CHAPTER 2: ETHICAL LEADERSHIP

INTRODUCTION GOALS AND OBJECTIVES BRIEF OUTLINE DETAILED OUTLINE ANSWERS TO QUESTIONS FOR DISCUSSION AND REVIEW MULTIPLE CHOICE QUESTIONS ESSAY QUESTIONS TEACHING ACTIVITIES MEDIA RESOURCES INTRODUCTION In this chapter, several essential features of ethical leadership will be described and discussed. First, focus will be placed on the characteristics of ethical executive leaders and how these leaders can facilitate an ethical culture, with a distinction made between the executive as a moral person and as a moral manager. A contrast will then be made between ethical leadership and three other forms of leadershipunethical, hypocritical, and ethically neutral leadership commonly found in organizations. In the third section of this chapter, the emphasis will move away from executive ethical leadership to a personal guide to ethical decision making that readers can use to further develop their own ethical leadership capacities. Finally, the chapter closes with three profiles of ethical leaders. GOALS AND OBJECTIVES To identify and define ethical, unethical, hypocritical and ethically neutral leadership styles To understand various different models of ethical leadership To gain insight into the kind of ethics you model and what kind of leadership you would like to portray BRIEF OUTLINE I. Introduction II. Executive Leaders Create Ethical Culture III. Unethical, Hypocritical, and Ethically Neutral Leadership IV. Unethical Leadership V. Hypocritical Leadership VI. Ethically Neutral Leadership VII. A Guide for Ethical Decision-Making VIII. A Personal Model of Ethical Leadership IX. The Rights Theory X. The Fairness Theory XI. The Utilitarian Approach XII. The Virtue Ethics Approach XIII. Leadership Profile: Roger Boisjoly: The Man Who Tried to Stop the Challenger XIV. Leadership Profile: Sharon Watkins: The Whistle Blower at Enron XV. Leadership Profile: Rosa Parks: A Time to Sit

XVI. Summary DETAILED OUTLINE Executive Leaders Create Ethical Culture Leadership, particularly senior leadership, is critical to an organizations culture because senior leaders create these systems and structures (Schein, 1985). In addition, in many organizations everyone looks to the behavior of senior leaders for guidance about how to behave with regard to ethics and virtually everything else in the organization. Ethical culture: consists of a number of formal (e.g., codes and rules) and informal (e.g., behavior norms) systems that work together to support ethical conduct in the organization. Formal systems include the organizations selection system, formal rules and codes, authority structure, reward system, orientation and training programs, formal decision processes, etc. Informal systems include norms of daily behavior, heroes, rituals, myths and stories, and the language that is used by organization members. Senior executives must develop a reputation for ethical leadership by being visible and in the forefront on ethics issues. Research suggests that such a reputation rests upon dual dimensions: a moral person dimension and a moral manager dimension. The moral person dimension represents the ethical part of the term ethical leadership. As a moral person, the executive models personal traits such as integrity, honesty, and trustworthiness, traits that long have been known to characterize effective leaders. More important than personal traits, however, are visible behaviors and making decisions that are based upon values, fairness, concern for society, and other ethical rules such as the golden rule. Executives must also act as moral managers they must focus on the leadership part of the term ethical leadership by making ethics and values an important part of their leadership agenda and proactively shaping the firms ethical culture. They do that by conveying the importance of ethical conduct in a variety of ways. The large majority of the messages employees receive in business are about bottom line goals. Therefore, senior executives must make ethics a priority. Moral managers do this by visibly modeling ethical conduct, communicating openly and regularly with employees about ethics and values, and by using the reward system (both rewards and discipline) to hold everyone accountable to the standards regardless of ones level in the organization or the level of productivity. Examples include Arthur Andersen and James Burke, CEO of Johnson & Johnson. Unethical, Hypocritical, and Ethically Neutral Leadership While a strong ethical work culture led by ethical leaders is the desired state, there are of course many examples of work cultures that fall short of ethical standards. Three common forms of leadership that fall short of ethical leadership are unethical leadership, hypocritical leadership and ethically neutral leadership. Unethical Leadership Unethical leadership: Unethical leaders are weak moral persons and weak moral managers. Unfortunately, unethical leaders can influence the development of an unethical culture just as much as ethical leaders can influence the development of an ethical culture. Example of unethical leadership: Al Dunlap.

Hypocritical Leadership Hypocritical leadership: occurs when a person in a position of power talks about the importance of ethics, but then acts in an unethical manner. This leader is strong on the communication aspect of moral management but clearly does not walk the ethical talk. Its a do as I say, not as I do approach. The problem is that by putting the spotlight on integrity, the leader actually raises follower expectations and awareness of ethical issues. At the same time, employees realize that they cannot trust anything that the leader says. That leads to cynicism and employees are likely to disregard ethical standards themselves if they see the leader doing so. Example of hypocritical leadership: Jim Bakker of PTL Ministries Ethically Neutral Leadership Ethically neutral leadership: occurs when there is a leadership vacuum when it comes to ethics. Persons in positions of power of influence neither promote nor actively work against ethical conduct. Many top managers are neither strong ethical nor unethical leaders. They simply do not provide leadership in the crucial area of ethics. As a result, employees are not sure what the leader thinks about ethics or if she or he cares. On the moral person dimension, the ethically neutral leader is not clearly unethical, but is perceived to be more self-centered than peopleoriented. On the moral manager dimension, the ethically neutral leader is thought to focus intently on the bottom line without setting complementary ethical goals. But, it turns out that such silence sends an important message. In the context of all the other messages being sent in a highly competitive business environment, employees are likely to interpret silence to mean that the top executive really does not care how business goals are met (only that they are met), and they will act on that message. Example of ethically neutral leadership: Sandy Weill, Chairman of the Board and formerly CEO of Citigroup. A Personal Model of Ethical Leadership Research has found that ethical leadership is critical to employees. For example, Trevio, Weaver, Gibson, and Toffler (1999) found that unethical behavior was lower, and employees were more committed to their organization, more ethically aware, and more willing to report problems to management in firms that had an ethical culture characterized by top executives who represented high ethical standards, regularly showed that they cared about ethics, and were models of ethical behavior. Executives must lead on this issue (be moral managers as well as moral persons) if their behavior is to register with employees. Interestingly, while many people believe that ethical leadership is mostly about vision and values, research suggests that ethical leadership is more concrete and more about the here and now. Employees learn this by observing how leaders behave toward them and others, how leaders make decisions, and whether leaders set explicit ethical standards and take concrete actions to reinforce those standards every day. A Guide for Ethical Decision-Making Several philosophical theories exist that can help serve as a framework for making a morally correct choice. Some of the more popular ethical theories are outlined below:

The Rights Theory: The main proponent of this theory was the 18th century philosopher Immanuel Kant. This approach says that in making a decision the basic moral rights of all involved must be protected. Some of the rights that must be considered are: a. The right to the truth about things that impact us b. The right to privacy (as long as others rights are not violated) c. The right to be safe from harm or injury (unless the risk has been taken on knowingly) d. The right to what has been promised as part of a contract or agreement The Common Good Theory: This is one of the oldest approaches to ethics and states that the good of an individual is inseparable from the good of the larger society. Therefore, an ethical decision is one that benefits the most people in society and is made keeping in mind its impact on the community. The Fairness Theory: This theory emphasizes that an ethical action treats everyone equally, without showing either favoritism or discrimination against anyone. Before making a decision, the fairness of the consequences must be determined. The Utilitarian Approach: This approach is most widely associated with John Stuart Mill. This approach asks that all the available alternatives be evaluated and the choice be made by picking the option that causes the greatest good (or the least harm) to the greatest number of people. The Virtue Ethics Approach: Aristotle was one of the main proponents of this approach. This approach says that when making a decision, we must choose the alternative that builds desirable character traits within us. According to this theory, an action is ethical if it builds personal virtuous traits such as honesty, selflessness, and courage. Leadership Profile: Roger Boisjoly: The Man Who Tried to Stop the Challenger Roger Boisjoly was a technical troubleshooter at Morton Thiokol Inc. (MTI), a company that manufactured rocket boosters for the National Aeronautics and Space Administration (NASA) when the Challenger disaster shocked the world and changed his life forever. Boisjoly had suggested improvements on the faulty O-rings of MTIs rocket booster. Management ignored his suggestions and requests to terminate the launch. The American Association for Advancement of Sciences recognized Boisjolys persistence before and immediately following the crash and awarded him the Prize for Scientific Freedom and Responsibility. Leadership Profile: Sherron Watkins: The Whistle Blower at Enron Sherron Watkins had a courageous role in blowing the whistle on unethical practices at Enron. Enron was borrowing heavily and disguising its debts as revenues. At Enron, there had been continuing instances of senior executives indulging in unethical practices. Watkins was committed to workplace ethics. Leadership Profile: Rosa Parks: A Time to Sit As the woman whose refusal to stand up so that a white person could sit started the Montgomery Bus Boycott, Rosa Parks courage and firm, unwavering belief in what is right are no surprise. However, her perseverance and sophistication are much less well known. All are

characteristics that benefit any leader. Summary People usually take cues for ethical behavior from the world around them. Therefore, it is critical for leaders not only to model ethical behaviors in their own lives but also to be perceived as ethical by those members of their organization who only see them from a distance. In the business setting, an important part of promoting this perception is sending a strong message that ethics are the organizations highest priority. It is the position of co-editors of this book that ethical practice, along with a commitment to inclusion and diversity, form the foundation of any leadership model. Put another way, individuals who are unethical and/or do not value diverse people and opinions may be successful in obtaining power and influence, but the textbook editors do not consider these individuals to be leaders. ANSWERS TO QUESTIONS FOR DISCUSSION AND REVIEW 1. Why is it important for leaders to demonstrate ethical conduct? People need concrete evidence that their leader is a person of integrity who cares about ethics at least as much as bottom line performance. Employees learn this by observing how leaders behave toward them and others, how leaders make decisions, and whether leaders set explicit ethical standards and take concrete action to reinforce those standards every day. 2. What impact can a leaders position on ethics have on the culture of an organization? Leadership is critical to an organizations culture because senior leaders create these systems and structures. Everyone looks to their behavior for guidance about how to behave with regard to ethics and virtually everything else in the organization as well. 3. Describe the dimensions of building a reputation for ethical behavior. The dual dimensions are a moral person dimension and a moral manager dimension. The moral person dimension represents the ethical part of the term ethical leadership. As a moral person, the executive models personal traits such as integrity, honesty, and trustworthiness. Also, behaviors include doing the right thing, showing concern for people and treating them with dignity and respect, being open, listening, and living a personally moral life. Also, a moral person is making decisions that are based upon values, fairness, concern for society, and other ethical rules such as the golden rule. A moral manager makes ethics and values an important part of their leadership agenda and proactively shapes the firms ethical culture. Moral managers model ethical conduct, communicate openly and regularly with employees about ethics and values, and use the reward system to hold everyone accountable to the standards regardless of ones level in the organization or the level of productivity. 4. What is meant by the terms hypocritical leadership and ethically neutral leadership?

Hypocritical leadership: A leader who talks incessantly about integrity and ethical values, but then engages in unethical conduct, encourages others to do so either explicitly or implicitly, rewards only bottom line results, and fails to discipline misconduct. Ethically neutral leadership: Leaders dont provide leadership in the crucial area of ethics and employees arent sure what the leader thinks about ethics or if she or he cares. On the moral person dimension, the ethically neutral leader is not clearly unethical, but is perceived to be more self-centered than people-oriented. And, on the moral manager dimension, the ethically neutral leader is thought to focus intently on the bottom line without setting complementary ethical goals. 5. How does the Rights Theory compare with the Fairness Theory? In Fairness Theory, the primary concern is with treating everyone equally. Before making a moral decision, the fairness of the consequences must be determined. By contrast, in Rights Theory, the primary criteria for decision-making is protecting the moral rights of all affected. Thus, the decision from Rights Theory may not impact all involved equally, but the fundamental rights of each person involved are protected. 6. How does the Common Good Theory compare with the Utilitarianism Theory? In the Common Good theory, an individual is seen as part of a larger community and decisions are made with the community impact in mind. In the Utilitarian approach, there is also an emphasis on making decisions that causes the greatest good (or least harm) to the greatest number of people, but there is less of an emphasis on viewing individuals as intertwined members of a broader community. 7. What theory of ethics prevails at the United Nations? What about in major religious organizations that you are familiar with? What about in various branches of the US government? A number of answers are acceptable. MULTIPLE CHOICE QUESTIONS 1. Which of the following is included in the subset of broader organizational culture that makes up an ethical culture? a. formal rules and decision processes b. daily behavior and rituals c. language used by members d. all of the above Answer: d 2. What are the dual dimensions of the reputation that executives must develop for ethical leadership? a. easy going and fun b. moral manager and moral person c. indecisive and neutral

d. authoritative manager and direct person Answer: b 3. According to the Rights Theory what are some of the basic moral rights that must be considered? a. The right to the truth and privacy b. The right to be safe from harm or injury. c. The right to what has been promised as part of a contract or agreement. d. All of the above Answer: d 4. Which of the following is the Common Good Theory? a. An ethical decision is one that benefits publicity. b. An ethical decision is one that benefits only the organization. c. An ethical decision is one that benefits the most people in society and is made keeping in mind its impact on the community d. An ethical decision is based on the benefit to the managers position in the organization. Answer: c 5. What does the Fairness Theory approach emphasize regarding ethical actions? a. treating everyone equally b. rewarding high achievers c. doing what is right for management d. taking into account what the majority wants Answer: a 6. Which approach asks that all the available alternatives be evaluated and the choice be made by picking the option that causes the greatest good to the greatest number of people? a. Fairness Theory b. Virtue Ethics Approach c. Utilitarian Approach d. Fairness Theory Answer: c 7. Which theory emphasizes an action is ethical if it builds virtuous traits within a person such as honesty, selflessness, and courage? a. Virtue Ethics Approach b. Fairness Theory c. Common Good Theory d. Management Data Approach Answer: a 8. John does not provide leadership in the area of ethics. His employees arent sure what he thinks about ethics or if he cares. John is exhibiting the following type of leadership characteristics:

a. b. c. d. Answer: c

hypocritical leadership ethical leadership ethically neutral leadership formal leadership

9. What is not a characteristic of moral managers? a. visibly models of ethical conduct b. communicates openly and regularly with employees about ethics and values c. hypocritical d. uses a reward system for accountability. Answer: c 10. A manager who talks incessantly about integrity and ethical values but then engages in unethical conduct is exhibiting? a. hypocritical behavior b. ethical behavior c. decision making behavior d. direct management behavior Answer: a ESSAY QUESTIONS 1. Discuss the components of an ethical culture. Why is leadership critical to an organizations culture? 2. How does hypocritical leadership affect an organization? How does ethically neutral leadership affect an organization? 3. Discuss three theories presented in this chapter as a guide to ethical decision making. Which of these approaches fits with your personal model of ethical leadership? TEACHING ACTIVITIES Have students pick an article from Business Ethics Online Magazine (listed below in Media Resources). Have them write a paragraph or present to the class about how the article or current business trends mentions relates to elements in this chapter. Use the Business Ethics Scenarios (See Appendix A) as a handout and have the students form small groups. Have the groups discuss the scenarios and come up with solutions. Then, assign each group to one of the ethics theories: the Rights Theory, the Common Good Theory, the Fairness Theory, The Utilitarian Approach or the Virtue Ethics Approach. Have each group pick a scenario and explain to the rest of the class how they would solve the issue from the perspective of their theory. Have student groups write their own ethical scenarios. Have them write out solutions to their problems from the standpoints of an ethical leader, an unethical leader, a hypocritical leader and an ethically neutral leader. MEDIA RESOURCES

Business Ethics: The Magazine of Corporate Responsibility. An online edition: http://www.business-ethics.com/. Business Ethics Scenarios from Santa Clara Universitys Markkula Center for Applied Ethics. Written by J. Basselone (2008) : http://www.scu.edu/ethics/dialogue/candc/cases/business-scenarios.html. Ashe, C. (2005). Business ethics scenarios: The right and wrong of it. Journal of Business Ethics Case Studies, 1(3), 49-52. http://www.cluteinstituteonlinejournals.com/PDFs/200518.pdf. Two minute video describing the Business Ethics Success Story: The ReBuilding Center. Winner of the 2006 Oregon Ethics in Business Awards. http://www.youtube.com/watch?v=tDyHaYAE24Q&feature=related. In a four minute video clip, Former CEO of Hewlett-Packard Carly Fiorina talks about personal ethics and doing business: http://www.youtube.com/watch?v=WIH8uMu1_ng&feature=fvw.

Appendix A Business Ethics Scenarios by Jim Balassone (2008) 1. Receiving a Holiday Gift: A supplier sends a basket of expensive foodstuffs to your home at Christmas with a card: "We hope you and your family enjoy the 'goodies.'". What action(s) might you want to take? 2. Sales Expense: The purchasing manager for a large company agrees to give you an order (their first), expecting you agree to make a $200 donation to his favorite charity, a local youth sports team. How do you respond? 3. Sales Expense Reimbursement: A customer executive from Southeast Asia will visit your HQ facility and meet with your executive team. Your independent Southeast Asian agent requests that you reimburse the customer for his expenses, including expenses that could violate your company's policies. The agent will reimburse you. How do you proceed? 4. References: A large, prospective client calls you and asks about a competitor's reputation. One of your long time customers had a very bad experience with this competitor. What information do you share with the prospect? How do you respond to the prospect call? 5. Gratuities: A customer has a large sailing yacht on a vessel that your company will be discharging. The customer is present and is watching the off-loading operation. The five stevedores you manage pull off a very tricky maneuver, safely transferring the yacht to the trailer. The customer is elated, and reaches into his pocket, pulling out a big wad of $50 bills. What do you do? 6. Conflict of Interest: As department manager, you are hosting an informal celebration in the office. The food budget is $200. Your next door neighbor has just started her own catering business and asks to supply the food. Since she is just starting out, she'll do it at cost and provide extra items at no charge. What might you want to consider? 7. More Competition: You are in a head-to-head battle with your arch competitor, Evil Enterprises. One of your coworkers approaches you. He has recently joined your company after having worked for a second competitor for several years. He suggests, "I made notes on all of Evil's bids when I could get the data. They use some clear cost standards. Would you like me to bring my notes to the office tomorrow and let you look through them?" How do you respond?