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ABSTRACT

The following essay talks about ethics in business and more so concentrates on the moral

responsibility expected from a leader in preserving the ethical environment of an

organization. In organizational communication, ethics in leadership are very important.

Business leaders need to think about how their decisions will affect other people apart from

looking for their own benefit. The best leaders use their values and their ethics and preach

them in their leadership style and actions. The essay focuses on the role of ethical leadership

and them exemplifies the importance of ethics in leadership through the Mackey incident

which is discussed in detail. The author has further stressed on the ways a leader can be

ethical in an organization suggested by James Gehrke.

Keywords: Ethics, Business, Leadership, Organization, Behaviour, Inspirational

motivation, Vision, Trust.

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INTRODUCTION

Leaders are obliged to set a moral example for organizational members and to determine

those organizational activities which may be unfavourable to the values of society in general

(Aronson, 2001). Leaders display ethical behaviours when they do what is morally right, just,

and good, and help to uplift followers' moral awareness and moral self-actualization. Indeed,

ethical leadership encompasses more than the nurturing of ethical behaviours. For example,

Butcher (1997) pointed out that, "ethical business leadership requires not only investing in

the small trees and experimental hybrids that won't yield a thing in this quarter or the next,

but also caring for the soil that allows us to produce such a harvest in the first place". Thus, it

is a leader’s responsibility to create the right conditions and organizational culture (i.e., an

"organizational soil") to foster the development of ethical behaviour in associates. Confucius

pointed out that "gentlemen can convince the world only with their noble ethics."

Traditionally, leadership has been viewed with the main goal of leaders to increase

production and profits. But today the traditional view of leadership is slowly diminishing, as

more theorists are emphasizing that leaders also have the responsibility for ensuring standards

of moral and ethical conduct in an organization. Good leadership refers not only to

competency, but to ethics and transforming people as well. Leaders are considered to be

responsible for motivating followers to perform an action, complete a task or behave in a

specific manner. Effective leaders stimulate process, change in subordinate’s attitudes and

values, enhance followers’ self-efficacy beliefs, and foster the internalization of the leaders’

vision by using strategies of empowerment. It is believed that the nurturing aspect of leaders

can raise organizational cultures and employee values to high levels of ethical concern.

Ethical leadership requires ethical leaders. If leaders are ethical, they can ensure that ethical

practices are carried out throughout organization.

Ethics is predominantly concerned with the impact of an individual's action on others.

Frankena (1973) outlined two of the major theoretical perspectives in the ethics field--which

are referred to as teleological and deontological theories. The teleological perspective

emphasizes the outcomes or consequences of an action when evaluating whether the act is

moral. There are various teleological theories in the literature, including ethical egoism, act

utilitarianism, and rule utilitarianism. Alternatively, the deontological perspective is primarily

concerned with the innate obligations and rights of all the parties involved in decisions, not

the overall outcomes per se. Hunt and Vitell (1986) argued that the crux of the deontological

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perspective is whether or not a behavior or act is inherently right. Such determinations are

made based on moral principles or guidelines.

ETHICAL LEADERSHIP

Ethical leadership is leadership that is involved in leading in a manner that respects the rights

and dignity of others. “As leaders are by nature in a position of social power, ethical

leadership focuses on how leaders use their social power in the decisions they make, actions

they engage in and ways they influence others”. Ethical leaders demonstrate a level of

integrity which helps the followers to trust the leader and his vision. These are critical and

direct components to leading ethically. The character and integrity of the leader provide the

basis for personal characteristics that direct a leader’s ethical beliefs, values, and decisions.

Individual values and beliefs also impact the ethical decisions of leaders. Leaders who are

ethical are people-oriented, and also aware of how their decisions impact others, and use their

social power to serve the greater good instead of self-serving interests. Another good quality

of an ethical leader is to motivate the followers to put the needs or interests of the group

ahead of their own. Motivating involves engaging others in an intellectual and emotional

commitment between leaders and followers that makes both parties equally responsible in the

pursuit of a common goal. These characteristics of ethical leaders are similar to inspirational

motivation. Inspirational motivation “involves inspiring others to work towards the leader’s

vision for the group and to be committed to the group”. Similarly, ethical leadership “falls

within the nexus of inspiring, stimulating, and visionary leader behaviors that make up

transformational and charismatic leadership”. Ethical leaders help followers in acquiring a

sense of personal capability that allows them to be self-sufficient by encouraging and

empowering them.

In organizational communication, ethics in leadership are very important. Business leaders

need to think about how their decisions will affect other people apart from looking for their

own benefit. The best leaders use their values and their ethics and preach them in their

leadership style and actions. It consists of communicating complete and precise information,

where there is a personal, professional, ethical, or legal obligation to do so (McQueeney 165).

While practicing ethics and more so in leadership, one gains the respect and admiration of

employees, with the satisfaction of knowing you did the right thing. If the leader does not

make clear what he wants, and expects result, then it can cause mistrust. Being unethical in

the workplace can include anything from taking personal phone calls while at the desk,

telling someone the "check is in the mail", when in fact it hasn't even been written yet, or

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even taking office supplies home for personal use. Most organizations create an ethical code,

which is usually a list of rules that mentions what behaviours are right and what are wrong in

the company. As a leader, thus it becomes imperative for him to the right thing at all times as

the subordinates would only mirror what the leader showcases. The leader has a great moral

responsibility in upholding the ethical environment in an organization.

WHY ETHICAL LEADERSHIP?

One typical reaction to the “ethics crisis” in business is a call for more “ethical leadership,”

yet there are not many large number of demonstrations of what precisely is indicated by the

term explanations of what exactly is meant by the term. A considerable number of executives

and business thinkers believe that ethical leadership is simply a matter of leaders having good

character. By having “the right values” or being a person of “strong character,” a moral

leader sets the example for others and withstands any temptations that may occur along the

way. The reality of ethical leadership is far more complex and the stakes are much higher, if

the importance of good character and the right values are denied. For the last 25 years, all

industries have been going through a world of great change like globalization,

democratization, and incredible technological advances and in this situation leaders have an

extra responsibility to lead—due to which a number of touchstones for the idea of “ethical

leadership have been identified. Majority of the executives want to be efficient in their jobs

and leave an impact on their companies and the world, creating value for people whose lives

they affect. Leaders are first and foremost members of their own organizations and

stakeholder groups. As a result, their purpose, vision, and values are for the benefit of the

entire organization and its key stakeholders. Leaders see their elements as not just followers,

but rather as stakeholders determined to achieve that same common purpose, vision, and

values. In order to maintain a moral community, the follower and stakeholder constituents’

uniqueness and autonomy must be respected. Within an understanding of ethical ideals,

leaders exemplify the purpose, vision, and values of the organization and of the constituents,.

They connect the goals of the organization with that of the internal employees and external

stakeholders. Leaders work to create an open, two way conversation, thereby maintaining a

liberal understanding of different views, values, and constituents’ opinions. They are open to

others’ opinions and ideas because they are leading better.

Leadership is by all means a special talent that not all people possess. A leader must also

have ethics to be effective for the long term in the corporate world. These leaders generally

implement ethical programs in order to influence an organizations climate (Yukl, 2010). In

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any organization an effective leader must have people that will follow him or her. Generally

speaking people will follow someone who is ethical and moral over a leader who is dishonest

and immoral. The most effective leaders are those who empower their employees to follow

the same model of integrity. Velasquez (2006) states “when employees believe an

organization is just, they are more willing to follow the organization’s managers, do what

managers say, and see managers’ leadership as legitimate. In short, ethics is a key component

of effective management”.

It is not certain who decides what ethics really are. Society mainly directs the moral standards

which make up the discipline of ethics (Velasquez, 2006). It’s all of us that decide what is

ethical and what is not. There is power in knowing this, but more importantly where

leadership and ethics meet is leadership takes on a broad meaning. It means different traits

one may possess or as simple in the ability to have others follow. A leader isn’t always a

manager, but can be a manager in an organization. When you combine the two into ethical

leadership you have a strong dynamic. According to Yukl (2010) in cross-cultural research on

the essential traits for effective leadership, integrity is near the top of the list in all cultures

that have been studied. Most scholars consider integrity to be an important aspect of ethical

leadership”. In order to be a successful ethical leader there are many activities that can be

promoted to encourage ethical behavior in one’s organization. An ethical leader will create

programs that endorse integrity in business. Programs can include setting guidelines for

dealing with ethical issues, open discussion on ethical issues, and establish a protocol for

people to get advice (Yukl, 2010). By establishing programs an ethical leader is really

changing and encouraging moral behavior which can affect an organizations work

environment and improve morale. By empowering the employees to know how to handle

ethical dilemmas a new found trust is created.

Being a servant leader can by definition empower your followers. Attending to the needs of

the employees and creating a nurturing environment can create trust. Yukl (2010) states, “The

servant leader must stand for what is good and right, even when it is not in the financial

interest of the organization. Social injustice and inequality should be opposed whenever

possible”. A servant leader is an ethical leader as well. The qualities or traits that are

attributed to this type of leadership are integrity, altruism, humility, empathy and healing,

personal growth, fairness and justice, and empowerment. All these are that of a servant

leader, but also an ethical leader. Any time a leader can gain trust of their subordinates it will

lead to a better relationship as well as more influence that the leader has in accomplishing

tasks.

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ROLES OF ETHICAL LEADERSHIP

Leadership has many roles, but ethical behavior versus unethical behavior has its rewards and

repercussions. The consequences of unethical leadership can reflect in a business or industry

in many negative ways. At times in the short term unethical behavior can actually be

perceived as valuable and for a short time, boost revenue. In the end, unethical leadership will

catch up to you. This report uses the example of the mortgage Industry. For a number of

years rules and regulations were very tight when it came to lending. As time went on and the

American dream became a driving force to allow for mortgages to be extended to everyone,

tactics were taken on, that were unethical. The lenders were loosening their strings and not

regulating the housing market as they once were. Homes were getting appraised for well over

their fair market value which was being given a blind eye. As the bubble burst, the economy

took a turn for the worse, the unethical leadership in the mortgage industry snow-balled

catching up with all those on homeowners who had taken loans that were adjustable rate

mortgages or pick a pay program that was not disclosed properly. Unethical behavior

completely took down an entire industry causing a domino effect in the economy. Even

though unethical people made many very rich, it has now plagued all facets of the markets.

The rewards of ethical leadership can take longer to see. There is not the instant gratification.

It can take years or decades to feel the wrath of ethical leadership in a business. For example,

Merck and company had a dilemma. They had found a drug that could profoundly improve

the quality of lives of those with river blindness. This disease was prevalent in Africa and

South America, a place where there was not enough money to pay for such a drug. Merck and

Company had to weigh the effects of the cost of making a drug no one could pay for or allow

human suffrage when there was a solution. The leadership in the company chose to go ahead

and lose money by not only making the drug to help eradicate river blindness, but also gave it

away. Merck and Company lost billions of dollars by this decision even though it was the

ethical and morally right decision. The effects on this decision were great. The ethical

leadership cost Merck and Company billions of dollars in this project but to gain more in

return over time. This company gained the trust of other countries and its consumers. It is no

wonder the reason Merck is the largest American pharmaceutical company in Japan and other

countries. Velasquez (2006) stated that, ethical behavior creates the kind of goodwill and

reputation that expand a company’s opportunities for profit”. In addition over time this

principle has proven accurate as in Merck and Company’s humanitarian efforts with

eradication of river blindness in tropical third world regions, treatment of elephantiasis, and

tuberculosis post World War II in Japan.

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CASE IN POINT

There is no question that the current climate has prompted many more companies to tackle

ethics issues. Many are making a set of moral values a part of their corporate cultures. And

some forward-looking companies are providing ethics training to managers and workers.

While company-wide ethics awareness is a wonderful thing, the recent information about the

online persona assumed by Whole Foods CEO John Mackey reminds us that the moral centre

of every company lies within its leaders. Those leaders are and should be held to higher

standards of ethics and morality-because they are leaders. If, as in the case of Mackey, they

are running companies designed around a social responsibility premise, the standards are, and

should be, that much higher. The Mackey incident is more about the Achilles' heel of a

standard bearer than it is about illegality or immorality.

The Mackey incident

Whole Foods Market Chairman and CEO Mackey spent years earning a positive reputation as

a corporate leader not afraid to take a stand on ethics issues. Before other companies figured

out that it pays to be environmentally friendly, Whole Foods led by setting standards for

humane animal treatment. In 2006 Mackey took the bold step of reducing his own annual

salary to one dollar, pledging money instead for an emergency fund for his staff. Not shy

about expressing his views, Mackey challenged leading thinkers, like Nobel prize winner

Milton Friedman, on business ethics issues. Like many leaders, Mackey seemed to relish the

public spotlight. But on July 20, Mackey got more publicity than he bargained for. The Wall

Street Journal reported that Mackey had long used the pseudonym "Rahodeb" to make

postings in Yahoo Finance forums that flattered his own company and levelled criticisms

against the competition. Serious financial and possibly legal repercussions continue to unfold

from this incident, and the final consequences may not be known for some time. Amid the

commotion following this disclosure of Mackey's secret online alias, it is vital that we

not lose sight of the critical issues it raises about ethics and leadership in a rapidly evolving

business world.

Implications for leadership and ethics

By now "business ethics" is an established part of doing business, not just in the United

States, but also increasingly around the world. Jokes like "business ethics is an oxymoron"

have long since worn thin, as society has come not merely to expect, but to demand, that

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business conducts itself according to basic rules of ethics and integrity. Business ethics, as an

academic topic as well as a growing body of real-world practices, is not a new fad, but is

something that has developed since publicized price-fixing and other corporate scandals in

the late 1960s and 1970s. The most recent major business scandals, such as Enron, actually

served to reinforce widespread perception that "business as usual" can no longer attend only

to the financial bottom line.

The subject of leadership links closely to ethics, as it involves linking values to human

behavior for the achievement of a mission and objectives. Business leaders have long

recognized that they play a key role in promoting ethical conduct in their businesses.

They set the ethical tone that pervades the entire organization. Even the very best

ethics and compliance programs can be negated by a leader who communicates

cynicism or lack of support for ethical conduct.

They lead by example. Ethics is communicated through words, but words are

compelling only when they are supported by action. The actions that matter most are

those from the people at the top.

They motivate others. The focus on ethics after Sarbanes-Oxley increasingly tends to

be on compliance, which is primarily concerned with preventing employees from

engaging in misconduct.

However, leadership is concerned not simply with avoiding harm, but also with

promoting excellence.

More than anyone else, the CEO has the ability to promote an ethic of aspiration, not just an

ethic of compliance. Companies that are able to promote a positive link between ethics and

excellence enjoy a competitive advantage as well as an enviable reputation. Setting the right

tone, leading by example, motivating others in a positive way: For some time, Mackey

seemed to be meeting all three tests of ethical leadership. But his online fiasco can easily

undermine his claim to ethical leadership. The current problem is unusual because it takes

place in the novel forum of an online discussion board, where perhaps the norms for

discourse are not exactly like those that guide face-to-face, conventional communication. The

challenge is to evaluate Mackey's online behavior in terms of the basic requirements of

ethical leadership while also being attuned to new aspects of communication online.

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CRITIQUE

A manager must focus on the on the day-to-day aspects of keeping the department, team or

organization running smoothly. This includes making sure the department is staffed

appropriately, that the company is on target for sales, that production is on target, etc. A

leader, on the other hand, must be able to set goals and aspirations for the team, set the tone

of the organization, motivate and inspire the group, etc. Realistically, managers must be able

to do both. They must inspire and motivate and they must ensure that the company operates

effectively. Setting the ethical tone of the organization is a leadership function. The challenge

for most managers is to spend enough time focusing on leadership functions without

becoming totally consumed by the day-to-day operations of the team. Because "business

ethics are about the morally functional nature of our business relationships...giving them the

attention and care they deserve is crucial to an organization's success". James Gehrke

suggested six ways for a leader to be ethical in an organization.

1. Reflect on Values. To focus the appropriate attention on the ethical tone of the

organization, a leader must "draw on their own fundamental values and capabilities" in order

to optimize their leadership potential (Quinn, 2005). To do this, leaders must find time to

reflect and identify their own personal moral compass as well as to ask themselves what are

the key ethical questions and dilemmas facing their organizations. Just as a manager must

take time to understand their market, budgets, production timelines, etc., an ethical leader

must take time to understand his/her own personal values, the values of the team, what the

value statements of the organization should be and identify the gaps that exist in aspired goals

and current behavior within the organization (Hamm, 2003).

2. Establish Trust. Build an environment of trust with employees in order to create an

environment where employees feel free to discuss ethical dilemmas and issue with

management.

3. Establish a Shared Ethical Vision. To ensure buy-in and commitment from the

organization, include members from various levels of the team to help create a "Code of

Conduct" that is aligned with the Ethical Vision of the organization.

4. Communicate the Ethical Vision and Code of Conduct. A leader must ensure that the

vision and code is communicated to everyone within the organization. This can be done

through policy manuals, training events, one-on-one and team coaching, newsletters, team

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meetings, etc... "Communicating the program frequently is another important success factor,

as is establishing a way for employees to communicate their concerns back to management in

a safe and confidential manner.

5. Act. To be effective, the leader must show that all the organization is serious about ethical

behavior. All reports of unethical behavior must be investigated thoroughly. Furthermore, all

violators of ethical standards must be punished equally and justly throughout the

organization, irregardless if the perpetrator is a senior executive or first line hire. In addition

to punishing negative behavior, effort should be made to reward and recognize positive

ethical behavior (Trevino and Nelson, 2005). Just as a good manager knows that rewarding

employees for reaching goals is important, the ethical leader will recognize that equal

importance must be given to recognize those who exemplify ethical behavior within the

organization. Acting also means leading by example by letting ethical behavior guide the

actions of the leaders at all times. Doing so will help establish and sustain a culture of ethical

behavior.

6. Monitor and Sustain Ethical Behavior. The leader must consider ethical leadership a key

aspect of their role as a manager. It cannot be seen as a passing organizational fad. Effort

must be made to gather feedback through surveys, focus groups, one-on-one interviews, etc.,

to identify employee concerns regarding the ethical environment where they work. This

should be a continuous improvement process to identify concerns and to improve the overall

ethical environment.

There are many benefits for a manager to focus on being an ethical leader, including;

improved public image of the organization, restoration or enhancement of investor

confidence, prevention and reduction of criminal penalties, preventing civil lawsuits of

employees who could not have their grievances met satisfactorily inside the company,

improved employee retention, market leadership through by improved customer satisfaction

and setting the example for others in the market (Hamm, 2003).

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CONCLUSION

A significant part of the world is destroyed every day by unethical behavior. The billions of

dollars of lost asset value of Enron, Anderson, WorldCom, Ardelphia, Global Crossing,

MicroStrategy, the huge cost in trust in government by everyday people due to Nixon, Agnew

and Clinton, all take a huge toll on the world. Until we develop a solid theory of ethical

leadership, begin to monitor leadership from an ethical perspective, and begin to define

ethical leadership in positive terms as opposed to today’s set of “don’t do’s”, we cannot

generate the unanimity and political will to demand that all leadership consist of ethical

leadership.

There is no "one-size-fits-all" style of leadership for all organizations. For that matter, there is

no such style for any one organization at all points in its organizational life.

Ethical leadership addresses the components of leadership through the mode appropriate to

the occasion. These components are dynamic; they are systemic and fluid. Achieving

organizational purpose through compulsion, for example, where seen as an illicit exercise of

authority, results in employees withholding information and the decline of trust. Trusting in

the exercise of authority where knowledge is not captured and shared is blind. The

appropriate leadership style, then, depends upon the ethical context of the organization, its

organizational culture, and the situation it finds itself in at any point in its organizational life.

The specific organizational culture required, and the challenges it must face, are a function of

its essential social responsibility and the dynamics of its larger community. This

responsibility lies greatly with the leader. It is thus established that a leader along with the

subordinates has great moral responsibilities in upholding the ethical environment of the

organization

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BIBLIOGRAPHY

6 steps for ethical leadership in today’s organization, James Gehrke,

http://EzineArticles.com/?expert=James_Gehrke

Hamm, B.A., (2003). Want a company you can be truly proud of? Try a business

ethics program. Quinn, R. (2005). Moments of greatness: Entering the fundamental

state of leadership. Harvard Business Review, July - August 2005. 75-83

Moral business responsibility, Davis Schmidt, cio.com, 2007,

http://articles.directorym.com/Moral_Business_Responsibility-a1132143.html

Velasquez, M.G. 2006. Business Ethics: Concepts and Cases. (6th Ed.) Upper Saddle

River: Pearson Prentice Hall.

Yukl, G. (2010). Leadership in Organizations (7th ed.). Upper Saddle River, NJ:

Pearson Custom Publishing

Lisa Hunsucker, MGT 380, Ethical leadership in organizations, Apr 2010 R. Edward Freeman, Lisa Stewart, 2006., Developing Ethical Leadership, Business

roundtable institute for corporate ethics

Trevino, L. K., Brown, M., & Hartman, L. P. (2003). A qualitative investigation of

perceived executive ethical leadership: Perceptions from inside and outside the

executive suite. Human Relations, 56(1), 5-37.

Resick, C. J., Hanges, P. J., Dickson, M. W., & Mitchelson, J. K. (2006). A cross-

cultural examination of the endorsement of ethical leadership. Journal of Business

Ethics, 63, 345-359

The impact of ethical leadership behavior on employee outcomes: the roles of

psychological empowerment and authenticity.

Article from:Journal of Leadership & Organizational Studies Article date:June 22,

2004 Author:Zhu, Weichun; May, Douglas R.; Avolio, Bruce J.

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