The Importance of Ethical Leadership

work ethics

According to the Center for Ethical Leadership, “ethical leadership is knowing your core values and having the courage to live them in all parts of your life in service of the common good” (Center for Ethical Leadership 2014).  In today’s global world, it is important for companies to conduct business according to high ethical standards.   Long-term success, or even survival, depends on setting these standards and making sure all employees follow them.

I concur with Rubin et al. (2010: 216-17) who state that “ethical leader behaviour can have important positive effects on both individual and organizational effectiveness.”  This is why it is a business leader’s responsibility to establish an ethical code of conduct, to clearly communicate and train employees in the expected ethical behaviours, and to set an example by modelling the policies in decision making and interpersonal interactions.

It is the actions of a firm’s individual employees in dealings with internal individuals and external contacts that establish the ethical nature of the business.  Ethical actions engender trust.  The opposite is also true.  The effectiveness of a company can be severely undermined by a lack of trust between employees, causing unhealthy competitiveness and destroying teamwork.  Furthermore, unethical interactions with external associates can destroy a business.  The importance of a business’ ethical reputation in the eyes of its customers and the communities in which it operates cannot be understated.  A firm that doesn’t hold the respect of its community will have a hard time recruiting quality employees from that community.  A firm that doesn’t hold the trust and respect of its customers will soon be out of business.

right vs wrong

One of the most infamous cases concerning unethical business conduct is the Enron scandal.  In 2001, Enron went bankrupt due to a loss of investor trust and resulting downgrade in their credit worthiness.  Several of its leaders were imprisoned due to convictions for insider trading, money laundering, conspiracy and bank fraud (Forbes 2013).  As a result, their accounting firm, Arthur Anderson, also went out of business.

Many view global corporations as “greedy, competitive, and only concerned with compensation” (Freeman and Stewart 2006: 2), however, the right ethical leadership can establish a culture of good ethics that can be recognised externally.  Premier Inc., a healthcare business located in the United States, was recently listed as one of the World’s Most Ethical (WME) companies, according to Ethisphere (2014).  Premier “not only promote[s] ethical business standards and practices internally, they exceed legal compliance minimums and shape future industry standards by introducing best practices today,” (Ethisphere 2014).  In the video linked below, Susan Devore, Premier’s President and CEO, discusses the reasons behind the company’s nomination, including the processes they have implemented for employees and customers to identify, discuss and report any unethical issues that might arise through hotlines and surveys.

 

http://video.cnbc.com/gallery/?video=3000259002

 

Making the “right” ethical decision can sometimes be difficult.  There are two fundamental theories regarding ethics: deontological or duty-based and consequentialist.  The former holds that “ethics are concerned with what people do, not with the consequences of their actions” (BBC 2014).  Thus the right action is determined strictly by the moral merits of the action alone, regardless of its outcomes.  Duty-based ethics is concerned with people’s motives, affords certainty in decision-making, dictates that certain acts are always wrong, and takes into account human rights.  However, this approach can be overly dogmatic, lead to conflicting responsibilities and support actions that lead to results that leave the world a worse place.

Conversely, consequentialist ethics focus only on the consequences of the decision or actions and whether they are the most “right”.   Accordingly, “The more good consequences an act produces, the better or more right that act” (BBC 2014).  Depending on the approach a person takes to consequentialism,  this set of ethics can be very flexible and applicable to all moral dilemmas but extremely time consuming if not totally impractical, since the outcome of each possible act must be researched and evaluated (act consequentialism).  Alternatively, rule-based consequentialism judges actions or decisions based on a set of moral rules which predict the “goodness” of the outcome.  This approach is much more practical but also less flexible, since general rules don’t apply to every situation.

As a result of the limitations in both deontological and consequential theories of ethics, several more useful approaches to business ethics have been proposed.  I find most helpful five of the 10 characteristics of good ethical leaders that have been developed by Freeman and Stewart (2006: 3) through “observations of and conversations with a host of executives and students…and on readings of both popular and scholarly business literature.”

1.  Articulate and embody the purpose and values of the organisation.

2.  Create a living conversation about ethics, values and the creation of value for stakeholders.

3.  Create mechanisms of dissent.

4.  Frame actions in ethical terms.

5.  Connect the basic value proposition to stakeholder support and societal legitimacy.

Ethical leadership is essential for a business to thrive and the embodiment of these characteristics will go a long way to establish that leadership.

 

References:

BBC (2014) Consequentialism [online] available from <http://www.bbc.co.uk/ethics/introduction/consequentialism_1.shtml> [14 June 2014]

BBC (2014) Ethics Guide [online] available from <http://www.bbc.co.uk/ethics/introduction/duty_1.shtml> [14 June 2014]

Center for Ethical Leadership (2014) Ethical Leadership [online] available from <http://ethicalleadership.org/about-us/philosophies-definitions/ethical-leadership> [14 June 2014]

CNBC (2014) Premier, Providing Ethical Health Care: Survey [online] available from <http://video.cnbc.com/gallery/?video=3000259002> [15 June 2014]

Ethisphere (2014) World’s Most Ethical Companies- Honorees [online] available from <http://ethisphere.com/worlds-most-ethical/wme-honorees/> [15 June 2014]

Forbes (2013) 5 Most Publicized Ethics Violations By CEOs [online] available from <http://www.forbes.com/sites/investopedia/2013/02/05/5-most-publicized-ethics-violations-by-ceos/> [15 June 2014]

Freeman, R. and Stewart, L. (2006) Developing Ethical Leadership [online] available from <http://www.corporate-ethics.org/pdf/ethical_leadership.pdf> [14 June 2014]

Rubin, R., Dierdorff, E., and Brown, M. (2010). Do Ethical Leaders Get Ahead? Exploring Ethical Leadership and Promotability. Business Ethics Quarterly, 20 (2), 215-236.