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ETHICAL LEADERSHIP AND UNETHICAL EMPLOYEE BEHAVIOR: A MODERATED MEDIATION MODEL

CHENJING GAN Ningbo University

I explored the role of employee moral justification as a cognitive mediator in the relationship between ethical leadership and unethical employee behavior, and then investigated employee moral identity as a moderator of this indirect relationship. I based my moderated meditation model on social learning theory and tested it by analyzing data collected from 271 employees of 17 firms in China at 2 time points separated by approximately 3 weeks. The results showed that the negative indirect relationship between ethical leadership and unethical employee behavior through moral justification was significant when employee moral identity was strong. Theoretical and practical implications of the findings are discussed.

Keywords: ethical leadership, unethical employee behavior, moral justification, moral identity, social learning.

Various types of unethical behavior occur in virtually every sector of society, and ethical issues have become topics of great interest in both mass media and the academic community (O’Fallon & Butterfield, 2011, 2012). The concept of ethical leadership, which is 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, Treviño, & Harrison, 2005, p. 120), has received much attention from many scholars in recent years. Researchers have mainly drawn upon social learning theory (Bandura, 1977) to explain the influence of ethical leadership on unethical employee behavior, whereby employees learn what behaviors are expected, rewarded, and punished by

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Chenjing Gan, Business School, Ningbo University. This research was supported by the Natural Science Foundation of Zhejiang Province (LQ18G020002). Correspondence concerning this article should be addressed to Chenjing Gan, Business School, Ningbo University, No. 18 Fenghua Road, Ningbo 3125211, People’s Republic of China. Email: [email protected]

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observing and imitating ethical leaders’ behaviors (Mayer, Aquino, Greenbaum, & Kuenzi, 2012). However, it remains unclear how employees learn to inhibit their unethical behavior, or why some employees learn from ethical leaders and some do not. In social learning theory it is posited that the effects of reinforcement are cognitively mediated, which means that learning cannot take place without awareness of what is being reinforced (Bandura, 1977). In other words, employees learn to eliminate their unethical behaviors only when they are aware of which behaviors are unacceptable to ethical leaders. Thus, in the current study I explored employee moral justification as a cognitive mediating mechanism in the relationship between ethical leadership and unethical employee behavior, and examined employee moral identity as a moderator of this indirect relationship.

Moral justification involves cognitive reconstruction of an ethically questionable behavior and is an attempt by the individual to legitimize this behavior rather than to assume responsibility for an outcome (Barsky, 2011; Green, 1991; Hunt & Vitell, 1986; Stevens, Deuling, & Armenakis, 2012; Vitell, Keith, & Mathur, 2011). In other words, moral justification involves the individual reconstructing harmful behavior to make it appear personally and socially acceptable (Aquino, Reed, Thau, & Freeman, 2007; Detert, Treviño, & Sweitzer, 2008). When employees are engaged in moral justification, they cognitively legitimize their unethical behavior and are not aware that the behavior is forbidden; thus, the learning effect of ethical leadership on unethical employee behavior is absent. Therefore, I proposed that moral justification would act as a cognitive mediator of the relationship between ethical leadership and unethical employee behavior.

According to social learning theory, people self-regulate by setting behavioral standards for themselves and responding to their own behavior in accordance with their self-imposed demands (Bandura, 1977). Researchers have posited that unethical behaviors occur only when individuals’ self-regulatory mechanisms are deactivated through several cognitive mechanisms, such that they are unable to anticipate and judge their actions in comparison to a set of internal moral standards (Bandura, 1986; Detert et al., 2008; Moore, Detert, Klebe Treviño, Baker, & Mayer, 2012; Stevens et al., 2012). This being so, some employees may be reluctant to learn from an ethical leader, as the behaviors of that leader are inconsistent with the employee’s own behavioral standards.

Moral identity refers to the extent to which one’s self-concept incorporates the importance of being a moral person (Aquino & Reed, 2002), and it affects individual self-regulatory mechanisms by setting standards for individual behavior (Aquino, Freeman, Reed, Lim, & Felps, 2009; Bergman, 2002; Mulder & Aquino, 2013; Reynolds & Ceranic, 2007). The self-imposed demands of employees with a weak moral identity are quite different from those of ethical leaders, and these employees are reluctant to learn from their ethical leaders.

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Therefore, I argued that the negative effect of ethical leadership on unethical employee behavior through moral justification would be diminished for employees with a weak moral identity. Moral identity may operate as a moderator that strengthens the negative relationship between ethical leadership and moral justification, thereby further inhibiting unethical employee behavior.

Figure 1 illustrates the proposed moderated mediation model and provides an overview of the study.

Moral identity

Ethical leadership Moral justification Unethical employee

behavior

Figure 1. Mediated moderation research model.

Theoretical Background and Hypotheses

Ethical Leadership, Moral Justification, and Unethical Behavior Brown and Treviño (2006) elaborated on a proposition that moral persons and

moral managers are the two components of ethical leadership. As moral people, ethical leaders have desirable characteristics, such as being fair and trustworthy. As moral managers, ethical leaders use transactional efforts to hold followers to acting according to moral standards, such as by communicating ethics and punishing followers’ unethical behavior. The influence of ethical leadership on employee moral justification can also be explained through these two aspects of leadership style (Bandura, 1986; Brown & Treviño, 2006; Liu, Long, & Loi, 2012). First, as moral people, ethical leaders pay attention to, and consistently align their own behavior with, moral standards. From observing their leaders’ behaviors, employees learn that unethical behavior is morally unacceptable and, therefore, do not justify it (Brown & Treviño, 2006; Brown et al., 2005). Because ethical leaders are credible role models for ethical behaviors, employees cannot dilute their own faulty actions by diffusing responsibility; this inhibits employee moral justification (Liu et al., 2012). Second, as moral managers, ethical leaders demand that employees have high ethical standards, are accountable for the moral consequences of their behaviors, and care for others’ interests (Brown & Treviño, 2006; Brown et al., 2005). However, individuals use moral justification to make harming others appear acceptable to both themselves and others. Individuals who engage in moral justification are concerned about their self-interests and shirk responsibility for their unethical behaviors (Moore et al., 2012; Vitell et al.,

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2011). The demand and influence of ethical leadership are contradictory to the cognitive process of moral justification and inhibit individuals from engaging in moral justification. Therefore, I argued that ethical leadership would decrease employee moral justification.

As already described, in social learning theory it is posited that learning cannot take place without awareness of what is being reinforced (Bandura, 1977). Employees who engage in moral justification do not sincerely approve of ethical leaders’ behaviors and do not learn to inhibit their own unethical behaviors. Furthermore, researchers have described how unethical behaviors are inhibited when individuals’ self-regulatory mechanisms are working effectively, as engaging in unethical behaviors is inconsistent with the individual’s internal moral standard, which can result in feelings of guilt (Bandura, 1986; Moore et al., 2012, Vitell et al., 2011). However, moral justification deactivates one’s self- regulatory mechanism by reducing the negative impact of unethical behaviors on self-concept through finding excuses to legitimize one’s unethical behavior (Barsky, 2011; Hunt & Vitell, 1986; Stevens et al., 2012; Vitell et al., 2011). Thus, the inconsistency between an individual behaving unethically and his or her internal moral standard is reduced through moral justification. Therefore, I argued that, through the reframing of their cognitive perceptions, moral justification would allow individuals to engage in unethical behavior without experiencing distress. In some empirical studies, scholars have also found that moral justification is positively related to unethical decision making (Stevens et al., 2012) and unethical behavior (Barsky, 2011; Moore et al., 2012). On the basis of these arguments and findings, I proposed the following hypothesis: Hypothesis 1: Employee moral justification will mediate the negative relationship between ethical leadership and unethical employee behavior, such that ethical leadership will decrease employee moral justification and employee moral justification will increase unethical employee behavior.

Moral Identity as a Moderator As already described, according to social learning theory, people self-regulate

by setting themselves certain behavioral standards. Moral identity influences an individual’s self-regulatory mechanism by setting the parameters for his or her moral standard, which creates a need for the individual to act consistently with his or her identity (Bergman, 2002; Reynolds & Ceranic, 2007). The high ethical standards set by ethical leaders for their employees are inconsistent with the self-concept and behavioral standards of employees with a weak moral identity (Aquino et al., 2009; Mulder & Aquino, 2013; Reynolds & Ceranic, 2007). Therefore, these employees are not susceptible to the influence of ethical leadership and continue to avoid responsibility for their own unethical behaviors through moral justification. Additionally, although ethical leaders are moral

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persons who behave ethically and appropriately, employees with a weak moral identity still find ways to justify their unethical behavior, such as taking an “every man for himself” attitude. Thus, a weak moral identity diminishes the effect of ethical leadership on employees’ moral justification. Employees with a strong moral identity have high internal moral standards that are similar to those of their leaders, and easily accept and follow their leaders’ moral code; thus, they are susceptible to the influence of ethical leadership. Therefore, I proposed the following hypothesis: Hypothesis 2: Employee moral identity will moderate the relationship between ethical leadership and employee moral justification, such that this relationship will be weaker when employee moral identity is weaker.

I further argued that employee moral identity would moderate the indirect relationship between ethical leadership and unethical employee behavior. The behavioral standards of employees with a weak moral identity can be distinguished from those of their ethical leader; therefore, they are less likely to learn cognitively from their ethical leaders (Bergman, 2002; Reynolds & Ceranic, 2007). In this condition, the effect of ethical leadership on employee moral justification is diminished, promoting unethical employee behavior. In contrast, employees’ strong moral identity will strengthen the effect of ethical leadership on employee moral justification, further inhibiting unethical employee behavior. Therefore, I offered the following hypothesis: Hypothesis 3: The indirect relationship between ethical leadership and unethical employee behavior through employee moral justification will be conditional on employee moral identity, such that this indirect relationship will be weaker when employee moral identity is lower.

Method

Participants and Procedure I obtained my data from 271 employees of 17 firms in China, collecting

these data at two points in time separated by approximately 3 weeks. The firms belonged to the construction, traditional manufacturing, financial services, and advertising industries. A list of people who could be participants was provided to me by each firm’s human resources department. Each participant was assigned a unique survey code so that I could match the data from Times 1 and 2. Each questionnaire was put into an envelope with a clear plastic window to assure participants’ full confidentiality. I also informed the participants that their data would be used for academic research purposes only.

Surveys were distributed and collected by my research team. Ethical leadership, moral identity, and demographic information (age, gender, and level of education) were assessed at Time 1, and moral justification and the participant’s

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own unethical behavior were assessed at Time 2. At Time 1 423 participants completed the survey, and 355 participants completed the survey at Time 2. I discarded some records for unmatched Time 1 and Time 2 survey pairs; ultimately, complete responses were obtained from 271 employees. Among the participants, 60% were men and 40% were women, and the average age was 30 years (SD = 8.35).

Measures The original relevant scales were written in English, so these were translated

into Chinese following Brislin’s (1980) recommendations. That is, the scales were first translated from English to Chinese by one bilingual speaker. Then, another translator without access to the original survey back-translated the same items from Chinese into English. The second translator was asked to comment on any items that were perceived to be ambiguous. Both translators were native Chinese speakers who had studied abroad in English-speaking countries and had scored over 7 points on the International English Language Testing System (Brislin, 1980). All scales were anchored on a 5-point Likert scale that ranged from 1 = strongly disagree to 5 = strongly agree.

Ethical leadership. I measured ethical leadership with the 10-item Ethical Leadership Scale ( = .95) developed and validated by Brown et al. (2005). Sample items include “My supervisor listens to what employees have to say” and “My supervisor sets an example of how to do things the right way in terms of ethics.”

Moral justification. I assessed moral justification ( = .82) with a four-item scale developed by Bandura, Barbaranelli, Caprara, and Pastorelli (1996). Sample items include “It is all right to lie to keep yourself out of trouble” and “It is all right to fight to protect yourself.”

Moral identity. I measured moral identity using Aquino and Reed’s (2002) five-item internalization subscale ( = .92). Participants were asked to read a list of nine characteristics (i.e., caring, compassionate, fair, friendly, generous, helpful, hardworking, honest, and kind) and to visualize a person (which could be the person him/herself or someone else) who has these characteristics. Once participants had a clear image of this person, they were asked to rate their level of agreement with a set of statements. Sample items include “Being someone who has these characteristics is an important part of who I am” and “I strongly desire to have these characteristics.”

Unethical behavior. I measured unethical behavior with a 16-item scale ( = .92) developed by Zey-Ferrell, Weaver, and Ferrell (1979). The original scale contains 17 items. After considering the pilot study results I integrated two items (“I pad an expense account more than 10%” and “I pad an expense account up to 10%”) into one item: “I pad an expense account.” Sample items include

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“I do personal business on company time” and “I pass blame for errors to an innocent coworker.”

Control variables. Following the procedure used in previous research on unethical employee behavior (O’Fallon & Butterfield, 2011, 2012), I controlled for three demographic variables to better estimate the effect sizes of the hypothesized relationships. Specifically, I measured and controlled for employees’ gender (male = 0, female = 1), age, and level of education (junior high school degree or lower = 1, high school or technical school degree = 2, college degree = 3, bachelor’s degree = 4, master’s degree or higher = 5), because these can influence unethical employee behavior.

Results

Validity of the Measures I used Amos 17.0 to conduct a series of confirmatory factor analyses to

examine whether the study variables captured distinct constructs (Anderson & Gerbing, 1988). The four-factor measurement model fitted the data well: chi square (2) = 1046.18, degrees of freedom (df) = 553, comparative fit index (CFI) = .92, incremental fit index (IFI) = .92, Tucker–Lewis index (TLI) = .91, root mean square error of approximation (RMSEA) = .06, and all indicators had statistically significant factor loadings (p < .01). Compared to the four-factor model, the one-factor measurement model fitted the data poorly: 2 = 3815.55, df = 559, CFI = .44, IFI = .45, TLI = .37, RMSEA = .15. The chi-square difference compared with the four-factor model was significant (Δ2 = 2769.37, p < .01), indicating distinctly different factors. Because data on ethical leadership and employee moral identity were collected from the same source at Time 1, and data on employee moral justification and unethical behavior were collected from the same source at Time 2, I merged ethical leadership and employee moral identity into one factor and employee moral justification and unethical behavior into another factor to further test whether these variables captured distinct constructs. Compared to the four-factor model, the two-factor measurement model fitted the data poorly: 2 = 2163.75, df = 558, CFI = .73, IFI = .73, TLI = .69, RMSEA = .10. The chi-square difference compared with the four-factor model was significant (Δ2 = 1117.57, p < .01). These results provide support for the discriminant validity of my measures.

Descriptive Statistical Analysis Table 1 presents the descriptive statistics, internal consistency reliabilities, and

correlations among the variables. All correlations were in the expected directions and provided conditions to further test my hypotheses.

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Table 1. Descriptive Statistics and Correlations Among Study Variables

Variable M SD 1 2 3 4 5 6 7

1. Gender 0.40 0.49 2. Age 30.03 8.35 .03 3. Level of education 3.18 1.03 -.01 -.22** 4. Ethical leadership 4.08 0.76 .11 -.11 .10 (.95) 5. Moral justification 2.10 0.97 -.09 .04 .10 -.19** (.82) 6. Moral identity 4.51 0.70 .12 -.03 -.03 .46** -.19** (.92) 7. Unethical employee 1.85 0.59 -.16* -.00 .06 -.29** .25** -.28** (.92) behavior

Note. N = 271. Cronbach’s alpha coefficients are reported in parentheses. * p < .05, ** p < .01.

Testing of Hypotheses Following Muller, Judd, and Yzerbyt (2005), I used multiple regression

analysis to test my moderated mediation model. Further, to reduce multicollinearity I centered ethical leadership, employee moral justification, and moral identity, per Aiken and West (1991). As shown in Table 2 (Model 1), after controlling for employees’ gender, age, and level of education, ethical leadership was negatively related to unethical employee behavior; this result is consistent with those of previous researchers. In Hypothesis 1 I predicted that employee moral justification would mediate the relationship between ethical leadership and unethical employee behavior. After controlling for the demographic variables, ethical leadership was significantly and negatively related to employee moral justification (see Table 2, Model 2), and moral justification was positively and significantly related to unethical employee behavior (see Table 2, Model 3). Furthermore, when the effect of ethical leadership was controlled for, moral justification was still positively related to unethical behavior (see Table 2, Model 4). The results of an additional bootstrapping procedure with 95% confidence intervals (CI), as outlined by Preacher and Hayes (2008), revealed that ethical leadership was indirectly related to unethical employee behavior through the mediator of moral justification: indirect effect = -.03; Sobel z = -2.29, p < .05; 95% CI [-.063, -.008]. These results provide support for Hypothesis 1.

In Hypothesis 2 I predicted that employee moral identity would moderate the relationship between ethical leadership and unethical employee behavior, such that this relationship would be weaker when moral identity was weaker. As shown in Table 2 (Model 6), the interaction term of ethical leadership and moral identity was significant in predicting employee moral justification, and the additional proportion of the variance in employee moral justification explained by this interaction term was also significant (ΔR2 = .02, p < .01; compared to Model 5). To clarify this conditional effect, simple slope tests were conducted

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(Cohen, Cohen, West, & Aiken, 2003). As shown in Figure 2, the relationship between ethical leadership and unethical employee behavior was significantly negative for employees with a strong moral identity (M + 1 SD; simple slope = -.27, p < .01), and for employees with a weak moral identity, the effect of ethical leadership on unethical employee behavior was nonsignificant (M − 1 SD; simple slope = -.04, ns), thus supporting Hypothesis 2.

In Hypothesis 3 I predicted that employee moral identity would moderate the indirect relationship between ethical leadership and unethical employee behavior through employee moral justification. As shown in Table 2 (Model 7), after controlling for demographic variables, ethical leadership, employee moral identity, and the interaction term of the latter two variables, employee moral justification was found to be positively and significantly related to unethical employee behavior. The results of an additional bootstrapping procedure with 95% CI (Preacher & Hayes, 2008) revealed that ethical leadership was indirectly related to unethical employee behavior through employee moral justification when employee moral identity was strong (M + 1 SD): indirect effect = -.03; Sobel z = -1.97, p < .05; 95% CI [-.068, -.004]. For employees with a weak moral identity, the indirect relationship between ethical leadership and unethical employee behavior was not significantly different from zero (M − 1 SD): indirect effect = -.01; Sobel z = -0.63, ns; 95% CI [-.034, .013]. Hypothesis 3 was, therefore, supported.

Figure 2. Moderating role of moral identity on the ethical leadership–employee moral justification relationship.

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Discussion

Theoretical Implications In this study I explored the mediating role of moral justification on the

relationship between ethical leadership and unethical employee behavior, and examined the moderating effect of employee moral identity on this moderated mediation model. My theoretical contributions are reflected in the following four aspects: First, although Bandura (1977) noted the importance of the cognitive mediating process in social learning, few scholars have empirically explored and examined cognitive mediating mechanisms in the ethical leadership–unethical employee behavior relationship. Therefore, I have enriched and extended extant research on social learning theory by exploring moral justification as a cognitive mediating mechanism between ethical leadership and unethical employee behavior. Second, I further investigated the mediating cognitive process in social learning by exploring employee moral identity as a moderator of this effect, thereby explaining why not all employees learn from ethical leaders. Third, few researchers (see, e.g., Mayer et al., 2012) have investigated when and how ethical leadership is related to unethical employee behavior. I presented a moderated mediation model that has broadened understanding of the ethical leadership–unethical employee behavior relationship. Fourth, a majority of studies on unethical behavior (see, e.g., Gino & Margolis, 2011; Hershfield, Cohen, & Thompson, 2012) have been conducted in a laboratory and primarily used cheating as the proxy variable of unethical behavior; thus, my study has a higher level of external validity and social relevance.

Practical Implications The study also has some practical implications. My findings indicate that

leaders can limit unethical employee behavior by engaging in normatively appropriate behaviors, and by demanding that employees be accountable for the moral consequences of their behavior and care for others’ interests. I also suggest that the behavioral standards for managers and supervisors should be emphasized in organizations to ensure that their behaviors are ethical. Furthermore, managers of organizations should establish the principle of advocating and incentivizing employees to take responsibility for their behavior. The mediating role of moral justification in the relationship between ethical leadership and unethical employee behavior suggests that managers of organizations should pay more attention to employees’ cognitive judgment and should ensure that their employees have low levels of moral justification, which can inhibit unethical behavior. Finally, the moderating role of employee moral identity that I found suggests that moral identity is activated in organizations through cues in the social environment, such as posters, slogans, or material symbols that make moral constructs and concerns salient (Aquino et al., 2009; Mayer et al., 2012).

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Limitations and Directions for Future Research My research has several limitations. First, all of the variables were collected

from the same source (employees). Although I collected the data at two separate times, the observed relationships should still be interpreted with caution because of same-source concerns. For example, employees’ reporting of moral justification may have biased their ratings of unethical behaviors. Future researchers should strive to measure all predictors and unethical employee behaviors from different sources or to utilize manipulations or objective outcomes. Second, although I used several approaches to ensure confidentiality for the participants, they still may not have reported their unethical behaviors truthfully because of social desirability bias. In future studies, researchers should consider utilizing objective indicators of unethical behavior. Third, I did not control for other styles of leadership. Future researchers should control for other leadership styles that have been found to be positively related to ethical leadership, such as transformational leadership or charismatic leadership.

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