FINANCIAL SCANDALS IN THE UK CORPORATE REPUTATIONS

Financial Scandals in the UK Corporate Reputations



Table of Contents

Chapter 1: Introduction3

Research Background8

Aim of the Study8

Implications for corporate reputations9

Trait averaging and covariation14

Trait covariation19

Chapter 3: Methodology26

Hypotheses26

Research Method35

Chapter 4: Results, Analysis & Discussion39

Assessment of hypotheses46

Chapter 5: Conclusion49

References54

Bibliography61

Appendix. The questionnaire63

Chapter 1: Introduction

Prior to 1985, most UK employees in pensionable jobs were compelled by their employing organisations to belong to occupational pension schemes operated or approved by their companies. The employee would pay between 4 per cent and 6 per cent of his or her salary into a pension fund, the employer making an additional 4 per cent to 6 per cent contribution. During 1985 the UK government legislated to give all employees the right to quit such schemes and transfer into any other pension arrangement of the person's choosing, or not to make any (non-state) pension contributions at all (Todd and Kandler, 2003). In consequence, the UK insurance companies vigorously promoted their pension products (known as personal pensions) to members of occupational schemes, in attempts to persuade them to transfer from occupational to personal pensions. The legislation became effective on 1 July 1988, and 550,000 personal pensions were sold during the next four months (Key Note, 2003, p. 25). Senior government ministers openly endorsed personal pension systems (Aldridge, 2002), and demand was further stimulated in 1989 by the government offering rebates on state national insurance contributions to any person who opted out from the state earnings-related pension scheme (SERPS) and instead purchased a personal pension ( Association of British Insurers, 2001). (SERPS was a compulsory supplement to an employee's basic national insurance contribution.) The insurance companies increased the intensity of their pensions advertising and sales rose considerably (Brett, 1989 for details). Five and a half million people transferred out of SERPS into a personal pension between July 1988 and the end of 1993, when the tax advantage was terminated (Hunter, 2000).

Unfortunately, many of the people who switched from occupational to personal pensions or out of SERPS became substantially worse off as a result. Employers' contributions were forfeited, retirement and surviving dependants' benefits were often lower, and benefits themselves were frequently linked to future stock market performance rather than being based on the individual's final salary. Employees who became aware of this could rejoin their original occupational scheme, but only by paying high fees for re-entry (Miles, 2003). The UK's financial services regulatory bodies began to express concerns about these matters in 2000, largely as a by-product of the report of the government's Pension Law Review Committee established in 1991 to examine the overall framework of UK occupational pension arrangements. More formally, the UK Securities and Investments Board (SIB) revealed in December 1993 that a study it had commissioned from an independent auditing firm had discovered that between 400,000 and 500,000 people might have been persuaded to transfer out of an employer's scheme into a personal pension against their own best interests. Hence in 2000 the SIB ordered all pension suppliers and independent agents to review all their personal ...