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Ethical Leadership

Given the recent crash on Wall Street and the housing market symbolized by corrupt financiers like Bernard Madoff, ethical and moral leadership of corporations has become a major issue for those who study the American capitalist system. In reality, such concerns about the lack of morality in business, government and society as a while has increased significantly in the last thirty years, which undoubtedly has been an era that glorified money, power, greed and self-interest in ways not seen in the United States since the 1920s -- or the Gilded Age of the late-19th Century. Public opinion surveys in recent decades show a total lack of public confidence in the ethics and morality of leading institutions in both the public and private sectors. This has also been an era of globalization in which many older Fordist mass production industries have been downsized, outsourced and moves to China and other low-wage export countries, which has increased the distrust of corporate management at all levels. Executives have done far better financially than their employees in this new economy, as wealth and incomes have become more concentrated at the top than ever before while the middle class has declined. In the latest recession, when unethical and incompetent firms received trillions of dollars in government aid in order to prevent a general collapse of the economy, the public outrage boiled over. In short, there seems to be a great abyss between the elite and popular levels in American society and a severe need for more ethical leadership that inspires trust and confidence in ordinary people. As the American economy has increasingly become based on services, finance and high technology, there have also been growing concerns about the ethics of these new industries, and the potential that computers and the Internet might have for the privacy and freedom of the individual, and how they are used to mold and manipulate mass opinion. Many analysts argue that there is a need for transformational leadership in corporate organizations as well as the larger society -- the type of leaders who will be motivated not by money, power and selfishness, but by a higher morality and universal values that will lift the country out of the morass into which it has fallen.

For classical and free market economists from Adam Smith and Bernard Mandeville in the 18th Century to Milton Friedman in the 20th, business had no other goals or social responsibility than maximizing profit. Smith and Mandeville stated that the invisible had of the free market automatically led to progress and the betterment of society even though the individuals participating in it had no higher moral purpose except self-interest. In a competitive market of buyers and sellers, each sought their own maximum advantage, whether to sell for as high a price as possible or buy at the lowest price, while investors always sought the highest returns (Martin et al., 2009, p. 6). As the fictional Gordon Gekko put it in the 1987 movie Wall Street "greed is good" and "captures the essence of the evolutionary spirit." Of course, Gekko's greed was not directed toward building or preserving any business over the long-term, but merely plundering them for short-term gains. While Milton Friedman did not endorse Gekko's version of Robber Baron capitalism, particularly with its cynical contempt for all forms of law and ethics, he did write in 1962 that corporations had no other responsibility but "to make as much money for their stockholders as possible" (Martin et al., p. 7). In spite of all the public and academic discussion about transformational and ethical leaders over the past thirty years, in reality most corporate and Wall Street executives still seem to be following Friedman's advice. Their ethics are dubious at best, as is their concern for followers and the larger society, although they have certainly been very effective at enriching themselves -- often using highly unethical and even illegal means.

In contrast, advocates of ethical and socially responsible management have maintained for decades that corporations also have obligations to their employers, customers, suppliers, the community, government and the environment. As Edward Freeman put it in 1984, all of these were "stakeholders" in the company to which it had certain obligations, while Friedman would have done no more for these other interests than "what is required by regulation and law" (Martin et al., p. 8). Peter Drucker asserted that corporations always had three dimensions: economic, human and social (Martin et al., p. 5). He claimed that the primary obligation of a business was to its customers, without which no business could make a profit or continue to exist at all. Without profit, then a corporation could never be socially responsible or "be a good employer, a good citizen, a good neighbor" (Martin et al., p. 9). Michael Jensen called for "enlightened value maximization" in which a corporation avoided mistreating or ignoring any important constituency and would therefore "do well by doing good" (Martin et al., p. 11).

This raises the question of to whom the management of a corporation is ultimately responsible, and which set of interests should be its main priority. Fir example, "is it socially responsible for the stronger corporation to drive the weaker one into bankruptcy or a forced merger," or to declare bankruptcy "to avoid mounting financial obligations to suppliers, labor unions, or competitors" (Daft and Maucic, 2008, p. 130). In order to offer the lowest possible prices to its customers, Wal-Mart is very aggressive about importing the cheapest possible goods from a low-wage country like China, although this also damages American workers, manufacturers and suppliers. Businesses today frequently come under criticism for globalization practice like these, as well as from consumer and environmental groups in ways that were not nearly so common 30-40 years ago (Daft and Maucic, p. 132).

Ethical judgments always involve questions of right and wrong, and vice and virtue, and responsibilities individuals owe each other, their organizations and the larger society. All actions that affect others raise ethical and moral issues, such as "honesty, promise-keeping, truthfulness, fairness, and humaneness," as well as a discussion of the morally proper ends and means (Johannesen et al., 2007, p. 1). Some philosophers define ethics as general norms of right and wrong that are universally applicable, while they regard morals as more practical and specific, with great variation from one culture to another. Others do not make any real distinction between ethics and morality at all, but in any case, communications that have the potential to influence people or societies always raises questions about ethics and morality. They are often a form of persuasion or attempt to influence decision-making, no matter whether they are interpersonal or from governments, large organizations and the mass media. While a few observers might argue that morality is irrelevant as long as the message is successful, or that morality is simply a matter of personal opinion and that no one can really be judged for their ethics, most would hold that morality must always be a factor in whether and how any communications techniques should be used, and not simply how to employ them more effectively. Although Thomas Nielsen observed that "we must always expect a gap between ideals and their attainment, between principles and their application," ethics should nevertheless regulate behavior at least in a general way, even if they cannot always be attained (Johannesen et al., p. 3).

Those who are being communicated with will always judge what they receive by their own ethical standards, although this does not mean that communication should always be tailored simply to pander to the audience. Of course for no other reason than the pragmatic and utilitarian need of "enhancing chances of success, the communicator would do well to consider the ethical criteria of his or her audience" (Johannesen et al., p. 3). Some communicators will always be extremely flexible in their ethics depending on the audience, and change their message to suit its views. They will tell them whatever they wish to hear no matter what their own moral convictions might be -- if indeed they have any at all. Bill Clinton and most other politicians have a reputation for doing this constantly, and have frequently been criticized for indulging in a cynical, opportunistic and manipulative form of communication. On the other hand, if communicators completely ignore the values, prejudices, attitudes and aspirations of their target audience, they risk being perceived as irrelevant or completely ignored. Probably the best communication strategy therefore is to find a middle ground between politician-like pandering and opportunism and, on the other hand ignoring the values of the target audience. According to the Golden Mean (or Aristotle's Doctrine of the Mean), morality is "the intermediate point between two vices -- the vice of excess and the vice of deficiency" (Johannesen et al., p. 4). To be sure, there are moral absolutes in which truth is not always found somewhere in the center, like between slavery and freedom, but most ethical communications strategies for business purposes do recommend this mean.

Public opinion polls and surveys generally find over the past thirty years that business and political leaders are thoroughly mistrusted. Journalists, politicians, lawyers, politicians, business leaders were all widely considered to be low in ethics and morality, with advertisers and used car salesmen considered the least ethical groups of all. At least 80% of Americans believe that ethical standards in general are poor, while over 40% routinely lie on job applications and that majority of high school students admit to cheating on tests and lying to parents and teachers (Johannesen et al., p. 4). David Callahan went so far as to call the U.S. A "cheating culture" in which dishonesty of all kinds has become far more common in recent decades and people feel less guilt about it. S. Jack Odell stated that "a society without ethics is a society doomed to extinction," and will be so corrupted and corroded by dishonesty and lack of trust that it simply cannot function (Johannesen et al., p. 5).

In the last decade, a seemingly endless number of corporate scandals have destroyed public trust and confidence in corporate ethics in America has collapsed. Enron, WorldCom and many other business collapses caused a "cascade of public distrust -- and disgust," made worse by the recent collapse of Wall Street and the housing market that required massive government bailouts. Ken Lay, Bernie Ebbers and Bernie Madoff became symbols of the corruption and failures of American capitalism that finally led to the worst depression since the 1930s, and given the fragile condition of the world today "we are traversing terrain where weak or sleazy self-aggrandizers cannot carry us to safety" (Tichy and McGill, 2003, p. 2). Great companies are built on ideas, values, emotional energy and 'edge', with making "hard decisions about people, products, businesses, customers and suppliers" (Tichy and McGill, p. 5). To achieve success in this extremely difficult environment all leaders must be able to persuade followers to act in an ethical manner in which "everyone knows the ethical line and is neither shy nor silent if people risk crossing it." Leaders have to be aware of the factors that shaped their own ethical and moral development, including the influences of family, religion, school and community as well as their own attitudes about war, justice, racism, gender, social class, poverty and unemployment (Tichy and McGill, p. 6). They should also understand the culture and values of their own corporation, such as whether it encourages new ideas, openness to change, risk-taking and questioning of superiors.

Real leaders always acknowledge the ethical dilemmas of leadership and learn lesson of these, which they share with all other followers and members of the organization. Ethical behavior requires a cycle of learning that replicates itself at all levels of an organization and takes on its own momentum, in which "learning, teaching and sharing maximizes an organization's knowledge creation and better prepares leaders for higher-impact leadership roles in the future" (Tichy and McGill, p. 9). As Warren Buffet said, all employees should have "integrity, intelligence and energy. And if they don't have the first than the other two will kill you." It would be better for any organization if people with no ethics were "dumb and lazy" since they would be able to do less damage (Tichy and McGill, p. 10). Teachable Points-of-View (TPOV) is a course of ethics that requires values homework addressing the ethical problems of business combined with life experience of such issues, role models for ethical behavior and the macro-context of the organization. This must always be done within a global context, with teams from a variety of cultures and models of leadership integrity. Although Peter Drucker explained that such classes in ethical and moral leadership were hardly a "panacea" they nevertheless "may be a prerequisite" for curing the ills of an organization and the larger society. No organization can ever become really great "unless it has a great leader at the top with great values and ethics, who teaches and leaders at all levels" (Tichy and McGill, p. 14). To be sure, though, there have been so many ethical failures of business and political leaders in recent times that the public is rightfully cynical and skeptical about this entire subject.

James MacGregor Burns often asked his students whether Adolf Hitler was a real leader. Obviously he had given himself the title of Fuehrer or Leader of the German people, and below him were legions of lesser Fuehrers at every level, in the S.S., the concentration camps, police, industry, science and medicine, who carried out his orders and shared in his crimes. Hitler created and led the largest party in Germany, set up a totalitarian police state, ended the depression and unemployment in Germany and made it a world power again. He did all of this with the support of most of the German people, at least as long as he was successful, but even after the country was destroyed and divided among the Allied powers many of them persisted in regarded him as the greatest statesman in German history. For Joanne Ciulla, none of this "constitutes a good leader' since like all the great tyrants and conquerors of history, Hitler was hardly an example of moral leadership (Ciulla, 2004, p. ix).

Burns identified three types or moral and ethical leadership: ethical virtues, ethical values and moral leadership. Virtues are particularly important in the personal life of any individual, and include "sobriety, chastity, abstention, kindness, and other 'Ten Commandments' rules of personal conduct" (Ciulla, p. ix). Ethical values are specific to particular cultures, but among these are honesty, integrity, reciprocity and reliability. Status-quo leaders "presiding over relatively stable communities" rely on ethical virtues like kindness and altruism in order to maintain harmony in their traditional communities. Ethical values are important to transactional leaders, particularly in modern, Western companies and societies, since these "depend on partners, competitors, clients, and others to live up to promises and understandings, as they themselves must" (Ciulla, p. x). Such transactional leadership will also become more common in poorer countries and the developing world with the gradual expansion of privatization, globalization and modern, urban capitalism. Ethical virtues and values are not universal, though, but vary across cultures, as do ideas about honesty, reciprocity, corruption and civility. Moral values like liberty, equality and community are universal, however, and the ones that truly transformational leaders uphold. There are relatively few transformational leaders in history, like Gandhi, Nelson Mandela and Martin Luther King, who do not care about money, power or status but "the expansion of justice and equality of opportunity" (Ciulla, p. x). Needless to say, the majority of corporate leaders fall more into the transactional than transformational category, insofar as ethics concern them at all. In a transactional context, a leader needs to be mainly concerned with pragmatic and utilitarian criteria rather than higher or universal morality.

For Burns, the values of the Enlightenment and the UN Universal Declaration of Human Rights were the gold standard of ethics in the world, no matter that people paid lip service to these more than acting on them in reality. Many charismatic and transformational leaders have goals, visions and ideologies, no matter whether these are moral and ethical. Hitler certainly did, mainly of the Germans as the Master Race with all others conquered, enslaved or exterminated, but it goes without saying that this was neither a moral nor ethical vision. In answer to his student's question then, Burns responds:

So was Adolf Hitler a leader, measured by these three levels of values? He was a terrible mis-leader: personally cruel and vindictive, politically duplicitous and treacherous, ideologically vicious and annihilative in his aims. A leader of change? Yes, he left Germany a smoking destroyed land….I'll take Gandhi, Mandela, and King (Ciulla, p. xii).

As Ciulla notes, some people only become leaders because of 'wealth, military might, job title, or family name," while others rise to the top because of talent, charisma or great intellect and ability. Then there are those who "stumble into leadership because of the times they live in or the circumstances in which they find themselves." Often there have been tyrants, dictators and generals in history who "act like playground bullies and use their power and rank to force their will on people, but this is coercion, not leadership" (Ciulla, p. xv). Merely having power, talent or charisma is never a sign of good or moral leadership, much less transformational leadership, and is often the opposite, doing tremendous damage to followers, victims, organizations and even entire countries. Robert Solomon agreed that charisma was a myth and that it was never a necessary aspect of leadership and by itself lacked any moral component. Trust and honesty were far more reliable bases for relations between leaders and followers than charisma (Ciulla, p. xviii).

Leadership is always distinguished by qualities of right and wrong, good and evil. Ethics are at "the heart of all human relationships and hence at the heart of the relationship between leaders and followers" (Ciulla, p. xv). Transformational leaders have a moral purpose and are dedicated to improving the lives of others, and they must use ethical means, have ethical ends, and serve the greatest good, however that may be defined. In personal ethics, they will be motivated by altruism and universalism. On the other hand, some leaders may be personally ethical but use evil means for evil ends -- or even for moral ends -- while some may be unethical in private but still pursue ethical ends. Transformational leaders always use "ethical means to achieve ethical ends," but they may not always be moral in their personal lives (Ciulla, p. xvi). Edward Hollander argued that trust was essential for leaders, and that no one would ever really trust a leader who lacked ethics, especially those who were distant and detached from followers of if they "perceive disproportionate despite poor performance…when coupled with organizational downsizing and layoffs." Nor will they be respected when they only offer their followers "bogus empowerment" without giving them real power or participation in decision-making (Ciulla, p. xvii). Edwin E. Locke, a disciple of the libertarian/laissez faire writer Ayn Rand, disagreed with almost all other writers on this subject when he argued that ethical leaders had to be self-interested rather than altruistic, which is just a restatement of the views of the neoclassical economists and free marketers like Milton Friedman. Timothy Price doubted that most leaders were ethical in reality and that "power and position lead them to believe that they are not bound by the requirements of morality" (Ciulla, p. xviii).

Unusually among management theorists who extoll the virtues of transformational leadership as long as it serves moral or ethical purposes, Timothy Price was skeptical of all kinds of leadership. His ideal was the 1787 Constitution which rejected the idea of both charismatic and transformational leadership, and placed strong limits on the power of the executive. James Madison and the other Founders were suspicious of the kind of concentrated, centralized power found in most modern corporations and bureaucracies, and would have regarded it as inherently despotic and unethical, potentially corrupting of leaders and followers alike. They knew their history and it taught them that for most of that time human beings had been governed by kings, tyrants, emperors and dictators. They had just fought a revolution against a corrupt monarchy and oligarchy, and had only to observe the kings and aristocracies of the Old World to realize that most of humanity was still governed by these. Rather than centralizing power, then, Madison argued for a system of checks and balances, in which various factions, parties, social classes and regions would all be represented, preventing any one of these from obtaining total power over the others. While they realized while they were writing the Constitution that George Washington would be the first president, and that he was a good man motivated by strong moral and ethical principles, they were too wise to believe that all of his successors would be the same (Ciulla, p. xviii).