Reach 2019

Reach RESEARCH MATTERS

We want to explore how economics influences government policy that tackles big issues in society.

Professor Susan Chilton, page 22

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MENDING CORPORATE REPUTATION DURING CRISIS

VEIL OF IGNORANCE

THE LEADERSHIP PARADOX

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REACH | Research Matters

MESSAGE FROM OUR DIRECTOR Welcome to the latest edition of Reach, the annual magazine that showcases the latest research from Newcastle University Business School.

As a globally renowned international Business School, we deliver world-leading research that offers unique insights into key issues affecting business, government policy and society.

We recognise that the landscape is changing, that many of the greatest insights will occur as a result of our collaboration with individuals and organisations from various disciplines. In developing these partnerships around the world, and by creating a culture of inclusivity and interdisciplinarity at the Business School, we’re better able to produce transformative research with real-world impact.

“We aim to lead

distinctive interdisciplinary research and innovation in the Future of Work and Leading on Leadership.

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Our research is playing a critical role in helping organisations better understand and respond to the challenges of how they will work in the future. Disruptive innovations in technology and communication are having a significant effect on the way in which organisations operate. By exploring this key theme, the Future of Work, we aim to highlight some of the uncertainties, challenges and opportunities that arise from these exciting developments. A good example of this is our article on page 32, which outlines a novel approach to using technology-based health innovations to tackle the obesity problem.

The articles that follow provide a mere snapshot of our work. As a founding member of the Russell Group, an association of the top research-intensive universities, we’ll continue to expand our expertise and undertake vital interdisciplinary research in the Future of Work and Leading on Leadership.

We’ll also explore new collaborations and partnerships that enable us to highlight key global challenges and offer insights and solutions to real-world problems.

Professor Sharon Mavin Director of Newcastle University Business School and Professor of Leadership and Organisation Studies

REACH | Research Matters

PARTNER WITH US OUR EXPERTISE

WORK WITH US

Our Business School is home to 150 academic researchers, from across the globe, whose research is world-leading within the four areas of: Leadership, Work and Organisation; Marketing, Operations and Systems; Economics; and Accounting and Finance. Our seven research communities have been created to join research with practice through interdisciplinary and cross-institutional partnerships.

Newcastle University Business School is globally renowned for helping organisations foster an environment for innovation and growth. Our work impacts and influences organisations on a regional, national, and global scale.

Strategy, Organisations and Society We are committed to using social theory to understand major strategic, organisational and societal issues.

Human Resource Management, Work and Employment We are dedicated to contributing to local, national and international debates about the changing nature and management of work, employment and organisational environments.

Innovation, Enterprise and Digital Business Our aim is to improve understanding and practice through research into: entrepreneurship and international development; entrepreneurial ecosystems; entrepreneurship and education; innovation policy and creative enterprise; business model innovation; ICT-enabled innovation and project management; and digital business.

Marketing: Consumers, Communications and Services We aim to engage in knowledge creation across different areas of marketing through a multi-methodological approach and interdisciplinary understanding.

Operations, Data and Information Systems Our aim is to conduct research that has a significant impact in helping organisations achieve excellence through improving operations management, service and product delivery, data management and analytics, and information systems.

Collaborative Research and Consultancy Access world-class research and consultancy support from Newcastle University Business School. Our academic faculty can help your organisation enhance its offering by developing state-of-the-art solutions to real-world business challenges.

Knowledge Transfer Partnerships The Knowledge Transfer Partnership (KTP) scheme is a leading programme to support business innovation.

With the help of government funding and our expertise, your business will be supported to reach its full potential. By linking your organisation with a high-calibre graduate (also known as an associate), this three-way partnership can help you to improve efficiencies and embed new knowledge and capabilities.

Leadership Development Our Leadership Development and Organisation Futures team works in partnership with businesses to integrate the University’s worldclass research into industrial and commercial application.

We will work with you to develop bespoke programmes that are aligned to your business objectives.

Economics: People, Markets and Firms We are an interdisciplinary research community and conduct both applied and theoretical research on wide-ranging topics across microeconomics, macroeconomics, econometrics and finance.

Accounting and Finance: Accounting, Behavioural Research in Finance and Capital Markets We are committed to producing informed, engaged and innovative research using a variety of methodologies: from the empirical to the critical, to the experimental and historical. We foster engagement at individual, company, public sector and market levels.

To find out more about how we can support your business: T: +44 (0) 191 208 2029 E: external.engagement@ncl.ac.uk ncl.ac.uk/business-school

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REACH | Research Matters

CONTENTS 06.

IMPACTING BUSINESS Our academic faculty engages with organisations across the world, helping to find innovative solutions to the latest business issues.

MENDING CORPORATE REPUTATION DURING CRISIS

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Mending Corporate Reputation During Crisis 10.

Human Evolution Can Spark Retail Revolution 12. Supply Chain Reaction 14. Looking After Number Two 16. Knowledge of the Customer is Key 18.

Encouraging Entrepreneurial Excellence 20.

Creating the Ultimate Customer Experience

IMPACTING POLICY Research from Newcastle University Business School is turning conventional thinking on its head and our academic researchers’ work is helping to influence policy on a global scale.

22. Veil of Ignorance 26. The Public-Private Conundrum 28.

Older Workers Create Value for Business 30.

Banks’ Behaviour can Boost Economic Fortunes 32.

Pride is a Double-edged Sword in Fight Against Obesity 34.

How Financial Contagion Spreads its Wings

IMPACTING SOCIETY Our researchers are leading the way in how global communities and organisations can adapt and thrive in a rapidly changing world.

Answering the big questions facing society today.

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The Leadership Paradox 40.

Going it Alone Won’t Work for Social Enterprises 42. Lifting the Resource Curse

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HUMAN EVOLUTION CAN SPARK RETAIL REVOLUTION

REACH | Research Matters

22.

34.

HOW FINANCIAL CONTAGION SPREADS ITS WINGS

VEIL OF IGNORANCE

42.

LIFTING THE RESOURCE CURSE

LEADERSHIP 36. THEPARADOX

For further information about our research, visit: ncl.ac.uk/business-school CONTENTS

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IMPACTING BUSINESS | Dr Harsh Jha

MENDING CORPORATE REPUTATION DURING CRISIS It takes a long time to build a good reputation in the corporate world but only a moment to tarnish it. How firms rebuild public trust after being hit by high-profile scandals is the subject of a new study that has practical implications for company owners and senior executives seeking effective and sustainable crisis management strategies.

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REACH | Research Matters

MENDING CORPORATE REPUTATION DURING CRISIS

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IMPACTING BUSINESS | Dr Harsh Jha

Research from Newcastle University Business School explores the relationship between organisational stigma – or the negative evaluation of firms by stakeholders – and corporate reputation by focusing on global pharmaceutical giant GlaxoSmithKline (GSK). It looks at the way in which GSK sought to repair damage to its corporate image in the wake of three high-profile scandals, which caused a wave of negative media publicity.

Dr Harsh Jha, Lecturer in Quantitative Methods Management, said: “A negative public reaction to a scandal could have catastrophic consequences for a company. It could have an adverse effect on corporate reputation, trigger a huge fall in the firm’s share price or result in litigation. In some cases, it could even put a company out of business.”

“Our research provides useful evidence of the public impression management strategies that companies deploy in the event of a scandal.”

During the period between 2002 to 2015, GSK was hit by three high-profile scandals. The first, in 2004, saw the New York attorney general file a lawsuit against the firm for failing to disclose key clinical results from its research on Paxil, a drug used to treat depression, obsessive-compulsive disorder, anxiety and post-traumatic stress disorder. In 2003, regulators in Britain warned that Paxil could trigger suicidal thoughts in children and the US Food and Drink Administration (FDA) subsequently decreed that a warning to this effect should be added to the drug packaging.

The second scandal relates to Avandia, which helps people with diabetes to control their blood sugar levels. In 2007, a report in The New England Journal of Medicine claimed that users of the drug were at increased risk of heart attacks – a revelation that saw the FDA order GSK to include a warning label on Avandia packaging. Three years later, EU regulators completely stopped the sale of the drug and in 2012 GSK was fined $3 billion to settle various civil and criminal charges for fraudulently promoting Avandia and other drugs.

The third major episode of stigma was the China bribery scandal. In 2013, Chinese authorities launched an investigation against GSK, claiming that the firm had bribed doctors with gifts, travel expenses and cash to boost sales of its drugs. The revelation led to further bribery allegations against GSK in other countries including Poland and the US.

To examine how GSK attempted to mend its reputation and project a positive image to stakeholders before, during and after the scandals, 14 annual Corporate Social Responsibility (CSR) reports released by GSK during the period 2002–2015 were analysed. Three common tactics were identified, including GSK’s willingness to promote its moral credentials and position itself as a socially responsible organisation concerned about the welfare of people and the environment. A second tactic was to associate the company with reputable organisations such as the World Health Organisation or major charities that benefited from donations from GSK. The pharma giant was also keen to show that it was taking steps to comply with regulations and adopt principles of industry best practice. This included coverage of its policies for monitoring employee health and safety, the creation of a staff forum for tackling bribery and corruption issues and its careful testing and development of products to ensure they were safe for patient use.

These three tactics – defined as ways of emphasising GSK’s moral, associational and regulatory legitimacy – became key strands of the company’s reputation management strategy. As the impact of the scandals hit home, there was an increase in the variety of themes associated with these types of legitimacy in the reports issued by GSK.

“Making socially relevant, morally based claims may be a preferred way of mending corporate reputation.

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There was also a subtle change in emphasis on different types of claims over time. Before the scandals occurred, the dominant claims were based on associational legitimacy, shown by GSK’s willingness to emphasise the number and volume of partnerships it had forged with other organisations.

In contrast, during the period 2013-15, after all three scandals had taken place, GSK relied heavily on moral legitimacy claims to deal with the rising intensity of negative public stigmatisation.

The company did this, for example, by highlighting the economic contribution it made to countries and communities around the world, and the importance of its Future Leaders programme in offering a career path for university graduates.

Dr Jha said: “By exploring links between organisational stigmatisation and types of legitimacy claims made in CSR reports, this research adds to our understanding of how accountability is constructed in these reports as a firm attempt to repair damage to its corporate reputation. Companies, particularly those in the pharmaceutical sector, face substantial reputational

For further information about our research, visit: ncl.ac.uk/ business-school

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REACH | Research Matters

challenges and our analysis of GSK shows how a range of legitimacy claims can be deployed to manage and deflect negative public stigmatisation.

“The GSK study shows that making socially relevant, morally based claims may be an effective way of mending corporate reputation in the short term.

If you keep repeating the same message often enough, people may start to believe it. GSK tried to portray itself as a socially responsible business that looks after the environment and wants to improve access to healthcare in developing countries. However, during the same time period, the emphasis on claims based on regulatory legitimacy – controlling internal behaviour and procedural issues – that probably led to these scandals, decreased.”

Dr Harsh Jha Lecturer in Quantitative Methods Management

The research raises an important question for companies to consider. Whether the tactic of strongly emphasizing morally based claims in CSR reports over the long term will be effective for companies if new scandals continue to emerge? It is plausible that stakeholders will observe the wide chasm between the discourse of CSR reports dominated by morally based claims and highly contentious, and even illegal practices, uncovered during continued scandals.

This may lead to increasing cynicism about a firm’s CSR reports, calling into question even genuine socially impactful work. Further, such stakeholder cynicism may also limit the future potential of the firm to effectively use CSR reports to communicate socially relevant activities and rebuild reputation.

Dr Jha said: “If companies are demonstrating that they’re complying with regulations, they have to base their CSR disclosures on solid facts to ensure they’re on safe legal ground. With morally based claims, they can tell the world how ethical they are, but is this just a PR smokescreen? Are they really doing anything to change their culture and behaviours so that a repeat scandal doesn’t strike?

“It’s possible that as the scandal becomes more intense, the reliability of these disclosures decreases.

If companies are caught out, this could ruin corporate reputation rather than repair it.”

MENDING CORPORATE REPUTATION DURING CRISIS

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IMPACTING BUSINESS | Dr Eleftherios Alamanos

HUMAN EVOLUTION CAN SPARK RETAIL REVOLUTION In recent years, globalisation and the rise of technology have had a huge impact on shoppers’ buying habits.

This has posed a dilemma for brand managers and marketing specialists, who have had to adapt and devise new ways of persuading customers to part with their money.

It’s a difficult challenge to overcome, but new research has provided some interesting insights that could help retailers increase the effectiveness of their advertising and marketing campaigns. Newcastle University Business School has played a key role in this innovative study, which explores gender-based shopping habits and calls into question the idea that male and female shopping behaviours become more similar as traditional gender-based divisions in wage labour and domestic labour disappear.

The authors of the study investigated whether differences in shopping habits between men and women are greater than variations in consumer shopping styles across countries. They found that gender differences were more pronounced than geographical variations, particularly in countries where levels of gender equality are considered to be high.

Whereas women were more likely to use empathy – their ability to tune into their thoughts and feelings – when deciding which products to buy, men were influenced more by practical concerns such as the need to buy a new gadget for work or replace a car that no longer runs efficiently.

The study argues that these two contrasting approaches – defined as empathising and systemising – are heavily influenced by the evolutionary natures of both genders. Male shoppers display traits of the ancient “hunter” whose behaviours are largely driven by need and rational logic. Meanwhile, female shoppers are more akin to the traditional “gatherer”, who is hardwired to rely on empathetic skills to interpret and influence social situations.

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“ While people

are naturally influenced by societal changes, innate human behaviours are perhaps even more important in determining the buying habits of men and women.

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Applied to the modern world of retail, the study can help businesses to better understand and predict the different shopping habits of men and women.

Dr Eleftherios Alamanos, Senior Lecturer in Marketing at Newcastle University Business School, said: “Until now, little attention has been given to the reasons for gender differences in shopping styles and the impact this can have on retail marketing strategies. Brand and advertising managers can use our research to improve the effectiveness of their marketing campaigns by creating a more accurate profile of customer shopping habits.

“Our findings highlight the commercial potential of gender-biased products. Advertising campaigns, for example, can promote goods that appeal to the empathetic or sensory characteristics of women, while men could be targeted by emphasising systemising attributes such as technological innovation.”

Existing research in the field of international marketing has focused on the various cultural influences that affect consumer behaviours in different countries.

This study indicates that retailers should also consider the consistency of consumer habits across international borders when planning their marketing campaigns.

“Perhaps this consistency reflects the globalisation of the retail market and the increasing popularity of online shopping,” continued Dr Alamanos.

“Many large retailers have a presence in several countries now and have created e-commerce systems that enable people to easily purchase goods made in other countries.

REACH | Research Matters

“In our study, we find that gender differences are a more important factor than cultural or geographical differences. Globalisation has changed shopping habits to an extent but, despite this, some traditional behaviours are still in place. While people are naturally influenced by societal changes, such as advances in technology for example, innate human behaviours are perhaps even more important in determining the buying habits of men and women.”

Another key finding from the study, that gender equality accentuates the contrast in shopping habits between men and women, also has relevance for the retail sector. The study found that in higher-genderequality countries, there are significant differences in the respective capacities of males and females to empathise and systemise, which makes their purchasing habits more divergent.

Dr Alamanos said: “Greater gender equality, which typically occurs in Western societies, allows men and women to be less dependent on each other.

This allows them to express their identity through their evolutionary traits when going about their daily lives. Since these traits are very different in males and females, this is reflected in their respective shopping habits. With this knowledge, advertisers and brand managers can tailor their offering accordingly.”

The research also highlights the increasing influence of Western culture on less-developed countries – a trend that retailers could capitalise on to boost sales.

HUMAN EVOLUTION CAN SPARK RETAIL REVOLUTION

“Aspirational non-Western individuals are more likely to embrace Western cultural values,” Dr Alamanos said. “They want to be able to afford the fashionable brands, which are a symbol of Western culture.

As globalisation and economic development keep progressing, there’s a strong indication that genderspecific products created in Western countries will have even greater appeal in less-developed countries. Retailers will therefore be able to extend and adapt their global marketing campaigns to take advantage of this trend.”

The arguments put forward in the study have relevance in other practical contexts relating to international marketing and business in general.

If humans are influenced as much by their evolutionary instincts as by their social conditioning, how do these instincts affect their ability to become great corporate leaders, for example, or entrepreneurs who can bring new innovations to the marketplace?

Dr Eleftherios Alamanos Senior Lecturer in Marketing

“Psychology plays a huge part in consumer behaviour patterns,” said Dr Alamanos.

“The evolutionary psychology perspective that our research explores can help us better understand some of these patterns, particularly in an international marketing setting.”

For further information about our research, visit: ncl.ac.uk/ business-school

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IMPACTING BUSINESS | Dr Jingqi Zhu

SUPPLY CHAIN REACTION

Dr Jingqi Zhu Lecturer in International Business Management

Global supply chains are a key driver of successful economies across the world and research from Newcastle University Business School has taken a look at how the internal dynamics of workplaces are embedded within the wider contexts of global supply chains.

Led by Dr Jingqi Zhu, Lecturer in International Business Management from Newcastle University Business School, the research explores how supply chains influence, and are influenced by, internal workplace dynamics, which include employee relationships, work systems and conditions, wages, staff skill levels and the cultural environments in which companies operate. It highlights how these influences create gaps between what is required by buyers and what is achievable within supplier firms – and how managers within these companies attempt to fill these gaps.

The study analysed two China-based firms that supply IT services to buyers in Japan. One of the Chinese firms was private; the other was state-owned, enterprise-funded and managerially controlled by a public university. The private firm operated at the lower end of the market and adopted a strategy of offering standardised services to as many clients as possible. The state-owned enterprise, on the other hand, positioned itself towards the top end of the market and aimed to provide highly skilled and customised services to its Japanese client.

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The findings highlight how the Chinese firms had to adapt their practices and workplace environments to meet the expectations of the buyer.

Dr Jingqi Zhu said: “We wanted to find out how lead firms and institutional environments affect supplier firms and how suppliers develop their work and employment systems to manage these influences.

“Our study showed that the Japanese firm expected high service standards from its suppliers and this created challenges for the Chinese firms, which had to modify their working practices accordingly.

For example, the state-owned enterprise sent its software developers to work at the Japanese firm’s premises, where they were thoroughly socialised into the Japanese way of working. The enterprise also created a reward culture to incentivise developers and prevent them from being poached by other firms in a market where IT professionals are highly desirable. This gave the Japanese firm confidence that these workers, with whom it had developed a good relationship, would stay and complete the work to a high standard.

“The private company, meanwhile, had to show that it understood the buyers’ expectations by demonstrating that standards were being met when the Japanese firm came to visit – making sure that procedures were standardised and quality controls were in place, for example. This adaptation was largely ceremonial but allowed the two organisations to develop a good working relationship, even if the relationship was conducted mainly at arm’s length.

REACH | Research Matters

“In both cases, managers of the supplier firms aimed to control the workplace, not just for functional reasons but also as part of their strategy for maintaining good relationships with their Japanese client.”

In broader terms, the study gives institutions a better understanding of how global supply chains affect social relations at work. It highlights several factors that influence these relations, including the location of the firms involved and the local market in which they operate.

The enterprise firm is located in Shanghai, where workers are generally highly educated, skilled, and in demand; this provides a reason why the company felt the need to incentivise employees to prevent them from going elsewhere. The private firm is based in Dalian, where a lower-skilled workforce is benefiting from training programmes involving local technical schools and universities. The company adopted a strategy of recruiting interns from these institutions by giving them a low basic wage with generous bonus incentives in busy seasons.

They also implemented a training scheme which enabled inexperienced recruits to qualify as semi-skilled workers within three months, and learn basic data input skills relating directly to the contract with the Japanese client. Little attempt was made to retain staff, with the flexible labour market meaning that many departed of their own accord or were released from their duties when work dropped off.

The company’s internship scheme, however, gave the Japanese buyer confidence that the contract would be fulfilled regardless of who was doing the work.

DON’T LET SUPPLY CHAIN THE REACTION BUBBLE BURST

Dr Zhu says: “This example shows how employment relations in supply firms are shaped by the institutional environments in which they operate.

It also highlights how these firms had to adapt their work strategies and utilise their resources to meet the needs of their Japanese client.

“The buyer’s institutional environment is also important to consider. In Japan, high standards are formalised in various systems such as kaizen, 5S and hansei, and companies expect their suppliers to adhere to these standards regardless of where they are based in the world. This can pose problems for low-skilled firms that aren’t prepared to adapt their work strategies to fit these standards.”

The research could help to give policymakers a better understanding of the environments in which supply chains are operating. If suppliers are suffering from a paucity of advanced skills, for example, the government could seek to divert more funding to graduate-level vocational training schemes.

“It’s all about helping suppliers move up the value chain and creating a healthy, productive and profitable supply chain,” says Dr Zhu. “If this can be achieved, companies will have a better chance of winning more work and economies can be more successful.”

“The study gives institutions a better understanding of how global supply chains impact on social relations at work.

” For further information about our research, visit: ncl.ac.uk/ business-school ISSUE #7

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IMPACTING BUSINESS | Professor John Sessions

LOOKING AFTER NUMBER TWO Workplace absenteeism costs the UK economy billions of pounds each year in lost productivity. In pure statistical terms, this represents a significant financial loss and policymakers, academics and companies are working out how to address this pressing problem.

“As industry becomes increasingly competitive in the modern era of globalisation, there’s an assumption that workers are more concerned about pursuing their personal career goals than worrying about the collective aims of the company.

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Several studies have explored how absence rates are affected by traditional economic measures, such as wages, sick pay and working hours, but until recently the significance of employees’ relationships with their work colleagues has largely been ignored.

Now, however, Newcastle University Business School has conducted ground-breaking research which models and measures the relationship between workplace cooperation and absenteeism. Focusing on absence rates among optometrists in the north-east of Scotland, the study suggests that workers are significantly less likely to call in sick if they know their absence will cause difficulties for colleagues.

The study, which has been published in the Journal of Economic Behavior and Organization, looked at the absence records of 64 optometrists in Aberdeen and Aberdeenshire, some of whom worked alone and some as part of a team of two. The results showed that optometrists working in teams of two, who would be expected to pick up extra appointments because of their colleague’s absence but without extra pay, were 30 per cent less likely to call in sick than those working alone.

The findings suggest that people working as part of a team do care about each other, and cooperate in a way that lowers absence rates compared to lone workers who do not share the same concerns.

REACH | Research Matters

Professor John Sessions, of Newcastle University Business School, said: “Our research sheds light on one of the central issues regarding human behaviour: to what extent, if any, do people care about others?

As industry becomes increasingly competitive in the modern era of globalisation, there’s an assumption that workers are more concerned about pursuing their personal career goals than worrying about the collective aims of the company.

“Our results show, however, that people aren’t as selfish as we might think. The optometrists who worked alone were more likely to call in sick as they didn’t have a work colleague to think about.

In contrast, optometrists who worked in pairs were found to have lower absence rates, possibly because they were concerned about leaving their colleague with an unmanageable workload if they didn’t turn up for work that day.

“If you work in isolation, perhaps you don’t have the same loyalty to an organisation because your actions don’t directly affect a work colleague.”

The research provides a useful benchmark for HR professionals who want to find ways of incentivising staff to increase workplace productivity. It suggests that employees are more likely to attend work if they have a platform to interact with colleagues.

“Our study is the first to model and measure the relationship between workplace cooperation and absenteeism,” said Prof Sessions. “A collegial environment may be an important tool for reducing workplace absence and the consequent loss in productivity for companies.

“Our study could also be applied to other areas of society. Would university students, for example, be more prepared to help their fellow students if they were working in groups rather than on their own? Similarly, if elderly people in care homes were encouraged to interact more with each other, would this improve their quality of life? Much more research is needed, of course, but it’s interesting to think that economists can extract value from looking at the psychology of human behaviour, not just the statistics and numbers.

Professor John Sessions Professor of Economics – The Sir David Dale Chair

“If we take the evidence in our research and apply it to a much broader context, the study reveals something profound and very encouraging about human nature that isn’t commonly captured in standard economic analysis. It suggests that we should not be entirely pessimistic about the future of the human race.”

The study provides a useful foundation for further research that looks at absence rates in a different context, such as a large firm or public sector organisation.

Prof Sessions said: “It would be interesting to find out if our theory holds for different sizes of groups.

Would absence rates fall, for instance, if people were working in teams of 10, 20 or 50?

At what point would cooperation stop and absence rates rise again?

“We need to find a different way of modelling human behaviour. It would be interesting to explore further how our relationships with family, friends, neighbours and work colleagues affect things like workplace productivity.”

LOOKING AFTER NUMBER TWO

For further information about our research, visit: ncl.ac.uk/ business-school

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IMPACTING BUSINESS | Professor Natalia Yannopoulou

KNOWLEDGE OF THE CUSTOMER IS KEY In an increasingly competitive corporate environment, knowing which factors influence sales can help firms manage their supply chains and boost profits.

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A new study has looked at how this understanding can be achieved by exploring the impact of online reviews on customer demand. By examining opinions about the reviewer as well as the content of the reviews, the research provides companies with a useful tool for managing variations in customer buying preferences and predicting product sales.

Natalia Yannopoulou, Professor of Marketing at Newcastle University Business School, said: “Organisations are faced with the ongoing challenge of knowing how much stock to buy and when – and this means keeping up with the changing demands of the customer. If they have a good understanding of the customer, they can reduce purchasing and financial risk and exert greater control over their supply chains.

REACH | Research Matters

“A vast amount of trade is done online, so it makes sense to assess customer demand by analysing what people say about products and services.

Increasingly, companies are encouraging people to post their opinions and recommendations to help boost sales and attract new customers.

This user-generated content is a powerful tool that influences purchasing decisions.

“Although several studies have explored how online reviews can affect product sales and purchase intention, the complexity of the reviews is often largely ignored. It isn’t just about the number of times that people comment on a product or the rating that this feedback receives. Our research goes further by also looking at the sentiments and imagery in the reviews, the profile of the reviewer and his or her standing in the online community. By considering all of these factors, companies can gain a deeper insight into how popular or unpopular a particular product is.

In turn, this can help them decide if they should buy more of that product or discontinue it.”

The research involved an in-depth analysis of 6,000 consumer electronics product reviews.

Several factors were considered including: the number of reviews for each product; product ratings; the number of people who found the feedback helpful; strength of the reviewer’s opinions of the product; and whether an image of the product was posted alongside the comments.

Aside from the review content, information about the reviewer was also examined: reputation of the reviewer in the online marketplace; the presence of his/her profile picture alongside the text; previous reviews posted; and whether or not the comments were deemed helpful by others.

The results revealed that all of these variables were important predictors of online sales. Those related to the reviewer – especially his/her photo and the number of “helpful” ratings attributed to the reviews – were found to be the most influential. Both of these factors helped to boost the reviewer’s online standing and reputation in the eyes of the consumer.

This demonstrates that the most important factors are not necessarily related to the characteristics of the review but to others’ perception of how helpful and trustworthy the reviewer is.

KNOWLEDGE OF THE CUSTOMER IS KEY

Prof Yannopoulou said: “Over time there has been a shift in terms of what drives purchasing habits.

Rather than simply listening to advertising rhetoric or the opinions of industry experts, consumers are now placing more importance on product reviews written by their peers and customer feedback on those reviews. This suggests that marketing and brand managers need to alter their approach to assessing demand for a particular product.

“However, it’s not just a marketing issue; our research also shows how useful insights into customer purchasing decisions can help companies manage resources and supply chain partners. It’s not efficient to carry a product through the production line and distribution channels if it has little chance of bringing in revenue. By assessing customer demand more accurately, firms can free up resources and reduce the financial risk of developing products that don’t make it to market.”

Professor Natalia Yannopoulou Professor of Marketing

Better predictions on consumer purchases could help firms cut pollution and unnecessary transportation and waste.

As well as outlining a useful approach to supply chain and resource management, the study could also help firms reduce their impact on the environment.

“Better predictions on consumer purchases could help firms cut pollution and unnecessary transportation and waste,” said Prof Yannopoulou.

“In the consumer electronics sector there are lots of unsold products that travel through the supply chain but are destroyed before they make it to the shop shelves.

“A recent report by United Nations states that only about 20% of products are being recycled. If you apply that to the consumer electronics sector, which is worth £17.4 billion in the UK alone, that’s potentially a huge waste of resources. This wastage could be cut significantly by more accurate purchasing predictions, which in turn would result in greater efficiency throughout the supply chain.”

For further information about our research, visit: ncl.ac.uk/ business-school ISSUE #7

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IMPACTING BUSINESS | Dr Robert Newbery

ENCOURAGING ENTREPRENEURIAL EXCELLENCE Creating a regular pipeline of great entrepreneurs remains a grand challenge for governments around the world. Now, a new study has revealed some interesting insights that could help education institutions develop the next generation of wealth creators.

The research highlights the value of studying the mindset of entrepreneurs, and how this mindset is affected by the experiences they encounter as they take their first steps in running a business.

By exploring how entrepreneurs construct their identity through these experiences, the study is a useful resource for education institutions that teach entrepreneurship, companies that want to develop a more entrepreneurial culture within their business and policymakers who are seeking to create an environment where entrepreneurs can flourish.

Dr Robert Newbery, Senior Lecturer in Enterprise and Innovation at Newcastle University Business School, said: “We wanted to find out how these early experiences affect the formation of entrepreneurial identity. Before they start on this journey, people will generally construct an idea of what an entrepreneur is through the eyes of others. For example, they might watch The Apprentice on television and see a bunch of strong-willed contestants who’ll do whatever is needed to get ahead of the competition, even if it means stabbing someone in the back. Is this what a typical entrepreneur is truly like, though?

“There may be a gap between perception and reality, a disconnect between the identity constructed by observation and the identity built through actual experience. This could deter some people from pursuing their dreams of running a business because they feel they’re unable to live up to idealistic portrayals of what a successful entrepreneur should be. In short, it could make the goal of developing the next generation of entrepreneurs more difficult to achieve.”

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The study saw university undergraduates participate in an exercise to measure their entrepreneurial awareness both before and after they had gained some experience of running a business. Initially, they completed a questionnaire which was designed to reveal what their intentions were, whether they had plans to start a business and how they saw themselves as an entrepreneur.

Some of the students were then asked to spend three weeks managing a virtual manufacturing start-up company in teams of four or five over a trading period of 36 months. They had to make key operational decisions – such as how to negotiate with suppliers, deal with staff issues and look after cashflow – as they would if they were running a business in the real world. This group of students then took part in another round of interviews to see if their perceptions of entrepreneurship had been altered by the experience.

Dr Newbery said: “We found that the gap between the two types of entrepreneurial identity – one observed, the other experienced – led to what’s called a cognitive dissonance, a mental discomfort that arises from having contradictory beliefs, ideas or values. In turn, this discomfort made it more difficult for the students to form their own identity as an entrepreneur.

“This trend was magnified when we looked at the influence of business role models on the students’ thinking. Those who identified with a role model tended to embody the positive behaviours commonly associated with that person. If they found they couldn’t live up to those behaviours, or they had negative experiences that they hadn’t associated with their role model, this was a barrier to their entrepreneurial development. In contrast, students who didn’t relate to a role model had no concrete benchmark against which to measure their personal development and were less likely to be constrained by unrealistic portrayals of the heroic, self-made entrepreneur we read about in the papers.”

“The gap

between the two types of entrepreneurial identity led to a cognitive dissonance – making it more difficult for the students to form their own identity as an entrepreneur.

”

REACH | Research Matters

The study also highlighted another key finding that education institutions should be aware of when teaching budding entrepreneurs. By looking at behaviours associated with gender, it uncovered an identity conflict between the experiences of female students and traditionally assumed behaviours and values associated with women entrepreneurs.

“Identity could be motivated by the image portrayed of a wider group,” said Dr Newbery. “The drive to find a better work-life balance or do something for the greater good of society are commonly cited reasons why a woman starts a business, but this image differs from traditional portrayals of the male entrepreneur whose goals are driven primarily by financial success.

In taking her first steps as a business owner, does a woman try to live up to the female stereotype or challenge it? This decision will go some way to defining her identity as an entrepreneur in a traditionally male-dominated environment.”

The study is a useful benchmark for enterprise and education institutions responsible for creating a new army of entrepreneurs. By giving students the opportunity to run a business in a protected simulation environment, colleges and universities can allow them to test and trial ideas, learn from their mistakes and, ultimately, discover if running a business really is suitable for them.

ENCOURAGING ENTREPRENEURIAL EXCELLENCE

“The simulation environment can de-risk projects by allowing students to construct their entrepreneurial identity before they start a business in the real world,” said Dr Newbery. “The last thing you’d want is someone to plough a lot of their own money into a venture only for it to fail at the first hurdle. People say that it’s good for an entrepreneur to fail because they can learn from their experiences the second time around. Surely, however, we should be teaching them that it’s better to fail in a simulation environment and avoid making the same mistakes when they do strike out on their own.”

The research has relevance for experienced companies as well as start-ups. Many wellestablished firms are seeking new skills and ways of entrepreneurial thinking that can boost productivity and performance, and this study could pave the way for future collaborations between universities and the private sector. These could include new Knowledge Transfer Partnerships (KTP), for example, a government-funded scheme which helps businesses to innovate and grow. The KTP is a three-way partnership between a university, an organisation and a new graduate who is employed to work on commercial projects within a business.

Dr Robert Newbery Senior Lecturer in Enterprise and Innovation

For further information about our research, visit: ncl.ac.uk/ business-school

It could also be used alongside other research to influence government policy on enterprise and economic development. Addressing barriers to entrepreneurship has become an increasingly important area of policy, with governments across the world recognising the role that successful entrepreneurship programmes play in boosting economic growth, reducing poverty and increasing social mobility.

ISSUE #7

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IMPACTING BUSINESS | Julija Dzenkovska

CREATING THE ULTIMATE CUSTOMER EXPERIENCE The most successful businesses are the ones that manage to win new customers and keep them coming back. Creating an unforgettable customer experience, one that inspires loyalty to a brand and its values, is the ultimate goal for companies as they compete to grow market share.

“Our research

suggests that companies should pay close attention to the factors that drive customer commitment.

The reasons why so many firms fall short of this goal is the focus of a new study which highlights their ongoing struggle to fully understand the complexity of the customer experience.

Julija Dzenkovska, a PhD Researcher at Newcastle University Business School, said: “In the corporate world there’s a general belief that improving the customer experience will result in greater loyalty to a company or brand.

“Some retailers, for example, try to enhance the shopping experience by making changes to the layout of the store, offering discounts on goods or introducing additional onsite facilities such as a café so that customers can interact with each other.

The aim is to encourage them to come back and make repeat purchases, but the reasons why they entered the store in the first place are largely ignored.

“It makes sense for companies to look at these reasons if they want to deliver an experience that increases customer loyalty to their brand.”

”

Authors of the study analysed a wide range of literature to explore the connection between customer experience and commitment. They looked at different elements of the experience, such as the type of emotion it generates, the behaviour of the staff and the customer’s intended goals.

The study then analysed the various factors that underpin customer commitment to see how they influenced perceptions of the experience and vice versa. These factors include: force of habit; an emotional attachment to a company or brand; the perceived value of the goods and services on offer; and in some cases, a belief that there are few alternatives.

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The findings showed that customers’ perceptions of their experiences were affected by their level and type of commitment to a firm or brand. This implies that marketing specialists and brand managers will find it difficult to interpret customer experience without a clear understanding of what drives this commitment. For example, if a customer carries out the same activity at two firms – a weekly shop at Tesco and Aldi, for example – but has different reasons for going to each store, these experiences are likely to be perceived very differently. This reflects the intrinsic difficulty in measuring and managing customer experience when each one is unique to the individual.

Ms Dzenkovska said: “Our research suggests that companies should pay close attention to the factors that drive customer commitment. Do people keep coming back to a shop because it’s the only one in the village, for example, or because it provides an exemplary service? The answer will vary depending on the individual. Someone may shop at Waitrose for the quality of the food; another person may feel a moral obligation to go there because the company has a good reputation for treating staff and customers fairly.

“The problem that many companies have is that nobody takes charge of developing a great customer experience. People from various departments, such as purchasing and HR, often have input into the process but there’s no single individual who is accountable. Perhaps firms would benefit from having one employee who manages the complexity of customer experience by thoroughly investigating its relationship with different levels and types of commitment.

REACH | Research Matters

Image credit: saiko3p

“If firms can understand this, they have a better chance of increasing customer retention rates.

If economic considerations are important to the customer, for example, a company could introduce a loyalty rewards programme to incentivise repeat purchases. Strong commitment also generates loyalty that can help a firm withstand a crisis.

Customers may feel too tied to a brand to let negative publicity change their opinion of it.”

While the study has important implications for retailers and other private sector firms, it could also be useful for not-for-profit organisations such as theatres, museums and hospitals that deliver a service to the community.

“Customers in a theatre may respond more positively to the setting’s social, physical and natural dimensions,” said Ms Dzenkovska. “In contrast, hospital in-patients are rarely there through choice; they have to go there to get treated for a medical condition. Their stay could be made more palatable

CREATING THE ULTIMATE CUSTOMER EXPERIENCE

if NHS managers make subtle, sensory-based changes, such as the introduction of soft lighting and colour schemes, which help to improve their mood.

By inverting the hospital stereotype – a white, sterile place with no colour or personality – managers may be able to aid the patient’s recovery.

“The challenge is that every patient will respond differently to an experience. Studies have shown that reactions to music, for example, vary with age so it’s vital that hospitals – and any other organisation for that matter – develop an experience that is based on individual preferences and motives.”

Julija Dzenkovska PhD student

For further information about our research, visit: ncl.ac.uk/ business-school ISSUE #7

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IMPACTING POLICY | Professor Susan Chilton

VEIL OF IGNORANCE 22

2019

REACH | Research Matters

How much would people be prepared to pay to improve the welfare of others in society? And would they be prepared to pay if this was a tax? It’s a question that governments around the world have to grapple with as they implement policies designed to reduce risks to people’s lives and health. It is also the central focus of new research from Newcastle University Business School, which highlights the importance of how public services are funded.

VEIL OF IGNORANCE

ISSUE #7

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IMPACTING POLICY | Professor Susan Chilton

Professor Susan Chilton Professor of Economics

“ We want to

harness the insights that economics provides to really influence government policies that tackle big issues in society.

”

Governments have to decide how much of the public purse should be utilised to pay for policies to improve road safety, for example, or to reduce obesity or encourage people to stop smoking. As the primary source of this money is our taxes, it’s a difficult balancing act to achieve, but the study has come up with a new model that may help policymakers meet this challenge.

Susan Chilton, Professor of Economics at Newcastle University Business School, said: “Economists aren’t just number-crunchers. We want to harness the insights that economics provides to really influence government policies that tackle big issues in society.

“Governments are trying to work out how they value risks to human life, which is why they place so much importance on evidence-based studies that look at mortality rates, air pollution and other key subjects.

When considering how to fund policies in these areas – and in particular how much tax they expect people to pay – they want to justify their decisions on the basis of sound evidence.”

The study is based on the premise that, when individuals take into account the effect these policies have on others as well as themselves, the taxation system will influence how much or little they value this public good – as well as the public good itself – and therefore how much tax they are willing to pay for it. A government then has to work out how much it needs to charge people for the public good based on their valuations and willingness to pay (WTP).

Firstly, the research shows how WTP valuations become distorted when individuals base their decision, not just on their personal circumstances, but also on their perception of others’ ability to pay. This distortion – which stems from altruistic concerns towards others – makes it difficult for governments to decide exactly how much of the good, for example safety, that they need to provide and how much they should tax people for delivering it.

To resolve this problem, it develops an alternative mechanism that negates these biases by putting individuals behind a veil of ignorance.

This hypothetical setting assumes that individuals know nothing about their social status, background, level of affluence or level of intelligence.

Nor are they aware of the status of others.

When applying this method to WTP valuations, individuals will in theory consider all possible positions in society and have a constant level of sympathy towards others when making their decision. Based on this idea, that an individual’s sympathy levels are consistent across all positions,

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their valuations should remain unaffected by tax systems, which in the real world favour a distribution of wealth towards people in certain positions in society.

The veil of ignorance was then tested via an experiment to see if this theory held true. It revealed that, when respondents had to consider themselves in each position in society and sympathise with people in other positions, their valuations were a truer reflection of the amount of tax required to fund the public service. In contrast, when the ‘veil’ was removed, valuations were often out of line with the amount of money required to pay for the service.

Prof Chilton said: “When people know their place in society they are less willing to pay the right amount of tax to fund a public good, perhaps because they’re

REACH | Research Matters

unable to afford it or because they’re concerned about the impact of the tax on others. Behind the veil of ignorance, however, they’re willing to pay the necessary amount to ensure people’s safety.

“The research in this study could lead to an evidence-based model for policymakers to use when deciding how much of a public good to provide and how it should be paid for. If they can get this right, it’s more likely that the public will buy into the service and therefore more chance that it will have the desired effect.”

The study was compiled by Newcastle University Business School. Findings from previous research

by Professor Chilton’s research group – who major in the economics of safety, health, environment and risk – have been used by the Treasury to inform its

VEIL OF IGNORANCE

Green Book, a practical guide that helps government officials make best use of resources and base their policy decisions on sound empirical evidence.

Authors of the study have also been invited by The UK Health and Safety Executive (HSE) to extend the research into other important areas, such as the monetary valuation of health improvements and life expectancy gains.

For further information about our research, visit: ncl.ac.uk/ business-school

Prof Chilton also presented the key findings at the 2018 Vanderbilt Law School Symposium, which brought together esteemed academics from all over the world to explore the role that economists play in helping to create a safer society.

Participating institutions included: Harvard University in Cambridge, Massachusetts; the University of Toulouse in France; Claremont Graduate University in California; and Vanderbilt University, Tennessee.

ISSUE #7

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IMPACTING POLICY | Dr Stefanie Reissner

The company’s demise heralded a new focus on the way in which the private and public sectors work together to generate social and economic benefits for local communities. A study from Newcastle University Business School has taken this a step further by analysing the risks associated with institutionalised public-private partnerships (iPPPs), which involve the transfer of local government staff into a new, usually privately owned legal entity for a predefined period, typically 10 years.

THE PUBLIC-PRIVATE CONUNDRUM The collapse of construction giant Carillion had major ramifications for communities all over Britain. The firm had secured several lucrative government contracts, which involved work such as building hospitals and managing schools, and when it was liquidated in early 2018 many of these projects were put on hold, jobs were lost and the UK taxpayer hit with an estimated bill of £148 million.

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iPPPs aim to combine the operational expertise of local government with the efficiency and profitability of a private company to generate community benefits, such as the creation of jobs or new facilities.

However, the study argues that this expectation is too idealistic and that these entities are fraught with challenges and risks which may pose a barrier to achieving the iPPPs’ intended aims.

The research outlines some of these risks and argues that local government organisations, companies and national policymakers would benefit from the creation of a framework that could help them understand, manage and minimise these risks.

Dr Stefanie Reissner, Senior Lecturer in Management and Organisation Studies at Newcastle University Business School, said: “The current thinking around iPPPs is that we’ve got this fool-proof recipe and what could possibly go wrong? The reality is very different.

Dr Stefanie Reissner Senior Lecturer in Management and Organisation Studies

“In many cases, working practices in private firms go against the ethos of public sector organisations, which generally aim to deliver a great service to the local community. This can cause tensions between the two partner organisations which, in some cases, may be irreconcilable. For example, private companies exist to make money for their shareholders but there’s a strong sentiment in local government that councils shouldn’t make a profit from delivering public services to the community.”

REACH | Research Matters

Dr Reissner analysed an iPPP two years after its creation, which saw employees from a local authority and a private firm transferred into the new entity.

Individual and group interviews with managers and frontline staff were conducted to find out how they were experiencing change within the iPPP and what they understood their organisation to be.

Also scrutinised were newsletters, presentations and staff surveys as well as press cuttings and websites of the iPPP, private firm and local authority.

The findings highlighted multiple interpretations of what the iPPP was or ought to be. Some employees expressed uncertainty over who was the main stakeholder – the company or the council – while others failed to understand how their organisation had changed and why. There were competing views on what the organisation’s primary aims were and how they should be achieved, and how the iPPP should be portrayed to the outside world.

Employees also expressed differing opinions on which working practices should be adopted in the new organisation. Some staff who had been transferred from the council were of the view that it was business as usual, with little need to change the way they had worked previously. Other employees resented having to adhere to different systems and procedures, while some thought that the workforce should make more attempt to innovate, to find ways of creating an independent organisation with its own distinctive identity.

Dr Reissner said: “These competing viewpoints create a number of organisational risks which, in some cases, could even threaten the existence of an iPPP. One key risk is that the same action or outcome could be perceived as success by one set of stakeholders and failure by another.

A business restructuring programme, for example, may generate greater efficiencies but could lead to staff redundancies and a loss of workplace morale and productivity. Whether the overall outcome is positive depends on one’s personal point of view.

“The other key risk arises from the structure and operations of the iPPP, which is often modelled on one of the partner organisations. In recreating local government structures and ways of working, some iPPPs fail to demonstrate the business acumen needed to generate the promised efficiency savings and benefits for the local community. This can easily lead to a cut in frontline services, which in turn could result in economic deprivation and social hardship.”

THE PUBLIC-PRIVATE CONUNDRUM

Given that iPPPs are created locally, there is currently no clear central government policy on how these risks should be managed and little publicly available information on the governance of such entities.

Dr Reissner advocates the creation of mechanisms that would allow the benefits and risks of iPPPs to be assessed at different points during their lifespan.

“Such insights would provide important learning material for other organisations that want to create an iPPP,” she says. “These iPPPs need to get more attention from central government and researchers so that we can prevent another Carillion.

“In many cases, the public and private sectors have worked together effectively but there are also instances where this type of partnership has led to job losses and had a negative impact on the local community.

“It’s important to be a bit more critical of working practices in our economy. My research is the first step to getting iPPPs on the radar of policymakers, local government agencies and private companies.”

Dr Reissner has written to the government’s Public Administration and Constitutional Affairs Committee to outline her concerns over the governance of iPPPs. Made up of MPs from the three largest UK political parties, the committee examines constitutional issues and the quality and standards of administration within the civil service.

The study will provide useful information for the committee, which has launched an inquiry to uncover lessons learned from the demise of Carillion.

The research will help MPs understand how iPPPs are governed locally, how the benefits of such entities are assessed and how wider learning points can be identified and shared.

“ Institutionalised public-private partnerships (iPPPs) need to get more attention from central government and researchers so that we can prevent another Carillion.

” For further information about our research, visit: ncl.ac.uk/ business-school ISSUE #7

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IMPACTING POLICY | Dr David Lain

OLDER WORKERS CREATE VALUE FOR BUSINESS The world’s population is living longer and this is posing a multitude of challenges for individuals, healthcare practitioners, employers and policymakers across the globe.

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How to manage and make best use of an ageing workforce is the key focus of new research which looks at the policy implications of employing workers once they reach the age of 65.

The study was undertaken by Dr David Lain, Senior Lecturer in Employment Studies at Newcastle University Business School, who analysed employment rates among workers aged 65–69 in OECD (Organisation for Economic Co-operation and Development) countries between 2001 and 2014. With a particular focus on the UK and four other English-speaking countries – Australia, Canada, New Zealand and the US – he explored two areas of policy that contributed to employment rises in each of these countries: changes in pension provision; and the abolition of mandatory retirement ages.

He then examined changing trends in the employment of older workers in the UK, as he sought to build

REACH | Research Matters

an evidence-based case study that highlights the implications of these changes for managing agediverse workforces.

Dr Lain said: “I wanted to look at the policy dimension of the fact that people are working longer. What sort of things encourage people to stay in employment beyond the age of 65? What challenges do companies face when trying to get the best out of older workers?

In an era where people are living well into older age, it’s important to have policies in place to ensure businesses are making the most of all parts of their workforce.”

The findings revealed that between 2001 and 2014 the percentage of workers aged 65–69 rose significantly in Australia, Canada, New Zealand, the UK and the US. In the UK, the percentage figure almost doubled during this period.

The study also found that changes to pensions and the end of mandatory retirement (in most professions) both contributed to these increases in employment. A rise in the state pension age, and the replacement of pension schemes with alternatives that offer less security and financial wealth, has made continued employment beyond the age of 65 a more attractive option. Changes to age discrimination legislation have had an even bigger effect. Restrictions that meant employers could no longer retire off individuals on the basis of age alone, or refuse to hire them, was the catalyst for more older workers staying in their current jobs for longer.

An in-depth analysis of the UK labour market shed further light on these findings. Most of these workers were employees rather than self-employed, while the increase in the number of older workers was primarily due to employees remaining in long-held jobs. There was also a significant shift in the type of work that these people did. In the early 2000s, over-65s were disproportionately segregated into so-called ‘Lopaq’ occupations – those that were low paid, typically part-time and required few qualifications. By 2014, however, the research showed that older workers had a much more diverse presence across different sectors and job roles.

To give an example, the percentage of those aged 65–69 in managerial positions rose from 24% in 2001 to 34.8% in 2014.

These findings have important implications for companies, public sector organisations and policymakers.

Dr Lain said: “The challenge for organisations is how to manage long-term workers when there are few age-based markers for how long they will be there. Employers could utilise the strengths of their OLDER WORKERS CREATE VALUE FOR BUSINESS

older workers by, for example, introducing mentoring schemes to help younger members of the workforce.

In nursing this is common practice and could become more routinely used in other sectors as well. It’s also vital to look at flexible working arrangements for older workers, who may desire more leisure time or need time off to look after their grandchildren or relatives with health problems, such as ageing parents.

“My study also highlights a need for organisations to have effective performance management systems in place for older employees. Failure to do so could leave these workers feeling demotivated and undervalued, which could seriously lower their productivity levels at a time when Britain lags behind many countries in the productivity stakes.”

The research could also encourage policymakers to introduce measures that help organisations get the most out of their older employees.

“The current environment may not be conducive to a happy, productive older workforce,” said Dr Lain.

“Staff are worried about cost-cutting and redundancies and how they’ll cope financially if they lose their job. Those in certain industries are also concerned about their ability to carry out physically intensive work as they get older; our research showed that one third of over-60s in employment are in physically demanding jobs.

In the hospitality sector, for example, we found instances where workers were hiding muscularskeletal conditions from their employer because they were worried that this would count against them.

“This suggests that we need policies which acknowledge the work-related health limitations faced by some older people. Such measures would help to boost their morale and productivity.

“ Our research

showed that older workers had a much more diverse presence across different sectors and job roles. The percentage of those aged 65–69 in managerial positions rose from 24% in 2001 to 34.8% in 2014.

”

“The continued education of these workers is also vital so governments should consider implementing policies that promote lifelong learning. This would help employees learn new skills that could be of significant benefit to organisations.”

Dr Lain’s research is part of a wider drive by the Business School to help organisations better understand and respond to the challenges of how people will work in the future. A new leadership development and organisation futures team has been established to work with businesses to foster an environment that encourages innovation and sustained growth. Through in-depth research, the team will help firms work out ways of becoming more flexible and adaptable to meet key challenges, such as how to cope with the increasing pace of technological change and how to manage an ageing and diverse workforce.

Dr David Lain Senior Lecturer in Employment Studies

For further information about our research, visit: ncl.ac.uk/ business-school ISSUE #7

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IMPACTING POLICY | Dr Marwa Elnahas

BANKS’ BEHAVIOUR CAN BOOST ECONOMIC FORTUNES The 2008 banking crisis sent global markets into a tailspin and triggered the collapse of businesses around the world. This cataclysmic event brought a renewed focus on the behaviour of banks, which came under pressure to review their lending practices and improve the quality and transparency of their financial disclosures.

How banks managed their capital and earnings in the wake of the crisis, and the key factors that influenced this, is the focus of a new study which could provide useful evidence for regulators seeking to test the efficacy of current accounting models and practices.

The research, from Newcastle University Business School, looks at the way in which banks account for losses on loans and how this is governed by existing accounting standards. Two different types of loan loss models (LLM) are considered: an incurred LLM which treats loans as impairments (i.e. when there is substantial evidence that a loan won’t be repaid) and an expected LLM which requires banks to build provisions for losses forecast in the next 12 months.

Dr Marwa Elnahas, Lecturer in Accounting and Finance, said: “In the wake of the financial crisis, banks were heavily criticised for their high-risk investments, dubious lending practices and failure to disclose the true extent of their finances. Banks’ adoption of the incurred LLM was seen as a key reason why the financial crisis was so severe and why the subsequent recession lasted so long.

It allowed banks to overstate profits, omit vital information about expected losses and ignore the need to create prudent provisions for those losses.

Regulators were therefore keen to prevent a similar catastrophe by making banks use a more forwardlooking model which provided a broader range of credit information.”

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“ Regulators are

keen to tighten accounting standards and snuff out the opportunistic behaviour of bank managers which led to the credit crunch more than a decade ago.

”

The study looked at the use of loan loss provisions (LLPs) – an expense set aside as an allowance for uncollected loans and loan payments – in the capital and earnings management practices of conventional and Islamic banks during the period 2007–2013.

The analysis covered data from 63 banks across three countries, Bahrain, Jordan and Qatar, which have a similar culture and a relatively high concentration of Islamic banks.

These two distinct types of bank coexist within each of the three countries but are subject to different regulatory environments. Conventional banks operated under the incurred LLM before new laws forced them to switch to the expected LLM from January 2018; Islamic banks, on the other hand, were legally obliged to use the expected LLM. These rules made it more difficult for Islamic banks, which were subject to stricter levels of governance, to manage their capital and earnings through LLPs. The research highlighted significant differences in the management behaviours of conventional and Islamic banks. There was no evidence to suggest that the latter managed capital or earnings through LLP, regardless of bank size or level of profitability. In contrast, LLP was used extensively by conventional banks, even more so if they were large, loss-making organisations.

REACH | Research Matters

The study also found that the incurred LLM tended to encourage lending procyclicality. This happens when banks expand their loan portfolio in an economic boom without increasing their total capital and are therefore forced to reduce lending in a downturn because they don’t have enough capital to cover credit losses. The volatility inherent in this economic cycle was widely acknowledged to have contributed to the 2008 financial crash.

Dr Elnahas said: “Regulators are keen to tighten accounting standards and snuff out the opportunistic behaviour of bank managers which led to the credit crunch more than a decade ago. Our research provides evidence that risk-taking occurred more frequently in conventional banks, which were less constrained by governance structures than Islamic banks. Also, the risk-sharing business model adopted

by Islamic banks requires a contractual arrangement with each depositor, which makes it less likely that they can manage capital and earnings through LLP. “Our research also raises the question of what sort of governance should be applied to banks.

It strengthens the argument for using the expected LLM over the incurred LLM, although neither system is ideal. While a forward-looking model can result in more timely recognition of loan losses and improve the relevance of financial reports for debtors, investors and regulators, it leaves the door open for

BANKS’ BEHAVIOUR CAN BOOST ECONOMIC FORTUNES

bank managers to overstate reported loan provisions to make the accounts look healthier than they actually are.

“This suggests that regulators may need to find an alternative model or introduce other forms of governance that complement the expected LLM.” As well as providing useful evidence for regulators, the study could help banks strengthen internal procedures that govern the behaviour of their staff – by changing their business model, for example.

The research will also appeal to investors who want access to more relevant financial information of higher quality.

Dr Marwa Elnahas Lecturer in Accounting and Finance

Dr Elnahas continued: “The contagion from the collapse of US banks in 2008 had a big impact on markets around the world. Many investors got their fingers burned and lost confidence in the banking system.

“Better governance structures that regulate bank behaviour and reporting practices might help to restore the industry’s reputation and encourage people to start investing again. This is important not only for individual markets but also for economies in different countries. Stability and confidence in the banking system is necessary for healthy levels of trade and economic growth.”

For further information about our research, visit: ncl.ac.uk/ business-school ISSUE #7

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IMPACTING POLICY | Professor Danae Manika

PRIDE IS A DOUBLE-EDGED SWORD IN FIGHT AGAINST OBESITY Successive governments have spent many years trying to devise appropriate policies to tackle the UK’s obesity epidemic. In recent years, people have been encouraged to use the latest technology, such as health apps and fitness-tracking gadgets, to help them monitor their weight and shed the pounds.

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REACH | Research Matters

Despite concerted efforts to promote the benefits of these innovations as a way for people to control their weight, the obesity problem still looms large with the condition affecting one in four UK-based adults – and new research indicates why this is the case. While highlighting the potential effectiveness of tech-based health innovations in helping people lose weight, the study investigates individuals’ sense of pride about their weight, as a result of exposure to the UK’s National Health Service (NHS) weight control website, and how this affects the actions they take to control it.

The findings will capture the interest of policymakers, health practitioners, behavioural change specialists, social marketing experts and tech entrepreneurs who want to contribute to the fight against obesity.

Danae Manika, Professor of Marketing at Newcastle University Business School, said: “Despite the increasing popularity of technology-based social marketing initiatives to promote healthy behaviours, there has been little examination of the psychological processes that underpin individuals’ responses to online behavioural change programmes.

“We wanted to explore what effect increased feelings of pride have, as a result of exposure to online weight control information, on behaviours. This particular emotion comes in two main forms: authentic pride which arises when someone achieves a specific goal; and hubristic pride where the focus is on the person’s sense of self rather than on progress towards an end goal.”

The study explored how the NHS weight control website, which provides healthy eating tips and information on how to lose weight, increases people’s feelings of hubristic pride about their weight and how in turn this affects website perceptions (i.e. how interactive the website is perceived to be) and attitudes, and ultimately behaviours. A survey was created to determine participants’ emotions about their weight in terms of pride (both before and after visiting the site), the resulting attitudes to the information on the site, and whether the online experience would encourage them to download a mobile application from the site to help control and monitor their weight. They were also asked to provide details about their gender, age, ethnicity, education and income levels, and information on their height and weight to establish their body mass index (BMI) level.

The results showed how feelings of hubristic pride arising from participants’ exposure to the website had mixed effects on their attitudes and behaviours.

These feelings encouraged participants to download the mobile app, for example, but did not significantly PRIDE IS A DOUBLE-EDGED SWORD IN FIGHT AGAINST OBESITY

alter their intentions to take action to reduce their weight. Although there was a generally positive reaction towards the website, some participants felt the information wasn’t relevant to their own situation, which led to poor perceptions of how interactive the website is and this made it less likely that they would use the app to monitor their weight loss.

These findings highlighted why marketers and policymakers should be aware of the attitudinal and behavioural effects of hubristic pride when planning public health campaigns.

Prof Manika said: “In recent times, health campaigns have included positive messages to encourage people to look after themselves. However, our study shows that making people feel good about themselves is a double-edged sword. Marketers and website editors should try to create content that evokes authentic rather than hubristic pride.

They could use phrases that make people feel good about taking specific actions to achieve an end goal, or they could create a self-assessment function which provides tailored advice for each individual or target groups. This would help to counter the negative effects of hubristic pride on the perceived relevance of the information. The aim is to persuade people to use tech-based health innovations which could improve their condition or well-being, but they won’t do so, if they feel that the information provided is not relevant.

“A lot of people use technology for the sake of it, often for fun but not as a means to an end. Interactive tools should be designed so that they don’t distract people from focusing on their health goal.

“Our study reveals the importance of developing persuasive, personalised technology-based health tools. For example, a mobile app could feature an e-health advisor who provides personalised feedback on an individual’s progress towards a specific goal.

This could increase the individual’s motivation to control or reduce weight, especially if the advice includes praise which evokes feelings of authentic pride.

Professor Danae Manika Professor of Marketing

“ Increasing

feelings of pride about one’s weight, where the focus is on the person’s sense of self rather than on progress towards an end goal, can be a double-edged sword.

”

“It’s also vital that the design of health innovations is modified to suit different age groups. In our study, the use of technology-based tools was more likely to increase feelings of pride among younger adults, who were also more inclined to download and use the mobile app to control weight.”

The research could provide a valuable resource for policymakers in the battle against obesity. They could use the findings to bring together experts in various disciplines – including psychology, health, social marketing and technology – to find a solution to a weighty problem that has plagued Britain for far too long.

For further information about our research, visit: ncl.ac.uk/ business-school ISSUE #7

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IMPACTING POLICY | Dr Deeya Sewraj, Dr Bartosz Gebka, and Dr Robert Anderson

HOW FINANCIAL CONTAGION SPREADS ITS WINGS If chaos theory is to be believed, a small flap of a butterfly’s wings can cause a major ripple on the other side of the world.

Applying this idea to the world of economics and finance: to what extent can seismic events in one country affect financial markets thousands of miles away? This intriguing question is explored in research by a team at Newcastle University Business School: Dr Deeya Sewraj, Lecturer in Accounting and Finance; Dr Bartosz Gebka, Reader in Finance, and Head of Economics; and Dr Robert Anderson, Lecturer in Economics. They looked at the impact of one of the worst economic crises in living memory, the 2007–2008 financial crash, on markets around the globe.

Dr Gebka said: “This crisis ignited the interest of academics, policymakers, businesses and investors in how shocks originating in one country can spread to other parts of the world, and whether these spillovers are out of the ordinary or based on economic fundamentals. These issues are relevant to banks, hedge funds and other investors, including members of the public, who want to know what action they should take to protect their investments.

Whether or not spillovers are excessive, and how they evolve over time, will affect their trading decisions.”

“It is useful for policymakers to know which type of financial contagion it is and at which stage of the crisis it appears.

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Dr Sewraj continued: “It can also determine how governments alter economic policy to shield the public from the worst effects of the crisis – to protect against job losses, for example, or to minimise the number of companies that go out of business.

“Numerous academic studies have examined excessive financial spillovers, commonly referred to as financial contagion, but methods to test for this phenomenon have been somewhat restrictive.

We wanted to find new, more robust ways of identifying these excessive spillovers allowing for different types of contagion and allowing for it to vary over time.”

The study outlines a new method of distinguishing between contagious movements in market linkages and those changes that are caused by naturally occurring economic developments, such as foreign trade deals. The research team analysed stock market movements in 25 countries between 1979 and 2012 to establish economic trends between countries leading up to the financial crisis, and how markets changed as a result of it.

Three types of contagion were identified. Shock contagion occurred when there was an immediate reaction to the crisis; recoupling contagion happened

REACH | Research Matters

when an initial fall in market integration was followed by a subsequent rise above the level that would have prevailed had there been no impact from the crisis.

The third type, kink contagion, was defined as a more gradual reaction to the crisis over time.

The study found no evidence of contagion in 12 of the 25 countries, contrary to some other studies using more rudimentary methods. In others, contagion occurred in different ways. For example, 12 countries experienced shock contagion at the onset of the crisis, while in Italy there was evidence of an initial decoupling from the world market followed by a speedy catching-up process (recoupling contagion).

There were also differences in the type of shock contagion experienced. For some countries, such as Norway, the initial shock remained present throughout the crisis. In others, it subsided over time but with different end-effects. In Australia, for instance, the initial shock appeared to be at least partially permanent; in countries such as India, it was no longer observable by the end of the crisis.

Dr Anderson said: “Our study highlights that different countries experienced the financial crisis in different ways. At the time, the crisis caused a lot of panic but perhaps it wasn’t quite as severe as some people have made out. Financial markets may have initially over-reacted to events that happened in other parts of the world, but this generally seems to have been a short-run phenomenon. Although the crisis caused a sudden shock in some countries, many of them recovered; it didn’t reverse the process of globalisation or cause irreparable damage to links between countries.

Dr Deeya Sewraj Lecturer in Accounting and Finance

Dr Bartosz Gebka Reader in Finance, and Head of Economics

Dr Robert Anderson Lecturer in Economics

“Our research will be of interest to portfolio investors who are looking to devise safer investment strategies.

To do this, they need to know how links between financial markets vary over time, and how sudden changes can be predicted or their impact minimised.”

Dr Gebka added: “Policymakers who want to stabilise financial markets in their own country during a crisis can also benefit from our research. It gives them greater insight into the reasons behind the increased transmission of shocks that originate overseas; is it due to contagion or fundamental economics?

“It’s useful for policymakers to know the type of financial contagion and at which stage of the crisis this appears. Kink and recoupling contagion would give governments time to assess their options whereas shock contagion would necessitate an instant policy response. Getting these decisions wrong could have a significant negative impact on economies around the world.”

HOW FINANCIAL CONTAGION SPREADS ITS WINGS

For further information about our research, visit: ncl.ac.uk/ business-school ISSUE #7

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IMPACTING SOCIETY | Professor Andrea Whittle and Professor Frank Mueller

THE LEADERSHIP PARADOX What makes a great leader? Do we admire people who demonstrate an authoritative personality, their ability to lead from the front, get things done and generate positive outcomes? Or do we identify more with those who are considered authentic and ethical, who remain true to their values and principles regardless of the situation?

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THE LEADERSHIP PARADOX

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IMPACTING SOCIETY | Professor Andrea Whittle and Professor Frank Mueller

Image credit: Rob Stothard / Stringer

“Ethical leaders

can still be judged harshly.

They can be told: it’s all very well being principled but not at the expense of the pragmatism needed to get the job done.

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These issues and many others are explored in a new study by: Professor Andrea Whittle, and Professor Frank Mueller of Newcastle University Business School; along with Dr Marian Iszatt-White of Lancaster University; and Dr Gyuzel Gadelshina of Northumbria University. The study, published in the Journal of Business Ethics, asks what value we place in authentic leadership and looks at how this quality is perceived and portrayed in contemporary society.

It analyses how authentic leadership was portrayed in the British press during the 2015 Labour Party leadership election, which was won against the odds by veteran left-wing politician, Jeremy Corbyn.

The findings showed that during this campaign, Mr Corbyn’s authenticity was portrayed in paradoxical ways, both as a perceived virtue and a sign of ineffective leadership. This anomaly – that ethical leadership can be praised on the one hand and criticised on the other – has practical implications for how leaders from all walks of life choose to represent themselves in the public eye and how they are viewed and portrayed by others.

Professor Whittle said: “Many existing studies have identified authenticity as a valuable leadership attribute, but few studies have examined the

contradictory discourses of ethics and effectiveness in a leadership context. Whereas previously, authenticity has been associated mainly with positive connotations – someone with a good moral compass, for example – our research indicates that these qualities might not necessarily be judged as making an effective leader in some contexts.”

The study of the newspaper coverage of the Labour leadership campaign identified three key aspects of authenticity as a leadership strength: the consistency of Mr Corbyn’s hard left political position, the strength of his commitment to his ethical principles and his tendency to be true to himself. The press did acknowledge the electoral appeal of these ‘authentic’ traits, with The Sunday Times citing Mr Corbyn’s ability to stick to his guns as a reason behind his election win and The Times praising him for championing “causes that others won’t reach out to”.

However, the press also portrayed these same virtues as a negative mark against his leadership credentials.

Newspaper articles referred to him as an outmoded politician who is stuck in the past and unwilling or unable to adapt to a rapidly changing world.

The ethics versus effectiveness debate has particular significance when applied in a business context.

REACH | Research Matters

This is very mixed when you look at public discourse such as press articles or social media. Some see Corbyn as a model of a good leader because of his ethical stance and authentic behaviour. Yet the press were also heavily critical of Corbyn and dismissed his leadership credentials by pointing to the problems and pitfalls of his authentic approach.

“What we have to do is work out how we change the discourse in society, change perceptions of what a good leader should be. The ambiguous discourse of political leadership demands that leaders should be true to themselves yet able to make compromises in the real world; that’s really difficult to live up to. We also need to challenge assumptions at an organisational level about what makes an effective leader so that we can develop more ethical business leaders.”

In recent years, the corporate world has been rocked by a series of scandals, including Enron in 2001 and Volkswagen in 2015, which has put more scrutiny and pressure on companies to demonstrate that they are doing business in a fair and transparent way.

Professor Whittle said: “Mainstream management literature is telling us that we need to be authentic and ethically minded in the wake of these scandals.

However, our study on Jeremy Corbyn showed that ethical leaders can still be judged harshly. They can be told: it’s all very well being principled but not at the expense of the pragmatism needed to get the job done.

“Is the same thing being said of business leaders?

If you’re a middle manager, for example, you might have to do things that don’t fit with your ethical principles, such as making staff redundant to get the business in a better financial shape. How do you reconcile being authentic and true to your own values with doing the job that the organisation is asking you to do?

“Our research shows that we have to think more about the kind of expectations we have of leaders and how we evaluate what makes a good leader.

How should we expect a good leader to behave?

THE LEADERSHIP PARADOX

Professor Whittle’s research also links to research by Professor Sharon Mavin, the Director of Newcastle University Business School, who has studied the gendered representation of female political leaders in a study forthcoming in the journal Gender, Work and Organisations. In 2017, the Daily Mail ran a frontpage photo of Theresa May and Nicola Sturgeon next to the headline: “Never mind Brexit, who won legs-it?” following a discussion between the two women about Britain’s impending exit from the European Union.

The newspaper was widely criticised for focusing on the physical attributes of both women rather than their abilities as political leaders.

Professor Andrea Whittle Chair in Management and Organisation Studies

Professor Frank Mueller Chair in Strategy and Organisation

“There is too often a preoccupation with how female business leaders look, not how good they are in their job and that’s worrying,” said Professor Whittle.

“These unfair portrayals have a significant impact on the way in which female business leaders, and women in general, are judged in their work roles.”

These studies have paved the way for future research that analyses how leaders in different settings are subject to competing evaluations, portrayals and expectations. Such research could consider leaders from across the political spectrum or business leaders from a wide range of sectors, for example, or delve more deeply into media representations of ethical leadership and authenticity. The wider debate about whether existing media representations of leaders are fair, and how current perceptions can be changed, is also worthy of further exploration.

For further information about our research, visit: ncl.ac.uk/ business-school ISSUE #7

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IMPACTING SOCIETY | Dr Elizabeth Alexander

GOING IT ALONE WON’T WORK FOR SOCIAL ENTERPRISES The global financial crash changed the corporate world forever. With firms now having to do more with less in this age of austerity, the onus has fallen on social enterprises to dream up innovative ways of tackling big issues such as crime, poor health and economic deprivation.

The important question of how these organisations manage the process of social innovation is the subject of a new study by Newcastle University Business School, Bristol Business School and The Hong Kong Polytechnic University. Drawing on research from in-depth interviews and a large-scale survey of managers in UK social enterprises, the study provides a unique insight into current practices in the sector and how these organisations build relationships with others, including the private sector, as they attempt to deliver positive social change.

Dr Elizabeth Alexander, Senior Lecturer in International Business Management and Strategy at Newcastle University Business School, said: “Since the financial crisis hit home, there has been a change in the way in which our public services are delivered.

Local authorities have had their budgets cut and can’t devote as much resource to things like transport improvements, housing and homelessness, and training and employment services, so now there’s an expectation that social enterprises will fill the void.

“The problem is that many of these enterprises don’t have the resources and capability to deliver social innovation on the scale required. They have to cultivate relationships with various stakeholders to achieve this. To date there has been very little research on how social innovation works in practice; this is what we wanted to explore in our study.

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“Our research could help social enterprises that want to develop a more efficient way of working. It will also interest companies seeking to engage in social innovation, and policymakers aiming to introduce measures that will improve quality of life in local communities.”

Dr Alexander said: “In many countries the public policy agenda is increasingly putting the onus on the third sector to deliver improved social outcomes.

However, given the multitude of challenges facing social enterprises, it’s naïve to think they are the panacea for all society’s ills.

The study, involving Professor Wendy Philips at Bristol Business School and Dr Hazel Lee at the Hong Kong Polytechnic University, looked at how social enterprises use stakeholder relationships to identify opportunities for, and to implement, social innovation. Analysis was carried out on 262 responses to an online survey and interviews with 31 social enterprises operating in a diverse range of sectors, from transport to financial services.

“Budget cuts in the public sector and the reticence of some corporations to part with their cash has meant that social enterprises have struggled to access the necessary funds and expertise to generate additional benefits for local communities. If anything, our study highlights a need for these enterprises to be fully recognised and supported by policymakers.

How can governments create an environment that allows these organisations to flourish? It’s not just a question of making it easier to access funds. Some social enterprises rely on volunteers but this in itself creates a huge management challenge. In addition, we can’t rely on a steady flow of qualified individuals stepping up so, can other incentives be introduced that would make volunteering in this environment more appealing?

The findings revealed that, in general, social enterprises were adept at cultivating relationships with stakeholders such as their local communities, companies, funding bodies, government agencies, major think-tanks and research institutions. Much of these relationship-building activities are informal, rely on personal connections, and tenacity and whilst these links helped to uncover opportunities for social innovation, enterprises were less able to harness the knowledge and expertise of their partners to bring about positive changes in their communities. This was attributed to several factors, not least an inability to utilise stakeholder resources to develop in-house skills and knowledge. Some social enterprises lacked the commercial focus needed to drive forward projects; others simply didn’t have the funds to pay for the expertise provided by external partners.

Meanwhile, many found it difficult to collaborate with corporate partners that didn’t necessarily share their interests and goals.

Despite these general similarities, there were also clear differences in the way in which these enterprises sought to deliver social innovation.

Some identified opportunities that could either be fulfilled via existing resources or by other agents; others utilised relationships with external partners to develop in-house expertise that would allow them to create more value in their communities.

Some enterprises attempted (mainly unsuccessfully) to deliver social innovation independently of third parties, while a select few were adept at managing stakeholder relationships to identify opportunities and generate positive outcomes in society.

The study captured these different approaches in a stakeholder matrix, a practical tool that enables social enterprises to assess their own capabilities for tackling key societal issues.

GOING IT ALONE WON’T WORK FOR SOCIAL ENTERPRISES

“Getting buy-in from the private sector is also crucial. So can anything be done to make it easier for companies to work with social enterprises more effectively? Firms could look at, or beyond, their own corporate social responsibility (CSR) policies to see how they could increase their engagement with communities; but this needs to be on a stronger basis.”

“ Given the

multitude of challenges facing social enterprises, it’s naïve to think they are the panacea for all society’s ills.

”

Whilst the research is a useful reference point for policymakers and companies seeking to ramp up social innovation, it also allows social enterprises to think about the different approaches they could take to improve quality of life in local communities.

Dr Alexander continued: “Our study shows that going it alone won’t work. Social enterprises that adopt this approach tend to lack the resources and mindset needed to cultivate relationships that will deliver social innovation. Such a position is likely to be untenable in the long run.

“Those that are currently in this position could do worse than seeking an alternative approach as outlined in our matrix.”

Dr Elizabeth Alexander Senior Lecturer in IBM and Strategy

For further information about our research, visit: ncl.ac.uk/ business-school ISSUE #7

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IMPACTING SOCIETY | Professor Louise Crawford

LIFTING THE RESOURCE CURSE Natural resources can power homes and cars, provide essential ingredients for food and lift people out of poverty – but they have also led to claims of corruption and the misuse of money on a huge scale.

Newcastle University Business School is involved in ground-breaking research which explores the effectiveness of the recently implemented EU Transparency Directive.

The objective of this legislation is to provide civil society in resource-rich countries with transparent information needed to hold governments to account and explain how revenues generated from the extraction of natural resources are used.

Drawing on in-depth analysis concerning the development and implementation of the Directives, the research provides evidence-based policy recommendations that are useful for civil society and other interested stakeholders in their communications with government, regulators and standard setters, and in general campaign activity.

It also aims to help these groups tackle the “resource curse”, where countries with an abundance of natural resources often suffer from low economic growth and high levels of citizen poverty.

Louise Crawford, Professor of Accounting at Newcastle University Business School, said: “This is a fascinating piece of accounting legislation, emerging from civil society campaigning against the resource curse, and requiring corporate entities to produce accounting information for use by user groups beyond traditional investors.

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“Before this legislation, it was very difficult for policymakers, capital markets and civil society groups to fully appreciate the financial contribution made by extractive companies to individual country governments. This was problematic, particularly in countries that are rich in natural resources, but where their many citizens often suffer sustained poverty. For example, in complying with the Directives, Royal Dutch Shell plc discloses a contribution of over $22 billion in its 2017 report on payments to governments.

“Armed with this corporate transparency information, national governments can be held to account for the vast revenues they receive and asked to explain how these revenues have been used to alleviate poverty and enhance the well-being of their citizens.”

The roots of this research emerged in 2007 through studying the process by which Publish What You Pay (PWYP), a global alliance of more than 800 civil society groups, lobbied the International Accounting Standards Board to mandate country-by-country reporting (CbCR) in an international financial reporting standard, IFRS8. The move was designed to enhance transparency by requiring transnational companies to separate their annually reported financial information on a country-by-country basis, enabling capital market investors to assess corporate risks and civil society to understand the impact of such activities on national citizens affected by corporate activities.

“Our

recommendations provide civil society groups with evidence that they can use in their campaigns for greater corporate reporting transparency.

”

REACH | Research Matters

Although PWYP was unsuccessful in its attempts to persuade the International Accounting Standards Board to adopt CbCR, they were subsequently successful in campaigning for CbCR to be mandated by the EU Accounting (and Transparency) Directive.

The Directives became effective across all 28 EU member states for reporting periods starting on or after 1 January, 2016. Notably, the UK implemented this legislation one year early under its Reports on Payments to Governments (RPGs) Regulations 2014.

Equivalent legislation has been adopted in Canada and Norway, and significant progress has been made in Australia, South Africa, Switzerland and Ukraine towards developing similar accounting legislation.

Professor Crawford and other UK accounting academics – Eleni Chatzivgeri, University of Westminster; Martyn Gordon, Robert Gordon University; and Jim Haslam, University of Sheffield – were commissioned by PWYP to undertake a short, intensive EU-wide study to examine the implementation of the Directives across EU member states. The UK team coordinated the creation of a group of academics from across Europe to explore this legislation in European Union country-specific contexts. This group has been named the STAR Collective, acting to enhance Social wellbeing through Transparency and Accountability Research.

Building on the findings of earlier work in the UK context, 243 RPGs were found and analysed across 19 EU Member States and interviews undertaken with regulators, preparers and users of RPGs.

The research revealed RPGs were found useful by civil society groups in their attempts to hold national governments accountable for payments received.

There was evidence of good reporting practice and support for the EU reporting requirements from in-scope companies. However, around a fifth of companies in 2016 did not fully comply with the obligation to identify the government body receiving payments and many Member States are not monitoring compliance. Across many EU countries, RPGs were difficult to access with no published list of in-scope companies required to prepare RPGs. These findings indicate that transparency information may not always be easily accessible, which threatens the law achieving its transparency and accountability objective. Additionally, some users expressed concern regarding RPG credibility when no form of assurance is mandated.

This UK and EU research has produced a number of recommendations to improve the efficacy of the law. These recommendations have been used by civil society organisations in their response to the UK government’s 2017 consultation over the law and are currently being used to inform responses to the European Commission’s 2018 consultation.

Professor Crawford has presented the research at the European Commission and the European Parliament in relation to this consultation. She has also been invited by Transparency International-EU and PWYP Norway to high-level, round-table discussions between extractive company representatives, civil society organisations and regulators to explore how transparency reporting might be improved to meet its objective.

Prof Crawford said: “It has taken a long time and a lot of campaigning to achieve country-by-country reporting as reflected through reports on payments to government legislation. This represents a significant success for civil society and the first accounting standard to be mobilised through civil society action. This is an area of social science research, focused on understanding how accounting can facilitate equality, diversity and fairness across society, which is well worth researching.”

LIFTING THE RESOURCE CURSE

Professor Louise Crawford Professor of Accounting

For further information about our research, visit: ncl.ac.uk/ business-school

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Details are correct at the time of printing (January 2019) but should be checked on the University’s and School’s website.

Acknowledgements Edited by: Newcastle University Business School.

Designed by: Digitronix. Printed by: Statex Colour Print. © Newcastle University, 2019. The University of Newcastle upon Tyne trading as Newcastle University.

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