“Ethical leadership is knowing your core values and having the courage to live them in all parts of your life in service of the common good”- Anonymous

Corporate Crime, Scandals, Allegations and Moral Decay of Society are some of the words we hear almost every second day. Very often we can see the name of some leaders indulged into these activities. Have we lost our morals, values, and ethics standards? What can be the possible solution? The answer to all these questions will be leadership focusing on ethical issues also known as “Ethical leadership”. Ethical leadership is leadership process that involves leading in such a manner that respects the rights and dignity of others.

By vary nature of the leadership, the leaders are in a position of social power and thus ethical leadership focuses on how leaders are using their social power in the decision making, in actions they are engaging themselves and the ways in which they influence others. To get the vision of the leader accepted, it is important to maintain and demonstrate a level of integrity in the leadership pattern which in turn stimulates a sense of leader trustworthiness. The components discussed till now are very critical and directly affect the capability of a leader to be accepted by his followers. Along with these factors, individual value and believes that a leader posses also has an impact on the ethical decision making capabilities of a leader.

The Knowledge of Human Resource Management is a vital factor for an ethical leader as the leaders who are ethical are people oriented and also well aware of the impact of their decisions on others. The ethical leaders will use their social powers to the benefits of the masses and not for self serving interests. He will believe in motivating his followers and in putting the needs and interest of the group ahead of their own. This involves engaging the followers in an intellectual and emotional commitment between leaders and followers that makes both parties equally responsible in the pursuit of a common goal.

One of the examples most talked about regarding not following the ethical activities and leadership in an organization is the case of Enron. Enron was a gas pipeline company (formed in 1985) that turned into a huge enterprise. Once it was the seventh largest company in America. Fortune Magazine selected Enron as "America's most innovative company" for six straight years from 1996 to 2001. In 2001, the company collapsed due to scandals and bad leadership. Basically, the reason for the failure of Enron was difference in values of employees and that of executives. Due to this miscommunication of values and other important facts, the company went bankrupt. Enron’s case concludes that honest, transparent, and trustworthy culture can boost employees’ morale and ultimately guard shareholders value.

Ethical and Moral Leadership:

People are social animals, and like most species of social animal, they adopt the attitudes and behaviors of the folks around them. For this reason, a company can have the best ethics program in the world on paper, but if no one in leadership will model the program, then employees will get the message that the program is merely window dressing. In ethics, as in all business pursuits, leadership matters. A good leader will focus on moral leadership while enforcing business ethics. Major points to be considered in moral and ethical leadership are as under:

Culture of Ethics:

The culture of ethics depends from industry to industry. Some industries, for example health care, must have a defined code of ethics in order to maintain accreditation. But in general, many companies either lack a defined ethics program, or impose the bare minimum. This is especially true for small businesses as mere survival is a major problem for these companies. However, after understanding the need for ethical leadership, a growing number of companies are deploying a well-crafted ethics program to simultaneously cultivate better decision-making among employees while providing a distinctive marketing edge. Since many people choose to do business with people they know, like and trust, a public commitment to a vigorous ethics program may be a valuable market differentiator that adds credibility and visibility in a crowded marketplace.

Leadership from Above:

Second important aspect of ethical leadership is dictating the ethical policies to the lower level. This is known as leadership from above. Some leaders sit astride the apex of the corporate hierarchy. These leaders have the authority, power and status to dictate ethical principles down the organization chart, and people have a basic duty to comply. To secure genuine and enthusiastic compliance, however, a business leader must live the ethics he/she preaches. This may seems to be tough for small run but once a leader is habitual of following this practice, he will be in a condition to build a culture that can survive in difficult situations.

Leadership from Below:

Leadership from below is as important as leadership from above. Some of the business enterprises encourage excellence through ethical behavior from below. If the lower level staff started following these practices, this may give a powerful message about the image of the organization. For example: A cashier can go an extra mile for the customer, or a peer can quietly correct another for violating the company's core values. Thus, anyone who is willing to be bold in defense of his ethical perspectives can exercise leadership that can change others' behavior.

Code of Ethics:

An ethical environment to be functional needs both well-documented standards and leaders that encourage widespread adoption. Ethics standards are typically offered through a code of ethics. The board of directors or the company’s owner endorses the code, which spells out the principles of right conduct that help to inform employee decisions. Even small companies benefit from a documented code of ethics, because its very presence reinforces the message that ethics matter.

Accountability:

Only fixing up written code of ethics will not serve the purpose till the time no step is taken to manage ethical failure. There may be circumstances where people start rejecting the company's approach to ethics, in these cases the leaders at all levels must step up to hold the offender accountable. Till the time no one is held accountable for failure of ethical behavior, the ethics culture will lack the strength and consistency to reinforce positive behaviors and correct bad choices.

Ethical Decisions in Business: Some Examples:

Some of the well known examples of ethical decisions taken in business are:

1. Go Green:

Many companies have opted to play a part in helping the environment by making the decision to go green. One of the decisions that can help the company in going green is recycling. Recycling help the employees in reducing environmental waste by recycling office paper, cans, bottles and other materials. After understanding the importance of going green and increasing awareness among general public, many businesses are going beyond the basic recycling and are indulging themselves in extensive recycling programs, allowing their employees to recycle everything from batteries to computer equipment. Some companies set timers to turn off lights at night, use refurbished office supplies or buy organic or recycled items in order to maintain culture of go green.

2. Social Responsibility:

Social responsibility deals with the responsibility of the business towards society and includes improving local economic conditions, offering opportunities to low-income people or serving people in need. Some companies are fulfilling this responsibility by donating a certain percentage or a set amount to charitable trusts. Some other companies are going further by hiring low income people and paying fair wages. Others are contributing through serving people, who are normally discriminated. For example a bank may grant business loans to women and minorities.

3. Individual Ethics:

Following individual ethics is also an example of ethical decision making. Individual ethics includes not spreading or participating in rumours, being honest, not stealing money and keeping customer information confidential.

4. Ethical Code of Conduct:

Ethical business decision making includes a wide variety of circumstances and may vary from business to business and from industry to industry depending upon the location and nature of the individual company. Some companies enact ethical code of conduct and distribute it among their employees to help them to ensure that the decisions they are making in their day to day work life are ethical.

Basic Principles of Ethical Leadership:

The principles of ethical behavior guide us as to how a leader should perform and behave in order to ensure ethical management and decision making. Some of the guiding principles of ethical behavior are:

1. Respect your autonomy as well as that of others.

2. Be fair to everyone and treat people equally.

3. Do not harm physically, emotionally and psychologically the self esteem of others.

4. Be true to yourself, keep your promises and maintain loyalty.

5. Be beneficial to others and try to contribute to the general well being of others.

Ethical Leadership Development:

Although the process of ethical leadership development depends upon different focus points including the company’s starting point and level of organization. But in general a company may follow the following order:

The first step is discovery which involves finding out the meaning of ethical leadership for the organization which is done initially at middle and senior level of management. Under this step, the company will go for an internal assessment of the sustainability of current business activities. Along with this, new distinctions in business ethics can also be introduced.

At the second step a strategy is developed for integrating ethical leadership into business objectives. The management will rethink and redesign the activities that deliver value to customers, within the context of sustainability, profit and growth.

Third step involves integrating the specific breakthroughs generated from combining ethical enquiry and profitability targets into current fiscal year’s priorities.

Fourth step focuses on developing cultural and organizational capabilities for change. A support structure is prepared for this so that people are aligned on company’s purpose.

The last step involves obtaining a “Certificate of Ethical Leadership” which is awarded by the Club of Budapest and backed by its world-renowned Members. This certificate is provided to companies interested in recognition for their declared commitment to the new ethics.

All the elements of ethical leadership development are incorporated in 4-V leadership model as explained below.

The 4-V Model of Ethical Leadership

The 4-V model of ethical leadership was created by Dr. Bill Grace based on his formal leadership research and personal passion around faith and ethics. This model aligns the belief and values of the organization with the behavior and actions of the people at executive level.

Ethical leadership starts with an inner journey of integrity. Then the individual will discover his core values, develop a vision of how the world could be different, and find how he can express this vision in his personal voice. After completing this internal journey, the individual will move to an outer commitment which includes living and behaving in ways that serve the community and advance the common good. These four Vs are:

Values are there at the top of the triangle, which represents the starting place for ethical leadership. This includes integrating the unique values of the individual with the choice making at all the levels of our lives.

Vision involves creating a picture of what ought to be.

Voice involves articulating the vision to others in an authentic and convincing way that animates and motivates them to act ethically.

Virtue stands for common good. The ethical leaders will have to see as to how his values, vision and voice are keeping with the common good.

Along with above mentioned 4-Vs, there are three other elements developed by Dr. Grace which are explained as under:

Service connects Vision and Values, indicating that when our values are tested and tried through service to others, the latent vision within them is often revealed. Polis stands for Politics. As we learn to give voice to our vision in the context of a public act, we are engaged in the art of politics. Renewal includes renewing the actions on regular basis to consider whether the actions are in related to the values and visions.

Modes of Ethical Leadership:

There can be different modes of ethical leadership as a leader is supposed to maintain the human resource and human differ in their approaches. It is often thought that ethical leadership must be “soft” leadership. But at time an ethical leader may have to apply the right amount of authority in each situation and choose a method that is not so gentle, but this mode of leadership will not work for long duration. A leader can apply any one or more of the five modes for different levels:

1. Inspirational:

This mode involves setting an example for the followers so that other committed members contribute to their best level to achieve organizational purposes.

2. Supporting:

The ethical leader under this mode will support other committed members and guide them in case of need so that they are able to contribute their capabilities as fully as possible.

3. Persuasion:

Under this mode the leader will convince other members to contribute toward achieving organizational purposes.

4. Manipulation:

Along with other modes, a leader may sometime have to follow manipulation which includes offering incentives other than the intrinsic value of contribution to the achievement of organizational purposes, where commitment is lacking.

5. Coercion:

Coercion means forcing other members to contribute some degree of their capability where they have little or no commitment to do so on their own. This is the highest degree of intervention and is also helpful to consider the components of ethical leadership together with the modes of intervention.

Challenges in Ethical Decision Making:

More and more business organizations have started recognizing ethics as major part of their decision making. Ethical training to the employees will help the business owners to run their business in more effective way. That is the reason why many enterprises are focusing on formal ethical training for their employees. But it is much easier said than done. Following are some of the major ethical challenges faced by the business people:

Employee Behavior:

In every kind of business, individuals involved often face ethical issues stemming from employees behavior. For example, whether an employee can spend work time checking personal email accounts or dealing with personal matters during office hours, what are the different ways in which a manager can deals with claims of harassment and what should be the extent to which a manager can "groom" a certain employee for a promotion. The law also imposes legal consequences for some unethical employee behavior. For example, if a supervisor discriminates against an employee based on his/her gender, religion or ethnicity when making recommendations for a promotion, legal action can be sought. Small business owners can help to prevent ethical problems stemming from employee behavior by drafting a clear, attorney-reviewed set of standards that dictate behavior policies for employees at all levels. Further, a formal training programme for employees will help them in understanding the manner in which they are supposed to take decisions in business environment.

Employee Working Conditions:

Besides employee behavior, there are a number of ethical issues business people must consider about employee’s working conditions. Every business organization is supposed to provide ethical working conditions to their workers and employees which includes, awareness of the employees regarding safety measures taken by their organization and compensation to the employees for all the time they have worked. Asking an employee to work for an unreasonably long period of time or asking him to work for something that is unusually difficult task is also the matters against the ethical working conditions. Just like there are legal consequences for some unethical issues regarding employee behavior, there are also legal consequences for unethical working conditions. For example, an employer who requires an employee to work without pay or who creates an unsafe working environment can face legal action.

Supplier/Customer Relations:

The next major issue faced by the managers while leading ethically is the relationship of their organization with the suppliers and customers. The owners of the business have to be very careful regarding with whom they are entering into business and whether the suppliers and customers following the ethical practices in their business. Thus, before entering into any type of contract with these people, the business owners has to ensure that they have full and correct information about these people and they are not falsely advertising their products or services, and not doing sub-standard work intentionally.

Small Business Ethics:

There are small ethical issues like discrimination that applies to all the areas of business, besides that each business area has its own ethical concerns. For example, business people who act as consultants must ensure that they are giving sound advice. In the area of small business, some major ethical issues result from hiring, firing and dealing with employees. For example, conflicts of interest may cause ethical issues in small businesses, especially if they are family run. When personal family issues interfere with business decisions, this is a conflict of interest and an ethical concern.

How Ethical Issues Affect the Economic Development:

Economic development of any country does not only depend upon how much profits the business is earning in its business activities but a due consideration is also given to how an enterprise is dealing with ethical and moral issues. Companies not only have moral issues to consider but also the issues related to their reputations, abilities to compete, legal exposures and more. Without considering these issues, business growth especially in new markets and regions, can be complicated. The impact of the following ethical behavior on economic development can be traced as below:

Wage and Labor Safety Measures:

There are certain countries like the United States having a strong value of labor safety conditions and has well-developed labor and wage laws designed to protect workers. When the organization is expanding rapidly to new countries and adding new operations, it has to make sure that it is following the same high standards as required by legislature of that country. Although, while working in a developing nation like India, the requirement may be less as there is a lack of some or all of the standards. So before expanding, a business has to do a research on the people with whom it is going to start business, how the facilities are operating and what will be the impact of this expansion on the local workforce. If the answers to these questions are not satisfactory, the business may demand certain conditions before proceeding with any deal or expansion plan.

Environmental Considerations:

More than ever, the world is concerned about the environmental impact of business. If a business is dealing with manufacturing operations, it should consider how factories operate. Businesses not only have a responsibility to ensure adequate environmental safety precautions, but also can be held liable for errors under their watch. The environment safety rules are very stringent in developed countries but the developing countries are still lacking in standards relating to environmental safety. In today's scenario of increasing awareness regarding environmental safety, the businesses linked to polluting factories may have to face serious consequences. No one wants to be linked to chemical dumping into a river or water table poisoning in a village somewhere. Thus, before entering into a new business, due consideration has to be given to environmental factors.

Political Implications:

Every country has its own ethical standards. Government ideology has a major role to play in fixing what is ethical and what is unethical. It is normally argued that the government which is oppressive, restrictive or corrupt tends to make problematic rules. Thus, before expanding the business in a new county, the business has to do research in detail as to whether the ideology of the government of that country matches with their ethics and culture.

CONCLUSION:

Ethical Leadership provides a synergistic combination of managerial and visionary leadership which serves to enhance the survival, growth, and long-term viability of organizations. As the time changes, the role of ethical leadership in decision making is also increasing. The result of not following ethics in decision making can prove dangerous for the survival of the company. Along with these issues, ethical practices also have an impact on economic development of the country as well as of the organization. This is the reason why most of the enterprises are now a days focusing on training and enriching their leaders ethically.

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Received on 17.01.2017 Modified on 29.01.2017

Asian J. Management; 2017; 8(2):181-186.

DOI: 10.5958/2321-5763.2017.00028.2