W7 Article Analysis

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A Discussion of Ethical Leadership

Mari Kooskora Estonian Business School

Abstract

Ethics is part of every field of human activity and gaining increasingly more importance in all soci- eties. Ethics starts with a person––a real, living, breathing human being who makes moral and ethi- cal choices everyday for better or for worse. The key to building a sound, ethical community is to consider the character of those people who make it happen. Ethical people make up an ethical soci- ety. A person’s knowledge, skills and understand- ing of ethics are all revealed through the decisions s/he makes every day and especially through the way problems and conflict situations are managed. The decisions leaders have to make as well as their actions often inf luence the life of individuals, busi- nesses and even the whole of society. Ethical behav- iour and ethical leadership form the critical keys to survival in the future. In this article the author discusses the need for ethical leadership and intro- duces different concepts and theories. Research results from Estonia explicitly show the impor- tance of this topic. The words of one successful and well-known corporate leader Mr. Eczacibasi, noted during an interview with him, also support these statements.

Key concepts: business activities, business ethics, moral development, ethical leadership, moral values

The Influence of the Behaviour and Charac- ter of Leaders

The need for effective leadership has become one of the challenges of the 21st Century, and a grow- ing number of academics and senior managers have come to recognise the importance of a new lead- ership paradigm. For Aristotle (1996, 135), ethical conduct was the conduct of a virtuous person and

none of the virtues are simply given to us by nature or faith, we therefore neither have nor lack them for time and eternity. He said that virtue (ethical conduct) is something that must be learnt and this involves a long process in which we must exercise our practical wisdom and sense of responsibility.

Charles Handy wrote in his book ‘The Age of Unreason’ (1990)––‘People’s careers will not be linear, but will mix risk and security, short- term income and long-term gain, and periods of extended leisure and education with periods of intense work-centeredness.’ This creates much confusion and today we see that people’s lives are more complicated than ever before. Individuals fulfil many different roles and form organisations made up of different kinds of members, and certain select people are supposed to manage and lead the others. Quite often people find themselves in situ- ations without understanding what is required of them or lacking the time for longer reflection and consideration about their behaviour.

Both the character and behaviour of people in posi- tions of leadership have a great impact on others. Max DePree (1993) has stated quite strongly: ‘Leadership is a serious meddling in other people’s lives’. He places the following three things at the top of all leaders’ lists: an understanding of the fiduciary nature of leadership, a broadened defini- tion of leadership competence and the enlighten- ment afforded by a moral purpose.

In the modern business world, increasingly more businessmen are tending to show a deeper interest in the issues of morality and ethics in business– –albeit with a confused or distorted understand- ing of these issues. Often the author has noted that Estonian leaders confuse ethical behaviour with altruism, and attitudes in our society presume that

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a good leader must be tough and has to make hard decisions without considering others. This has led people think that consideration of and care for others––being supportive and involving others–– indicates weakness not strength.

There is much evidence of the growing demand for businesses to conduct themselves with a greater regard for moral and ethical considerations (Wer- hane, 2000; Hoffmann, 1999; Paine, 2003; Trevino and Nelson, 1999; Hoivik, 2002; Pojman, 2002; Carroll 2001; Byron, 1999, etc), and today most writers stress the importance of ethics and ethical behaviour in leadership activities––chapters on eth- ical leadership are included in books and textbooks dealing with leadership and management (Yukl, 2002; Robbins, 2003; Kreitner and Kinicki, 2001; Certo 2000; Moorhead and Griffin. 1998, etc).

Modern corporations have significantly broadened their role in the society and this role impacts many both inside and outside the organisation. Accord- ing to Paine (2003), in order to survive and thrive, the modern corporation must be more than a profit machine. She says that a growing body of evidence indicates that corporate citizenship, responsibil- ity and accountability are becoming as vital to the bottom line as an effective business model. Organi- sations do not only provide products and services but also shape the entire field of public politics, the physical landscape, attitudes, customs and many other factors.

This has raised public expectations about the right and ethical behaviour of corporations and in turn forced much higher requirements upon leaders in terms of their conduct. To succeed in this environ- ment, managers need to realise that companies are increasingly being judged, not just from a technical or financial point of view, but also from the moral point of view (Paine 2003a). High quality leader- ship may be considered the single most important factor in assuring the behaviour of companies and therefore it is vital to have the right people in mana- gerial positions.

Manuel London (1999) has said: ‘The leadership challenge as we embark on the rough and fast-paced world of the twenty-first century is to get things done expeditiously and profitably, and to do so in a way that shows high integrity, trust and honesty’.

The Relationship between Individual Ethics and Organisational Ethics

A fundamental problem in business ethics is to understand how an individual’s ethics are related to organisational ethics. People do not invent their ideals in a vacuum, but rather take these from the moral traditions of society and tailor them to their own needs. This leads to a need for better and moral leadership.

According to Ciulla (1995), good leadership refers not only to competence but also to ethics. Edward Aronson (2001) finds ethical behaviour a necessary condition for the establishment of an ethical organi- sation, but claims this alone is not to sufficient, since ethical leadership is required. Mendonca (2001) has stated that true and effective leadership is when a leader’s behaviour and the fulfilment of his or her leadership role is consistent with ethical and moral values. The territory of ethics lies at the heart of leadership studies and has veins running right through leadership research (Ciulla, 1995). Chrys- sides and Kaler (1993) have stated: ‘We inquire not simply in order to be informed, but to inform our actions; to provide those actions with a better and sounder basis than they might otherwise have’.

Leadership ethics refers to the study of ethical issues related to leadership and the ethics of leader- ship. According to Bass (1999), the ethics of leader- ship rests upon three pillars: 1) the moral character of the leader; 2) the ethical legitimacy of the values embedded in the leaders vision, articulation, and program, which followers either embrace or reject; and 3) the morality of the processes of social ethical choice and action that leaders and followers engage in and collectively pursue. Such ethical character- istics of leadership have been widely acknowledged (Kanungo and Mendonca, 1996; Trevino, 1986; Kouzes and Posner, 1990, 1992).

Rost (1991) has said that the leadership process is ethical if the people in the relationship (the lead- ers and followers) freely agree that the intended changes fairly ref lect their mutual purposes. Burns’ (1978) theory of transforming leadership rests on a set of moral assumptions about the relationship between leaders and followers. Aronson (2001) presented both the modes for influencing followers that are inherent in the directive, transactional and transformational styles of leadership (described by Kanungo; Mendonca, 2001) and the major perspec-

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tives in business ethics––deontological and teleo- logical––and finally proposed a conceptual model that links ethics to leadership.

The difference between the morality of leaders and everyone else is that the ethical failures and suc- cesses of leaders are magnified by their role, vis- ibility, power, and the impact of their actions and behaviour on others (Ciulla, 2001). The individu- al’s mental model is a critical factor that influences his or her ability to make quality decisions, in addi- tion to creating a framework for the beliefs and values that ultimately determine his / her ethical framework (Caldwell et al, 2002). The practice of leadership is to guide and look after the interests of people, organisations, countries, or causes and to put the mission of the organisation or the good of one’s constituents first––to take the responsibility. Individuals cannot be responsible for everyone and everything all of the time.

The degree of responsibility a leader has is a func- tion of the extent of his or her decision and action space. There are limitations to the space for free- dom of action (Enderle, 1987) derived from the inner personal limits of particular leaders (i.e. the micro-level). This means that ethical leadership finds its limits in the conditions set from the out- side that limit the leader’s decisions and actions. At the meso-level, the corporations determine, via their culture, policy and strategies, a bundle of conditions the leader cannot but accept (given his or her decision to remain in the corporation). At the macro-level, many circumstances are determined by market forces, by law and by other socio-cultural factors.

According to the results of research into conflict management (Virovere et al, 2002, Virovere and Kooskora, 2002) and a separate survey about deci- sion-making in business situations conducted two years ago in Estonia, at EBS (Kooskora, 2001), it was found that students who had practical work experience and were involved in managerial tasks at that time, did not feel as free to make decisions as they would have liked. There were several who even answered that they knew how they should make ethical decisions, how they should act accord- ing to ethical principles, but they also knew that in real life, in real business situations they would act differently. They would consider the corporate, organisational aspects, the characteristics of the manager-leader, relationships between individuals

and act accordingly. But these decisions no longer considered ethics and these people didn’t feel free to make the choices they wanted to.

The leader is responsible for the set of ethics and norms that govern behaviour in the organisation. It is up to the leaders to keep the signs of moral purpose alive and visible. Leaders have to see themselves as role models, ‘as creators of value in many forms and for many people. They should not regard profit as the overarching objective of their endeavours, but as the result of building strong business relationships and creating value for others’ (Nash, 1990).

Ethical Leadership and Values

Every person at the managerial level has felt the temptations and seen that sometimes the rewards for unethical behaviour are great. Ethical leader- ship requires discipline, mental and personal disci- pline that not all leaders are strong enough to keep to. Some senior executives arrive in their leader- ship positions with all of the necessary cognitive and emotional tools to be an active ethical leader. Part of the reason many of them ascend to senior leadership positions is because they have a reputa- tion for integrity, for treating people well and for doing the right thing. By the time they reach the executive level, their values are solid, and when challenged, the leaders hold to them without ques- tion. On the other hand however, senior executive positions have a way of challenging values in a way that they have never been challenged before (Tre- vino et al, 2000).

To be perceived as an ethical leader, it is not enough to be just an ethical person. A reputation for ethi- cal leadership rests upon two essential pillars: perceptions of you as both a moral person and a moral manager. The executive, as a moral person, is characterised in terms of individual traits such as honesty and integrity. As a moral manager, the CEO is thought of as the Chief Ethics Officer of the organisation, creating a strong ethics mes- sage that gets the attention of the employees and inf luences their thoughts and behaviour (Trevino et al, 2000). An executive’s reputation for ethi- cal leadership must also find ways to focus the organisation’s attention on ethics and values and to infuse the organisation with principles that will guide the actions of all employees.

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Trevino et al (2000) have stated that being a moral person encompasses who you are, what you do, and what you decide as well as making sure that others know about this dimension of you as a person. Being a moral manager involves being a role model for ethical conduct, communicating regularly about ethics and values, and using a reward system to hold everyone accountable to these values and standards. Ethical leadership pays dividends in employee pride, commitment and loyalty––all par- ticularly important in a full employment economy in which good companies strive to find and keep the best people. During an interview with Mr. Bulent Eczacibasi (2004), he said that the CEOs function as a role model is extremely important, as these people are being observed, listened to very carefully and the small things are especially con- sidered important.

Values are important guiding principles, which make us do the things we do and behave the way we behave. Sometimes, due to the values we hold, it is much easier to make difficult decisions, but sometimes we may feel that our personal values contradict the action we are expected to carry out. A similar point arose in the interview with Mr. Eczacibasi (2004), when he stated that he quite often stressed the values, clear principles and pri- orities in life that had made his job as a CEO easier on one hand and more difficult in the other hand because conditions in the country often rewarded unethical behaviour.

Regardless of how well leaders get along with people, they have little credibility without a high level of leadership competence, they have to be competent in managing organisations, making decisions and taking action. Kouzes and Posner (1992) found three characteristics of leaders that were most admired by employees: integrity, compe- tence and leadership. Mr. Bulent Eczacibasi (2004) said that a CEO has to be tough, but not ruthless, it is not always possible to win and principles cost something. He continued by saying that for him the people-decisions are the most difficult to make. He added that he never compromised the values of the corporation, individual rights and justice towards people. The values he highlighted as being the most important were: respect for yourself – integ- rity; respect for the work you do – good school; respect for other people (human beings) – letting them participate in decision-making; respect for human environment and society – helping others

and respect for the natural environment. Respect for people as a principle is the foundation of ethics. Mutual respect is central to forming bonds of long- term commitment and it may also be the way to forge short-term bonds.

In an organisation, besides commitment, employ- ers want loyalty and trust from their employees, but both trust and loyalty are reciprocal concepts. Ciulla (2000) has noted that it is ironic that the less stability and loyalty companies have to offer employees, the more commitment they demand from them. Good ethical leaders are those who build trust and loyalty in their organisations. Trust is important and makes doing business with others much easier. ‘If you trust a person, you can do business with a handshake. If you can’t trust some- one, you have to try to get all the transactions and agreements down on paper. When there is no trust in a society or organisation, people substitute rules, contracts and laws’ (Ciulla, 2000). Robert Solomon (1998) has observed that without trust, there can be no betrayal, but more generally, without trust there can be no cooperation, no community, no com- merce, no conversation. In short there can be no interaction, no business at all.

Robert Rogers (1995) has stated that top managers truly live in glasshouses where people scrutinise every move and word for their true meaning. The behaviour of senior leaders is the major thing that determines if and how the organisation’s values are admitted. Leaders have to realise that when they make commitments, following through and keep- ing them are essential. If they don’t, they have no one but themselves to blame when their credibility takes a nosedive. If leaders want to earn and build trust, they must ‘walk the talk’ and additionally share their feelings and beliefs so that employees gain a clear picture of their leader’s values and pri- orities. Senior leaders must truly lead the way in creating a culture that reinforces and models open, honest, straightforward communication.

Ethical Behaviour and Effective Leadership

Ethical behaviour and effective leadership are inter- twined and inseparable. Meaningful leadership, leadership that in the long run counts for some- thing, cannot be accompanied by moral collapse. It may not be correct to say that ‘the leader who acts ethically will ultimately succeed’, but reality has proven that the leader who lacks an ethical foun-

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dation will ultimately fail, maybe not immediately, but in the long run.

The leader’s role is to create the circumstances where people can act according to ethical norms and with their own behaviour they are role models, they are being watched and followed. Willard C. Butcher, the retired chairman of the Chase Man- hattan Corporation, has expressed this idea in the following manner (1997): ‘Business leaders today can’t shrink from their obligations to set a moral example for those they lead. They must draw the line between, on the one hand, the perpetual push for higher profits, and on the other, actions antago- nistic to the values of the larger society … ethical business leadership requires not only harvesting the fruit we can pluck today; 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 rich harvest in the first place’.

Strong leaders may have clear vision, creativity, pride and even trust among employees, but these may not be enough unless being accompanied by competency, transparency, integrity and humility. In this case all these positive traits may loose their value and the organisation may not recognise their leader as an ethical role model. ‘The final litmus test is when staff members, regardless of their organi- sational status, do not hesitate in choosing the hard right over the easy wrong’ (Hofmann 2004, 41).

Management quality is largely dependent on the decision-making ability of a manager and also on the kinds of decisions he or she makes. There is often an ethical conf lict between making money and doing what is right. A dilemma must be solved – whether to perform in the most beneficial way either to the employer or to one’s own career or to the customer. The author has had heated discus- sions with Estonian business leaders, who claim that the only thing that is important in business is earning profit, nothing else matters as much. Profit is definitely an important part of every business activity, in fact it is critical, because without profit there cannot be any business and development, but thinking about earning profit alone is definitely not enough. Life has shown that leaving ethics behind will be very expensive and even fatal in business.

While studying conflict situations over the last five–six years at Estonian Business School (Viro-

vere, Kooskora, 2002) we have witnessed that managers in Estonia have underestimated the importance of ethical criteria: that a good, con- f lict-free working environment encourages people to work with greater commitment, which in the end is profitable for the company. We have also seen that the human aspect in business has not been con- sidered significant because most conflicts end with an employee getting fired or leaving their job with- out ample opportunity to defend him/herself. And we have observed that managers did not realise that the loss of an employee is a loss not only for the employee, but also for the company. We have also seen that in the end this style of business has turned into the most ineffective, resulting in severe con- sequences: conflicts, damaged relationships, failed businesses and bankruptcies (Kooskora, 2004).

Ethical Leadership and Caring for Others

Leaders who do not look after the interests of their followers are not only unethical, but ineffective. The practice of leadership is to guide and look after the interests of people, organisations, countries or causes, and to put the mission of the organisa- tion or the good of one’s constituents first (Ciulla, 2001, 315). Leaders have to be effective and they have to be ethical. There are times when simply doing something ethical makes a leader effective and other times when being very effective makes a leader ethical.

Our roles in various areas of life––work, family, politics, etc––are distinct and yet closely connected with one another because, in spite of the multiplicity of roles, the subject of the roles remains the same. Leader’s decisions do not only have technical, eco- nomic and financial consequences, they also con- cern employees as individuals (Enderle, 1987).

Being a leader, without developing others is not enough. Kouzes and Posner (1992) have observed that when leaders are working at their personal best, they are also transforming their ‘followers’ into leaders. The best leaders guide their organi- sations and the people in them to new levels of learning and performance, transforming the pres- ent into reaching towards potential. Leadership thus becomes a process of learning, risking and changing lives.

Developing others, caring about them, being con- cerned about their well-being is closely connected

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to love. Kouzes and Posner (1992) state that ‘love creates the desire to see others grow and become their best’. While interviewing the successful and world famous General Stanford they heard him say: ‘I have the secret to success in life. The secret is to stay in love. Staying in love gives you the fire to really ignite other people, to see inside other people, to have a greater desire to get things done than the other people. A person who is not in love doesn’t really feel the kind of excitement that helps them to get ahead and lead others and to achieve. I don’t know any other fire, any other thing in life that is more exhilarating and is more positive a feeling than love is.’ Ethical leadership accesses the healing and energising powers of love, recognising first that leadership is a reciprocal relationship, a leader’s passion comes from compassion, leaders ultimately serve and support and honesty is essen- tial for moral (transformational) leadership.

Conclusion

Ethical questions are essentially questions about whether people ought or ought not to perform cer- tain kinds of actions; about whether those actions are good or bad, right or wrong, virtuous or vicious, worthy of praise or blame, reward or punishment, and so on. Consequently, with business ethics as with any other branch of ethical enquiry, the point of the exercise is to resolve questions of conduct. It has, then, an essentially practical purpose. Success in creating a climate for responsible and ethically sound behaviour requires continuing effort and a considerable investment of time and resources.

The leader plays a critical role in establishing and maintaining the ethical culture within his/her organisation. Too often the emphasis has been put primarily on the manager’s expertise, technique, power, knowledge and strategic choices, at the expense of the leader’s moral character, but lead- ership excellence cannot be evaluated without an assessment of the leader’s character, moral vision, integrity, values and caring for others and taking responsibility.

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