How high-status moral endorsement can sway consumers

We’ve all seen television commercials where a well-known actor or sports personality endorses a product ranging from soft drinks to automobiles. This reflects advertisers’ belief that many consumers will be influenced to buy a product recommended by superstars, because, just perhaps, some of the angel dust will rub off from celebrity to customer.

Yet most of those adverts involve products that are non-controversial: while sugary drinks aren’t particularly healthy, there’s hardly a huge groundswell of protest against them. And while cars can be dangerous if driven recklessly, and have environmental consequences, there is not a mass movement to ban automobiles.

But what happens when a product’s moral acceptability lacks a clear consensus, particularly regarding moral issues? This is an area that has been little researched, but is increasingly important given debates over such issues as the use of fur in high fashion, the inclusion of stocks from certain industries in so-called sustainable investment funds, the choice of harvesting methods in forestry, and the determination of which ingredients should be used to make biodiesel fuels (a food versus fuel debate over shifting resources from food production).

While they may not appear in many TV commercials, prominent scientists are routinely contracted by biotechnology and pharmaceutical firms as consultants to confer legitimacy on their products through advice on ethical and moral issues. Such moral advisors with established authority help provide clarity and guidance regarding right or wrong in values and actions.

A strong stamp of moral approval from elite scholars

The research finds, additionally, that the impact of such high-status endorsements weakens as these bonds adhere more closely to strict moral interpretations, and that bond issuers are more likely to seek such endorsements from high-status moral advisors when the products involved are opaque or complex.

Because there is a serious global shortage of respected Shariah scholars, the most elite scholars are in high demand so they have significant decision-making independence that adds clout to their endorsements. Lionel and his co-authors cite a news article quoting a Dubai-based banker, who likens high-status Shariah scholars to “a bit like being a rock star. They are disproportionately recognised, with people saying: ‘I want that name in Malaysia, I want that name in Bahrain’”.

How endorsements shape trust in complex markets

“While social endorsements from well-known and high-status individuals have long been known to positively influence product evaluations, the impact of such endorsement has not been very clear when the endorsed products are contested or considered questionable,” says Lionel. “Our research addresses this issue, and has practical implications as more contestable practices arise in fields ranging from healthcare technologies to the moral implications of artificial intelligence.”

The market for sukuk has grown from its inception more than 20 years to a value estimated at $860 billion and growing at 11% annually, as both traditional Islamic banks and conventional banks have poured into the market, with the Islamic banks selling to non-Muslims worldwide in addition to their core Muslim customers. As with conventional bonds, companies issue sukuks to fund a wide range of initiatives including plant expansion and new product launches.

Debate over whether sukuk features comply with Islamic law

The research on sukuk reflects an ongoing debate within Islamic finance: while the general principles are widely agreed upon, specific product features – such as whether bond issuers can charge late payment fees – are far more contested. As the authors say, sceptics of Islamic finance argue that many products contain “features that are essentially ‘interest by another name’” in violation of Islam’s strict ban on interest.

The research by Lionel examines 1,540 sukuk issued between 2012 and 2017, or about 40% of the total sukuk market’s amount each year, focusing on the coupon rate or fixed rate of return that bond issuers commit to pay bond purchasers: banks prefer a lower coupon rate and purchasers prefer, all other things being equal, a higher coupon rate that carries greater financial return.

And this is where the endorsement of high-status Shariah scholars, or sheikhs, comes in.

“In choosing to invest in a sukuk, consumers do not consider only its financial returns; they are also concerned with its moral acceptability,” say Lionel and his co-authors. “Our findings indicate that sukuk endorsed by higher-status moral advisors generally have lower coupon rates. This suggests consumers are willing to accept reduced financial returns for products bearing a strong stamp of moral approval.

“We also observe that the relationship between endorsements of high-status moral advisors and consumers’ acceptance of lower financial returns weakens when the product has more stringent features. This further underscores the high value consumers place on these endorsements.”

Precise definition of Shariah compliance is not straightforward

This stems from the fact that the precise definition of Shariah compliance is not straightforward. While Islamic law derives primarily from the holy Koran and the sayings and actions of Prophet Mohammed, Islamic scholars have also established a consensus on matters not discussed in the Koran or by Prophet Mohammed, and this is why these scholars play such a key role and why their interpretations may differ.

A prominent Shariah scholar cited in Lionel’s study noted in a previous paper: “Scholars are not the same in their educational exposure and reasoning processes. Thus, it would be illogical and unreasonable to expect them to have one standard view or response to a particular issue at any one time.”

And as a Malaysian scholar interviewed by Lionel and his co-authors said: “To some Shariah scholars, Shariah is flexible. Why do you have to make it rigid? I mean our Islamic participants, if you look at it, there are many flexible views. So these scholars are saying, we are not inventing anything. This is just the nature of Islamic jurisprudence.”

Previous studies on Islamic finance looking at derivatives and charity tax

The study in Organization Science complements previous research by Lionel relating to Islamic finance and compliance with Shariah law.

As Lionel examined in a 2019 study whose co-authors include Kamal Munir, Professor of Strategy and Policy at Cambridge Judge, some Shariah scholars argue that derivative products are not compliant with Islamic finance prohibitions on speculation (maisir) and preventable uncertainty (gharrar) because they involve excessive risk, while others say such derivative products can help Islamic banks to hedge or spread risks.

“Even though the idea of derivatives has been around since the 1970s, there have been few adopters within the Islamic banking category, with most Islamic scholars shunning them because they are inherently incompatible with the principles of sharia,” says that 2019 study published in the Academy of Management Journal. “In the words of a prominent sharia scholar in Saudi Arabia: Derivatives result in the creation of a pure speculative market totally separated from the real economy. This is a destabilising factor to the world financial system and constitutes a threat to humanity.”

Yet while such thoughts were widely echoed by many people interviewed for the article on grounds that derivatives are socially and religiously unacceptable, “these sentiments were also challenged, however, by many CB-owned Islamic banks (Islamic banks owned by conventional banks) who openly endorsed derivative products, asking many prominent sharia scholars to take a pragmatic approach with them to push for more ‘sharia-compliant’ derivative products,” the authors said.

There is also a longstanding argument whether and how zakat, a 2.5% charity tax on net income, is compulsory under Islamic finance. As outlined in a 2021 study in the journal Social Forces co-authored by Lionel, some contend it is compulsory across the board while others say it is mandatory only for individuals and not organisations.

Product features including choice of inputs often provoke controversy

The research in Organization Science outlines how companies often make decisions that may be controversial around product design, including product features, production methods and choice of inputs – and these decisions affect both revenues and costs. As applied to moral issues, “producers who choose to ‘play it safe’ by adhering to the strictest interpretation of moral principles may face higher input costs or more time-intensive production methods,” says the research, citing the more costly methods used by organic farmers who use chemical-free fertilisers and more traditional planting methods.

As shown in prior research, high-status endorsements can affect what is known as first-order beliefs by consumers, or their personal belief about a product’s value, as well as an impact on third-order beliefs, or beliefs about what most people think – and the authors note that this “may prove valuable in ‘providing cover’” for a consumer’s decision to buy a certain product that is the subject of debate.

Lack of consensus on moral acceptability can cut 2 ways

The authors conclude by highlighting what they describe as an underappreciated duality within contested markets.

“On the one hand, the lack of consensus regarding the moral acceptability of specific product features and practices makes product design choices riskier for producers and may cause consumers to be reluctant to make a purchase. On the other hand, the lack of consensus also offers producers some degree of flexibility, provided they can draw on endorsements to help persuade consumers to accept their products.

“Building knowledge in this area is crucial, as consumers are becoming more cognisant of the morality and ethics underlying their consumption decisions, while at the same time, interpretations of morality are a matter of ongoing debate.”