ETHICAL LEADERSHIP[Revised]

Leadership is the ability or the authority to guide and direct others towards a goal. Most people
agree that effective leadership is essential for a company. Ethical decisions are one dimension of
leadership. Successful companies develop based upon the leadership and creative abilities of
their founders. Without the leadership capabilities of entrepreneurs such as Steve Jobes of Apple,
Bill Gates of Microsoft, Sam Waltons of Walmart and Mark Zuckerberg of Facebook, the most
successful companies today would be greatly diminished, or non-existent. However, a strong
founder is only one part of a company’s success. Strong ethical leadership must be demonstrated
through successors, other managers, and employees to continue the firm’s success. The ethical
leadership skills of Tim Cook of Apple, Steve Balmer of Microsoft and Sheryl Sandberg, COO
of Facebook, are as important as problem solving , planning, delegation, internal
communications and meeting management for continued success of the company.

Ethical Leadership is a strategic response to ethical crisis in business ( e.g. accounting frauds,
global financial crisis, managerial greed).Ethical leadership requires the simultaneous and
continuous development of character and competence. Ethical leadership is an approach that is
founded upon alignment of institutional values and principles within personal values. It
inspires reflection upon appropriateness of values and principles which are open to dialogue and
criticism. It also considers the leader as responsible for sound moral judgment, sometimes
challenging the status quo. Ethical leadership is transformational.

Transformational leadership establishes leadership as socially constructed process of

transformational change –a shift from trait, style and contingency modes. Transformational
leadership creates positive changes through 4 I’s Idealized influence, inspiration, intellectual
simulation, individual attention.

Ethical leadership is transformational and it aims at ‘Great change’ by drawing on ethical

principles and values to make a difference to others. It takes into account (i) leader (ii)his/her
constituents, i.e followers as key shareholders (iii) the context or situation that the leader and
constituents face (iv) the leader’s processes and skills and (v) the outcomes. Ethical leaders are
members of their organizations and stakeholders groups; their purpose, vision, and values are
aligned with institutional values that benefit the whole organization and its key shareholders.
Followers are regarded as key stakeholders working towards a common purpose, vision and
values. Their individuality and autonomy is respected to maintain an enduring morally inspired
community.

Requirements for ethical Leadership:

While ethical leaders need good character, they also require skills to lead and guide others.
Ethical leadership skills develop through years of training, experience and learning other best
practices of leadership. In pinpointing what makes someone a ‘good’ leader, experts remain
divided; Leadership qualities differ for each situation, However, a number of requirements have
been identified. For instance, ethical leaders must model organizational values, place what is best
for organization over their own interests, train and develop employees throughout their careers,
establish reporting mechanisms, understand emoployee values and perceptions, and recognize
the limits of organizational rules and values. These characteristics can be developed through
proper training. Most importantly, ethical leaders should not turn a blind eye to observed
misconduct.

Ethical leaders never operate in a silo of decision making. They seek to encourage the
development of other leaders within the organization. The strength of ethical leaders involves
recognizing their own weakness and relying on others to help them. Ethical leaders encourage
employees to reach their full potential and emphasize their role as important co creators of
value. They also try to develop policies and procedures that provide incentives to those who train
new leaders. Developing leaders should be a cyclical or never ending process in the organization.

We generally adopt Archie Carrolls’ “7 Habits of Highly Moral Leaders” to create “Seven Habits
of Strong Ethical Leaders”.

Seven Habits of Strong Ethical Leaders:

1. Ethical Leaders have strong personal character.

2. Ethical leaders have passion to do right.
3. Ethical leaders are proactive.
4. Ethical leaders consider all stakeholders’ interest.
5. Ethical leaders are role models for the organization’s values.
6. Ethical leaders are transparent and actively involved in decision making .
7. Ethical leaders take a holistic view of the firm’s ethical culture.

In particular, we believe that ethical leadership is based on holistic thinking that embraces the
complex and challenging issues companies face on a daily basis. Ethical leaders need knowledge
and experience to make the right decisions. Strong ethical leaders have the knowledge ,wisdom
and courage to pull the pertinent information together so that the best or most ethical decisions
are made. This means that ethical leaders must stick to their principles and if necessary, leave the
organization if its corporate governance system id so flawed that it is impossible to make the
right choice.

Finally, strong ethical leaders are those passionate about the organization and act in the
organization’s best interests. By promoting shared values, leaders are able to align employees
behind a common vision.

There is general agreement that ethical leadership is highly unlikely without a strong personal
character. The question is how to teach or develop a moral person in a corporate environment.
Thomas .I. White, a leading authority on character development, believes that the focus should
be developing “Ethical Reasoning” rather than being a ‘Moral Person”. According to While, the
ability to resolve the complex ethical dilemma encountered in a corporate culture requires
intellectual skills.

Ethical leaders do not wait for ethical problems to arise. They anticipate, plan, and act
proactively to avoid potential crises. One way to be proactive is to take a leadership role in
developing effective programmes that provide employees with guidance and support for making
more ethical choices, even in the face of considerable pressure to do otherwise. Ethical leaders
who are proactive understand social needs and apply or develop the best practices of ethical
leadership that exist in the industry.

Additionally, ethical leaders must model the organization’s vales. If leaders do not actively
serve as role models for organization’s core values, then those values become nothing more than
lip services. According to behavioral scientist Brent Smith, as role models, leaders are ;the
primary influence on individual ethical behavior. Leaders whose decisions and actions are
contrary to the firms’ values send a signal that the values are trivial or irrelevant.

There are four variants of leadership from an ethical standpoint[Arche B.Carroll and
R.E .Freeman]:-

• Immoral Leadership(Ethically negative)

• Amoral Leadership(Ethically neutral)

• Value based leadership(may be ethically positive or negative)

• Ethical leadership(Ethically positive)

Two Pillars of ethical leadership: It has been argued that a manager’s reputation for ethical
leadership is founded on two pillars: perceptions of manager as both a moral person and as a
moral manager. Being a moral person is composed of three major attributes: traits, behavior and
decision making. Important traits are stable personal attributes such as integrity, honesty and
trustworthiness. Critical behaviors-what you do , not what you say-include doing the right thing,
showing concern for people, being open and being personally moral. Decision making of the
moral person needs to reflect a solid set of ethical values and principles. In this activity, the
manager would hold to values, be objective/fair, demonstrate concern for society and follow
ethical decision rules.

The second pillar is being a moral manager. According to researchers, moral managers
recognize the importance of proactively putting ethics at the forefront of their ethical agenda.
This involves three major activities. First, the moral manager must engage in role modeling
through visible action. An emphasis is placed visible action-action that can be witnessed by
others. Second, the moral manager communicates about ethics and values. This is to be done in
a way that explains the values that guide important actions. Third, the moral manager needs to
use rewards and discipline effectively. This is a powerful way to send signals about desirable
and undesirable conduct.

Ten characteristics of ethical leaders are as follows:

1. Articulate and embody common purposes and values of the organization

2. Focus on organizational integrity rather than on personal ego.
3. Find and develop the best people as a moral imperative.
4. Create a continuous dialogue about ethics and creation of shareholders value as standard
operating procedure.
5. Encourage mechanism of dissent against any abuse of power and legitimate authority.
6. Develop an empathic understanding of others’ values.
7. Exercise moral imagination in identifying impacts of decisions and actions.
8. Reflects upon the limits of ethical principles that guide the organization.
9. Frame action and performance matrix in ethical term.
10. Connect the basic value proposition of business to shareholders’ engagement and societal
legitimacy.

Benefits of Ethical Leadership:

Ethical leadership creates many benefits for an organization. Most importantly, ethical leadership
has a direct impact on the corporate culture of the firm. For instance, ethical leaders
communicate and monitor an organization’s values, enduring that employees are familiar with
the company’s purpose and belief. They also provide cultural motivations for ethical behavior,
such as reward systems for ethical conduct and decision making. This reinforcement is positively
correlated with ethical employee behavior patterns. Thus, ethical leadership encourages
employees to act in an ethical manner in their day to day work environment, It is a well known
fact that a firm is only as good as its employees, so instilling employees with a strong sense of
integrity is crucial to creating an ethical organization.

Ethical leadership can also lead to higher employee satisfaction and employee commitment.
Research shows that employees like to work for ethical companies and are less likely to leave
ethical organizations,. These factors translate into significant cost savings for the firm and serve
increase employee productivity.

While ethical leadership can create competitive advantages through employee satisfaction and
productivity, it also creates strong relationships with external shareholders. For instance,
customers are willing to pay higher prices for products from ethical companies. As consumers
trust for business continues to recover after financial crisis and recession, consumers are more
likely to do business with companies they consider to be trust worthy.

Ethical leadership is a foundational requirement for impacting the long term market valuation of
the firm. There is a positive association between the ethical commitment of employees and a
firm’s valuation on the stock market. A firm’s reputation for corporate social responsibility also
impacts investor’s decisions. Corporate social responsibility is negatively related to ethical risks
in the long term and investors view risk as a factor when determining whether to invest in the
firm. The ethical reputation of the company can ,therefore, assure them about the short term and
long term sustainability of the company. Though creation of favourable relationships with
employees, customers, investors, and regulators, ethical leaders create significant competitive
advantages and value for their companies.