Issuu

Issue 08 Real-world impact

REACH

Professor Iain Munro highlights the importance of whistleblowing for the functioning of a democratic society

06.

16.

38.

Ethnic marketing attracts the multicultural millennial

Female expats suffer institutional prejudice

How game choices reflect a gambler’s motivations

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Contents IMPACTING BUSINESS

IMPACTING POLICY

IMPACTING SOCIETY

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

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

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.

06. Ethnic marketing attracts the multicultural millennial

20. Blowing the whistle on corruption

34. Online markets reduce effectiveness of consumer search

10. Why beauty is not a shortcut to executive success

24. Analysing the energy consumptioneconomic growth link

12. HRM: on the road to nowhere?

26. Uncovering the invisible hands behind corporate wrongdoing

14. To compete or not to compete?

28. Beware of big data bias

16. Female expats suffer institutional prejudice

30. Can financial advice help investors hit gold?

18. The route to profitability

32. Why imitation is a double-edged sword

06.

10.

16.

Ethnic marketing attracts the multicultural millennial

Why beauty is not a shortcut to executive success

Female expats suffer institutional prejudice

20.

32.

34.

Blowing the whistle on corruption

Why imitation is a double-edged sword

Online markets reduce effectiveness of consumer search

38. How game choices reflect a gambler’s motivations

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Message from our Director

Partner with us

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

No matter which business or sector, collaboration drives change.

As a globally renowned international Business School, we investigate emerging issues of the business world and wider society and help shape policies to solve the pressing issues of today and tomorrow; all through world-leading research. 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 18, which outlines a novel approach to how shipping companies can reduce their carbon footprint to help tackle climate change. 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 provide influence in building a responsible future for business and society, globally.

Partnering with us will give you access to research that is already impacting and shaping the future of business on a regional, national and global scale. You will have access to over 150 world-class academics and work that is already impacting and shaping the future of organisations.

We are world leading. We are policy challenging. We are change driving. Collaborative research and consultancy Access world-class research and consultancy support. 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

Leadership development

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, this three-way partnership can help you to improve efficiencies and embed new knowledge and capabilities.

Our Leadership Development and Organisation Futures team works in partnership with businesses to integrate the University’s world-class research into industrial and commercial application. They will work with you to develop bespoke programmes that are aligned to your business objectives.

Together we can create a future that’s anything but business as usual. LET’S COLLABORATE: Professor Sharon Mavin Director of Newcastle University Business School and Professor of Leadership and Organisation Studies 4

external.engagement@ncl.ac.uk +44 (0)191 208 2029 ncl.ac.uk/business-school 5

REACH IMPACTING BUSINESS Dr Tana Licsandru

REACH IMPACTING BUSINESS

Ethnic marketing attracts the multicultural millennial The global revolution has opened up opportunities for big brands to target new customers all over the world.

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IMPACTING BUSINESS Dr Tana Licsandru

IMPACTING BUSINESS

Dr Tana Licsandru Lecturer in Marketing

he sizeable band of millennials – many of whom are of mixed ethnicity, embrace diversity and have more than one cultural identity – is a lucrative market for the likes of Adidas, L’Oréal and other popular high-street names. Although millennials are the most ethnically diverse generation that has ever existed, little is known about their interpretation of portrayals of ethnicity in advertising – a subject that is explored in new research conducted by Newcastle University Business School. The study explores how individuals of this generation living in multicultural Britain perceive ethnic advertising, and how their interpretations influence their well-being and their idea of how they fit into society.

The study also highlighted the importance of natural and realistic portrayals of ethnicity in marketing campaigns. Some participants expressed negative feelings towards adverts which seemed to overemphasise the themes of equality and diversity. A multi-ethnic campaign run by Adidas, which contained the straplines “equality is love” and “equality is acceptance”, was deemed a deliberate attempt to promote the company as a politically correct brand, rather than an authentic effort to champion social inclusion. Millennials, the study suggests, are adept at identifying whether a company is simply trying to persuade consumers to part with their money or making a genuine attempt to foster a spirit of equality and diversity. Retailers, marketing managers and policymakers could all benefit from the research, which shines a light on the importance of wider societal issues in corporate communications. From a managerial perspective, it provides some useful insights into the attitudes of the global millennial customer which could increase the effectiveness of communications strategies aimed at this important market.

Participants were then asked to recall instances when ethnic marketing campaigns had made an impression on them and were invited to discuss their thoughts and feelings about these campaigns. Finally, they were shown a series of adverts that portrayed ethnicity and were asked to voice their instinctive feelings about the ones that they found particularly interesting. The adverts were a mix of mono-ethnic (those that used mono-ethnic primes as cultural representations from one ethnic background that specifically targeted an ethnic group) and multi-ethnic (those that used multi-ethnic primes as cultural representations from more than one ethnic background to simultaneously reach ethnically diverse target audiences).

Not only could the findings help marketing specialists create tailored campaigns to target this important group of consumers, they also shed light on key issues of public attention and concern for policymakers who want to foster a greater culture of inclusivity in society.

The results showed that millennials were far more inclined to respond positively to multi-ethnic adverts that promoted inclusivity and an acceptance of multiculturalism and seemed to be a genuine attempt to represent ethnic diversity. They felt that by shunning ethnic stereotypes, this type of advert successfully managed to erase ethnic barriers and inspire positive connections between diverse ethnic groups.

In-depth interviews were conducted with an ethnically diverse sample of 23 millennial individuals in the UK, including those of Chinese, Indian, Pakistani and Polish origin. The first part of the interviews consisted of questions about the participants’ background, their understanding of social inclusion and their experience of living as ethnic individuals in a primarily white country.

In contrast, mono-ethnic marketing was criticised for using unwelcome generalisations and misleading stereotypical portrayals, such as the use of models wearing traditional ethnic attire. When commenting on an advert featuring a typical Japanese model garbed in a kimono and eating sushi, one respondent compared it to dressing a British man in a traditional Victorian jacket and wig to emphasis his ‘Britishness’.

Tana Licsandru, Lecturer in Marketing at Newcastle University London, says: “Millennials are an increasingly influential group with plenty of disposable income and buying power. They account for around one quarter of the UK population alone, so it makes sense for brands to do everything in their power to target this key market. Our study suggests that if brands want to be successful, they should put a stronger emphasis on social inclusion in their marketing and advertising campaigns.

“Some ethnic millennials

refuse to buy from brands that make them feel excluded from society.”

“To counter this, brands should consider practical measures that put social inclusion at the heart of their marketing strategies. For instance, they could avoid using explicit ethnic cues and generic stereotypes and instead produce adverts that portray ethnic models in normal, everyday situations. They could also use discourse that promotes the ideas of acceptance, belongingness, comfort, equality, respect and recognition – all concepts which indicate social inclusion. “Companies could also consider employing staff from ethnic backgrounds who could provide culturally sensitive insights on how best to target ethnic millennials. Looking at the issue more broadly, firms could inform their creative strategies by working with other organisations, such as disability or LGBT+ groups, that are seeking to reduce social inequality.” Aside from the corporate world of profit-making, policymakers may also benefit from the study. “They could use the findings to consider ways of educating socially responsible marketing managers of the future,” says Dr Licsandru. “They could encourage universities, for example, to include multicultural marketing as a core module in their marketing and management courses. “Early education in schools is also important. Could policymakers encourage schools to run lessons on multiculturalism and social inclusion so that children have a broader understanding of ethnicity and its place in society? This would help to tackle implicit social bias among the younger generations and reduce social prejudice in the long run.” ■

“The research showed that some ethnic millennials refused to buy from brands that made them feel excluded from society. Some said they had unfollowed a brand on social media for the same reason. A negative backlash on powerful channels such as Facebook and Twitter is potentially dangerous for brands; it could result in lost customers, not just from ethnic millennials but also from people who have been influenced by the adverse reaction to an advert on social media.

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IMPACTING BUSINESS Dr Yang Zhao

Why beauty is not a shortcut to executive success What do people look for in a company CEO? An impressive CV, or a good education and a solid track record of improving the financial performance of a company?

IMPACTING BUSINESS

ot necessarily so, according to new research, which indicates that a person’s facial appearance has a significant influence on the result of corporate director elections. Our research suggests that directors are still judged on their looks; not on their physical beauty but on their perceived competence, trustworthiness, likeability and intelligence. The results of this study could encourage companies to disclose more information about directors before elections, as well as encourage regulators to consider whether the process for electing and re-electing directors needs to be reviewed. The study also provides food for thought for executives who are trying to get a job on a company board. The research team reviewed data on 621 separate corporate director elections and re-elections in UK firms between 1996 and 2007. In all these elections, potential corporate directors provided a photograph of themselves to accompany their name and professional details in the election process. The photographs were then given to anonymous individuals who were asked to rate the directors on various characteristics using only their photograph. Individuals were asked to provide a numerical score between one and five for five separate character traits of the director: beauty or physical appearance, competence, trustworthiness, likeability and intelligence – which they had to infer from only one photograph. The findings revealed that while beauty had no impact on voting patterns, the perceived competence, intelligence, likeability and trustworthiness inferred by a corporate director’s facial appearance had a direct influence on voters’ decision-making. Directors who ranked highly for these perceived character traits received more votes in their favour. Dr Yang Zhao of Newcastle University Business School said: “In principle, people should vote for a director on the basis of their track record in the industry. In reality, though, the facial appearance of a director can be a major influence on whether he or she is voted in.

“The judgements that voters make about a director are not really based on the physical attractiveness of that person; they’re based more on whether he or she is deemed competent, intelligent, likeable and trustworthy.” Dr Yang Zhao Lecturer in Banking and Finance

The findings showed that facial appearance was more important to voters in director re-elections than in first appointment elections, which may reflect their unfamiliarity with the looks of directors in the latter scenario. Interestingly, the study showed that while men were judged heavily on their facial appearance, women were not. Female candidates’ beauty or other perceived character traits based on facial appearance had absolutely no effect on the number of votes that they received.

“This tells us

that shareholders are not entirely rational when making their choices.”

Dr Zhao said: “This conclusion dispels the myth that attractiveness improves a person’s chances of success in director elections. In fact, we found that women receive very little voting dissent at all; perhaps this is because many companies and shareholders recognise the benefits of gender diversity at board level and therefore employ a larger number of women in high-powered roles. Our research shows that beauty does not provide a shortcut to success in the business world. That’s an important consideration for ambitious executives who are looking to move into a senior role. “It is also food for thought for companies; what information should they disclose to shareholders before director elections? Perhaps there’s a case for holding ‘blind’ elections, where voters don’t get to see the faces of directors before they cast their vote. However, this might prove difficult in the age of social media, where information on people is readily accessible.” The study found that shareholders who owned small equity stakes were more likely to rely on inferences from facial appearance than those holding large equity blocks. “Perhaps this is because major shareholders conduct more research on directors’ past performance and background,” Dr Zhao said. “It’s difficult to imagine a situation where small shareholder votes are deemed less important than large shareholder votes but maybe regulators need to review the process for electing directors. Perhaps they could tweak some of the rules to make the process fairer? “The study provides a useful foundation for further research that could link the results of director elections with performance. Did the directors who were voted in based on the perceived characteristics actually do well in their role? That would help us to determine how good humans are at judging the suitability of a director for that role.” ■

“This tells us that shareholders are not entirely rational when making their choices. Perhaps companies need to make more information available about potential directors so that voters can make more informed decisions. Companies need to be aware that it’s not just about past performance, it’s more to do with how directors carry themselves and the image they project to the public.

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IMPACTING BUSINESS Professor Steve Vincent

IMPACTING BUSINESS

s the HR department’s primary function to help staff become more productive so companies can improve their performance, or is it to create a best practice framework that ensures the well-being of staff and allows them to further their personal and career development? How are these two schools of thought related, and are they achievable given the ever-changing cultural and social contexts within which firms operate? Some of these issues are explored in a new study that examines the complex relationship between Human Resource Management (HRM) and organisational performance. In particular, it looks at the factors that prevent HR practices from having a positive effect on performance.

HRM: on the road to nowhere? The role of the Human Resources Manager has become a topic of hot debate in corporate and academic circles.

The study finds that the HRM-performance link remains weak, patchy and riddled with caveats, even if it can sometimes lead to positive outcomes for firms and employees. In shedding new light on the competing pressures facing HR professionals as they deal with management and employees, the research advocates a move towards a more holistic approach that forges stronger links between organisational performance, ethical behaviour and better working lives. It also opens up a wider debate on the policies needed to boost corporate productivity, increase investment in skills and create an environment where HR professionals can generate more value for both employees and companies.

Professor Steve Vincent Professor of Work and Organisation

Professor Steve Vincent, co-author of the research at Newcastle University Business School, says: “Much of the existing literature on this topic tends to focus on what HRM should look like in theory, and then seek to quantify whether this is the case. Perhaps a more helpful approach is to consider what HRM can be, given the multitude of contexts within which HR professionals operate. This approach was the starting point for our study. We wanted to find out why the link between HR practices and organisational performance remains so unclear.”

Given these barriers which prevent HR practices from having a positive impact on organisational performance, perhaps another approach is needed. Remodelling these practices so that they strengthen workplace relationships may be a positive step forward, the study suggests – especially in light of high-profile corporate scandals at Amazon and Sports Direct. Both firms have been criticised for providing inadequate working conditions for staff whilst making every effort to strip out inefficiencies from their business and maximise profits.

The authors of the study examined a bank of existing research and found that HR theories, cultural factors (such as variations in ways of working and attitudes to employment relations across geographical borders), and social structures (such as corporate structures geared towards generating returns for shareholders) all undermined the HRM-performance relationship.

Professor Vincent says: “There is evidence to suggest that investing in staff, looking after their interests and treating them fairly can have a positive effect on organisational performance. The question is whether the current climate allows too much scope for companies to abuse staff in the quest for profit. HR practitioners are caught in the middle of this; sometimes they feel pressured into supporting unethical decisions to satisfy the needs of the business. They need to be given the tools to improve connections between managers and employees to help companies to become more productive. Britain has a long-standing productivity problem so perhaps the current approach to employee relations isn’t working. Maybe if firms looked after staff a bit better – by getting rid of zero-hour contracts, for example, or introducing more programmes to develop and upskill staff – our dire productivity performance over the last ten years would finally improve.”

“Sometimes HR

Professor Vincent says: “Our study suggests that HRM suffers tensions that emerge from its theoretical, cultural and social contexts, with these factors combining to leave practitioners on a road to nowhere if they try to implement HRM as suggested in the textbooks. It’s not difficult to see why many practitioners struggle to reconcile the dual (and often competing) demands of dealing with managers and employees. Managers may want HR policy to focus on the end goal of achieving profits for the company, but this might be at odds with employee interests; it might result in staff redundancies, for example, or cutbacks in workforce development programmes. Alternatively, too much focus on employee interests could have an adverse effect on a company’s financial performance.

practitioners feel pressured into supporting unethical decisions to satisfy the needs of the business.”

“It’s a tricky balancing act for HR practitioners and their job is made more difficult when other cultural and social factors are taken into account. For example, in Romania, one legacy of communism is an employment relations culture that does not look kindly upon HR interventions but, in the Netherlands, HRM best practice through collective bargaining is viewed favourably. HR practices therefore have to be modified according to the contexts in which they’re implemented – but the problem is that these contexts are in a continual state of change.”

Tightening employment regulation could be a way forward in the quest for greater productivity. Professor Vincent says HR managers and professional trade bodies could campaign for a government crackdown on companies that don’t treat staff with fairness and respect. “Huge inequalities, including class-based prejudices and gender bias, still exist within some corporate cultures. To tackle these inequalities, policies need to be put in place to ensure companies treat staff fairly and with respect. If there’s a greater focus on ethical considerations in the HRM-organisational performance relationship, HR practitioners may be able to leave the road to nowhere and find another route to somewhere more beneficial.” ■

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IMPACTING BUSINESS Dr Smriti Sharma

IMPACTING BUSINESS

Dr Smriti Sharma Lecturer in Economics

Around 2,000 individuals studying at 15 colleges in the University of Delhi participated in an exercise designed to test their numerical skills, competitiveness, confidence and ability. They were given a choice of entering a non-competitive scheme, where they were paid 10 Indian rupees for each correctly solved problem, or a tournament against other individuals where they received 20 rupees if they outperformed another individual. The second part of the study consisted of a series of interviews that collected details on individuals’ family background, education and personality traits. By merging the data from the two parts of the study, the authors could get a clearer picture of the range of factors that affect competitive choices among males and females. The results showed that participants who were fearful of losing were less likely to enter the tournament wage scheme than those who preferred to win and get ahead of others. Participants who were egalitarian – in other words, those who believed that all people deserve equal opportunities – were also less inclined to compete.

To compete or not to compete? Winning a competition has obvious benefits, but why do people choose to compete?

s it a desire to get ahead of their peers or a motivation to improve their social standing or financial position? Conversely, do people choose not to compete due to their fear of failure or a perception that losing may put them at a disadvantage in their work or social life? These issues are explored in detail in a fascinating study involving Newcastle University Business School. The research looked at the motivational factors behind individuals’ choice to compete, as well as their personal background, personality traits and behaviours. The aim was to find out whether a desire to win or an aversion to losing affected competitive choices differently among males and females. The findings will be of interest to managers who want to gain a better understanding of why their employees – and females in particular – make the career choices they do. It will also provide useful material for policymakers who are seeking a greater knowledge of why gender-based discrimination exists in the labour market and society in general.

Females were significantly less likely to enter the tournament wage scheme than males. While this was partly due to their egalitarian nature, their choices were influenced more by various character traits that they had developed during their lifetime. In comparison to males, emotionally stable females were 4% less likely to select the tournament wage scheme, while conscientious women were 4% more likely to enter than their male counterparts. Interestingly, the study also revealed that females with an aversion to unfavourable inequality – those who do not like to be left behind – were 13% more willing to compete than males with a similar attitude.

“By making false assumptions

about the things that women can and cannot do, companies may be blocking their path to the boardroom.”

Dr Sharma says: “Our objective was twofold: we wanted to find out if distributional preferences – in other words, a desire to get ahead or an aversion to losing or falling behind – affected individuals’ decisions to enter into a competitive situation. The second aim was to look at gender differences in such preferences and explore the possible reasons why they occur. “The results highlighted several reasons why men and women choose to compete or not to compete. This has major implications for the choices people make in the workplace and in society in general. “There are still relatively few females in highpowered executive positions. Perhaps this is due to unconscious biases that exist in the corporate world, biases which deter women from trying to get ahead of their male peers at work. Also, by making false assumptions about the things that women can and cannot do, companies may be blocking their path to the boardroom by not giving them the opportunities they deserve. “Perhaps companies can address this by actively promoting more female role models in the workplace. Making an example of high-achievers could encourage other women to take more risks so they, too, can fulfil their potential. Companies should make a conscious effort not to be influenced by their perceptions of what women are good at when hiring or managing female staff. Essentially, they should keep an open mind.” That message could apply to schools and policymakers seeking to tackle gender inequalities long before they become apparent in the workplace. Dr Sharma says: “If, as our research suggests, a woman’s willingness to compete is affected by experiences gained through her lifetime, perhaps there needs to be a shift in emphasis in the education system. Could schools do more to encourage girls to express their opinions in the classroom and take the lead in practical experiments, for example? This could help to increase their confidence and give them the belief that they can fulfil their potential and go on to have successful careers. “What this study shows is the need for a greater understanding of why people – both men and women – make the choices they do.” ■

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IMPACTING BUSINESS Dr Benjamin Bader

IMPACTING BUSINESS

Female expats suffer institutional prejudice In the modern era of global trade, there are plenty of opportunities to climb the career ladder in high-flying jobs all over the world.

hile the jet-set corporate lifestyle may appear glamorous, it is anything but for some females who’ve experienced working abroad. A study by Newcastle University Business School finds that gender discrimination as a result of deeply ingrained institutional prejudices is a key cause of workplace harassment of female expatriates. It is one of the first research undertakings of its kind to examine the experience of female expats in relation to gender harassment across several countries.

The study will provide useful material for companies and executives seeking to gain a better understanding of the challenges faced by females who work in countries overseas. It shows how managers could take practical steps to educate and protect female expats – and highlights the potential business consequences of not doing so. Co-author of the research, Dr Benjamin Bader, said: “The number of women expats remains relatively low and perhaps a key reason for this is companies’ reticence to send female staff on assignments in countries where institutional bias and prejudice exists. In parts of Asia, Africa and the Middle East, for example, there are several forms of institutional discrimination including sexism in the workplace and marginalisation in the jobs market. “In this context, we wanted to explore how female expats perceived their existence while working in different countries; whether they felt more disadvantaged and harassed in the workplace than men. If they did, we wanted to discover the reasons for this and particularly whether institutional-level discrimination played a part. We also sought to investigate the impact of workplace gender harassment on levels of frustration and job satisfaction.” The study investigated the interplay between institutional-level gender discrimination and female expats’ experiences of workplace gender harassment across 25 host countries. A theoretical model was developed on the basis that there is a strong link between gender and status value in certain societies, resulting in the belief that people with certain characteristics are superior to others. Applying this argument in an international business context, Dr Bader and his colleagues used the Organisation for Economic Co-operation and Development’s Social Institutions and Gender Index to measure the degree of gender discrimination at an institutional level. The index assesses the effect of social institutions on gender equality in more than 100 countries by capturing data on several indicators, including civil liberties and ownership rights.

The theoretical model was tested on 160 (mainly Western) expats residing in 25 host countries. To test for gender-based differences, a proportion (36%) of the expats were female. Dr Benjamin Bader Senior Lecturer in International Human Resource Management

The results showed that female expats experienced more workplace gender harassment than their male counterparts. This effect was particularly pronounced in host countries with a strong institutional-level gender bias. In China, for example, females are often expected to go out drinking with business clients and to put up with flirting attempts and unwanted sexual advances. Similarly, women in India are disadvantaged by established gender hierarchies and are often made responsible for instances of sexual harassment, with many receiving little or no support from supervisors when it comes to penalising perpetrators. Perhaps not surprisingly, the study found that gender harassment led to a fall in levels of job satisfaction among females; it had a much bigger effect than general job-related stress.

“

Dr Bader says: “Based on these results, it would not be surprising if a company decided not to send female staff on assignments to countries where A better understanding institutional-level discrimination is high. However, concerns about how of cultural differences females might be treated abroad have could help to reduce encouraged many companies to send discrimination in society.” male rather than female expatriates, which eventually limits the career opportunity of women. In fact, this effectively reinforces discrimination. Instead, multinational companies (MNCs) should take responsibility for gender equality across their workforce, at home and abroad. “In the case of assignments in countries with high institutional gender equality, preparation becomes key. This should include preparation for women to be sent abroad and become attuned to their new environment; cross-cultural training would help. There also needs to be an awareness of issues of gender equality in the foreign country to develop realistic expectations and strategies for how to deal with potential incidents.

“Once she has begun her assignment in the host country, a mentoring system should be put in place so that she has someone to talk to. Perhaps a company could ask other female expats who’ve been on similar assignments in that country to share their experiences of how to cope with difficult situations. “Managers in host countries could also be of use. They could help to communicate the country’s core values and beliefs by hosting field trips that allow female expats to visit and see first-hand what they will be walking into before they start the assignment. “If companies get this right, they can avoid a situation where the wrong person is assigned to a particular project, or where a female expat returns home early from the host country because she feels she can’t continue working there. This can be very costly to a company, both financially and in terms of reputation and standing in the host country.” The study highlights the wider benefits of developing an inclusive climate within organisations to create more opportunities for people with different cultural backgrounds to get to know one another. “This would create a better understanding of cultural differences and potentially reduce friction among members of the workforce,” says Dr Bader. “The corporate benefits are easy to see – a more productive workforce can result in a more profitable company – but a better understanding could also help to reduce general discrimination in society.” The study paves the way for further research that could look at the longer-term effects of workplace gender harassment by surveying expats at different points during their assignment. Future research could also analyse a larger sample of expats from non-Western countries, such as those from Asia or Africa, or explore the experiences of expats who have returned from their assignment. ■

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IMPACTING BUSINESS Dr Arijit De

IMPACTING BUSINESS

The route to profitability

Dr De says: “Our study highlights several strategies that shipping companies can adopt to lower their fuel and carbon costs and therefore increase their profits. It’s essential that they redesign their vessel routes, determine which bunkering ports to use and accurately estimate the amounts of different types of fuels they need. Choosing ports with a lower bunker fuel price can help to reduce overall operational costs.

In a challenging economic climate, businesses are doing their level best to cut costs and maximise efficiencies to boost their profits.

his is particularly true for shipping companies that send containers full of goods to customers all over the world. A new study has looked at various ways in which shipping companies can reduce carbon emissions and fuel consumption costs as they try to work out the most cost-effective trade route for sending containers to their end destination. The research will be of use to company managers who are looking to solve real-time, practical problems within maritime operations. It could also help policymakers who want to promote environmentally sustainable business practices and reduce the carbon footprint of firms in the logistics supply chain. Dr Arijit De of Newcastle University Business School says: “Container transport is the primary mode of transportation for the shipping industry. It is a huge business for these firms, with millions of tonnes of goods shipped across the globe on a yearly basis. We wanted to explore how fuel consumption and carbon emissions affect shipping companies’ attempts to maximise profits while mitigating the effect of disruptive activities on sending goods to their customers.”

“It’s also important that companies have a contingency plan to cope with disruptions due to adverse weather or port closures. They could, for example, have several route options available; one for a scenario which has no disruptions and others for scenarios which consider the possible occurrence of disruptions. “Our study showed that reducing the speed of the vessel could lead to a decrease in bunker fuel consumption or fuel cost. This strategy could also help to reduce carbon emissions – very important for routes that are subject to higher carbon taxes and therefore incur greater costs for the company. However, there is a trade-off; reducing the ship speed increases the time it takes for the vessel to travel between ports. Shipping managers need to be mindful of any delays that could mean customer demand is not met. Therefore, a decision related to lowering vessel speed should be taken into account while ensuring that there are not delays in meeting customer demand.”

The authors of the study created a mathematical model and a robust algorithm for enhancing firms’ profits, taking into account various aspects of the shipping operation such as designing vessel routes and determining the speed of the ship, carbon costs and the amount of fuel consumed by the vessel on each sailing leg. They explored ways in which firms could cope with unexpected disruptions caused by adverse weather conditions by considering possible recovery strategies such as swapping port visits, rescheduling the route of the vessel or operating the ship at lower speeds to save on fuel costs. The model and algorithm were then tested on a number of data sets of shipping companies over a two-week period, four-week period and six-week period – a comprehensive exercise that performed a thorough searching procedure on huge number of possible outcomes. From this, the most cost-effective outcome was determined. In particular, the study considered the importance of fuel bunker management strategies within shipping operations. Bunker fuel is the term used to describe refuelling of a ship’s fuel tank which is then used to power engines of the ship. Typically, two types of fuel are used: marine diesel oil (MDO) when the ship performs its loading and unloading operation at the port and heavy fuel oil (HFO) when it sails at sea. The aim of the study was to explore how effective fuel bunker management decisions – related to which ports to refuel at, and how much to refuel – could help shipping companies to reduce costs and carbon emissions and maximise profits.

The importance of the research extends, not just to individual companies, but also to firms across the logistics supply chain that might be affected by delays or costs incurred by shipping firms.

Dr Arijit De Lecturer in Operations Management

Dr De says: “Shipping companies will seek to maximise their profits, but if they incur more costs then they might decide to pass on some of these costs to their end-customers, which might have an adverse effect on the customer demand. Although, our study explores the possible strategies which can be adopted by shipping companies for reducing their cost component which will help to enhance the profitability. Increasingly, carbon taxes are a big factor as governments around the world look to reduce carbon emissions to help preserve the environment. Policymakers might therefore be interested in our research as they seek to regulate the shipping industry and wider logistics sector. They will want to promote sustainable shipping practices and clamp down on practices that have an adverse effect on the environment. Our study provides some useful insights into effective fuel bunker management strategies within shipping operations, both from a cost point of view and from an environmental perspective.” ■

“Shipping managers

need to be mindful of any delays that could mean customer demand is not met.” 19

REACH IMPACTING POLICY Professor Iain Munro

REACH IMPACTING POLICY

Blowing the whistle on corruption

In an exclusive interview with Edward Snowden’s Lawyer, Robert Tibbo, Professor Iain Munro of Newcastle University Business School highlights the importance of whistleblowing for the functioning of a democratic society and discusses the close relationship between whistleblowing and human rights activism.

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REACH IMPACTING POLICY

IMPACTING POLICY Professor Iain Munro

he shocking revelations shed light on the US government’s illegal programmes of global mass surveillance and Snowden was forced to flee the country, becoming an asylum seeker in Hong Kong and forging an alliance with his defence lawyer, Robert Tibbo, the prominent human rights lawyer and activist. The interview raises several key issues that have wide-ranging ramifications for government agencies, regulators, lawyers and journalists across the globe, including the vital role of whistleblowers as a check on abuses of power; the limitations of existing formal whistleblowing mechanisms; the crucial role that supporters and helpers can play in the whistleblowing process; and the illegal (and unjust) government surveillance of activists, protesters and journalists. Professor Munro says: “All of these important issues are tied in with societal concerns about the protection of basic human rights, such as the right to privacy and freedom of expression, as well as government retaliation against whistleblowers and their supporters and helpers. The Snowden case uncovers many issues that had been bubbling away under the surface but had never been properly brought into the public eye. “In the interview, Mr Tibbo makes frequent references to the work of the United Nations (UN) Special Rapporteur on Human Rights and Counter Terrorism. He notes that, in many respects, the Special Rapporteur had already discovered some of the issues that were later revealed by Snowden regarding the use of illegal mass surveillance by Western governments and the use of secrecy by government organisations to avoid proper democratic accountability, as well as concerns about inadequate oversight and whistleblowing mechanisms within intelligence organisations in order to prevent abuses of power.” The interview raises the key question of how to afford better protection to whistleblowers who disclose state information in the public interest, and what needs to be done to change the current climate to encourage more people to step forward without fear of reprisal.

Mr Tibbo gives an insight into the kinds of retaliation to which whistleblowers such as Snowden were subjected to, and the retaliation against the lawyers, journalists, activists and others who help these whistleblowers. In Snowden’s case, this retaliation was especially apparent in the severe harassment of the asylum seekers who had helped him hide in Hong Kong, the “Snowden refugees”. However, whilst Mr Tibbo acknowledges the need for new mechanisms, he also recognises their limitations in affecting institutional change. In the interview he says: “Would that person [whistleblower] be able to get through to the independent mechanism or would something happen to them? For example, would they be arrested under the Espionage Act [which has already happened to several NSA whistleblowers]? Would they disappear and be renditioned? Or would they die in a car accident? So, even if you put in a whistleblowing mechanism now, I have my doubts that it is going to be very effective.” The question, then, is what can be done to alter the current status quo? Mr Tibbo advocates radical democratic action and the importance of human activist movements that can lobby governments and campaign for change via the media. Professor Munro says: “Mr Tibbo’s view is that in full democracies it’s really up to individual activist groups to raise these critical issues, write to locally elected politicians and members of parliament and raise concerns about the very issues that Edward Snowden raised. We need to find ways of holding institutions to account to protect the individual’s fundamental rights and freedoms. “The media needs to do more on this. Currently there’s a poor level of reporting on whistleblowers, with many news reports containing misinformed comments or partial accounts of what’s really going on. We need journalists to step up their investigative reporting, although perhaps many publishers don’t have the resources to do this in the current economic climate. The media is essential to the democratic mission to uncover secrecy and illegal behaviour in governmental organisations.”

Professor Iain Munro Professor of Leadership and Organisation Change

Effective journalism is even more important given the competing tensions between human rights legislation and national security laws which hamper the legal system. In the interview, Mr Tibbo expresses his frustration at how lawyers are forced to operate with one hand tied behind their back, unable to get the courts to disclose evidence of human rights violations because this would put confidential information in the public domain. In many cases, disclosing “state secrets” would contravene security laws, so the courts are unable to use vital evidence to prove that human rights breaches have taken place. Mr Tibbo highlights how the appalling treatment of whistleblowers, as well as being a gross infringement of their basic human rights, is designed to have a chilling effect on others who might speak out about corruption.

“We need to find ways

of holding institutions to account to protect the individual’s fundamental rights and freedoms.”s.”

Professor Munro says: “Mr Tibbo expressed concern that big data is being used as a tool to track and target people even when they are completely innocent. In some cases, the data is modified, incomplete or ambiguous, yet people have been arrested and detained on the back of it. “The problem has been compounded by the willingness of some large corporations, such as mobile phone manufacturers and Internet firms, to comply with government requests for data. It’s all very ‘Big Brother’; governments have the ability to look at your e-mails, track your Internet and telephone use. All of this is an infringement of human rights and must be brought into the public consciousness.” As well as raising practical, real-world concerns, the interview makes a unique contribution to academic literature. The critical issues relating to whistleblowing and organisational secrecy that it highlights have yet to be subject to in-depth research in organisation and critical management studies. Professor Munro says: “More scrutiny is needed in this area as the issues raised are so important, not only for researchers but also for governments, regulators and anyone with an interest in the infringement of human rights. Hopefully my interview with Robert Tibbo provides a helpful introductory discussion of these issues from a key figure who has had first-hand experience in confronting them.” ■

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IMPACTING POLICY Professor Atanu Ghoshray

IMPACTING POLICY

I Professor Atanu Ghoshray Professor of Economics

Analysing the energy consumptioneconomic growth link In today’s world, sustainability is high on the political agenda. Governments are taking up the global fight against climate change by working out ways of cutting carbon emissions and making the world a greener, more environmentally friendly place to live.

n doing so, they also have to make sure their economies are in good shape – and therein lies the crux of the problem. Does the amount of energy we use have any effect on economic growth, or does a booming economy mean we’re consuming vast quantities of energy? Is there even a link between the two? That’s the key question explored in new research by Atanu Ghoshray, Yurena Mendoza, Mercedes Monfort and Javier Ordonez which examines the relationship between economic growth and energy consumption. The findings have implications for policymakers who want to strike a balance between creating a vibrant economy and reducing the carbon footprint of individuals and businesses. Professor Atanu Ghoshray of Newcastle University Business School says: “It has been argued that economic growth may exhaust resources and cause environmental degradation, compromising future growth. The fear that today’s growth can cause other significant economic problems, especially for future generations, has propelled sustainable growth to the top of the political agenda for the vast majority of developed countries. “The energy consumption-economic growth relationship has important policy implications. If increased consumption causes growth, sustainability can only be achieved by ensuring access to a cheap, safe, environmentally friendly energy supply. Alternatively, if economic growth causes increased energy demand, the challenge is to reduce energy demand through market-oriented policies and regulation.”

“The conclusions from our study show the reliance of economic growth in the USA on energy consumption.”

The authors of the study measured the dynamic relationship between consumption and growth in the US using a nonlinear econometric model found to be appropriate given the underlying nature of the data. The model was applied to data from 1949 to 2014 and the analysis covered a range of variables including public spending and the oil price, as well as economic growth and energy consumption.

The results indicate that the amount of energy consumed has a direct impact on economic growth. This stands in stark contrast to a linear model which suggests that there is no causal link from one to the other. Professor Ghoshray says: “The conclusions from our study show the reliance of economic growth in the USA on energy consumption. The results imply that in this country, restrictions on consumption may adversely affect growth, while increases in consumption are likely to contribute to growth. Every government in the world will want to implement policies that stimulate the economy because this will create wealth and jobs, but if energy consumption has to be increased to achieve this, it will have an adverse effect on the environment. A rise in consumption may be necessary to increase production at a manufacturing firm, for example. “In this scenario, the challenge for policymakers is not to reduce energy consumption, as this could reduce economic growth, but instead to incentivise organisations to use more energy from renewable sources. Using electricity derived from wind and solar farms, for example, is much more environmentally friendly than using fossil fuels. This is a far better strategy than raising taxes on energy or adopting other policies that lead to a reduction in energy use, as this is likely to result in lower production rates and have a negative effect on the economy. “Based on the historical data that we analyse in our study, we do see the USA’s dependence on fossil fuels for economic growth. It therefore becomes more difficult to implement energy-reducing policies. This is going to be a challenge for any country that relies on oil to generate growth, although it does not necessarily have to imply that countries are forced to depend on fossil fuels. Alternative, cleaner forms of energy can be utilised instead. “The conclusions of our study provide some interesting insights for policymakers, although more research is needed to convince governments to change their macro-economic and energy policies.” ■

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IMPACTING POLICY Dr Claudia Gabbioneta

IMPACTING POLICY

he phenomenon of professional misconduct, how it relates to professional organisations and how this may contribute to broader patterns of corruption and wrongdoing is explored in detail in a new study by Newcastle University Business School. The findings show that professional misconduct can be better understood by looking at an institutional or industry level, not just at the level of the individual or organisation, and that the boundaries between different organisations and individuals can create opportunities for wrongdoing to take place. In highlighting these critical issues, the study gives professional organisations a better understanding of professional misconduct in relation to its nature, antecedents, implications and consequences. Not only could the research help these organisations consider ways of managing boundaries to reduce the risk of wrongdoing, it could also be of use to regulators who are seeking to create frameworks to help improve and encourage best practice in business.

Uncovering the invisible hands behind corporate wrongdoing What do Enron, Parmalat and Lehman Brothers have in common? All three organisations have been involved in corporate scandals that severely damaged their reputation and led to the collapse of their business.

Dr Claudia Gabbioneta of Newcastle University Business School says: “A lot of existing research looks at the reasons why individuals commit wrongdoing. However, although individuals are involved, they are only part of the story. “Some researchers have also looked at individual organisations to see why wrongdoing has occurred but, again, the issue is more complex than that. If you look at the collapse of Enron, for example, there were many professional organisations involved – lawyers, accountants, auditors and others. The strength or weakness of the boundaries between these organisations offers a reason why wrongdoing took place.” The study posits a theory based on an in-depth analysis of existing case studies: namely, that social and symbolic boundaries between various organisations can sometimes create the conditions that allow wrongdoing to flourish. The authors discuss how the nature of professional misconduct is often very nuanced and complex, how boundaries between and within professions can either be too weak or too strong and lead to misconduct, and how the consequence of this misconduct can be less straightforward than it appears on the surface.

Dr Claudia Gabbioneta Senior Lecturer in Accounting and Finance

Dr Gabbioneta says: “If you look at the highprofile Panama Papers incident in 2015 – the unprecedented leak of millions of documents that exposed how rich individuals exploited secretive offshore tax regimes – you can see how complex the relationship between different types of organisations can be. The Panama documents provided evidence that a number of law firms, corporate service providers and tax advisors helped wealthy individuals to avoid paying taxes by moving their money from their home countries to offshore locations. “Since then, there has been extensive media coverage of other instances where professionals and professional service firms have engaged in unethical activities. Most cases of corporate wrongdoing could not have occurred without the active involvement of a range of professional advisors and organisations. The specialist nature of the work of these organisations creates a strong boundary between them. When an accountant approves a company’s annual report, for example, can he or she take for granted that what a lawyer has said about that report is correct? An accountant may not have the expertise to question the opinion of a lawyer, and vice versa. “Weak boundaries can also be a problem. For example, a consultant who has been contracted to work for a company may not feel inclined to flag up a problem with the owner for fear of upsetting or alienating that person. This could cause tension in the relationship and result in the consultant being relieved of his duties. Not flagging up issues of unethical behaviour, however, could have disastrous consequences later down the line. “Geographical boundaries can also cause a problem. Take a merger between a company in Brazil and a company in Germany, for example. The regulations that govern such a transaction may be different in these countries, so which set of rules applies: the laws in Germany or those in Brazil?” By highlighting the interplay between these boundaries, the study provides useful material for companies seeking to reduce their chances of being tainted by unethical behaviour. Understanding this interplay may help to curb, if not entirely eradicate, wrongdoing. The research also provides food for thought for policymakers who are looking to maintain the reputation of, and trust in, key industries that are vital to the economy.

Dr Gabbioneta says: “The financial crash of 2007– 2008 brought to light some unethical behaviour by professionals involved in the banking industry, which is essential to the effective working of so many other sectors. The long-term consequence of this was an erosion of trust in the profession – and it’s arguable that, more than a decade on, this trust has not yet been fully restored despite attempts to tighten regulation on bankers’ activities and behaviour. “A lot of research has focused on the short-term consequences of professional misconduct, such as a director getting fired from her/his job, but the longer-term consequences are more important on an industry level. For example, a succession of care home scandals could lead to a wider mistrust of the industry and even deter people from putting their parents or grandparents in a home.” The research provides some useful insights for regulators seeking to govern professional misconduct and reduce corporate wrongdoing. It raises the question of whether the responsibility of regulating professional conduct should reside within the professions themselves or be granted externally – and in the latter case, to whom. “Does the way in which industries are currently regulated need to be changed?” says Dr Gabbioneta. “Could regulators work with lawyers and accountants to create a best practice framework in certain areas: for example, in the case of a cross-national merger between two companies? Our study raises these important questions and more research in these areas is needed.” ■

“Most cases of corporate

wrongdoing could not have occurred without the active involvement of a range of professional advisors and organisations.” 27

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IIMPACTING POLICY Professor Natasha Mauthner

Beware of big data bias

IMPACTING POLICY

his has largely been portrayed as a positive development, one that has made people’s lives easier and enabled them to capitalise on new innovations and opportunities.

Professor Natasha Mauthner Director of Research

However, a new study has shed light on a darker side to big data and the ethical concerns it raises around issues of privacy, consent, safety and gender bias.

Professor Natasha Mauthner of Newcastle University Business School says: “An example of these concerns would be the ethical challenges posed by big data that stem from the increasing popularity of social media. The information posted on channels such as Twitter and Instagram We need a better is often used for research purposes without the explicit consent of the understanding of how people who generated it. Similarly, big big data works to data research involving the aggregation counter these biases of data sets or reuse of archived data may also take place without informed and educate the consent from the originators of this public, companies and information, and the data linkages made possible by such practices can policymakers on how pose Wrisks to people by exposing their technology affects identities and compromising their privacy people’s lives.” and anonymity.

“

“Previous academic studies have tended to focus on the unequal power relationship between researchers and research participants, and on ethical concerns about the potential harm that big data can cause to the people who produce the information. I wanted to go beyond this and explore the ambiguities and biases inherent in the data itself and in the algorithms behind it. I also wanted to examine the ethical issues around presenting the data as “truth” or accurate representations of the real world.”

The technological revolution has created the big data phenomenon, a world in which huge volumes of information are collated, stored and disseminated across a range of online platforms.

Drawing on the works of feminist science studies scholars, the study applies posthumanist theory to practical ethical concerns arising from the creation of big data. This approach shifts the focus away from the power of researchers over research participants and treats the creation of the data itself as a matter of ethical concern. Professor Mauthner says: “Because big data is produced in real time, we tend to assume that it’s an accurate reflection of the real world – it isn’t. This matters on an ethical level. A posthumanist approach questions the “truth” of data-driven knowledge and science and instead highlights its indeterminacy.

“One of the key concerns is the inherent bias and discrimination that is often built into big data, machine learning and algorithms. This may happen due to the design of the algorithm itself or decisions relating to the way in which the data is coded, collected, selected or used to train the algorithm. “When we use computers, they can learn our gender due to previous Google searches we’ve made – for instance, the kinds of products that we buy and websites we visit. If we then search for a job, the results may reflect gender biases with high-income presented more often to men than to women. There needs to be recognition of this bias within the algorithm and its gendered results. It is important to emphasise that this kind of discrimination is not intentional. That makes it harder to tackle. “Essentially, big data biases mean we need to open up the black box and look more closely at these technologies. We need a better understanding of how big data works, so that we can counter these biases and educate the public, companies and policymakers on how technological innovations affect people’s lives.” The research will be of interest to policymakers seeking to reduce or eradicate different forms of discrimination in society. Despite appearing to be neutral, objective and free of human, historical and cultural influences, algorithms learn stereotypical biases and prejudices tied to social identifiers such as race or gender and simply perpetuate these biases in the data. We also have to bear in mind that some people who live on the margins of society, either due to poverty, geography or lifestyle, may not even be represented within big data and this can also lead to forms of bias and exclusion against them. Professor Mauthner says: “A further factor is that algorithms and the data they use tend to remain hidden by technical complexity and corporate secrecy. Big data, machine learning and digital surveillance have become increasingly pervasive and are used in decision-making across several areas, including business, education, employment, healthcare, the justice system and public policy. Because of this, they have the potential to create new forms of gender, racial and social inequalities and exacerbate existing discrimination. “On a basic level, this bias may result in a person being charged more than someone else for buying the same product or service online. On a wider level, it could lead to the marginalisation and mistreatment of large groups of people in society.” ■

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IMPACTING POLICY Dr Chen Su

IMPACTING POLICY

Can financial advice help investors hit gold?

Dr Chen Su Senior Lecturer in Corporate Finance

The study examined the accuracy of analysts’ advice, conveyed by means of earnings forecasts and stock recommendations, in predicting actual earnings and stock prices, both at the level of individual firms and at the level of the industry in which they operated. The analysis of the TTM sector consisted of 65 firms receiving 11,358 analysts’ recommendations issued by 56 brokers. In the exploration of the BFI sector, 13,602 analysts’ recommendations were issued by 53 brokers to 70 firms. The focus was exclusively on the UK market.

For many years the stock market has been a goldmine for many wealthy individuals.

hose who dabble in financial markets have often based their investment decisions on the expertise of financial analysts, but a new study has called into question the usefulness of their advice.

The research found that analysts’ advice was useful at the individual firm level in the TTM sector, as reflected in their recommendations for high-tech stocks before and after the dot.com bubble burst. However, at the aggregate level, there was no evidence in either bubble period to indicate a stable link between average monthly stock returns and analysts’ advice. Nor was there a strong relationship between the advice and the performance of individual firms in the BFI sector.

The findings of the study will provide food for thought for policymakers responsible for regulating the provision of financial advice. Investors who come across the research may also think twice about what information they rely on when constructing stock market portfolios. The research examines the investment value of analysts’ advice, which includes earnings forecasts and stock recommendations to investors during two recent periods in the UK. The first covered the dot. com boom and crash from 1995 to 2002, a period when investors piled money into tech firms that were subsequently found to be built on sand. The second period, 2005 to 2012, coincided with the infamous credit bubble which sent the banking industry and many economies into meltdown when it finally burst. Dr Chen Su of Newcastle University Business School says: “It is well known that financial analysts play an important role in capital markets by collecting and analysing a variety of market, industry and firm-specific information, and then making earnings forecasts and stock recommendations. We wanted to see what influence they had in two very important periods in the UK, how accurate their predictions were, and whether they could create investment value and promote market efficiency.

“Our study focused on two key industries: the Technology, Telecommunications and Media (TTM) sector in the dot.com bubble period and the Banking, Finance and Insurance (BFI) sector during the credit bubble period. If analysts can add value in these tumultuous sectors when a bubble takes hold, we may feel more confident about predicting the nation’s corporate and economic prospects.”

Dr Su says: “The results clearly show that investors cannot make money from the stock market by relying on the advice of so-called experts. People pay a lot of money for this advice but if the information they are being given is incorrect, why are they paying for it? Are these analysts really doing their job?

“

“Our study also raises the question of whether or not analysts’ predictions help to increase the size of market bubbles by encouraging investment when, in reality, caution is needed. Analysts prefer to issue positive rather than negative information about the market – for instance, issuing more buy recommendations than sell recommendations. In the case of the dot.com bubble, has this tactic lured investors to part with their money at the height of the boom, when in retrospect they should have kept it in their pockets? If so, perhaps the impact of the dot. com crash would have been far less devastating, and investors may not have lost so much money.

The results clearly show that investors cannot make money from the stock market by relying on the advice of so-called experts.” 30

“It appears from our study that analysts don’t add value in the BFI and TTM sectors when a bubble takes hold. If this conclusion applies to other sectors, it may help to explain why many people and organisations delay investments, because they feel uneasy about predicting how the nation’s companies and economy are going to fare.” While the study warns investors to exercise caution when basing their investment decisions on the advice of financial experts, it is also of use to those responsible for overseeing the governance of the brokerage industry. “Our conclusions highlight the need for tighter regulation in this area,” says Dr Su. “Perhaps in future, policymakers could put in place more stringent checks on analysts’ qualifications to determine whether they are suitable to give financial advice. This could be part of an ongoing drive to increase trust and transparency within the brokerage industry and to reduce instances of conflict of interest.” Perhaps the UK could learn something from the US, which introduced legislation to address conflicts of interest between the investment banking and financial analyst departments of ten of the largest US-based investment firms. It was found that analysts had been giving advice which allowed bankers, and the firms themselves, to gain unfair market advantage and make lucrative profits. In response to this, the Global Analyst Research Settlement was reached in 2003 by the US Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), the New York Stock Exchange (NYSE) and the ten investment firms. This prompted new legislation which forced companies to insulate their banking and analysis departments from each other to prevent fraudulent trading. The law also stipulated that analysts’ historical recommendations and forecasts must be disclosed and made available to investors. Dr Su says: “Following the banking crisis in 2008, the UK and other countries in Europe introduced regulation to tighten control on bankers’ activities, but financial analysts came under less scrutiny. Perhaps, as has happened in the US, policymakers need to take a closer look at the role of analysts on trading and investment patterns. Has enough been done in the UK to regulate their behaviour since the banking crisis? This is a key question for policymakers to answer.” ■

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IMPACTING POLICY Dr Grega Smrkolj

Why imitation is a double-edged sword The steam engine, penicillin and the aeroplane are among the world’s greatest innovations that hadn’t been thought of by anyone else at the time they were made. Nowadays, however, contemporary markets are flooded with imitations, but is the ability to copy a product a good thing for the company that first made the original?

IMPACTING POLICY

t’s an issue that is explored by Newcastle University Business School in a ground-breaking study, which looks at how the ease of imitation affects firms’ incentives for developing new technologies and how, in turn, this affects consumers. Dr Grega Smrkolj of Newcastle University Business School says: “In the past it took several years for imitators to copy the technology of the innovator, but nowadays it can take as little as a month. It’s not enough for companies just to bring a new product to the market; they also have to find ways of reducing the cost of production and streamlining production processes. “This is how companies can remain competitive. They have to think: how much is this innovation going to cost? How long will it take to bring it to the market and what is the likelihood of it being copied by someone else? How will these imitations – or knowledge spillovers – affect our decision-making over time? “Our study is the first of its kind to explore how spillovers affect not only investments in existing markets, but also the formation of new markets and the evolution of their structure over time.”

Dr Grega Smrkolj Lecturer in Economics

Together with Dr Florian Wagener from the Amsterdam School of Economics, Dr Smrkolj developed a theoretical model in which two competing, fictitious firms decide which technology to produce and how much to invest in research and development (R&D) to reduce the cost of production and bring the technology to market. They then explored how these decisions were influenced by information leakages (knowledge spillovers) between firms.

The research will be of interest to company ownermanagers and policymakers. It makes the former more aware of the different forces at play when taking a product to market, and the importance of fusing product innovation with process innovation; in other words, finding ways of reducing the cost of production. It can also help them understand the effect of knowledge spillovers at different stages of the investment process and make it easier to predict whether a new market is likely to emerge.

Dr Smrkolj says: “Previous studies have focused on analysing how various economic factors influence investments of firms in existing markets. But for many new technologies the decision by the firm of whether or not to develop the product is taken long before production, when the initial production costs of the technology still exceed the market’s highest willingness to pay for it. The global dynamic framework which we develop in the paper allows us to discern two distinct effects that knowledge spillovers have on markets. First, they influence firms’ decisions to develop some technology or abstain from developing it altogether; second, they affect how much firms invest in R&D for certain technologies over time.”

Policymakers, on the other hand, could use the findings to amend or introduce regulation in key policy areas, such as patents to protect intellectual property or subsidies designed to encourage investment in innovation.

The findings revealed that spillovers can generate positive and negative effects. On the one hand, they may increase the likelihood of a technology being developed to production stage and could even pave the way for the emergence of a new market. However, at the same time they may also reduce the level to which a technology is developed in the long run.

“Also, the effects of spillovers on firms differ depending on the stage of development. This tells us that the most efficient policies should not be fixed but flexible enough to account for the type of technology being developed, and whether it’s in the early or later stages of development.

“In the past it took several years for imitators to copy the technology of the innovator, but nowadays it can take as little as a month.”

Dr Smrkolj says: “When technology is still in its infancy and requires large investments to make it viable for production, firms may benefit from large spillovers as they very much serve as a natural research cooperative – whatever one firm achieves is to a large extent also available to all other firms. This can help firms to reduce their R&D costs so they can afford to bring more expensive technologies to production. However, large spillovers can also make it more difficult for firms to obtain a competitive edge in the market. Once production starts, this effect can significantly demotivate firms and they might not develop the technology to the level they would have done if the spillovers had been smaller and therefore the likelihood of them securing a dominant market position had been larger.”

Dr Smrkolj says: “These regulations can affect the volume of knowledge spillovers in industries. It is widely believed that one way to keep industries competitive – and therefore prices low, to the benefit of consumers – is to not obstruct imitation; that is, to keep knowledge spillovers high through weak patents, for instance. Our research shows that this conjecture is not universally true, though. In certain instances, high spillovers can severely demotivate the innovator, thereby reducing the knowledge base available for imitation. In such cases, high spillovers can have a contra-competitive effect; it doesn’t help to have small barriers to imitation if there is very little or nothing to copy and so imitators cannot thrive.

“It’s not easy for policymakers to get this right as there are so many different factors to consider. More research in this area is therefore needed but at least our study has opened important new avenues for discussion and future research, both in theory and practice.” ■

REACH IMPACTING SOCIETY Professor Colin Wren

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Online markets reduce effectiveness of consumer search

The digital age has spawned the arrival and growth of a huge range of online markets but how do they really operate in practice?

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IMPACTING SOCIETY

IMPACTING SOCIETY Professor Colin Wren

ground-breaking study that examines pricing behaviour on a motor insurance price comparison site highlights why consumers may not be getting the best deal after all. The study looks at firms’ strategies for influencing consumer choice in this competitive market by analysing data from a well-known comparison website, Confused.com. It finds that companies listing on this site use multiple brands to reduce choice – a tactic that encourages consumers to unwittingly exclude the brands of other firms from consideration. Another key finding is that virtually all companies do not openly disclose on the site which brands they own, making it less likely that consumers will dismiss all but the cheapest brand of each firm. These tactics reduce the effectiveness of consumer search, give firms more power and make the market less competitive. The findings raise the issue of whether this behaviour is pervasive in other online markets, such as comparison sites that sell electronic gadgets or books from several different brands, and whether policymakers need to do more to protect consumers by preventing companies from deploying such tactics. Professor Colin Wren, co-author of the research at Newcastle University Business School, says: “We looked at pricing data for 22 fictitious types of individual, taking into account factors such as age, occupation and gender, for five different car types on four separate dates. We found that about 80 brands typically gave a quote in response to an online enquiry, but of these around three quarters were owned by just 16 firms. With the exception of one firm, companies chose not to openly disclose ownership of their brands on the site and generally they posted prices that were relatively low and ‘clustered’, so that each of their brands had a similar price rank.

Professor Colin Wren Professor of Applied Microeconomics

“The implications of our findings are important given the huge growth in online markets, which has been driven by consumers’ increasing preference to buy and sell products via the Internet. There are many e-commerce sites in existence now, selling everything from packaged holidays to electronic goods from multiple brands. Is consumer choice being limited in these markets and others? The fact that it’s relatively easy for firms to post prices online under different brand names suggests that search obfuscation is likely to be pervasive in these markets too.” If it is, it raises the question of whether anything should be done about it. While the Financial Conduct Authority (FCA) is looking into other important issues in relation to online markets in insurance, including dual pricing which offers incentives for new customers while penalising loyal customers, could regulation be tightened to prevent or at least reduce instances of search obfuscation? “It’s something that policymakers could look at,” says Professor Wren. “Perhaps they could make companies disclose ownership of their brands on comparison websites and limit the number of brands that a firm can list on the site to increase competition in the market. How difficult this will be to enforce is another matter, although there is growing pressure on policymakers to scrutinise how online markets operate. “Dual pricing is already being looked at by the FCA, and another UK body – the Competition and Markets Authority – has recently prohibited car insurance price comparison sites from introducing best-price clauses into their contracts with companies. These clauses prevent a brand from posting one price on one comparison site and then a lower price on another site. It’s clear that more needs to be done, though. The Internet is often seen as a champion of consumer search but the reality is somewhat different.”

If search obfuscation is bad for the consumer, however, it is good news for marketing professionals who under existing laws can use it as a legitimate tool to increase revenues and market share. So, what can consumers do in the current climate to reduce the negative impact of these tactics? “They could increase their options by searching on more than one comparison site,” says Professor Wren. “Consumers are like pigeons; they zero in on one site and tend to use it to compare everything from home insurance to electricity and gas prices. Across these sites average prices vary by as much as £30 or so, even for the lowestpriced five brands, so additional searches could generate significant savings. Some people are deterred from doing this due to the time it takes to enter their details on multiple sites, but they would only have to do this once as the information can be saved on each site for future use.” ■

“The Internet is often

seen as a champion of consumer search but the reality is somewhat different.”

“Our results suggest that firms use multiple brands in online markets to reduce the range of options available to the consumer. To hide some of these options to frustrate consumer search is a tactic called search obfuscation. “Search obfuscation through multi-brand pricing is believed to be a new form of strategic behaviour that has previously not been observed in online markets. In essence, it gives the company a competitive advantage and is harmful to consumers if their search is made less effective; they might not be getting the best deal.

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IMPACTING SOCIETY Dr Andrew Lindridge

How game choices reflect a gambler’s motivations

Winning money on a horse race, the football coupons or a slot machine naturally gives many people a buzz, but what motivates them to gamble in the first place? What is it that influences their choice of game?

IMPACTING SOCIETY

new study explores whether gaming choice is influenced by a particular personal motivation, such as a desire to showcase one’s skills, or simply a desire to gamble in general. This theme is explored by considering the illusion of control – in other words, the extent to which gamblers believe they can control or influence the outcome of a game, particularly in games where a degree of skill is involved. The research may also interest policymakers seeking to regulate the gambling industry and prevent people from losing vast amounts of money. In looking at the impact of geography and access to gaming environments (such as casinos) on gambling behaviour, the study also provides a better understanding of the effect of gambling on society, as well as society’s effect on gamblers. Two theories – Hedonic Consumption Theory (HCT) and Motivation Disposition Theory (MDT) – were applied to feedback gleaned from interviews with 25 recreational gamblers in Las Vegas. HCT focuses on intrinsic motivators or behaviours that influence an individual’s interaction with products or services; in this case, gambling. MDT posits that various motivations represent inherent needs within individuals to seek an outcome that drives them to achieve a particular goal. The interviews extracted information on why individuals gambled, why they thought they would win, and what sort of games they chose to play. The study focused on recreational gamblers, rather than pathological gamblers who had an addiction to this pastime. The findings showed that for recreational gamblers, gaming choice was influenced heavily by personal motives. In other words, individuals opted to play games that reflected their needs or motives, focusing on the games that best allowed them to achieve their goals or fulfil their desires. Dr Andrew Lindridge of Newcastle University Business School says: “Whilst winning money can be a key outcome from gambling, this was not the key motivating factor for most of the people we interviewed. Many wanted to play a particular game to showcase their skills or pit their wits against others. Some did it for the sheer thrill and excitement of it; others who played slot machines did it to socialise with others or escape from the problems they faced in the real world. There was little evidence that participants wanted to gamble regardless of game choice; hardly any of them played multiple games and many played only one game regularly.

Dr Andrew Lindridge Reader in Marketing

“Slot machine players tended to rely on luck and although they knew they were entering a game of chance, they relied on illogical reasoning – that their lucky winning streak would continue in the next game, for example – to guide their actions. This gave them a false sense that they were able to play skilfully. On the other hand, players who focused on sports gambling and poker had more nuanced motives and relied more heavily on strategies that allowed them to showcase their knowledge and skills. The study explored how gamblers’ illusion of control affected their motivation to play. The answer lay in their choice of game and whether they attributed success to luck or skill. “Individuals who play low-skilled games don’t expect to win so their illusion of control helps them specify how much money they are prepared to lose to be entertained,” says Dr Lindridge. “If they win, they put this down mainly to luck. In high-skilled games, participants’ illusion of control also ensures they will quit gambling once they’ve reached their financial loss limit. When they’re winning, however, they feel their skill is a reason for their success. So, while illusion of control moderates gambling motivation, it differs for low- versus high-skilled gamers.” The findings suggest that marketers and researchers should carefully select promotional tools based on their target audience’s motivations for gambling. Dr Lindridge says: “For individuals who gamble to escape from their day-to-day life, marketers could target them with games based on luck and fun, such as lottery scratch cards. For those who desire a challenge and a sense of competition, marketers could focus on promotions that require some aspect of skill; cryptic clues for example. This segmentation of the market is already starting to happen; companies such as Tombola and Foxy Bingo promote their games as a fun social occasion.”

“Policymakers should be

aware of these trends as they seek to regulate a growing online gambling market worth billions of pounds a year.”

The motivational factors behind an individual’s desire to gamble, and the choice of game they play, will also interest regulators who want to prevent problem gambling – in other words, pathological gambling driven by addiction. The study showed that high-skilled players’ illusion of control and low-skilled players’ reliance on certain illogical rules of thumb could produce unrealistic expectations that they could win. Dr Lindridge says: “Potentially, this finding is even more problematic due to the rise of fixed-odds betting terminals (FOBTs), which allow gamblers to play electronic versions of casino games such as poker. In these cases, there is very little real skill involved as the individual is playing against the house (a machine) rather than against each other, where using skill may be more relevant. Policymakers should be aware of these trends as they seek to regulate a growing online gambling market worth billions of pounds a year. The way that FOBTs are promoted offers people a belief that they’re going to win, even if the chance of winning is small in reality. Some people could therefore stand to lose a lot of money if they’re on a losing streak, but keep playing in the irrational belief that their luck will soon change. “The online gambling market is difficult to regulate as individuals generally pay by credit or debit card rather than cash. Policymakers could work with gambling firms to introduce measures that protect people if they’re losing too much money, such as making them verify their identity before playing or putting a block on their credit card once a financial limit has been reached. Perhaps this would help to reduce gambling addiction rates.” In shining a light on these wider societal issues, the study also considers how gambling behaviours and game choices are affected by geography and access to gambling institutions. Some participants viewed gambling as a convenient recreational activity because they lived in Las Vegas, where casinos are aplenty. Others moved there to “play with the big boys”. In some parts of the UK, however, a town may have only one casino so behaviours and game choices are likely to be different. “We also found that motivational factors in legal gambling areas were different to those in non-legal gambling areas,” says Dr Lindridge. “Geography, access, the regulatory environment and the glitz and glamour available all have a huge impact on gambling behaviours and motivations. This recognition will help us understand the cultural effect of society on gamblers, and how gamblers influence local communities.” ■ 39

From Newcastle. For business. Newcastle University Business School 5 Barrack Road Newcastle upon Tyne NE1 4SE Find out more about our research: E: nubsdirectorofresearch@ncl.ac.uk Find out more about how we can support your business: E: external.engagement@ncl.ac.uk T: +44 (0) 191 208 2029

Details are correct at the time of printing (January 2020) but should be checked on the University’s and School’s website. Acknowledgements Edited by: Newcastle University Business School. Designed by: Altogether. Printed by: Statex Photography: Mark Savage Photography Stock imagery: Shutterstock, iStock, Unsplash The University of Newcastle upon Tyne trading as Newcastle University.

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