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Corporate Governance for Crooks? The Case for Corporate Virtue

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  • Margit Osterloh
  • Bruno S. Frey

Abstract

Corporate scandals are reflected in excessive top management compensation and fraudulent accounts. These scandals cause an enormous amount of damage, not only to the companies affected, but also to the market economy as a whole. As a solution, conventional wisdom suggests more monitoring and sanctioning of management. We argue that these efforts will create a governance structure for crooks. Instead of solving the problem, they make it worse. Selfish extrinsic motivation is reinforced. We suggest measures which clash with conventional wisdom: selecting employees with pro-social intrinsic preferences, de-emphasizing variable pay for performance and strengthening the participation and self-governance of employees. These measures help to increase intrinsically motivated corporate virtue and honesty.

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  • Margit Osterloh & Bruno S. Frey, 2005. "Corporate Governance for Crooks? The Case for Corporate Virtue," CREMA Working Paper Series 2005-10, Center for Research in Economics, Management and the Arts (CREMA).
    • Handle: RePEc:cra:wpaper:2005-10
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    Cited by:

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    2. Ghribi Rihab & Anis Jarboui, 2016. "Impact of accounting and financial manipulations around mergers and acquisitions on shareholders' perception," Post-Print hal-01371223, HAL.
    3. Emil Inauen & Katja Rost & Margit Osterloh & Bruno S. Frey, 2010. "Back to the Future –A Monastic Perspective on Corporate Governance," management revue - Socio-Economic Studies, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 21(1), pages 38-59.
    4. Sebastian Goebel & Barbara E. Weißenberger, 2017. "The Relationship Between Informal Controls, Ethical Work Climates, and Organizational Performance," Journal of Business Ethics, Springer, vol. 141(3), pages 505-528, March.
    5. Miljkovic, Dragan, 2008. "The pitfalls of transition: Crowding out the "National Virtues"," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(5), pages 2107-2113, October.
    6. Katja Rost & Soren Salomo & Margit Osterloh, 2008. "CEO Appointments and the Loss of Firm-specific Knowledge - Putting Integrity Back into Hiring Decisions," CREMA Working Paper Series 2008-27, Center for Research in Economics, Management and the Arts (CREMA).
    7. Bruno S. Frey, 2005. "Zwei Utopien jenseits des Weltstaates und der Anarchie," IEW - Working Papers 258, Institute for Empirical Research in Economics - University of Zurich.
    8. Bruno S. Frey & Margit Osterloh, "undated". "Yes, Managers Should be Paid Like Bureaucrats," IEW - Working Papers 187, Institute for Empirical Research in Economics - University of Zurich.
    9. Margit Osterloh & Bruno Frey, 2006. "Shareholders Should Welcome Knowledge Workers as Directors," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 10(3), pages 325-345, September.
    10. Rosanas, Josep María & Cugueró-Escofet, Natalia, 2013. "The Foundations of the Concept of Trust under Bounded Rationality: Competence, Value Systems, Unselfishness and the Development of Virtue," IESE Research Papers D/1069, IESE Business School.
    11. Rosanas, Josep Maria, 2015. "Accounting, Management Control and the Financial Function in the Mission of the Firm," IESE Research Papers D/1098, IESE Business School.
    12. Daniel G. Arce, 2011. "Putting Agency and Integrity to the Test," Southern Economic Journal, John Wiley & Sons, vol. 77(4), pages 843-855, April.
    13. John Child & Suzana B. Rodrigues, 2004. "Repairing the Breach of Trust in Corporate Governance," Corporate Governance: An International Review, Wiley Blackwell, vol. 12(2), pages 143-152, April.
    14. Roberta Sferrazzo, 2021. "The ‘Agapic Behaviors’: Reconciling Organizational Citizenship Behavior with the Reward System," Humanistic Management Journal, Springer, vol. 6(1), pages 19-35, April.
    15. Margit Osterloh, 2005. "Human Resources Management and Knowledge Creation," CREMA Working Paper Series 2005-09, Center for Research in Economics, Management and the Arts (CREMA).
    16. Rosanas, Josep M., 2009. "A humanistic approach to organizations and to organizational decision-making," IESE Research Papers D/814, IESE Business School.
    17. Arce, Daniel G., 2013. "Principals’ preferences for agents with social preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 90(C), pages 154-163.
    18. Danny Miller & Xiaowei Xu, 2019. "MBA CEOs, Short-Term Management and Performance," Journal of Business Ethics, Springer, vol. 154(2), pages 285-300, January.
    19. Balsmeier Benjamin & Buchwald Achim & Peters Heiko, 2010. "Auswirkungen von Mehrfachmandaten deutscher Vorstands- und Aufsichtsratsvorsitzender auf den Unternehmenserfolg / The Impact of Multiple Board Memberships of CEOs and Chairmen of Supervisory Boards on," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 230(5), pages 547-570, October.
    20. Rosanas, Josep M. & Velilla, Manuel, 2004. "The ethics of management control systems," IESE Research Papers D/563, IESE Business School.

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    More about this item

    Keywords

    Corporate Virtue; fraud; intrinsic motivation; crowding theory; pay for performance; employee participation.;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics

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