David Mayer, a professor of Management and Organizations at the University of Michigan, has reviewed hundreds of studies of employees and reports that in general, when employees believe that their leader is ethical, the employees are happier and more productive, more committed, and more ethical themselves, than employees who do not believe that their leader is ethical.
1. Ethical leadership leads to ethical followers
In his own studies, Mayer has found that leaders not only have to espouse ethical values, but have to role model ethical behaviour in order to spread ethical behaviour among their followers, and to reward or punish behaviour that agrees or disagrees with organizational values.
“Leaders set the ethical tone of an organization and are instrumental in encouraging ethical behavior and reducing interpersonal conflict from their subordinates.”
Therefore, reflecting on one’s core values and striving to be more ethical can have a positive impact on the working environment, and make the organization more successful.
2. Ethical leadership leads to followers’ commitment
In a study by Shukurat Bello from the University of Nigera, the author cites many studies in which organizations with ethical leadership was found to lead to higher levels of employee commitment than in organizations with less ethical leadership. Bello defines commitment as “as a state in which an employee identifies with a particular organisation and its goals and wishes to maintain membership in the organisation” and states that high levels of perceived ethical leadership lead: to employees being emotionally attached to the organization; to employees viewing staying with the organization as providing greater financial security than leaving; to employees have loyalty to the organization for moral or ethical reasons.
3. Ethical leadership generates greater profits
KRW International, a leadership consultancy company, conducted a survey of employees at 84 American organizations, to ascertain if the employees thought that the CEO of the organization possessed the following four qualities:
- integrity
- responsibility
- forgiveness
- compassion
These four qualities were chosen by the authors of the study because through numerous examples of anthropological literature, these four qualities were found to be universally positive traits of human character.
The employees’ opinions were then correlated to the profitability of the company by analyzing the average return on assets (ROA). Interestingly, organizations with CEOs that possessed the above four traits in greater quantity had an average return on assets (ROA) of 9.35 percent. On the other hand, companies with CEOs that were rated low in these four qualities had a ROA of 1.93 percent. This means that companies with CEOs who are viewed as being ethical are almost 5 times as profitable as companies with CEOs that are not!
CEOs in the negative group were characterized as ‘self-focused’, willing to lie for financial gain, willing to do damage to other people for their own success. Employees at these firms reported that these CEOs “couldn’t be trusted to keep promises, often passed off blame to others, frequently punished well-intentioned people for making mistakes, and were especially bad at caring for people”.
An important take-away for leaders is that the CEOs in this study who needed to improve their character often did not know. They did not perceive themselves in the same way that their employees saw them. CEOs were asked to rate themselves, and those CEOs who were rated poor in the four qualities by their employees, rated themselves higher than their employees rated them. Conversely, CEOs who were rated high in the four qualities rated themselves lower than the employees rated them. Leaders must be honest with themselves in assessing their own qualities.
One method of getting to know yourself better is creating an environment where people can give you honest feedback, and taking that feedback seriously. Someone that a leader might be receptive to might be a mentor.
The need for ethical leadership
There is a great need for ethical leadership. After the Enron scandal, a great deal of attention was paid to ethical practices in corporate culture. However, after several years had passed, a decline in ethical values was seen. A report by the ‘Ethics Resource Center’ from 2007 entitled ‘An Inside View of Private Sector Ethics’ reported that:
- In the past year, half of employees surveyed had witnessed some sort of ethical misconduct
- Employees were usually afraid to report misconduct. About 1 in 8 employees had experienced retaliation for reporting ethical misconduct.
- The number of companies making an effort to promote a more ethical culture was actually in decline.
In light of the various benefits of ethical leadership described above, the fact that ethical leadership is in decline should raise alarm bells in organizations.
References
http://www.ethics.org/files/u5/The_2007_National_Business_Ethics_Survey.pdf
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