplace frauds and harassment or misleading financial reporting: such issues have raised awareness about the positive benefits of ethical behavior, also in improving VD (and then, also about IC), to limit the problems of the agency theory.

Mouritsen (2004) has found a significant gap between the market value and the book value resulting from the failure of the companies' hidden value in their annual reports: consequently, BE oriented to IC-VD would limit the problem of the business undervaluation (more specifically, VD of information about IC is positively influenced by the ethical behavior of the company's decision-makers).

On the other hand, the complexity and uncertainty of strategic decision-making require different combinations of data, information and knowledge. In this respect, some research has been conducted to examine the factors influencing disclosure of IC: Ferreira et al. (2012) have found that ownership concentration and firm size have a positive influence on the disclosure of IC, and ethical behaviors also positively influence this disclosure.

Several studies suggest that there are many benefits to acting ethically, such as improving the financial and nonfinancial performances as well as creating a sustainable competitive advantage ( Goel and Ramanathan, 2014 ; Khondkar et al. , 2016 ). In addition, in highly risky and uncertain contexts, policymakers are forced to select powerful tools over VD.

BE behaviors have positive impact on the extent of the IC-VD.

2.3 Hypotheses development (H2) : CSR and VD of IC

The economic value of the company is expressed not only by its means of production but also by the global impact that fundamentally derives from its IC ( Campanella et al. , 2014 ), activating human, structural and relational resources to generate shared value ( Porter and Kramer, 2011 ) at business, social and environmental level ( Elkington, 1998 ). As result, a new path on IC reporting sustains that all companies are increasingly required to be socially responsible and to better manage their environmental impact ( Aslam et al. , 2018 ).

In this vein, organizations have developed accounting and management systems and improved their disclosure practices according to social and environmental principles ( Khondkar et al. , 2016 ). In part, this has been due also to the fact that companies may have incentives for adopting globally responsible approaches and operating socially responsible initiatives ( Gangi et al. , 2019 ); however, a study by Türkel et al. (2016) on the European Union has provided evidence that CSR is a mean that companies may voluntarily decide to adopt to contribute to better society and cleaner environment.

From one side, Sun et al. (2010) have found that companies that need to pursue a strategy of VD of IC are brought to value CSR, and this should be positively interpreted by the various stakeholders. On the other side, regarding the potential asymmetry of information and conflict of interest that may exist, CSR should constitute a behavioral method that would have positive effect on the corporate behaviors, as it promotes transparency, also with regard to the potential VD of IC ( Beretta et al. , 2019 ).

Coherently to the dynamic resource capability perspective of (Bamel and Bamel, 2018) , Luthan et al. (2016) found that in an uncertain world, the adoption of a CSR approach could help reducing uncertainty, especially if the company discloses information about its IC. Similarly, some researchers argue that CSR is a very broad domain, and VD of IC should be considered as a social responsibility action ( Chan et al. , 2014 ).

Polo and Vázquez (2008) have described the relationship between CSR and the VD of information, to ensure the sustainability of the business in general and its operational goals more specifically. In other words, CSR is an asset for the company and the various stakeholders ( Fukukawa et al. , 2007 ) because of its direct contribution to IC (indirect relational capital, for example), with consequent influence on the relevance of the information provided by the company about its IC and knowledge properties more in general ( Rechberg and Syed, 2013 ).

Moreover, as aforementioned, Khondkar et al. (2016) have studied the effect of CSR on the quality of the information disclosed in companies' annual reports. They have found a positive relationship between the level of disclosure and the intensity of CSR, concluding that greater disclosure is a form of socially responsible behavior, thus directly and/or indirectly impacting IC ( Vrontis et al. , 2020 ).

CSR behaviors have positive impact on the extent of the IC-VD.

3. Research design

3.1 sample construction and data collection.

Being the main purpose of this study to explore the effect of BE and CSR on IC-VD, a sample of firms already involved in the process has been selected. In other words, the selectable companies have been detected among those with evident commitment and involvement in ethical and social behaviors.

Several statistical institutes are responsible for making an appropriate classification in this specific field: however, since 2007, the Ethisphere Institute ( Ethisphere.com ) has been analyzing the global market to identify, sector by sector, the most committed companies in the field of ethical behaviors, drawing up a list of the most ethical companies in the world and gaining at international level high reputation in the field ( BusinessWire.com ).

Then, the following investigation has been grounded on the Ethisphere Institute database, which considers more than 100 criteria; the most important are social responsibility, good governance, environmental impact, implementation of code of good behavior, commitment of the direction to questions of ethics and CSR, setting up of internal monitoring indicators, citizen investment and so on (it also considers negative criteria, such as the existence of disputes or infringements to sector regulations). This database provides a global overview, and the list of elected representatives reveals a real geographical diversity with several companies located outside the United States, such as the United Kingdom, Australia, Sweden, Germany, India, Guatemala, Poland, Switzerland, Saudi Arabia, Portugal and Belgium.

The data under investigation have been obtained from the Global-100 KPI 2015 database published by the independent Ethics Expert Group of the Ethisphere Institute (secondary, which have been then summarized into composite indexes, and not empirical data have been used to avoid any potential bias deriving from individual interviews concerning BE and CSR, most of all in the context of the planned behavior theory). Considered as one of the most authoritative indexes in the world due to its methodology and reliability, the Corporate Knights Global 100 designates each year the top 100 companies (out of several thousands) that are the most responsible in terms of ethical behavior.

The year 2015 has been chosen so that the data under analysis could be taken as definitively reliable, considering the time that sometimes is necessary to validate all the accounting information, most of all from a social and environmental point of view. Thus, the 2015 database, to the best of the authors' ability, is the latest publicly available for which it has been possible to collect all the necessary information for implementing the current investigation, but evidently the methodology can be replicated for any other year, when all necessary data would be available (for example, searching for the adequate data starting from WorldsMostEthicalCompanies.com ).

The initial population consisted of 4,353 companies (candidates); in a second step, 4,253 companies that did not meet the classification criteria for the first 100 companies were excluded. From the 100 best ranked companies, for the specific scope of the current research firms that are part of the financial sector, considering the very peculiar rules that govern this industry, have been excluded (i.e. 17 companies); thus, the final sample has included 83 firms, with Table 1 summarizing the sampling selection criteria.

Tables 2 and 3 describe the distributional profiles by country and by sector, respectively: the sample includes 18 developed countries belonging to 35 industries, according to the 48 industry group affiliations as figuring in Fama and French (1997) , with most firms that are based in the USA, the UK and France (these three countries make up 54.28% of the total sample).

The companies from the USA are at the top of the list, with 25% of the sample (20 firms out of 83, 24.09%): French and British companies are entitled of the second position in this ranking, respectively, represented with 10 companies on an equal basis. Then, Canada ranks fourth, since it is represented with eight firms, corresponding to 10% of the total sample (hence, these four countries account for almost 60% of the total sample).

In Table 3 , the most represented sectors are Oil, Gas & Consumable Fuels (eight firms), Pharmaceuticals (seven firms) and Chemicals (four firms), respectively. Concerning other sectors, the number of companies is more limited (three or less).

3.2 The regression model

DISC_SCO: composite index about IC-VD, calculated as combination of several elements (cf. Table 4 ).

ETH_SCO: composite index about BE, calculated as combination of several elements reflecting ethical principles.

CSR_INDEX: composite index about CSR, calculated as combination of 40 indicators reflecting principles of individual and collective social responsibility.

INVT: the degree of innovation intensity is the ratio between research and development (R&D) costs and the turnover (concerning 2015).

TAX_PAID: the effective tax rate is the ratio between tax expenses and earnings before interest and taxes.

ETH_COUNTRY: the scores about this variable range from 1 to 7, with 1 indicating a very low level of country ethics and 7 indicating a very high level of country ethics.

WOM_BOARD: this variable measures the proportion of women that are present in the boards of directors.

LEG_SYST: the legal system works as a binary variable, which numbers 1 if the company belongs to the Anglo-Saxon legal system (globally recognized as stricter), and 0 otherwise.

LEVE: the level of indebtedness is the ratio between long- and medium-term debts and total assets.

POL_SECTOR: the pollutant sector works as a binary variable, which numbers 1 if the company belongs to the polluting sectors (more regulated), and 0 otherwise.

3.3 Variables definition

To operationalize the hypotheses under test, all the variables that have been included in the empirical model are defined and commented as follows.

3.3.1 Dependent variable (“DISC_SCO”)

To measure this dimension, Li et al. (2008) have adopted a content analysis method, investigating the annual reports of selected companies to derive the qualitative, quantitative, financial as well as nonfinancial data relating to IC. In Table 4 the several components for human, structural and relational capital are reported.

In the current research, according to the measure used by Li et al. (2008) , cited also in Maaloul and Zeghal (2015) , the variable “DISC_SCO” has been adopted as a proxy of IC-VD, concerning published items about IC. Based on the examination of the annual reports, this dimension appraises the disclosed information on IC.

3.3.2 Independent variables

As aforementioned, several categories of explanatory variables have been selected to test their combined effects on the VD of IC. In the empirical model under analysis, to test H1 and H2 , two explanatory variables are naturally the most relevant, namely, BE and CSR.

3.3.2.1 BE (“ETH_SCO”)

The ethical measurement has been differently implemented in different contexts because this concept is highly complex and relates to several nonmeasurable dimensions. In addition, several studies have recently operationalized this measure by various means, originating from several international organizations.

In this research, the Ethisphere Quotient developed by the Ethisphere Institute has been adopted to measure the BE of the firms, as result of an investigation that consists of a series of multiple-choice questions that count the company's ethical performance. It is a composite index based on the combination of several items, reflecting each company's level of ethical principles.

3.3.2.2 CSR (“CSR_INDEX”)

In the current study, this measure has been derived from Dias et al. (2017) , who have constructed a list of indicators for measuring the CSR associated practices. The construct involves 40 CSR indicators categorized into three CSR dimensions (5 economic, 15 environmental and 20 social), as shown in Table 5 , thus providing a global view on the CSR of each firm.

The choice of the 40 indicators has been influenced by the most widely adopted standards on CSR disclosure (CSRD), i.e. the Global Reporting Initiative (GRI) Guidelines ( Bebbington et al. , 2008 ). Dias et al. (2017) have primarily focused on the GRI core indicators representing the well-established CSR indicators, and the selected items have been adapted to avoid penalizing companies that do not apply the GRI model.

CSR_INDEX = Level of CSR disclosure

e j  = Attributed analysis (1 if the disclosure item is found, and 0 otherwise)

e  = Maximum number of items a company can disclose (40).

3.3.3 The control variables: characteristics about the firm and the environment of the firm

BE and CSR are not the only factors that may influence the VD of IC. A control has been operated about other determinants of VD that have been documented in prior studies and that might explain the effects of financial and economic peculiarities of the firms on the scale and design of voluntary, and sometimes even mandatory, disclosure of IC ( Ribeiro Lucas and Costa Lourenço, 2014 ).

More specifically, control variables related to the characteristics of the firm are the following: the degree of innovation intensity (INVT), the effective tax rate (TAX_PAID), the percentage women on board of directors (WOM_BOARD), the leverage level (LEVE) and the pollutant sector (POL_SECTOR). Control variables related to the characteristics of the environment of the firm are the following: the level of country ethics (ETH_COUNTRY) and the legal system (LEG_SYST) because the sample includes several countries.

Generally, positive signs should be expected for INVT, WOM_BOARD, ETH_COUNTRY and LEG_SYST, whereas negative signs should be expected for LEVE, and POL_SECTOR, while no directional prediction is assumed for TAX_PAID. Finally, for an overall overview about the model variables composition, cf. Table 6 .

4. Empirical results and discussion

The current research, although engineered for testing specific hypotheses, has an explanatory purpose, aiming at identifying the potential determinants for the VD of the IC through ethical-and-social responsibility approach. As a result, a linear relationship could be established between the variable to be explained (IC-VD) and the potential explanatory variables (BE and CSR).

4.1 Descriptive analysis

Sections A and B, as figuring in Table 7 , provide the descriptive statistics characteristics concerning the continuous and dichotomous variables under investigation. Section A depicts mean, standard deviation, minimum and maximum relevant to the continuous variables, whereas Section B provides the frequency of the dichotomous variables; globally speaking, the sample seems to be evenly distributed.

Starting with the analysis of Section A in Table 7 , the descriptive analysis provides evidence that the mean level of IC-VD (DISC_SCO) is 0.59; this score is high with respect to the Maaloul and Zeghal (2015) reached index (0.46), relevant to a sample of US companies in 2013. Moreover, the current sample encloses firms that should also tend to improve their informational capacity related to IC.

The BE score (ETH_SCO) has a mean value of 0.608. Most companies in the sample tend to be more involved in BE activities.

The CSR scores range from a minimum of 0.15 to a maximum of 0.95, with a mean of 0.698. A higher CSR score denotes that the company displays a better CSR performance ( Hassan and Guo, 2017 ).

As regards the control variables, the following considerations may arise. The intensity of innovation (INVT) displays an average of 0.068, with a minimum of 0 and a maximum of 0.745; whereas the mean level of debt (LEVE) scores 33.3 (that seems an appreciable level of indebtedness), and the effective tax rate (TAX_PAID) exhibits an average of 0.166.

Regarding women's percentage on directors' boards (WOM_BOARD), it has been discovered that, on average, 0.223 of board members are female, with a minimum and a maximum value of 0.10 and 0.429, respectively. Consequently, there is predominance of men in the boards of directors.

As concerns the measure of the level of the country ethics (ETH_COUNTRY), Finland (6.4), Denmark (6.2) and Japan (6) rank as the most ethical, while Spain (3.8), Canada (3.51) and South Korea (0) exhibit the lowest ethical values. This finding is very relevant, affecting the potential influence of the countries' ethical approach on the adoption of IC-VD policies on behalf of enterprises.

From the analysis of Section B in Table 7 , highlighting the binary variables related frequencies, as regards the legal system (LEG_SYST) most of the companies in the sample turn out to pertain to the Anglo-Saxon rules (55%). Additionally, concerning the pollutant sector variable (POL_SECTOR), 51% of the companies in the sample appears to belong to nonpolluting sectors.

4.2 Correlations analysis

The Pearson coefficients were computed to examine the associations between the independent variables. According to Gujarati (2004) , if the pair-wise comparison between two independent variables is over 0.8, serious multicollinearity exists.

The maximum pair-wise value in the current investigation is 0.2649 (cf. Table 8 ); thus, multicollinearity should not be a concern for the regression analysis. Nonetheless, the null hypothesis of autocorrelation can be accepted because the explanatory variables are weakly correlated with each other, indicating that autocorrelation is not a problem. Table 8 presents all the correlation coefficients between the various explanatory variables that have been adopted in the empirical model.

The intercorrelations for all the explanatory variables have been examined by applying the variance inflation factors (VIF) analysis, which revealed no sign of multicollinearity. In fact, the VIF values corresponding to all the independent variables ranged from 1.05 to 1.47, very far below the acceptable upper bound of 10 ( Hair et al. , 2006 ).

The VIF values have been reported for each regression to demonstrate the model stability. Finally, both tests suggest that the regression estimations are not degraded by the presence of multicollinearity.

4.3 Regression analysis

The empirical results reveal that 32.5% of the variation for the level of IC-VD is explained by BE, CSR and control-related variables (cf. Table 9 ). As per Fisher's ( F ) statistics, equal to 2.8, the model's reliability is confirmed at a significant threshold lower than 0.01, and consequently, we tend to reject the null hypothesis, and assume that regression has significant potential to exist.

As expected, the empirical findings, even though with not definitive statistical values, in accordance with the exploratory nature of the research, show some evidence about supporting the research hypotheses ( H1 and H2 ), as further analyzed in detail. Thus, it can be concluded that the model is statistically significant and somehow fruitful for exploring the phenomenon under investigation.

4.3.1 Empirical evidence on BE impacting IC-VD ( H1 )

This hypothesis has been assumed to verify whether the ethical behavior of the companies under analysis positively influences the level of VD of IC: examination of the statistical tests (beta coefficient, t -test and p -value) shows that this variable has a positive and significant effect on the VD of IC. Indeed, the study of causal relationships shows that the coefficient associated with the link between BE and IC-VD is positive (0.485) and statistically significant (the value of the associated t is 1.99 with p  = 0.045), corroborating the hypothesis predictions ( H1 ).

It could be noted the existence of some similarity between these findings and those published by Wirth et al. (2016) . In addition, the results show that divergence of interests and information asymmetry are issues that hinder the success of the enterprise ( Rubinstein et al. , 2001 ); similarly, the rigidity of the corporate governance system could also prevent managers from disclosing information about IC.

The problems of moral hazard and adverse selection are obvious; nevertheless, the results found in this study show that the abovementioned risks are not constraints that prevent the company from disclosing information on IC. These results turn out to be in-line with those reported by Goel and Ramanathan (2014) .

As a further result, the company's commitment in the BE process is a trigger for improving VD of IC, corroborating the results found by Areal and Carvalho (2012) on a sample of the most ethical companies in the world, as these companies can have advantages over others because of three distinct effects, namely, culture, diversity and reputation. This attitude positively influences the level of IC-VD, suggesting for example that these companies may benefit from special protection in the event of a crisis.

4.3.2 Empirical evidence on CSR impacting IC-VD ( H2 )

This hypothesis has assumed that CSR has a positive influence on the level of VD of IC. The statistical tests analysis shows that this variable positively and statistically influences the VD of information.

The estimated coefficient of CSR_INDEX is positive and statistically significant (0.116, p  < 0.01), meaning that CSR influences the VD of the IC. This corroborates the hypothesis predictions ( H2 ).

These results turn out to be in-line with those reported by Branco and Rodrigues (2008) and Dias et al. (2017) . In this respect, CSR is positively interpreted by the various stakeholders via its effect on the decisions made by the company's organs and on the cognitive and mental patterns of the managers as well as on the legitimacy of the decisions ( Fontana et al. , 2019 ).

Likewise, these results align perfectly with the conclusions about the legitimacy of the company's managers ( Bond et al. , 2016 ). Thus, in some cases, and more specifically those based on the postulates of the agency theory, the manager who engages in specific activities related to CSR seems to reduce asymmetric information adopting these actions.

Indeed, the current findings support the view suggesting that VD of information about IC is sustained by CSR, in a mutual influence. Nevertheless, the commitment of the company in the activities of social responsibility, also when impacting IC-VD, is an asset that improves the confidence of investors in the business in the long run ( Saeidi et al. , 2015 ).

These results show the potential existence of a link between CSR and socially responsible disclosure and therefore, the transparency of information. Indeed, as shown by Su (2014) , engagement in social responsibility is a form of commitment to sustainable development and integration into VD that is needed for the most innovative companies.

In addition, as indicated by Garcia-Sanchez et al. (2016) , the company's commitment to social responsibility activities may affect the level of VD and promote financial transparency. Therefore, engagement in social responsibility activities could be dominated by a strategy of transparency and reliability, which may have significant impact on IC-VD.

4.3.3 Complementary considerations

Regarding the control variables, not all the related coefficients show the expected signs. The degree of innovation intensity (INVT) is positively and significantly associated ( p  < 0.1) with VD of IC: this finding suggests that the most innovative firms worldwide have adopted more VD practices about IC; in fact, innovative firms are often under greater pressure from the part of investors and financial analysts to disclose IC relating information.

In addition, the influence of pollutant sector (POL_SECTOR) turns out to be negatively and significantly correlated ( p  < 0.1) with the IC-VD, as expected. Similar confirmation can be found also as concerns the ethical level of the country (ETH_COUNTRY), positively associated with IC-VD.

However, the legal system relevant to each country (LEG_SYST) seems to be involved in controlling the corporate transparency, but this variable appears to be negatively correlated and statistically significant ( p  < 0.05) with IC-VD. Most probably, and differently from what expected, stricter legal system may stimulate in reinforcing potential conflicts of interest and information asymmetry.

Similarly, the percentage of women on boards of directors and the level of indebtedness present directions that are contrary to what expected. Globally speaking, these potential contradictions about the control variables estimations suggest caution and confirm the initial assumption about the exploratory nature of the research.

5. Theoretical and practical implications

The overall results of the research show some applicative potential. From a scientific point of view, essentially, the study helps highlighting the persistence of several connections associating corporate ethics and the extent of IC-VD, within a context characterized with a new tendency of the companies to be responsible in this respect. From a managerial point of view, furthermore, the current study can be useful to promote the implementation of BE and CSR-related strategies, enabling to protect majority or minority shareholders through an enhanced high-quality disclosure of IC.

Ethically, nevertheless, companies should allot greater engagement about the necessity and importance of transparent and reliable communication helping reflecting the firm's true image ( Mathuva et al. , 2017 ). In this respect, financial transparency constitutes a necessary condition for the effective promotion of a firm involved in ethical and socially responsible behaviors, and with this regard, several studies have acknowledged that global ethics, as engraved within the organizational culture, has a remarkable impact on the development of VD, and specifically on the various components of IC ( Luthan et al. , 2016 ).

For example, Rezaee et al. (2020) have stressed the promotion of ethical standards within the company to improve the quality of disclosed information. Indeed, it has been recently discovered that the companies envisaging to promote ethical behaviors are called upon to adopt a rather intensive disclosure policy regarding their IC characteristics: in other words, the quality of disclosed information about IC contributes to outline the social legitimacy ( Slack and Munz, 2016 ).

The quality of information disclosed about the company's IC as based on corporate ethics should necessarily help improving the confidence of the user of the information, while enhancing the firm's social legitimacy. In this context, Su (2014) has found that companies involved in stakeholders' ethical issues can gain a competitive advantage and higher performance attracting excellent employees, as concerns human capital, and enhancing the brand image, as concerns relational/social capital ( Pedrini, 2007 ).

The VD program is an organized process that abides by specific rules conforming to the company's social approach and the executive's behavior. In this respect, the agency theory helps only partially reflecting the reality of the company, as it outlooks other aspects of the business value, especially within the new context of the knowledge-based economy ( Long Kweh et al. , 2014 ).

More particularly, managers are representative agents that rationally respond to the firm's economic stakeholders and the control mechanisms/contractual motivations ( Bamber et al. , 2010 ). Yet, the enterprises' decision-makers are not interchangeable, and companies' actions are a reflection of the values, skills and cognitive competences of the human capital ( Rodriguez Perez and de Pablos, 2003 ); thus, as an organizational option, VD is rather potentially dependent on other considerations than on just the firm's environmental characteristics.

Moreover, the process of communication is complex, as it involves judgments and arbitrations that account for the various constraints relating to the environment of the company, and managers act on the basis of their personal interpretations of the strategic situations they encounter. These interpretations are therefore based also on the individual and organizational values that the manager enjoys ( López-González, 2019 ).

To this end, the theory of planned behavior has been considered as means whereby the disclosure decision about IC could be influenced by several attitudes about BE and CSR. Indeed, it helps understanding a certain behavior in individual's psychological processes, as subjected to various influences, particularly to ethical and social factors.

Like any other behavior, information disclosure about IC also rests on perceived opportunities as well as probable outcomes, as entirely based on managers' values and proper knowledge. Moreover, the generated and disseminated information highly depends on the capacity of the company's information systems not only in terms of quantity but also in terms of growth and ability to account for the needs issued by parties that are external to the company, along with other organisms' requests, ever more with respect to IC.

At even more practical level, the reached findings appear to provide effects for global regulators and policymakers intending to install social reporting standards. They may provide ground that institutional and/or cultural factors affect top management's social reporting behavior or ethical/social values more in general, influencing the quality of published information about IC.

6. Research limitations and future avenues

The study shows several constraints, and two seem quite relevant. First, the research sample corresponds to firms without homogeneous characteristics, especially with regard to their pertinence to two different legal systems (the selected sample encloses several countries with two distinct legal system assumptions), probably affecting the companies' behaviors in terms of VD (mandatorily for sure); for this reason, it seems very desirable to control more thoroughly the legal system's effect, for example, subdividing further research samples into subsamples on the basis of the legal system pertinence. Furthermore, it could be useful to implement a comparison of the investigated model between companies pertaining to civil law or common law, since the legal system directly influences the accounting system, and then, the quality of the financial information.

Second, this finding appears to demonstrate that VD depends highly on corporate culture rather than the respective countries' accounting culture: this should also highlight that IC-VD stands as a form of socially responsible behavior, or an outcome of ethical behavior regarding the entirety of partners, more than mere legal constraint. Thus, further research on cross-cultural management influence could be useful, along with longitudinal analyses that could support major reliability of the global research.

7. Conclusion

This study has explored the impact of BE and CSR on the process of IC-VD, concerning a sample including 83 of the most ethical companies in 2015 in the world. Among the research motivations, it is to highlight that very few empirical studies appear to demonstrate the persistence of a relationship between ethical and social approaches and IC-VD: attempting to fill such a noticeable gap, the current study has been conducted to investigate, empirically, the relationship binding both variables.

Findings support arguments that companies with ethical behaviors and socially responsible practices appear to be highly committed to VD about their IC. It could follow, therefore, that IC-VD can also be considered as a form of ethical and socially responsible behavior.

The results achieved in this research afford empirical evidence as to the extent of external disclosure practices in the global context, also considering ever more frequent interfirm networks, providing useful means for investors seeking profitable investment opportunities and for financial report users, acting as operative orientations of knowledge management and IC strategy ( Del Giudice and Maggioni, 2014 ). In this respect, an ethical behavior (structural capital), influenced by personal values (human capital), affects IC-VD and then, practically, also the relational/social capital of the organization.

Sample selection process

The selection criteria of the sample	Numbers
Overall list	4,353
companies not respecting the ranking criteria for being the first 100	–4,253
financial firms (bank, insurance, et similia)	–4,217
Final sample	83

: Authors' calculation

Sample distribution by country
Country	Firms	Country	Firms
United States of America	20	Sweden	3
France	10	Denmark	2
Great Britain	10	Ireland	2
Canada	8	Spain	2
Finland	5	Belgium	1
Germany	5	Brazil	1
Netherlands	4	China	1
Singapore	4	Japan	1
South Korea	3	Portugal	1
Total = 83

: Authors' calculation

Sample distribution by sector
Sector	Firms	Sector	Firms
Oil, Gas & Consumable fuels	8	Software	2
Pharmaceuticals	7	Aerospace and defense	1
Chemicals	4	Auto components	1
Automobiles	3	Beverages	1
Diversified telecommunication	3	Biotechnology	1
Food products	3	Construction and engineering	1
Household products	3	Electric utilities	1
Industrial conglomerates	3	Energy equipment and service	1
Media	3	Food and staples retailing	1
Real Estate Management and Development	3	Gas utilities	1
Semiconductors and semicond. equipment	3	Hotels restaurants and leisure	1
Tech. hardware, storage and peripherals	3	Household durables	1
Communications equipment	2	IT services	1
Electrical equipment	2	Life sciences tools and services	1
Electronic equip., instruments	2	Multiutilities	1
Health care equipment and supplies	2	Multiline retail	1
Machinery	2	Specialty retail	1
Metals and mining	2	Textiles, apparel and luxury goods	1
Personal products	2	Transportation infrastructure	1
Real estate investment trusts	2	Wireless telecommunication services	1
Total = 83

: Authors' calculation

Note(s) : *, ** and *** represent significance at 0.1, 0.05 and 0.01, respectively

Source(s) : Authors' calculation

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Acknowledgements

The article is based on the study funded by the Basic Research Program of the National Research University Higher School of Economics (HSE) and by the Russian Academic Excellence Project “5-100”.

Corresponding author

About the authors.

Matteo Rossi is an Associate Professor of Corporate Finance at the University of Sannio, Benevento, Italy, where he received the PhD degree in Management. He is also an Adjunct Professor of Advanced Corporate Finance at LUISS, Rome, Italy. Dr Rossi is the Editor-in-Chief for the International Journal of Managerial and Financial Accounting and for the International Journal of Behavioral Accounting and Finance.

Giuseppe Festa is an Associate Professor of Management at the Department of Economics and Statistics of the University of Salerno, Italy, EU. He holds a PhD in Economics and Management of Public Organizations from the University of Salerno, where he is the Scientific Director of the Postgraduate course in Wine Business and the Vice-Director of the Second Level Master's in Management of Healthcare Organizations – Daosan. He is also the Chairman of the Euromed Research Interest Committee on Wine Business. His research interests focus mainly on wine business, information systems and healthcare management.

Salim Chouaibi is a PhD Student in Accounting at the Faculty of Economic Sciences and Management of the University of Sfax (Tunisia).

Monica Fait is an Assistant Professor of Management at the Department of Management Economics Mathematics and Statistics of the University of Salento, Lecce (Italy), where she teaches Business Economics and Management. Her research looks at the effects of Information and Communication Technology (ICT) on company behavior, knowledge sharing and sustainability. She is the author of several scientific publications and papers on the Web 2.0 marketing strategies, and her studies have been published on international journals like Technological Forecasting and Social Change , Journal of Knowledge Management and British Food Journal . She also serves as reviewer for several international journals and is a speaker at national and international conferences and industry forums.

Armando Papa is an Associate Professor of Management at the Faculty of Communication Sciences of the University of Teramo (Italy) and at the National Research University Higher School of Economics (HSE) of Moscow (Russian Federation). He received the postgraduate master's degree in corporate finance from IPE (Naples, Italy) and the PhD degree in management from the “Federico II” University of Naples. He is an Associate Editor for the Journal of Knowledge Economy (Springer) and an Editorial Assistant for the Journal of Knowledge Management (Emerald).

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Building an Ethical Company

• Isaac H. Smith
• Maryam Kouchaki

Just as people can develop skills and abilities over time, they can learn to be more or less ethical. Yet many organizations limit ethics training to the onboarding process. If they do address it thereafter, it may be only by establishing codes of conduct or whistleblower hotlines. Such steps may curb specific infractions, but they don’t necessarily help employees develop as ethical people.

Drawing on evidence from hundreds of research studies, the authors offer a framework for helping workers build moral character. Managers can provide experiential training in ethical dilemmas. They can foster psychological safety when minor lapses occur, conduct pre- and postmortems for initiatives with ethical components, and create a culture of service by encouraging volunteer work and mentoring in ethics.

Create an organization that helps employees behave more honorably.

Idea in Brief

The opportunity.

Just as people entering the workforce can develop job-related skills and abilities over time, they can learn to be more ethical as well.

Why It’s Often Missed

Many organizations relegate ethics training to the onboarding process, perhaps also issuing codes of conduct and establishing whistleblower hotlines. Such steps may curb specific unethical acts but don’t necessarily help workers grow as moral people.

How to Capitalize on It

Managers can provide experiential training in ethical dilemmas, foster psychological safety when (minor) lapses occur, conduct pre- and postmortems for initiatives with ethical components, and create a culture of service by encouraging volunteer work and mentoring in ethics.

People don’t enter the workforce with a fixed moral character. Just as employees can nurture (or neglect) their skills and abilities over time, they can learn to be more or less ethical. Yet rather than take a long-term view of employees’ moral development, many organizations treat ethics training as a onetime event, often limiting it to the onboarding process. If they do address ethics thereafter, it may be only by espousing codes of conduct or establishing whistleblower hotlines. Such steps may curb specific unethical actions, but they don’t necessarily help employees develop as moral people.

• Isaac H. Smith is an associate professor of organizational behavior and human resources at BYU Marriott School of Business. His research explores the morality and ethics of organizations and the people in them.
• Maryam Kouchaki is a professor of management and organizations at the Kellogg School of Management. Her research explores ethics, morality, and the complexity and challenges of managing ethnic and gender diversity for organizations.

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Business Versus Ethics? Thoughts on the Future of Business Ethics

M. tina dacin.

1 Smith School of Business, Queen’s University, Kingston, ON Canada

Jeffrey S. Harrison

2 Robins School of Business, University of Richmond, Richmond, VA USA

3 Ross School of Business, University of Michigan, Ann Arbor, MI USA

Sheila Killian

4 Kemmy Business School, University of Limerick, Limerick, Ireland

Julia Roloff

5 Department of Management and Organisation, Rennes School of Business, Rennes, France

To commemorate 40 years since the founding of the Journal of Business Ethics, the editors in chief of the journal have invited the editors to provide commentaries on the future of business ethics. This essay comprises a selection of commentaries aimed at creating dialogue around the theme Business versus Ethics? (inspired by the title of the commentary by Jeffrey Harrison). The authors of these commentaries seek to transcend the age-old separation fallacy (Freeman in Bus Ethics Q 4(4):409–421, 1994) that juxtaposes business and ethics/society, posing a forced choice or trade off. Providing a contemporary take on the classical question “if it’s legal is it ethical?”, David Hess explores the role of the law in promoting or hindering stakeholder-oriented purpose and governance structure. Jeffrey Harrison encourages scholars to move beyond the presupposition that businesses are either strategic or ethical and explore important questions at the intersection of strategy and ethics. The proposition that business models might be inherently ethical or inherently unethical in their design is developed by Sheila Killian, who examines business systems, their morality, and who they serve. However, the conundrum that entrepreneurs are either lauded for their self-belief and risk-taking, or loathed for their self-belief and risk-taking, is discussed by M. Tina Dacin and Julia Roloff using the metaphor of taboos and totems. These commentaries seek to explore positions that advocate multiplicity and tensions in which business ethics is not either/or but both.

The Intersection of Law and Business Ethics

Introduction.

The relationship between law and business ethics has been a core research area across the 40 years of the Journal of Business Ethics. Indeed, the very first issue of the journal asked the question of whether legally allowed bluffing in labor negotiations was ethical (Carson et al., 1982 ). More recent research has flipped that question of “if it’s legal, is it ethical?”, and used Uber’s rideshare expansion strategy—which involved directly violating laws regulating taxicab services—to ask if illegal actions are always unethical (Young, 2019 ). These are two simple illustrations of the numerous ways that law, public policy, and business ethics intersect.

The Journal of Business Ethics encourages researchers to consider how business ethics scholarship informs the goals of the laws that regulate business and our understanding of how to improve individual and organizational compliance with those laws. Due to the constant changes in society, the questions on the role of the law in encouraging ethical business behavior are continuously evolving. For example, technology advancements raise questions of whether and how to update laws that protect the privacy rights of employees and consumers. Likewise, the use of artificial intelligence in employment decisions and the operation of autonomous vehicles raises important issues related to employment law and products liability law, respectively. Societal changes leading to an increased attention to issues of diversity, equity, and inclusion, raises issues of the role of the law in increasing the numbers of those that identify as women, underrepresented minorities, or LBGTQ+, in management and corporate boardrooms.

Corporate Purpose, Environmental and Social Governance, and Business and Human Rights

The purpose of the corporation, which has been an important research issue for the journal, is another key area where law, public policy, and business ethics have intersected. Recently, the debate over corporate purpose has reached a new level of public attention due to the Business Roundtable—an organization made up of CEOs of leading corporations in a wide range of industries—revising its prior statement on corporate purpose to shift from a shareholder maximization view to the adoption of a stakeholder view (Loughran et al., 2022 ). Although this is an important development, skeptics question CEOs’ commitments to the Business Roundtable’s statement. This raises issues of how the law can be structured to hold corporations legally accountable for such commitments. For example, there are questions of whether legislators should adopt a new type of corporation—such as the benefit corporation—as an alternative to the existing shareholder value focused corporation. Likewise, business ethics scholars have considered changes to corporate governance, including stakeholder representatives on boards of directors and altering directors’ fiduciary duties.

Coinciding with the Business Roundtable’s statement, environmental, social and governance (ESG) issues have become a top priority for corporate boards. One survey found ESG was the top issue that shareholders sought to discuss with the board, ahead of both executive compensation and strategy oversight issues (PwC, 2021 ). As shareholders demand more and better information on corporations’ performance on sustainability matters, there are questions of whether there should be mandatory corporate disclosures on ESG matters. The European Union’s Corporate Sustainability Reporting Directive (CSRD) shows a movement away from voluntary reporting and toward compliance with mandatory standards. As those standards are disclosed and implemented, business ethics scholars must help guide such legislation by examining its effectiveness in changing corporate behavior and identifying necessary reforms. As seen from the existing work on nonfinancial disclosure in the Journal of Business Ethics, this legislative evaluation effort will benefit from the wide range of disciplinary perspectives represented by business ethics scholars.

One key aspect of the “social” factor in ESG is respecting human rights. The field of business and human rights (BHR) did not exist when the Journal of Business Ethics was founded in 1982. This field developed primarily with legal scholars and focused on mandatory obligations and holding corporations accountable for the harm they caused, as opposed to a corporate social responsibility perspective focused on business making voluntary, positive contributions to human rights (Ramasastry, 2015 ). Although there may be a gap between the fields of BHR and CSR, there are opportunities for connection (Ramasastry, 2015 ), especially for research related to the journal’s section on law, public policy, and business ethics.

In the last decade, BHR has rapidly moved from soft law to hard law. The 2011 United Nations Guiding Principles on Business and Human Rights (UNGPs) solidified support for business having a responsibility to respect human rights. This support—and perceived lack of corporate commitment to human rights—led to the adoption of legislation on BHR issues in various countries and the formation of a United Nations working group to develop a binding treaty. Included within this discussion of mandatory human rights obligations are considerations of how a “smart mix” of soft law and hard law mechanisms can help “reach beyond the limits of conventional public law” (Buhmann, 2016 , p. 710). In addition to regulatory actions, courts in some jurisdictions are starting to show a willingness to hold corporations liable for the acts of their subsidiaries or supply chain partners in foreign countries, which may further impact business practice (even when the litigation is unsuccessful) (Schrempf-Stirling & Wettstein, 2017 ). As the legal environment surrounding BHR continues to evolve, business ethics scholars can provide valuable guidance on the way forward. The remainder of this commentary will provide a brief overview of recent developments in the law on BHR and provide some illustrations where scholars at the crossroads of law, public policy, and business ethics have provided valuable contributions, which also shows the way for future contributions in this area.

Business Ethics and Business and Human Rights Legislation

Governments have approached BHR legislation in a variety of ways. The scope of the laws either focus on human rights generally or are targeted toward specific issues, such as conflict minerals, modern slavery, or child labor. There are also differences in obligations and potential liabilities; a law may be limited to disclosure requirements, may mandate the undertaking of human rights due diligence (HRDD)—which is a process for identifying, preventing, mitigating, and remediating negative human rights impacts—or may provide for legal liability to victims of human rights abuse. For example, targeted, disclosure only laws include the UK Modern Slavery Act and the California Transparency in Supply Chains Act (CTSCA). These laws only require corporations to disclose what actions, if any, they have undertaken to ensure that modern slavery is not present in their supply chains. The Netherlands’ Child Labor Due Diligence Act, on the other hand, requires corporations to conduct due diligence to determine whether there is a reasonable suspicion that child labor was used in the production of the company’s goods and services. If such a finding is made, then the corporation must develop a plan of action to address the issue. France’s Duty of Vigilance law mandates HRDD, disclosure of the vigilance plan, and opens the company up to potential civil liability if inadequate HRDD results in a human rights violation.

Business ethics scholars have already started to examine these laws and propose reforms. The few examples of scholarship discussed here provide inspiration for future research possibilities. For targeted disclosure laws, Birkey et al. ( 2018 ) examined corporations’ public reports under the CTSCA and found that companies comply with the law through mostly symbolic disclosures. Interestingly, although there is much discussion of investors pushing for increased disclosure of ESG information, this study raises the question of whether symbolic compliance is due, in part, to the fact that many investors “interpret increased disclosure as potentially costly in terms of firm value” (Birkey et al., 2018 , p. 837).

Beyond market participants, a disclosure regime relies on non-market actors, such as NGOs, to utilize disclosed information to influence change in corporate behavior. Thus, Islam and Van Staden ( 2022 ) analyzed the effectiveness of modern slavery disclosure laws by interviewing key stakeholders, including anti-slavery NGOs. This research provides insights into the tensions between the ability of such laws to work toward long-term change and their limitations due to regulatory capture by interest groups focused primarily on reducing business risk. In addition, this study, along with others such as Pinnington et al. ( 2022 ), use normativity theory to provide insights into the perceived legitimacy of these disclosure-based regulatory regimes, which calls for additional research into how to enhance their legitimacy. Pinnington et al. ( 2022 ) also open new possible avenues for improving disclosure regimes by examining corporations’ disclosures on their discovery efforts, including corporations’ discussion of the “known unknowns” in their supply chains and how they plan to fill that information gap. Business ethics scholars are also well-positioned to explore how government can improve the regime through “guidance, leadership, training and scrutiny” and not simply the use of coercive power (Pinnington et al., 2022 ). For example, public procurement practices, which focus on the government providing positive incentives, as opposed to using coercive power, are a potentially valuable tool in need of further research (Martin-Ortega, 2018 ).

Turning to HRDD practices, research has examined how firms respond to external pressures, such as regulatory pressures. For example, in the area of conflict minerals, Hoffman et al. ( 2018 , p. 132) find that firms may respond to legislative requirements with a simple risk management approach that avoids addressing the root causes of the problem and does “not tackle major problems related to their business model.” This raises issues of how legislation can encourage and incentivize meaningful corporate responses to mandates. For instance, if corporate liability is based on a corporation failing to adopt adequate HRDD, then regulators or the court system must be able to distinguish adequate from inadequate HRDD. Otherwise, we face the problem of corporations being “focused primarily on documenting a due diligence process to protect itself from blame, while not being primarily concerned that the corporation’s decisions effectively curb business-related human rights abuse...” (Fasterling & Demuijnck, 2013 , p. 807).

In the context of their study, Hoffman et al. ( 2018 , p. 116) stated that “the topic of conflict minerals becomes one of supply chain management rather than of individual companies’ legal or compliance divisions alone.” This comment applies to all research on the problem of human rights violations in supply chains. Future research in business ethics can help bring together legal mandates and management practice to improve the impact of our regulatory regimes. We need an understanding of how organizational members understand human rights responsibilities and are encouraged to comply with relevant company policies.

Many corporations struggle with understanding what it means to respect human rights in their situation. The UNGPs, and some mandatory HRDD laws, cover all internationally recognized human rights. Due to the significant number of recognized human rights that could be impacted by business, businesses struggle with determining their responsibilities. McVey et al. ( 2022 ) examined how managers within the corporation understood human rights and sought to persuade their colleagues to adopt a rights-based perspective. In some cases, this involved discussing human rights in terms of the financial impact to the company or otherwise reframing the topic in a manner that tones down the communication of the human rights abuse. As the authors argue, “the process of making human rights understandable and manageable can change their form and content.”

HRDD laws must specify the scope of a corporation’s responsibility for human rights violations. Researchers have considered the concepts of “spheres of influence” (Macdonald, 2011 ) and the different forms of complicity (Wettstein, 2010 ) in their examination of soft law guidance on this issue. The UNGPs developed new terms—“cause,” “contribute,” and “directly linked”—to determine a corporation’s connection to a negative human rights impact, which then determines the required response. These terms may find their way into mandatory HRDD legislation and they appear in the current draft of the UN BHR treaty. Unfortunately, the UNGPs do not provide clear definitions of those terms. Business ethics scholars can help contribute a real world understanding of the meaning of those terms or suggest alternative approaches.

Finally, as states mandate HRDD through legislation, lawyers will become involved in the compliance process. Business ethics research can help provide an understanding of how that impacts corporate responses. For example, in line with Fasterling and Demuijnck’s ( 2013 ) concerns above, some believe that lawyers will push HRDD in the direction of risk management and a tick-box exercise. Thus, the internal governance of HRDD is important. Past research on compliance and ethics programs, and the governance of corporate sustainability efforts generally, provide a useful starting point (Hess, 2021 ). For example, Radu and Smaili ( 2021 ) have examined the impact of corporate governance measures, such as having a board committee focused on CSR and linking CEO compensation to CSR metrics, on improving the company’s social performance.

The primary goal of this commentary was to use recent developments in the law on business and human rights to show the importance of the integration of law, public policy, and business ethics. Rather than provide an exhaustive look at the issues, it simply used several examples to illustrate how business ethics scholars can provide valuable contributions to understanding the effectiveness of the recent developments in BHR law and propose reforms. Moreover, the hope is to encourage business ethics scholars from any disciplinary background to use their perspectives to help inform law and public policy in their area of interest, including privacy; diversity, equity, and inclusion; artificial intelligence; or any other ethical issue of importance to business.

Strategy Vs. Ethics?

Ethics in strategy.

Businesses create a lot of value for stakeholders and society. They provide goods and services, wages for workers, income for investors, and taxes that help to support community infrastructures and a wide variety of government programs and services. Many firms give generously to charities and provide employees time to engage in community programs. This is a short and incomplete list of sources of value provided by businesses. However, in spite of the value they provide, many people have a negative view of businesses and their leaders, believing that they are inherently corrupt and destructive. This perspective is fuelled by widely disseminated information about corporate misdeeds associated with pollution, greed, discrimination, exploitation of workers, bribery, and so forth. In the age of high-speed internet, an abundance of news sources, and social media, businesses are scrutinized more than they have ever been.

These conflicting perspectives about business create a ready forum for ethical debate regarding business strategies. A business strategy is a discernible pattern of actions through which a firm attempts to achieve its business objectives or, as strategy pioneer Henry Mintzberg ( 1978 ) put it, “a pattern in a stream of decisions” (p. 934). All business strategies have ethical implications because they influence the well-being of stakeholders and society. From a strategy perspective, then, business ethics takes on a practical dimension, exploring the principles and rules through which strategies are formulated and implemented, as well as the outcomes from those strategies on the welfare of a firm’s stakeholders and society at large (Freeman et al., 2010 ).

Hopefully, a business strategy results in the creation of value for most of a firm’s stakeholders. In the optimal situation, some or all stakeholders receive incremental value from the implementation of a new strategy without reducing value for any stakeholder, a situation known as pareto optimality (Jones et al., 2016 ). This should be the primary objective of strategic decision makers. However, strategies can also lead to negative outcomes for some stakeholders or for society, a consequence that should not be ignored. Also, the means through which strategies are implemented may violate widely held ethical rules or moral codes associated with values such as honesty, fairness, equality, responsibility, justice, or freedom. Firms and their managers should “do what is right.” The fact that there may be disagreement about what this means makes studying strategy from an ethical perspective a fascinating subject. Ethical dilemmas, when managers must choose among options with conflicting benefits and costs, or when the values or moral codes of various parties collide, provide fertile ground for studying business strategy formulation and implementation.

Papers that are submitted to the Strategy and Ethics section, whether conceptual or empirical, should be deliberate in how they fit into the business ethics literature. They should not assume that readers will make the connection. One way to link strategic dimensions to ethical dimensions is to use an ethical theory or framework to build the arguments. Applying utilitarianism, deontology, virtue ethics, social justice, social contracts theory, or a religious philosophy can provide an obvious ethical dimension to a paper. Also, conflicting theories like agency theory vs. stewardship theory or shareholder primacy vs. stakeholder theory can enhance arguments about business strategies, although the latter debate has already received so much attention that it might be difficult to make a meaningful incremental contribution to the business ethics literature. Another way to make the connection between strategy and ethics is to draw heavily from the existing business ethics literature, as found in journals such as this one. Simply using a variable that measures corporate social responsibility (CSR) or stakeholder management is not sufficient grounds for inclusion in this section of the journal. An ethics foundation is necessary.

Stakeholder theory has a well-developed connection with strategy formulation and implementation (Bosse & Sutton, 2019 ; Freeman et al., 2010 ), and many submissions attempt to use it to give their papers an ethics flavor. However, simply citing Freeman ( 1984 ), Jones ( 1995 ), or Mitchell et al. ( 1997 ) in support of a particular point is not the same as diving into the intricacies of the theory to create well-constructed arguments (Freeman et al., 2010 ; Harrison et al., 2019 ). A paper that is built on a stakeholder theory foundation should, at a minimum, describe the actual, potential, or intended consequences for stakeholders and/or society beyond simply demonstrating that a firm is able to make more money. Alternatively, a paper that adopts a stakeholder perspective combined with another ethical perspective is even stronger than a paper that relies solely on stakeholder theory. Remember that stakeholder theory qualifies as an ethics-based theory because it is built on normative concepts associated with relationships between firms and stakeholders such as trust, fairness, integrity, and respect. Purely instrumental arguments that the primary purpose of treating stakeholders well is to make more money are not particularly valuable to business ethics scholarship.

The same ideas apply to corporate social responsibility (CSR). A paper that demonstrates how much money a firm can make if it is a responsible corporate citizen (perhaps with a few moderators thrown into the models) is only going to be attractive if it also explores the ethical ramifications of whatever definition of CSR the author is using. This also means that it is vitally important to clearly define the CSR construct and then, if it is an empirical paper, make sure that whatever measures of CSR are used are consistent with that definition. There are far too many papers in the literature already that make use of a comprehensive measure of CSR that is based on a measure created from data provided by a firm that gathers the data for investors and not for business ethics researchers. In many cases, the construct validity of one of these CSR measures has not been established in the academic research literature. Also, many of these measures are based on hundreds of variables that are processed by the data providers in what amounts to a “black box,” and researchers have to assume that the methods used by the data collection firm are valid.

In papers submitted to the section, examples of moral as well as potentially immoral strategies and actions are welcome. Consequently, also of interest is research on the way corruption, greed, deceit, coercion, and the desire for power influence firm strategies, outcomes, and stakeholder responses. In the next section I will highlight some of the papers that have been published in the journal that fit nicely within the strategy and ethics domain.

Examples of Published Articles at the Intersection of Strategy and Ethics

Authors who are submitting a paper to the Journal of Business Ethics decide which section seems to be the best fit for their submission. In most cases, their preference is granted. Selecting a section may sometimes be difficult because a lot of topics can fit into multiple sections. For example, strategy has potential conceptual overlaps with corporate governance, corporate responsibility, corporate sustainability, global issues, leadership, technology and marketing. This being said, I went through Volume 175 of the journal and found six articles that fit within the intersection of strategy and ethics. Three are highlighted here.

One of the most interesting of the six articles is “Stakeholder Engagement, Knowledge Problems, and Ethical Challenges,” by Mitchell et al. ( 2022 ). Stakeholder engagement strategies are of great interest to strategic management scholars and these authors already have well-established reputations in the strategy area. However, the paper is also very strong on the ethics dimension. The authors address several ethical challenges head on in the context of the development and application of genetic modification technologies. Specifically, they examine factors that influence the level to which managers and stakeholders are likely to share a common understanding of either the premises or likely consequences of an action taken by the firm. They not only describe these factors, but they explain how stakeholder engagement can help to overcome problems associated with a lack of common understanding.

Another excellent example is “Losing More than Money: Organizations’ Prosocial Actions Appear Less Authentic When Their Resources are Declining,” by Jago et al. ( 2022 ). This article deals with organizational authenticity in the context of prosocial actions. Prosocial behaviors fit nicely into the definition of strategy as a pattern of decisions made by the firm. Furthermore, authenticity is an important ethical dimension related to honesty and trust.

Finally, a third example of a paper that is interesting to both strategy and business ethics scholars is “Competing Logics in the Islamic Funds Industry: A Market Logic Versus a Religious Logic” by Alotaibi et al. ( 2022 ). Obviously, this paper fits well within the Finance and Business Ethics section, but because it is about the strategies of investment fund managers, it is appealing also to Strategy and Ethics. Strategic Management scholars are very interested in investment funds and the links between those funds and the investors that support them. The paper qualifies in the ethics area because the strategies are screened against religious philosophy found in Islamic scripture and teachings. Also, the paper explores the influence of Islamic teachings on diversification in these funds. Diversification is an important concept in both finance and strategy.

For the benefit of those interested in the other three articles I identified at the intersection of strategy and ethics, they are: “Building Projects on the Local Communities’ Planet, Studying Organizations’ Care-Giving Approaches,” by Derakhshan ( 2022 ); “When Does Corporate Social Responsibility Backfire in Acquisitions? Signal Incongruence and Acquirer Returns,” by Zhang et al. ( 2022 ); and “Effect of CSR and Ethical Practices on Sustainable Competitive Performance: A Case of Emerging Markets from Stakeholder Theory Perspective,” by Waheed and Zhang ( 2022 ). The range of topics found in these articles, and their unique approaches, reflect the breadth of ideas that can contribute to the intersection of strategy and ethics, and to the broader business ethics literature. Examples of some of the topics and research questions that have a lot of potential to move the strategy and ethics topic forward will now be discussed.

Future Research on Strategy and Ethics

This is an exciting time to study the intersection of strategy and ethics. So much is happening in the world that has implications for this intersection. Firms need to develop strategies for dealing with changes in the world stemming from new technologies, social movements and upheavals, global health challenges, supply chain issues, and a wealth of other problems that have gained prominence since the start of the new century. As managers deal with these changes, they will need to be sensitive to the ethical ramifications—that is, how their strategies influence stakeholders and society, as well as how they are likely to influence public opinion and, ultimately, their firms’ reputations. In this light, here are a few research questions that seem important to strategy and ethics:

• How have firm strategies changed in light of social movements associated with diversity and inclusion, and which of these strategies have been the most successful in creating value for firms, their stakeholders, and society? In other words, who are the innovators in this space, and how are their strategies working?
• How have firms dealt with supply chain shortages, and how have these coping strategies influenced the welfare of employees, customers, suppliers, and communities in which they operate? Have their strategies led to unfair advantages or disadvantages to any particular group? Have supply chain challenges led to unethical behavior?
• As firms develop or adopt new technologies associated with artificial intelligence, genetic engineering, big data, alternative energy sources, or global value chains, what are the ethical issues that need to be addressed? How are firms dealing with these issues, and which strategies are more or less successful in terms of protecting stakeholder rights and welfare while also enhancing firm performance?
• What are the strategies that firms use to deal with shocks such as a pandemic or a supply chain disruption caused by a natural disaster (e.g., earthquake, tsunami)? To what extent do these strategies lead to more or less harm to stakeholders and society? Do such shocks lead firms to engage in unethical behaviors or practices? Covid-19 has provided a ready workshop for studying these types of issues.
• How do institutional, political, and/or societal forces influence the strategies that firms use to deal with shocks such as a pandemic or supply chain disruptions? How do these forces vary globally, and how have different international contexts led to different strategies? To what extent do these forces lead to more or less harm to stakeholders and society, or promote unethical behaviors?

In addition to these types of challenges, the way firms are organizing has changed dramatically in recent years. Global value chains are common in many industries, as are platform organizations (businesses that facilitate transactions across a large number of participants, such as eBay), business groups (i.e., Tata Group), and megacorporations (i.e., Apple, Toyota, and Shell). The increasing popularity of these types of organization have come with a whole range of ethical issues associated with responsibility, fairness, trust, privacy and transparency.

From a strategic perspective, there is already a well-developed literature on the extent to which a firm is responsible for the actions of other actors in its global supply chain (i.e., sweatshops and child labor), and also on how firms cope with cultural differences that promote behaviors such as bribery or lying in their international operations. More research is needed on how a firm’s global value chain strategies influence the welfare of its stakeholders, and whether particular strategies are more prone to ethical dilemmas than others (and how to overcome them without stifling performance). How can firms devise strategies to deal effectively with resistance to globalization (i.e., tariffs, social movements) and how can firms use their strategies to help reduce economic inequality in the nations in which they operate?

Platform organizations and business groups, because their control structures are at least somewhat distributed, offer excellent potential for studying business ethics. The ethical issues associated with these types of structures need to be clearly identified, along with how firms deal with these issues effectively in their policies and strategies. It would be helpful to find out what has worked and what has not, in terms of improving the welfare of and/or harming particular stakeholders. Of course, megacorporations continue to be the subject of ethical debate, and there is still much to do on this topic.

In addition to these research questions that pertain to some of the most important global trends, there are some nagging problems in the strategy and ethics area that have not been adequately addressed:

• Measurement is a big problem, at least in the CSR and stakeholder areas. For example, Choi and Wang ( 2009 ) measured stakeholder relations by drawing data from what is called the KLD database, using variables for employee relations, diversity, community relations, the environment, and product dimensions. Then Wang and Choi ( 2013 ) used these exact same variables from the same database to measure corporate social performance . This is not a criticism of the authors, but rather an example of a huge problem in the field—both of these papers passed through a rigorous review process at a top management journal. Moving forward, we need to make sure that, once we have clearly defined our constructs, we also make sure that there is consistency between the construct and the way it is measured. This principle applies not only to the CSR subject area, but to other topics in business ethics.
• Beyond the big commercial databases whose primary source of income is investors, there is very little publicly available data that researchers can use to examine the value firms create or destroy for stakeholders (e.g., stakeholder welfare). Given that so many of the interesting topics in strategy and ethics pertain to this type of welfare, creation of new databases or even a consistent set of data collection tools would be very beneficial in advancing knowledge in the field.
• The most common dependent variable in empirical studies in strategic management is financial return in the form of profit, shareholder returns or something similar. While profits are important to the ability of a firm to achieve its objectives, including the creation of value for stakeholders, there are infinite possibilities for new studies in this section if researchers spend more of their efforts examining other dependent variables. CSR is sometimes used as a dependent variable, and this is a good step (as long as the construct definition and measures are consistent). Other dependent variables could include community welfare, employee welfare, supplier welfare or customer welfare, just for a start. Some of the big databases that are already in use contain data that may be useful in creating these types of measures. Qualitative methodologies and methods can also be very helpful. The key is to think about the stakeholder and societal value that is created or destroyed as firms implement their strategies (Harrison & Wicks, 2021 ).
• Finally, new theory is sorely needed. Among the most used theories at the intersection of strategy and ethics are stakeholder theory, agency theory, stewardship theory, or salience theory. Scholars also borrow theory from other disciplines to support their arguments, which is good, but where are the new theories that are specific to strategy and ethics?

In summary, the intersection of strategy and ethics offers many opportunities to address some of the problems associated with global changes and challenges. In addition, there are research opportunities for advancing the field through cleaning up some of the remaining conceptual and methodological problems that have impeded research in the area for many years. Of course, the overarching aim of the journal is to develop more of an awareness of ethical issues in business and ways that businesses can become more ethical, and do more good in the world, thus reducing the propensity for people to look at business as clashing with ethical principles—ethical businesses strategies instead of “strategy vs. ethics.”

Toward a Framework to Explore Unethical Business Models

This essay proposes a framework for research that critiques not only the ethical implications of business practice, but also of business models. If there are embedded ethics, there can also be embedded unethicality. If there are social enterprises, surely there are also antisocial ones (a categorization as yet undefined), who by their very business model, promote unsustainability or exacerbate inequality. Beyond the idea of bad apples or even bad barrels, which has been well explored in this journal (the latter implying a flaw in a barrel designed to be “good”) there are business structures hiding in plain sight which by their very design embody and reify unethical practice.

The negative impact of some businesses is clear, particularly if the model is one that operates outside the law. With the proviso that laws vary more widely by jurisdiction than ethics do, and may be subject to political influence, or other cultural factors, illegal activities are often, although by no means always, unethical. The sale of heroin, for instance, and armed robbery are both for-profit enterprises which exist outside the boundaries of legality and therefore of respectability. This makes research on the ethics inherent in their models appear redundant, a waste of scholars’ energy and resources. It appears obvious that these models are unethical because we first see them as illegal. But in fact it is the other way around. The reason that these things are illegal, the trigger for their being sanctioned by law, is that they have been deemed at a particular place and time to be unethical and harmful. Correspondingly, the legalization of formerly criminalized activities reflects a changing understanding of how society should operate. Law is a response to societal understandings of ethics. Therefore, while it offers one option to reveal the kinds of models we, as scholars, might address, it does so at a delay, lagging societal awareness.

Consider activities that have recently been banned. The sale and deployment of cluster bombs, for example, was outlawed in 2010 by the Convention on Cluster Munitions (Oslo Convention) due to their indiscriminate and harmful nature. Prior to that date, they were still harmful, but the law would not have acted as a flag to this effect. Right now, their illegality points toward their unethicality. It is our role as researchers in this field to question business models that are legal, but which have built-in unethicality which may 1 day be banned, or which might deserve such sanction even if it is politically untenable. At the time of writing in early 2022, proposals are under consideration in New Zealand which will effectively, over time, outlaw the sale of cigarettes. Why is the New Zealand government taking this position? Because tobacco is inherently harmful, killing half of its users, according to the World Health Organization. Unlike alcohol, that is harmful with over-consumption, the World Health Organization observes that “there is no safe level of exposure to tobacco” (WHO, 2021 ). The business model for supply of tobacco depends on knowingly selling a product that will harm consumers. It is not that some, or even many, tobacco companies practice unethical behavior. It is the model, the design, that is inherently unethical.

Like tobacco, we know there are other industries, sectors and companies with business models which are (currently) legal yet ripe for analysis, containing elements that are inherently, almost by design, damaging or unsustainable. Can we frame this in terms of ethics, and what would such an approach tell us about business ethics itself? By default, scholars approach ethics in relation to decisions, and when we apply this to business, our perspective can tend toward a micro rather than a macro view. As well as looking at bad practice, bad apples, and bad barrels, the ethicality of business models would be an interesting topic to explore further in this journal.

A desire to do so, as a community of scholars, begs the next question: how do we identify such businesses? Harrison and Wicks ( 2021 ) have written on this topic in the context of stakeholder theory, providing a basis for identifying strategies that might be considered unethical by stakeholders and exploring the response of firms. A complementary approach would be to develop a framework. What we are seeking to identify is not unethical practice on an individual firm basis, or even unethical practice that is widespread but avoidable within particular industries, such as low wages in hospitality, but business models that depend on specific unethical elements. It is common, for instance, for food delivery workers to be poorly paid, but, arguably, the business model does not depend on those low wages. A delivery service could exist which charged more and paid well. However, other business models depend clearly on some harmful or unethical dimension. An example might be the tobacco industry, as noted above, or the provision of essay-cheating services to students. The purpose of this commentary is to explore a framework to identify and examine these.

Toward a Framework of Unethical Business Models

An approach to the question of how to identify unethical business models can be made either deductively or inductively. We might, for instance, locate a pre-existing code that can be used to classify them, or we could inductively explore businesses with significant ethical issues, and attempt to isolate the specific elements on which they rely. Using a code, the law, as we have seen, is somewhat useful ex-post, but overall it is inadequate to the task, being slow to respond, subjective in some ways, insufficient and geographically inconsistent. Another potentially useful rubric might be the criteria applied by ethical investment funds. The ethics of ethical investing have long been scrutinized in this journal, 1 and as the field transitions into ESG metrics and socially responsible investment factors, major issues that emerge are a lack of transparency, and a lack of convergence across the field on how and which criteria should be applied (Widyawati, 2020 ). For these and other reasons, this essay adopts the second of the two possible approaches flagged above, and explores in an inductive way business models that appear fundamentally harmful or unethical, aiming to synthesize a tentative framework for evaluation. Note that the dimensions explored may not, on an individual basis, brand a business model as unethical. In aggregate, however, they may provide a frame by which such business categories could be considered.

The tobacco industry may be seen as an example of a business that causes inherent harm, in its case primarily to the human health of consumers. Even where the tobacco is grown organically and sold on a fair trade basis, with well-remunerated workers and a supply chain free of exploitation, the sale of the product itself is always, even at low levels of consumption, damaging. Inherent harm, as a dimension of unethical business models, could also apply beyond consumers. Some forms of mineral exploration, for instance, may cause irreparable harm to the environment. A business that requires such approaches, especially if the exploration is not strictly necessary, may be given a high score on the dimension of harm.

Another dimension may be dependence. Some for-profit models are built on the foundation of locking consumers or suppliers in to future purchases. For example, newer Apple products which do not have a standard headphone port require users to either buy an adaptor, or to depend on the company to supply such accessories. A related element is built-in redundancy, or a lack of backwards compatibility. In gaming, for instance, some new games require upgrading of the hardware needed to play them, and in some cases the newer consoles will not support older games. Another example is phone batteries designed to degrade after a certain length of time, or digital cameras which become redundant even while functional when there is no longer software available to link to newer computer operating systems. Practices of creating dependency create moral hazard for the design of entire business models built on this behavior.

Another element is facilitating or encouraging unethical behavior on the part of others. Essay-writing services for students are an example, or those parts of the dark web that depend on platforming racist groups. A fourth dimension might be appropriation: privatization or theft of common resources like water supplies, radical overfishing, the patenting of genetic material, or, spectacularly, the February 2020 call by the Adam Smith Institute for the privatization of the moon. Deception is also a clearly unethical practice, and some businesses, notably in the field of natural medicine, beauty or diet products, promise far beyond what they can or do deliver. A congruent idea is that of an industry creating a problem for which they are the only solution, as in the case of some “smart food products” or much of the beauty industry.

Another dimension, not unconnected but distinct, is that of predation, or predatory behavior. An example is the selling to vulnerable groups of payday loans which only become profitable if the borrower does not pay on time. The loans are marketed in a disingenuous way, based on early repayment, but the business model depends on default. More indirectly, predation might include the sale of products that promote unrealistic beauty standards to young women in particular.

Exploitation is intrinsic to business models ranging from the use of near-forced labor to parts of the gig economy, or creative outlets that do not pay performers a living wage. Even the language used in the creative industry is revealing: artistic work is now routinely called content, relegating it to something that serves the distribution channels, rather than the other way around.

A Stylized Framework

These seven dimensions, harm, dependence, facilitation, appropriation, deception, predation and exploitation, may act in overlapping ways to support a business model with an unethical core. Such a simple framework would allow researchers to map the dependence of any given business model on each of these dimensions, perhaps with results as shown graphically as in Fig.  1 , below, for four stylized, pro-forma business models labeled A to D.

Framework mapping the ethicality of business models

This initial framework requires refinement in three key ways, and research is invited to explore correlations and redundancies, to add missing elements and dimensions, and, critically, to devise a means of scoring, perhaps based on large datasets.

The Means of Distribution

In applying the framework to business, it may be important to once again step back from examining products and services, to focus on elements of distribution. A central tenet of Marxism, eloquently expressed in W. E. B. DuBois’s posthumous autobiography ( 1968 ) was: “for working people to be free, they must seize control of the means of production .” He was thinking of slavery and forced labor in the cotton fields of the US South, where the invention of the cotton gin had made free labor in plantation fields extremely profitable for the few, but back-breaking and imprisoning for the many. In that pre-globalization context, he correctly saw the planation system as a generator of inequality, and a perpetuator of poverty and slavery. If the people were to be free, control of this means of production needed to be in wider hands. Production was the controlling element of its time. If you looked and asked: “Who are the wealthy? And what have they that the poor do not?” the answer would be factories, mills, mines, farms.

Our current system of financial accounting developed in the service of this old model of capitalism, accounting to the providers of capital on how their investment has been deployed in order to produce something. We assess companies—“account” for their activity in a literal sense—by evaluating the cost of the goods they produce and the revenue they obtain by selling them. Financial accounting developed to account for a commodity-based business—sales, cost of goods sold. Services are accounted for using the same structure, and thus are seen, in a way, as a special class of goods. Through a financial accounting lens, a service company is seen as selling something that is ultimately consumed in the same way as, say, a sandwich, or a widget. Profit is accounted for by taking the revenue from “selling” the service, and subtracting in some sense the cost of this sale. This fundamental idea—that the value generated within companies is linked to what they produce— has shaped our thinking about how business works. It colors how we theorize on how invested capital will be concentrated or distributed or generate value within or outside an organization. It forms the basis of financial accounting and delineates how we think about business ethics and about power, capital, production, value, and inequality. But is there a new element to consider?

Consider The Evergiven . In March of 2021, the unfortunate captain of the container ship, The Evergiven ran aground near the village of Manshiyet Rugola, blocking the Suez Canal. For a week, the world watched efforts to free it on nightly news broadcasts, daily newspapers, and in real time on social media. It was just one ship, run aground in a place most people had never heard of. But it mattered, somehow, to us all. Factories in countries dominated by production open and close all the time, and those of us in the privileged countries dominated by consumption barely notice. But let a ship block up the Suez Canal for a week, and we sit up, our fingers poised over the “Buy Now” button, wondering how this disruption to shipping might affect us, how it might affect our spending.

We now live in a globalized age of networked capitalism and consumerism, where rising inequality and its associated societal damage is driven not just by a few individuals controlling the means of production of valuable goods or services, but by distribution. Amazon destroys millions of items of unsold stock every year. Consider the business model that makes this more profitable for Amazon than selling the items cheaply. They have found a way to make money from the offer of distribution, even if no goods are sold or consumed. When billionaire artists like Beyoncé and JayZ set up Tidal in competition with Spotify, it was clear that, even for superstar producers of music, the money lies in distribution.

More generally, on a basic level, failures of distribution impact disproportionately on the poor. Wealthier people can stockpile a little, or time their spending. Those without a financial buffer are more reliant on getting that fill of fuel when they need and can afford it—they can’t afford to wait. For a starker example, consider the distribution of vaccines in the Covid-19 pandemic, booster vaccines were rolled out widely in countries with good health infrastructure, while many in the global South were still waiting for their first dose, putting their health and their lives at risk.

Perhaps our system of financial accounting, which developed to provide an account to the providers of capital about their commodity-based businesses, is no longer appropriate to this new era. Perhaps it even serves to occlude the means by which an elite can generate private profits without producing any goods. Perhaps we need to reconsider what it means to run a successful business, what it means to be productive in a real sense. Amazon does not need to provide a commodity the world needs, and price it accordingly, to be profitable. It gives us something else we appear to desperately want: instant consumption of everything, 24 h a day, delivered to our homes “for free.” Their model does not need to know or care about the utility of the goods. It simply needs us to want to buy something, anything at all, as the control the channels for an ever-widening range of goods. What they are selling us is consumption itself. The only desire they need to awaken is the desire to purchase. Once that is established, profits accrue to them, the distributor, regardless of whether they accrue to the producers. To an extent, then, they may be facilitating this harmful practice of over-consumption; their model may be predatory in relation to smaller, local suppliers; it may be designed to create dependency—not absolutely, but to some extent that could be scored using the framework above. Applying the framework with a distribution as well as a production lens could therefore be useful.

Of course, there are still production-based problems. Sweatshops persist. The ILO ( 2022 ) estimates about 40 million people are trapped in forced labor, a quarter of whom are children. 2 Neither is it a choice between the merits of production or distribution. Modern modes of production are themselves complex and networked, dependent on interwoven pathways of materials and processes that span the globe. Distribution underpins production. And if we stand and look around, as W. E. B. Dubois may have done, and ask: “Who are the wealthy? What do they have that the poor do not?” we will find ourselves looking not at the finery of plantation-owners, but at billionaires taking daytrips to space whose wealth is founded not on production, but on the distribution of goods, and the curation and channeling of our ideas and even of our relationships, thereby creating a lasting dependency.

This proposed framework, while imperfect, can be progressed to help identify unethical business models. Having done so, many aspects of the business would merit examination: design and packaging of the product or service; marketing strategies; price points and availability; the CSR strategies of companies operating this business model; social impact accounting. Researchers could explore the ethics of people who work in, patronize or invest in such businesses, with due regard to issues of power, choice and voice. The framework could also be applied to aspects of otherwise benign industries, such as education or healthcare. Closer to home, for example, it could be applied to the model of academic publishing, considering how young scholars need to corral their ideas into narrow channels that will reach publication in the few outlets that will be recognized by their employers. There are design issues to be explored in terms of the cost of open access, the dominance of English language, the pressure placed on our future scholars by tight and demanding tenure tracks, the role of encouragers and gatekeepers, the motivations created by our promotion and recruitment systems.

Overall, this approach could complement work that seeks out examples of good or bad business ethics, by examining business systems, their morality and who they serve.

Taboo and Totems in the Study of Social Ventures, Entrepreneurship, and Small Businesses

M. Tina Dacin and Julia Roloff

Descriptions of entrepreneurial activities range from glorifying entrepreneurs for their willingness to take risks, hard work, and innovativeness to raising general suspicion that entrepreneurs cut corners to get their business going and are motivated by self-serving goals. The literature on social enterprises, family businesses, start-ups, and small- and medium-sized enterprises (SMEs) often belongs to one extreme or the other: either entrepreneurs or their ventures are studied as exemplars for outstanding achievement and contributions to society (e.g., Fowler et al., 2019 ), or they are studied for their deviance. Studies that present small businesses, family firms, and social ventures as places where well-intentioned people struggle to walk the talk about responsible and sustainable business practices are rare. However, without research that captures both the good and the bad, we fail to create management theory and recommendations that are relevant to business practice.

We observe contributions to the literature on social entrepreneurship and small business in which successful business ventures and their leaders are revered in a way that reminds us of totems. These examples are adverted to as proof that socially and environmentally responsible business ventures can also be financially successful. This idea is essentially so precious that criticizing these ventures, their operations or their leaders essentially becomes taboo. We explore the notions of totem and taboo and how they dominate our thinking and push for a move toward a more nuanced and balanced approach to research in this domain.

The terms totem and taboo have a long history in anthropology and anthropologists have described practices of totemism among ethnic groups from various continents. For example, Frazer (1887, p. 1) wrote: “A totem is a class of material objects which a savage regards with superstitious respect, believing that there exists between him and every member of the class an intimate and altogether special relation.” A wide range of cultural practices is described in connection with totemism, ranging from worshipping the totem to identification with it. Totemism comes with taboos, such as the taboo against killing or eating any individual of the totem species since this would be considered cannibalism. Freud ( 2013 /1913) claims in his book “Totem and Taboo” that this identification with a totem is the social institution that laid the ground for an incest taboo, as two people who identify with the same totem will not “consume” each other sexually. According to Freud ( 2013 /1913), the origin of taboos is unclear, as he believes them to be older than religious and moral prohibitions and they come with no clear explanation. He borrowed largely from the work of writers such as Van Gennep ( 1904 ), who referred to a taboo largely as a prohibition that could be grounded in religious, moral, or even social foundations. While taboos and their associated prohibitions can be behavioral, they can also be conversational—neither talked about nor publicly debated and discussed (Sabri et al., 2010 ).

We assert that some contributions to the business ethics literature show signs of totemism and of taboos that lack justification. Sabri et al. ( 2010 ) suggest that taboos are “cultural productions” that are crafted and embedded in social and historical contexts. The accelerated evolution of social ventures as a panacea for society’s ailing aid and impact sector has imposed enormous pressure to present only the good while downplaying the bad sides of these ventures. We see case studies that do not dare criticize any aspect of a social venture, or those that present claims of successful leaders as gospel without critical distancing or considering the possibility that an exemplary venture may also be fraught with weaknesses. Here, social ventures are approached as totems. Taboos play a role when entrepreneurs are studied for their deviant behavior, such as their propensity to lie, distort and/or misrepresent information in order to gain support from investors and clients, but there is neglection of discussion of those who do not resort to such behaviors (e.g., Ji et al., 2019 ): in this case, the idea that entrepreneurs forego a business opportunity because of their individual or organizational values is the taboo. This tendency of researchers to revere totems and observe taboos has led to a number of problematic outcomes that limit our ability to meaningfully unpack this literature. We encourage researchers to consider how their theoretical framing and methodological approaches can introduce or remove bias in their research.

Bias Introduced by Theoretical Framing

First, for the most part, the social venture and small business literature tends to focus on hybrid forms of organizing, where it is assumed at the outset that there are tensions across the logics (most often social and commercial) which are blended to guide and govern the enterprise. The assumption is that the logics driving social ventures compete and are largely incompatible. However, this assumption may be unfounded and ignores the fact that firms generally operate in pluralistic institutional spheres that involve the simultaneous juggling of multiple logics. An example is a family firm, which has to balance the needs of the business, the family and those of the firm’s stakeholders (Signori & Fassin, 2021 ). We do not want to discount the rise of conflicts or tensions because of multiple logics. However, an implicit assumption that there is incompatibility from the outset is largely misguided.

Second, there is a romanticized narrative that often accompanies small, entrepreneurial enterprises and family businesses, and especially in the discourse around social ventures. Indeed, most of the narratives describe the work of social entrepreneurs in a positive light. Social entrepreneurs are heroic totems who seek and gather accolades at a variety of field-configuring events led by various foundations and luminaries. At these events, entrepreneurs are highly celebrated, reinforcing a cycle of pointing out the positive in an extreme form of hero worship. These same heroes go on to enjoy a cycle of success receiving awards from one event to the next. As they continue their momentum of success, these heroic social entrepreneurs are rarely scrutinized, and in fact their stories are careful curations of their origin, work, and impact. In so doing, we know of little to nothing in published scholarly work about the darker side of these actors and their ventures, although recent examples in the news media shed light on some controversial activities (Waldie, 2020 ).

Third, by focusing on totems and ignoring more mid-range dialogue about the positive and darker sides of entrepreneurial activity, we privilege the role of individual actors and ignore the collective side of entrepreneuring (Montgomery et al., 2012 ). In fact, many social ventures involve groups of individuals. Collective sets of actors such as key stakeholders, including partners, funders, and community actors, should not be discounted nor ignored. In fact, in community settings, much good comes from the efforts of collective social innovation (Dacin & Dacin, 2019 ).

Taboos can influence researchers when they develop their theoretical frameworks. For example, two recent studies investigating how entrepreneurs describe their ventures on crowdfunding platforms exemplify this problem. Defazio et al. ( 2021 ) study the impact of prosocial framing in these descriptions, while Calic et al. ( 2021 ) investigate whether using Machiavellian rhetoric makes projects more or less successful in receiving financial backing. Both studies address the same research question on how project descriptions influence funding success and failure, but they approach this question from diametrically opposed positions, assuming that investors are either drawn to socially impactful projects or manipulated by ingratiation and stories of betrayal. Together, these two studies provide a more complex understanding of venture presentations on crowdsourcing websites. However, it is often feasible to design studies that capture a wide range of motivations and actions and therefore allow exploration of both the good and the bad in the same study.

In particular, research on social ventures has been limited by the tendency and practice to establish totems and to avoid taboos. To what extent can we be confident that the literature to date has rendered valuable knowledge and insight about whether social ventures have produced lasting, systemic, and structural change in the range of complex, inter-related problems, such as homelessness and poverty? By assuming that social ventures are inherently good, there is a tendency to avoid comparison to other forms of doing good, take impact as given, and often inspection is seen as harsh and also is often unwanted. The mythical status attributed to social ventures being “inherently good” means we tend to overlook potentially viable alternative approaches such as public, private, and charitable organizations, cross-sector partnerships and corporate philanthropy (Dacin et al., 2011 ). In fact, in the last two decades other pathways for good may have been subjugated to the allure of the social enterprise over other alternatives.

Bias Introduced by the Methodological Approach

We want to encourage researchers to be mindful of tendencies toward glorification and vilification in the research of social ventures, entrepreneurship, and small businesses. There are examples for studies that are designed to identify virtuous as well as problematic patterns.

Such research can be motivated by unexpected observations such as the study by Dorado et al. ( 2022 ) of a successful social bank that struggles with employee retention. Dorado et al. investigate the reasons why this value-driven social enterprise sees so many of its employees leaving after a few years of service. A similar inquiry—but based on large population samples—is conducted by Brieger et al. ( 2021 ), who study how social value creation, meaningful work and burnout are related. This research helps us to understand the price people pay when working for a social venture as they perceive pressure to set private needs and goals aside.

On the other hand, keeping a business on the right path is challenging to do. For example, Sendlhofer ( 2020 ) describes how employees of a SME that is recognized as a corporate social responsibly (CSR) pioneer started decoupling from the firm’s praised practices. Moreover, they procrastinated when it came to creating new socially responsible practices because their past success made them confident that their firm would continue to excel anyway. Similar observations of mission drift are made in the microfinance sector when over time lenders tend to prefer more capable clients over more needy ones (Beisland et al., 2019 ). These studies help us to understand the messy nature of business ventures aimed at creating valuable outcomes for society and highlight that these organizations can hardly be categorized as good or bad, but that they are operating between high aspiration and very real human and organizational limitations. Limitations and aspirations are best studied with research questions that are interested in a wide range of observations.

Other examples of studies avoiding bias can be found in the research on what motivates entrepreneurs that capture responses ranging from egoistic to altruistic motivations. For example, a study on indigenous entrepreneurs demonstrates that emancipation through entrepreneurship can take on many meanings, as some entrepreneurs work toward making themselves autonomous while others want to instigate change in their community (Pergelova et al., 2021 ). If the researchers had only asked questions on how indigenous entrepreneurs seek to help their community, we would have learned less about their need for individual autonomy. Another study avoiding taboos investigated the role of SME in peacekeeping was able to capture dynamics that promote peace and others which foster conflict (Joseph et al., 2021 ): this study highlights that creating income and employment in a conflict-ridden community is not sufficient to promote peace—in order to make a contribution, firms needed to reduce inter-group conflict between Lebanese citizens and Syrian refugees within the firm. If the researchers had only been interested in observing how firms contribute to peacekeeping, they might have failed to observe that in some firms conflictual beliefs are perpetuated. Such findings are feasible since the studies were designed to capture motivations, beliefs, and behaviors along a continuum between virtuous and beneficial, on one side, and deviant and harmful, on the other. Thus, we can learn more about the struggles people experience when they are trying to do the right thing, create ventures that produce more than financial value and work toward keeping these ventures on the right path in changing environments.

These studies link observations on the individual, organizational and societal level, such as exhaustion and decoupling among employees and unintended problematic consequences of entrepreneurial activities at organizational and community level. By conducting research that sheds light on the gray zones of entrepreneurship and managing small ventures, we can create theories that address problems that entrepreneurs and their teams experience every day. A focus on only one end of the continuum between virtuosity and deviance blinds us to the nuances and complexity of entrepreneurial activities and the difficulties that people experience when they are trying to “walk the talk” and not to lose their path as they continue walking.

The Path Forward

To reduce our focus on totems and taboos from research on social ventures, family businesses, start-ups, and SMEs, we need to be open to observing the good and the bad in any empirical context, and we need to find ways to describe and explain a complex and embedded social system, in which people with good intentions fail to deliver desired outcomes and people with questionable intentions create value for others. Only by designing studies that can capture the complexity of doing business in a dynamic environment can we create theory that provides an accurate description of our messy reality and permits us to develop solutions that work under given constraints.

We invite efforts for more systematic research on the motivation and rationale as to why some businesses work toward more responsible and sustainable business practices and others neglect to do the same. Future research ought to inquire whether good, moderate, and poor practices can be explained by factors influencing enterprises at a societal or cultural level, such as institutional and legislative pressures, market demands, or the absence of such factors. Do inadequate organizational resources, capabilities, or resistance to change explain why businesses fail to do better? Are individual factors such as motivation, values, and beliefs the reason why entrepreneurs, managers, and employees engage with or decouple from such goals? What is the role of stakeholders and partners in encouraging or discouraging responsible business practices? How can we better understand the unintended negative consequences of doing good?

Moreover, we are also interested in a critical analysis of our research traditions. To what extent do the totems we perpetuate maintain the façade or serve as a mask for material or ideological interests? Where does the dark side reside? Is it hidden, just below the surface, or more deeply embedded in the core of entrepreneurial activity? Moving forward, what can we learn about social impact creation by focussing more on how ventures capture value instead on how they create it (Bacq & Eddleston, 2018 )? How do various pathways to social impact compare? Are social ventures more effective than other forms of impact such as cross-sector partnerships (Vurro et al., 2010 )?

We are looking forward to a discourse on social ventures, family businesses, start-ups, and SMEs that is ready to question old assumptions and ready to capture the potential but also the limitations of individuals and collectives to create socially beneficial ventures.

1 See, for instance, Schwartz ( 2003 ) and the considerable body of work citing that paper, or, more recently, Widyawati ( 2020 ).

2 See https://www.ilo.org/global/topics/forced-labour/lang--en/index.htm for estimates of the level of forced and child labor worldwide.

Please note that authors are listed by alphabetical order and not based on author contribution. Each commentary in this essay was written by different authors.

This article has been changed to open access. The setting in Jflux have been amended regarding copyright holder name, grants and licence

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• 1. The Nature and Process of Business Research
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6. p. 111 Ethics in Business Research

• Emma Bell , Emma Bell Professor of Organisation Studies, The Open University
• Alan Bryman Alan Bryman Professor of Management and Marketing, University of Melbourne
•  and  Bill Harley Bill Harley Professor of Organizational and Social Research, University of Leicester (formerly)
• https://doi.org/10.1093/hebz/9780198869443.003.0016
• Published in print: 30 March 2022
• Published online: 31 August 2023

This chapter examines the importance of ethics in business research. Since ethical issues can arise at any point in the research process, business researchers must be aware and prepared to address the issues to ensure the integrity of their study and the reputation of business research in general. The chapter then identifies the four ethical principles to which researchers are expected to adhere: avoidance of harm, informed consent, protection of privacy through confidentiality, and preventing deception. It also discusses the ethical consideration surrounding visual and online research. Meanwhile, the politicization of research has consequences for how research is done and how the type of knowledge is produced.

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• confidentiality

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A Cross-Disciplinary Pioneer and Mentor

Eric w. orts.

Eric W. Orts is the Guardsmark Professor of Legal Studies & Business Ethics at the Wharton School of the University of Pennsylvania.

My reflections celebrating the life of Howard Kunreuther are personal as well as academic. Along with Paul Kleindorfer , Howard was a stalwart, energetic, intellectual force at Wharton and Penn for fifty years. Both were intellectual mentors to me, even though they both were primarily economists, and I am primarily a lawyer. “Primarily” is key because our intellectual connection did not depend on a commitment to a single academic discipline, as characterizes many academic friendships. For Howard and Paul, as for me, what matters is the problem presented and the method used to think about the problem should follow its contours—not the other way around. There is perhaps too much method looking for problems these days.

Together, Howard and Paul led, as academic co-directors, the Wharton Risk Management and Decision Processes Center, which had been preeminent for decades in examining the general phenomenon of how we human beings are rational in making decisions about risks in the world, and yet we are often irrational too. The problem is that people’s actions do not always fit the models of rational individual behavior. Unlike many economists, Howard and Paul did not mind deviating from the standard models when a particular problem demanded it. If a traditional approach was not adequate to address the problem, then one should change the method or the model, and not just pretend there is no problem.

Howard was called an “irrational economist.” He relished the label and used it himself. Although not a psychologist by training, he was drawn to puzzles of human behavior that could only be described by the habits of our minds that subvert reason. From a strictly economic point of view, for example, it simply did not make sense that people who could easily afford to do so would not buy insurance to hedge certain kinds of serious risks of future events.

Floods, fires, health problems, industrial accidents, and the large challenge of climate change all fall into this category. I will always remember Howard’s excitement in saying of a new problem: “Yes, that’s because this is a low-probability, high-impact event!” His own methods—drawing mostly from psychology combined with economics—broke new ground in understanding how otherwise quite rational, intelligent people think and act irrationally in the face of many of these kinds of events: terrorist attacks, hurricanes and earthquakes, sudden market crashes. Reflecting on the comet-catastrophe movie Don’t Look Up , I smile, thinking that Howard should somehow get mentioned in the credits.

Howard’s broad perspective led to connections in law and politics—my primary disciplines—because humans use imperfect cognitive and behavioral patterns when assessing risks. This means that, unlike the assumptions that many economists and others may make about the nature of rationality in our world, people do not make decisions acting only according to reason and utility estimates, much as some might wish this to be the case in our post-Enlightenment world.

Human beings are driven by passions, not just calculations and deliberations. We have blindspots and make mistakes; “to err is human.” Evolution has bestowed on us the gift of rational thought, spurring our staggering material success as a species using science, mathematics, engineering, and economic theories of human behavior. At the same time, we have evolved to have strong primal desires, and parts of our brains focus entirely on other than rational priorities.

Irrationally, we fall in love. We feel fear and try to avoid the causes of it. Privileged with foreknowledge of our own eventual deaths, we spend a lot of time ignoring or denying to ourselves such an unpleasant fact. We have a “present bias” and many other cognitive biases.  Attracted to certain tastes, we can often eat too much—or we can imbibe too much alcohol or other drugs that cause us to think, express ourselves, or act unreasonably. We get addicted, and we can be misled by charismatic salespeople or politicians with bad intentions. We fall prey to a good story that is really a con or a great falsehood. In all these examples, our human nature puts limits on how well we can hope to be rational and good on our own. Sometimes we need help, and at times this help can come in the forms of laws and government, as well as religious and educational institutions.

Psychologically, we imprint on our parents and are heavily influenced by our friends and teachers, co-workers and bosses. The best among us develop characters admirable not only for intellect but also courage and bravery, and the wisdom of experience and vision. These qualities of leadership no doubt helped small kinship groups to survive and prosper at the dawn of humanity and continue to do so today for large groups of people. Leaders with these qualities set examples for us, and we honor them as exemplary ancestors.

Howard Kunreuther is now such an ancestor. He had the discipline to become a great economist in terms of his own cognitive powers and work ethic, but the source of his true greatness was in how he stepped outside the bounds of his discipline to see and think about problems posed outside the lines. When the irrationalities of our world did not conform to pre-set models and assumptions, he understood that one must change the frame of analysis. The true complexity of the world must come first; otherwise, scholarship becomes detached and useless.  How we human beings respond irrationally to various kinds of risk shows that our systems are imperfect. Merely pointing out the irrationality is usually not enough to cure the problem. We often need law and politics, because individually oriented economic markets cannot solve all social problems.

Because he traveled outside of the usual academic boundaries, Howard Kunreuther was able to serve as a mentor to colleagues outside of his discipline, including to me when I was a younger legal scholar. Howard saw that I sought to understand and find solutions to problems also of concern to him. In my case, these were environmental problems, and especially the climate crisis. Although we did not become co-authors, I wrote one paper with his academic partner Paul Kleindorfer, and Howard recruited me into the network of interdisciplinary scholars working on the general problems of what Ulrich Beck called our “ risk society .” Howard invited me to events at what we called for short “the Risk Center.” The Risk Center’s many conferences and seminars greatly enhanced my education as a young Wharton faculty member. It introduced me to the power and impact of interdisciplinary work focused on social problems related to business at Wharton.

At the memorial event in honor of Howard and his academic accomplishments held at Wharton last November, the Nobel-winning economist Daniel Kahneman (who just died in March) pressed Howard’s long-time friend and co-author Mark Pauly to comment on whether Howard’s relentless focus on psychological and behavioral responses to risk affected the views of more traditional economists at Wharton and beyond. Mark himself was one economist with whom Howard had a wonderful lifelong dialogue, and they produced many co-authored papers, although Mark also allowed that some “fire-breathing Chicago economists” might not have been much persuaded by Howard’s persistent arguments.

It is true that one can never truly know what lasting impact one’s work in the academic world will have. That depends on what future generations will find persuasive and useful, as new challenges emerge and new ideas are either hatched or revived and reconfigured. We can only do our best work and try to have faith that some of our good ideas or influences will take hold. I believe Howard Kunreuther’s work will have long-term influence: if not in perpetual citations—for the hard truth is that very, very few of us will be mentioned by name decades or centuries in the future—then in the less easily quantifiable, more subtle influence that researchers and teachers can have in their interactions with colleagues, policymakers, and students.

Going forward, I will try to emulate Howard’s example in his infectious love for attacking the most important life-and-death kinds of problems and then bravely crossing interdisciplinary bridges to find solutions. I will try to emulate him, too, in reaching out to mentor younger scholars, including those who may be outside of my own institutional and disciplinary boundaries, not only because some, including Howard, did so for me, but because the next generation always forges the next links in the long chain of human civilization.

Eric W. Orts  is the Guardsmark Professor of Legal Studies and Business Ethics and Professor of Management at the Wharton School of the University of Pennsylvania.

The essay is part of a series celebrating the life and scholarship of Howard Kunreuther, titled “ Commemorating Howard Kunreuther .”

Related Essays

Remembering Howard Kunreuther

Kunreuther served as both a mentor and a pathbreaking researcher during his time at Wharton.

Moving Mountains

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Methodology

• Ethical Considerations in Research | Types & Examples

Ethical Considerations in Research | Types & Examples

Published on October 18, 2021 by Pritha Bhandari . Revised on May 9, 2024.

Ethical considerations in research are a set of principles that guide your research designs and practices. Scientists and researchers must always adhere to a certain code of conduct when collecting data from people.

The goals of human research often include understanding real-life phenomena, studying effective treatments, investigating behaviors, and improving lives in other ways. What you decide to research and how you conduct that research involve key ethical considerations.

These considerations work to

• protect the rights of research participants
• enhance research validity
• maintain scientific or academic integrity

Table of contents

Why do research ethics matter, getting ethical approval for your study, types of ethical issues, voluntary participation, informed consent, confidentiality, potential for harm, results communication, examples of ethical failures, other interesting articles, frequently asked questions about research ethics.

Research ethics matter for scientific integrity, human rights and dignity, and collaboration between science and society. These principles make sure that participation in studies is voluntary, informed, and safe for research subjects.

You’ll balance pursuing important research objectives with using ethical research methods and procedures. It’s always necessary to prevent permanent or excessive harm to participants, whether inadvertent or not.

Defying research ethics will also lower the credibility of your research because it’s hard for others to trust your data if your methods are morally questionable.

Even if a research idea is valuable to society, it doesn’t justify violating the human rights or dignity of your study participants.

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Before you start any study involving data collection with people, you’ll submit your research proposal to an institutional review board (IRB) .

An IRB is a committee that checks whether your research aims and research design are ethically acceptable and follow your institution’s code of conduct. They check that your research materials and procedures are up to code.

If successful, you’ll receive IRB approval, and you can begin collecting data according to the approved procedures. If you want to make any changes to your procedures or materials, you’ll need to submit a modification application to the IRB for approval.

If unsuccessful, you may be asked to re-submit with modifications or your research proposal may receive a rejection. To get IRB approval, it’s important to explicitly note how you’ll tackle each of the ethical issues that may arise in your study.

There are several ethical issues you should always pay attention to in your research design, and these issues can overlap with each other.

You’ll usually outline ways you’ll deal with each issue in your research proposal if you plan to collect data from participants.

Voluntary participation means that all research subjects are free to choose to participate without any pressure or coercion.

All participants are able to withdraw from, or leave, the study at any point without feeling an obligation to continue. Your participants don’t need to provide a reason for leaving the study.

It’s important to make it clear to participants that there are no negative consequences or repercussions to their refusal to participate. After all, they’re taking the time to help you in the research process , so you should respect their decisions without trying to change their minds.

Voluntary participation is an ethical principle protected by international law and many scientific codes of conduct.

Take special care to ensure there’s no pressure on participants when you’re working with vulnerable groups of people who may find it hard to stop the study even when they want to.

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Informed consent refers to a situation in which all potential participants receive and understand all the information they need to decide whether they want to participate. This includes information about the study’s benefits, risks, funding, and institutional approval.

You make sure to provide all potential participants with all the relevant information about

• what the study is about
• the risks and benefits of taking part
• how long the study will take
• your supervisor’s contact information and the institution’s approval number

Usually, you’ll provide participants with a text for them to read and ask them if they have any questions. If they agree to participate, they can sign or initial the consent form. Note that this may not be sufficient for informed consent when you work with particularly vulnerable groups of people.

If you’re collecting data from people with low literacy, make sure to verbally explain the consent form to them before they agree to participate.

For participants with very limited English proficiency, you should always translate the study materials or work with an interpreter so they have all the information in their first language.

In research with children, you’ll often need informed permission for their participation from their parents or guardians. Although children cannot give informed consent, it’s best to also ask for their assent (agreement) to participate, depending on their age and maturity level.

Anonymity means that you don’t know who the participants are and you can’t link any individual participant to their data.

You can only guarantee anonymity by not collecting any personally identifying information—for example, names, phone numbers, email addresses, IP addresses, physical characteristics, photos, and videos.

In many cases, it may be impossible to truly anonymize data collection . For example, data collected in person or by phone cannot be considered fully anonymous because some personal identifiers (demographic information or phone numbers) are impossible to hide.

You’ll also need to collect some identifying information if you give your participants the option to withdraw their data at a later stage.

Data pseudonymization is an alternative method where you replace identifying information about participants with pseudonymous, or fake, identifiers. The data can still be linked to participants but it’s harder to do so because you separate personal information from the study data.

Confidentiality means that you know who the participants are, but you remove all identifying information from your report.

All participants have a right to privacy, so you should protect their personal data for as long as you store or use it. Even when you can’t collect data anonymously, you should secure confidentiality whenever you can.

Some research designs aren’t conducive to confidentiality, but it’s important to make all attempts and inform participants of the risks involved.

As a researcher, you have to consider all possible sources of harm to participants. Harm can come in many different forms.

• Psychological harm: Sensitive questions or tasks may trigger negative emotions such as shame or anxiety.
• Social harm: Participation can involve social risks, public embarrassment, or stigma.
• Physical harm: Pain or injury can result from the study procedures.
• Legal harm: Reporting sensitive data could lead to legal risks or a breach of privacy.

It’s best to consider every possible source of harm in your study as well as concrete ways to mitigate them. Involve your supervisor to discuss steps for harm reduction.

Make sure to disclose all possible risks of harm to participants before the study to get informed consent. If there is a risk of harm, prepare to provide participants with resources or counseling or medical services if needed.

Some of these questions may bring up negative emotions, so you inform participants about the sensitive nature of the survey and assure them that their responses will be confidential.

The way you communicate your research results can sometimes involve ethical issues. Good science communication is honest, reliable, and credible. It’s best to make your results as transparent as possible.

Take steps to actively avoid plagiarism and research misconduct wherever possible.

Plagiarism means submitting others’ works as your own. Although it can be unintentional, copying someone else’s work without proper credit amounts to stealing. It’s an ethical problem in research communication because you may benefit by harming other researchers.

Self-plagiarism is when you republish or re-submit parts of your own papers or reports without properly citing your original work.

This is problematic because you may benefit from presenting your ideas as new and original even though they’ve already been published elsewhere in the past. You may also be infringing on your previous publisher’s copyright, violating an ethical code, or wasting time and resources by doing so.

In extreme cases of self-plagiarism, entire datasets or papers are sometimes duplicated. These are major ethical violations because they can skew research findings if taken as original data.

You notice that two published studies have similar characteristics even though they are from different years. Their sample sizes, locations, treatments, and results are highly similar, and the studies share one author in common.

Research misconduct

Research misconduct means making up or falsifying data, manipulating data analyses, or misrepresenting results in research reports. It’s a form of academic fraud.

These actions are committed intentionally and can have serious consequences; research misconduct is not a simple mistake or a point of disagreement about data analyses.

Research misconduct is a serious ethical issue because it can undermine academic integrity and institutional credibility. It leads to a waste of funding and resources that could have been used for alternative research.

Later investigations revealed that they fabricated and manipulated their data to show a nonexistent link between vaccines and autism. Wakefield also neglected to disclose important conflicts of interest, and his medical license was taken away.

This fraudulent work sparked vaccine hesitancy among parents and caregivers. The rate of MMR vaccinations in children fell sharply, and measles outbreaks became more common due to a lack of herd immunity.

Research scandals with ethical failures are littered throughout history, but some took place not that long ago.

Some scientists in positions of power have historically mistreated or even abused research participants to investigate research problems at any cost. These participants were prisoners, under their care, or otherwise trusted them to treat them with dignity.

To demonstrate the importance of research ethics, we’ll briefly review two research studies that violated human rights in modern history.

These experiments were inhumane and resulted in trauma, permanent disabilities, or death in many cases.

After some Nazi doctors were put on trial for their crimes, the Nuremberg Code of research ethics for human experimentation was developed in 1947 to establish a new standard for human experimentation in medical research.

In reality, the actual goal was to study the effects of the disease when left untreated, and the researchers never informed participants about their diagnoses or the research aims.

Although participants experienced severe health problems, including blindness and other complications, the researchers only pretended to provide medical care.

When treatment became possible in 1943, 11 years after the study began, none of the participants were offered it, despite their health conditions and high risk of death.

Ethical failures like these resulted in severe harm to participants, wasted resources, and lower trust in science and scientists. This is why all research institutions have strict ethical guidelines for performing research.

If you want to know more about statistics , methodology , or research bias , make sure to check out some of our other articles with explanations and examples.

• Normal distribution
• Measures of central tendency
• Chi square tests
• Confidence interval
• Quartiles & Quantiles
• Cluster sampling
• Stratified sampling
• Thematic analysis
• Cohort study
• Peer review
• Ethnography

Research bias

• Implicit bias
• Cognitive bias
• Conformity bias
• Hawthorne effect
• Availability heuristic
• Attrition bias
• Social desirability bias

Ethical considerations in research are a set of principles that guide your research designs and practices. These principles include voluntary participation, informed consent, anonymity, confidentiality, potential for harm, and results communication.

Scientists and researchers must always adhere to a certain code of conduct when collecting data from others .

These considerations protect the rights of research participants, enhance research validity , and maintain scientific integrity.

Research ethics matter for scientific integrity, human rights and dignity, and collaboration between science and society. These principles make sure that participation in studies is voluntary, informed, and safe.

Anonymity means you don’t know who the participants are, while confidentiality means you know who they are but remove identifying information from your research report. Both are important ethical considerations .

You can only guarantee anonymity by not collecting any personally identifying information—for example, names, phone numbers, email addresses, IP addresses, physical characteristics, photos, or videos.

You can keep data confidential by using aggregate information in your research report, so that you only refer to groups of participants rather than individuals.

These actions are committed intentionally and can have serious consequences; research misconduct is not a simple mistake or a point of disagreement but a serious ethical failure.

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Companies Struggle With Business Ethics, and It’s Going to Cost Them

By Christa Reyes on 08/29/2024

Ethical decision-making might seem obvious, but it’s not. And you can tell just how difficult many organizations find business ethics when you look at today’s corporate environment.

Business ethics refers to the way a business or company makes choices and runs operations. Sometimes these ethical business practices (or less-than-ethical business practices) are intentional—like when companies choose to be transparent with their employees even when they are not legally obligated to do so.

But unethical business practices can also happen unintentionally—like when leaders prioritize personal or corporate benefit over that of their employees, business partners, consumers or otherwise.

In a recent example of that, a national U.S. bank came under scrutiny for opening accounts in their customer’s names without consent. Senior management blamed the scandal on the average employee.

However, senior management created the culture and business ethics of the organization. In that work environment, employees faced an ethical dilemma of being fired (and not being able to feed their family) if they didn’t achieve their new account goals. Because of that conflict between moral principles and the larger business practices at play, many employees chose to open empty accounts without their customers’ consent.

When this came to light, senior leaders at this bank did not take responsibility for the business operations they created, and instead blamed employee behavior on their employees alone.

Why are business ethics so complicated?

The above example reveals how business executives shape ethical behavior in organizations.

Leaders and employees today have to navigate complex ethical dilemmas when the culture of the business world hasn’t prioritized ethical reasoning or ethical behavior. Good business ethics tend to be an afterthought, rather than part of corporate governance.

This leads to problems because everyone’s ethical beliefs differ. Someone’s upbringing, family, experiences and other factors all dictate what an individual believes to be morally right or wrong.

How do corporate ethics, personal ethics and legality differ?

The principles of business ethics include staying compliant with laws and regulations—but staying within the scope of law is not the same as acting ethically.

Legality is separate from ethics. It is possible to have laws that are unethical. It is also possible to have ethical choices that are illegal. People make laws, rules and policies, and people are flawed, biased and not always ethical.

Personal ethics can shift a great deal over time. When you make decisions for yourself, it's easier to understand the ethical implications of your choice. But when business executives make decisions that will shape the choices of say, several thousand employees, the ethical implications cause much bigger waves.

For example, let's say the higher ups in an organization believe everyone working under their authority should act with respect. That's a pretty common business practice, after all—respectful, professional behavior.

Let's also imagine that one of those executives perceives any challenge to their ideas or decisions as an act of disrespect—and speaks or makes choices about promotions and layoffs accordingly. This will quickly create a culture of "loyal employees avoid conflicts with leadership." How could that overall culture ripple out into ethical problems for the company?

Why are business ethics important? Why should companies care?

If there’s one thing every business leader learns, it’s that their job is to make money. So why should organizations care about ethical principles or practices?

For one, the business landscape is changing.

Unethical corporate behavior is leading to changes in law

There is a societal push to uphold ethical standards of organizational leaders in the U.S.

This is for a plethora of reasons, but some of the most commonly-cited issues coming up in legislation are fair wages (including CEO wages) and benefits, DEI initiatives and efforts, prices and price gouging, and social responsibility from an environmental perspective.

The results of these efforts will likely be more restrictions, sanctions or at least sizable reputation damage to companies who abuse their legal power to act unethically.

Unions could rise to fix what companies will not

In 2023, employees in the private sector demonstrated considerably more interest in unionizing than they have in the past, according to the Economic Policy Institute . Their research suggested that more than 60 million workers wanted to join a union, but could not.

If that number continues to increase along with legislation, will companies be able to tamp down larger unions in the private sector? What might a larger effort to unionize cost companies in comparison to the investment of acting more ethically in the first place?

The employers who act ethically will attract and keep the best workforce

The importance of ethical organizational leadership is also becoming a key factor for new-hire job acceptance.

Job seekers are considering factors like diversity in key roles, trust (flexible job arrangements), fair pay and benefit policies, customer's experiences and a demonstrated commitment to employee retention and development (versus a commitment to solely profits).

Most of this comes down to ethical leadership, though it can include an organization’s documented political stance (through donations or lobbying efforts), their corporate social responsibility (both internal and external) efforts, and the alignment with the potential new hire’s beliefs and values.

What are companies doing to promote integrity?

The climate around upholding ethical standards in U.S. organizations is poor and has been for decades. The attention on this topic peeked around the time of the Enron and WorldCom scandals in the early 2000s.

Since then, organizations have implemented annual ethics training and other measures toward gaining more ethical leaders and preventing scandals.

One key approach is by creating a “Code of Ethics” designed to clarify the expected actions and behaviors of employees. It's one thing to say you care about integrity. But it's another thing to actually act with integrity.

Why aren’t those efforts working?

Trust in U.S. organizational leaders’ ability to act with ethical principles is still not much improved according to a 2023 Gallup ® poll .

A stated “code” often does little to change the business ethics of the organization because people are more likely to act in unison with business leaders’ actions and behaviors (and how they feel they are treated by leaders) than to be guided by an ambiguous list of traits, characteristics or behaviors.

Organizational ethics extend beyond big accounting misrepresentations or insider trading. It is also about how you treat your people, the community and stakeholders in totality.

And it doesn't take incredible critical thinking skills for people to notice when a company doesn't live up to its own ethical code.

Recent mass layoffs (for arbitrary reasons) have damaged trust in U.S. corporate leadership.

Rising CEO pay with a reduction in the average employee pay is another major factor in the distrust people feel toward senior leader’s values and ethics.

How to improve business ethics in a company

There are several ways that organizational management can encourage trust in the ethical aspects of their organizations.

1. Keep a balanced scorecard for C-suite leaders

CEOs are often compensated based on profitability. This encourages CEOs to keep employee pay low, and it also leads to layoffs, because if the CEO isn’t hitting their profitability targets by revenue, they can backhandedly do it by laying people off.

Thus, a balanced scorecard that requires CEOs to meet employee retention targets and ties CEO pay to average worker pay would encourage trust and better business ethics.

2. Increase organizational transparency

Employees need to trust organizational leaders at all levels, not just their direct supervisor. This is why communication is such an essential skill.

Communication on corporate decisions must be open and honest. There are ways to have difficult conversations while maintaining values of trust, respect and honesty.

This includes information around layoffs. There is no rule that says layoffs must be same-day announcements that put employees in stressful situations of ruin. Employers should give their employees 6 months to 1-year notice, to allow them to make transition plans for themselves and their work at the company. They should also be offered severance packages like most senior leaders.

3. Increase accountability for managers, not individual performers

Ultimately, managers should take responsibility for what happens in their organization.

Many organizations operate as single winner goal-setting environments where only one person can really win. That model creates an unhealthy and unethical climate. Some organizations also create goals that are difficult or impossible to obtain, and tie them to each individual’s job or continued employment.

This practice alone could be considered unethical. But it also leads to larger problems.

4. Put your actions where your words are

Senior management should demonstrate real empathy when making organizational and business strategy decisions.

Saying you “feel bad” for decisions that negatively impact employees, like in the case of mass layoffs, isn’t demonstrating empathy. Instead, giving employees time and advanced notice of a pending layoff will better exemplify ethical values for people you have called “family” for years.

5. Standardize your decision-making framework

Using a decision-making framework can help remove unconscious bias from decision-making and ethical principles.

Often what we think is a “gut decision” is just bias entering our decision-making process. The SPADE decision-making process is one example of a potential framework, which encourages you to consider the Setting, People, Alternatives, Decide and Explain.

Improve trust by empowering employees

If your company has a reputation problem, can’t retain employees and is consistently in a state of panic as leadership dodges accountability, they probably struggle with ethics.

If you are the kind of person who cares about what is ethical, not merely what is legal—you might have what it takes to be a powerful leader.

Learn just how important leadership can be to a professional team’s retention and check out Empowering Teams Should Be a Manager’s Top Priority: Here’s How to Do It .

Gallup ® is a registered trademark of Gallup, Inc.

McLain, D., & Pendell, R. (2023, April 17). Why trust in leaders is faltering and how to gain it back. Gallup. https://www.gallup.com/workplace/473738/why-trust-leaders-faltering-gain-back.aspx

Shierholz, H., McNicholas, C., Poydock, M., & Sherer, J. (2024, January 23). Workers want unions, but the latest data point to obstacles in their path. Economic Policy Institute. https://www.epi.org/publication/union-membership-data/

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About the author

Christa Reyes

Christa  Reyes  is a professor in the School of Business at Rasmussen University. Christa holds a Master's degree in Management with a concentration in Leadership and Organizational Effectiveness and is finalizing her doctorate in Learning Design and Innovation. Her focus areas include international business, organizational learning, motivation, training, program evaluation, and employee development, and her professional experience ranges from Fortune 500 organizations to non-profit entities.

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Innovation Responds to Climate Change Proposals

• Original Paper
• Published: 02 September 2024

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• Greg Tindall 1 ,
• Rebel A. Cole 2 &
• David Javakhadze   ORCID: orcid.org/0000-0003-1580-6309 3  

Climate change is an ethical and moral challenge of a global scale due to its potentially catastrophic implications for human welfare. Understanding forces that drive corporate adaptation to climate change is an important research topic in business ethics. In this paper, we propose that shareholder climate-related proposals could be a catalyst for corporate innovations in technologies mitigating climate change. Our results, based on the analysis of US firms, indicate that corporations respond positively to these proposals by producing more climate-related patents and citations. We also uncover potential casual channels of influence. Further, we find that corporate governance moderates the documented effects. These proposals lead to a more efficient and valuable innovation output, but lower firm performance in the short term. The real effect that shareholder proposals have on innovation gains clarity in the context of climate change, contributing to the discussion of investor “voice.”

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Data availability

The data that has been used is confidential, from restricted-access sources.

Xiao and Shailer ( 2022 ) provide a novel systematic investigation of factors influencing stakeholders’ perceptions of the credibility of corporate sustainability reports.

What are shareholder proposals, and what makes them interesting? Established in 1942 (and amended several times), Rule 14a-8 was designed to give small shareholders a voice and managers ample opportunity to listen before being heard at annual meetings. The Rule now permits a shareholder to make a proposal of 500 words or less, if any of the following ownership amount and time requirements are met: 1) at least $2,000 in market value for at least three years; 2) or at least $15,000 for at least two years; 3) or at least $25,000 for at least one year. The proposal must be received at the company’s principal executive offices not less than 120 calendar days before the release of company's annual proxy statement, with shareholder intent to maintain the requisite interest through the annual meeting. For more formation, please see the Code of Federal Regulations, (Title 17, Volume 3, Sect. 240.14a-8, www.govinfo.gov ).

Theoretical perspectives on management’s response to stakeholder demands are influenced by corporate purpose.

Literature presents opposing views: Friedman’s ( 1970 ) profit-focused shareholder priority versus Stout’s ( 2013 )

inclusive stakeholder approach considering broader goals. See discussion on the subject in Clarke ( 2020 ).

The climate-related proposals to Chevron reflect this shift in emphasis toward a direct assessment of financial risk, from one of simple emission disclosure. From 1999 to 2009, requests for a “Report on Greenhouse Gas Emissions” were recurrent. Beginning in 2010, Chevron saw “Stockholder Proposals Regarding Financial Risks from Climate Change.”

Two examples from the 2016 proxy season highlight shareholder demands for innovation. Shareholders of Ameren Corp proposed “ITEM (4): SHAREHOLDER PROPOSAL RELATING TO A REPORT ON AGGRESSIVE RENEWABLE ENERGY ADOPTION.” Shareholders in AES Corp sponsored “PROPOSAL 4: A REPORT ON COMPANY POLICIES AND TECHNOLOGICAL ADVANCES” targeting the firm’s energy policies and emphasis on renewable sources.

In 2010, St. Joseph of the Capuchin Order requested a study “on how ExxonMobil, within a reasonable timeframe, can become the recognized industry leader in developing and making available the necessary technology (such as enhanced sequestration, engineered geothermal and the development of other renewable energy sources) to enable the U.S.A. to become energy independent in an environmentally sustainable way. By 2017, The New York State Common Retirement Fund sponsored the climate proposal that gained substantial press coverage, which essentially made a similar request: “…an annual assessment of the long-term portfolio impacts of technological advances and global climate change policies…” Further, the Board for Fluor Corporation has stated its opposition to repeated proposals from 2016 to 2018 requesting GHG reduction goals, by “Creating Technology to Reduce Greenhouse Gas Emissions,” more specifically, by investing in NuScale Power, LLC along with Rolls-Royce.

We emphasize that climate-friendly boards and heightened managerial perceptions of climate risk are potential mechanisms. We argue that shareholder proposals positively influence these factors. However, we acknowledge without direct demonstration that these mechanisms, in turn, enhance innovations, considering them as established facts based on prior research (Homroy and Slechten, 2019 ; Sautner et al., 2023 ).

We considered using alternate terms such as “greenhouse gases” or “carbon emissions,” but due to the content of the DEF14A filing, it is not possible to ensure that a term appears directly within a shareholder proposal or management’s response to one without visual inspection, thus hand-collection. Often, the proposals are only a small portion of the DEF14A which often presents year-end results at the annual meeting. Further, word lists invariably subject samples to gaming. “Climate Change” has fairly unambiguous meaning to management and is the phrase used by both the SEC and USPTO.

We also consider that firm innovation may not have a perfect memory of a pressure over the past 25 years of all proposals related to climate change. For robustness, we construct the same three-year, backward average but for only the last three years as well as the last five years. The results that follow remain unchanged. We also use lagged proposals as a proxy for shareholder pressure on climate-related issues for additional robustness, and our main findings are qualitatively similar. These results are not reported for brevity but are presented in online Appendix 1 .

In fact, of the 1.9 million patents we examine from 1994 to 2019, only 8 begin with the Y02 classification, even though 105,737 patents contain the Y02 classification in the CPC coding scheme. For example, patent 5,426,677 appears to be primarily concerned with Physics, the G classification, (G21C1/09; G21C17/00; G21Y2002/202; G21Y2002/204; G21Y2004/304; Y02E30/40), but also has a Climate Mitigation (Y02) component. Disentangling truncation bias by year-technology for the Y02 classification is not feasible for this paper. Further, from our discussions with the USPTO, the first classification tends to be more dominant than the last.

In unreported results, we also construct dependent variables looking forward five years to allow more time for the stockholder pressure to influence innovative behavior.

As Wooldridge ( 2012 ) explains, “sometimes log(1 + y) is used, but interpretation of the coefficients is difficult.” (p. 216) However, this practice is commonplace in corporate finance settings. For robustness, the inverse hyperbolic sine (IHS), as suggested by Burbidge et al. ( 1988 ) and proposed by Johnson ( 1949 ), for zero-value observations is used to log transform both the logged dependent variables and the independent variable of interest, Pressure . The IHS transformation is sinh-1(x) = log(x + (× 2 + 1)1/2). The results using IHS for OLS regressions suggest that the coefficients tend to overstate the economic impact of models (3) and (6) of Table  2 as well as models with Y02 Counts pct and Y02 Cites pct as dependent variables, while understate the coefficients of models with Y02 Top 1 pct and Y02 Top 10 pct as dependent variables (Appendix B ), but the statistical inference remains unchanged in sign or significance.

The Pope’s sentiment also intuitively satisfies the exclusion restriction as it is unlikely to directly influence corporate innovations. To gain some reassurance on the (notorious) exclusion restriction, we divide the sample along the lines of Religious Social Capital considered by Rupasingha et al. ( 2006 ) and obtained from the U.S. Census Bureau’s number of establishments in religious organizations (NAICS 813110), also examined by Grennan ( 2022 ) along with other donor-advised funds. In splitting the sample between More and Less Religious at the county level, we find that firms headquartered in less religious counties have a more acute influence on climate innovations when the Pope serves as an instrument. We would expect the Pope to have a stronger influence in more religious counties, if the Pope were directly influencing management to develop climate technologies and bypassing proposals made by shareholders who are not concentrated near headquarters. Since we find the opposite, we feel better about the exclusion restriction, instead of relying only on our (notorious) intuitions for justification.

We implement causal mediation analysis using the ivmediate command in Stata (e.g., Dippel, Ferrara, and Heblich, 2020 ), allowing us to estimate the treatment effect and determine the proportion attributable to a mediator. The primary advantage, as noted, is that despite both the treatment and mediator being endogenous, a single instrument can accurately detect both causal treatment and mediation effects. However, the method does not produce the first-stage result of the IV regression. Instead, it reports the F-test of excluded instruments directly from the first stage to assess instrument strength, which suffices to establish validity. In our models, detailed in Table  4 , the F-tests from the first stage across all models greatly exceed the conventional cutoff value of 10, ensuring the validity of the instrument. Nevertheless, we manually performed IV regressions and confirmed that our instrument, PopeUS, significantly and positively affects both Pressure and mediators.

In the results, not tabulated for brevity, we re-estimate the same model as in Panel A but with firm fixed effects. We find significant causal mediation effects of Pressure on Y02 Counts that pass through Ind Dir Exp. In parallel to Panel B, we re-estimated the same model with firm fixed effects using CC Bigrams as a mediator and found nearly full mediation. Additionally, we detected marginal mediation in the model with Y02 Cites as a dependent variable using CC Bigrams as a mediator, but not Ind Dir Exp. Thus, the results of firm fixed effects analysis are more suggestive in this case.

We also perform robustness checks of our mediation analysis using alternative measures of shareholder proposals (three-year backward averages for the last three and five years, and lagged proposals). We find statistically significant mediation in all cases, with the mediated effect ranging from 0.54 to 0.91 of the total effect. We also limit the sample to firms that have ever received a proposal related to climate change during our sample period and find the proportion of the total effect mediated varies from 0.62 to 0.74 of the total effect. Finally, using the percentage of votes at the annual meetings in favor of a climate-related proposal collected by ISS (ISS Vote For), the mediated effect ranges from 0.83 to 0.90 of the total effect. We estimate these models using industry fixed effects, with industries identified using 3-digit SIC codes. Overall, our results are in line with our main findings.

To ensure our results are not due to selection of matching estimator, we also employ entropy balancing, nearest neighbor, propensity score, and the CEM (Blackwell et al., 2009 ) and find our results to be robust. The main advantage of EBCT, of course, is that it allows us to match on our continuous treatment variable ( Pressure ), instead of a binary one required for the other estimators.

We note that, following the approach of Faleye et al., ( 2014 ), we also examined the short-term performance implications of the change in patent counts attributable to shareholder climate-related proposals. That is, we regress our performance metrics on predicted patent counts as well as patent cites, where the predicted values are from the regression of innovation variables in our shareholder proposal measures. Our findings remain consistent.

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Appendix a: description of variables and sources.

Appendix B: Shareholder Climate-Related Proposals and Corporate Innovations—Alternative Models

This table shows the results of ordinary least square regressions with Innovation as the dependent variable based on the patent data by date filed with the US Patent Office containing the Y02 (climate change). In Columns (1)–(4), dependent variables are Y02 Count Pct —the percent of a firm’s Y02 patents in a given year relative to all of that firm’s patents filed in the same year, Y02 Cite Pct —the percent of a firm’s Y02 patent citations in a given year relative to all of that firm’s patent citations filed in the same year, Y02 Top 1—the natural log of one plus the number of Y02 patents whose citations were in the top 1 percent of all Y02 patents in a given year, Y02 Top 10 —the natural log of one plus the number of Y02 patents whose citations were in the top 10 percent of all Y02 patents in a given year, respectively. Pressure is the natural log of one plus a three-year, backward average of an accumulated total of the climate-related shareholder proposals that a firm has received from 1994 to 2019. The control variables are also averaged over three years and include Size, R&D, Tobin’s Q, Age, Revenue Growth, Stock Returns, Leverage and Cash Surplus, as defined in Appendix A. t-statistic, based on robust standard errors, adjusted for heteroskedasticity and clustered at the industry-year level, are reported in brackets below the coefficients. ***, **, and * indicate significance at the 1%, 5%, and 10% level, respectively

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Tindall, G., Cole, R.A. & Javakhadze, D. Innovation Responds to Climate Change Proposals. J Bus Ethics (2024). https://doi.org/10.1007/s10551-024-05808-7

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DOI : https://doi.org/10.1007/s10551-024-05808-7

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