In most business situations, it’s easy to figure out the most profitable option for the organization. But is it the right decision? More and more frequently, business leaders are called upon to do what’s best for all stakeholders: shareholders, other investors, employees, customers, the community and even the environment. In this context, it’s no longer enough to be simply a leader. Being an ethical leader is imperative.
Ethical decision making is part of a winning business strategy. It can make the difference between workers looking out for themselves and collaborating to reach common, shared goals. It also improves trust and increases job satisfaction. Ignoring ethics has grave consequences for businesses today — poorly considered decisions create PR nightmares and cost people their jobs.
What Is Ethical Leadership?
Ethical leadership is the application of ethics to the organizational or political realm. Ethical leaders put what is right before what is profitable, expedient or efficient.
Ethical leadership can be difficult, as it sometimes requires disrupting the status quo and going against the accepted behavior at an organization, as the Heroic Imagination Project’s Brooke Deterline explained at a recent TEDx talk. Organizations should cultivate an environment where ethical behavior is encouraged. Senior leadership should not just promote ethical behavior, but also should demonstrate ethical decision making at the very top.
Why Are Ethics Central to Leadership?
Ethical leadership works for organizations because it’s transformational. Leaders that embrace and encourage ethics ask their employees to look beyond their self-interests and work toward the common good of investors, consumers and fellow workers. Research shows that ethical leaders engender higher satisfaction, greater goal orientation and lower turnover from followers.
Ethical leaders are role models for their organizations. They display the following components of leadership:
| Trait | Description |
| Trust | An ethical leader inherently trusts his or her employees to do the right thing. Showing faith in people is what encourages them to make good, ethical decisions. |
| Honesty | An ethical leader provides information as clearly and transparently as possible, instead of sugar coating facts to come across in a falsely positive light. |
| Respect and empathy | An ethical leader is focused on the well-being of his or her followers and can put themselves in the follower’s shoes. |
| Consistency | An ethical leader shows consistency in his or her judgment, staying true to a moral compass and the company vision. No one gets special treatment. |
| Example setting | An ethical leader demonstrates the traits he or she wants other employees to follow. Unethical behavior is not tolerated. |
| Charisma | An ethical leader helps followers increase their own sense of self-worth. The leader emphasizes the personal and professional relationship between him- or herself and the follower. |
Embracing ethics doesn’t mean sacrificing the bottom line. In a discussion at the Aspen Institute in 2013, Starbucks CEO explained how ethics and corporate values drive shareholder value. Customers are more educated than ever before, and they will shun organizations that are only focused on profit. “It’s shallow, it’s not sustainable, and success is best when shared,” he said. The numbers back this up: Starbucks’ share price has more than doubled over the last five years.
What Happens when Leaders Behave Unethically?
Incidents of CEOs being let go for ethical lapses are rare, but the numbers appear to be on the increase. A Washington Post article reported that out of the 2,500 largest public companies, 82 CEOs were fired or forced out for scandals in the past five years. That figure might seem small, but it represents a 36 percent increase from the previous five-year period. Notable CEOs who lost or left their jobs because of ethical issues include:
- Kenneth Lay, Enron: The company engaged in systematic accounting fraud.
- Dennis Kozlowski, Tyco: Used company funds for personal use.
- John Stumpf, Wells Fargo: To meet quotas, the company opened and closed accounts on behalf of customers without permission.
- Scott Thompson, Yahoo!: He faked parts of his resume.
- Martin Winterkorn, Volkswagen: The company deceived regulators on diesel emissions tests.