Business Ethics And Sustainability

Introduction

Leading organisations and people is one of the most important aspects of effective organisations. Leaders provide direction and vision and are often said to influence followers in a goal directed path. Whilst many people use leadership and management synonymously they are in fact different by related concepts. Two of the most recognised management models by Henri Fayol and Henry Mintzberg both identify leadership as a function of management. This means that managers by definition need to lead, but not all leaders are necessarily managers. The importance of this distinction can be linked back to Unit 4 when we considered Kohlberg’s cognitive moral development model and the importance of leadership in the conventional stage. In both levels of Kohlberg’s second stage, leaders, be they of groups, companies or states, play a major role in shaping the accepted norms of the group. Ferrell, Fraedrich and Ferrell (2015) also highlight the key role that leaders play as ‘significant others’ in influencing ethical behaviour.

This unit seeks to explore the concept of ethical leadership and how these capabilities can be developed. It looks at the “virtues” that leaders need to demonstrate with behavioural consistency so as to not just be seen as, but to be genuine ethical leaders with a concern for others.

This unit has the following learning objectives:

2. To define ethical leadership.

3. To identify the benefits of ethical leadership in leader-follower relationship.

4. To understand the importance of effective role modelling

5. To understand the important of ethical leadership in building an ethical culture

Overview

Noted scholar and Professor of Management at McGill University, Henry Mintzberg conducted landmark studies of managers and leaders in the 1970s and replicated these studies again in the 2000s. He found that managerial work was then and still is, characterised by brevity, variety and fragmentation. This means that managers and leaders tend to break up their tasks, spend only short periods of time on each task and not necessarily attend to them in a cohesive and structured manner. He also found that despite decision making being a critical component of a manager’s role they are not reflective thinkers but tend to be reactive and make decisions with insufficient information.

What is Leadership?

In the Governance and Leadership course we will examine leadership and leadership behaviour in more depth, however, one of the perspectives that will become apparent during that course is the importance of behaviour as a way of role modeling. There is clear evidence that employees look to senior leaders and their managers to establish what behaviours are acceptable in an organisation.

At its simplest, leadership can be considered as influence directed towards others, in a given situation, in order to obtain specific goals.

Ethical Leadership: Building Competence

A major problem with traditional leadership literature is its focus on power relationships, how to acquire it, attain more and to exert influence on others, rather than focus attention on moral relationship that exists between leaders and followers (Freeman 1991).

Ethical leadership is the critical factor in influencing ethical behaviour of employees as it is not the corporation itself that exerts moral responsibility but rather the individual members of the organisation (Ritchie, 1996).

Ethical leadership can be defined as “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 et al. 2005,p.120). Svenson and Wood (2011) identify that ethical dimension of leadership refers to the right decision and actions combined with good intention and accompanied by moral correctness of behaviours.

Ferrell, Fraedrich and Ferrell (2015) provide a common definition of leadership as the ability or authority to guide and direct others toward a goal, They state that ethical leaders create an ethical culture, have the power to motivate others and enforce the organization’s norms, policies, and viewpoints and develop a positive relationship with the organizational citizenship of employees and a negative relationship with deviance or misconduct.

Ethical Leadership

In this short video Dr James Haley provides an overview of some of the major scandals of recent years such as the Enron Collapse and Madoff’s Ponzi scheme to highlight the consequences of unethical leadership. He interviews the president of Point Park University and Heinz executive John Crouse to uncover the attributes of ethical leaders.

https://www.youtube.com/watch?v=B9K9pNxljjg

As we identified in our first Unit, Foy (2002) notes the ability to use ethical decision making and indeed understand ethical contexts requires a grounding in basic theory, principles and concepts. We cannot therefore expect ethical leadership to simply emerge in a person by default - either in themselves or in the organization as a matter of intuition- this would be akin to a form of moral luck where ethics is a matter of chance. This clearly suggests that a starting point for leaders in building an ethical organization is to examine their own knowledge and behaviour and ensure that it is ethical. Svenson and Wood (2011) describe this as the intellectual and practical rightness of a leader's actions and in his/her relationship with followers. They state that the main influence is not the technical capacity or psycho-emotive personality of the leaders, rather it is their moral behaviour, as demonstrated by moral virtues such as trustworthiness, fairness, honestly and integrity (Solomon 1992).

Thus ethical leadership involves linking moral reasoning to action. A Leader’s character is defined by their actions and behaviours and not simply the values that are stated or claimed.

In order to develop ethical leadership, people must acquire knowledge about ethics and moral decision making so as to:

· analyse the ethical dimension of a problem

· generate a range of ethical decision option

· assess each option from the perspective of ethical process as well as ethical outcome

· select that decision that enhances ethical behaviour

Clearly this course is aimed at developing your understanding of ethics which is part of the process of developing ethical leadership. However knowledge by itself is insufficient, behavior and authenticity or genuineness is also a key aspect in the development of trust between leader and follower.

As we identified in the previous unit, virtue based approaches to ethics focus upon the moral quality of a person and in this way it can inform an ethic of leadership. From the time of Aristotle, theorists have argued that of all the virtues, prudence represents the linchpin of political judgment and Minkes, Small and Chatterjee, (1999, p.327) argue that a theory of leadership must develop an account of prudence. For leaders and managers the challenge is to develop skills and behaviours that clearly demonstrate these virtues.

Bethel, (1999) states that a leader who combines high ethics with a genuine concern for others, personal competence and fairness in the exercise of power, sends a clear message to others, and in doing so establish trust. Thus the third component of competence must also be cultivated as part of being an ethical leader- genuineness or authenticity.

Developing Ethical Leadership

Numerous studies into leadership over the years in across a variety of cultures have found that the key characteristics of effective leaders are such qualities as honesty, integrity, credibility, being fair-minded, straightforward and dependable.

Amongst the most significant research into the characteristics of superior leaders was undertaken by Kouzes and Posner (1987) who asked 1,500 managers what personal traits or characteristics they admired most in their superiors. They report that the most frequent responses, in order of mention, were:

· Honesty - they behave with integrity, act in a way that is consistent with their stated values, trust.

· Competent - they know what they are talking about, capable and effective.

· Forward looking – they have a sense of direction, and vision.

· Inspiring - they are enthusiastic and energetic; passionate about what they do. Believe in others and themselves.

Leaders and Credibility

In this short video the authors of the Leadership Challenge, Jim Kouzes and Barry Posner discuss the importance of credibility and how leaders gain and loss this important attribute.

https://www.youtube.com/watch?v=2Pz8f36OEGw

Ferrell, Fraedrich and Ferrell, (2015) identify seven characteristics of ethical leaders

· Ethical leaders have strong personal character.

· Ethical leaders have a passion to do right.

· Ethical leaders are proactive.

· Ethical leaders consider all stakeholders’ interests

· Ethical leaders are role models for the organization’s values.

· Ethical leaders are transparent and actively involved in decision making.

· Ethical leaders take a holistic view of the firm’s ethical culture.

Many of these traits are also part of good leadership and management practice in general

Trust and Trustworthiness

It is important to consider how we choose to use our knowledge and behaviours to reinforce genuineness, sincerity and consistency when displaying empathy and trust towards others. Goleman (1998) suggests that the concept of trust requires consistency in how managers display particularly interpersonal skills and behaviours towards others to engender feelings of confidence and reassurance that managers genuinely care about their employees or peers. When people feel a sense of trust this means managers and leaders are respected. Trustworthiness and conscientiousness are therefore viewed as two important competencies for ethical leaders to develop.

Trust and Trustworthiness

Think of a situation that has occurred in your workplace or when you observed or experienced what you believed were examples of a lack of trust and consider the following questions.

· How do people react in a situation where there is a lack of trust or trustworthiness?

· What feelings or behaviours are demonstrated?

· How do these feelings and reactions affect workplace morale and performance?

· What actions do you believe are required by managers to build trust in the workplace?

Mayer et al. (1995) highlights three key factors that affect the interactions between a trustor and trustee in relationship management:

1) Ability

2) Benevolence

3) Integrity

Building trusting relationships between managers and employees requires both emotional and social skills. Schindler and Thomas (1993) suggest that trust contains five key elements and in order to demonstrate trustworthiness the following characteristics need to be displayed.

· Integrity

· Competence

· Consistency

· Loyalty

· Openness

Trusting behaviour reflects a moral duty or commitment (Kramer & Goleman 1995). Cummings and Bromiley (1996) identify several aspects of trust

1) Belief that others make a conscious effort to behave in accordance with commitments

2) Honesty in negotiations

3) Not taking excessive advantage of others when opportunities are available

Many rational theories see trust based on decisions whether to be consciously trustworthy and that willingness to trust others is based on estimates of probability that others will reciprocate (Hardin1993). There has been a movement away from the rational view of trust to motivational and affective dimensions to prompt people to engage in trust behaviours.

Ethical Considerations

Whilst individuals can have a degree of social awareness, or display positive personal traits such as agreeableness, it is a separate consideration what they do with the information they have and how they manage and lead others in an ethical manner. This brings us to the area of virtues and character.

Character has been defined as doing the right thing despite external pressure or influences to the contrary (Likona,1991) and has been elsewhere seen as an essential leadership attribute (Barlow et al. 2003). In a leadership capacity, character is seen as “moral excellence” (Hendrix et al, 2003, p.60). Sarros, Cooper and Hartican (2006) take a socio-psychological perspective on character and recognise that social as well as individual psychological factors influence the expression of character. Cloninger et al. (1993); Millon, (1996) and Sperry (1997) focus on the three character dimensions of:

1. self-reliance,

2. cooperativeness, and

3. self-transcendence.

To act with character is to show virtue. Tjelveit (2003, p.400) writes: “character and virtue have to do with the ethical qualities of persons, with what we view as good, or excellent, or praiseworthy about them”. These virtues or moral imperatives feature in much of the leadership research and in particular the research on authentic leadership (Fairholm, 1991; Gardner and Avolio, 1998; Luthans and Avolio 2003; Mat et al. 2003; Price 2002). According to these perspectives, authentic leaders:

· Know who they are and what they believe in;

· Show consistency between their values, ethical reasoning and actions;

· Develop positive psychological states such as confidence, optimism, hope and resilience in themselves and their associates; and

· Are widely known and respected for their integrity (UNL Gallup Leadership Institute, 2004).

The concept of virtue ethics was introduced in the previous to help us understand how we assess the integrity, character or attitude of a manager in day to day business dealings. The theory of virtue ethics views ethical behaviour is a function or outcome of character that is derived from attitude.

Solomon (2005) suggests that people acquire virtues such as integrity, honesty as habitual behaviours and that these behavioural competencies are desirable or ethical to display towards others instead of lying, cheating or ambition. This area raises some interesting points in how we consider how we can acquire competence to be more effective leaders or managers.

Being ethical in terms of virtuous behaviour towards others, requires managers to be able to have established a solid foundation in managing social relationship and creating a sense of trust in the workplace.

The Virtuous Leader

Consider some of your past experiences where you have observed individuals who have demonstrated compassion, sincerity and integrity as virtues. What factors do you believe influenced these types of individuals? How do the actions of others affect you in your interactions with others?

Kouzes and Posner (2012) have continued their research and have developed a five stage model that they argue leaders to superior performance.

1. Challenge the process –Effective leaders are prepared to take risks and learn from mistakes and successes. Importantly they take responsibility for their actions not just their successes.

2. Inspire a shared vision Effective leaders communicate their vision and persuade others to commit to it. This clearly means that leaders need to be skilled at communication in particular oral presentations and have an understanding of motivation and influencing. Ferrell, Fraedrich and Ferrell (2015) suggest that transparency and reporting are two major dimensions of ethical communication. They state that ethical leaders create transparency by developing a culture where ethics is frequently discussed. These are key concepts that are explored in the Governance and leadership and the People and Organisations course of the MBA.

3. Enabling others to act - Effective leaders foster collaboration and get people to work together. Key knowledge around delegation and empowerment are a must for enabling others to act. So too is an understanding of teams and groups and the importance of building team spirit.

4. Model the way – Effective leaders recognize the importance of action as exemplars of desired behaviours. They act as role models and set other people up for success. We have previously noted the importance of leaders and their behaviours in the conventional level of cognitive moral development. Ferrell, Fraedrich and Ferrell (2015) also note that ethical leaders need to insure that they model the values of the organization so as to demonstrate an alignment between stated, written and actual vales and behaviours. The importance of ethical leadership in developing ethical culture will also be addressed in our next unit.

5. Encourage the heart – Ethical leaders recognise contributions, reward performance, providing regular feedback and monitoring. They celebrate group accomplishments and give people courage to tackle challenging aspects of their work. Clearly the importance of feedback to employees is at the core of encouraging the heart.

Leadership’s Strategic Role

Sims and Brinkmann (2002 pp 327-339) cite the report from the Business Roundtable, made up by a executives from major American corporations, as identifying leadership as crucial to the establishment of organisational ethics "to achieve results, the chief executive officer and those around the CEO need it to be openly and strongly committed to ethical conduct, and it constant leadership in tingling and renewing the that news of the organisation" (Business Roundtable, 1988). Hoffman, Driscoll and Painter-Morland (in Moon and Bonney 2001) identify that the ethics initiative could be deemed to start with senior managers making an explicit commitment to long-term success. They stress that the executive level of an organisation needs to assume responsibility for ethics and ensuring appropriate resources and clear responsibility be established. organisation.

Ethical leadership relates to the clarity of vision and long term consistency in pursuing the vision. "Strategy and ethics go hand in hand. Strategy is concerned with purpose and values and so is ethics" (Connock et al. 1995 p3). Ethical leadership is the first and foremost in influencing ethical organisational behaviour; it is not the corporation itself that exerts moral responsibility but rather the individual members of the corporation.

Leader Role in Organisational Culture and Ethics

Sims and Brinkmann (2002) argue that one of the most critical aspects of corporate culture is the moral tone and example set by top leadership. They have identified that the relationship between leadership and ethical culture or climate, determines the level of behavioural consistency and that unethical leaders tend to attract more attention than ethical ones and as such have greater potential to influence employee behaviour. The personal values of senior executives, reinforced by their authority, set the ethical tone of the organisation. They suggest that a failure of leaders to identify key organisational values, demonstrate these to organisational members through examples and the lack of reinforcement through organisational policies, demonstrates the lack of ethical leadership and fosters unethical organisational culture.

McCoy (1985) suggests the key to being an effective ethical role model for employees is to demonstrate consistency between one's ethical philosophy and ethical behaviour. Thus ethical behaviour must begin at the strategic level (Drummond et al. 1994). This point is emphasised by Trevino and Nelson (1995, 2010) who identify that leadership is crucial to the ethical behaviour and culture of an organisation as integrity or the lack of it, of flows from the top down. They suggest that this is a truly profound statement as history has shown that employees of an organisation will follow the actions of senior management, irrespective of the existence of a code of ethics or a code of conduct.

Schein (1985, 1997) defines organisational culture as the basic assumptions and believes shared by members of a group or an organisation. These assumptions and beliefs involve the group's view of the world, their place in it, the nature of time and space, human nature and human relationships. According to Schein (1985, 1997) it is this organisational culture that reduces the levels of uncertainty within the organisation, thus it is culture that talks to organisational members about how situations should be handled and of the behaviour expected of members.

Sims and Brinkmann (2002) suggest that if leaders are consistent in their behaviour then employees receive clear signals about what is important in their organisation. However, inconsistency on the part of leader actions results in employees spending significant time trying to decipher and find meaning in the signals.

Schein (1985, 1997) describes the process of role modelling as the messages communicated to employees by the actions of leaders. He suggests that employees look to leaders for clues about appropriate behaviour and then will emulate the leader's behaviour. Sims and Brinkmann (2002) suggest that is the case with any cultural value, as employees look to the behaviour of the leaders to find out what is valued in the organisation.

Ineffective Leadership

Ferrell, Fraedrich and Ferrell (2015) note that the most damaging of all leadership failures is the clear and visible evidence of senior executives acting contrary to the stated values and ethical codes of the organisation. Kouzes and Posner (1987, p. 302) explained this by saying that leaders, who could not personally adhere to a firm set of values, could not convince others of the worthiness of those values. Connock and Johns (1995, p.184) argued that such dissonance generates disillusionment, cynicism and alienation. Furthermore it encourages short-term self-interest conveying values such as personal survival, political ascendancy and tactical teamwork All of these undermine trust and serve to breakdown relationships.

Weiss (2006) highlights seven symptoms of the failure of ethical leadership which provide a practical lens for leaders in the self-analysis process

1. Ethical blindness- they are unable or unwilling to identify the ethical dimension of decisions due to inattention or inability.

2. Ethical muteness: they do not have or do not use ethical language and are unable to discuss or describe issues in ethical terms.

3. Ethical incoherence: they are unable to see inconsistencies between their espoused values and public commitments and their actual behaviour that often digress.

4. Ethical paralysis they are unable or unwilling to act on their values due to a lack of knowledge or fear of the consequences of their actions.

5 Ethical hypocrisy: they are not commitment to their espoused values and delegate things they are unwilling or unable to do themselves.

6. Ethical schizophrenia: they have a split set of values- acting in one way within an organizational context and another at home or in private

7. Ethical complacency: they believe that they can do no wrong because of who or what they are (senior leaders)

The challenge facing senior leaders and managers is the ability to recognize these traits and failings in their own behaviour and to constructively address them through education and skill development. So once again we return to the concept of self awareness and the importance of leaders being aware of themselves and how others see them.

Reading 1

Ferrell, O.C., Fraedrich, J., & Ferrell, L. (2015). Business Ethics Ethical Decision making and Cases, Cengage Learning, Stamford. Ch. 11

The Ferrel et al. (2015) text’s chapter on ethical leadership provides an overview of some of the key concepts related to leadership. Of interest is the section on resolving ethical conflicts that uses concept and models that will also be addressed in the People and Organisation’s course.

Additional Reading

Reading 2

McDonald, G. (2015) Business ethics: a contemporary approach, Cambridge, Port Melbourne. Ch12 pp 385-387.

Gael McDonald’s chapter focuses largely on the development of an organisational ethics system, which is the focus of our next unit; however she does provides a brief overview of ethical leadership and the importance of developing ethical leader attributes. Moreover the placement of ethical leadership in this chapter emphasizes the importance of leadership in the development of ethical culture

Journal Reading 1

Dion, M. (2012) "Are ethical theories relevant for ethical leadership?", Leadership & Organization Development Journal, 33 ( 1), pp.4 - 24

In this article Michel Dion examines eight leadership perspectives and five ethical theories, including deontological and virtue ethics to consider where alignment occurs. He asserts that leadership does not reflect one particular ethical perspective but rather has a more flexible or situational approach.

Journal Reading 2