Ethical Views of Japanese Managers

First page affiliation: state/country missing

Figs 2-5: Did not convert the PDF figures into Illustrator or Photoshop for the images to be clearer(while converting them some nuances would be lost)

Chapter 9

Ethical Views of Japanese Managers: Insights from the Rationality of Ends/Market Orientation-Grid

Sigmund Wagner-Tsukamoto[*]

University of Leicester, School of Management, KenEdwardsBuilding

LeicesterLE1 7RH, UK

Abstract

The paper positions empirical views of Japanese managers in the groceries / retail sector with the novel theoretical tool called the ‘rationality of ends/market orientation-grid.’ The grid distinguishes different managerial predispositions, ranging from self-interested opportunism and self-interested egoism to self-interested altruism and authentic altruism. These rationality features are related to a continuum of market features which range from perfect competition to imperfect competition. Based on the theoretical application of the rationality of ends/market orientation-grid, the researcher found that most observed business ethics behavior in the Japanese groceries / retail sector did not step outside charitable altruism and the compliance with legal regulation that reflected organizational slack. Ethical innovation or ethical stakeholder management showed up only in minor degrees. This leaves room for future business ethics programs. Based on the theoretical analysis and the empirical findings made, the paper makes certain business ethics recommendations for managers in this respect.

Keywords: Managerial rationality; market features; ethics and organizational slack; ethics and law; stakeholder management; altruism

I. Introduction

The ‘rationality of ends/market orientation-grid’ provides a simple tool for classifying a firm’s orientation towards business ethics. It is a theoretical tool that allows for conclusions regarding the nature and type of moral agency a firm is involved in.(Wagner-Tsukamoto, forthcoming). It specifies different motivational predispositions of managers, on the one hand, and different market features, on the other hand. By interrelating motivational predispositions and market features, the grid spells out four different conceptual, programmatic scenarios for business ethics, which also have practical implications for advising on different action programs for business ethics. The present study conducted research into Japanese business ethics in the groceries / retail sector by applying the ‘rationality of ends/market orientation-grid.’

As Erffmeyer, Keillor and LeClair (1999, pp. 35-36), Lewin, Sakano, Stephens and Victor(1995, pp. 85-86) or Nakano (1999, p. 337) noted, there is little empirical evidence on the specific features a managerial concern with business ethics takes in Japan, especially regarding external stakeholders and how dealings with external stakeholders are institutionalized by the Japanese firm. Erffmeyer et al. (1999, p. 38) even found that ‘… almost no empirical evidence dealing with Japanese consumers is currently available in the international marketing literature.’ The present study closes such a gap regarding consumer ethics and its effects on Japanese firms. It specifies and raises in this regard questions such as whether Japanese business ethics is conducted primarily for philanthropic reasons that have little association with instrumental stakeholder management but are more an issue of organizational slack; or whether Japanese business ethics is conducted for reasons of profitability that are compatible with instrumental stakeholder management and which are less a matter of spending organizational slack on charitable causes. Regarding its specific research focus, the paper examines one particular stakeholder group– customers and consumers. They were identified by Lewin et al. (1995, p. 87) as an important stakeholder group of Japanese firms, although Lewin et al.’s mail-based questionnaire survey said little about the specific nature of the ethical relationship of Japanese firms with customers and consumers. Due to the open, qualitative research approach of the present study, such research questions could be addressed in detail.

As a result, the paper makes suggestions on how to more effectively institutionalize business ethics in Japanese firms, as called for by Nakano (1999, p. 337). Such suggestions focus on the internal institutionalization of business ethics in Japanese firms, which was found to be the dominant frame for ethical decision-making in Japanese firms (in contrast to ‘outside’ pressure by government or activist groups; see Nakano, 1999, pp. 335, 337).

In the following, section II briefly outlines the ‘rationality of ends/market orientation-grid’. Section III provides a literature survey on previous empirical research on Japanese business ethics that is of relevance to the present study. Section IV presents the research method. Section V presents and interprets findings by applying the ‘rationality of ends/market orientation grid.’ Section VI concludes the paper.

II. Theoretical Issues Relating to the ‘Rationality of Ends/Market Orientation-Grid’

Wagner-Tsukamoto (forthcoming) provides the conceptual framework for the empirical research of the present project. At this conceptual stage, he contrasted different approaches to business ethics and addressed the question how far and what type of business ethics is feasible in different scenarios. Rather than presenting economic, legal, ethical and discretionary issues in a hierarchical manner, as done by some of the older models of corporate social performance, he interrelated these issues. Conclusions were spelled out regarding the empirical observance of business ethics and the programmatic, ‘theoretical’ positions that are behind empirical observations. This yielded practical implications for the fostering of business ethics.

The Rationality of Ends/Market Orientation-Grid

The rationality of ends/market orientation-grid depicts along the horizontal axis the market orientation-dimension and along the vertical axis the rationality of ends-dimension (See Figure 1). The market orientation-dimension reflects a continuum which distinguishes two extreme states: on the one hand, perfect competition, no information problems in the market place and perfectly dispersed power in a market. On the other hand, the market orientation continuum depicts an extreme state of imperfect competition, with high information problems and concentrated power in the market place. The former reflects conditions conventionally associated with classical and neo-classical economics; the latter reflects conditions associated with more recent developments in economics such as institutional economics (See also Wagner-Tsukamoto, 2003, 2005, 2007a, 2007b).

The rationality of ends-dimension of the grid distinguishes four states of motivational predispositions of managers when they interact with internal and external stakeholders: opportunism, self-interested egoism, self-interested altruism, and authentic altruism. Opportunism refers to ‘self-seeking with guile’ (Williamson, 1985, p. 65); self-interested egoism refers to ‘honest’ egoism, as it is commonly associated with classical and neo-classical economics; an example of self-interested altruism is offspring-related altruism; and authentic altruism refers to ‘true’ altruism where there is no external payoff rationale for giving behavior.

By interrelating the market orientation-dimension and the rationality of ends-dimension, four different scenarios for business ethics can be set out. They reflect different policy means that are available to the firm to enact business ethics. In the following, these four scenarios are discussed in turn.

Scenario One: Uncontrolled Capitalism and the Argument of Slack

When opportunism is not legally or economically effectively controlled, it can be expected that over time ethical behavior will be eliminated from social interactions. Especially in highly competitive markets where there are no information problems and where power concentration is low, those who act ethically – assuming the costliness of ethical behavior – will be at a competitive disadvantage. Hence at this end of the market orientation-dimension (see Figure 2), competitive pressures eliminate business ethics. On the other hand, if a market is comparatively uncompetitive, if information problems and power concentration in a market are high, then business ethics is enabled because of available organizational slack. An underlying assumption of scenario one is that business ethics and profitability are not compatible, that business ethics costs more than it pays back, and that stakeholders of the firm, such as customers, are not prepared to pay the costs of business ethics.

Figure 1. Rationality of Ends/Market Orientation-Grid.

Figure 2. Scenario one – Uncontrolled capitalism and the argument ofslack

Scenario Two: Legally Controlled Capitalism (Partly Effective Laws) and the Argument of Slack

Scenario two introduces laws as a moral regulative for corporative behavior. Laws codify certain moral precepts and thus restrain self-interest. Figure 3 depicts this by introducing a moral-legal barrier at the level of self-interested egoism. This also implies that costs are imposed for the moral conduct of firms. In a highly competitive environment where no information problems and no power concentration in a market are encountered, laws present the upper and lower bounds for business ethics. This assumes that laws have been effectively sanctioned in economic terms, that means gains expected from breaking a law must be lower than expected sanctions. However, if one moves along the market orientation-dimension towards imperfect competition / high information problems / power concentration in a market, then the scope for business ethics widens from outright opportunism to authentic altruism. Opportunism becomes feasible because of a likely, partial ineffectiveness of laws when high information problems in a market are encountered. Grey areas then exist. Nevertheless, at this end of the market orientation-dimension, altruism is enabled, too, mainly because of organizational slack that can be spent on good causes. Scenario two is still based on the assumption that business ethics and profitability are not compatible and that stakeholders of the firm are not willing to pay for business ethics.

Figure 3. Scenario two – Legally controlled capitalism (partly ineffective laws) and the argument of slack

Scenario Three: Legally Controlled Capitalism (Partly Effective Laws), the Argument of Market Compatibility, and the Argument of Slack

Scenario three gives up the idea that business ethics and profitability are incompatible. It conceptualizes the case that certain ethical policy means of the firm are less costly than policy means that are driven by a mere concern for self-interest or even opportunism. A good example is an environmentally friendly production technology which is less costly than conventional alternatives. A historic example of such ethical innovation is provided by Sena (2005, p. 68). He analyzed the Japanese firm Sumitomo which in 1913 invented, after complaints from the local community, a production technology that no longer emitted sulphur dioxide but converted this substance into a fertilizer which could be sold to local farmers. In the case of ethical innovation, the moralization of corporate behavior is market driven. This is more true, the closer a state of perfect competition with no information problems and no power concentration is met along the market orientation-dimension. Regarding rationality of ends predispositions, one can speak in this respect of self-interested altruism. On the other hand, if one moves along the market orientation-dimension towards imperfect competition and a state of high information problems and power concentration in a market, then the scope for policy means opens up from authentic altruism, due to organizational slack, to opportunism that exploits grey areas of legal regulation. Figure 4 depicts this scenario.

Figure 4. Scenario three – Legally controlled capitalism (partly ineffective laws), theargument ofcompatibility (‘market crowding in/out’) and slack

Scenario Four: Legally Controlled Capitalism (Partly Effective Laws) and the Argument of Stakeholder Compatibility

Scenario four radically differs from the previous scenarios. It models the case that business ethics is costly but still can be observed in high degrees in market interactions. This is due to altruistic standards of ethically committed stakeholders who enact their ethical beliefs on the firm. Competition is driven by moral agents who are willing and capable of paying for their moral precepts in the market place: A process of ‘stakeholder crowding in’ can be observed (see Figure 5). A good example are environmentally committed, green consumers who are willing to pay a price premium for environmentally friendly products. The influence of such stakeholder behavior on the firm can be twofold. It can be actively fostered by the managers of the firm, who, for instance, carve out a niche market in environmentally friendly products, or stakeholders themselves can initiate an interaction process with a firm in which they express their ethical preferences for certain products.

Figure 5. Scenario four – Legally controlled capitalism (partly ineffective laws) and the argument of compatibility (‘stakeholder crowding in/out’)

If one moves along the market orientation-dimension towards a state of imperfect competition and high information problems and high power concentration in a market place, other policies than business ethics that is driven by altruistic stakeholders can be observed. Less efficient policy means and more egoistic and even opportunistic ones become feasible. The argument of slack applies here in the reverse, being used for ‘bad’ causes, such as inefficiencies or the opportunistic exploitation of legal grey areas.

Discussion of the Four Scenarios

Each of the four scenarios reflects a specific programmatic, ‘theoretical’ position, which, however, is significantly blurred when looking at the real world of messy markets where imperfect competition, high information problems and power concentration in a market are encountered. The grid moves ahead of a discussion of unrelated levels of corporate social performance, such as economic, legal, ethical and discretionary ones, as they were hierarchically spelt out by some of the older models of corporate social performance (e.g. Carroll, 1979; Wartick and Cochran, 1985). The grid examines economic issues in terms of efficiency issues that cut across the entire scale of the rationality of ends-dimension; legal issues are discussed with regard to the moral-legal barrier, which can become ineffective because of grey areas in markets in which high information problems are experienced; ethical behavior is discussed with regard to altruism but it is also implied with regard to wider ethical goals that drive the market economy, such as the idea of the wealth of nations; discretionary behavior is discussed with respect to slack-based approaches to business ethics, which could cut across the entire scale of the rationality of ends-dimension.

Regarding the concept of altruism, the grid moves ahead of the idea of optional or voluntary altruism or philanthropy as it has already been discussed by some models on corporate social performance (e.g. Carroll, 1979; Fry et al., 1982; Tuzzolino and Armandi, 1981; Wood, 1991). Besides philanthropy and optional altruism, which the grid covers in relation to the idea of organizational slack that can be spent on good causes, a different concept of altruism is spelt out. The grid details that ethically minded, altruistic stakeholders can economically enable corporate moral agency. This reflects a broader economic concept of altruism than the one implied by optional altruism and philanthropy.

An important conclusion has emerged from the grid regarding empirical research. For each of the four scenarios the scope of policy means of the firm ranged, at the extreme end of the market orientation-dimension where imperfect market, high information problems and power concentration were encountered, from opportunism to authentic altruism. That means from the mere observance of a certain type of rationality of ends, little or no conclusions can be drawn regarding the specific nature of a business ethics program a firm is involved in. Rather, one has to look carefully at the programmatic positions ‘behind’ empirical observances. Empirical observations have to be grounded in theory. This is typical for qualitative research (Glaser and Strauss, 1967; Strauss and Corbin, 1990). Each of the four models reflected a particular theoretical position regarding a slack-based approach to business ethics and different types of compatibility of business ethics with profitability. In scenarios one, two and three, the occurrence of authentic altruism was largely due to market imperfections and organizational slack while in scenario four it reflected a high compatibility of business ethics with profitability. This has implications for the fostering of business ethics. In scenarios one, two and three, authentic altruism is enabled because of the availability of organizational slack that can be spent on good causes, but this relies on the existence of ineffective markets.

Scenarios three and four outlined additional routes to altruism. Scenario three discussed self-interested altruism as the case that a business ethics program is profitable and less costly than conventional programs. A good example is an environmentally friendly production technology that is less costly than a conventional one. Scenario four discussed the case that business ethics is enabled by ethically minded stakeholders of the firms. This calls on managers to educate stakeholders regarding the ethical services a firm can offer in its interactions with stakeholders.

The grid functions as a diagnostic and consultancy tool in so far as it allows for conclusions regarding where a firm locates on the grid. For example, if ethical dilemmas are observed between profitability and ethical predispositions of managers, it is safe to conclude that this firm does not locate in scenarios three or four and that it does not locate at the right-hand side of the market orientation-dimension of scenario 1 and 2 where authentic altruism is feasible because of organizational slack.

For the Japanese case study of the groceries / retail sector the paper researched where the views of Japanese managerscould be positioned on the grid. Specifically:

Is firm X involved in moral agency in its market segment? If so, what specific examples of moral agency can be given?
If firm X perceives itself involved in moral agency, what role do self-interested and altruistic motivations play? Is moral agency driven by self-interested concerns or by altruistic concerns?
Is moral agency viewed as compatible with profitability or not? If moral agency is costly, how is it enabled? By organizational slack or by resourceful, ethically high-minded stakeholders?
Is moral agency sustainable under tough competitive conditions or does it reflect a ‘luxury’ in a comparatively, uncompetitive environment? Are dilemmas perceived regarding corporate moral agency?
How constraining and effective is the moral-legal barrier perceived to be? Are there grey areas in legal regulation which cause certain problems to behave ethically?
Overall, what programmatic business ethics position, as depicted by scenarios one to four, best characterizes the policy means of a firm? What practical implications emerge from here regarding the fostering of business ethics?

III. Literature Survey on Previous Empirical Research

There are few studies available which directly contribute theoretical or empirical knowledge on the issues raised above in section II. A couple of studies provide some indirect insights. For example, Nakano (1997, p. 1740) reported that about 30 percent of Japanese managers experienced ethical conflicts between company interests and personal ethics. However, Nakano could say little about the specific nature of these conflicts since he did a quantitative survey. With regard to the categories and scenarios of the present study, as specified above, it can be examined whether and how dilemmas did relate to scenario one and two and how far consumer issues played a role. Another finding of Nakano (1997, pp. 1740-1741) was that conflicts with the fair treatment of consumers provided the second most important issue when it came to ethical conflicts in a firm. This indicates that scenarios three and four were not reached, especially the productive and cooperative stakeholder relations that characterize scenario four.