Management Research Paper

Impact of Ethical Leadership on Organizational Commitment & Productivity in India

Damini Saini

This study aimed to explore how ethical leadership in the Indian context impacts the commitment of employees and the perceived p ro d u c t i v i t y o f t h e f i r m . T h i s study employed a quantitative method using a cross-sectional survey design to assess 564 em- ployees working in 7 organiza- tions covering the service sector industries in north India. A non- probability, convenience sample was obtained from this popula- tion group. The study examined the potential of ethical leadership to foster higher levels of organi- zational outcomes and found that employees led by highly ethical leaders reported greater organi- z a t i o n a l c o m m i t m e n t a n d p e r - ceived productivity.

Damini Saini is Assistant Professor, Institute of Management Sciences, University of Lucknow, Second Campus, Off Sitapur Road, 226024. Email:[email protected]

Introduction

Repetitive incidents of frauds and scams in the large corporate houses and industries have made researchers, prac- titioners and academicians to reflect upon the prevalent leadership styles and prac- tices and to find the missing link. The top executives of corporate organizations contributed to the recent credit crisis by resorting to fraudulent decisions that ar- tificially inflated profits to increase com- pensation (Bello,2012).For instance, WorldCom’s Bernie Ebbers; Ken Lay, Andrew Fastow and Jeffrey Skilling of Enron; Dennis Koslowski of Tyco and RamalingaRaju of Satyam, are some leaders,who led their organizations to fi- nancial scandals (Shirur, 2011). Hence, it is important to guide managers by ar- ticulating and communicating unambigu- ously regarding what is right and what is not (Maheshwari& Ganesh, 2006). They must decide concerning what is “right” or ethical to do.That is one of the rea- sons why the emphasis upon ethical be- havior in organizations is quite noticeable over the recent years. Ethical behavior in business is a complex interaction of organizational factors, personality char- acteristics, and societal information signs

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which have a positive effect on long-term profitability (Herndon, Fraedrich &Yeh, 2001). Such a perceived ethical context should prompt positive employee attitudes that reflect greater contentedness with job tasks, duties, and responsibilities (Hunt,Wood, &Chonko, 1989). Conse- quently, developing an ethical environ- ment should be a key approach for en- hancing employees’ connections with work and positive employee attitudes and behaviors are impending signs of in- c r e a s e d j o b p e r f o r m a n c e ( Ta n n e r, Brügger, Van Schie & Lebherz, 2010). Despite these, ethical leadership and job attitudes are interrelated and still subject to investigation in different settings. Con- sequently, this study investigated the im- pact of ethical leadership on perceived productivity of organization. In addition, the relationships between ethical leader- ship, positive job attitude (organizational commitment) and productivity were ex- plored in a separate partial mediated model.

Leadership &Ethics

Upadhyay& Singh (2010) concluded that leadership is the most important fac- tor to implement ethical policies in the o r g a n i z a t i o n . M a r c y, G e n t r y a n d McKinnon (2008) recommended that a leader should nourish a specific strategy to virtuously influencing the followers. In the literature available one can find the innumerable definitions of leadership.

Leadership in the organizational context is defined as, “ability of an individual to influence, motivate, and enable others to contribute toward the effectiveness and success of the organizations of which they are members” (House, Wright & Aditya, 1997:184). This definition is al- most the crux of the different leadership definitions in general.

Often, due to the conflicting interests of diverse stakeholders, managers in or- ganizations face the dilemma of recog- nizing the righteous decision as perceived by the stakeholders. “Ethics” in simplest terms means moral conduct for living a ‘good’ life in a ‘good’ society (Singh, 2001:9). More specifically, Poulton (2005:4) demarcated ethics as, “a soci- etal discussion of what ought to be con- sidered for overall human well-being, in- cluding the broader concepts of fairness, justice and injustice, what rights and re- sponsibilities are oper-able under certain situations, and what virtues a society admires and wants to emphasize.

In order to face the dilemma of iden- tifying the righteous decision due to con- flicting interests of different stakehold- ers, then to guide by articulating and com- municating clearly, concerning what is right and what is not, appropriate struc- t u r e s a n d p o l i c i e s a r e r e q u i r e d (Maheshwari& Ganesh 2006). These guiding policies come under business eth- ics. It emerges from a series of ethical discussions that began in the early 1970s in the United States about the social re- sponsibilities of business (Green & D o n o v a n , 2 0 1 0 ) . B u s i n e s s e t h i c s examines ethical principles and moral or

A leader should nourish a specific strategy to virtuously influencing the followers.

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ethical problems that arise in a business environment (Solomon, 1991). According to De George (2011:16), “Business Eth- ics as a field is defined by the interaction of ethics and business. Business ethics is as national, international or global as business itself, and no arbitrary geographi- cal boundaries limit it”.When the leader demonstrates the morality in actions the employees follow the blueprints and or- ganization also gets recognition for its ethicality towards society. The related perspective phenomenon of ethicality carries the prominence in creating an ethically strong business atmosphere for sustainable social and economic growth.

Ethical Leadership

Leaders are the most renowned faces of the organization, wear the crown of success and bear the responsibility of failures on their shoulders (Saini &Singh- Sengupta, 2016). Matters like having power on enduring matters, determining the organization policies, control over rewards and punishments, influencing employees put leadership into a respon- sible zone. For this reason ethically sen- sitive leaders are needed in time of fi- nancial crises, global injustice, climatic change, cultural insensitivity, employee racial and sexual discrimination and in the period of corporate financial irregulari- ties (Bello, 2012).

Leaders are the most renowned faces of the organization

An ethical leader is a person with “right values” and “strong character” that

set examples for others and withstand t e m p t a t i o n s ( F r e e m a n & S t e w a r t , 2006:2).Furthermore, Trevino and Brown (2005:80) specified that ethical leaders are likely to influence their followers to engage in ethical conduct and to refrain from unethical conduct by way of mul- tiple processes that rely on both trans- formational and transactional approaches to leadership.More precisely the term was defined by Brown, Trevino and Harrison (2005:120) as “Demonstration of normatively appropriate conduct through personal actions and interper- sonal relationships, and the promotion of such conduct to followers through two- way communication, reinforcement and, decision-making”.

This earlier dialogue about ethical leaders show that they clearly give mes- sages to their followers about the expected behavior, and it is also consistent with the social learning and social exchange per- spective (Trevino & Brown, 2005). Tho- mas Aquinas (as cited in Knights & O’Leary, 2006) suggested that all moral questions will lead to a virtue analysis, leading back to character and organiza- tionally ethical leadership includes a de- liberated scheduling process so that po- lices decision making processes, consul- tation, accountability and ethical standard and ongoing assessment and monitoring are in place to ensure ethical practice by the leader and the follower.

Organizational Commitment

Organizational commitment has been demarcated and measured in several methods. “Attitudinal organizational com-

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mitment is the strength of an individual’s identification with, and involvement in, a p a r t i c u l a r o r g a n i z a t i o n ( L e o n g , F u r n h a m & C o o p e r, 1 9 9 6 ) . ” F u r t h e r Ongori (2007) described employee com- mitment as an effective response to the whole organization and the degree of at- tachment or loyalty employees feel to- wards the organization.According to Akintayo (2010), “employee commitment can be defined as the degree to which the employee feels devoted to their or- ganization.”

Individuals with low levels of commit- ment do not put their hearts into the work and mission of the organization and more concerned with personal success and also more likely to look at themselves as out- siders and not as long – term members of the organization; an attractive job offer elsewhere is very likely to result in their departure (Irefin & Mechanic, 2014). Employees with high commitment to an organization realize themselves as an in- tegral part of the organization. In the simi- lar vein Steers (1977) found that employee commitment is directly related with the company turnover. Steers (1977) also es- tablished that more committed employees wish to terminate from the organization at minimum level and highly committed employees, to their organization, work hard in performing their tasks that will increase their positive attitude towards the organi- zation and this will ultimately increase the productivity of the organization which re- sults in higher organizational performance. On the basis of these arguments for present study, organizational commitment is taken as a dependent variable for ethi- cal leadership.

Productivity

Productivity has evolved over the past century and is now an enduring fea- ture when focused on an organization of the future. Productivity is part of achiev- ing excellent performance and at the or- ganizational level, productivity has been an integral part of business success and strategies (Phusavat, 2014). It is a mea- sure of the efficiency of a person, ma- chine, system, etc., in converting inputs into useful outputs. It is computed by di- viding average output per period by the total costs incurred or resources ex- pended in that period.Tangen (2002) stated in his research that manager ’s opinions on the meaning of productivity were strongly influenced by the perfor- mance measures and even many of the managers believed that they fully under- stood what productivity meant, but at the same time they found difficulties in clari- fying the dissimilarities between produc- tivity and parallel terms, for example prof- itability that was mostly seen as the same thing as productivity. Organizational pro- ductivity indicates the efficiency with which input is turned into output in an organization. It is typically expressed as an output–input ratio or the efficiency with which inputs are transformed into outputs(goods and services) (Kopelman, Brief &Guzzo, 1990; Anderson, Fornel and Rust,2007).

There are many diverse productiv- ity measures. Using them depends upon the determination of productivity mea- surement and, in many instances, on the availability of data. Broadly, productiv- ity measures can be classified as single

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factor productivity measures (relating a measure of output to a single measure of input) or multifactor productivity measures (relating a measure of output to a bundle of inputs). Another distinc- tion, of particular relevance at the in- dustry or firm level is between produc- tivity measures that relate some mea- sure of gross output to one or several inputs and those which use a value- added concept to capture movements of output (Schreyer&Pilat, 2001). Classi- cal economics discuss productivity im- provements in terms of capital and la- bor, where increases in the productivity are generally considered the major source of economic growth (Anderson et al., 2007). Cited in Matthew (2007) Kopelman et al. claimed that unlike economists, who advocate measuring national productivity through total fac- tor productivity, behavioral scientists make a case for partial factor measures of productivity such as labor, energy and materials. Studies examining the impact of culture, climate or human resource management on productivity examine partial measures of productivity that are indicative of total productivity and or- ganizational productivity is a complex function of the productivity of different units, there is the tradition of examining the linkages between behaviors and pro- ductivity in literature (Matthew, 2007).

In this study, we have included the perceived view of productivity of orga- nization. There are some reasons behind this take, the first one our targeted sample was of the managers, who were supposed to be highly aware of the productivity in different areas of the firm. Managers are

highly aware about the new technology, customer satisfaction, new products in- troduced because they deal with the sub- ordinates as well as the customer di- rectly. Furthermore, financial information is often freely shared with the managers but it is not available easily for the as- sessment of an outsider.

Hypotheses

Employee organizational commit- ment is often used as a measure of fol- lower behavior which directly influences employee work performance. Ethical leaders constantly make efforts that in- corporate moral principles in their be- havior, values and beliefs embodying a commitment to higher organizational purpose enshrined through prudence, persistence and patience (Hsin-Kuang, Chun-Hsiung & Dorjgotov, 2012). It is conceivable that this constancy of be- havior and positive environment found in ethical leadership is consistent with amplified employee organizational com- mitment. On this basis the following hypothesis is proposed:

Hypothesis H1: Ethical leadership is posi- tively related to organizational com- mitment.

Brown and Trevino (2006) fore- casted earlier that ethical leaders use moral dimensions to increase the produc- tivity of the employees. Subsequently the entire investigation conveys that corpo- rate ethical values play a dominant role to enhance ethical leadership and to in- crease employee performance for the achievement of the organizational goals,

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which will automatically increase the or- ganizational productivity, market share and performance (Sabir, Iqbal& Rahman, 2012) which prompted us to propose the following hypothesis:

Hypothesis H2: Ethical leadership is posi- tively related to perceived productiv- ity in organization.

Jeffrey Arthur (1994) also concluded that organizational performance will be enhanced by higher level of employee commitment and he found that produc- tivity of the organization ultimately in- creased with the help of organizational commitment. Besides this, other studies have highlighted the significance of or- ganizational commitment as predictors of productivity (Angle & Perry, 1981). Therefore the following hypothesis is pro- posed:

Hypothesis H3: Commitment of employ- ees mediates the perceived produc- tivity of organization.

Research Method

The main objective of this study is to observe the leadership of the manag- ers conferring the ethical leadership sur- vey and to observe how this indepen- dent variable is creating an impact on the perceived productivity of the sur- veyed organizations. The population of this research is service sector industries. The choice of the service sector is be- cause of their large representation in the Indian corporate community due to the huge contribution not only in terms of the share in value addition but in em- ployment also.

Selection of Measures

The questionnaire used in this study consisted of four sections. The first sec- tion sought to collect demographic infor- mation. The second section comprised constructs related to ethical leadership which referred to leadership style infor- mation that was having seven items adopted from Ethical Leadership Scale (Brown et al., 2005). The third section comprised information regarding the or- ganizational commitment, adopted from Meyer and Allen (1991). Finally the pro- ductivity scale was adopted from Nyhan (2000). Depending on the nature of the questions,the scaling technique used was the Likert scale of 4, where the respon- dents indicated the extent of agreement or disagreement with the statements. The Likert scale, frequently called the method of summated ratings, is a widely accepted and adopted technique, and is highly reli- able (Davis, 2005: 212). The question- naire had clear instructions on how to complete it, the aim of the research, the issue of anonymity and confidentiality.

Sampling Design

A total number of 841 questionnaires were distributed for this study. Respon- dents were chosen from companies of telecom and banking, located in the north- ern India, representing service sector in the time frame of January to May of 2015. Of this number, 580 (response rate = 68.96%). were returned and 564 were analyzed. A non-probabilistic sampling method, namely convenience sampling was used in drawing samples for this study. The sample included 486 man (82.6%) and

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the rest 78 were women (13.7%). Most of the respondents fall into the age group of 30-39(37.1%) and 40-49 (30.9%), least respondents belonged to the group of 60+ (.7%) and 21 -29 group (.7%). In terms of level of education possessed, 57.2% had attained a basic university bachelor’s degree. Of these, 35.1% were having a diploma or an undergraduate degree.

Data Collection &Analysis

As an instrument the questionnaire has been selected because it can be help- ful in getting data quickly and easily with lots of information from respondents in a nonthreatening mode, easy to administer among many people, inexpensive and most importantly the respondents can be anony- mous. As briefed earlier the questionnaire consists of following 4 parts: Demographic Information, Ethical leadership Scale, Or- ganizational Commitment Questionnaire and Productivity Scale. However, no iden- tifying data were obtained on employees. The respondents were asked to evaluate their current/recent immediate supervisor and also indicate their level of commit- ment to the organization and the perceived productivity of the organization by com- pleting the entire questionnaire.

Preceding the analysis, the collected data were reviewed for accuracy of data entry and missing responses. It was found that all data entries were within the pos- sible range of 1 - 4 and there were no identifiable problems relating to outliers. MS Excel 2003 was used initially during data collection and then the data has been transferred to SPSS software program. The statistical tool SPSS v17.0 for Win-

dows was used as well as MS Excel 2013, to perform statistical analysis of the col- lected data. SPSS v17.0 was used to mea- sure reliability and validity of the dataset as well as descriptive statistics was used. The validity of the data was measured with correlation whereas the reliability of the data was measured with Cronbach’s coefficient alpha. Preliminary data analy- ses were performed to test for normality of the research variables, and to obtain descriptive statistics on demographic pro- file and the general characteristics of the respondents. Correlation matrix was pro- duced to determine the relationships among constructs. Besides this, reliability analysis supported all sets of variables to determine whether they form an additive scale. This was to provide means to sim- plify the analysis and reporting the data by showing that the variables form a scale that is reliable to measure the construct.

Results

The reliability of the questionnaire was .87. The generally agreed-upon lower limit for Cronbach’s Alpha is .70, although it may decrease to .60 in ex- ploratory research. Total scores of the Ethical Leadership Scale, organizational commitment, and productivity surveys were calculated (Table 1), which was found satisfactory.

Table 1 Reliability Analysis of the Measured Construct

Questionnaires Cronbach’s alpha

Ethical leadership .741 Organization commitment .843 Productivity .730 Total .875

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Mean and standard deviations of all the variables and factors used in this study were computed to examine the distribu- tion of scores within each set of variables (Table 2).

Table 2 Descriptive Statistics for Variables

Variable Mean SD

Ethical leadership 20.85 3.43 Organizational 36.99 5.67 commitment Productivity 12.59 2.30

Before testing each hypothesis, fur- ther investigation of the data was per-

formed. In order to study the nature of relationship among the factors correla- t i o n s w e r e c o m p u t e d . U s u a l l y t h e Pearson’s Coefficient of Correlation test was conducted to determine if an asso- ciation existed among the various vari- ables. This process offered further in- sight regarding the data. Correlation re- sults among organizational commitment, productivity and ethical leadership have been shown in Table 3. It has been evi- dent that all the three variables studied were significantly correlated with each other positively.

Table 3 Correlations among the Variables

Variables Ethical Leadership Organizational Commitment Productivity

Ethical Leadership 1 .40** .45** Org Commitment .52** Productivity

N = 564; **: Correlation is significant at the 0.01 level (2-tailed).

Ethical leadership demonstrated a positive and moderate correlation with organizational commitment, r (564) = .40, p < .01. The regression findings (Table4) also indicated support for Hypothesis H1 that employees led by highly ethical lead- ers exhibit greater organizational commit- ment.

Table 4 Standard Regression Analysis of Ethical Leadership Predicting Organizational Com- mitment

R R2 Â SE B t Sig

Ethical Leadership .40 .15 .65 .06 .40 10.22 .000

The regression findings indicated support for Hypothesis H1 that employees led by highly ethical leaders exhibit greater organiza- tional commitment.

Ethical leadership was also positively connected to perceived productivity of organization, r (564) = .45, p < .01. The correlation values (Table 3) suggest sup- port for accepting all three hypotheses

in the study. Ethical leadership was posi- tively associated with each dependent variable, although to differing degrees. Ethical leadership was able to account for 15 % (R2 = .15) of the variance of

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organizational commitment. the β value tells us that the predictor (Ethical Lead-

ership) is having positive relationship with the dependent variable. (Table 4)

Table 5 Standard Regression Analysis of Organizational Commitment Predicting Productiv- ity

R R2 B SE B t Sig

Org Commitment .52 .26 .21 .01 .51 14.27 .000

Table 6 Standard Regression Analysis of Ethical Leadership and Organizational Commitment Predicting Productivity

R R2 B SE B T Sig

Ethical Leadership .55 .33 .198 .025 .295 7.882 .000 Org Commitment .162 .015 .399 10.678 .000

So the rise in ethical leadership will give a rise to organizational commitment. According to regression (Table 4) the ethical leadership (β =.65) is a signifi- cant predictor of employee organizational commitment. The standardized beta value for ethical leadership is .40 which shows that it has considerable impact. In the case of hypothesis 3 when we have taken organizational commitment as a predic- tor variable we found that organizational commitment was accounting 26% of vari- ance in perceived productivity. Beta value (β =.21) tells us that organizational commitment is having significant impact on the value of perceived productivity (Table 5).

Beta value tells us that organiza- tional commitment is having sig- nificant impact on the value of per- ceived productivity.

It is clear that organizational commit- ment mediates the perceived notion of productivity in employees. The model

summary in Table 7 gives R, R2, adjusted R2, the standard error of estimate (SEE), F change and corresponding significance levels. In the regression model above, productivity is predicted from ethical leadership and organizational commit- ment. This output shows that ethical lead- ership and organizational commitment explains 33% of the variance in produc- tivity for this sample.

R2 is close to adjusted R2 because there are only two independent variables. R2 change is the same as R2 because the variables were entered at the same time (not stepwise or in blocks), so there is only one regression model to report, and R2 change is change from the intercept-only model, which is also what R2 is. Since there is only one model, ‘‘Sig F Change’’ is the inclusive worth of the model. Sig- nificant F statistics indicates the signifi- cance of the overall model.Correlation between average scores of ethical lead- ership and organizational commitment and their respective productivity was 0.58 at the p value of 0.00.

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Conclusion

The study contributes to improve- ment in awareness of the application of ethics in leadership theory in the place of work. Early researches on ethical leadership tested whether or not a rela- tionship exists between ethical leader- ship and employee performance which also established significant association between ethical leadership and mea- sures of employee and organizational outcomes. This study also accepts the positive relationship and offers further understanding by testing to see if ethi- cal behavior of leaders impacts on the followers’ organizational commitment, and productivity in the Indian context. Both organizational commitment and productivity variables tend to impact employee performance. The findings from this study support the theoretical concept that ethical leadership does transform employee organizational com- mitment which led to positive impact on perceived productivity. The ethical leader has the ability to affect follow- ers’ approaches and conducts. Ethical leaders can influence the followers, fos- ter positive employee attitudes and be- haviors. These, in turn, are potential in- dicators of employee performance (Tan- ner et al, 2010). This empirical study supports the premise that ethical lead-

ership leads to positive employee atti- tudes and conducts.

Ethical leaders can influence the f o l l o w e r s , f o s t e r p o s i t i v e e m - ployee attitudes and behaviors.

Though the findings offer some new insights in to the Indian context, the re- search has its limitations as the study examined perceived behaviors of individu- als at only one point in time and used the self-report method. This is the major limi- tation of this study - the same source bias; data for all the variables were collected only from the subordinates. Further re- search can be done by considering leader and subordinate sets. It would be helpful for future researchers to conduct similar testing with some modifications, such as other-rating rather than self-rating instru- ments. Another major limitation of this study relates to its sampling method that is convenient sampling technique, which is one of the non-probability methods. Even though, samples can be drawn quickly and economically, respondents drawn by convenient sampling may be the result of self-selection bias. Addi- tionally, an extended and more represen- tative sample which includes respondents from all walks of life, that is not restricted to higher educated participants or one

Table 7 Model Summary Table

Model R R2 Adjusted R2 Std. error of the estimate

1 .582 .339 .337 1.87908

Model R2change F change Df1 Df2 Sig F change Durbin Watson

.339 144.00 2 561 .000 1.74

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geographic area, is recommended for fu- ture studies. Apart from this for future research employee outcomes other than commitment such as job satisfaction, em- ployee engagement etc. should be taken to predict the organizational performance.

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