European Management Journal (2011) 29, 504– 513

journal homepage: www.elsevier .com/ locate /emj

Strategic ambiguity and leaders� responsibilitybeyond maximizing profits q

Mario Fernando *, A.B. Sim

Faculty of Commerce, University of Wollongong, NSW 2522, Australia

0263-2373/$ - see front mattedoi:10.1016/j.emj.2011.08.00

q Earlier versions of this paGroup of Organization StudiesEconomic and Business Confer* Corresponding author. T

42272785.E-mail addresses: mariof@

uow.edu.au (A.B. Sim).

r ª 2011

per wereColloquience, Oel.: +61

uow.ed

KEYWORDSCorporate social respon-sibility;Strategic ambiguity;Ethic of significantchoice;Organizational virtuous-ness;James Hardie;Australia

Summary Corporate scandals across the globe have triggered a broad discussion on therole of business in society, its legitimacy, obligations and responsibilities. As a result, busi-nesses and their leaders are increasingly held accountable for what they do by the societyat large. In Australia, the building products manufacturer, James Hardie Industries hasbeen accused for causing over half of the number of documented cases of mesothemilia,a lung cancer caused by asbestos. The company leaders� behavior has been widely con-demned by key stakeholders, and by the local and federal governments. The issue hasbeen a high profile case featured in the media and in public discussions on corporate socialresponsibility. By analyzing the James Hardie asbestos compensation case in Australia, weexamine the role of strategic ambiguity on leaders� extended responsibility beyond profitmaximization. Using Valand and Heide�s (2005) regulators of organizational crisis, Ulmerand Sellnow�s (1997, 2000) ethic of significant choice, and Bright, Cameron and Caza�s(2006) organizational virtuousness, we propose a Strategic Virtuousness Model as a frame-work for analyzing leader and organizational responsibility in strategic ambiguity associ-ated corporate action.ª 2011 Elsevier Ltd. All rights reserved.

Introduction

Australia has the world�s highest number of documentedcases of mesothemilia, a lung cancer caused by asbestos,and the building products manufacturer, James Hardie (Aus-tralia) dubbed as the �Killer Company� (Peacock, 2009), has

1 Elsevier Ltd. All rights reserved

presented at the Europeanum, Lisbon (2010) and Oxfordxford (2010).2 42214053; fax: +61 2

u.au (M. Fernando), absim@

been accused for causing over half of these cases (Hills,2005). The Australian Securities and Investment Commission(ASIC) sued several executives of James Hardie for mislead-ing stakeholders on asbestos victim compensation, and fail-ing to act with care and diligence (ASIC, 2009). In alandmark decision in Australian corporate governance, aNew South Wales Supreme Court judge held in April 2009that James Hardie�s chairwoman, nine directors and execu-tives violated the law by approving and issuing misleadingpublic statements about the financial adequacy of a founda-tion set up to compensate Hardie�s asbestosis victims (John,2009). Other executives were also held liable for breachingtheir duty to act with care and diligence. The ASIC chairmanencouraged corporate boards to carefully consider the

.

Strategic ambiguity and leaders� responsibility beyond maximizing profits 505

court�s decision, and �assess what improvements they canmake to their decision making processes, the way they con-vey decisions to the market and in the way they conductinvestor briefings. . .� (ASIC, 2009). But an appeal mountedby the James Hardie directors and executives was upheldand overturned the verdict removing the executive civilpenalties and banning orders.

At the heart of their appeal is a 2001 James Hardie mediarelease claiming that a new �fully funded� compensationtrust provided �certainty� to asbestos disease claimants,which was later found to be underfunded by an estimated$1.5 billion (Sexton, 2010). While the appellants claim thatthe Court of Appeal should reject a �conspiracy theory�regarding the release, ASIC claims that the non-executivedirectors were aware of a �communications strategy� whenthe board approved the release in February 2001. ASICmaintains that the management understood the board was�worried effectively about reputational issues and that�ssomething we [management] have to address� (Sexton,2010). The Appeal Court found that the corporate watchdog ASIC had not proved that the directors had approvedthe draft media release. It also found that if they had ap-proved the release, they would have breached their fidu-ciary duties. At the time of writing (12 July 2011), theHigh Court granted ASIC special leave to appeal the ruling.

According to Maak (2007), corporate scandals across theglobe triggered a broad discussion on the role of business insociety, its legitimacy, obligations and responsibilities. As aresult, businesses and their leaders are increasingly heldaccountable for what they do by the society at large. In Aus-tralia, James Hardie leaders� behavior has been widely con-demned by key stakeholders, and by the local and federalgovernments. It continues to be a high profile case featuredin the media and in public discussions on corporate socialresponsibility. James Hardie�s leadership has been allegedto have misused the power and potential for contributingto the betterment of the world. Maak (2007) claims thatwe still have little knowledge about responsible leadershipand even less about how to develop responsibility in leadersto prepare them for the challenges of a global and intercon-nected stakeholder society. Among the key questions theyare being asked, and ask themselves, are: How can businessleadership become more responsible? How can businessescontribute to tackling some of the world�s most pressingproblems? What are today�s and tomorrow�s challenges ofleading responsibly in a global stakeholder society? (p. 329).

Crisis

Stra

tegi

c A

mbi

g uity

Drivers

Internal tools

E

I

L

Regulators R

Enablers

Figure 1 The Strategic

By analyzing the James Hardie asbestos compensationcase in Australia, we examine the role of strategic ambiguity(SA) on leaders� extended responsibility beyond profit maxi-mization. SA reflects the deliberate or intentional use ofambiguity or vagueness in strategic processes. SA can be usedby organizations to typically emphasize an interpretationwhere the executive and organizational behavior is viewedmore favorably (Ulmer & Sellnow, 1997). The paper revealshow James Hardie leaders, against mounting communityand stakeholder pressure, allegedly took cover behind theirpurported primary obligation of maximizing shareholder re-turns through a campaign that was strategically ambiguous.While Hardie leaders at best, engaged in minimum socialresponsibility standards, the use of strategic ambiguity ap-pears to have helped the company to avoid engaging in virtu-ous action extending beyond maximizing profits.

Theoretical background

Using Valand and Heide�s (2005) regulators of organizationalcrisis, Ulmer and Sellnow�s (1997, 2000) ethic of significantchoice, and Bright, Cameron, and Caza�s (2006) organiza-tional virtuousness, we propose a Strategic VirtuousnessModel as a framework for analyzing leader and organiza-tional responsibility in SA associated corporate action (seeFigure 1).

Regulators of organizational crisis

A crisis is defined �as a specific, unexpected, and nonroutineevent or series of events that create high levels uncertaintyand threaten or are perceived to threaten an organization�shigh-priority goals� (Ulmer, Sellnow, & Seeger, 2011, p. 7).The response to an organizational crisis can be determinedby several factors. Valand and Heide (2005) examined how acompany can handle �bad episodes� related to corporate so-cial responsibility. They introduced a conceptual model inwhich a corporate social responsibility event passes throughthree �regulators� which influence the significance of theepisode. We extend their model and present the StrategicVirtuousness model as illustrated in Figure 1.

Drivers lead to increased emphasis on the crisis, in-creased awareness among stakeholders, and public mediainterest. More integration/higher interdependencies be-tween companies are some examples (Valand & Heide,2005). Internal Tools refer to the firm�s own rules, processes

vidence

ntent

ocus

Leaders’ esponsibility

Human impact

Moral goodness

Unconditional social benefits

Organizational Responsibility

Virtuousness Model.

506 M. Fernando, A.B. Sim

and structures that safeguard a �responsible� company. Mea-surements, auditing and reporting are tools to strengtheninternal efforts to comply with the company�s policies andthereby build trust with external stakeholders.

The strength of the internal tools is also influenced byorganizational consistency. According to Valand and Heide(2005), internal tools include internal systems, controlsand procedures designed to minimize exposure to corporatefraud and malpractice. Many companies realise thatemployees cannot be held accountable for responsiblebehavior if they are not aware of its importance nor pro-vided with the information and tools they need to act appro-priately. These companies tend to highlight the importanceof responsible executive action and include ethical behavioras a topic in management training programs to provide man-agers and staffs with decision-making processes that helpthem achieve responsible outcomes.

Enablers are generally designed to support, measure andassist in implementation, and enhance accountability forcorporate performance. Valand and Heide (2005) distinguishbetween several types of enablers: (1) conventions andstandards, (2) codes of conduct and (3) law, provisionsand court decisions. Conventions and standards include avariety of initiatives ranging from specific accountabilityand reporting standards (e.g. AccountAbility and The GlobalReporting Initiative), to guidelines and principles for an eth-ical and responsible corporate behavior (e.g. United NationsGlobal Impact). Potential conflicts of interest between theindividual, the company and the supplier/customer mightbe avoided through professional ethical standards. Issues re-lated to honesty and equity (i.e. fairness, impartiality andjustice) are relevant in order to improve the consciousnessand ethical awareness among professional individuals.Law, provisions and court decisions entail rules againstmanipulation of competition and laws with the aim ofimproving the ethicality of executive action. Like the driv-ers, Valand and Heide (2005) point out that the effective-ness of the enablers is also influenced by the level ofconsistency. For example, the effect of the enablers willbe reduced in cases where there is legal ambiguity. Simi-larly, if the threshold for breaking anti-corruption legisla-tion differs from nations, the enablers will be weaker thanin a situation where national legislation is backed by inter-national conventions.

Thus the drivers, internal tools and enablers constituteregulators, which may reduce or amplify the effects of thecompany�s response to a crisis. In some situations, the im-pact of the event may nearly diminish because public mediashow no interest in the episode or the company has the nec-essary tools to defuse the situation. In other circumstances,the incident may cause a significant uproar because it is ille-gal or in conflict with internal rules of conduct and ends upas headline news (Valand & Heide, 2005). In these instances,SA is used by organizations to manage stakeholder percep-tions of organizational and leader responsibility.

Leaders� responsibility (The ethic of significantchoice)

In general, SA can be employed in four roles (Eisenberg,2007; Eisenberg & Goodall, 1977). First, the use of SA allows

for diversity of views or interpretations, and promotesinclusiveness and unity in its diversity. Second, SA can beused to preserve privileged positions by shielding individualsfrom scrutiny or the revelation of sensitive or confidentialdetails, while providing a general overview or picture.Third, is its deniability. Vagueness in communication hasthe potential and flexibility to develop future options bytesting reactions to new ideas and minimizing conflicts. Fi-nally, SA facilitates organizational change by allowing inter-pretive room for leaders to change behavior and course ofaction for the future.

By employing SA, leaders have opportunity to emphasizean interpretation where the organization is viewed mostfavorably, and minimize the importance of ethics (Eisenberg& Goodall, 1977). The deniability attribute of SA can beused by leaders to avoid blame and responsibility or to pre-serve those who misuse their position and power. However,Paul and Strbiak (1997) contend that �strategic ambiguity it-self does not minimize the importance of ethics. Rather,intentional unethical use and the naivete of communicatorsserve to minimize the ethical use of strategic ambiguity inorganizations� (p. 156). SA can be, therefore, utilized bothin an ethical or unethical manner. Its application dependson the ethical sensitivity of the individual utilizing it.

Ulmer and Sellnow�s (1997, 2000) ethic of significantchoice framework ‘‘is founded on the principle that whena group has vital information the public needs in order tomake important decisions, that information must be dissem-inated as completely and accurately as possible’’ (Streifel,Beebe, Veil, & Sellnow, 2006, p. 391). In this context, atthe individual level, the ethicality of the leaders� use ofSA can be determined according to three criteria. The firstcriterion is the questions of evidence. The nature and com-plexity of any material evidence, including their interpreta-tions, often complicated by the use of rhetoric ormetaphors, can be examined for its reasonableness, biasand equity of impact on relevant stakeholders. The ques-tions of intent are often critical in determining whetherany action is ethical or not. Applying SA with an intent tomisinterpret, mislead and deceive raises issues of sociallegitimacy (Seeger, 1986), honorable intention and truth.The final criterion is the questions of locus of responsibility.Determining responsibility in a crisis for any organizationcan be ambiguous and difficult. Taking advantage of thisto shift the cause and blame to other parties or stakeholdersposes ethical issues. In this context, organizational virtuous-ness can be employed to determine the consequences oforganizational action in crisis situations.

Organizational responsibility (Organizationalvirtuousness)

Bright et al. (2006) describes organizational virtuousness asthe �pursuit of the highest aspirations in the human condi-tion. It is characterized by human impact, moral goodness,and unconditional societal betterment� (p.294). Virtuous-ness in organizations extends notions such as corporate so-cial responsibility, citizenship and ethics. According tothese researchers, organizational virtuousness refers to vir-tue in organizations and virtue through organizations. Vir-tue in organizations relates to the behaviour of individuals

Strategic ambiguity and leaders� responsibility beyond maximizing profits 507

in organizational settings that helps people blossom as hu-man beings (Fernando, 2010). Individual virtues lead tohope, gratitude, wisdom, forgiveness, courage and othersimilar virtues (Emmons and Crumpler, 2000; McCulloughet al., 2000; Seligman, 2002; Snyder, 2000). Virtuousnessthrough organizations relates to the enablers in organiza-tions that foster virtuousness. According to Bright et al.(2006), when virtuousness occurs in organizations, peopleact in ways that demonstrate virtuousness. This behaviormay include actions that would not be possible for individu-als to achieve by acting alone. As virtuousness demandsorganizations to go beyond the �do no harm� assumption,the effect of collective virtuousness may support a condi-tion where the impulse to seek human excellence becomesa part of the organization�s culture (Cameron et al., 2004;Gunther, 2001, July 9). Although organizational virtuousnessis not motivated by instrumental outcomes, there is reasonto expect that virtuousness produces, as a by-product, manypositive organizational outcomes.

Highlighting the dearth of scholarship on positive orga-nizing, Cameron (2003) identified the effect of time on po-sitive organizational variables as an area with scantempirical investigation. Since then, psychological literatureas well as recent empirical research assessing the relation-ship between virtuousness and organizational performancehas found a positive and significant relationship (see Cam-eron et al., 2004). For example, Cameron et al.�s (2004)study reveals amplifying and buffering effects of organiza-tional virtuousness. They contend that organizational virtu-ousness generates greater levels of virtuousness and leadsto increase the moral and social relationships with the orga-nization. However, when �bad� events such as downsizing areimplemented, the performance of an organization high invirtuousness is likely to have little negative impact; it�broadens the orientation to include fostering the moralgood, not just redressing the bad, and producing human ef-fects and social betterment, all without expectation of per-sonal return� (Cameron et al., p.770).

The three key definitional attributes of organizationalvirtuousness are human impact, moral goodness and uncon-ditional societal benefit (Bright et al., 2006, p.251). Humanimpact is the effect firm activities have on improving theliving conditions, well-being and the resilience of beneficia-ries. The moral goodness is based on the conception of�character traits in people and organizations that are seenas desirable� (Bright, 2006, p.753). The last attribute,unconditional societal benefit is the �intention to creategoods of first intent and to prudently use goods of second in-tent to instrumentally bring benefit to society� (ibid). Orga-nizations demonstrating this attribute would initiateactivities because it is the �right thing to do�.

Methods

A single case study was developed to examine the role of SAin CSR and leaders� ethical decision making. A case study is�an empirical inquiry that investigates a contemporary phe-nomenon within its real life context, when the boundariesbetween phenomenon and context are not clearly evident,and in which multiple sources are used� (Yin, 1989, p. 23).The case method was used over other qualitative methods

firstly because the study is an empirical study into the cur-rent debate over the use of SA by leaders� for profit maximi-zation. Secondly, in this study, we examined the meaningsrather than events. We did not collect a large number of re-sponses with little detail, but several in-depth accounts.Eisenhardt and Graebner (2007) justify the use of a singlecase study: �Theoretical sampling of single cases is straight-forward. They are chosen because they are unusually reve-latory, extreme exemplars, or opportunities for unusualresearch access . . . single-case research typically exploitsopportunities to explore significant phenomenon under rareor extreme circumstances� (p. 27). James Hardie was se-lected because it is an extreme example. The idea of usingextreme examples when conducting case studies is to makethe area under investigation �transparently observable� (Pet-tigrew, 1988). The case study was developed from media re-ports, James Hardie media releases and other publiclyavailable documents and inquiry reports. To analyze theuse of SA in the James Hardie asbestos case, the data wasgrouped according to the key attributes of the three mod-els: Valand and Heide�s (2005) regulators of organizationalcrisis, Ulmer and Sellnow�s (1997, 2000) ethic of significantchoice, and Bright et al.�s (2006) organizationalvirtuousness.

The case

For over 70 years, James Hardie manufactured asbestosproducts such as cement, piping, insulation and brake lin-ings in Australia. Estimates of Australia�s total liability forfuture asbestos claims start around $6 billion (Prince, David-son, & Dudley, 2004). According to Peacock (2009)

James Hardie, the name, like the company, is a lie. Thereal James Hardie died a long time ago and had almost noconnection to the Australian asbestos empire that grewunder the Reid family, killing in its wake thousands ofunwitting workers and customers. For more than20 years, Hardie chairman John Reid oversaw a strategythat ignored the dangers of asbestos, concealing Austra-lia�s largest peacetime disaster. Reid�s eventual succes-sor, Meredith Hellicar, defended Hardie�s moveoffshore until public campaigning by asbestos diseasesufferers like Bernie Banton forced the company to ade-quately provide for its victims. (mattpeacock.net)

Since 1945, about 7000 Australians have died from theasbestos disease, mesothelioma (cancer of the chest cav-ity). This number is estimated to rise to 18,000 by 2020(Murray, 2005). A major difficulty for compensation plan-ning in due to mesothelioma that can emerge 40 years afterexposure. James Hardie faces increasing claims from usersof its products, and over half of the claims made to theNew South Wales Dust Diseases Tribunal in 2002 wereagainst the Hardie Group (Prince et al., 2004).

According to Hills (2001), the timeline of this case revealsthat the harmful effects of asbestos dust were documentedas far back from 1898 by British factory safety workers (seeTable 1). In 1916, the first James Hardie asbestos factoryopened at Sydney�s West. With the first successful claimsfor compensation for asbestos disease settled by Massachu-setts Industrial Accidents Board in 1926, �asbestosis� was

508 M. Fernando, A.B. Sim

given its name. Hills claim that while the documented asbes-tos death toll in 1946 reached 235 in Britain, 30 in Italy, 16 inFrance, the first known death of a James Hardie worker wasin 1960. In 1964, a James Hardie safety officer wrote a �long�memo to senior management warning that asbestos dust is adangerous industrial poison (Hills, 2001). In 1966, CSR Lim-ited, a James Hardie group partner closed its asbestos minein Perth after more than 100 cases of lung disease amongworkers and their families. In 1977, the first of more than4000 compensation claims were filed against CSR, JamesHardie and 100 other companies. As a result, in 1986 JamesHardie stopped manufacturing asbestos (see www.benhills.com).

In 2001, James Hardie announced that it has been suedby 2000 people injured or killed by its asbestos products(James Hardie Industries Limited, 2001). The Medical Re-search and Compensation Foundation (MRCF) with assetsof $293 million was launched to settle all future claims. In2003, the company announced that the MRCF was under-funded (Hills, 2001, 2005). A special commission of inquirywas set up in 2004 to inquire into the companies activities,and the Australian federal government passed the JamesHardie Act in December to facilitate James Hardie investi-gations and proceedings. Hardie shareholders in 2007 ap-prove the first payment into the new fund as ASIC startscivil proceedings against 10 former directors and managers.In 2007, Hardie asbestos victim and compensation cam-paigner, Bernie Banton dies from asbestos related diseaseon November 27. Banton�s death, and his wife�s subsequentcampaigning add more intensity to the growing chorus ofcondemnation of James Hardie. A leading Australian dailycarried an image of Banton after his death, titled �Publicface of Hardie disaster . . . the late Bernie Banton� (The DailyTelegraph, 2009).

A state funeral was held by the New South Wales govern-ment in honor of Banton. The then new in coming AustralianPrimer Minister Kevin Rudd paid tribute by saying that Ban-ton �became a symbol, a living symbol, of what is right anddecent and proper in the workplace relations of thiscountry� (ABC News, 2007). Banton worked with asbestos

Table 1 Timeline of the James Hardie case.

1898: Harmful effects of asbestos dust documented1916: First Hardie factory in Sydney�s West1960: First known death of a James Hardie worker1964: Memo warning that asbestos dust is dangerous1977: 4000 claims filed against Hardie and others1986: Hardie stops manufacturing asbestos2001: Hardie sued by 2000 people, launches MRCF2003: MRCF is underfunded2004: Jackson QC inquiry into Hardie activities2007: ASIC civil action against 10 executives2009: Verdict – executives knowingly misled the public; held liabappeals filed by all executive directors except the chief executive2010 December: The appeals were upheld and overturned the verdThe Appeal Court found that the corporate watch dog ASIC had nrelease. It also found that if they had approved the release, they2011 January: ASIC files applications in the High Court for special lAppeal

products during the 1960s and 1970s at a James Hardie plantand Banton and his mini-oxygen tank would later becomesynonymous with claims for compensation from the com-pany. The civil hearings concluded in March, 2009 and theverdict handed down on April 23, holding all 10 directorsknowingly misled when a media release said a new asbestoscompensation trust was �fully funded� and �provided cer-tainty� for asbestos disease claimants. In addition, theywere held liable for breaching their duty to act with careand diligence. In 2010, barring the CEO, all other directorsand executives found guilty mounted an appeal in the NewSouth Wales Court of Appeal (The West Australian, 2010).Seven of the directors� appeal was upheld (The Australian,2010). However, James Hardie, was not successful in itsappeal and was ordered to pay 90% of ASIC�s legal costs. For-mer James Hardie Chief Executive was the only defendantto accept an earlier judge�s ruling. He has been banned frommanaging a company for 15 years and was ordered to payAUS$350,000 (The Australian, 2010). At the time of writing,ASIC has filed applications in the High Court for special leaveto appeal the ruling on the seven directors by the full benchof the NSW Court of Appeal.

Case application and main findings

In April 2009, an Australian court held that the board direc-tors knowingly misled its stakeholders when a media releasesaid a new asbestos compensation trust was �fully funded�and �provided certainty� for asbestos disease claimants(John, 2009). Intense media scrutiny on James Hardie hasbeen a major driver that has led to an increased emphasison the crisis and increased awareness among stakeholders(Figure 1). Due to the action taken by Hardie victims, in-creased demands for transparency and growing expecta-tions on victim compensation has affected almost everysphere of activity of the company (Mahar, 2009). Growingpublic media interest reinforced stakeholder awareness.More integration and higher interdependencies betweenthese stakeholders, especially the State, Federal and corpo-rate watch dogs such as ASIC have held Hardie accountable

le for breaching their duty to act with care and diligence;

ict removing the executive civil penalties and banning orders.ot proved that the directors had approved the draft mediawould have breached their fiduciary dutieseave to appeal the ruling by the full bench of the NSW Court of

1 A subsidiary of James Hardie.

Strategic ambiguity and leaders� responsibility beyond maximizing profits 509

for the practices of their business partners throughout thevalue chain.

Internal Tools refer to the firm�s own rules, processesand structures that safeguard a �responsible� company andits employees. Measurements, auditing and reporting aretools to strengthen internal efforts to comply with the com-pany�s policies and thereby build trust with external stake-holders. The strength of the internal tools is alsoinfluenced by organizational consistency. For example, thecurrent James Hardie Code of Business Conduct and Ethics(2008) requires employees to �never discuss JH with thepress unless you�ve been explicitly authorized to do so byInvestor Relations� (p. 14). This perhaps indicates the orga-nizational expectations and norms existed at James Hardiebefore 2008. Despite such an expectation, the Hardie boardmembers denied under sworn testimony to the SupremeCourt, that the central document of the case, the media re-lease signed by Greg Baxter, Senior Vice President Corpo-rate Affairs about asbestos compensation (James Hardie,2001) was not tabled and approved by the members of theboard. However, the Supreme Court rejected this testimonyand held that board members approved the media releasegrossly under estimating the amount of compensation. Theexercise has been a public relations disaster affecting itsshare price, stripping $1 billion off its investor value (TheAge, 2004). Thus when Hardie employees handle, interpretand understand the victim compensation saga very differ-ently from other stakeholders such as the public and Su-preme Court, organizational consistency is low. With lowconsistency, the significance and power of internal toolsare reduced.

Enablers are generally designed to support, measure,and assist in implementation and enhance accountabilityfor corporate performance. It can be argued that whilstknowing the dangers of asbestos dust as far back as 1898,James Hardie continued to manufacture asbestos productsuntil 1986, showing little regard for safety standards andduty of care especially towards employees and customers.Law, provisions and court decisions, entail rules againstmanipulation of competition and laws with the aim ofimproving the ethicality of executive action. Hardie contin-uing to manufacture asbestos until 1986 despite the firstJames Hardie death occurring in 1966 and its partner, CSRbeing forced to close down in 1966, shows a lack of dutyof care.

In sum, the regulators consisting of the drivers, internaltools and enablers impacted adversely on the executives�and company�s response to the asbestos crisis. With intensemedia coverage, the incident caused a significant uproar inAustralia. In response, the company adopted a strategicallyambiguous campaign to paint a positive picture on the issue.For example, in 2001, the Hardie CEO claimed that withstarting assets of $293 million, the establishment of a fundto pay asbestos victims provides certainty for people with alegitimate claim against the company, and that this estab-lishment has effectively resolved Hardie�s asbestos liability.James Hardie couched the announcement of the establish-ment of the MRCF to give the impression of certainty andadequacy of meeting all asbestos claims. However in2003, just after 2 years of making this claim, $293 millionwas proved to be grossly inadequate. A 2004 estimate ofcompensation liability put the figure at $2.24 billion. In

2001, the Hardie Group assured the NSW Supreme Court thatit would call on $1.9 billion to meet future asbestos claims.However, in March 2003, they failed to honor this commit-ment, and moved the Hardie Group�s assets overseas, outof reach of asbestos victims in Australia. It has been calledas one of the most morally and legally repugnant acts in Aus-tralian corporate history (Prince et al., 2004). This �litany ofdeception� uncovered from the Jackson inquiry recom-mended criminal proceedings against the CEO. In a 2009judgment from the civil proceedings initiated by ASIC, thecourt held that 10 former James Hardie executives know-ingly misled when a media release said a new asbestos com-pensation trust was �fully funded� and �provided certainty�for asbestos disease claimants.

The use of strategic ambiguity is also reflected in theestablishment of the MRCF and the separation of the liabil-ities from the main operating companies and the parentcompany. The MRCF was created to assume all currentand future liabilities of asbestos claims. This will createthe �distance� between the James Hardie companies andthe compensation vehicle. This separation was further car-ried out when the parent company was moved to the Neth-erlands (as JHNV in October 2001). In 2009, there was aproposal to move the domicile of the company again to Ire-land, ostensibly for tax reasons. With each move, the sepa-ration become more distant and can serve to create moreobstacles for claimant in pursuing James Hardie for furthercompensation. This also adds to the corporate veil.

The 2001 media release also highlighted the primacy ofshareholders relative to other stakeholders. The raising ofthe need for the company to focus on �growing the companyfor the benefit of all shareholders� can be used to down-grade attention and resources to compensation claims,and can be used as an argument to leave compensationclaims solely to the MRCF. This situation is enhanced bythe increasing distance between the MRCF and James Hardieparent company.

Moving onto the ethic of significant choice, questions ofevidence in the James Hardie case are centered over the le-gal debates which occurred in the aftermath of the crisis.According to Ulmer and Sellnow (1997), these altercationsusually pit the organization�s team of experts against thosefrom legal or governmental agencies. Questions of evidencein the James Hardie case are centered over the legal de-bates which occurred in the aftermath of a crisis. For exam-ple, the legal debate that continued with the James Hardiecase on the companies� ability to hide behind the corporateveil is one example relating to evidence in this case. Dunn(2005) analyzing the James Hardie case in the Sydney LawReview, state that various parties to the inquiry raised thequestion of whether the conduct of the directors of the var-ious companies involved gave rise to causes of action underAustralian corporations legislation. For example,

In particular, it was alleged that the directors of Coy1

breached their duty to act in good faith for the bestinterests of the company as a whole by paying improperdividends and excessive management fees; in transfer-ring Coy�s operating assets and core business; and incharging JHA less-than-market rentals for the various

510 M. Fernando, A.B. Sim

properties it leased from Coy. Also challenged were theuse of deficient actuarial advice in setting up the MRCF;the misleading media release following the MRCF�s estab-lishment; the lack of disclosure during the Supreme Courtproceedings concerning the Scheme of Arrangement; andthe legality of the Deed of Covenant, Indemnity andAccess (Dunn, 2005, p. 343).

However, notwithstanding Hardie�s willingness to compen-sate victims in this case, the Commissioner was of the opin-ion that the circumstances that have been considered bythis inquiry suggest there are significant deficiencies in Aus-tralian corporate law (Dunn, 2005). In particular, there isconcern that �under the current Corporations Act, there isthe potential for other companies to attempt to divestthemselves of liability by hiding behind the corporate veil�(Merritt, Buffini, Priest, & Pretty, 2004). As Ulmer and Sell-now (1997) correctly observe, the resulting legal interpreta-tions and altercations leaves the audience with two or moreplausible interpretations which are too complex to graspfully without technical expertise.

Questions of intent emerge when the organization�s so-cial legitimacy is questioned. In other words, if the organi-zation cannot prove that it intended to produce reliableproducts and services in a safe manner, it will likely losewhatever public support it once enjoyed. According to theethic of significant choice, James Hardie held �a responsibil-ity to give the public as much information as it could as fastas possible� (Streifel et al., 2006, p. 391). This appears notto be the case. The company lost the public confidencedue to continuing to manufacture a harmful product. Withbooks, media reports and expert comments pouring out un-der headings such as �Killer Company: James Hardie Ex-posed� (Peacock, 2009) �James Hardie: No Soul to beDamned and No Body to Be Kicked� (Dunn, 2005) and �A Bil-lion-dollar Case of Poor Judgement� (Sexton, 2004), the Har-die executives continued with the usual rhetoric of paintinga positive image on the crisis, often, further damaging itssocial legitimacy. For instance, after three weeks of JamesHardie advertisements declaring �there are two sides toevery story�, it bowed down to community pressure, andbilled the compensation deal as �the largest-ever voluntarycompensation offer made in Australia�s history� (Sexton,2004). Merely 6 months before the declaration of the com-pensation deal, Hardie was insisting it had no intention topay, that the directors� primary obligations to their share-holders to generate profits prevented them from doing so,suggesting willful disregard of public welfare by JamesHardie.

Questions of locus emerge as organizations and externalagencies decide where the blame should be placed for thecrisis. Debates arise in determining whether responsibilityrests within or outside the organization. Cheney (1991)exemplifies how the hierarchical nature of organizations al-lows organizational leaders to ‘‘�decenter� the self, the indi-vidual, the acting subject through language that is�powerfully ambiguous�’’ (p. 5). Assigning blame to an orga-nization becomes difficult because �organizational messagestake on a relatively placeless, nameless, omniscient quality,even when a corporate identity is assumed and declared�(Cheney, 1991). Therefore, it is difficult to assign blameto organizations because they become ambiguous entities

which are able to diffuse responsibility. However, in theJames Hardie case, the Jackson QC and ASIC inquiriessquarely placed the responsibility on the executives of thecompany. For example, the Jackson QC inquiry found �a lit-any of deception that he recommended should lead to crim-inal charges� against Hardie�s CEO (Hills, 2005). Anotherinstance is when James Hardie defended its underfundingof the MRCF due to a �best estimate� report by the Trow-bridge Deloitte report (February 2001). An updated reportby Trowbridge attributed the discrepancy to James Hardienot providing it with all available information, having with-held its claims data for the 9 months to December 2000(Sexton, 2004). Finally, the locus for the crisis at James Har-die becomes clear in light of the apology and declarationthat �in retrospect, we could have responded differently,and more quickly� by its chairwoman (Sexton, 2004).

Based on the application of Ulmer and Sellnow�s (2000)ethic of significant choice model, there is sufficient evi-dence, intent and locus to hold Hardie leaders responsiblefor the crisis. However, at the organizational level, theJackson (Queen�s Counsel) inquiry found that the companyhad no legal obligation to pay compensation to its victims(Sexton, 2004). Despite these inadequate outcomes on orga-nizational responsibility as per Australian corporate law,ethically, at an organizational level, organizational virtu-ousness can be used to assess the virtuousness in the JamesHardie case.

In a crisis such as of the asbestos victims of James Har-die, which resulted in loss of life and livelihood and deteri-oration of wellbeing, the first attribute of organizationalvirtuousness, the place of human impact is relatively easierto detect. With James Hardie chairwoman�s own admissionand apology (The Age, 2004), there is little doubt that theasbestos operations of James Hardie had a significant ad-verse impact on its victims. In 2010, 750 new cases of asbes-tos related diseases are expected and more than 13,000 arelikely to have mesothelioma by the year 2020 (Mahar, 2009).

Considering the role of the second attribute of organiza-tional virtuousness, the moral goodness of James Hardie re-sponses to the crisis, the key question is whether thecompany did �the right thing� (Park and Peterson, 2003).Although no victim of James Hardie has gone without com-pensation yet (Sexton, 2004), questions of evidence, intentand locus show that the company was managed at the min-imum level of corporate social responsibility, meeting onlyits required legal obligations. At no time the company wentbeyond its legal duty to engage �in the right thing� by the vic-tims. One example is of the misleading release of publicinformation on the compensation funding. The SupremeCourt found that James Hardie�s chairwoman between2004 and 2007 and nine directors and executives violatedthe law by �approving and issuing misleading public state-ments about the financial adequacy of the Foundation setup to compensate asbestosis victims� (John, 2009). Eventhough the Corporations Act allows the court to exoneratebreaches of directors� duties if �the person has acted hon-estly; and having regard to all the circumstances of the case. . . the person ought fairly to be excused for the contraven-tion�, the judge, raising serious questions about the evi-dence given by the chairwomen, described her as a �mostunsatisfactory witness� (John, 2009). She later withdrewfrom corporate and public life, including the board of

Strategic ambiguity and leaders� responsibility beyond maximizing profits 511

AMP, the share market-listed Amalgamated Holdings, theSydney Institute and the Garvan Research Foundation. An-other example of not �doing the right thing�, the motivesof the company are being thrown to the media spotlighton 24 June 2009 (James Hardie Statement) after James Har-die�s announcement of a move to Ireland, a location wherethey have no operations. The move, motivated due to favor-able taxation rules, is estimated to cost 71 million dollarswhich the asbestos victims believe should be assigned tothe MRCF, especially when James Hardie has suspendedmaking payments to the fund due to a loss of $45.2 millionin profits.

The final attribute of organizational virtuousness isunconditionality of social benefits, which according toBright (2006) is the �intention to create goods of first intentand to prudently use goods of second intent to instrumen-tally bring benefit to society� (p. 753). The key task ofassessing this attribute in the James Hardie case is whetherthe company intended to create goods of first intent (a vir-tuous pursuit) or to create goods of second intent (an instru-mental pursuit). Using Aristotelian explanation on ethics,Bright (2006) elaborates that �goods of first intent�; a chiefgood which is in itself is worthy of pursuit, such as concernfor others and common good, refer to virtuousness (p. 752).On the other hand, the pursuit of goods of second intent re-fers to those that are good for the �sake of obtaining some-thing else such as profit, prestige and power� (Bright, 2006),and is amoral. For example, Justice Gzell in the SupremeCourt held that the James Hardie executives knew it wasmisleading when it said a new asbestos compensation trustwas �fully funded� and �provided certainty� for asbestos dis-ease claimants. Fundamental to this claim was the �bestestimate� of current liabilities as $286 m contained in theTrowbridge Deloitte report of February 2001 (Dunn, 2005).Trowbridge was again commissioned to carry out an updatedreport on the future asbestos liabilities of the MRCF. Its re-port valued asbestos-related disease liabilities at $574.3million, a significant increase on the previous estimate.Trowbridge attributed the discrepancy to the fact thatJames Hardie did not provide it with all available informa-tion, allegedly having withheld its claims data for the9 months to December 2000 (Letters Patent, 2004). Laterreports saw the estimates of potential liabilities only esca-late and that the MRCF would be unable to meet its futureasbestos-related liabilities in the medium or long term. Thisincident illustrates how the James Hardie executives werenot interested in goods of first intent (a virtuous pursuit),but effectively tried to protect goods of second intent (com-pany reputation) from any harm.

Conclusion

Incorporating the work of Valand and Heide (2005), Ulmerand Sellnow (1997, 2000) and Bright et al.�s (2006) organiza-tional virtuousness, in this paper, we have presented a basicframework for analyzing the use of strategic ambiguity usingthe James Hardie asbestos case. The apology by the JamesHardie chairwoman at the end of the saga was tempered bya reminder that the company had legal and fiduciary respon-sibilities and that the board�s obligations to shareholdersshould not be forgotten. While this line of inquiry is in its

embryonic stage, the James Hardie case reveals the use ofstrategic ambiguity on the pretext of the primary obligationto make profits. While organizations have the potential totypically emphasize an interpretation where the organiza-tion is viewed most favorably, the line between ambiguityand deception is an ethical issue that needs to beaddressed.

This research is based on the much publicized case ofJames Hardie�s compensation scandal and therefore hasinherent limitations. An obvious limitation is that the delib-erate use of strategic ambiguity can only be inferred, andthis can only be remedied by undertaking primary researchto determine intentions on the part of the participants, par-ticularly prior to the event happening. This research never-theless raises important questions for future research on therole of strategic ambiguity in the ethical or unethical actionof firms. The recent financial crisis and other corporatescandals indicate that it takes responsible leadership andresponsible leaders to build and sustain a business that isbeneficial to multiple stakeholders (Maak, 2007, p. 329;Maak & Pless, 2006). On the contrary, in this exploratoryapplication of the strategic virtuousness framework to theJames Hardie asbestos compensation scandal, the findingssuggest the leaders� irresponsible use of SA to typicallyemphasize a favorable interpretation of the company�soperations at the expense of asbestos victims. Evidenceshow how, in the pursuit of maximizing profits, Hardie lead-ers ignored basic tenets of caring towards its asbestosvictims.

The managerial implications stemming from this studyshows the power of SA, and that it can be used both in anethical or unethical manner. SA�s application depends onthe ethical sensitivity of the individual using it. Since ethicalcodes alone cannot reduce unethical behavior (Somers,2001) and that leadership does not always enhance ethicalbehavior (Victor & Cullen, 1988), �increasing attention isbeing placed upon assessments of individual character, per-sonality, and belief systems that may influence ethical cog-nitions as precursors to behavior� (Giacalone & Jurkiewicz,2003, p. 86). The case presented in this paper can be iden-tified as one of the more extreme cases to examine the useof SA by business leaders. The application of the proposedStrategic Virtuousness Model in less-extreme cases could re-veal interesting and subtle tensions between variables suchas questions of intent and moral goodness. Future researchcould examine the application of the proposed model in thecontext of these precursors on a larger sample of businessleaders drawn from several industry sectors and stakeholderperspectives. The use of primary research methodology togather pre- and post-data on actual intentions and eventscan further enhance the research methodology and results.

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MARIO FERNANDO is a Senior Lecturer atthe School of Management and Marketing,University of Wollongong, Australia. He haspublished his work in academic journalssuch as the Journal of Business Ethics, andhis current research projects include thestudy of ethical ideologies of Australianmanagers, the genuineness in corporatesocial responsibility and spiritual leadership.He has also published a book titled Spiritual

Leadership in the Entrepreneurial Business: A Multifaith Study(2007, Edward Elgar).

A.B. SIM (School of Management and Mar-keting, University of Wollongong, Australia)holds a PhD from UCLA and has taughtmanagement courses in universities in Aus-tralia and Asia and worked in industry in topgeneral management positions for anextensive period of time. His areas ofresearch interest include strategic manage-ment, emerging Asian MNEs, managementand governance in the Asian context. He has

published extensively in international journals, including the Man-

agement International Review, Journal of World Business, AsiaPacific Business Review, Journal of Asian Business, Asia PacificJournal of Management, Journal of Asia-Pacific Business andInternational Journal of Technology Management.