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Corporate ethical orientation and crisis management before and after September 11, 2001
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CORPORATE ETHICAL ORIENTATION AND CRISIS MANAGEMENT
BEFORE AND AFTER SEPTEMBER 11, 2001
by
Can Murat Alpaslan
A Dissertation Presented to the
FACULTY OF THE GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment o f the
Requirements for the Degree
DOCTOR OF PHILOSOPHY
(BUSINESS ADMINISTRATION)
A ugust 2004
Copyright 2004 Can Murat Alpaslan
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UMI Number: 3140429
Copyright 2004 by
Alpaslan, Can Murat
All rights reserved.
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1 1
DEDICATION
To the firefighters, policemen, and innocent people who have lost their lives on September 11, 2001
To my dad
To my mom, uncle, and brother
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Ill
ACKNOWLEDGEMENTS
According to William James the world is a “humming-buzzing confusion.” Only a
courageous heart, a beautiful mind, a loving soul can embrace and transcend this complexity, cut
through the confusion, and see the world as it is, and all the more important, as it ought to be. I know
of only one person who has been doing this consistently: Ian I. Mitroff. He saved my life. He saved
my mind. He saved my soul. It is an honor and a privilege knowing him, being his student, his
colleague, his friend. First and foremost, I thank Ian. And I cannot thank enough.
The Dictionary defines “dissertation” as a lengthy, formal treatise. “To dissertate” means to
discourse formally, and to discourse means to speak or write at length. To dissertate also means to
justify. A dissertation justifies an idea. It also justifies the efforts of those who helped. I wish and hope
this dissertation has justified the following individuals' efforts that had started me off to an intellectual,
emotional, and a spiritual journey:
I would like to thank Morgan McCall who always had insightful and detailed comments on
my work. With his inspiring sense of humor, he constantly reminded me of the importance of getting
done and working the dream. I thank Gretchen Spreitzer for her always quick, detailed, and invaluable
feedback on my research. She left for the University of Michigan in 2001.1 consider her departure the
biggest loss for our department. I wish to thank Mitch Earleywine for his contributions to my
dissertation and to my understanding of research methods. He teaches the best, the most useful, and
the most fun research methods course I have ever taken. I will regret constantly that I have not leamed
more from him.
I also thank Sandy E. Green Jr. who has persuasively introduced me to the world o f rhetoric
and language. Our conversations that took place at 5:45am, particularly those about whether language
is everything have been intellectually most satisfying.
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IV
I am indebted to the following individuals for providing me with ideas and support: George
Benson, Kimberly Hopkins-Perttula, Mary Mulligan, Seok-Woo Kwon, Kim Jaussi, Luminita
Voinescu, Lin Chai, Laura Erskine, and Yuan Li. I also want to thank Donna M itroff for being the
greatest surrogate mother, Miriam Landau for her ingenuity and patience. Dr. Alptekin “Emmi”
Aksan, Gokhan “Gagasi” Aydogan, and Dr. Selcuk “Kerko” Avci for being my buddies, Tom
Cummings for his support, and Paul Adler for his detailed and always valuable feedback.
Finally, I want to thank my mom, brother, and uncle for always being with me spiritually,
although they were thousands of miles away physically.
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V
TABLE OF CONTENTS
DEDICATION.................................................................................................................................................... II
ACKNOWLEDGEMENTS........................................................................................................................... Ill
LIST OF TABLES.........................................................................................................................................VIII
LIST OF FIGURES..........................................................................................................................................IX
ABSTRACT......................................................................................................................................................... X
CHAPTER 1; INTRODUCTION................................................................................................................... 1
B a s ic D e f in it io n s a n d R e s e a r c h Q u e s t io n ............................................................................................ 3
CHAPTER 2: LITERATURE REVIEW.......................................................................................................9
Two S t y l e s o f C r is is M a n a g e m e n t .............................................................................................................9
Two F u n d a m e n t a l T h e o r ie s O f E t h i c s .................................................................................................16
CHAPTER 3: HYPOTHESES...................................................................................................................... 23
In t e r n a l A c t iv it ie s ............................................................................................................................................. 23
S t a k e h o l d e r R e l a t io n s h ip s .......................................................................................................................... 27
C r is is M a n a g e m e n t P e r f o r m a n c e ........................................................................................................... 33
C o n s e q u e n t ia l is t -P r o a c t iv e O r g a n iz a t io n s ...................................................................................38
S u m m a r y o f H y p o t h e s e s .................................................................................................................................4 2
CHAPTER 4; METHODS..............................................................................................................................44
Q u e s t io n n a ir e s .......................................................................................................................................................44
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VI
M e a s u r e m e n t o f E t h ic a l O r ie n t a t io n ..................................................................................................45
M e a s u r e m e n t o f C r is is M a n a g e m e n t S t y l e ..................................................................................... 4 9
M e a s u r e m e n t o f O r g a n iz a t io n a l P e r f o r m a n c e ...........................................................................50
C o n t r o l V a r i a b l e s ............................................................................................................................................. 51
S a m p l e s ........................................................................................................................................................................ 52
I n t e r v ie w s ..................................................................................................................................................................53
CHAPTER 5: RESULTS................................................................................................................................ 55
In t e r v i e w s ..................................................................................................................................................................55
S t a t is t ic a l A n a l y s e s o f Q u e s t io n n a ir e s ............................................................................................ 57
P o s t - 9 /11 In t e r v ie w s a n d O b s e r v a t io n s ..............................................................................................69
CHAPTER 6: DISCUSSION..........................................................................................................................74
O v e r v ie w o f F in d in g s ......................................................................................................................................... 74
M o r a l R e l a t iv it y o r M o r a l D e v e l o p m e n t ? .................................................................................... 76
T o w a r d s a n d In t e g r a l F r a m e w o r k f o r E t h i c s ..............................................................................81
CHAPTER 7: LIMITATIONS, IMPLICATIONS, AND DIRECTIONS FOR FUTURE
RESEARCH........................................................................................................................................................87
S e v e r a l L im it a t io n s o f t h e S t u d y ........................................................................................................... 87
I m p l ic a t io n s f o r C r is is M a n a g e m e n t R e s e a r c h ............................................................................ 92
I m p l ic a t io n s f o r M a n a g e r s .......................................................................................................................... 97
I m p l ic a t io n s f o r S t r a t e g ic M a n a g e m e n t ...........................................................................................99
I m p l ic a t io n s f o r E c o n o m i c s .......................................................................................................................100
D ir e c t io n s f o r F u t u r e R e s e a r c h ............................................................................................................100
BIBLIOGRAPHY...........................................................................................................................103
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Vll
A PPE N D IX ...................................................................................................................................... 114
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vm
LIST OF TABLES
TABLE 1: TWO BASIC THEORIES OF ETHICS 22
TABLE 2: ETHICAL ORIENTATIONS AND CRISIS MANAGEMENT STYLE 30
TABLE 3: ETHICAL ORIENTATION-CRISIS MANAGEMENT STYLE 32
TABLE 4; CORRELATIONS BETWEEN THE MORAL INTENTION SCALE AND THE
PAIRWISE COMPARISON SCALES 48
TABLE 5: OPERATIONALIZATION OF PROACTIVITY 49
TABLE 6: DISTRIBUTIONS OF CORPORATIONS WITH RESPECT TO INDUSTRY 53
TABLE 7; CORRELATION MATRIX 59
TABLE 8: RESULTS OF REGRESSION ANALYSIS FOR PRO ACTIVITY (ALL GROUPS) 6 1
TABLE 9; CRISIS CATEGORIES BASED ON PROBABILITY OF OCCURRENCE 62
TABLE 10: REGRESSION ANALYSIS FOR PREPARATION FOR HIGH, MEDIUM, AND
LOW PROBABILITY CRISES 63
TABLE II: PERFORMANCE DIFFERENCES BETWEEN REACTIVE AND PROACTIVE
ORGANIZATIONS 64
TABLE 12: REGRESSION ANALYSIS FOR PERFORMANCE 65
TABLE 13: DISTRIBUTIONS/PERCENTAGES OF “ETHICAL ORIENTATION-CRISIS
MANAGEMENT STYLE” PAIRINGS 66
TABLE 14: MEANS (SE) FOR SEMANTIC SCALES AND LEARNING SCALE 67
TABLE 15: RESULTS OF REGRESSION ANALYSIS FOR PREPARATION FOR
TERRORISM (REACTIVE AND PROACTIVE ORGANIZATIONS) 71
TABLE 16: SUMMARY OF HYPOTHESES AND RESULTS 73
TABLE 17: LEVELS OF MORAL DEVELOPMENT 78
TABLE 18: INDIVIDUAL AND ORGANIZATIONAL MORAL DEVELOPMENT 79
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IX
LIST OF FIGURES
FIGURE 1: TRADEOFF BETWEEN CUMULATIVE COST OF PREPARATION AND
COST AS A RESULT OF CRISIS 15
FIGURE 2: REACTIVE CRISIS MANAGEMENT 15
FIGURE 3: PREPARATION FOR TERRORIST ATTACKS, BEFORE AND AFTER
9/11 72
FIGURE 4: AN INTEGRAL FRAMEWORK FOR ETHICS 82
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ABSTRACT
In the last few years, organizations have experienced several large-scale crises. A common
element of all crises is that they can harm organizational stakeholders. Inevitably, crises raise
questions about corporate social and public responsibilities. The need for better understanding crisis
management is greater than ever.
Although scholars have advanced understanding of crisis management, thus far, they have
underemphasized the strategic and normative frameworks of managers’ actions and decisions during
crisis preparation and response. I draw on ethics and crisis management literatures to explore
systematically the nature of the relationship between stakeholder orientation and crisis preparation,
response, and performance. I describe two crisis management models: consequentialist and non-
eonsequentialist. A consequentialist (cost-benefit) ethical orientation tends to value a reactive
approach to crisis management. It takes as its ethical justification the theories of utilitarianism. A non-
consequentialist (deontological) approach tends to value proactive approach to crisis management. It
takes as its ethical justification the theories of rights and duty.
Survey and interview data collected before, three months after, and one year after September
II, 2001 suggest that those Fortune 1000 organizations that adopt a non-consequentialist approach to
crisis management are better prepared for crises and achieve greater crisis management success
outcomes. Results also suggest that, in the long-run, a non-consequentialist approach to crisis
management may serve shareholders’ interests better than a consequentialist approach. In short, an
organization's ethical orientation is an important factor in its crisis management behavior and
performance. The study has descriptive, instrumental, normative, and managerial implications.
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CHAPTER 1: INTRODUCTION
Moral, adj. Conforming to a local and mutable standard of right. Having the
quality of general expediency.
Ambrose Bierce, The Devil's Dictionary
Corporation, n. An ingenious device for obtaining individual profit without
individual responsibility.
Ambrose Bierce, The Devil's Dictionary
In 1982, poisoned Tylenol capsules killed five people. Johnson & Johnson executives
responded quickly. Although they did not know at first if it was an internal or an external problem,
they ordered all Tylenol products off the shelf at the very first hint of the crisis and shared the details
of the situation with the media and the public. They did not lie; they did not withhold information.
They were honest and open. They wanted to do the right thing no matter how the eonsequences of
their decision and behavior might have affected Johnson & Johnson. In other words, they were
willing to accept the costs of such a huge recall. For Johnson & Johnson executives, doing no harm to
a single individual was more important then making profits. Although the recall of capsules was
costly and the initial stock market impact was negative (Marcus & Goodman, 1991), Johnson &
Johnson not only survived the Tylenol crisis, but it also reinforced its reputation for integrity and
tmstworthiness (Fink, 1986; Mitroff & Anagnos, 2001; Wood, 1994). Johnson & Johnson’s decisions
were based on organizational values that emphasized moral principles and doing the right thing
(M itroff & A nagnos, 2001; W ood, 1994). In the end, their decision s led to better con sequ en ces for
everyone.
During the 1970s, Ford Pintos were prone to catch fire as a result of rear-end collisions. At
the time, federal standards on fuel tank integrity required that cars should be able to withstand a 30-
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mile per hour rear collision. The Ford Pinto did not conform to federal standards. Although Ford
executives knew that the car had a defective design and was unsafe, they eontinued production
(Dardis & Zent, 1982). Gioia identified two reasons on which Ford executives based their decisions
(Gioia, 1992: 383): First, Ford executives believed that “safety doesn’t sell.” Evidence for attitude
comes from Charles Perrow who posted in the critical management workshop newsletter a New York
Times (December 17) story by Michael Winerip:
“On April 27, 1971, Nixon held a private White House meeting with
John Ehrlichman, Henry Ford II and Lee lacocca, then Ford's president, that
would have stayed secret forever if not for Watergate and the subsequent release
of the While House tapes... lacocca and Henry Ford II had come to ask Nixon
to go easy on safety and pollution regulations. Henry II complained that the
price of the Pinto could be driven up by 'safety requirements, the emission
requirements, and the bumper requirements.' lacocca explained that he made
Ford's case to Nixon's transportation secretary, John Volpe, telling him: 'Would
you guys cool it a little bit? You're going to break us.' And Volpe said: 'Hold it.
People want safety.'... To which lacocca replied: 'What do you mean they want
safety. We get letters....We don't get anything on safety!"*
Second, Ford had a corporate norm that required managers to adhere to the production
“limits of 2000” that aimed to keep the cost and the weight of the car below $2000 and 2000 pounds,
respectively. According to an internal memo, the estimated cost to solve the fuel tank problem was
$11 per car and the estimated value of a human life was at $200,000 (Dowie, 1977). In short. Ford
executives chose to wait until they were sued because settling a few lawsuits filed by bum victims or
their families was more cost-effective than modifying the initial design (Velasquez, 1982). Ford’s
decisions were based on organizational values that emphasized conformity and cost-effectiveness
(Gioia, 1992). In the end, their decisions led to worse eonsequences for everyone.
These cases illustrate two drastically different approaches to the management of two large-
scale organizational crises in the U.S. As a result, their outcomes are different. What are these
different approaches? And why are they different? I attempt to answer these questions.
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Basic DeBnitions and Research Question
A large-scale crisis is a “low probability yet high impact event” (Pearson & Clair, 1998:66).
Weick defines a crisis as a “low probability/high consequence event that threatens the most
fundamental goals of the organization” (Weick, 1988:305). Pauchant & Mitroff (1992:12) define a
crisis as a “disruption that physically affects a system as a whole and threatens its basic assumptions,
its subjective sense of self and its existential core.” A crisis can not only destroy the very existence of
an organization, a product line, a business unit, but it can also damage an organization’s financial
performance, harm the health and well-being of consumers, employees, the surrounding community,
and the natural environment. It can also destroy the public’s basic trust or belief in an organization, its
reputation and its image (Mitroff, Pearson, & Harrington, 1996b).
Scholars who study large-scale organizational crises have attempted to answer primarily
three questions. The first question is “What causes crises?” Previous conceptual and empirical
research examined some of the links between crises and technological, political, psychological,
organizational, cultural, structural, and institutional variables (Perrow, 1984; Gephart, 1984; Weick,
1988; Shrivastava, 1988; Roberts, 1990; Mitroff et ah, 1996; Vaughan, 1996; Turner, 1997; Pearson
and Clair, 1998; Wicks, 2001). Researchers have found that there are many factors that may
contribute to crises: For example, multiple and unexpected interactions in tightly coupled, complex,
high-risk technologies (Perrow, 1984), personality disorders and defense mechanisms of individuals
and organizations (Pauchant & Mitroff, 1992), breakdowns in sensemaking and role structures,
particularly in minimal organizations (Weick, 1993), organizational structures and cultures that
“normalize” decision makers’ interpretation of deviance (Vaughan, 1996) and institutional forces that
create a mindset of invulnerability and thereby cloud individual perceptions of risk (Wicks, 2001).
The second question that crisis management researchers attempted to answer is “What
should organizations do to manage crises effectively?” For example, Pearson and Clair (1998:66)
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proposed that effective crisis management “involves improvising and interacting by key stakeholders
so that individual and collective sense making, sharing meaning, and roles are reconstructed.” It also
involves “behavioral and emotional responses aimed at recovery, and individual and organizational
readjustment of basic assumptions.” Weick argued that effective management of crises requires
paying attention to four potential sources of resilience that make sensemaking in groups less
vulnerable to collapse: improvisation, virtual role systems, the attitude of wisdom, and norms of
respectful interaction (Weick, 1993). Mitroff et al. (1996:117) stressed that in order to be effective,
crisis management must be systemic and integrated into an organization’s systemic programs that cut
across functions, departments and business units. Pearson and Clair (1998) argued that crisis
management efforts are effective when the responsibility for crisis management rests with crisis
management teams, and when organizations build alliances with external stakeholders and achieve
coordination by sharing information quickly, accurately, directly and candidly. Weick and Sutcliffe
(2001) suggested that organizations can effectively “manage the unexpected” by acting more like a
“high-reliability organization” (Roberts, 1990).
The third question addressed in the organizational crisis literature is “Why cannot
organizations manage crises effectively?” Researchers have argued that managers’ perceptions about
risk and risk taking influence their crisis management behavior (Kets de Vries, 1984; Kets de Vries &
Miller, 1986; Mitroff et al., 1996b; Pearson & Clair, 1998). The perceptions of managers about crises
and crisis management are affected by many factors. Mitroff and Pauchant (1990:xiii) argued that
crises are not managed effectively because managers are “emotionally bounded,” Mitroff and
Pauchant employed the concept of “bounded emotionality” to describe managers who cannot
acknowledge and cope with feelings triggered by crises: fear, guilt, anger, anxiety, depression, and
hopelessness (Mitroff & Pauchant, 1990). They also noted (1990: xiii) that “bounded rationality”
(Simon, 1972) is another factor. It limits the amounts and the variety of information and alternatives
managers can consider and process. Weick (1993) argued that crises induce a heightened sense of
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vulnerability, and thereby impair victimized managers’ sense making and rationality. At the
organizational level, Staw, Sandelands, and Dutton found that events perceived to have negative
implications lead organizations to stick with well understood, previously implemented activities with
which organizations are comfortable (Staw, Sandelands, & Dutton, 1981). Obviously, the ineffective
management of crises is another factor that causes further crises (Tumer, 1976; Weick, 1988).
The studies mentioned above have explored some of the causes of crises, what needs to be
done to manage crises effectively, and why organizations may fail to manage crises effectively. But
why organizations choose to behave the way they do as they prepare for and cope with crises and
how organizations justify the rightness of their choices remain largely underemphasized in the
organizational literature. For example, before a crisis, why do some organizations prepare only for the
most common crises, where some organizations prepare for a wide variety of crises? Why do some
organizations allocate greater amounts of time and resources to crisis management than others? Why
do some organizations view crisis management as just another activity that managers should perform
cost-effectively, where some organizations view crisis management as intrinsically different from
other managerial activities and intend to do the right thing no matter how much it costs? In case of a
crisis, why do some organizations choose to take responsibility despite detrimental legal
ramifications, where some avoid it? Why do some organizations immediately disclose the truth, as
they know it, where some organizations hide it?
Examples from Corporate America are numerous; Why didn’t Exxon prepare for the
possibility of a major spill in the port of Valdez? Why did Valujet contract aircraft maintenance to the
lowest bidders, deny responsibility, and lie that all aspects of Valujet’s operations were safe and
perfect? Why did Andersen destroy Enron documents? Why did Firestone wait until they were forced
to recall their tires? On the other hand, why did Lee lacocca immediately accept responsibility when
Chrysler was charged with falsely resetting odometers? Why did P&G withdraw Rely tampons
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despite the absence of conclusive evidence that Rely caused toxic shock syndrome? (Fink, 1986;
Mitroff & Anagnos, 2001; Mitroff & Pauchant, 1990).
A common element, implicit or explicit, in each of these cases, is that all raise questions
about the moral and ethical values of these organizations and their managers. Given that unethical
behavior may not only cause crises but it may also intensify and perpetuate the existing ones, it is
surprising that the relationship between an organization’s ethical orientation and its crisis
management behavior has not been systematically explored. I found two empirical studies of the
relationship. In the first study, the link between ethical orientation and crisis management style is not
clearly theorized. In the second study, it is explicit but hard to generalize to other contexts.
Marcus and Goodman studied how corporate announcements during crises impact firms’
stock prices (Marcus & Goodman, 1991). They identified three different kinds of crises: accidents,
scandals, and product safety & health crises. They also identified two different responses: defensive
and accommodative. Their results indicated that accommodative announcements proved effective
after scandals, and defensive announcements proved effective after accidents. Seeger and Ulmer
examined two cases of ethical response to crisis (fire and explosion in the facilities), where the CEOs
of two companies tried to establish a positive ethical tone during crisis management (Ulmer, 2001).
Seeger and Ulmer drew from the literature on virtue ethics', which focuses on the admirable
characteristics of the person (Louden, 1992), and concluded that highly virtuous responses, such as
immediacy of response, supportiveness of victims, and rebuilding and renewal proved effective in
’ I agree that virtue ethics is an inseparable and important part o f moral arguments. In fact, some
believe that virtue ethics, by focusing on the person, avoids the difficulties of other ethical systems (Louden,
1992). The shift from behavior to person may be problematic for at least two reasons: First, we cannot conceive
of character traits that do not also include principles that guide behaviors. For example, the statement “courage is
a virtue,” prescribes not only who to be but also what to do. Second, we may not know what traits are better than
others without basic principles that are independent o f traits or without observable consequences that are
dependent on traits. For example, are traits that promote the general good more virtuous than traits that promote
universal rights? 1 address the relationship between virtue ethics, deontology (ethics o f duty), and
consequentialism (ethics o f utility) in Chapter 6.
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managing crises. According to this study, accommodative responses to accidents seem to be more
virtuous and more effective.
These studies are limited in several ways. The former study evaluates the effectiveness of
crisis responses in terms of daily fluctuations in the stock price on the day of the corporate
announcement. This very short-term focus may be misleading. For example, Johnson & Johnson
survived the sharp drop in its stock price in the long-term. In addition, this study does not
theoretically develop an ethical basis for defensive and accommodative responses. The latter study
has weak generalizability because its analysis is limited to accidental fires in two private companies,
where CEOS were not constrained by the interests of stockholders. More importantly, it views ethics
as a choice between right and wrong, failing to see that ethics is, in fact, a justification process of
choosing among options all of which are right (Badaracco, 1987). Another limitation of these studies
is that they both focus on post-crisis response and underemphasize crisis preparation. Finally, these
two studies offer contradictory findings in terms of what constitutes effective response after
accidents: the former study suggests a defensive response, where the latter study suggests an
accommodative response.
In my dissertation, I draw from the literature on ethics of duty and the literature on ethics of
utility to understand why organizations choose to behave the way they do both before and after a
crisis. I focus on behavior, the rightness of its principles, and the goodness of its consequences.
My discussion is organized as follows. In Chapter 2 ,1 review the literature. I identify two
different approaches to the management of crises: reactive and proactive. Next, I draw on two
fundamental theories of ethics: consequentialist and non-consequentialist. These two perspectives
approach the subject matter of ethics very differently. Therefore, they apply ethics differently in the
context of business. I discuss how the two ethical perspectives view the firm, and its function or
purpose. In Chapter 3 ,1 argue that organizational ethical orientation, at the very least, is associated
with why some organizations prefer a proactive approach to crisis management while others prefer a
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reactive approach. Moreover, I argue that the outcomes of a proactive approach to the management of
crises are more effective than those of a reactive approach. I develop several testable hypotheses. In
Chapter 4 ,1 talk about the research setting, the methodology, and the measures. I present the results in
Chapter 5. In Chapter 6 ,1 discuss the results and outline a framework for a better understanding of
the findings and the ideas and questions raised in this dissertation. In Chapter 7 ,1 discuss the
limitations of this research. I also talk about implications for theory and practice. I conclude with
directions for future research.
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CHAPTER 2: LITERATURE REVIEW
Two Styles of Crisis Management
There are at least two streams of research in the organizational literature on crisis
preparation. These streams focus on different types of crises and organizations.
One stream of research focuses on and draws lessons from high-reliability organizations
(HROs), such as aircraft carriers, air traffic control systems, and nuclear power plants (Roberts, 1990;
Roberts & Rousseau, 1989; Weick & Roberts, 1993; Weick & Sutcliffe, 2001). These organizations
operate under very difficult conditions, yet they experience fewer crises than expected. Weick and
Sutcliffe argued that one of the reasons why HROs are successful in managing the unexpected is
because they are “preoccupied with failure” (Weick & Sutcliffe, 2001:54). HROs encourage and
reward the reporting of failures; they even reward those who have failed (Weick & Sutcliffe, 2001).
They focus on all kinds of failures no matter how small because small failures, if neglected, may
combine to become a major crisis (Schulman, 1993; Weick, 1988). Although in most organizations
the general tendency is to ignore (Clarke, 1993), and to normalize weak signals (Vaughan, 1996),
HROs develop a capacity for “mindfulness” that allows them to see and to respond to patterns that
connect weak signals before they become full-fledged crises (Weick, 1983; Weick & Sutcliffe, 2001).
They “complicate” themselves (Weick, 1979); they are “reluctant to simplify interpretations” (Weick
& Sutcliffe, 2001); they “aggressively seek to know what they don’t know” (Roberts & Bea, 2001).
For example, they consider a near miss as an evidence of a failure, not of success (Weick & Sutcliffe,
2001). Moreover, they don’t take success for granted. In fact, they are preoccupied with the liabilities
of success (Sitkin, 1992; Starbuck & Milliken, 1988; Weick & Sutcliffe, 2001). For success may lead
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10
to failure by fostering complacency, confidence, inattention, routinization, and habituation (Starbuck
& Milliken, 1988).
Most crises HROs experience are virtually guaranteed to happen because of the complexity
of teehnologies and organizations. These events are rare yet expected. In this sense, they are “normal”
(Perrow, 1984). According to Perrow, “interactive complexity” and the “tight coupling” of a system’s
characteristics make accidents virtually inevitable. Nonetheless, the causes of these events are not
necessarily intentional. For example, a “breakdown” of machinery may trigger a “normal” accident or
a crisis.
Some crises, however, are unexpected or “abnormal” because their causes are intentional.
They represent intentional “breakups.” Tampering, kidnapping, malfeasance, and terrorism are
examples. Some crises are “abnormal” for a different reason: factors that contribute to them are
“unthinkable.” For example, the Kobe earthquake contributed to the bankruptcy of Barings Bank
because of risky investments that were made in Japan.
Ford-Firestone, 9/11, Enron, Andersen, the Catholic Church, WorldCom, Imclone, and
Adelphia are crises that are neither normal nor experienced solely by HROs. These crises are not
normal and may happen to any organization. These crises are examined in a different stream of
research in the organizational crisis literature.
This stream of research suggests that “crisis-prepared” (Pauchant & Mitroff, 1992)
organizations - among non-HROs as well - take a “proactive” approach to crisis management by
anticipating and being prepared for a wide variety of crises, including both normal and abnormal
crises (Mitroff & Anagnos, 2001; Pearson & Mitroff, 1993; Pearson & Clair, 1998). Obviously, it is
impossible to prepare for all kinds of crises. But this does not mean that organizations cannot
proactively prepare for crises. Pauchant and Mitroff found that crises “cluster together” in certain
types, groups, or “families” (Pauchant, 1988; Pauchant & Mitroff, 1992; Mitroff and Anagnos, 2001).
Within a particular “family,” specific crises share strong similarities, while there are sharp differences
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between families. An example is informational crises such as tampering with databases, stealing
proprietary information and trademarks, and loss of critical information. Another is psychopathic acts
such as terrorism, kidnapping, product tampering, and workplace violence.
Proactive organizations prepare for at least one crisis in each family (Mitroff & Anagnos,
2001; Pauchant & Mitroff, 1992; Pearson & Mitroff, 1993). They create a diverse and thereby robust
crisis portfolio. They also realize that any particular type of crisis can cause, or be caused by, any
other crisis (Pauchant & Mitroff, 1992). For example, abnormal crises can trigger normal crises, or
vice versa. Therefore, proactive organizations do not plan for individual crises in isolation but
consider complex, interactive crisis scenarios. As a result, they anticipate and include diverse
stakeholders into their crisis plans and procedures (Mitroff & Anagnos, 2001). They develop a
capability to pick up and amplify different early warning signals that accompany different crises
(Clair, 1993). They institute damage containment mechanisms in advance of the occurrence of crises
to limit their spread (Pearson, Clair, Kovoor, & Mitroff, 1997). They continually audit one's corporate
culture for values that may promote denial, distrust, and opportunism. For such values may not only
hinder effective crisis management but also intensify crises and even trigger new ones (Mitroff &
Anagnos, 2001). For example, Enron’s annual job reviews, also known as “rank-and-yank” sessions,
may have contributed to Enron’s collapse by creating a cutthroat and paranoid culture. In short,
proactive organizations are as “preoccupied with failure” as mindful HROs.
Even with the best preparations, it is impossible to avoid all crises. Nonetheless, crises can
be dealt with proactively not only before but also after they happen. To accomplish this, proactive
organizations build capabilities to cope with crises. These capabilities, however, are developed
proactively, i.e., before a crisis is experienced. There are several “mindful” and “proactive” ways to
contain and recover from crises. “Building resilience” involves “developing knowledge, capability for
swift feedback, faster learning, speed and accuracy of communication, experiential variety, skill at
recombination of existing response repertoires, and comfort with improvisation” (Weick & Sutcliffe,
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2001:70). A “deference to expertise” involves a flexible and empowering structure that facilitates
decisions to “migrate” to the person or unit that has the expertise, responsibility, and accountability
for the unique problem at hand (Roberts, 1992; Weick & Sutcliffe, 2001). Proactive organizations
establish strong communication channels with stakeholders (Ulmer, 2001), disseminate information,
tell the truth, and assume responsibility before a crisis gets out of hand (Mitroff & Anagnos, 2001;
Pearson et al., 1997), because the failure to assume responsibility and to disclose critical information
may intensify a crisis (Tumer, 1976; Weick, 1988). For example, when Chrysler was charged with
falsely resetting odometers, Lee lacocca, the CEO of Chrysler, said: “It happened; it shouldn’t have
happened; it won’t happen again” (Mitroff & Anagnos, 2001). As a result, the initial crisis did not
become a chain reaction of further crises.
There are notable parallels between the literature on HROs and the literature on crisis
management. There are also similarities between “mindful” and “proactive” organizations. Both types
of organizations require managing a crisis before and after it happen. Both emphasize the importance
of picking up and amplifying early warning signals. Both put a great emphasis on the role of context
and interpretation. Both welcome “expensive redundancy” (Lawson, 2001; Roberts & Bea, 2001),
and allocate the time and the resources to develop capabilities to manage crises. In short, both are
“preoccupied with failure” - whether it is normal, abnormal, or unthinkable.
Not all approaches to crisis management are completely proactive or mindful. In fact,
proactivity and mindfulness represent a continuum. “Mindfulness,” the support for redundancy, and
the preoccupation with failure, safety, and reliability are at one end of the continuum. “Mindlessness”
(Weick & Sutcliffe, 2001), the preoccupation with “fine-tuning” (Starbuck & Milliken, 1988), and the
neglect or unawareness of failure, safety, and reliability are at the other end of the continuum.
Weick and Sutcliffe argued that when “mindlessness” is present, early warning signals and
nuances in context are ignored or go unnoticed. Extremely “mindless” organizations may even be in
denial of some of the risks in their environments. For example, Kovoor studied managers’ beliefs
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about their organizations’ level of preparation for crises (Kovoor, 1991). She also audited their actual
level of preparation for crises. She found that the managers of less prepared organizations believed
their organizations were better-prepared than they actually were. They even believed that they were
invulnerable to crises. On the other hand, the managers of better-prepared organizations believed that
their organizations were more vulnerable to crises. In other words, “unprepared” managers acted as if
they were “prepared” and vice versa. These managers were acting “mindlessly” by denying their
vulnerabilities, and as a result, making their organizations even more vulnerable to crises.
Virtually all crisis management practices fall somewhere between these two extremes. Some
organizations are closer to the proactive end of the spectrum. These organizations build in
redundancy that involves failure simulations and analyses, and crisis management and crisis
communications training (Roberts & Bea, 2001; Lawson, 2001). They also develop measures of
safety, and reward reliability (Roberts & Bea, 2001).
Some organizations are closer to the “reactive” end of the continuum. The first question to
raise about reactive organizations is whether they are aware of a risk that they face. If they are aware
that they face a risk, then the next question they raise is whether or not this risk is significant. There
are numerous measures of risk. For example, the probability of incurring a loss, outcome uncertainty
(Sitkin & Pablo, 1992) such as variability of outcomes (Libby & Fishbum, 1977) or the lack of
knowledge of the variability of outcomes (March, 1978). Moreover, the risk measure of an
organization may be affected by various factors such as framing (Kahneman & Tversky, 1979) and
scale of prior failures (Sitkin & Pablo, 1992).
For the purposes of this discussion, what measure of risk an organization uses or what
factors affect this measure is not central. Whatever the risk measure is, the organization will use it to
separate significant from insignificant risk. A risk is significant if it is above a certain threshold. This
threshold may or may not be a fixed quantitative value and it may change with some contextual
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variables such as industry. But it is at least partly a function of how concerned an organization is with
profit, efficiency, or failure.
In their dealings with crises, organizations closer to the “mindless” or the “reactive” end of
the spectrum are preoccupied with efficiency and “fine-tuning”, not redundancy. They predominantly
identify crises, or risks, by computing the severity of their consequences and the probabilities of their
occurrence. The expected cost of a certain crisis is the product of its perceived consequences and its
probability of occurrence (Pauchant & Mitroff, 1992). In this case, risk refers to the expected value of
an outcome rather than its variability. Therefore, a crisis is considered significant if its cost times its
probability is above a certain threshold. This threshold may be the level above which being
unprepared hurts profits. In effect, this approach classifies and prioritizes crises. The most important
crises are those with the highest risk or expected cost (see Figure 1 and Figure 2). For example, some
weeks before the spill, Exxon management decided to cut back on safety and maintenance because
the likelihood, hence the expected cost of a major spill was too small (Mitroff & Pauchant, 1990). In
short, at the “reactive” end of the spectrum, crisis management becomes a form of cost-benefit
analyses.
March and Shapira stressed that the combination of low probability and high consequence
presents a dilemma of “preparing for a world (i.e., a world in which no low probability, high
consequence events occur) that is certain not to be realized” (March & Shapira, 1987:1411). In order
to avoid this dilemma, reactive organizations focus only on “known” crises that have happened in the
past or for those that are common in one’s industry. In this sense, these organizations take a risk by
not wasting their time and resources worrying about “abnormal” crises that have not yet happened
and/or have a small probability of occurring, such as sabotage, tampering, and terrorist attacks
(Pauchant & Mitroff, 1992; Perrow, 1984).
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Optimum # of Crises
to be prepared
Cumulative Cost of
Preparation for Crises
Expected Cost as a
Result of Crises =
Consequences X Probability
Normal Crises Abnormal Crises
High
Low
Probability
FIGURE 1
Tradeoff Between Cumulative Cost of Preparation and Cost as a Result of Crisis
High
Probability
Low
Low
Reactive Crisis Management:
Prepare for high probability and high
consequence crises.
Consequences
High
FIGURE 2
Reactive Crisis Management
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Moreover, the fact that these crises did not happen before reinforces a belief that they will
not happen in the future. It has been found that prior success in taking risks leads to a further
willingness to take risks (March & Shapira, 1987; Osborn & Jackson, 1988; Sitkin, 1992; Thaler &
Johnson, 1990). As a result, these organizations tend to invest less in the early warning systems,
damage containment mechanisms, and crisis management training programs that are necessary to
prevent and to manage extremely low probability crises. Instead, they prepare primarily for high
probability-high consequence crises. Airlines prepare for crashes; chemical plants prepare for spills
and explosions; food manufacturers prepare for contamination.
In short, an organization’s approach to crisis management is expected to lie between the
following extremes: A proactive approach to crisis management, which is preoccupied with failure. A
reactive approach that is preoccupied with cost-benefit analysis.
Two Fundamental Theories Of Ethics
The literature on philosophy and management abound with theories of ethics. 1 focus on two
of the most fundamental: consequentialist and nonconsequentialist (Barry, 1986).
Consequentialism. Consequentialist theories of ethics judge behavior to be ethical in terms
of the “goodness” of the consequences of that behavior. According to this perspective, moral
judgments are rendered a posteriori, or after-the-fact, and moral principles are derived inductively.
Ideally, we have to observe what happens before we can judge an act or principle to be ethical (Barry,
1986; Beauchamp & Bowie (Eds), 1979; Frankena, 1973; Mill, 1957).
Two important consequentialist theories of ethics are utilitarianism and ethical egoism.
According to utilitarianism, individuals ought to behave so that the consequences of their behavior
have “the greatest utility for the greatest number” (Mill, 1957). Utilitarianism presupposes that “what
is good for all is good for one” (Hinman, 1994). “One” can be an individual, a subgroup of society, or
the whole society. In either case, “one” is a means to the larger ends of the society or humanity in
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general. For example, every society benefits from a healthy economy and a healthy economy requires
resources. Therefore, operating a nuclear power plant, although it may harm employees, residents of
the area, or the natural environment, may be morally acceptable if it benefits the larger society as a
whole.
According to ethical egoism, individuals ought to behave so that, in the long-term, the
consequences of their behavior have the greatest utility for themselves (Barry, 1986; Frankena, 1973).
Ethical egoism presupposes that what is good for one’s self is good for all (Hinman, 1994). Ethical
egoism demands that individuals treat themselves as ends and everyone else as means because this is
the only way to achieve the greatest good of humanity. Ayn Rand, a staunch proponent of ethical
egoism, maintained that if people acted selfishly and took care of themselves, the overall effect would
be to make the world a better place for everyone (Rand, 1943).
A consequentialist view of the firm. In the Wealth of Nations. Adam Smith argued that the
society would be better off if firms are left to pursue their self-interests. Similarly, Friedman’s (1970)
traditional view of the firm argues that society's resources are utilized in the most efficient and
effective way only when self-interested parties try to maximize their profit. Both perspectives are
consistent with a consequentialist ethical orientation. In fact, they blend ethical egoism and
utilitarianism: the former leads to the latter (Beauchamp & Bowie (Eds), 1979).
The traditional view of the firm argues that corporations that fail to put profit first will be at
a disadvantage because they will spend extra money that will increase the price of their products, and
customers will purchase products of competing companies that charge less (Goldman, 1980). As a
result, companies that fail to put profit first will suffer financial losses.
The traditional view also argues that the public and the market will immediately punish
those corporations that have engaged in unethical conduct (Goldman, 1980). Punishment by the
market and the resulting decline in reputation and profits will force managers to satisfy all ethical and
legal constraints in their pursuit of profit. As a result, putting profit first will not only ensure that
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society’s resources are utilized more efficiently but it will also create a moral and law abiding society.
Beauchamp & Bowie (1979:11) argued that a consequentialist view on business ethics is an ethics of
restrained egoism: “It is egoistic because it is an ethie based on the active self-pursuit of one’s self
interest. It is restrained because self-interest is subservient to the rules of business practice.”
From a consequentialist view, a manager or a firm is given the task of maximizing profit
within the limits set by physical, legal, and social constraints. Carr argued that
“We live in what is probably the most competitive of the world’s
civilized societies. Our customs encourage a high degree of aggression in the
individual’s striving for success. Business is out main area of competition, and it
has been ritualized into a game of strategy. The basic rules of the game have
been set by the government, which attempts to detect and punish business
frauds. But as long as a company does not transgress the rules of the game set
by law, it has the legal right to shape its strategy without reference to anything
but its profits” (Carr, 1968:25).
This presupposed agreement on the ends focuses all attention within the firm on questions of
means. Since there are several altemative means, the job of a manager thus becomes a technical task
that involves the calculating of the costs and benefits of choosing one means over another. The
proponents of the traditional view stress that the only task of a manager or a firm is to make profit
(Friedman, 1970). According to them, it is unethical to waste money and resources by not putting
profits first. For this will hurt stockholders, organizations, employees, and eventually the whole
society.
Non-consequentialism (Kantian deontology). Nonconsequentialist theories of ethics judge
behavior to be ethical in terms of the rightness or soundness of basic principles. According to this
perspective, moral judgments are rendered a priori, or before-the-fact, and moral principles are
derived deductively from first principles or prior assumptions (Barry, 1986; Frankena, 1973; Kant,
1964; Velasquez, 1982).
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The most influential nonconsequentialist theory is Kant's deontological, or duty-based
ethics.^ According to Kant, principles that guide behavior must not be derived from consequences of
behavior, but the principles must be “good in themselves” (Kant, 1964). What make the prineiples
good in themselves are their intentions, not their consequences. Free will and good will are at the
essence of Kantian ethics because the will is under our control; the consequences of our actions are
not. Therefore, only “free” and “good” will is ethical without qualification. According to
deontologists, what is right for all is right for one.
A common example of a deontological principle is the following: “Killing is never justified;
therefore, do not kill.” The principle is not, “Do not kill if the consequences of doing so harm you or
the majority.” For the latter principle justifies killing if the societal “benefits” of killing are greater
than “eosts.”
Deontological arguments attempt to arrive at fundamental principles that apply universally to
all people at all times and in all places. The fact that deontologists often fail to arrive at universally
applicable principles is not sufficient to deter them from their position because they are committed to
it irrespective of the consequences of being a deontologist. In a similar fashion, consequentialists are
committed to their position in principle because they believe consequentialism has better
consequences for all people at all times and in all places. More contradictions, imperfections, or
difficulties inherent in a position may not be enough to shift one out of that position when one is
committed to it in principle.
A deontological view of the firm. To deontologists, ethics is universal in both its seope and
application. It does not change from context to context. It guides action in every sphere of life. If
lying, cheating, and stealing are wrong for managers, then they are wrong for everyone, and vice
^ The term “duty” may be misleading because it usually means something imposed by an external
authority. By duty, Kant means “the necessity o f acting out o f respect for moral values.”
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versa. Consumers' rights have to be respected and protected not because they are consumers but
because they are humans, and humans are the proper subject of ethics (Barry, 1986; Beauchamp &
Bowie, 1979; Velasquez, 1982)
According to deontologists, a decision or an act can be morally right even if it does not
promote the greatest possible balance of good over evil. Therefore, deontologists do not consider
efficiency or the greater good of society as a relevant starting point in their moral reasoning and
decisions. Furthermore, they argue that corporations should act for the sake of duty, i.e., act out of
reverence for a universal moral law (Kant, 1964), rather than always avoid potential harm to their
profit. From a deontological point of view, putting ethics first is the right thing to do regardless of the
costs and the benefits associated with it. Deontological ethics, in fact, demands sacrifice of profit,
efficiency, self-interest, and at times, even the greater good of society.
Kant (1964) believed that moral behavior must be eonsistent with what he formulated and is
known as the categorical imperative: “Act only on that maxim through which you can at the same
time will that it should become a universal law.” The categorical imperative functions as a “test” to
judge the validity of a proposed ethical principle.^ A principle “passes” the test if and only if it can be
generalized to all persons in all contexts. Therefore, corporations should act on principles that can be
generalized to all persons in all contexts. Kant's second formulation of the categorical imperative is;
“Act in such a way that you always treat humanity, whether in your own person or in the person of
any other, never simply as a means, but always at the same time as an end.” Humans have an intrinsic
dignity merely by virtue of their being human. Therefore, corporations should treat humanity as an
end in itself.
In short, a consequentialist view of the firm puts utility first for the sake of humanity; a
deontological view puts humanity first for the sake of duty.
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Both schools of ethics have noble moral ideals. It is admirable to value the greater good of
greater numbers of people. It is also admirable to commit strictly to ethical principles such as “Do not
kill,” even if one’s own life is in danger. Nonetheless, the extreme versions of these two ethical
systems may not reflect the actual moral reasoning of managers. An extremely selfish version of
consequentialism may be completely dysfunctional as the definitions of “utility,” “majority,” “cost,”
and “benefit,” may be too biased and narrow. As a result, a selfish, cold, and calculative stance may
cause to harm individuals and societies. An uncompromising version of deontology may be
completely dysfunctional as the search for universally applicable principles may never end. An
extremely altruistic and uncompromising version of consequentialism may be completely
dysfunctional as it is impossible to control every conceivable consequence for every conceivable
stakeholder. Such stances hurt humanity by making the search for the perfect the enemy of the good.
At the very least, the search for perfection can be paralyzing because we live in a world where we
have to act in the face of risks and uncertainties.
Fortunately, most organizations have ethical values that fall between these two extremes.
Furthermore, these ethical values may not be fixed. Rather, ethical values are “part of an unfolding
conversation with one’s self and others” (Churchman, 1983 in Pauchant, 1992:189). In this sense,
being ethical is not only an outcome but also an ongoing process. It is the process of uncovering and
understanding the underlying principles that guide one’s actions (Pauchant & Mitroff, 1992). For
some organizations, the rightness of principles dominates the goodness of consequences. These
organizations value a deontological ethical orientation. In their conversations with themselves and
others, they use deontological principles to justify their actions. Ultimately, they want to live in a
world where deontological principles are valued more.
^ According to Kant, the categorical imperative (a) describes how a perfectly rational being acts, and
(b) prescribes how imperfect (rationally bounded) beings, like ourselves, ought to act.
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For some organizations, the goodness of consequences dominates the rightness of principles.
These organizations tend to value a consequentialist ethical orientation. In their conversations with
themselves and others, they use consequentialist principles to justify their actions. Ultimately, they
want to live in a world where consequentialist principles are valued more.
Table 1 summarizes this section.
TABLE 1
Two Basic Theories of Ethics
Consequentialist
(Utility Based)
Nonconsequentialist
(Duty Based)
Basic Approach Judees behavior bv the eoodness of
consequences for self and/or societv.
Judees behavior bv the riehtness of
nrincinles. intentions, and motives
that guide it.
Moral Judgment Judgment is a posteriori, and context
dependent.
Judgment is a priori, and
independent of context.
Moral Ideal Greatest good for the largest number
of people to feel eood.
Freedom for the rational individual
to do the rieht thine for to be eood)
Asks What works for the majority? What is worth pursuing for the
individual?
Form of Moral
Principles
Hypothetical;
( I f ... then ...). Ex: If it benefits the
majority, then it is OK to lie or to
sacrifice a human life.
Categorieal;
(Do ...; D on't...). Ex: Don't lie.
Don't sacrifice human life. Even
when it hurts the majority.
View of
Individual
Individuals are inputs with certain
weights in a societal utility function.
Individuals have intrinsic dignity as
being ends-in-themselves.
Motto Let me do right lest the heavens fall. Let me do right though the heavens
fall.
Major Theories Ethical Egoism (leads to)
Utilitarianism.
Deontological theories, Kantian
ethics.
Theory of Firm The traditional (consequentialist)
view of the firm.
The deontological theory of the
firm.
Business and
Ethics
“Putting business first” is moral. “Putting ethics first” is moral.
Guarantor of
Moral Conduct
Acting in accord with duty
Purely competitive markets, the
invisible hand of market forces, the
visible hand of government.
Acting for the sake of duty
Respect for the rational will and
respect for the universal law.
Corporate
Responsibility
The sole responsibility of a
corporation is profit maximization.
The responsibility of a corporation
is broader than profit maximization,
and must include moral
responsibility.
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CHAPTER 3: HYPOTHESES
In this chapter I attempt to explicate the relationship between ethical orientation
(consequentialist vs. deontological) and crisis management behavior (reactive vs. proactive). To this
end, I look at how organizations manage their internal activities and external relationships with
stakeholders, in the context of crisis management.
Internal Activities
Weick and Sutcliffe argued that although organizations can manage the unexpected by
acting more like HROs, many organizations do not learn from HROs because they dismiss the
relevance of HROs to their situations (Weick and Sutcliffe, 2001). These organizations believe that
HROs operate in higher risk environments, and the crises HROs experience are larger in scale and
more harmful. It is true that HROs use high-risk technologies. There is no room for trial and error
learning because one mistake is too many. But this applies to other industries as well (see a discussion
of Schumpeterian environments (Schumpeter, 1950). Eisenhardt, for example, made the case that
“high-velocity environments” of the microcomputer industry resemble the high-risk environments of
HROs (Eisenhardt, 1993). It is also true that HROs may kill or injure people, and most non-HROs do
not. But there is no need to take death or injury too literally. Lives can be shattered in many other
ways. The collapse of Enron-Andersen, WorldCom, and the crisis in the Catholic Church are but a
few examples.
The unwillingness of non-HROs to learn from HROs hints at a certain mindset that is
preoccupied with efficiency, utility, and the bottom line. Virtually all businesses share this mindset
because, in a competitive market, profit maximization requires efficient and optimum producing of
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goods. Fritzsche and Becker found that due to the strong role economics plays in managerial
decision-making, most managers have a utilitarian orientation (Fritzsche & Becker, 1984). As argued
above, proponents of the traditional view of the firm (Friedman, 1970) suggest that the only goal of
the firm is to maximize profit. Therefore, all legal business decisions, including those that deal with
crisis management, must aim to increase efficiency and maximize profit. This efficiency and
consequence-based mindset is particularly evident in the neoclassical theories (Kreps, 1990), which
argue that, knowing its probability, rational agents would choose the altemative that has the
maximum expected utility. The same mindset is evident also in discussions of an economic basis for
deterrence. Becker argued that rational agents would commit fewer criminal acts if the probabilities
of detection were higher or sanctions were more severe (Becker, 1964). At the organizational level,
regulated businesses, guided by utilitarian calculations of self-interest, comply when the costs of
disobeying the law are greater than the benefits (Stigler, 1970).
These views assume that rational agents always know what is optimum. March and Simon,
however, argued that people and institutions are “bounded rationally” and have to act “in the face of
the uncertainties and ambiguities of life” (March & Simon, 1958:3). Thus, managers do not always
know what is optimum. Rather than maximize profits and efficiency by optimizing activities, they
“satisfice” (Simon, 1957). They select the first alternative that satisfies their criteria (March and
Simon, 1958: 140-141). Satisficing may seem to be more rule-based than consequence-based. But
rules that shape satisficing criteria are themselves based on predicted consequences and concerns of
efficiency. In fact, managers search for new alternatives only when the efficiency of the current
altemative falls below their satisficing criteria (Cyert & March, 1963; March & Simon, 1958). In
effect, satisficing is consequence and efficiency oriented as well.
The Challenger disaster exemplifies how “fine-tuning” - basically a mindset conceming
efficiency, utility, and cost-benefit - combined with NASA’s repeated successes that lulled managers,
may turn deadly. Starbuck & Milliken argued that “fine-tuning” makes socio-technical systems
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cheaper, less redundant, more efficient, more profitable, and more versatile (Starbuck & Milliken,
1988). However, fine-tuning can also violate unknown limitations until an error results and therefore
have effects other than those intended (Starbuck & Milliken, 1988). For complex technologies and
organizations have made it virtually impossible for rationally bounded managers to anticipate and to
consider all of the possible interactions that can occur within large systems. Maier takes a stronger
position by identifying seven key symptoms of “the Challenger Syndrome: strict conformity/blind
obedience to ‘proper procedures’, strict respect for/blind obedience to vertical chain of command,
narrow emphasis on ones’ own job, managerial prerogative to make decisions, short-term
objectives/profit, compulsive obsession with meeting expressed goals, and suppression/distortion of
‘bad news”’ (Maier, 2002). What is at play here is a version of consequentialism in which majority
and utility are defined narrowly because of a “short-range preoccupation and myopic self-interest at
the expense of long-term viability and more holistic orientation” (Maier, 2002).
A narrow form of consequentialism reduces all values and motives to economic values.
Costs are to pain as benefits are to pleasure. Therefore, it is not a coincidence that the traditional view
of the firm (Friedman, 1970) focuses on profit, or happiness, as the only measure of what is good for
one’s self and for society. As a result, organizations that have ethical values consistent with a near
sighted version of consequentialism may consider the fmaneial consequences of a business decision
or conduct as primary inputs to their moral reasoning. They may implicitly, if not explicitly, believe
that it is ethical to sacrifice a few people in the name of greater good for greater numbers of people.
They may treat human beings, sometimes including themselves, as inputs to a societal utility function.
They value financial performance highly because doing so serves not only themselves but also greater
numbers of people.
An efficiency-oriented mindset inevitably reflects onto how businesses manage crises.
Organizations following the utility-based rationale allocate greater amounts of resources to
preparation for high probability-high impact crises. Some organizations dismiss the relevance of
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HROs because it is not efficient to be like them when there is no need. After all, it is a waste of time
and resources to worry about every event that may possibly go wrong. The need to learn from HROs
arises, however, when the time and resources invested in proactive and mindful activities are
economically justified, i.e., when “the expected cost of the unexpected” starts hurting profits.
It is plausible that organizations that value cost-benefit analyses in their dealings with crises
situations have values consistent with a consequentialist ethics. For consequentialists care about costs
(pain) and benefits (pleasure).
Being proactive is costly. It requires redundancy (Roberts & Bea, 2001); it requires a
substantial amount of time and resources (Lagadec, 1993; Lawson, 2001). Organizations that value
proactive crisis management are prepared for a wide variety of crises, both “normal” and “abnormal.”
For they do not use traditional probability theory to determine the set of crises for which they prepare.
They conduct crisis simulations, crisis-preparedness audits (Pearson & Mitroff, 1993), and incident
audits (Weick and Sutcliffe, 2001). They form cross-functional crisis management teams and perform
stakeholder analyses to increase their awareness as to how different groups and institutions will
respond in the event of a major crisis (Pearson et al., 1997). They critically and continuously question
taken-for-granted assumptions (Mitroff et al, 1996) because they are “reluctant to simplify
interpretations” (Weick and Sutcliffe, 2001:103). They develop signal detection mechanisms (Clair,
1993) that catch and amplify even the weakest signals of potential crises. For example, they maintain
open information channels and they don’t punish the messengers of bad news. Since no single crisis
occurs in isolation but sets off a chain reaction of other crises, proactive organizations attempt to
prepare to handle multiple crises (Pauchant and Mitroff, 1992; Pearson & Mitroff, 1993). They are
“committed to resilience” (Weick and Sutcliffe, 2001:67). They install damage containment
mechanisms to stop the spread of crises (Pearson et al., 1997).
Whereas reactive organizations are preoccupied with cost-benefit analysis, proactive
organizations try to create a culture where people are chronically “preoccupied with failure” (Weick
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and Sutcliffe, 2001:54). As Weick and Sutcliffe put it: “The power of mindful orientation is that it
redirects attention from the expected to the irrelevant, from the confirming to the disconfirming, from
the pleasant to the unpleasant, from the more certain to the less certain, from the explicit to the
implicit, from the factual to the probable, and from the consensual to the contested” (Weick and
Sutcliffe, 2001:44). Such a shift in attention requires an “informed culture” (Reason, 1997) that values
the reporting of errors and near misses, and the accepting of responsibility. An “informed culture,”
however, cannot function without shared values of trust, honesty, justice, and safety (Reason 1997;
Weick and Sutcliffe, 2001). In fact, an “informed culture” is grounded in values that conflict with
near-sighted consequentialist ethical values that pessimistically assume that people are opportunists
and seek self-interest “with guile” (Williamson, 1975). In such extreme cultures, people are assumed
to intentionally “mislead, distort, disagree, obfuscate, or otherwise confuse” (Williamson, 1985:47) to
benefit themselves and their larger group at the expense of others. On the other hand, deontological
organizations exhibit a greater tendency to adapt norms of mutual trust and cooperation (Jones, 1995).
Stakeholder Relationships
Stakeholder management is an essential part of crisis management (Pearson & Mitroff, 1993;
Pearson & Clair, 1998; M itroff & Anagnos, 2001). A stakeholder is “any group or individual who can
affect or is affected by the achievement of the organization's objectives” (Freeman, 1984:46). As
Berman et al. (1999) pointed out this definition implies an instmmental and a normative orientation
towards stakeholders. It implies an instrumental orientation because if managers want to maximize
profits they need to manage stakeholders that affect firm performance. It implies a normative
orientation because firm activities affect stakeholders. Researchers have differentiated between
normative and instrumental approaches to stakeholder management: instmmental and noninstmmental
(Quirm and Jones, 1995); strategic and intrinsic (Berman, Wicks, Kotha, & Jones, 1999); and
normative, instmmental, and descriptive (Donaldson & Preston, 1995).
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Strategic (Berman et al, 1999), or instmmental (Quinn and Jones, 1995), stakeholder
management approaches recognize only the most important, thus limited subset of stakeholders. In
fact, these organizations may even decide whom to acknowledge as a stakeholder via cost-benefit
analysis. They put first the managerial concem for financial performance. Therefore, they view
shareholders as the most important stakeholder. Firm’s interest in other stakeholders is contingent on
the extent to which they control critical resources (Pfeffer & Salancik, 1978) that can enhance
performance (Jawahar & McLaughlin, 2001). In short, all stakeholders are means to shareholders’
ends (Donaldson & Preston, 1995; Quirm & Jones, 1995). Noninstmmental or intrinsic stakeholder
management approaches put ethics first. They are based on moral and normative commitments, which
shape firm strategy (Berman et al, 1999). Therefore, they value all stakeholders. Firm’s interest in
other stakeholders is not contingent on anything. All stakeholders have intrinsic worth (Donaldson and
Preston, 1995) or are ends-in-themselves.
Drawing from prospect theory (Kahneman & Tversky, 1979) and resource dependence theory
(Pfeffer & Salancik, 1978), Jawahar & McLaughlin (2001:404) argued that when organizational
survival is threatened, organizations will adopt a loss frame and hence pursue a “risky” strategy. The
risky strategy involves “addressing issues of only those stakeholders who are relevant to the immediate
loss threat while at the same time defending or denying any responsibility for issues of other
stakeholders, taking, of course, the risk associated with such neglect” (Jawahar & McLaughlin,
2001:404). The most relevant stakeholders are those who possess a number of attributes such as
power, legitimacy, and urgency (Mitchell, Agle, & Wood, 1997). In short, the risky strategy is
inherently instmmental. The interests of the stakeholders, particularly those of the remotest ones do
not affect a firm’s decisions until a significant negative impact on firm’s performance is detected
(Mitchell et al., 1997). In case of a crisis, the risky strategy requires managers to respond so as to
minimize costs and to maximize benefits to themselves or to a certain group of stakeholders.
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Therefore, a strategic stakeholder approach is consistent with a reactive style of crisis management.
Firestone’s handling of the tire crisis in 2000 is an example of a reactive management of a crisis.
According to the National Highway Traffic Safety Administration (NHTSA), at least 150
people have died and more than 250 have been injured in crashes involving Firestone tires, primarily
on Ford Explorers (Newman, 2001). Evidence suggests that Ford company executives knew about the
safety issues associated with Firestone tires long before their recall. A Firestone spokesperson
acknowledged in congressional hearings that his company used the data on tire tread separations to
show that problems with tire safety cost Firestone nearly $3 million (Newman, 2001). Firestone
company executives knew about the safety issues associated with their tires sold overseas long before
their recall. But they did not inform several stakeholders including the NHTSA, the government, or the
American public because they were not legally required to do so (Eisenberg & Zagorin, 2000).
Firestone executives did what seemed to be the right thing for them at the time: to avoid the costs of
such a huge recall. Therefore, they did not recall the defective tires at the first hint of the crisis
(Eisenberg & Zagorin, 2000). In fact, they did not recall the tires imtil they were forced to (Welch,
2001). They wanted to contain the damage as cost-effectively as possible. They cushioned their profit
and corporate reputation, at least for a while, by delaying publie awareness of the tire safety issues.
An intrinsic stakeholder approach is consistent with a proactive crisis management style as
“the interests of stakeholders have intrinsic value, enter a firm's decision making prior to strategic
considerations, and form a moral foundation for corporate strategy itself’ (Berman et al 1999: 494,
emphasis added). Johnson & Johnson’s handling of the Tylenol crisis is a good example of proactive
crisis management. At the time, Johnson & Johnson did not have a well-established crisis management
program. Nonetheless, their company credo and values had a deontological basis, which enabled them
to do the right thing (Pearson et ah, 1997; Wood, 1994).
Note that the claim that noninstmmental stakeholder management puts ethics first does not
mean that strategic stakeholder management is unethical. In fact, strategic and instmmental
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stakeholder theories, and the traditional view of the firm that the “social responsibility of business is to
increase its profits” (Friedman, 1970:32) are grounded in a consequentialist ethical orientation and are
consistent with a reactive, cost-benefit approach to crisis management. On the other hand, intrinsic and
noninstmmental stakeholder approaches are primarily grounded in a Kantian duty-based worldview
(Evan & Freeman, 1983; Freeman, 1994; Phillips, 1997) and are consistent with a proactive approach
to crisis management.
Numerous researchers have argued that the normative, intrinsic, or noninstmmental aspects of
stakeholder theories are most important or more fundamental (Collins & Porras, 1997; Donaldson &
Preston, 1995; Freeman, 1994; Paine, 1994; Quinn & Jones, 1995). 1 agree. But I do not believe that
instmmental ethics is unimportant or unethical. In fact, it is almost impossible to make any policy
decisions without some consequentialist ethical orientation.
Table 2 summarizes the discussion so far.
TABLE 2
Ethical Orientation
Consequentialist
“Goodness of consequences”
Non-consequentialist
“Rightness of principles”
Preoccupation (Ideal) Efficiency (Waste-free) Failure (Failsafe)
Ends Maximum profits, optimum
safety
Maximum safety
Means Fine-tuning Redundancy
Stakeholder Management
Approaches
Instmmental, strategic Noninstmmental, normative,
intrinsic
Organizational Culture Self-interest seeking,
competition, and a “cutthroat
culture”
Mutual tmst, cooperation,
and an “informed culture”
Crisis Management Style Reactive Proactive
Examples: Ford Pinto J&J
In deontological ethics, the right consequences alone do not make behavior a moral one. The
intentions must be right too. Organizations that value a duty-based ethics believe that it is completely
immoral to harm even a single individual, even in the name of the greater good of society. They intend
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to treat all human beings (thus all stakeholders) as ends in themselves; thus, they refuse to put a price
on human life. They value the safety of all o f their stakeholders above everything else because putting
safety first is a “perfect duty” (Kant, 1964), a principle that we must follow at all times for all people
in all contexts. Since deontologist organizations act for the sake of duty (Kant, 1964), they intend to
maximize safety, and thus put in the extra efforts and resources necessary to accomplish that goal. In
case of a crisis, they intend to respond quickly and honestly, without calculating the costs and the
benefits of the consequences o f doing the right thing, even if that may lead to bankruptcy. The set of
behaviors described above (intending not to harm a single individual, maximizing and valuing the
safety of all stakeholders, responding honestly and quickly, avoiding cost-benefit analyses, and putting
in the extra efforts and resources) is consistent with a proactive approach to crisis management.
O f course, like any moral action, the morality of a proactive approach to crisis management
must be tested by Kant’s categorical imperative. In fact, a proactive, mindful approach to the
management of crises can be generalized to all persons in all contexts because it is consistent with
Kant’s multiple formulations of the categorical imperative. Specifically, (a) organizations that value a
proactive approach to crisis management, by refusing to put a price on human life, intend to treat
human beings as ends in themselves, and (b) members of such organizations would be willing that
their moral principle (“Manage all crises proactively.”) govern the actions of all the other
organizations too.
Hypothesis I. Organizations with a stronger deontological ethical orientation
will exhibit a greater tendency to value a proactive approach to crisis
management. Organizations with a stronger consequentialist ethical orientation
will exhibit a greater tendency to value a reactive approach to crisis
management.
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Hypothesis 1 suggests the 2x2 matrix shown in Table 3, but it does not address the off-
diagonal possibilities: consequentialist-proactive and deontologist-reactive.
TABLE 3
Ethical Orientation-Crisis Management Style
Crisis Management Style
Reactive Proactive
Ethical Consequentialist
Orientation Deontologist
wmmmA
?
?
I will address the consequentialist-proactive quadrant extensively in the following sections.
But first I focus on the deontologist-reactive quadrant (lower-left), which seems to be a contradiction
in terms because, in the context of my argument so far, “to react” is to put a price on human life. And
this is unacceptable to deontologists. In fact, in a perfectly Kantian world, the deontologist-reactive
quadrant could not even exist. For deontological principles do not change depending on the context.
And a strict deontologist would behave proactively in all contexts. O f course, we are not living in a
perfectly Kantian world and one can think of situations where the deontologist would be willing to
accept to behave reactively. For example, if an organization desperately lacks resources, then a
reactive approach to crisis management would be better than not acting at all. In other words, a
deontologist organization would rather engage in some sort of cost-benefit analyses than do nothing in
response to crises. If the deontologist-reactive quadrant is a contradiction in terms, then I expect to see
a significantly smaller number of organizations that fall into this quadrant.
In the following sections, I will hypothesize that consequentialist-proactive organizations
(upper right) exist because a proactive approach to crisis management leads to better consequences.
But in order to be able to support this idea, I must first argue that the performance outcomes of
proactive crisis management are better than those of reactive crisis management. This condition is
necessary but not sufficient. Thus, I also argue that consequentialist organizations must posses certain
qualities in order to be able to implement proactive crisis management practices.
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Crisis Management Performance
Ashby's “law of requisite variety” requires that a system must have sufficient internal variety
to survive in a dynamic and complex environment (Ashby, 1956). Requisite variety has been shown to
be useful for organizations that operate in turbulent environments and face rapid and constant change.
“If fakes variety to control variety” (Weick & Sutcliffe, 2001:62). One way to increase internal variety
is through “exploration” (March, 1991). McGrath pointed out that several theoretical traditions such as
rational choice, organizational learning, and evolutionary models acknowledge the positive
performance effects of increasing variety through exploration (McGrath, 2001). In highly unique
settings, organizations that increase variety, or the interpretations of the context (Weick and Sutcliffe,
2001) are more successful (Cheng & Van de Yen, 1996; Pisano, 1994; Tushman & O'Reilly, 1997)
because the increase in variety helps define problems or generate solutions (Daft & Weick, 1984;
Weick, 1979) in ways that would not be possible otherwise.
Crises are such unique settings. They require a constant need for critical thinking, and for
interpreting and attending to early warning signals, stakeholders’ needs, and environmental
complexities (Mitroff & Anagnos, 2001). Mindfulness and proactive crisis management are positively
associated with “requisite variety” (Ashby, 1956) and “exploration” (March, 1991). First o f all,
proactive, mindful organizations take the initiative and put in the effort to inerease variety as they are
“reluctant to simplify interpretations” (Weick & Sutcliffe, 2001:59). For example, they increase
variety by forming crisis management teams that are cross-functional (Pearson et al., 1997). Proactive
organizations also include a diverse set of stakeholders into their crisis preparations to increase
variety. Bloimt conducted a case study of the Exxon Valdez crisis, and found that (a) in the absence of
diversity in ideas, belief, and attitude, organizations are more vulnerable to crises; (b) in the presence
of diversity, leaming from crisis is more likely to occur (Blount, 2000). Clair found that different
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crises send out different early warning signals; therefore, organizations need to have a wide variety of
signal detectors (Clair, 1993).
On the other hand, reactive organizations do not have the variety or the capability for
mindfulness (Weick & Sutcliffe, 2001), which is necessary to think about the unthinkable (Pearson et
al., 1997). As a result, they cannot detect early warning signals. In cases when they do detect these
signals, organizational members may be afraid to bring them to attention. They may be fearful of
losing their jobs (Maier, 2002) because of a lack of a climate of trust and cooperation (Jones, 1995),
and a lack a culture of safety (Reason, 1997). For example, Edmondson studied nursing units and
found that a climate of trust increased performance by facilitating open discussion of and leaming
from errors and mistakes (Edmondson, 1999). It has also been shown that trust enhances a firm’s
ability to adapt to complexity and change (Korsgaard, Schweiger, & Sapienza, 1995; McAllister,
1995). Therefore, there is an implicit link between level of tmst and requisite variety.
Organizations that value a reactive approach to crisis management limit the number and the
variety of crises they consider because the probability of occurrence of a major crisis, such as a
Bhopal or an Exxon Valdez or a 9/11, is not only very low but also very difficult to calculate.
Therefore, these major crises never show up on the radar screen of reactive organizations. As a result,
these organizations are unprepared for such crises. Not only they cannot pick up the early warning
signals for such crises, but also they do not institute the necessary damage containment mechanisms in
advance. When a major crisis hits, it also sets off other crises (Pauchant & Mitroff, 1992; M itroff and
Anagnos, 2001). Having no preparation for the rmthinkable (Pearson et al., 1997), these organizations
cannot, in the heat of the crisis, take the right actions (Mitroff, Shrivastava, & Udwadia, 1987; Staw et
al., 1981; Weick, 1988). Since they think primarily in terms of costs, profits, and probabilities, they do
not pay attention to the non-monetary and differing needs of different stakeholders. They alienate the
victims, the public, and other stakeholders by denying responsibility or giving technical explanations
(Mitroff & Anagnos, 2001). As a result, they intensify the already escalating crisis. In the end, they
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experience a greater number of crises, incur huge costs, and their corporate reputations are damaged.
Here are two examples: Firestone did not take responsibility and blamed Ford Explorers, the hot
weather, their customers, and their employees for the faulty tires. Intel put the burden on its customers
to prove that their applications are critical enough to warrant replacement of defective computer chips.
In the end, both companies admitted responsibility and replaced all of the defective products. But only
after their reputations were damaged (Mitroff, Harrington, & Gai, 1996a).
Weick and Sutcliffe (2001) suggested that organizations that learn from and act like HROs,
i.e., mindfully and proactively, can “manage the unexpected” better. Like HROs, these organizations
may experience fewer crises than their expected share. Their businesses are less likely to be disrupted.
As a result, they are more profitable and enjoy a better corporate and financial reputation. Frooman
examined industrial crises such as criminal misconduct, product recalls, hazardous waste lawsuits,
airline safety violations, and reported that acting in a socially responsible way is a necessary but not
sufficient condition for increasing stakeholder wealth (Frooman, 1997). Waddock & Smith reported
that adoption of proactive, responsible practices, led to increased efficiency and productivity, and
decreased costs by lowering legal exposure and risks to company reputation (Waddock & Graves,
1997). By the same token, reactive organizations, although can be more profitable before a crisis, are
less profitable in the long-run since their businesses are more likely to be disrupted. Given the huge
costs incurred as a result of major crises, this explanation sounds plausible. For example, the Ford-
Firestone tire crisis cost more than one billion dollars to Ford alone. Emon’s collapse resulted in the
bankruptcy of two large organizations and a loss of more than 75 billion dollars. WorldCom filed
bankruptcy and admitted 41 billion dollars in debt.
Hypothesis 2.1. Proactive organizations will experience few er numbers o f
crises than reactive organizations.
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Hypothesis 2.2. Proactive organizations will enjoy a better corporate
reputation than reactive organizations.
Hypothesis 2.3. Proactive organizations will enjoy a higher financial credibility
than reactive organizations.
Hypothesis 2.4. Proactive organizations will be more profitable than reactive
organizations.
I have theorized so far that (a) organizations that value a certain ethical orientation also value
a certain crisis management style; and (b) organizations that value a proactive crisis management style
are more successful. In this sense, crisis management style mediates the relationship between ethical
orientation and performance outcomes.
Obviously, the mechanism that explains why deontologist organizations are more profitable
and enjoy better financial and corporate reputations than consequentialist organizations is more
complex because there are direct links between ethical orientation and performance. In other words,
the differences between consequentialist and deontologist organizations are not limited to the way they
manage crises. In fact, because these differences are grounded in their very fundamental values and
taken-for-granted assumptions, many aspects of the organizational cultures, structures, and processes
of consequentialist and deontologist organizations may be different as well.
A very fundamental difference between these two schools of ethics is regarding their
assiunptions about human nature. A consequentialist view of human nature is reflected in two
economies-based theories of the firm: agency theory (Jensen & Meckling, 1976), and transaction cost
economics (Williamson, 1975). Agency theory (AT) and transactions cost economics (TCE) assume
that people are opportunists and seek self-interest “with guile” (Williamson, 1975). In other words,
people will intentionally “mislead, distort, disagree, obfuscate, or otherwise confuse” (Williamson,
1985:47) to benefit themselves at the expense of others. Therefore, AT and TCE argue that only by
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focusing on contracts between two entities who are out there to “mislead, distort, disagree, obfuscate,
or otherwise confuse” each other, we can increase the efficiency of organizations or any social system.
Many researchers, such as (Ghoshal & Moran, 1996; Noreen, 1988; Perrow, 1986; Quinn &
Jones, 1995), however, argue against this belief that AT and TCE lead to more efficient practices.
These researchers believe that AT and TCE are, in fact, more costly and less efficient. For example,
(Noreen, 1988) argued that “because o f the lack of mutual trust, some mutually beneficial interchanges
do not take place, and even when they do, there are dead-weight losses because of monitoring costs
and inefficient risk sharing.” Noreen stressed that everyone may be better off if they don’t behave
opportunistically, and thereby economizing on the cost of contracting and monitoring agreements.
Ghoshal and Moran (1996) argued that decision makers who are shaped by the logic of Williamson's
theory will prefer rational controls (such as monitoring) to altemative social controls (such as trust).
The increased use of rational controls, however, will shift voluntary and extra role behaviors, which
are primarily a result of intrinsic motivation, to extemally enforced compulsory behavior. In other
words, the rational controls used by management to reduce opportunistic behavior will, in fact,
increase opportunistic behavior. O f course, as a result of this self-fulfilling prophecy, principals will
increasingly believe fhat agents are indeed opportunistic. This vicious cycle will increase costs, and
make these firms uncompetitive. North stressed that “the absence of some degree of individual
restraint from maximizing behavior would render the political or economic institution nonviable”
(North, 1981:19). Jones (1995) argued that, “Economic systems operate far better where shared values
of honesty and integrity prevail than where they do not.”
AT and TCE are grounded in the consequentialist view of ethics and morality (Quinn and
Jones, 1995). Therefore, consequentialist organizations will exhibit a greater tendency to adapt AT
and TCE in the conduct of their businesses. Deontologist organizations, however, will reject AT and
TCE, and exhibit a greater tendency to adapt norms of mutual tmst and cooperation in their business
conduct (Jones, 1995). Jones argued, “Firms that contract (through their managers) with their
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stakeholders on the basis of mutual trust and cooperation will have a competitive advantage over firms
that do not.” These firms will incur lower costs of search, bonding, warranty, and monitoring costs,
and therefore will be more profitable and reputable. Since people in these organizations are not out
there to “mislead, distort, disagree, obfuscate, or otherwise confuse” each other, a greater number of
early warning signals will be detected (Edmondson, 1999), and hence a fewer number of crises will be
experienced.
Consequentialist-Proactive Organizations
Organizations with a primarily deontological ethical orientation will tend to prefer a
proactive mindset because it is the right thing to do. Organizations with a consequentialist ethical
orientation will tend to choose a cost-benefit, or reactive, approach to crisis management because it is
perceived as more efficient. Nonetheless, some consequentialist organizations may choose to adopt a
proactive approach to crisis management if they believe that consequences of being proactive are
better than those of being reactive.
Institutionalization theory argues that organizations imitate other organizations to acquire
legitimacy (DiMaggio & Powell, 1983). Organizational leaming theories argue that organizations
imitate or leam vicariously from actions and practices of successful organizations (Cyert & March,
1963; Miner & Haunschild, 1995). In short, some consequentialist organizations may want to imitate
the behavior of proactive organizations because of at least two positive consequences of acting
proactively: legitimacy and efficiency.
Haunschild & Miner (1997) identified three bases for imitation: frequency, trait, and
outcome. Frequency-based imitation suggests that organizations imitate practices adopted by large
numbers of organizations. Trait-based imitation takes place when organizations imitate practices that
are used by organizations with certain traits such as larger size, higher prestige, or success (Fombmn
& Shanley, 1990). Outcome-based imitation takes place when organizations imitate practices that have
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visible or salient outcomes (March, Sproull, & Tamuz, 1991). O f the three bases of imitation, the trait-
based and the outcome-based seem to be the most fitting. For example, an organization’s crisis
management practices, whether proactive or reactive, have visible and salient outcomes, particularly,
during or after a crisis. These practices also bring to attention an organization’s traits. After the
Tylenol crisis, Johnson & Johnson strengthened its reputation for integrity and trustworthiness
(Mitroff and Anagnos, 2000). Johnson & Johnson’s success in handling the Tylenol crisis was credited
to its strongly articulated and practiced moral values as exemplified in its credo (Pearson et al., 1997;
Wood, 1994). In fact, Johnson & Johnson’s handling of the Tylenol crisis is still considered as the
benchmark for effective crisis management.
I thus argue that if the consequences of being proactive are better, the number of
consequentialist organizations that will attempt to adopt a proactive approach to crisis management
will be greater. Similarly, if being proactive does not result in better consequences, there will be no
consequentialist-proactive organizations.
On the other hand, if there are no or few eonsequentialist-proactive organizations, it does not
follow that being proactive does not lead to better consequences. There are several reasons. First,
being proactive prevents some crises from happening in the first place. Therefore, consequences of
non-events are not visible or salient, at least in the short run. Second, some organizations may not, or
cannot, understand all of the long-term consequences of being proactive or reactive. For example.
Ford Pinto exeeutives did not calculate the full costs of their strategy (Mitroff & Anagnos, 2001).
“Bounded rationality” (Simon, 1972) and “bounded emotionality” (Mitroff & Pauchant, 1990) may be
two contributing factors. Another related contributing factor might be a lack of “absorptive capacity,”
which is “the ability of a firm to recognize the value of new, external information, and assimilate it,
and apply it to commercial ends” (Cohen & Levinthal, 1990:128). Cohen and Levinthal (1990) argued
that organizations with modest “absorptive capacity” will tend to be reactive, searching for new
altematives only in response to a failure on economie performance criteria such as profitability and
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market share. Third, some organizations simply carmot imitate the practices o f proactive organizations
because the complexity of the phenomenon generates “causal ambiguity” (Reed & DeFillippi, 1990).
For example, proactivity and mindfulness are grounded in mutual trust and cooperation (Jones, 1995).
And the development of trast is a complex and a situation specific process that generates causal
ambiguity (Butler, 1991; Dyer & Singh, 1998).
In short, if the consequences o f being proactive are perceived to be better, then emotionally
and cognitively less bounded consequentialist organizations with a culture o f mutual trust and
cooperation, and a greater “absorptive capacity” will imitate or learn from proactive organizations.
Hypothesis 3.1. I f the consequences o f taking a proactive approach to crisis
management are better than those o f taking a reactive approach, there will be a
significant percentage o f consequentialist-proactive organizations.
Hypothesis 3.2. Among the consequentialist organizations, only those that can
imitate or learn from proactive organizations will value a proactive approach to
crisis management.
Flypothesis 3 raises an interesting qnestion: Will consequentialist organizations that behave
proactively and emphasize tmst and cooperation for instmmental (consequentialist) reasons perform as
well as deontological organizations that emphasize proactivity, trust, and cooperation for
noninstrumental (non-consequentialist) reasons? Let’s say Organization A and Organization B behave
exactly in the same way, but each organization has different intentions. How is it possible to observe
two different outcomes? Two different outcomes may be possible if these organizations’ intentions are
known. And intentions may be inferred from an organization’s behaviors in similar instances in the
past. Inconsistency in behavior in similar situations in the past may suggest fake intentions.
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Drawing from evidence provided by (Frank, 1988), Jones (1995) argued that it is difficult to
fake moral values and to sustain a reputation of honesty (Calton & Lad, 1995). For example, where
long-term consequences are less certain than the immediate ones, some consequentialist organizations
may prefer to pursue the latter. These consequentialist organizations will also have a tendency to
discriminate amongst stakeholders. For not all stakeholders are equally “instrumental.” It is plausible
that consequentialist organizations will emphasize proactivity, trust, and cooperation onlv in their
relationship with stakeholders that control critical resources. In other words, these organizations will
use cost-benefit analyses of expected consequences to determine which stakeholders are more
instrumental, and thus more important.
Using five broad variables (customers/product safety, employees, diversity, the natural
environment, and community), Berman and his colleagues examined firms’ relationships with various
stakeholders and fotuid that the first two of these stakeholder relationships affect organizational
performance both directly and indirectly (Berman et al., 1999). The latter three, however, affect
organizational performance only indirectly. Consequentialist organizations will discriminate among
stakeholders and consider only the first two relationships to be critical because these two stakeholders
affect financial performance directly. Frooman (1999) and Mitchell et al. (1997) argued, however, that
ignoring some stakeholders may backfire as unsatisfied and “less critical” stakeholders may directly or
indirectly affect the resources on which the organization depends. Therefore, there will be
performance gaps between consequentialist-proactive and deontologist-proactive organizations.
Specifically, even though consequentialist organizations will try to adopt a proactive approach to crisis
management, because their intentions are not deontological, they will fail to follow through. They will
fall back on to their consequentialist ethical orientation with sufficient frequency. As a result, they will
harm their profits and min their reputation.
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4 2
Hypothesis 4. Consequentialist organizations that behave proactively for
instrumental reasons will perform worse than deontological organizations that
emphasize proactivity fo r noninstrumental reasons.
Summary of Hypotheses
Hypothesis I. Organizations with a stronger deontological ethical orientation
will exhibit a greater tendency to value a proactive approach to crisis
management. Organizations with a stronger consequentialist ethical orientation
will exhibit a greater tendency to value a reactive approach to crisis
management.
Hypothesis 2.1. Proactive organizations will experience fewer numbers o f
crises than reactive organizations.
Hypothesis 2.2. Proactive organizations will enjoy a better corporate
reputation than reactive organizations.
Hypothesis 2.3. Proactive organizations will enjoy a higher financial credibility
than reactive organizations.
Hypothesis 2.4. Proactive organizations will be more profitable than reactive
organizations.
Hypothesis 3.1. I f the consequences o f taking a proactive approach to crisis
management are better than those o f taking a reactive approach, there will be a
significant percentage o f consequentialist-proactive organizations.
Hypothesis 3.2. Among the consequentialist organizations, only those that can
imitate or leam from proactive organizations will value a proactive approach to
crisis management.
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43
Hypothesis 4. Consequentialist organizations that behave proactively fo r
instrumental reasons will perform worse than deontological organizations that
emphasize proactivity fo r noninstrumental reasons.
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4 4
CHAPTER 4: METHODS
This chapter discusses the methodologies used in this study: survey and interviews. First, I
briefly talk about the timing of and the sections in the three questionnaires I mailed to the Fortune
1000, between Feb 2001 and July 2002. Then I give a detailed explanation of the instruments I used
to measure the three variables in this study: ethical orientation, crisis management style, and
performance.“ * In the following section, I talk about my rationale for including age, size, industry, and
executive’s function as control variables. Next, I address sampling issues. I conclude with a
description of the interview format.
Questionnaires
Three questionnaires on crisis management were sent to the Fortune 1000 corporations. The
first set of questionnaires was sent in February 2001. The second set was sent in November 2001. The
third set was sent in July 2002. The questionnaires were essentially the same.^ All of the three
questionnaires were administered anonymously and treated strictly confidential. They were mailed to
the highest-ranking public relations managers, safety directors, risk managers, and corporate counsels.
The original questionnaire can be seen in the Appendix.
There are four major sections in the questionnaire. The first section identifies the types and
the numbers of crises organizations have experienced. The second section evaluates crisis preparation
in organizations. Both sections are based on Scales used and validated in previously administered
“ Note that, in Hypothesis 1, ethical orientation is the independent variable and crisis management style
is the dependent variable. In Hypothesis 2, crisis management style is the independent variable and performance
is the dependent variable.
’ The second questionnaire contained extra questions about how organizations responded to 9/11. The
third questionnaire contained another set o f extra questions about how organizations responded to the collapse of
Enron and Andersen. Scales that are added to the questionnaires mailed after 9/11 are developed based on
interviews conducted with executives.
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45
questionnaires on crisis management (Kovoor, 1991; Pauchant, 1988; Pauchant & Mitroff, 1992).
The third section uses the Analytic Hierarchy Process methodology (Saaty, 1980) to measure ethical
orientation.
Measurement of Ethical Orientation
According to (Badaracco, 1987), human beings expose or reveal their moral and ethical
values when they are deciding between various paths each of which is “right.” For example,
executives may have to pick between installing an extra safety measure to protect employees or
gaining higher returns for shareholders. To reveal the ethical values of their organizations, I wanted
them to make tradeoffs between two equally compelling and valued “rights.” That is, I aimed to make
both ends of the scale equally socially desirable.
In order to force executives to make tradeoffs, I developed an analytic hierarchy process
(AHP) to assess ethical orientation (Saaty, 1980). AHP is a well-known decision making tool that
ranks alternatives by assigning to each a weight of its importance. In AHP, participants do not rate or
rank alternatives. Instead, they make pairwise comparisons. The AHP algorithm takes pairwise
comparison scores as inputs and transforms them into scores.
The AHP model works at two hierarchical levels: intentional and behavioral. This is
necessary to identify organizations that behave proactively for consequentialist reasons. The moral
intention scale constitutes the first level and assesses an organization’s motives or intentions: “Which
moral principle would your organization follow if it had to make a tradeoff between the following: (a)
doing the greatest good for the largest number of people; or (b) doing no harm to a single person.”
The former principle implies cost-benefit analysis; the latter principle is categorical. Thus, I expect
organizations with a consequentialist intention to follow the former principle and organizations with a
deontological intention the latter. A Likert-10 scale with an even number of responses and no middle
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neutral or undecided choice forced respondents to make a tradeoff between these two moral
principles.
Six pairwise comparisons of four potential problems that an organization can experience
constitute the second, or the behavioral, level. These four problems were declining profits, increasing
number of customer complaints, increasing number of quality defects, and increasing number of
safety issues. The behavioral component of the AHP question is presented below:
(39) Below you will find six (6) pairs of potential problems that an organization can
experience. For each pair of problems, please indicate which one is more important to your
organization. For instance, if “Declining profits” is more important than “Increasing number of
product safety issues,” then you would circle numbers 1, 2, 3, or 4 depending on how much more
important “Declining profits” is than “Increasing number of product safety issues.”
Significantly
More Important
Declining profits
Increasing number
of quality defects
Increasing number of
product safety issues
Increasing number of
quality defects
Increasing number of
product safety issues
Declining profits
Equally
Important
2 3 4 5
2 3 4 5
Significantly
More Important
7 8 9
2 3 4 5 6 7 8 9
2 3 4 5 6 7 8 9
2 3 4 5 6 7 8 9
2 3 4 5 6 7
Increasing number of
product safety issues
Increasing number of
customer complaints
Increasing number of
customer complaints
Declining profits
Increasing number of
quality defects
Increasing number of
customer complaints
For each pair of problems, executives indicated which one is more important to their
organization. For instance, if “Declining profits” was more important than “Increasing number of
product safety issues,” then they would circle numbers 1, 2, 3, or 4 depending on how much more
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important “Declining profits” was than “Increasing number of product safety issues.” As an example,
Organization X ’s pairwise comparisons were: 8 on profits-safety tradeoff scale, 5 on quality-customer
tradeoff scale, 8 on customer -safety tradeoff scale, 8 on profits-quality tradeoff scale, 5 on quality-
safety tradeoff scale, and 8 on profits-customer tradeoff scale. The AHP derived scores for
Organization X are: 1. Declining profits (4.23%), 2. Increasing number of customer complaints
(20.21%), 3. Increasing number of quality defects (29.58%), and 4. Increasing number of safety
issues (45.99%). This means that safety is relatively more important to Organization X than profits.
Measuring ethical orientation at intentional and behavioral levels allows for the possibility
for an organization to have a consequentialist intention and still have a high AHP score on safety.
Such organizations may rank safety first because (a) they are in heavily regulated industries or (b) it is
simply more profitable to do so.
The AHP algorithm uses the moral intention scale to differentiate between organizations that
rank safety first because it is the right thing to do versus those that rank safety first because it is
required or more profitable. According to the AHP algorithm, selecting “1” on the moral intention
scale represents a 95% consequentialist intention and a 5% deontologist intention; whereas, selecting
“10” represents a 5% eonsequentialist intention and a 95% deontologist intention. Similarly, selecting
“2” represents an 85% eonsequentialist intention and a 15% deontologist intention; whereas selecting
“9” represents a 15% consequentialist intention and an 85% deontologist intention. To calculate an
organization's ethical orientation score, the intentional and behavioral levels in AHP may be
combined as follows:
Deontologist Intention(%) x Safety (%) - Consequentialist Intention(%) x Profits (%)
As an example. Organization X selected “2” on the moral intention scale. In other words, it
has a 15% deontologist intention and an 85% consequentialist intention. Organization X also scored
45.99% on safety and 4.23% on profits. Therefore, the ethieal orientation score for Organization X is
(0.15)x(45.99)-(0.85)x(4.23) = 3.3. If Organization X had selected “9” on the moral intention scale.
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then its ethical orientation score would be (0.85)x(45.99)-(0.15)x(4.23) = 38.5. Greater numbers
indicate a stronger deontological ethical orientation; smaller numbers indicate a stronger
consequentialist ethieal orientation.
After controlling for size and industry, five partial correlations between the moral intention
scale and the pairwise comparison scales were significant. Table 4 presents the partial correlations.
TABLE 4
Pairwise Comparison Scales Correlations
Profits-Safety .405***
Quality-Customer .028
Customer -Safety .326***
Profits-Quality .256*
Quality-Safety .297*
Profits-Customer .283*
*** p<0.001, ** p<0.01, * p<0.05
The property of transitivity suggests that if one prefers A over B, and B over C, then one will
prefer A over C. For example: if an executive values profits more than customer satisfaction and
customer satisfaction more than quality, then he or she ought to value profits more than quality.
Applying the property of transitivity revealed that organizations with a stronger duty-based, or
deontological, ethical orientation indeed ranked safety as the most important, quality and customer
satisfaction as the second important, and profits as the third important organizational value. Similarly,
organizations with a stronger utilitarian, or consequentialist, ethical orientation ranked profits as the
most important, quality and customer satisfaction as the second important, and safety as the third
important organizational value. There is thus an internal con sisten cy to the findings and the scales.
A two-item Likert-7 scale was used to measure the level of crisis management training and
planning for various categories of crisis. For example.
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Terrorist attacks.
Our organization has conducted very 1 2 3 4 5 6 7
little training for this crisis
No plans are in place for this crisis 1 2 3 4 5 6 7
Our organization has conducted
significant training for this crisis
Comprehensive plans are in place for
this crisis
The Cronbach's alpha was 0.88. Respondents reported how much training and planning their
organization had undertaken for twelve different crises. These crises applied to virtually all industries.
They included: product and service tampering, product recalls, environmental disasters, natural
disasters, damage to corporate reputation, damage to brand reputation, loss of eonfidential or sensitive
information, employee sabotage, fires and explosions, significant drop in revenues, major lawsuits,
and terrorist attacks. Including “terrorist attacks” among the crises listed in the questionnaire that was
mailed out before 9/11 gave me the opportunity to trace the change in this variable.
Measurement of Crisis Management Style
Proactivity was operationalized by using Table 5, simply as the number of crisis categories
that organizations have not experienced but are prepared for (lower left quadrant).
TABLE 5
Operationalization of Proactivity
Prepared?
Experienced?
Yes
No
Yes No
Proactive and Reactive Unresponsive/Reactive
Experienced and prepared Experienced but not
prepared
Proaetive Reactive
Not experienced but Not experienced, not
prepared prepared
This measure, however, overlooks the fact that although organizations may be prepared for certain
crisis categories, they may still experience them. The upper-left quadrant of Table 5 presents the
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50
number of experienced crisis categories for which organizations are prepared. It is not clear from the
data, however, whether organizations first experienced these crises and then prepared for them
(reactive), or vice versa (proactive). Nonetheless, an educated guess can made as to what percentage
of the crisis categories that fall into the upper-left quadrant were experienced after organizations
prepared for them: It is the percentage of the number of crisis that fall into the lower-left quadrant
over the total number of crisis categories that fall into the lower-left plus lower-right quadrants.
Therefore, a more refined proactivity measure would be the number of crisis categories that fall into
the lower-left quadrant plus a certain percentage of the number of crisis categories that fall into the
upper-left quadrant. O f course, this percentage varies from organization to organization.
Proactivity = (Lower-left quadrant) + ( k % ) x (Upper-left quadrant)
where,
K = (Lower-left quadrant) / (Lower-left quadrant + Lower-right quadrant)
For example, let’s say that Organization X has experienced 6 crises out of 12 crises and is
prepared for all of them. Therefore, the number of crisis categories that fall into the upper left
quadrant is 6. The number of crisis categories not experienced by this organization is also 6, i.e., (12-
6). Let’s say that Organization X is prepared for 2 of these 6 crises. Therefore, the number of crisis
categories that fall into the lower left quadrant is 2; the number of crisis categories that fall into the
lower right quadrant is 4. Then, k = (2) / (2 + 4) = (I)/(3); and Proactivity for Organization X =(4)+
(1/3) X (6)= 6.
Measurement of Organizational Performance
The total number of crises an organization experienced was the sum of all crises it has
experienced in the last 3 years.
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Organizational financial credibility was operationalized by using a Standard & Poor's credit
rating, which is a current opinion of the creditworthiness of an obligor with respect to a specific
financial obligation, a specific class of financial obligations, or a specific financial program.
Corporate reputation was operationalized by the Fortune magazine’s ranking of America's
Most Admired Companies. The Fortune magazine argues that its list of America's Most Admired
Companies, AMAC, is the definitive report card on corporate reputations. To create the list, the
Fortune magazine asks executives, directors, and analysts to rank companies in their own industry.
The eight criteria range from long-term investment value to social responsibility.
Profitability was measured by ROA. The COMPUSTAT database was used to calculate a
three-year average.
Control Variables
Based on previous studies of crisis management, several control variables were included to
enhance generalizability. Organizational controls included size, age, and the title/function/department
of the executive who responded to the questionnaire.
Size was included as a control variable for two reasons. First, larger organizations may
experience a greater number of crises. Second, larger organizations may be considered more
reputable. Organizational size was operationalized as the total number of employees. The natural
logarithm of size was used to account for non-normality of data. Age was controlled for because the
longer organizations have been around, the more successful and reputable they may be considered.
Organizational age was determined by subtracting the founding year from 2001. The title, function, or
the department of the executive was included because departments or functions of public relations,
risk management, safety & security, and counsel/legal may have different sub-cultures or worldviews.
Controlling for this variable is important in another sense: Significant differences among departments
may mean that organizations are heterogeneous in terms of their ethical orientation. This control
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variable was operationalized by dummy variables. Industry controls were included because some
industries such as banking/financial services, airlines, and healthcare delivery are more crises-prone
and/or more regulated than others (Weick & Sutcliffe, 2001). Industry level control was
operationalized by the first digit SIC code. Five different groups were used: (1) Manufacturing; (2)
Transportation, Gas, and Energy; (3) Finance and Insurance; (4) Services; and (5) Health Services.
Samples
The total number of respondents for the first questionnaire was 42. One hundred random
phone calls were made to follow up with executives who did not respond. This resulted in the
completion of 6 additional questionnaires. The total number of respondents was 48 and corresponded
to a little less than 5% response rate. The total number of companies was 47 because two of the
respondents were from the same company. The total number of respondents for the second
questionnaire was 61. The total number of companies was 59. Fourteen corporations that participated
in the first questionnaire also participated in the second one. The total number of respondents for the
second questionnaire was 83. The total number of companies was 79. Five corporations participated
in all three questionnaires. Eleven corporations that participated in the first questionnaire and twelve
corporations that participated in the second questionnaire also participated in the third one. When
there were two responses from the same corporation for the same questionnaire, the responses were
averaged. When the same corporation participated in two or more questionnaires, their responses to
each questionnaire were included in the analyses along with two dummy control variables.
Two different checks were implemented to assess the representativeness of the samples: (a)
whether the samples came from a particular distribution; and (b) whether non-respondents were
significantly different from the respondents.
Four Chi-square tests were performed to see whether the three samples, separately and
combined, came from the distribution of the Fortune 1000 corporations with respect to 1-digit SIC
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code. They were representative at the 1-digit SIC code level. Table 6 presents distributions of
corporations with respect to industry. As a second check, t-tests were performed to compare
respondents and non-respondents in terms of various criteria such as age, size, sales, net income,
profitability measures, etc. There were no statistically significant differences between them.
TABLE 6
1-digit SIC Industry Fortune
1000
Sample 1 Sample 2 Sample 3
0, 1,2,&3 Manufacturing 449(45) 20(42) 28(48) 34(43)
4 Transportation, Gas, and
Energy
178(18) 7(15) 9(15) 13(16)
6 Finance and Insurance 151(15) 8(17) 8(14) 12(15)
5 & 7 Services 206(20) 10(22) 13(22) 19(24)
8 Health Services 16(2) 2(4) 1(2)
1(1)
Total 1000 47 59 79
Chi-Square .137 .933 .985
* Numbers in parentheses are percentages.
Two checks were implemented to assess the effects of having the same companies in all
samples: (a) whether these companies that responded to two or all three questionnaires differed from
those that responded to only one; (b) whether the responses of these companies changed significantly
after 9/11 and one year after 9/11. In all checks, t-tests were performed to compare groups in terms of
their responses to the questionnaire and their age, size, net income, profitability, etc. There were no
statistically significant differences between companies that responded to two or all three
questionnaires and those that responded to only one. These results should be interpreted with caution
because of the small size of the number of organizations that responded to more than one
questionnaire. Samples of this size may lack the power to detect effects.
Interviews
Although I knew which organizations participated in the study, due to the confidentiality
agreement, I did not know whether the person to whom I mailed the questionnaire or someone else
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completed the questionnaire. I had no choice but to interview only those executives who were willing
to be interviewed. Twelve (25%) executives who responded to the first questionnaire and twelve
(20%) executives who responded to the second questionnaire agreed to be interviewed. Eighteen
executives were interviewed on the phone; two were interviewed in person. They were assured that
their responses would be held in strict confidence. As Huber and Power suggested, no tape recordings
of the interviews were used in order to encourage candid response (Huber & Power, 1985). The
phone interviews lasted approximately 30-40 minutes. The on-site interviews lasted 80-90 minutes.
I provided the interviewees with a copy of the questionnaire they completed prior to the
interview. I asked them to verbalize their feelings, thoughts, and emotions with regard to the
questions and the scales in the questionnaire. This proved extremely useful in understanding how
questions and scales were interpreted by different executives. Several 7-point semantic differential
scales, by which the interviewees described their organization, were included in the questionnaire:
warm-cold, autocratic-democratic, rigid-flexible, consistent-inconsistent, profitable-unprofitable,
people first-profits first, altruistic-selfish, and accepts responsibility-blames others. Interviewees
were also asked a series of questions about their organization and its erisis management praetices:
whether they had a crisis management team, who was on the team, whether they did crisis
simulations, what was the ‘most unthinkable” crisis that could happen to them, why they were
prepared for certain crises but not for others, how 9/11 affected their organization.
With the exception of the fact that executives were asked how their organizations responded
to 9/11, the proeedure used during the seeond and third rounds of interviews was identical to that
used in the original interviews.
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CHAPTER 5: RESULTS
In this section, I will first present the qualitative results of the interviews I conducted with
executives. Second, I will present the statistical analyses of the three questionnaires.
Interviews
Executives’ comments can be grouped under five headings: ethical orientation, view of the
firm, profits versus safety as number one priority, crisis management approach, and organizational
culture. Executives from consequentialist organizations mostly emphasized what was best for the
organization and the society. They favored cost-benefit analyses (emphases mine):
“One of the things that we always look at is what's best for the
population (organization)”
“If you are just trying to make sure that no one individual is harmed, it
would be wonderful until the business went bankrupt. The bias has to be
towards what is right for the largest number of people.”
“If vou are a people organization, it is quite possible, vou won't make
money, and no one will have a job. We have to make profits for our
shareholders, otherwise we won't have jobs.”
Executives from deontologist organizations emphasized putting ethics, integrity, and people
first. They stressed that they would not harm even a single individual:
“The Golden Rule, do unto others as you would have them do unto
you; we expect from others the same thing.”
“Ethics, integrity is number 1 in our vision.”
“We tolerate making mistakes but violating your integrity is not
something that is ever tolerated here.”
“We are very conscious of doing harm to no one: we spend a lot of
money and resources; we have to be careful because we do not want to hurt
anybody out there, not even a single person.”
Deontologist and consequentialist organizations had clearly different priorities for safety and
profits. Consequentialist organizations were always concerned about the bottom line and viewed
safety as a legal requirement. They believed that viability followed profits: “Profits are necessary
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otherwise you won't have a viable company.” Deontologist organizations believed that viability was a
consequence of improved safety. They considered the bottom line only after making sure that safety,
quality and customer satisfaction issues were properly addressed: “Our CEO gets a lot of reports; he
always reads first the safety report.”
Executives from reactive organizations believed that the non-occurrence of a crisis is a
strong indicator of the low probability of it happening again. They dealt with crises after they
occurred. Their approaches were certainly reactive, and at times, unresponsive:
“Crises are like blips in your operation radar, they hit then vou take
care of them.”
“We have spent the appropriate amount of time and effort planning for
those crises that are most likely to impact our business.”
“If there are deaths, then we will recall the product; if not, the Federal
Government will make us do it, but we won't recall it until we are sure it is us.”
Executives from proactive organizations put safety above everything else. They dealt with
crises before they occurred: “In case of death or injury, it is the right thing to pull a product off the
market right away. It is the ethical thing to do.” One executive from a proactive organization pointed
out the increase in the number of “abnormal” crises as such:
“The nature of crises is changing. They are broader now.
Environmental spills, work injuries are still happening but there are different
kinds of crises. Perhaps, the society went more violent. Workplace violence,
bomb threats are the new issues. They have to be addressed very quickly. They
need broader expertise.”
When asked what would make their organization take crisis management more seriously,
one executive from a proactive organization said that, “We already are; ... anything can happen, our
chairman can die, our products can kill people, our building may blow up ....”
Executives from reactive organizations responded differently: “To experience a huge crisis.”
Executives from consequentialist organizations also mentioned that their organizations had never
experieneed certain kinds of crises. Hence, they held that these crises did not apply to their
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57
organization. These executives had a strong conviction that only “a hit close to home” would make
their organization take proactive crisis management more seriously.
Consequentialist organizations did not get prepared for low-probability erises until one hit
them. Even after some of these organizations were hit by a low probability crisis, they were still not
convinced to allocate resources to crisis management training and planning. They downplayed the
relevance and importance of these crises by attributing their causes to misfortune. For example, an
executive treated the very occurrenee of a low-probability crisis as an indicator of its impossibility of
occurring again.
The clear differences in ethical orientations and crisis management styles were also observed
in organizational cultures. Consequentialist organizations were extremely profits and numbers
oriented. One executive from a consequentialist organization said, “When you are a publicly traded
company, Wall Street does dictate what it is, no matter what your corporate culture is.” Deontologist
organizations, on the other hand, were open and people oriented: “We put people first and that is the
basis of who we are, it is built and ingrained in our culture.”
In short, the analysis of the interviews confirms that organizations differ on their views on
ethics, business, and crisis management. Deontologist organizations tended to be preoccupied with
safety because it is the right thing to do. Consequentialist organizations tended to be preoccupied with
cost-benefit analyses and the bottom line, and viewed safety as a legal requirement.
Statistical Analyses of Questionnaires
Table 7 present the means and standard deviations for, and the correlations among, the
variables in the study, before 9/11, after 9/11, and one year after 9/11. The correlations matrix was
generated using a pairwise deletion procedure.
Hypothesis 1 was supported. Ethical orientation was a strong determinant of crisis
management style. Organizations with a stronger deontological ethical orientation valued a more
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58
proactive approach to crisis management. Organizations with a stronger consequentialist ethical
orientation valued a reactive approach to crisis management. Specifically, a 1% increase in
deontological orientation was associated with a 4.2% increase in proactivity score. Table 8 presents
the results of the regression analysis for proactivity.
Table 8 presents the results obtained when all questionnaire were regressed together. Two
dummy variables were used to control for temporal effects. The first dummy variable controlled for
the effects of 9/11 and was statistically significant. This implies that after 9/11, proactivity - at the
population level - has increased by a little less than 2 points ((3=1.704). In other words, probably due
to the strong effects of 9/11, organizations were prepared for two more crises that they have not
experienced in the past. The additional crises for which organizations were prepared were not always
terrorist attacks, however. Changes in preparation levels were statistically significant for all twelve
different crises categories.
The second dummy variable controlled for whether this change was temporary. The change
was not temporary. This implies that the overall proactivity level, at the population level, did not
change significantly during the period starting in December, 2001 and ending in July 2002. This may
be due to many factors including the accounting scandals that hit Corporate America in that period.
Moreover, seven months may not be a long enough time period to observe such a fallback. Three
dummy variables were used to control for departmental/functional effects.
The effects of these variables were statistically insignificant. This finding supports the claim
that organizational ethical orientation is more homogenous than it is heterogeneous (Jones, 1995).
Companies that responded to the first, second, and third questionnaires were also regressed
separately. Results were consistent. The relationship between ethical orientation and proactivity was
the strongest in the first questionnaire. This relationship weakened, but was still significant in the
second and third questionnaires. Since the increase in proactivity at the population level was not
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Correlation Matrix
Mean SD 1 2 3 4 5 6 7 8 9
1 Proactivity 6.13 3.43 1.00
2
Ethical
Orientation -8.87 25.22
Q
1.00
3
Total # o f crises
experienced 13.35 9.97 -0.25*** -0.16* 1.00
4 Financial Credibility -9.57 3.62 0.19* 0.14 0.00 1.00
5 Corporate Reputation 5.97 1.04 0.24* 0.26** -0.29**
Q 27***
1.00
6 Profitability 4.84 5.35 0.25** 0.13 -0.25** 0.27** 0.45*** 1.00
7 Age 75.09 46.05 0.06 0.24** 0.07 0.27** 0.16 0.02 1.00
8 Size 4.22 0.59 0.00 0.00 0.21** 0.12 0.29** 0.15 0.13 1.00
9 Manufacturing 0.44 0.50 0.11 0.08 -0.05 0.15 0.11 0.17* 0.18* 0.08 1.00
10 Transport. & Energy 0.16 0.36 0.02 0.16* 0.15* -0.13 -0.07 -0.13 0.00 -0.23*** -0 38***
11
Finance &
Insurance 0.15 0.35 -0.13 -0.17* -0.13 0.06 -0.03 -0.23** 0.12 -0.17* -0 38***
12 Services 0.23 0.42 -0.05 -0.11 0.00 -0.08 -0.04 0.07 -0.28*** 0.23*** -0.48***
13 Health Services 0.02 0.14 0.05 0.00 0.06 -0.07 0.02 0.07 -0.11 0.08 -0.13
14 CounseFLegal 0.20 0.41 -0.01 0.03 -0.13 0.02 -0.10 -0.04 0.00 -0.06 -0.04
15 PR 0.55 0.50 0.01 -0.03 0.03 -0.15 -0.02 -0.05 -0.06 0.10 -0.16*
16 Risk Mgmt 0.18 0.38 -0.02 -0.08 0.15* 0.12 -0.06 -0.04 0.06 -0.09 0.17*
17 Safety & Security 0.07 0.26 0.09 0.15* -0.05 0.11 0.18 0.15 0.02 0.05 0.15*
18 Before & After 9/11 0.74 0.44 0.19** 0.07 -0.08 0.04 -0.16 0.03 0.01 -0.06 0.03
19
Right After & 1 Year
After 9/11 0.31 0.46 0.04 0.05 -0.09 -0.05 0.01 0.08 -0.07 -0.01 0.00
+ p<0.1 ^p<0.05 'p<0.01 ^ p < 0.001
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TABLE 7 Continued
Correlation Matrix
Mean SD 10 11 12 13 14 15 16 17 18
1 Proactivity 6.13 3.43
2
Ethical
Orientation -8.87 25.22
3
Total # o f crises
experienced 13.35 9.97
4 Financial Credibility -9.57 3.62
5 Corporate Reputation 5.97 1.04
6 Profitability 4.84 5.35
7 Age 75.09 46.05
8 Size 4.22 0.59
9 Manufacturing 0.44 0.50
10 Transport. & Energy 0.16 0.36 1.00
11 Finance & Insurance 0.15 0.35 -0.18** 1.00
12 Services 0.23 0.42 -0.23*** -0.23** 1.00
13 Health Services 0.02 0.14 -0.06 -0.06 -0.08 1.00
14 CounseELegal 0.20 0.41 -0.04 0.08 0.01 0.00 1.00
15 PR 0.55 0.50 0.07 0.01 0.08 0.09 -0.56*** 1.00
16 Risk Mgmt 0.18 0.38 0.00 -0.15* -0.05 -0.07 -0.24* -0 51*** 1.00
17 Safety & Security 0.07 0.26 -0.07 0.01 -0.10 -0.04 -0.14* -0.30*** -0.13 1.00
18 Before & After 9/11 0.74 0.44 -0.01 -0.03 0.05 -0.13 0.17 -0.06 0.01 -0.13 1.00
19
Right After & 1 Year
After 9/11 0.31 0.46 0.00 -0.03 0.04 -0.04 0.07 -0.08 0.02 -0.05
Q 4Q***
■ p < 0.1 ^ p <0.05 = p<0-01 p < 0.001
O N
o
61
TABLE 8
Proactivity (UnStd. 3)
Ethieal Orientation 5.40E-02***
Size 6.94E-02
Age -2.73E-03
Transportation, Gas, and Energy -.903
Finance and Insurance -.583
Services -.797
Health Services .978
Right After and 1 Year After 9/11 -.502
Before and After 9/11 1.704**
Counsel/Legal -.362
Safety & Security .321
Risk Management .187
Constant 5.857**
F 3.849***
Adjusted R Square 16.4
N 173
p<0.01 * = > p< 0.001
accompanied by any changes in ethical orientation levels, the weakening statistical relationship
between proactivity and ethical orientation makes sense. I address the reasons and the implications of
this change in the discussion section.
Hypothesis 1 looked at the relationship between ethical orientation and crisis management
style from a “preparation versus no preparation” standpoint. Proactivity was operationalized as the
number of crisis categories organizations did not experience before but for which they were prepared.
But proactivity may also be evident in the amount of preparation for low probability erises. If this
statement is true then organizations with a stronger deontological ethieal orientation will be more
prepared for low probability crises than organizations with a stronger consequentialist ethical
orientation.
Table 9 presents the numbers of occurrence for three different categories of crises: high,
medium, and low probability. Preparation for the three crisis categories was measured by the average
of the amount of training and planning an organization has undertaken for erises that belong to these
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62
three categories. For example, preparation for high probability crises is the average of preparation for
major lawsuits, and fires and explosions.
TABLE 9
Types O f Crises Number of Occurrence
(in 3 Years, for 192 Firms)
Probability
Major Lawsuits 684 HIGH
Fires and Explosions 504 HIGH
Damage to Reputation 275 MEDIUM
Damage to Brand 265 MEDIUM
Drop in Revenue 242 MEDIUM
Natural Disaster 204 MEDIUM
Recalls 192 MEDIUM
Loss of Information 117 LOW
Sabotage 90 LOW
Environmental Disaster 85 LOW
Tampering 84 LOW
Terrorism 54 LOW
Total 2796
* Based on all three questionnaires.
Table 10 contains the results of the regression analysis for preparation for high, medium, and
low probability crises both before and after 9/11. Ethical orientation was a predictor of the amount of
crises preparation organizations undertook. Organizations with a stronger deontological ethical
orientation were more prepared for crises than organizations with a stronger consequentialist ethical
orientation. There was no correlation between ethical orientation and the amount of preparation for
high probability crises because all organizations were prepared for high probability crises. The
relationship between ethical orientation and preparation became more significant for crises with
medium probability of occurrence because consequentialist organizations saw these crises as less
probable, and hence, did not prepare for some of them. The relationship between ethical orientation
and preparation became more significant for low probability crises because of two reasons: first,
consequentialist organizations were not prepared for rare crises at all; second, deontologist
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organizations were prepared for a wide variety of crises, regardless of the probabilities of their
occurrenee.
63
TABLE 10
Prep, for High
Prob, (Std. Beta)
Prep, for Medium
Prob. (Std. Beta)
Prep, for Low
Prob. (Std. Beta)
Ethical Orientation .109 .182* .368***
Age .062 .102 .042
Size .066 .129 .054
Transportation, Gas, and
Energy -.048 -0.069 .062
Finance and Insurance -.127 -0.107 -.123+(p=0.1)
Services -.282+ (p=.056) -0.079 -.056
Health Services -.063 .043 .003
Counsel/Legal -.112 -.126+(p=0.083) -.102
Risk Management .022 -.174* -.044
Safety & Security .047 .037 -.014
Right After and 1 Year
After 9/11 -.004 .081 .048
Before and After 9/11 0.31***
29 j ***
F
2930**
4.556*** 6.017***
Adjusted R Square .117 .197 .261
N 173 173 173
+p<0.1 p<0.05 p<0.01 p< 0.001
Hypothesis 2: Partially Supported. Hypotheses 2 suggested that proactive organizations
experience fewer numbers of crises than reactive organizations, enjoy a better corporate reputation
than reactive organizations, enjoy a higher financial credibility than reactive organizations, and are
more profitable than reactive organizations.
Table 11 presents the mean differences in terms of performance outcomes. Table 12 presents
the results of the regression analysis for performance outcomes. The results suggest that proactive
organizations experience fewer numbers of crises, enjoy a better corporate reputation, and are more
profitable. The financial credibility of proactive organizations, as measured by Standard & Poor’s
credit rating, were not significantly different from those of reactive organizations. Nonetheless, the
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6 4
sign of the difference was consistent with predictions: proactive organizations had higher financial
credibility than reactive organizations.
TABLE 11
Performance Difference Between Reactive and Proactive Organizations
Reactive Proactive Sig.
Total number of crises experienced
(Count)
16.07 (.96) 10.59 (.98) 0.000
Corporate reputation
(Fortune’s most admired scale)
5.78 (.14) 6.18 (.14) 0.055
Financial credibility
(S&P’s credit rating scale)
-10.00 (.42) -9.085 (.44) 0.144
Profitability
(Return on assets, percentage)
3.97 (.56) 5.78 (.57) 0.033
Total number of crises experienced
(Count)
16.07 (.96) 10.59 (.98)* 0.000
Corporate reputation
(Fortune’s most admired scale)
5.85 (.14) 6.10 (.14)* 0.243
Financial credibility
(S&P’s credit rating scale)
-10.13 (.44) -9.06 (.41)* 0.082
Profitability
(Return on assets, percentage)
3.97 (.56) 5.78 (.57)* 0.033
* Proactivity 2
The results also revealed several statistically significant control variables. Organizations
larger in size and organizations in transportation, gas, and energy industries experience a greater
number of crises. After 9/11, the Fortune 1000 organizations suffered an average drop of 0.341 points
in their corporate reputation scores. Organizations larger in size seemed to be 0.525 points more
reputable. Organizations in transportation, gas, energy, finance, and insurance industries were, on the
average, 1.757% less profitable than organizations in other industries. Senior executives from risk
management department reported a greater number of crises.
H ypothesis 3.1 & 3.2: S u p p o rted /W eak ly S u p p o rte d . H ypothesis 3.1 suggested that if the
consequences of taking a proactive approach to crisis management are better than those of taking a
reactive approach, the population would include a significant percentage of consequentialist
organizations that will value a proactive approach to crisis management.
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65
T A B L E 12
Total Number
of Crises
Experienced
Corporate
Reputation
Financial
Credibility
Profitability
Proaetivity
(Diehotomized) -5,484***
0.395-r
(p=0.055)
0.92
(p=0.144) 1.757*
Age 1.48E-02 2.139E-03 1.517E-02* 3.78E-03
Size 4.378** 0.525* 1.094 0.628
Transportation, Gas, and
Energy 5.156** -5.940E-02 -.828
-1.996+
(p=0.07)
Finance and Insurance -1.418 -0.184 -0.631 -3.760**
Services -.135 4.708E-02 -0.626 4.135E-03
Health Services 5.222 -7.456E-03 -1.054 1.479
Counsel/Legal -1.614 -1.746E-02 -0.579 -6.416E-03
Risk Management 3.819* -0.112 1.398+ (p=0.1) -.746
Safety & Security -1.818 0.468 1.647
2.924+
(p=0.07)
Right After & 1 Year
After 9/11 -1.740
0.392+
(p=0.09) -0.671 1.044
Before and After 9/11 0.967 -0.541* 0.353 -0.105
Adjusted R Square .157 .106 .074 .082
N 173 108 138 173
For easy interpretation, the ethieal orientation seore was diehotomized at zero, and the erisis
management style (proactivity) score was dichotomized at 6.80, which is significantly higher than the
mean proactivity score of 6.12 (p=0.05). Table 13 presents the distributions and the percentages of
possible “ethieal orientation-erisis management style” pairings in all samples combined. On the
average, the distribution of “ethieal orientation-erisis management style” pairings in the Fortune 1000
is: 38% consequentialist-reactive, 25% consequentialist-proactive, 9% deontologist-reactive, and 29%
deontologist-proactive.
I have already shown that the consequences of being proactive are better. Therefore, I
expected to see a significant number of consequentialist organizations that valued a proactive
approach to crisis management. Table 13 suggests that the percentage of consequentialist-proactive
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6 6
organizations (25%) in the population is significantly high.^ The natural question that led to
Hypothesis 3.2 was: What differences are there between consequentialist organizations that value a
proactive approach to crisis management and those that value a reactive approach?
TABLE 13
Reactive Proactive
Consequentialist 38% 25%
Deontologist 9% 29%
I hypothesized that emotionally and cognitively less bounded consequentialist organizations
with a culture of mutual trust and cooperation, and a greater “absorptive capacity” will learn from
proactive organizations. In order to explore the difference between consequentialist-reactive and
consequentialist-proactive organizations, I used the semantic differential scales (Likert-7) with which
executives described their organization. I also used a 7-point scale that measured the extent to which
organizations learn from past crises. Table 14 presents the statistically significant differences between
consequentialist-reactive and consequentialist-proactive organizations. It reveals that
consequentialist-proactive organizations are described as (a) more calm, flexible, and people oriented
than consequentialist-reactive organizations; (b) accepting more responsibility for their problems; and
(c) learning from crises to a greater extent.
This finding is consistent with previous research in organizational literature that emotionally
and cognitively less bounded organizations with a culture of mutual trust and cooperation are found
to be more willing to accept responsibility and more able to learn from past crises (Edmondson, 1999;
Kovoor, 1991). Nonetheless, I believe that the empirical evidence here is at best suggestive, calling
for a more rigorous theorizing and testing of my contention. Hypothesis 4: Not Supported.
^ Table 14 also provides support to my expectation that the percentage o f deontologist-reactive
organizations (lower-left quadrant) in the population is significantly low.
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67
Hypothesis 4 suggested that consequentialist organizations that behave proactively for instrumental or
strategic reasons will not perform as well as deontological organizations that emphasize proactivity
for noninstrumental reasons. To test this hypothesis, I looked at performance differences between
consequentialist-proactive and deontologist-proactive organizations. The performance differences
between deontologist-proactive organizations and consequentialist-reactive organizations were not
statistically significant except for corporate reputation, which was significant at p=0.055 level.
Deontologist-proactive organizations’ scored 0.62 points higher on Fortune’s Most Admired
Companies scale.
TABLE 14
Consequentialist-
Reactive (N=65-66)
Consequentialist-
Proactive (N=43-44)
Sig.
Semantic Scales
Profits 1 S t - People 1 st 3.63 (.19) 4.19 (.23) .066
Warm-Cold* 3.86 (.39) 3.19 (.24) .135
Rigid-Flexible 4.43 (.18) 5.05 (.17) .021
Turbulent-Calm 3.78 (.18) 4.43 (.22) .031
Blames others for its problems-
Accepts responsibility for its
problems
5.00 (.21) 5.61 (.19) .045
Learning Scale
The extent to which my
organization learns from past
crises: (1) Very little - (7)
Significant
4.91 (.23) 5.91 (1.17) .002
Reverse scored; N = (22, 26)
Generally speaking, the right behavior (proactive crisis management) led to the right
consequences even if the intentions were different (consequentialist versus deontologist).
There may be several reasons for this finding. For example, the traditional view of the firm
may not entirely represent the consequentialist view of the firm. For consequentialism may assume
different forms depending on (a) what counts as a consequence, (b) whose values and preferences are
considered in assessing costs and benefits, and (c) how far into the future consequences are
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6 8
considered. In fact, the failure to find significant differences between the performances of
consequentialist-proactive and deontologist-proactive organizations can be explained by re-
conceptualizing what consequence may mean at different levels of moral development (Kohlberg,
1981).
Kohlberg (1981) suggested three general levels of moral development: pre-conventional,
conventional, and post-conventional. At the pre-conventional level, consequentialists are ethical
egoists who believe that moral behavior is that which has the right consequences for one’s self. At the
conventional level, consequentialists are utilitarians who believe that moral behavior is that which has
the right consequences for the group to which one belongs and only that group. At the post-
conventional level, consequentialists have developed empathy and a sincere interest in the well-being
of others, including future generations and the natural environment. Therefore, they believe that
moral behavior is that which has the right consequences for all stakeholders. Kantian deontologists
belong to the post-conventional level because their principles apply to all people and in all contexts.
There is a very clear pattern: consequences for me, consequence for us, consequences for all of us;
my principles, our principles, universal principles; egoism, utilitarianism, deontology. In essence,
individuals and organizations that go through the levels of moral development are increasingly more
able to understand different frameworks and empathize with others.
The traditional view of the firm originates at the pre-conventional and the conventional
levels of moral development and argues that moral behavior is that which has the right consequences
(profit) for one’s self or one’s stockholders. At the post-conventional level, however, moral behavior
is one that has the right consequences for all. This extremely idealistic stance may be named as a
world-centric consequentialist view of the firm, where the traditional view may be named a self-
centric or near-sighted consequentialist view of the firm. It is possible that consequentialist
organizations that value a proactive approach are sincerely concerned about the goodness of the
consequences of their actions to a much larger set of stakeholders. Consequentialism in a world-
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6 9
centric sense is highly compatible with deontology in the sense that both conceptualize what is right
from a universal perspective.^
Post-9/11 Interviews and Observations
The model I proposed predicts that organizations that value a different crisis management
style would respond differently to an extremely low-probability crisis. The events of 9/11, as sad as
they were, have provided an opportunity to test parts of the model I proposed. I wanted to see (a) if
the effects of 9/11 on proactive organizations are independent of the perceived probability of them
being attacked; (b) if the effects of 9/11 on reactive organizations are dependent on the perceived
probability of them being attacked. Specifically, I wanted to test whether reactive organizations
indeed reacted to 9/11 by increasing their preparation to respond to terrorist attacks, and whether their
reaction was dependent on the probability of themselves being attacked.
After 9/11,1 interviewed the same executives a second time. I asked them how their
organizations responded to the terrorist attacks. The second round of interviews indicated that
proactive and reactive organizations responded differently to 9/11. Executives in reactive
organizations said that they were not prepared for terrorist attacks before 9/11. Executives from
proactive organizations, however, said that they were already prepared for terrorist attacks, even
though terrorism belongs to a family of low probability crises in the Unites States.* The media, the
public, and many of the executives 1 interviewed believed that the events of 9/11 hit the transportation
industry and the businesses in and around New York City the hardest. Several executives in reactive
’ Please see Chapter 6 for an extensive review o f organizational moral development.
* After I received the second and the third set o f questionnaires, I checked to see if these opinions were
generally supported by the questionnaire data: They were. I conducted simple t-tests for preparation for
terrorism, both before, after, and one year after 9/11. The average difference in preparation (Likert 1-7 scale)
between reactive and proactive organizations were: 2.72 (p=.000), 0.82 (p=.104), and 2.35 (p=.000),
respectively. Note that the difference between reactive and proactive organizations was not significant right after
9/11, suggesting that reactive organizations indeed “reacted.”
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7 0
organizations mentioned their industries, their locations, and even the height of their buildings as
possible protection from a terrorist attack. There was a widespread belief that terrorists chose to
attack New York because it is the financial capital of the U.S. and the symbol of American capitalism.
The attack on New York was seen as an attack on the U.S. economy. Therefore, a second or a third
attack on New York was a high possibility. The transportation, gas, and energy industries were likely
targets, too, because their destruction could hurt the economy and could affect many people. For
example, airports and airline passengers could be used to spread disease. Larger organizations were
more fearful because they have a greater number of locations and affect a greater number of lives. If
“what is good for GM is good for America,” then conversely, what hurts GM hurts America. In short,
the probability of being hit by a terrorist attack was perceived to be higher for those organizations that
were: (a) located in and around New York; (b) in the transportation, gas, and energy industries; and
(c) larger in size.
After having interviewed several executives, I identified three specific factors that executives
have perceived to increase the probability of them being targeted by terrorist attacks: their size, their
industry, and their distance from New York City. I thus expected to see that reactive organizations
that are (a) larger in size, (b) in the transportation, gas, and energy industries, and (c) closer to New
York City would proportionately increase their preparation for terrorist attacks directed against them.
Proactive organizations, on the other hand, do not base their decisions about crisis management on
probabilities. Therefore, their responses to 9/11 would not depend on their size, location, and
industry.
I used the data from the second and the third questionnaires to test my post-9/11 hypotheses.
Organizational location was operationalized as the distance in miles between a corporation’s
headquarters and New York City. Table 15 shows that reactive organizations' level of preparation for
terrorist attacks directed against them increased if these organizations were closer to NYC, and if they
were in transportation, gas and energy industries. Proactive organizations' preparations were
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71
independent of their size, loeation, and industry. The results also suggested that (a) reactive
organizations in finance and insurance industries increased their preparation for terrorist attacks; (b)
executives from legal and risk management departments in reactive organizations reported lower
levels of preparation for terrorist attacks; (c) among reactive organizations, relatively more proactive
organizations increased their preparation. Figure 3 presents the changes in proactive and reactive
organizations’ average preparation levels for terrorist attack directed against them, both before and
after 9/11.
TABLE 15
Results of Regression Analysis for Preparation for Terrorism
(Reactive and Proactive Organizations)
Reactive Organizations Proactive Organizations
Prep, for Terrorism
(Std. Beta)
Prep, for Terrorism
(Std. Beta)
Distance from WTC -.220+ (p=0.07) -.084
Age .039 -.124
Size .147 .145
Transportation, Gas, and Energy .423** .295*
Finance and Insurance .247* .055
Services -.030 -.150
Flealth Services
- -.033
Counsel/Legal -.261* -.084
Risk Management -.273* -.130
Safety & Security -.035 .127
Right After and 1 Year After 9/11 .145 -.113
Proactivity .267* .035
F 4.407*** 1.139
Adjusted R Square .401 .021
N 57 76
+ p< 0.1 * p<0.05 ** p<0.01 *** p < 0.001
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72
FIGURE 3
Preparation for Terrorist Attacks, Before and After 9/11
O
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4 = 1
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Proactive
5
4
Reactive
3
1
Before 9/11
(p=0.001)
After 9/11
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73
Table 16 summarizes the results presented in this chapter.
TABLE 16
Summary of Hypotheses and Results
Hypotheses Supported?
Hypothesis 1. Organizations with a stronger deontological ethical orientation
will exhibit a greater tendency to value a proactive approach to crisis
management. Organizations with a stronger consequentialist ethical
orientation will exhibit a greater tendency to value a reactive approach to
crisis management.
Yes
Hypothesis 2.1. Proactive organizations will experience fewer numbers of
crises than reactive organizations.
Yes
Hypothesis 2.2. Proactive organizations will enjoy a better corporate
reputation than reactive organizations.
Yes
Hjqrothesis 2.3. Proactive organizations will enjoy a higher financial
credibility than reactive organizations.
No
Hypothesis 2.4. Proactive organizations will be more profitable than reactive
organizations.
Yes
Hypothesis 3.1. If the consequences of taking a proactive approach to crisis
management are better than those of taking a reactive approach, there will be
a significant percentage of consequentialist-proactive organizations.
Yes
Hypothesis 3.2. Among the consequentialist organizations, only those that
can imitate or learn from proactive organizations will value a proactive
approach to crisis management.
Yes but weak
Hypothesis 4. Consequentialist organizations that behave proactively for
instrumental reasons will perform worse than deontological organizations that
emphasize proactivity for noninstrumental reasons.
No (although
there is weak
support for
reputation)
Post-Hoc Hvpothesis/Observation. The effects of 9/11 on nroactive
organizations is independent of the perceived probabilitv of them being
attacked; the effects of 9/11 on reactive organizations is dependent on the
perceived probability of them being attacked.
Partially
supported
(distance and
industry)
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7 4
CHAPTER 6: DISCUSSION
I start with an overview of findings. Next, I discuss two issues that need to be addressed for
a better understanding of the findings and the questions raised in this dissertation.
The first issue focuses on the nature of unethical behavior. I have been talking about how
different schools of ethics define ethical behavior in different ways that are sometimes conflicting.
Deontologists believe that consequentialists do not understand the nature of morality (Thomson,
2000). Consequentialists believe that deontologists do not take the promotion of good consequences
seriously enough (Frankena, 1973). In stronger language: Both camps find each other immoral or
unethical. I address this issue by attempting to differentiate between moral relativity and moral
development.
The second issue is regarding the incomplete nature of this dissertation. Although 1 have
focused on two of the most fundamental theories of ethics, the literature on ethics offers many more.
Thus, I offer a more comprehensive theoretical framework that integrates several schools of ethics by
transcending and including the framework with which I have initially started my inquiry.
Overview of Findings
Organizations with a stronger deontological orientation tend to value a proactive approach to
crisis management. For example, they prepare for a wider variety of crises, including those they have
not experienced before. On the other hand, organizations with a stronger consequentialist orientation
tend to value a reactive approach. Ethical orientation is associated with not only the range of crisis
categories but also the amount of crisis preparation organizations undertook. Deontologist
organizations are significantly more prepared for low-probability erises.
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75
Another important finding is that proactive organizations tend to experience fewer numbers
of crises, to enjoy a better corporate reputation, and are more profitable than reactive organizations.
Now, here is the irony: the consequences of a nonconsequentialist (deontologist) ethical
orientation are consistently superior to those of a consequentialist ethical orientation. In effect,
deontologist organizations perform better than some of the consequentialist organizations in
achieving the greatest good for one's self and for the largest numbers of people.
Of course, this irony does not go unnoticed among the more vigilant consequentialist
organizations. For large-scale organizational crises and the ways organizations handle them are
visible and salient events that attract media and public attention. Thus, consequentialist organizations
observe and may leam from best and worst performing organizations. This makes the relationship
between ethical orientation and crisis management style more complex. The collected data suggest
that the Fortune 1000 includes a significant percentage of consequentialist-proactive organizations.
Moreover, these organizations tend to differ from consequentialist-reactive ones in many ways:
Consequentialist-proactive organizations are described as more flexible, people oriented, willing to
accept responsibility and able to learn from previous crises than consequentialist-reactive
organizations.
This finding inevitably leads to the following question: Do consequentialist organizations
that manage crises proactively for instrumental reasons perform as well as deontological
organizations that do so because it is the right thing to do? Although I have theorized otherwise and
found weak support on only one performance dimension (corporate reputation), the answer to this
question was generally affirmative: Consequentialist organizations that manage crises proactively but
for instrumental reasons perform as well as deontologist organizations.
Despite the lack of evidence, however, I still believe that doing the right thing for
instrumental reasons may not lead to better outcomes than doing the right thing for the sake of duty.
Therefore, I attempted to explain the non-finding by drawing on Kohlberg’s theory of moral
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7 6
development (Kohlberg, 1981). Basically, I suggested that consequentialist-proactive organizations
belong to a higher level of moral development than consequentialist-reactive organizations. And
consequentialist organizations at higher levels of moral development are not faking morality and are
sincerelv more concerned about the goodness of consequences for others. I will go into details to
explain moral development in the next section.
After 9/11,1 had an opportunity to test my theory that consequentialist organizations base
their crisis preparation decisions on cost-benefit analyses. Results suggested that after 9/11, reactive
organizations that are in the transportation, gas, and energy industries, and that are located closer to
New York City increased their preparation for terrorist attacks directed against them. This finding
makes sense because organizations that were located closer to New York City and in transportation,
gas, and energy industries were perceived to have a higher probability of being targeted by terrorists.
On the whole, the results suggest that ethical orientation is a strong determinant of an
organization’s crisis management behavior and performance.
Moral Relativity or Moral Development?
Obviously, ethics and morality are sensitive topics because what is right for someone may be
wrong for someone else. Thus far I have argued that ethics is not about choosing between right and
wrong - for that would be an easy decision - but it is about choosing between two rights (Badaracco,
1987). I did not label reactive organizations as unethical and proactive organizations as ethical.
Instead, I regarded both organizations as being ethical in different ways. But how is that so? How is it
possible that these two types of organizations are ethical simultaneously? I will draw on (Kohlberg,
1981) theory of moral development to explain the riddle.
Kohlberg (1981) outlined three general levels of moral development each of which has two
sub-levels: pre-conventional, conventional, and post-conventional. At the pre-conventional level,
individuals seek to satisfy their own needs. These individuals treat themselves as ends and everyone
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77
else as means. At the conventional level, individuals seek to maintain the social order and to conform
to group norms (Barry, 1986). These individuals treat individuals as means and the group (us) as end.
At the post-conventional level, individuals question the conventional mindset and seek to arrive at
universally applicable principles (Barry, 1986). These individuals treat everyone (all of us) as ends.
In essence, individuals at higher levels of moral development have a more complex and
balanced view of morality, and are able to understand different viewpoints. This ability, namely
“perspective taking,” is considered to be an important aspect of development (Piaget, 1965).
Individuals and organizations at lower levels of moral development are limited in their
ability and their desire to take other’s perspectives. For example, ethical egoism ignores obvious
wrongs, such as killing, until the test of self-interest is applied (Barry, 1986). It cannot be consistently
universalized. Thus, it is not considered a valid moral principle at higher levels of moral
development. Consequentialism at the conventional level has the following fundamental problem:
defining majority as a group, organization, society, or the whole world has huge policy implications
because what benefits the majority may not benefit the minority or the whole system. In other words,
defining majority is itself an ethical act. Therefore, socio-centric and ethno-centric forms of
consequentialism are not considered as valid moral principles at the post-conventional level of moral
development. Nonetheless, both ethical egoism and utilitarianism are considered ethical at the pre-
conventional and conventional levels, respectively.
Numerous studies (Gilligan, 1982; Kohlberg et al, 1983; Snarey, 1985) have supported
Kohlberg's model, both empirically and conceptually. Moreover, several studies adapted Kohlberg’s
model of moral development to study organizations (Fritzsche & Becker, 1984; Logsdon & Yuthas,
1997; Reidenbach & Robin, 1991; Sridhar & Cambum, 1993; Victor & Cullen, 1988). Table 17
summarizes Kohlberg’s theory of moral development. Table 18 presents the similarities among
models that adapt Kohlberg's theory of moral development to organizations.
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The traditional view of the firm is a combination of the pre-conventional and the
conventional levels of moral development. Thus, it inevitably and naturally focuses on the
consequences for one’s self and acknowledges only a limited subset of stakeholders (i.e., one’s
group). For example, when Ford used “cost of human life” as a variable in a profit maximization
function, they did not even think that doing so had significant ethical implications (Gioia, 1992).
Because if Ford had cared about victims injured by the Pinto, then they would have fixed the Pinto.
They didn’t. Ford’s actions were based on a pre-conventional consequentialist ethics (self as an end,
everyone else as means).
Ford’s behavior may be interpreted from a conventional viewpoint as well. Ford estimated
the value of human life or the “cost to society” at $200,000, but it was the National Highway Traffic
Safety Administration who “had approved the use of cost-benefit analysis as an appropriate means for
establishing automotive safety design standards” (Gioia, 1992: 383). And such calculations had
required an estimation of the value of human life or the “cost to society.” In other words, the whole
automobile industry was at the conventional level of moral development (individuals as means, group
as end), and organizations like Ford might have been, consciously or unconsciously, merely
conforming.
TABLE 17
Kohlberg‘ s Levels
o f Development Principles and Consequences
Level 3,
Post-Conventional
-Consequences for aU stakeholders
-An advanced form of consequentialism that defines “all” in terms of
everyone, including future generations, the natural environment, and all
sentient beings.
-Kantian Deontology: Principles apply to all people at all times and in all
places; e.g.: Do not kill.
Level 2,
Conventional
-Consequences for the group to which one belongs: Consequentialism
(Utilitarianism)
-A form of eonsequentialism that defines “all” or majority in terms of
ethnicity, religion, nation, society, etc..
Level 1,
Pre-Conventional
-Consequences for one’s self: Ethical Egoism.
-Treating one's self as an end and everyone else as means.
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7J
CD
■ D
O
Q .
C
o
CD
Q .
■ D
CD
(/)
(/)
O
O
■ D
CD
■ D
O
Q .
C
a
o
■ o
o
TABLE 18
Individual and Organizational Moral Development
Kohlberg (1981) Fritzche and Becker Victor and Cullen Reidenbach and Sridhar and Cambimi (1993)
(1984) (1988) Rodin (I99I)
1. Obedience and 1 .Independence I. Amoral
punishment
2. Instrumental purpose 1. Egoism 2. Instrumental I. Avoiding harm to one's own
and exchange organization
3. Interpersonal accord, 2. Gaining benefits for one's own
conformity to group 3. Caring organization
norms 2. Benevolence
4. Social accord and 4. Rules 2. Legalistic 3. Conforming to norms/practices of
system maintenance 5. Law and code 3. Responsive the industry
5. Social contract
4. Emerging
ethical
5. Ethical
4. Conforming to existing laws and
regulations
5. Recognizing obligations to
society
6. Upholding universal principles
6. Universal principles 3. Deontology (or
principle)
CD
Q .
■ D
CD
C/)
C/)
80
If Ford were at a deontological post-conventional level of development then they would have
cared about the victims’ right to life, safety, and information. If Ford were at a consequentialist post-
conventional level of development (world-centric consequentialist) then they would have realized that
their self-interest in inextricably connected to the interests of all other stakeholders and they would
have pursued their self-interest over the long-run. Therefore, in both cases, they would have fixed the
Pinto. Instead, Ford failed to calculate the losses that the company would suffer when it was found
out that they decided to “pay off victims.” When the public found out about the “moral” reasoning on
which Ford based their decision, the public reaction was so intense that it caused Ford to suffer
greater losses to its financial performance and reputation than if it had replaced the defective parts.
Making a distinction among consequentialist organizations in terms of their moral development may
help explain why Hypothesis 4, which argued that consequentialist organizations that behave
proactively for instrumental reasons would perform worse than deontological organizations that
emphasize proactivity for noninstrumental reasons, was not supported. Consequentialist organizations
that value a proactive approach to crisis management may be those that are at higher levels of moral
development. Consequentialists at higher levels of moral development extend their care and empathy
to larger sets of stakeholders, such as future generations and the natural environment. In this sense,
deontology and consequentialism are less conflicting at the post-conventional level. For both take a
more universalistic approach to morality.
To further test my claim that consequentialist-proactive organizations are morally more
developed than consequentialist-reactive organizations, I included another AHP section in the third
questionnaire, which measured stakeholder orientation by forcing organizations to make tradeoffs
between the relative importance of shareholders, employees, and future generations. I caleulated
moral development scores in the same way I calculated ethical orientation scores. The moral
development scale was positively correlated (p=0.024) with proactivity scale for consequentialist
organizations but not correlated with proactivity scale for deontologist organizations.
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In short, rather than strictly labeling organizations that subscribe to the traditional view of
the firm as unethical or succumbing to the arbitrariness of moral relativity arguments, I suggest a
“moral development” perspective on the distinction between what is ethieal and what is unethical. In
this sense. Ford managers and the NHTSA were neither completely unethical nor completely ethical.
They were morally not developed enough to recognize the full range of the consequences of their
actions and decisions for themselves and for other stakeholders.’
Towards and Integral Framework for Ethics
I offer the framework presented in Figure 4 to better integrate, understand, and interconnect
different schools of ethics.'® This framework integrates not only the consequentialist and the non
consequentialist schools of ethics but also virtue ethics, prima facie duties school of ethics, and
Kohlberg’s theory of moral development.
The horizontal dimension distinguishes between the “is” domain and the “ought to be”
domain. G. E. consequentialist schools of ethics but also virtue ethics, prima facie duties school of
ethics, and Kohlberg’s theory of moral development.
Moore, for example, argued that ‘what is’ and ‘what ought to be’ are two separate domains.
Mason (2002) argued that consequentialist ethics emphasizes the “is” domain and believes that the
rightness of an act (what ought to be) is derived from the goodness of its consequences (what is). On
the other hand, non-consequentialist ethics emphasizes the “ought to be” domain and believes that the
goodness of consequences (what is) is derived from the rightness of the act (what ought to be).
’ Nonetheless, I believe managers are behaving unethically when they can and do recognize the impact
of their decisions on others but choose not to act on it. For free will is essential to ethics and morality.
'® This framework is based on the works o f several scholars including: Lawrence Kohlberg, Richard
Mason, and Ken Wilber. All original insights belong to them.
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8 2
Universal
Indeterministic
Free Will
The goodness o f the
consequences is
derived from the
rightness o f the act
Virtue
Choose
Prima Facie
------
Prioritize dutie
Ethics
>
or Balance
] )utie$ School
> •
w.r.t. situation
ntional Post-C
Conv onal
W orld-centfic
Utilitarianis
Socio-centri
U tilitarianism
Kantian
Duties / Pre-cohventional
Socio-centric
D uties,
elf-centri
Duties
Ethical
Egoism
The rightness o f an
act is derived from
the goodness o f its
consequences
Non-consequentlallst
Particular
Deterministic
Consequentialist
“Ought to be” WlllFree “Is”
Domain Domain
FIGURE 4
An Integral Framework for Ethics
The vertical dimension distinguishes between levels of moral development. At the pre-
conventional level, personal principles and personal consequences are more important. At the
conventional level, the principles of and the consequences for the group to which one belongs take
priority - such as laws and religious duties. At the post-conventional level, universal principles and
consequences for all stakeholders dominate." In fact, moral development starts with a particular
concern for one’s self. At higher levels of development, human beings care about the rights of and
justice to larger sets of stakeholders (the highest level is characterized by universal care and rights).
This is also true of organizations. In different organizations, what counts as a legitimate consequence
may include but is not limited to one or more o f the following: profit, job security, economic development, social
welfare, the conservation o f natural resources, and a just society. In different organizations, the set of
stakeholders whose values and preferences are considered in assessing costs and benefits may include but is not
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83
The vertical dimension also distinguishes between levels of consciousness. At the lowest
levels of moral development, the world is that to which one responds. It seems to be a deceptively
simple, stable, and deterministic world. It may be a stimulus-response world where there is almost no
room for free will: “Might makes right,” “You scratch my back, and I will scratch yours.” At the
conventional level of moral development, the world is maintained. Means and ends are given. At the
highest levels of moral development, the world can be created and changed. It is recognized to be
much more complex, dynamic, and indeterministic. Means and ends are chosen. It is an existential
world where, as J. P. Sartre argues, human beings are “condemned to be free.”
The concentric circles represent the transcending and including nature of moral
development. For example, the conventional level not only transcends but also includes the pre-
conventional level. In other words, moral issues raised at the pre-conventional level can be addressed
at the conventional level, but moral issues raised at the post-conventional level will not even be
registered at the pre-eonventional level. Some moral issues raised at the conventional level will be
registered at the pre-conventional level. This is a neeessary condition for development to take place.
Consequentialist and non-eonsequentialist schools of ethics assume that the morality of an
act can be determined by looking at its consequences or the principles that guide it, respectively. But
the framework suggest that the prineiples that guide behavior or the consequences eonsidered as a
result this behavior are different at different levels of moral development. Herein lies the dilemma: we
live in a pluralistic and indeterminate world (James, 1884), where both eonsequentialists |md non-
consequentialists are right (and wrong) at the same time. The goodness of consequences is derived
from the rightness of the act but at the same time the rightness of an act is derived from the goodness
of its consequences (Mason, 2002). Furthermore, this is true at all levels of moral development. The
question as to “Consequences and principles for whom?” is answered differently at different levels of
limited to one or more o f the following: the stockholders, the employees, the surrounding community, the society
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8 4
moral development. In short, it is an indeterministic, existential world where we have to choose
and/or to balance multiple rights and wrongs.
This is exactly where the virtue ethics enter the picture. As Mason (2002:39) put it
succinctly: “An appropriate ethics in a world of choice is virtue or character ethics. In a world in
which change is epidemic and rules become outdated quickly the molding and shaping of character is
essential. An inner gyroscope of conscience is needed to guide decisions and choices human beings
make in the circumstances in which they find themselves.” Of course, this argument is circular
because the circumstances in which human beings find themselves are also a function of who they are
and how thev perceive what the situation is. I have previously argued that virtue ethics was
problematic for at least two reasons: (a) all character traits imply principles that guide behaviors; and
(b) without basic principles that are independent of traits and without observable consequences that
are dependent on traits, we cannot know what traits are better than others. These criticisms make
more sense in the context of the framework. For virtue ethics asks the following question: “Who am
I?” The answer to this question has been different in different eras.'^ Thus, Mason suggests that
ethics is a process of trying to find the right balanee of virtues. The right balance is that which
includes elements from both the “is” domain and the “ought to be” domain. Obviously, this balance
may be perceived differently at different levels of moral development.
The prima facie duties school offers a slightly different answer. According to the English
philosopher W. D. Ross who created the prima faeie duties sehool of ethics, rightness and goodness
are distinct but complement one another (Mason, 2002). A prima facie duty (Latin for first
appearance) is a duty that binds until a stronger and overriding duty emerges. In other words, duties
at large, the natural environment, and future generations.
Virtue was physical excellence and power for Homer; being just, caring, and respectful for
Confucious; courage, prudence, and temperance for Socrates, Plato, Aristotle; faith, hope, and charity for St.
Thomas Aquinas (Mason, 2002).
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85
vary in their strength and we must aet by appealing to our strongest duty. For example, if my mom
asks me what I think about her painting, I have a duty to be honest. If her painting is ugly, I will hurt
her by being honest. Thus, in this situation, my strongest duty is to avoid hurting her. In other words,
although the duties of honesty and avoiding harm both begin as prima facie duties, the duty of
avoiding harm emerges as the actual duty in this situation. When duties conflict (“ought to be”
domain), Ross’s theory focuses on the consequences (“is” domain) of possible actions and prioritizes
duties by choosing an alternative that satisfies as many of the duties as possible in a particular
situation (Mason, 2002). Ross also believes that our understanding of our prima facie duties develops
as we mature, and is a function of the moral reflection of many generations. In other words, the prima
facie duties school, too, acknowledges different levels of moral development.
How does my dissertation fit into the suggested framework?
Initially, I contrasted the deontological view of the firm (“ought to be” domain, post-
conventional level of moral development, Kantian ethics) with the traditional view of the firm (“is”
domain, a combination of pre-conventional and conventional levels of moral development, ethical
egoism leads to utilitarianism). Later on, I included world-centric utilitarianism, which is at the post-
conventional level of moral development.
By including the notion of moral development, I was able to distinguish between moral
relativity and moral development. If the deontological view of the firm indeed originates at a higher
level of moral development than the traditional view of the firm and if organizations indeed morally
develop over time, as do individuals, then I would expect to see a positive correlation between age
and ethical orientation. It has been shown in Table 7 that there is a positive and statistically
significant (0.24, p=O.OI) correlation between age and ethical orientation. In other words, there is
consistency between the proposed framework and the findings of this study.
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8 6
In short, the framework transcends and includes my dissertation. And as such, it provides a
starting point for further inquiries into the relationship between ethics and crisis management.'^
This framework may be extended to include justice theories, which concem the distribution o f good and evil,
or the distribution of benefit and burden (“is” domain). For example, an egalitarian, Rawlsian theory o f justice is
a non-consequentialist, post-conventional level theory. A utilitarian theory o f justice is a consequentialist,
conventional level theory.
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CHAPTER 7: LIMITATIONS, IMPLICATIONS, AND DIRECTIONS FOR
FUTURE RESEARCH
Several Limitations of the Study
This study has several limitations. First, I assume that organizational behaviors and decisions
are a function of an organization’s ethical orientation. This may not always be true. For example,
Jones argued that “ethical decision making is issue-contingent; that is, characteristics of the moral
issue itself, collectively called ‘moral intensity,’ are determinants of ethical decision making and
behavior” (Jones, 1991:371). These characteristics include “magnitude of consequences, social
consensus, probability of effect, temporal immediacy, proximity, and concentration of effect” (Jones,
1991:372). In an extreme version of “issue-contingent ethics,” “moral intensity” of an issue includes
neither individual nor organizational traits such as moral development and ethical orientation (Jones
& Ryan, 1997). Specifically, how human beings and organizations behave in a morally intense
situation may not be a function of their ethical orientations but may be determined by the moral
intensity of the situation itself.
The construct of “moral intensity” is important and critical in understanding how human
beings and organizations respond to moral issues. The “moral intensity” of a situation, however, may
not be determined in a value-neutral way. Specifically, judging the “moral intensity” of a situation
and defining its components such as magnitude, proximity, consensus, immediacy, and probability are
moral acts themselves. In other words, the meaning of the terms such as intensity, magnitude,
proximity, and immediacy may depend on one’s ethical orientation. Consequentialists and
deontologists may perceive a “situation” and its “moral intensity” differently. For example, self-
centric consequentialists care about the magnitude of consequences to themselves. Deontologists
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8 8
believe that someone who tries to ground morality in consequences and in self-interest has not
understood the nature of morality. Self-centric and world-centric consequentialists see themselves as
members of different social groups. Therefore, the degree of social consensus on what is good or evil
and the degree of care the moral agent has for victims may be different for self-centric and world-
centric consequentialists. Similarly, individuals at different levels of moral development define
“utility” and “duty” differently (Kohlberg, 1981). Hence, they may perceive the “moral intensity” of
the very same situation differently.
This is not to say that the construct of “moral intensity” is neither useful nor one of the
determinants of moral action. On the contrary, the construct allows us to appreciate moral
conversations individuals hold with themselves and others to justify principles that guide their
definitions and behaviors in “morally intense” situations such as crises. In fact, how individuals
change their decisions and behaviors depending on the moral issue are a valuable piece of
information regarding their ethical orientations and levels moral of development. Finally, the
construct allows us to see the self-referential aspects of moral reasoning and action.
Second, I may have falsely assumed that organizations have homogenous ethical
orientations. This is a legitimate critique. For example, (Weber, 1995) found that different
departments within an organization had different ethical subclimates. On the other hand, other
researchers found that organizations have distinct types of “ethical climates” (Victor & Cullen, 1988).
Wimbush, Shepard, & Markham replicated Victor and Cullen study on “ethical climates” and added a
new dimension (Wimbush, Shepard, & Markham, 1997). Researchers have also found that “ethical
climates” affect organizational behaviors, processes, and outcomes (Cohen, 1995; Trevino &
Youngblood, 1990; Victor & Cullen, 1988). For example. Wood discussed how Johnson & Johnson’s
credo exemplified a moral climate with values that emphasized moral principles and doing the right
thing (Wood, 1994). Jones concluded that firms tend to have a relatively homogeneous culture with
respect to morality (Jones, 1995) because moral people tend to self-select into or out of opportunistic
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89
firms (Lee & Mitchell, 1994), and moral firms tend to retain or dismiss opportunistic individuals
(Clinard, 1983).
Some of the empirical tests I performed in this study suggest that organizational ethical
orientation is more homogenous than it is heterogeneous; whereas some other empirical tests
suggested that organizational ethical orientation is more heterogeneous than it is homogenous. For
example, executives from risk management seem to report a greater number of experienced crises and
a lower level of crisis preparation. Further empirical studies on how ethical orientation varies across
functions are needed.
It is also plausible that ethical orientation varies across hierarchical levels. For example, top
executives and middle managers may have different ethical orientations. I have no data to control for
this variation. Nonetheless, researchers argued that there is a match between the dominant values and
cultures of organizations and their top managers’ mindset (Bennis & Nanus, 1986; Kanter, 1977; Kets
de Vries & Miller, 1986; Martin, 1992). According to “upper echelons theory”, top managers’ values
influence organizational deeision-making (Hambrick & Mason, 1984). Sehein theorized that
executives’ values and decisions create or reinforce organizational values (Schein, 1985). Schneider’s
attraction-selection-attrition (ASA) cycle suggests that, over time, organizations become more
homogeneous with regard to the personalities, values, and attitudes of people in them (Schneider,
1987; Schneider, Smith, Taylor, & Fleenor, 1998). Therefore, 1 assume that ethical orientation is
homogenous across levels. Further empirical studies on how ethical orientation varies across levels of
hierarchy are required to test the validity of this assumption.
A third limitation is related to the AHP methodology. AHP has been subject to a basic
criticism that the meaning of the term 'relative importance' is ambiguous (Schoner & Wedley, 1989).
Some researchers believe that this ambiguity leads to extreme subjectivity. They argue that AHP
would work much better with clear guidelines for what 'relative importance' meant. Attempts to
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90
understand how people interpret criteria of importance within AHP were not successful (Belton &
Gear, 1983).
Particularly in this study, I believe that extreme subjectivity may not be a big problem. Here
is why: The justifying and the legitimizing of subjectivity is an unavoidable and, in fact, a necessary
part of moral and ethical arguments. Recall that ethics is an unfolding conversation with one’s self
and others” (Churchman, 1983). Thus, I chose not to define clearly what 'relative importance' meant.
For I also believe that a clear and precise definition would have prevented organizations from
imposing their own values on what it meant. Put differently, the terms such as 'relative' and
'important' take on different meanings in consequentialist and non-consequentialist ethical systems. A
single example should suffice: Consequentialists believe that the goodness of consequences is
relativelv more important than the rightness of principles in making moral judgments. Besides, a
detailed and precise definition would have applied to a fewer number of organizations. Obviously, I
would have a better understanding of the fine distinctions among a small group of organizations. But,
at the same time, I would have difficulty in generalizing to other contexts. In short, more precision
would have increased applicability and the understanding of fine distinctions but decreased
generalizability (Churchman & Ratoosh, 1959). It was my conscious decision to use a less detailed
deseription of context.
A fourth limitation of this study is the low response rates, which are, in fact, expected in
business ethics research (Randall & Gibson, 1990). Trevino suggested that managers did not want to
be measured or observed to see how ethical they were (Trevino, 1986). Response rates in crisis
management research are also low for various reasons (Pearson & Clair, 1998). First, crisis
management is at least as sensitive a research area as business ethics. Second, organizations are
reluctant to give sensitive information to researchers with whom they have not developed long-term
relationships. They also do not want to open past wounds.
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91
This study examined the relationship between ethics and crisis management. Hence, my
expectations with regard to response rates were even lower. Nonetheless, after implementing several
checks to assess the representativeness of the samples, even with a small sample size, the results
provide information to conclude that ethical orientation and crisis management behavior are closely
related. In fact, small sample size itself may also be interpreted as data. It indicates that the
relationship between ethical orientation and crisis management style is indeed sensitive.
The sensitivity of research on ethics and crisis management research raises questions about
at least two biases: social desirability and the non-respondent bias. Researchers studied the effects of
social desirability bias in business ethics research (Choong, Shih-Jen, & McDonald, 2002), finding
that only the items phrased in the first person are contaminated with social desirability bias, whereas
the items phrased in the third person are not (Choong, Shih-Jen, & McDonald, 2002). In other words,
the phrasing of the questions is helpful to a certain extent in avoiding the social desirability bias.
Both in the crisis management questionnaires and during the interviews, respondents were
not directly questioned on sensitive issues. Rather, they were asked to describe their organization’s
values, culture, and behavior. This approach protected, to a certain extent, the interviewees’ identity
and allowed them to answer more openly. There is support in the literature that this technique reveals
more frank information about sensitive issues (Burstin, Doughtie, & Raphaeli, 1980).
Respondents were also guaranteed that the questionnaires were administered anonymously
and treated strictly confidential. This approach may have helped avoid the social desirability bias.
Moreover, the ethical orientation of organizations was measured by scales that included two “right”
ends. For example, the moral intention scale forced respondents to choose one of the following two
principles: “Do not harm a single individual.” vs. “Do the greatest good for the greatest number.”
Both principles are socially desirable, depending on how one defines him or herself and his or her
social environment. Moreover, these definitions are themselves indicative of ethical orientation.
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92
Therefore, I believe that the social desirability bias in this study is not as strong as it would have been
if I were to use scales that had both a right and a wrong end, such as fair-unfair, just-unjust, etc.
Another legitimate concern is that since the topic is sensitive, the respondents do not
represent the Fortune 1000. As I mentioned in Chapter 4, several checks were implemented to assess
the representativeness of the samples and no statistically significant differences were found between
organizations that responded and those that did not. Nonetheless, this finding still leaves open the
possibility that although the organizations in the sample represent the population, the executives who
responded may not.
Only one executive in each organization completed the questionnaire. Therefore, common
method bias is a concern (Podsakoff & Organ, 1986). Nonetheless, my use of many different types of
sophisticated measures limits the potential for this problem. For example, the proactivity score is a
complex combination of several different scales. The ethical orientation scale is based on the Analytic
Hierarchy Process algorithm, which is also complex. Furthermore, I link questionnaire data with
archival data and find results.
Finally, the findings may not be generalized to other settings such as the not-for-profit
sector, governmental institutions, and the non-Fortune 1000 organizations.
Implications for Crisis Management Research
Crises are complex; they are triggered by the interaction of technological, psychological, and
organizational factors (Perrow, 1984; Mitroff and Pearson, 1993). In other words, crises are
quintessentially systemic phenomena. Therefore, they must be studied systemically. A systemic study
of crises and crisis management must sweep in insights from different disciplines. In this study, I
swept in “ethics.” I found that an organization’s ethical orientation is at the very least associated with
its crisis management behavior and performance. Specifically, I have identified two groups of
organizations.
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Organizations in the first group value a consequentialist ethical orientation. They act to
produce beneficial consequences for themselves and for society. In the context of business, beneficial
consequences mean profits. These organizations believe that putting profits first minimizes waste and
maximizes utility, and hence, creates a healthier economy. They are concerned about the effective and
efficient use of society's resources. They use quantitative techniques such as the probability theory to
optimize their resource allocation. In the context of crisis management, they use the tools of risk
assessment to allocate resources. These organizations do cost-benefit analyses and allocate most of
their resources to preparing for crises that are “nonnal” or that have high expected cost. Inevitably,
they put a price on human life. In other words, they treat human beings as means. In case of a crisis,
their first priority is to minimize their losses and to get baek on track as soon as possible. In short,
they believe that seeking the best consequences for themselves and for society is the morally right
thing to do.
Organizations in the second group value a deontological ethical orientation. They may not
aet to produce beneficial consequences for themselves or for society. Rather, they act so that the
principles of their actions are in agreement with universal principles of ethics. They try not to harm
and deceive others. They treat human beings as ends. Therefore, they don’t put a price on human life.
Their principles do not change from context to context. These principles remain the same in the
contexts of business and erisis management. These organizations believe that putting profits first is
not a prineiple that is good in itself. Therefore, it cannot be universalized as a moral prineiple. Putting
safety first, however, is in agreement with universal ethical principles. As a result, these organizations
allocate their resources to preparing for a wide variety of crises: “normal” and “abnormal.” They use
quantitative techniques such as the probability theory only to maximize the power of their signal
detection mechanisms. In case of a crisis, their first priority is to minimize harm to all stakeholders. In
short, they act for the sake of duty (Kant, 1964).
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This finding is particularly important in the context of what is happening in Corporate
America nowadays. Here is a rundown of recent crises that hit the Unites States:
On September the 11th, a group of terrorists hijacked four passenger jets to crash them into
the World Trade Center towers and into the Pentagon. More than 3000 innocent people were killed.
As a result of its questionable accounting practices, Enron was forced to file for bankruptcy, causing
huge losses for investors and Enron employees. Arthur Andersen was found guilty of obstructing
justice by shredding documents relating to its audit of Enron. Andersen lost its clients and went
bankrupt too. WorldCom filed bankruptcy and admitted it overstated profits by hiding more than $7
billion in expenses. Several WorldCom executives pleaded guilty. Xerox announced that it had
improperly reported $6.4 billion in revenue over the past five years. Tyco’s former CEO, CFO, and
chief corporate counsel were accused of stealing from the company, engaging in fraudulent sales of
shares, and falsifying records. ImClone CEO was arrested on insider-trading charges for tipping off
family members and Martha Stewart to sell the company's stock just before the FDA announced that
it rejected ImClone's key drug. Martha Stewart is also being investigated. Having $3 billion in
questionable loans, Adelphia Communications filed for bankruptcy protection.
A common element in each of these crises was the violation of moral and ethical principles.
As I am writing these sentenees, CNNMoney has announced that “Dow industrials end the week
down 7.4%, Nasdaq loses 5.2% on weak profits, corporate mistrust” (emphasis added). The ethical
orientations of executives and the largest corporations are constantly being questioned as more and
more cases of corporate misconduct are surfacing. It seems that the United States are witnessing a
new economic downswing accompanied by the emergence of a new normative rhetorics (Barley and
Kunda, 1992).'“ '
Barley and Kunda (1992) and Abrahamson (1997), based on historical data, argued that, since 1870s,
the managerial discourse have alternated between normative and rational rhetorics. The timing o f each new wave
parallels broad cycles o f economic expansion and contraction (Barley and Kunda, 1992). These technical and
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The importance of research with regard to ethics and crisis management is slowly being
brought to the forefront. And this dissertation is but one step towards this direction.
My dissertation has several specific implications for managers, for strategic management,
and for economics as well. I address these implications and new directions for future research in the
following sections.
This study aims to describe and to predict the crisis management behavior of organizations.
It provides partial answers to the following questions regarding organizations’ crisis management
behavior: Before a crisis, why do some organizations allocate greater amounts of time and resources
to erisis management? After a crisis, why do some organizations take responsibility, where some deny
it? For example, why didn’t Firestone recall defective tires although the tire safety problems were
known long before the recall? Why wasn’t Exxon prepared for a major spill in the port of Valdez? On
the other hand, why did Johnson & Johnson order all Tylenol products off the shelf when only a small
batch of Tylenol capsules was poisoned?
This study is also instrumental because it assesses the links between ethics and performance
outcomes (Donaldson et al., 1995:66-67). Specifically, it suggests that effective crisis management
outcomes that benefit not only the focal organization but also a broad set of stakeholders are more
likely if crises are managed proactively from a multi-fiduciary stakeholder management perspective.
On the other hand, organizations that don’t pay adequate attention to crisis management may incur
huge settlement costs, damage their corporate reputations, and disrupt their businesses (Preble,
1997:772). A noninstrumental approach to crises may also affect positively the bottom line of
economic forces trigger the emergence o f the new wave or the rhetoric. Rhetoric in turn shapes the technical and
economic forces (Abrahamson, 1997). Rational rhetorics surge during economics upswings. Normative rhetorics
surge during economic downswings.
They have identified 6 different waves: Industrial betterment (normative), 1870-1900, Scientific
management (rational), 1900-1923, Welfare capitalism-human relations (normative), 1923-1955, Systems
rationalism (rational), 1955-1980, Organizational culture (normative), 1980-1992, Downsizing/reengineering
(rational), 1992-present, (Abrahamson, 1997)
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organizations because crises are extremely costly and organizations that adopt a multi-fiduciary
stance experience fewer crises and recover quickly from them (Mitroff et al., 2003:110). Empirical
research is suggestive: Acting in a socially responsible way during industrial crises is a necessary
condition for favorable stock market reaction (Frooman, 1997:241). Adoption of proactive, morally
responsible practices enhances stakeholder relationships, increases efficiency, decreases cost, and
lowers the likelihood of bad publicity and legal exposure (Waddock & Smith, 2000:76). Similar
findings are reported in other studies (Ogden & Watson, 1999; Pava & Krausz, 1996; Waddock &
Graves, 1997). We thus suggest that, in the long-run, a noninstrumental approach to crisis
management may serve shareholders’ interests better than a neoclassical approach.
Normative stakeholder theory aims to justify on moral grounds how each stakeholder ought
to be treated (Donaldson et al., 1995:67). The study presented here is normative. It suggests that
crises should be managed from a noninstrumental perspective not only because the consequences of
doing so are beneficial to a broader set of stakeholders, including shareholders, but also because it is
the fair thing to do. Specifically, it argues that emphasizing the non-economic responsibilities of an
organization as much as the economic ones and focusing proactively on as many stakeholder relations
as possible, both before and after a crisis, is not only more cost-effective in the long-run but it is also
socially responsible. This link between ethics and strategy is timely and important particularly
nowadays in the aftermath of several corporate scandals, when the need for understanding the role of
business in society is increasing (Donaldson, 2003:363, 365).
Finally, this study is “managerial” (Donaldson et al., 1995:67; Jones et al., 2002:24-25). It
highlights the changing nature of crises from “normal” (Perrow, 1984) to “abnormal” (Mitroff et al.,
2003:111), and the performance outcomes of different crisis management approaches and
recommends managers to account for “dynamism” in stakeholder relations (Mitchell et al., 1997:879).
It echoes Mitchell, Agle, and Wood: “Power and urgency must be attended to if managers are to serve
the legal and moral interests of legitimate stakeholders” (Mitchell et al., 1997:882). Specifically, it
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suggests that a proactive management of less probable yet potentially damaging “abnormal” crises
such as terrorism requires a “broader” view of stakeholders, which includes both “normative” and
“derivative” stakeholders (Mitchell et al., 1997:857; Phillips, 2003:34-35). In short, it aims to help
managers and organizations avoid crises and enhance the effectiveness of their crisis response.
Implications for Managers
An important yet ironic finding in this dissertation is that organizations that put profit first
end up with less of it, where organizations that put people first end up with more profit and better
reputation. George Merck II of Merck, as quoted in (Collins & Porras, 1997:67), clearly stressed the
relationship between principles and profits:
“I want to ... express the principles which we in our company have
endeavored to live up to.... Here is how it sums up: We try to remember that
medicine is for the patient. We try never to forget that medicine is for the
people. It is not for the profits. The profits follow, and we have remembered that
they have never failed to appear. The better we have remembered it, the larger
they have been.”
It appears to be an inherent contradiction to recommend managers to base their decisions and
actions on deontological principles merely because consequences of doing so are better. According to
the deontological ethics, managers who put moral principles above everything else ought to do so
because it is the right thing to do. Nevertheless, training managers to value a deontological orientation
is not contradicting because it is a good activity in and of itself.
If corporations train their managers to (a) tell the truth; (b) respect a person's rights to
information, privacy, and safety; (c) avoid decisions and actions that would harm others; and (d) not
only abide by the law but go beyond laws, then managers are more likely to value a proactive
approach to crisis management. As a result, if the data from this study are generally applicable, these
corporations will enjoy better consequences not only in terms of fewer numbers of crises resulting in
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98
significant losses and damages but also in terms of lower agency costs, higher profits margins, and a
mutually respectful and cooperative culture.
Corporations are not the only ones who train managers. Economists and business researchers
should be concerned about moral questions as well. For economists' or business researchers’ theories
affect managers' behavior, whether be it intentionally or unintentionally. Researchers have found that
MBAs and business students are more selfish and unethical (Useem, 1989; Zinkhan, Bisei, & Saxton,
1989), and economics and business students are uniquely uncooperative (Marwell & Ames, 1981). It
seems as if teaming about business and economics causes this (Jones, Thomas, Agle, & Bhreth, 1990)
because the study of normative economics, such as normative expected utility theory (Von Neumann
& Morgenstem, 1944), may promote the seeking of self-interest. For another example, agency theory
(Jensen & Meckling, 1976) Bisenhardt, 1989) and transaction cost economics (Williamson, 1985)
assume that people are opportunists and seek self-interest with “guile.” As Ghoshal and Moran (1996)
argued, managers who believe in this assumption will prefer monitoring to tmsting. This attitude will
shift voluntary and extra role behaviors to externally enforced compulsory behavior, thereby
increasing opportunistic behavior and reinforcing the belief that human beings are indeed
opportunistic.
The results of this study also imply that regulatory agencies and insurance companies may
constmct organizational risk profiles that are based on ethical orientation and crisis management
style. These risk profiles then may be used to allocate more resources into monitoring
consequentialist-reactive organizations than deontologist-proactive organizations. In this way,
regulatory agencies may improve their chances of preventing more Enrons from happening.
Finally, organizations may use (a) their corporate ethical orientation to attract future
employees, and (a) job candidates’ ethical orientation or moral development scores for recruitment
purposes.
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Implications for Strategic Management
Strategic issues such as trends, shocks, developments, and dilemmas affect the whole of an
organization and its position in its environment (Egelhoff, 1982). Pauchant and Mitroff (1992) argued
that the strategic management field has characteristics that are central to the field of crisis
management as well: a focus on environment (Thompson, 1967), a complex set of stakeholders
(Hambrick, 1980; Porter, 1980), the involvement of top management (Hambrick & Mason, 1984), a
concern for the whole organization (Bower, 1991), the expression of a eonsistent pattern (Quinn,
1980), and an emergent process (Mintzberg, Raisinghani, & Theoret, 1976). Pauchant and Mitroff
(1992) also stressed that managers in crisis prepared organizations have learned that crisis
management is not only about the whole organization and its relations with the environment but also
the manifestation of an organization's strategic vision. Strategic issues are often ill-structured and
ambiguous (Lyles, 1981), and require an interpretation effort (Daft & Weick, 1984). In short, crises
are at least as much or more ill-defined and ambiguous than any strategic issue (Mitroff & Linstone,
1993).
Strategic issues are seen through the lenses of opportunities or threats. Crises, too, can be
seen not only as threats but also opportunities. The Chinese symbol for crisis means two things: threat
and opportunity. Strategic management, if practiced proactively, has the eapabilities of creating
profitable markets, strategies, jobs, and prosperity for themselves and the various stakeholders. Crisis
management, if practieed proactively, has the capabilities of defending, preventing, containing, and
recovering from crises that can threaten survival through loss of profits, multibillion dollar settlement
costs, damage to the corporation's reputation and brands, damage to environment, etc. Economical
performance is the primary goal of strategic management. Safety and reliability are the primary goals
of crisis management. In other words, strategic management and crisis management are different sides
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of the same coin in the sense that there is no profit without business. In short, proactive crisis
management is not only strategic but also a sustainable competitive advantage.
Implications for Economics
A main point of this dissertation is that economic behavior cannot be understood solely
through the lenses of economic motives and consequences. Researchers have tried to understand the
complexities of economic behavior through several lenses most of which focused on a behavior's
purely economic motives and consequences. In the Wealth of Nations. Adam Smith argued, “It is not
from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from
their regard to their own interest. We address ourselves, not to their humanity but to their self-love,
and never talk to them of our necessities but of their advantages.” His view is based on ethieal
egoism. Managers who believe in this view act so that the consequences of their actions bring about
the greatest good for themselves.
John Nash, who was awarded the 1994 Nobel Prize in Economic Science for his work on
game theory, pointed out that economic behavior could not be explained by self-interest alone. The
interests of others have to be considered as well. As such, Nash’s view is more utilitarian than it is
ethically egoistical.
Nonetheless, both Adam Smith and John Nash looked at the consequence or the utility of
behavior as a valid starting point in their analyses of economic behavior. I contend that Smith's and
Nash's approaches are incomplete because moral motives, intentions, and duties, are as valid a
starting point as utilitarian consequences in understanding economic behavior. To understand
economic behavior, non-economic motives and non-economic consequences must be considered as
well.
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Directions for Future Research
This dissertation not only suggests a relationship between ethical orientation and crisis
management style, but it also raises a lot of questions. The first question is this: How do other schools
of ethics (for example, virtue ethics, justice theories, and prima facie duties) explain variation in crisis
management style? In this dissertation, I focused only on deontological and consequentialist theories,
although I drew on Kohlberg’s theory of moral development. I also suggested a framework that
integrates various ethical schools. Future research may use this framework to test further the
relationship between ethics and crisis management.
A second question is: Why are there organizations with different ethical orientations? What
makes an organization unethical, deontological, or consequentialist? And why are organizations at
different levels of moral development? Industry effects? Formal training? Founding/founder effects?
Social pressures? Crises? Answering these questions will provide valuable information that may be
used to create more ethical organizations, industries, and eventually societies.
A third and related question is: How and when are certain moral and ethical practices such as
ethics committees, ethics communications systems, and corporate ethics officers diffused? And why?
The diffusion of moral practices may be examined from multiple perspectives: economic,
institutional, and moral development. A similar question may be asked for crisis management
practices: How and when are proactive crisis management practices diffused? And why? This
dissertation provided a partial answer: proactive crisis management practices diffuse because of two
positive consequences of acting proactively: legitimacy and efficiency.
Of course, this leads to another question: If being proactive is more profitable, efficient, and
legitimate, why aren't all firms proactive? My initial answer to that question focused on
organizational learning abilities and the degree of compatibility between an organization’s ethical
orientation and its crisis management style. A more satisfactory answer to this question must include
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at least three main effects and several interaction effects: bounded rationality, bounded emotionality,
bounded morality, and the interaetions between these three.
The measurement of ethical values is diffieult for obvious reasons. I used the Analytic
Hierarchy Process (AHP) as a quantitative instrument to measure ethical orientation. The AHP
reveals respondents’ ethical orientations by forcing them to make a series of tradeoffs among several
options all of which are “right.” Further research is necessary to develop the AHP methodology to
include additional schools of ethics such as virtue ethics and justice theories.
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APPENDIX
All responses to this questionnaire will be held and treated in the strictest confidence.
In no case will the names of individuals or organizations be disclosed.
QUESTIONNAIRE ON CRISIS MANAGEMENT
Copyright Ian I. Mitroff, 2001 & 2002
This questionnaire is not to be copied or reproduced without the express written permission of Ian I.
Mitroff
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115
Please give us your frank responses to each individual item on this questionnaire. In no case will the
names of individuals or organizations responding to this questionnaire be revealed or identified.
Fart I
Below you will find a list of various types of crises. Please indicate how many of each type your
organization has experienced in the last 3 years.
(1) Product recalls.
0 1 2 3 4 5 6 7 8 9 10 10+ DNA
(2) Product/service tampering.
0 1 2 3 4 5 6 7 8 9 10 10+ DNA
(3) Employee sabotage.
0 1 2 3 4 5 6 7 8 9 10 10+ DNA
(4) Fires, explosions, chemical spills.
0 1 2 3 4 5 6 7 8 9 10 10+ DNA
(5) Environmental disasters.
0 1 2 3 4 5 6 7 8 9 10 10+ DNA
(6) Significant drop in revenues.
0 1 2 3 4 5 6 7 8 9 10 10+ DNA
(7) Natural disasters.
0 1 2 3 4 5 6 7 8 9 10 10+ DNA
(8) Loss of confidential/sensitive information.
0 1 2 3 4 5 6 7 8 9 10 10+ DNA
(9) Major lawsuits.
0 1 2 3 4 5 6 7 8 9 10 10+ DNA
(10) Terrorist attacks.
0 1 2 3 4 5 6 7 8 9 10 10+ DNA
(11) Damage to corporate reputation.
0 1 2 3 4 5 6 7 8 9 10 10+ DNA
(12) Damage to brands.
0 1 2 3 4 5 6 7 8 9 10 10+ DNA
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116
Part II
(13) Approximately, what percent of your current total operating budget is devoted to crisis
management? _____ %
(14) What percent of your total operating budget should be devoted to crisis management? %
(15) Please indicate the current degree of top management support for crisis management in your
organization.
Very little support 1 2 3 4 5 6 7 Very strong support
(16) Please indicate the degree of change in top management support for crisis management in the
past five years:
Significantly less support 1 2 3 4 5 6 7 Significantly more support
exists now than 5 years ago exists now than 5 years ago
(17) Compared to three years ago, our organization contains and recovers from crises:
Significantly worse 1 2 3 4 5 6 7 Significantly better
(e.g., slower than 3 years ago) (e.g., faster than 3 years ago)
(18) Have the most recent tragedies in New York City and Washington DC increased the support for
preparing for terrorism in your organization?
Significantly less support 1 2 3 4 5 6 7 Significantly more support
exists now than 5 years ago exists now than 5 years ago
(19) Have the most recent tragedies in New York City and Washington DC increased the support for
Crisis Management in general in your organization?
Significantly less support 1 2 3 4 5 6 7 Significantly more support
exists now than 5 years ago exists now than 5 years ago
(20) Have the most recent tragedies in New York City and Washington DC increased the support for
planning for large systems’ disasters?
Significantly less support for 1 2 3 4 5 6 7 Significantly more support for
planning for large systems’ planning for large systems’
disasters disasters
(21) Have the most recent tragedies in New York City and Washington DC increased the ability of
your organization to think about large systems’ disasters?
Significantly less able 1 2 3 4 5 6 7 Significantly more able
to think about large to think about large
systems’ disasters systems’ disasters
(22) What crises are still unthinkable for your organization? Please list as many as you can:
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117
Part III
Below is the same list of crises that you responded to in Part I.
organization in responding to or handling these crises.
Please indicate the capabilities of your
(23) Product Recalls.
Our organization has conducted very 1 2 3 4 5 6 7
little training for this crisis
No plans are in place for this crisis 1 2 3 4 5 6 7
Our organization has conducted
significant training for this crisis
Comprehensive plans are in place for
this crisis
(24) Product/Service Tampering.
Our organization has conducted very 1 2 3 4 5 6 7
little training for this crisis
No plans are in place for this crisis 1 2 3 4 5 6 7
Our organization has conducted
significant training for this crisis
Comprehensive plans are in place for
this crisis
(25)Employee Sabotage.
Our organization has conducted very 1 2 3 4 5 6 7
little training for this crisis
No plans are in place for this crisis 1 2 3 4 5 6 7
Our organization has conducted
significant training for this crisis
Comprehensive plans are in place for
this crisis
(26) Fires, explosions, chemical spills.
Our organization has conducted very 1 2 3 4 5 6 7
little training for this crisis
No plans are in place for this crisis 1 2 3 4 5 6 7
Our organization has conducted
significant training for this crisis
Comprehensive plans are in place for
this crisis
(27) Environmental disasters.
Our organization has conducted very 1 2 3 4 5 6 7
little training for this crisis
No plans are in place for this crisis 1 2 3 4 5 6 7
Our organization has conducted
significant training for this crisis
Comprehensive plans are in place for
this crisis
(28) Significant drop in revenues.
Our organization has conducted very 1 2 3 4 5 6 7
little training for this crisis
No plans are in plaee for this crisis 1 2 3 4 5 6 7
Our organization has conducted
significant training for this crisis
Comprehensive plans are in plaee for
this crisis
(29) Natural disasters.
Our organization has conducted veiy 1 2 3 4 5 6 7
little training for this crisis
No plans are in place for this crisis 1 2 3 4 5 6 7
Our organization has conducted
significant training for this crisis
Comprehensive plans are in place for
this crisis
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118
(30) Loss of confidential/sensitive information.
Our organization has conducted very 1 2 3 4 5 6 7
little training for this crisis
No plans are in place for this crisis 1 2 3 4 5 6 7
Our organization has conducted
significant training for this crisis
Comprehensive plans are in plaee for
this crisis
(31) Major lawsuits.
Our organization has conducted very 1 2 3 4 5 6 7
little training for this crisis
No plans are in place for this crisis 1 2 3 4 5 6 7
Our organization has conducted
significant training for this crisis
Comprehensive plans are in place for
this crisis
(32) Terrorist attacks.
Our organization has conducted very 1 2 3 4 5 6 7
little training for this crisis
No plans are in place for this crisis 1 2 3 4 5 6 7
Our organization has conducted
significant training for this crisis
Comprehensive plans are in place for
this crisis
(33) Damage to corporate reputation.
Our organization has conducted very 1 2 3 4 5 6 7
little training for this crisis
No plans are in place for this crisis 1 2 3 4 5 6 7
Our organization has conducted
significant training for this crisis
Comprehensive plans are in place for
this crisis
(34) Damage to brands.
Our organization has conducted very 1 2 3 4 5 6 7
little training for this crisis
No plans are in place for this crisis 1 2 3 4 5 6 7
Our organization has conducted
significant training for this crisis
Comprehensive plans are in place for
this crisis
P a rtly
(35) Please indicate the state of early warning systems in your organization.
No early warning 1 2 3 4 5 6 7 Early warning
systems exist at all, systems exist
or, they exist only for a wide
for a few crises range of crises
(36) Please indicate the extent to which your organization learns from past crises.
Very little learning occurs 1 2 3 4 5 6 7 Significant learning occurs
(37) Please indicate the extent to which your top management has received training in crisis
communications.
Has received no training 1 2 3 4 5 6 7 Has received extensive training
(38) Please indicate the extent to which your top management has received training in crisis
management.
Has received no training 1 2 3 4 5 6 7 Has received extensive raining
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119
(39) If your organization had to make a tradeoff between the following two principles, which
principle would it follow more?
Doing no harm to 12345678910 Doing the greatest good
a single person for the largest number of
people
Part V
(40) On each of the dimensions below, please circle the number that best describes your organization.
For instance, if your organization is more “rigid” than “flexible,” then you would circle one of the
numbers 1, 2, or 3 depending upon how “rigid” you feel your organization is.
Rigid 1234567 Flexible
Autocratic 1234567 Democratic
Unprofitable 1234567 Profitable
Turbulent 1234567 Calm
Profits-first 1234567 People-first
Ethical 1234567 Unethical
Blames 1234567 Accepts responsibility
others for for its problems
its problems
(41) Below you will find six (6) pairs of potential problems that an organization can experience. For
each pair of problems, please indicate which one is more important to your organization. For
instance, if “Declining profits” is more important than “Increasing number of product safety issues,”
then you would circle numbers 1, 2, 3, or 4 depending on how much more important “Declining
profits” is than “Increasing number of product safety issues.”
Significantly
More Important
Equally
Important
Significantly
More Important
Declining profits 1 2 3 4 5 6 7 8 9 Increasing number of
product safety issues
Increasing number of
quality defects
1 2 3 4 5 6 7 8 9 Increasing number of
customer complaints
Increasing number of
product safety issues
1 2 3 4 5 6 7 8 9 Increasing number of
customer complaints
Increasing number of
quality defects
1 2 3 4 5 6 7 8 9 Declining profits
Increasing number of
product safety issues
1 2 3 4 5 6 7 8 9 Increasing number of
quality defects
Declining profits 1 2 3 4 5 6 7 8 9 Increasing number of
customer complaints
R eproduced with perm ission of the copyright owner. Further reproduction prohibited without perm ission.
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Alpaslan, Can Murat
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Core Title
Corporate ethical orientation and crisis management before and after September 11, 2001
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Business Administration
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committee chair
), Earleywine, Mitchell (
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