How managers’ risk perceptions affect their willingness to blame advisors as scapegoats

https://doi.org/10.1016/j.emj.2021.09.004Get rights and content

Highlights

  • Managers use advisors as scapegoats in order to avoid blame.

  • This effect is more pronounced in an economic boom than in an economic crisis.

  • The more risk managers perceive, the more pronounced this effect.

  • The higher the advice utilization, the less own responsibility managers perceive.

  • Risky investments are perceived as less risky when recommended by a scapegoat.

Abstract

Managers spend considerable amounts of corporate money to hire consultants. The research proposes two potential benefits of consultants' advice: increasing decision accuracy and sharing responsibility with the advisor. In contrast to previous research, which has predominantly focused on factors influencing decisional accuracy, this paper evaluates the sharing of responsibility in the form of using an advisor as a scapegoat. We conduct an online experiment with 175 managers from German-speaking countries in an investment setting. We find that the presence of a potential scapegoat positively affects advice utilization in an economic boom but negatively affects such utilization in an economic crisis due to managers' varying risk perceptions. Managers' risk perceptions are the main drivers of scapegoating as a form of managerial blame avoiding decision-making. We contribute to management research and highlight managers’ opportunistic motives behind consulting (costly) advice.

Section snippets

Introduction and background

Business consulting represents a significant industry, which created revenues of 188 billion USD worldwide in 2018 (Healey, Williams, Sullivan, & Blackmore, 2019). Managers usually hire external experts to help them make better-informed decisions. However, managers may have other motives for consulting advisors. One motive underlying managers’ decision to seek such advice, which is often discussed but hardly empirically tested, is that they do so to be able to blame the advisor as a scapegoat.

Investment decision-making for internal capital allocations

In this paper, we argue that managers' use of advice depends on their advisors’ blame potential and the perceived riskiness of an investment decision. Deciding how much financial capital is invested in each internal corporate division is an essential task for managers (Busenbark, Wiseman, Arrfelt, & Woo, 2017). Busenbark et al. (2017) report that the predominant internal capital allocation strategies are winner-picking and diversification.3

Experimental design

We use a two-step experiment to study whether managerial blame avoiding advice-taking is influenced by the advisors’ blame potential and the perceived riskiness of an investment decision. The participants were first asked to make a preliminary investment decision on their own. Then, they received advice and had the opportunity to adjust their preliminary decision. Such an experimental setup is commonly used in the literature (Bonaccio & Dalal, 2006; Schultze, Mojzisch, & Schulz-Harald, 2017).

Manipulation checks

The participants perceived less risk for the “Stable Solutions” investment plan than for the “New Technology” investment plan (t (174) = −8.17, p < 0.001) and recognized the economic boom and the economic crisis (t (173) = −10.29, p < 0.001).18 There were no differences in participants’ risk propensity between the economic boom and economic crisis (t (173) = −0.03, p = 0.973). This indicates that both the manipulation and the

Discussion of the results of the preliminary investment decision

In our experiment, the manager participants realized the riskiness of their preliminary investment decision. The riskier their preliminary investment decision, the higher the risk they perceived (see Table 2). However, the participants perceived higher risk in the economic boom than in the economic crisis (t (173) = −1.90, p = 0.059), and they allocated their investment budget more defensively in the economic boom than in the economic crisis (10.70 vs. 11.32, see Table 2). These findings

Declaration of competing interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Acknowledgments

We would like to thank the editors and three anonymous reviewers for their support. We also thank Jörn Basel and Georg Loscher for their helpful comments and advice on early drafts of the article. We are also grateful for the feedback given by discussants at the 10th Empirical Research in Management Accounting & Control Conference and at the Monforma2020 conference.

This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.

References (41)

  • B. Bartling et al.

    Shifting the blame: On delegation and responsibility

    The Review of Economic Studies

    (2012)
  • G. Bodenhausen et al.

    Sadness and susceptibility to judgmental bias: The case of anchoring

    Psychological Science

    (2000)
  • A. Bryman et al.
  • J.R. Busenbark et al.

    A review of the internal capital allocation literature: Piecing together the capital allocation puzzle

    Journal of Management

    (2017)
  • D.M. Cable et al.

    The value of organizational reputation in the recruitment context: A brand‐equity perspective

    Journal of Applied Social Psychology

    (2003)
  • J. Crocker et al.

    The costly pursuit of self-esteem

    Psychological Bulletin

    (2004)
  • G. Dingwall et al.

    Blamestorming, blamemongers and scapegoats

    (2015)
  • B. Englich et al.

    Moody experts - how mood and expertise influence judgmental anchoring

    Judgment and Decision Making

    (2009)
  • H. Fennema et al.

    Original and cumulative prospect theory: A discussion of empirical differences

    Journal of Behavioral Decision Making

    (1997)
  • K.A. Gangloff et al.

    Of scapegoats and signals: Investor reactions to CEO succession in the aftermath of wrongdoing

    Journal of Management

    (2014)
  • Cited by (0)

    1

    The data and experimental material are available upon request.

    View full text