Ethics in Organizational Leadership: Theory and Practice

Overview of the Ethical Leadership Theory

Ethical leadership does not have a single, universally assigned definition. In the past, various definitions have been offered by different authors and leadership experts. Before defining ethical leadership, it is useful to first offer a concise definition of ethics. Ethics, according to April (as cited in McCann and Holt, 2013), is a system of morals. Essentially, it helps us distinguish between what is right and what is wrong in an attempt to achieve distributive justice. McCann and Holt further point out that ethics attempts to define not only the rules but also the practices that bring about responsible behavior and conduct among people for the common good.

For purposes of this discussion, the definition provided by Brown, Treviño, and Harrison will be adopted. In their words, ethical leadership is "the demonstration of normatively appropriate conduct through personal actions and interpersonal relationships, and the promotion of such conduct to followers through two-way communication, reinforcement, and decision-making" (Brown, Treviño, and Harrison, 2005, p. 120). In this regard, ethics with respect to leadership has largely to do with not only the character of leaders but also their behaviors and actions.

As Brown and Treviño (2006) argue, ethical leadership should be distinguished from other forms of leadership, including spiritual, authentic, and transformational leadership — even though ethical elements are also present in those theories. It is important to note, however, that a study conducted by Toor and Ofori found a definite positive relationship between transformational leadership and ethical leadership (Toor and Ofori, 2009). The authors further note that their findings are consistent with past research, particularly on the claim that a positive relationship also exists between ethical leadership and followers' level of satisfaction with a leader, willingness to go the extra mile, and idealized influence (Brown et al., as cited in Toor and Ofori, 2009).

Corporate Scandals and the Rise of Ethical Scrutiny

According to Tanner, Brugger, Schie, and Lebherz (2010), a number of factors have contributed to widespread attention on moral and ethical behavior in organizations. These include the misuse of power by high-ranking corporate officers, the recent economic downturn, and several high-profile ethical scandals. Some of the most prominent scandals involved Parmalat, WorldCom, and Enron (Knights and O'Leary, 2005).

In addition to raising the bar on ethical behavior, these scandals have also, according to Knights and O'Leary (2005), prompted business schools to identify the need to incorporate ethical studies into their curricula. The scandals have also stirred both research and discussion on a wide array of issues relating to ethical leadership (Toor and Ofori, 2009). As Padilla et al. and Schaubroeck et al. (as cited in Sabir, 2012) observe, there is a category of leaders referred to as "lethal leaders" — individuals who are constantly on the lookout for loopholes they can exploit for personal gain.

According to MacIntyre (as cited in Naubert, Carlson, Kacmar, Roberts, and Chonko, 2009), managers have the option of pursuing either external goods or internal goods. External goods include reputation and money, while internal goods may comprise job satisfaction and overall work enjoyment. Managers who are more inclined to pursue external goods, according to MacIntyre and Moore (as cited in Naubert et al., 2009), are likely to develop an organizational character that is largely immoral. Such managers ultimately shift their attention from internal goods to material concerns.

A notable example of a leader who pursued external goods at great personal cost is Martha Stewart, who served a five-month prison sentence after being found guilty of securities fraud. The Enron scandal is another classic example of leaders who chose to serve their own self-interest rather than the common good of all stakeholders. Despite being hugely successful at the turn of the century, the unethical conduct of Enron's top executives ultimately brought the corporation down, largely through the misrepresentation of earnings.

Characteristics and Behaviors of Ethical Leaders

Brown and Treviño (2006) observe that, unlike other forms of leadership, the ethical leadership theory views leaders as moral managers. In this role, ethical leaders are more likely to communicate ethical standards to subordinates and reinforce their conduct through performance appraisals, rewards, and punishments (Brown, Treviño, and Harrison, 2005). Subordinates who fail to embrace the set standards of ethical conduct are disciplined, while those who adhere to them are rewarded.

As moral managers, ethical leaders value accountability. This perspective has been adopted by many company boards in an attempt to rein in errant executives. Brian Dunn is one such executive who was brought down by conduct inconsistent with organizational values. Dunn resigned as CEO of Best Buy after it was revealed that he had made inappropriate sexual advances toward a female employee, violating the company's code of conduct. Similarly, Mark Hurd — then CEO of Hewlett-Packard — resigned following accusations of sexual harassment by a subordinate. Compelling both executives to resign was the appropriate course of action to protect not only their companies' reputations but also the interests of their stakeholders.

Ethical leaders, as Brown and Treviño (2006) point out, are fundamentally moral persons. In addition to behaving ethically in both their professional and private lives, they value honesty and integrity and demonstrate genuine concern for the interests of other individuals and broader society. Ethical leaders also seek to promote ethical standards through two-way communication with followers, signaling that they value subordinates' input.

Other virtues commonly associated with ethical leaders include responsibility, courage, humility, and fairness. By embodying these virtues, ethical leaders act as legitimate and credible role models for their subordinates. The more that subordinates align their actions with those of their leader, the less likely they are to engage in deviant behavior. Naubert et al. (2009) found that the display of ethical leadership by managers plays a crucial role in shaping an ethical organizational climate. As Thomas et al. (as cited in Toor and Ofori, 2009) emphasize, business executives should use their positions to send consistent and clear messages about the need for all employees to adopt ethical behaviors.

As Naubert et al. (2009) observe, the close attention corporate leaders receive is largely warranted given the role they play in influencing the values, behaviors, and conduct of subordinates. The critical question this raises is whether today's business executives are sending clear signals to their subordinates about acceptable standards of behavior. Recent events paint a somewhat sobering picture.

At National Irish Bank (NIB), the unethical behavior of employees was never suppressed, as leaders were primarily concerned with profit maximization (Knights and O'Leary, 2005). A report issued by the inspector general later confirmed that leadership played a momentous role in the institution's scandal. The Best Buy CEO's inappropriate relationship with an employee also set a damaging example for the broader workforce, particularly given the visible disparities in age, power, and position between the two parties.

Conclusion

In light of the discussion above, it is reasonable to conclude that the application of the ethical leadership theory has not always been grounded in a sound understanding of the theory itself. This is evidenced by the many corporate scandals that have led to the collapse of numerous organizations. Although research on leaders and their adherence to ethical standards has historically been limited, recent scandals have sparked considerable interest in this important area. Leaders are increasingly recognized as instrumental in establishing an organizational environment conducive to ethical conduct. Ultimately, sound application of the ethical leadership theory at the organizational level depends largely on the personal values and character of leaders.

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