Corporate culture, ethical stimulus, and managerial momentum: Theory and evidence

• Published date: 01 April 2020
• Author: K. Smimou
• Date: 01 April 2020
• DOI: http://doi.org/10.1111/beer.12258

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  wileyonlinelibrary.com/journal/beer Business Ethics: A Eur Rev. 2020;29:360–387.© 2020 John Wiley & Sons Ltd

1 | INTRODUCTION

This study elucidates the relations among ethically conditioned

mutual fund man agers—managers w ho are subject to a n appro-

priate “continuous” ethical stimulus—the corporate culture of the

fund company the y work for, and fund per formance as a cruc ial

function of th e fiduciary obligations of man agers (Ferruz, Muñoz,

& Vargas, 2010; Kacpe rczyk, Be ckman, & Moliter no, 2015).

Integrating th e consideration of ethics and va lues within an orga-

nization is one of th e most important facto rs facing business eth-

ics advocates , according to Hoffman and D riscoll (2000); rese arch

is equally vital.

In the same vein an d of particular r elevance to the cur rent

study, Graham, Harvey, Popadak, and Rajgopal (2017) recently

examined the ro le of corporate cul ture and offere d an answer to

the question a bout its relev ance in achieving su ccess, based on

interviews wi th senior executives of 1,34 8 North American fi rms.

Results of this s tudy reveal that 92% of r espondents b elieve that

improving their culture would increase their firm's value; and 85%

believe that an ineffective culture (i.e., lacking the link between

cultural valu es and norms) increases t he chances that an employe e

might act uneth ically or even illegally. Given t hese results, it is not

surprising tha t the senior execut ives associate cul ture with ethi-

cal choices, in novation (creativity and t aking appropriate risk) a nd

value creation.

Unlike economic stimuli where the focus is directed towards

the economy and e conomic instit utions using econ omic policy

measures, I def ine ethical stimuli as a set of di rectives or committed

Received: 6 Dece mber 2018 

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  Revised: 25 Septe mber 2019 

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  Accepted: 8 Novemb er 2019

DOI: 10 .1111/bee r.12258

ORIGINAL ARTICLE

Corporate culture, ethical stimulus, and managerial momentum:

Theory and evidence

K. Smimou

Faculty of Busi ness, Ontario Tech Uni versity,

Oshawa, Ontario, Canada

Correspondence

K. Smimou, Fa culty of Business , Ontario

Tech University (t he University of O ntario

Institute of Techn ology), 2000 S imcoe Street

North, Osh awa, Ontario L1G 0C5, C anada.

Email: kamal.smimou@ontariotechu.ca

Abstract

Research on organiz ational culture and ethica l decision making has shown that et hical

trainings predi ct and interact with other inst itutional variables to establ ish an ethical

culture, while other s tudies suggest that the expositi on of moral symbols leads to an

increase of individu als' moral awareness. T his study examine s whether the relati on

between manager ial momentum and fund p erformance is cont ingent upon ethical

stimuli, team compo sition and interac tions between the m. It thus bestows insight s

to better inform ins titutional investor s (including those wor king with mutual fun ds,

pension funds, and i nsurance) about the nat ure and impact of ethic al stimuli, when

coupled with manager s' momentum and team size, o n the prediction of over all re-

turn of managed funds . I develop a new measure of mana gers' momentum terme d

“managerial momentum” an d test our proposed t heory and hypot heses using large

samples of U.S. and Canadian m utual funds. The evi dence reveals that there is size-

able positive effe ct of both corporate culture with its et hical dimensions and ethical

stimulus on the fun d performance. Fur thermore, th ere is subtle evidence th at both

factors divul ge additional information about the fun d performance, but their effe cts

are conditional on high er managerial momentum or team size, sugges ting that mana-

gerial momentum alon e is not sufficient. However, it is necessar y to have the institu-

tional ethical clim ate and/or managers' continuous eth ical training to achi eve viable

and resilient investm ent opportunities tailored to t he needs of different clienteles.

    

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SMIMOU

actions established for managers and other employees of an organi-

zation that enco mpasses a continu ous, maybe freq uent, automati c

and controlled u se of ethical inst ruments to upl ift processe s and

growth in mora l judgment and behaviour.

Corporate or or ganizational culture tends to h ave two levels, as

suggested by Kot ter and Heskett (1992). The less visible leve l com-

prises values t hat are shared by me mbers of the org anization; this

type of cultur e tends to shape grou p behaviour and p ersist over

time, even when group membership changes. On the other level,

a more highly visib le corporate cul ture—with its et hical forces an d

attributes—e pitomizes the beh aviour pattern o r style of an org ani-

zation. The t wo levels are inextricabl y linked to each other (see also

recent studies that examine the linkage between corporate culture

and ethical at titudes, e.g ., Holtbrüg ge, Baron, & Friedma nn, 2015;

Stöber, Kotzian, & Weißenb erger, 2018).

Conceptually, managerial momentum is defined in line with the-

ories of achieveme nt orientation c onjecturing t hat individual s can

adopt two broa d types of goals wi thin task set tings (see Dweck &

Leggett, 1988). Pe rformance goa ls entail the desi re to outperfo rm

others and dem onstrate superior abilit y, and that is the hallma rk of

the mutual fun d industry even within the sa me fund firm. Learning

or mastery goa ls reflect the desire to d evelop one's competence and

to improve relative to o ne's own past performance (Kilduf f, Galinsky,

Gallo, & Reade, 2016), whi ch is termed managerial moment um here

in this study.

The main contrib ution of this stud y is to bridge a gap in th e lit-

erature by addre ssing three rela ted questions . First, aft er estab-

lishing the the oretical const ruct and devel oping a new measur e of

managers' mome ntum (called mana gerial momentum), I i nvestigate

the relationsh ip between this m omentum and fun d performan ce.

Second, within that relationship, how does the prese nce of et hical

stimulus resh ape and affec t the managed fun d's performa nce in a

team-context e nvironment? Third , how do team-managed v ersus

single-managed f unds perform within that c ontext? Overall, I antic-

ipate illustra ting the value of th e ethical stim ulus and explor ing its

effect on th e overall performance of mutua l funds after taking into

account some of the other char acteristics of m anagers. Specific ally,

this study at tempts to generate insigh ts that can inform inst itutional

investors (incl uding those working wit h mutual funds, pensi on funds

and insurance) ab out the nature and impact of et hical stimuli, when

coupled with ma nagers' momentum and tea m size, on the prediction

of overall return of ma naged funds. I pr opose that ethic al stimulus

can be accomplished either by continuous ethical training (through

procurement of ap propriate profe ssional designat ions) or through

access to a meticulous co de of business ethics that memb ers of the

mutual fund ind ustry claim they adhe re to.

Our results in dicate that there is sizeable p ositive effect of both

corporate culture with its ethical dimensions and ethical stimulus on

the fund per formance. More i mportantl y, there is subtle evide nce

that both fact ors reveal addit ional informatio n about the fund p er-

formance, but t heir effects are co nditional on higher man agerial mo-

mentum or larger t eam size, suggesting that mana gerial momentum

alone is not suff icient.

2 | RELATED STUD IES AND TH EORETICAL

DEVELOPMENTS

The paradigm of t his study is in agreement wit h Kilduff (2006), who

notes that “the r oute to good theor y leads not through gaps in the

literature but t hrough an engage ment with probl ems in the world”

(p. 252). It is also in alignm ent with Corley and Gioia ( 2011), who pro-

vide a framewor k for revising the way scholar s approach theoretic al

contribution s, especially those that fall u nder the utility dimension ,

while enabling t heories with more scope in term s of both scientific

and practic al utility. In this study, I respond to th e call for a theor y

that is a stateme nt of concepts and their interr elationships and that

shows how and/or why a pheno menon occurs (Corley & G ioia, 2011;

Sparrowe & Mayer, 2011).1 

I am motivated by the wo rk of Jones (1991), who propose d an

issue-continge nt model that contains a set of variab les of moral in-

tensity. Based on so cial psychology, Jones (1991) argued that m oral

intensity infl uences every com ponent of moral d ecision making

and behaviour. In line w ith the synthesis of ethical de cision-making

model, as sugge sted by Jones (1991), I intend to develop a synthesis

of ethical stimulus decision-making models for the mutual fund industry

that puts the sp otlight on the ethical stimu lus as an important vari-

able that influe nces ethical de cision making in a co ntinuous man-

ner (Paine, 20 00). Precisel y, I follow Jones (1991), Rest (1986) and

Dubinsky an d Loken (1989), who explicitly inc lude a step where by

the ethical de cision maker establishes moral intent before engaging

in moral behavi our (see e.g., Fishbein & Ajze n, 1975).

I propose that a hig her ethical stimulus co ntingent on the nature

of that ethical s timulus (as defined b efore) should have an imp ervious

positive and dire ct impact on at least o ne of the two most impor tant

characteri stics (or behavioura l variables) of moral or eth ical intensity

as suggested by Jo nes (1991); the two behavioural va riables of moral

intensity are wh en one is making a moral judgment and/or when one

establishes moral intent. By thi s, I am extending t he framework of

Jones (1991) supported by Re ynolds (2006).2 

It is not the purpos e of this study to simply pro mote a superficial

relevance of ethic s within financial i nstitutions and to show t hat eth-

ics matter onl y when they add value and in crease performan ce, yet I

observe that t he linkage between f inancial measurem ents and ethics

is not new and there i s substantial documented r esearch to support

that relation (Do naldson, 2008; No e & Rebello, 1994; Paine, 2000 ). I

underscore th e fact that the ethic al stimulus operatin g within a sup-

portive corp orate culture and various measu res of financial p erfor-

mance go hand in hand a nd are the two halves of a stu rdy and viable

mutual fund industry.

2.1 | Manage rial momentum and team-

based paradigm

In a team-based par adigm, many phe nomena can be pr esent, from

personal identification of a member with their partners, to spillover

effect of indi vidual members' ethical b ehaviour on their colleague s,