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Journal of Business Ethics

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01.06.2015

Can Effective Risk Management Signal Virtue-Based Leadership?

verfasst von: Karen A. Campbell

Erschienen in: Journal of Business Ethics | Ausgabe 1/2015

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Abstract

Using exploratory factor analysis on a unique dataset of global executives, we find that their perceptions of their national government’s risk management effectiveness are largely driven by two latent factors: leadership virtue, and governance. We show that the leadership virtue signal is potentially a stronger signal (3.19 times more correlated with risk management perceptions than the governance indicator). We hypothesize that this may be because making decisions and taking actions to manage risk is a continuous process requiring inter alia foresight and moral discipline in looking to the interests of others and acting in service to those interests above self-interest. This suggests at least two propositions for further testing, for which, we offer rhetorical argument and anecdotal evidence at the end of this paper and suggest methodologies for further testing. To our knowledge, this is the first paper to uncover this connection empirically between national risk management and leadership virtue.

Vorheriger Artikel News Visibility and Corporate Philanthropic Response: Evidence from Privately Owned Chinese Firms Following the Wenchuan Earthquake

Nächster Artikel When in Rome: How Non-domestic Companies Listed in the UK May Not Comply with Accepted Norms and Principles of Good Corporate Governance. Does Home Market Culture Explain These Corporate Behaviours and Attitudes to Compliance?

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In the U.S., this was further propelled by the Sarbanes–Oxley legislation in 2002.

The principal–agent problem is the well-studied issue that arises when there is a separation between owners and managers (or employees). If the managers' incentives are not aligned with the owners, the principal’s cost of monitoring the agent can increase and thus reduce the profitability derived from the owner’s assets or investment.

“The World Economic Forum is an independent international organization committed to improving the state of the world by engaging business, political, academic and other leaders of society to shape global, regional and industry agendas. Incorporated as a not-for-profit foundation in 1971, and headquartered in Geneva, Switzerland, the Forum is tied to no political, partisan or national interests” (www.weforum.org).

For a detailed description of the data, survey, and methodology, see the 2012 report at http://reports.weforum.org/global-competitiveness-report-2012-2013 (retrieved 11 February 2013) (Schwab 2012).

See Appendix 1 for a table of the countries by their median score on their national government’s risk management effectiveness.

Four types of factor analyses were used to explore the data (Principle, Principle-Component, Iterated Principle Component, and Maximum Likelihood). All of them found similar structures. We report the results from the most often used Iterated Principle Component approach. All found 12–15 factors with eigenvalues above 1 (the Kaiser rule). Since this rule tends to over-extract factors when the number of variables is greater than 30, we took the low end choosing to rotate 12 factors. The number of factors is also supported theoretically by the design of the competitiveness index that identifies 12 pillars for competitiveness that the survey is meant to help measure. Analysis of the structure as well as regression analysis with the risk management question showed, however, only 10 factors to be relevant (Factors 11 and 12 had fewer than three variables loaded highly on them). For this reason, the analysis proceeds with rotating 10 factors.

The question on risk management effectiveness was excluded for the exploratory factor analysis, so that it could be used as a separate variable.

Factor rotation is done to make patterns more evident. The varimax procedure is the most typical orthogonal rotation. The varimax rotation maximizes the variance between factors; the rotated factor scores are the squared correlation of the variable with the latent factor, cf. Brown (2009).

A loading of 0.6 means that 36 % of the variance of the variable is associated with that Factor.

A table with all 148 variables and their rotated load scores is available upon request.

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The partial correlation estimates only the correlation between a country’s risk management perception and the given correlate while holding the other variables constant.

Appendix shows the ANOVA tests for the stages of development and risk management question. The means of the risk management variable are significantly different between the different stages of development suggesting that this should be used as a control within stage-fixed effects that might be driven by the level of development.

As we saw from the correlations with the Good Governance Indicators, the competence aspect is captured largely by Factors 1, 3, and 6.

Some of the higher correlation is likely driven by the statistical fact that the Leadership Virtue factor is derived from the same sample as the risk management effectiveness question whereas the governance indicator is a composite of many different sources and samples.

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Titel: Can Effective Risk Management Signal Virtue-Based Leadership?
verfasst von: Karen A. Campbell
Publikationsdatum: 01.06.2015
Verlag: Springer Netherlands
Erschienen in: Journal of Business Ethics / Ausgabe 1/2015
Print ISSN: 0167-4544
Elektronische ISSN: 1573-0697
DOI: https://doi.org/10.1007/s10551-014-2129-4

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