Ethical leadership practices

LEADERSHIP AND MANAGEMENT

Bernard Liebowitz

what's wrong with being "borderline ethical"?

Everyone would agree that lying, cheating, stealing, or creat-

ing dangerous working conditions just to increase profits are

unethical business practices.

Examples abound in the news today of business leaders that have been charged, and sometimes convicted, of such practices, to their shame and the general condemnation of the public.

But what about business practices such as cutting prices not just to make the sale hut to purpose- fully destroy a competitor, or keeping employee salaries low without compensatory benefits just to increase profitahility? Perhaps such "borderline ethical" practices could be characterized as acceptable in a highly competitive environment. Indeed, it could he argued that in such an envi- ronment, ruthless business practices are neces- sary for a business to survive.

Yet something is wrong with this picture.

Engaging in borderline ethical hehaviors is ulti- mately self-defeating. Businesses, whether for- profit or not-for-profit, should always strive to operate profitably. However, borderline ethical behaviors can curtail profitability. Maybe not today, maybe not until the market has redefined itself, but sometime in the future, it will happen.

The Costs of Borderline Ethical Behavior Consider the following two examples. A firm is out to destroy its competitors, and it is in a good position to do so. The organization's culture emphasizes competitiveness and rivalry among its management team and its departments. Micromanagement is the order of the day, and reprimands for not meeting stiff goals are doled out liberally. As a result, employees face a great deal of stress in their work environment.

Turnover is high and the cost of replacement (including money spent finding, qualifying, and training new employees to rebuild the "team") is also high. The organization also incurs costs that are much higher than the industry norm for employee visits to physicians (for problems such as marital and individual therapy, ulcers, and ten- sion), workers' compensation (for an unusually high number of accidents occurring within the company), and poor-(juality workmanship. The organization succeeds in destroying its immediate competition, but soon, a more efficient and pro- ductive competitor appears on the scene to "eat their breakfast, lunch, and dinner,"

Another firm, wbich specializes in home con- struction, pays its employees the bare minimum wages and demands that its employees work long hours with minimal compensation. It "nickels and dimes'" its suppliers with bare-bones orders and late payments. The firm cuts corners wher- ever possible, neglecting to provide custom fea- tures originally promised to wealtby customers at no extra costs. When a customer argues for the feature, the firm adds it to the price of the home and hopes the customer won't notice.

The firm has been able to get away with this type of behavior without serious consequences to its revenues and profit only hecause of a lack of competition in its area. An influx of strong com- petitors changes everything, however. Suppliers hecome increasingly unwilling to work for the firm, forcing the owner to pay higher fees and demanding more prompt payment. Employees find opportunities elsewhere, with bigber pay. As a result, turnover, which had been high before, becomes even higher, and new employees demand higher salaries and more reasonable hours. Although the firm's revenues keep pace

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