Ethical Leadership in the Modern Business Marketplace

Ethical Leadership in the Modern Business Marketplace


In the recent times, more than a few high-profile ethical fissures have attracted the public eye and placed business ethics and values under deep public scrutiny. Organizational resolves and activities have become more and more subject to intensified interest from various stakeholders. The public’s desire for transparency shows no sign of abating, and whether it is undesirable press around the tax arrangement of business entities, or patient neglect, news of unethical behavior spreads faster and louder now than ever before.The field of ethics in the context of the marketplace and business concerns itself with questions that touch on the morality of specific practices at the marketplace. For instance, should sales peopleduring a sales presentation overlook details about a products or services poor safety record to a client? Is it the role of an accountant to report audit inexactitudes that are observed in an audit of a client? Should a tire manufacturer conceal concerns about safety to circumvent costly tire recall? Notwithstanding their legality, people will certainly evaluate the behaviors in such situations based on whether they are right or wrong, ethical or unethical.

This paper aims at presenting the critical function that ethical leadership plays in the contemporary business market environment. In order to accomplish this, the essay will expound on the ethical leadership concept and will establish that most present day businesses fail to embrace the concept of ethical leadership resulting to organizations functioning like a machine with no emotions or workplace passions that drive the organization’s employees. The essay will highpoint various habits that characterize effective ethical leaders as identified by various scholars. The paper also present a case for the need to embed ethical leadership in the structure of an organization, and conclude by portraying that ethical leadership is critical in abetting avenues of conflict within the organization as well as without the organization.

Business Ethics

According to a poll conducted by Yankelovich, a leading polling organization, public trust in companies has eroded and dropped significantly over the past years.  The poll also revealed that public trust in national government as well as in the United Nations has fallen significantly too. Largely inretort to this crisis, organizational resolves and actions have come under increasedinspection by variousstakeholders such as consumers, employees, investors, government regulators, and special-interest groups. Additionally, new legislation and regulations designed to encourage higher ethical standards in business have been put in place.A Junior Achievement/Deloitte survey of teens showed that 71 percent feel prepared to make ethical decisions in the work place. However, of those surveyed, 38 percent feel it is sometimes necessary to lie, cheat, or engage in unacceptable behaviour to succeed. One-fourth thought cheating on a test is acceptable and most justified it saying that their desire to succeed is grounds for the behaviour. If present day students are tomorrows leaders, there is likely to be a correlation between acceptable behavior  in the present day and in the future, adding to the argument that the leaders of today must be prepared for the ethical risks associated with this downward trend. According to another poll by Deloitte and touché of teenagers aged 13 to 18 years old, when asked if people who practice good business ethics are more successful than those who do not, 69 percent of teenagers agreed.

It becomes therefore imperative for business leaders to ensure than tenets of ethical decision-making are in-depthly embedded in the organization to ensure that even new employs who get recruited with a different mentality on ethical decision-making in business environment are forced to believe in the rightness of ethics in the business marketplace.

Business Ethics in the Market Environment

The term ethics has many nuances. It has been defined as:“the study and philosophy of human conduct, with an emphasis on determining right and wrong” (Hester, 2003). The American heritage dictionary defines ethics as:“the study of the general nature of morals and of specific moral choices; moral philosophy; and the rules or standards governing the conduct of the members of a profession”. According to Fraedrich, Ferrell, & Ferrell(2009, p. 6), an ethical decision and an ordinary decision defer in the sense that: “One lies in the point where the accepted rules no longer serves, and the decision maker is faced with the responsibility for weighing values and reaching a judgment in a situation which is not quite the same as any he or she has faced before.” Another difference relates to the amount of emphasis of that decision makers place on their own values and accepted practices within their company. Consequently, values and judgments play a critical role when leaders are making ethical decisions. Fraedrich, Ferrell, & Ferrell(2009, p. 7) further add that:“business ethics comprises the principles and standards that guide behaviour in the world of business. Investors, employees, customers, interest groups, the legal system, and the community often determine whether a specific action is right or wrong, ethical or unethical”. Despite the possibility of these groups being wrong, their judgment influences society’s acceptance or rejection of a business and its activities.

Ethical Leadership and the Need for Ethical Leadership in an Organization

Leadership has been defined in different ways; however a common trait that is apparent in all the definitions is that ethics is at the core of the concept of leadership (Ciulla, 2004). In academic literature, ethical leadership encompasses employees view of ethical behavior extrapolated from the firms’ leaders’ behavior. According to Brown, Trevino, & Harrison(2005, p. 120)ethical leadership is defined as: “the demonstration of normatively appropriate conduct through personal actions and interpersonal relationships, and the promotion of such conduct to followers through two-way communication, reinforcement, and decision-making.” A normative appropriate manner implies that organizational leaders are principled, honest, and fair, and trustworthy in assuming responsibility for their actions, and make use of rewards and retributions where apposite, to hold their subordinates responsible for their actions. Brown, Trevino, & Harrison(2005, p. 119) provided a more comprehensive conceptualization of ethical leadership. The author explained ethical leadership as: “the demonstration of normatively appropriate conduct through personal actions and interpersonal relationships, and the promotion of such conduct to followers through two-way communication, reinforcement, and decision-making” (2005, p. 120).

Top leadershipprovides a blue print for what a firm’s corporate culture and values should be. If an organizations’ leadershipdo notcommunicate the preferredorganizational behaviors and goals, it will result to an independent corporate culture but which willnonethelessechothe company’s goals and values. Organization Leadership, defined as the capability and authority of an individual to guide people towards the achievement of a specified goal, has significant impact on ethical decision-making for the reason that leaders possess the power and ability to motivate and inspirepeople and administerthe organization’s policies and rules as well as their own perspectives. Leaders are critical to influencing an organization’s corporate cultures and ethical posture. However, a poll conducted found that less than half (47 percent) of employees in large organizations think that their senior leadership is highly ethical (Fraedrich, Ferrell, & Ferrell, 2009).

McLachlan(2008, p. 173) states that in the marketplace, integrity and honesty in competition between the businesses in the market is meant to improve the market experience for all the stakeholders involved, more so, the consumer, who benefits from better quality good and services as well as lower prices. However, this is only achieved, when market participants engage in fair and honest practices where the customer is made aware about a product or service in their entirety. However, this is never the case. Due to the drive for profits, companies engage in cheating resulting to unethical competition. It is therefore necessary that ethical practices are embedded at the marketplace. This can be achieved through the involvement of ethical leaders who are driven not by bottom line, but a desire to ensure an organization is committed to practicing ethical practices. Thus there is a need for ethical leaders to ensure that the market experience is not left to unscrupulous business organizations.

Ethical leadership is conceptualized as having two components, that is, the moral manager and the moral person. The moral person aspect of ethical leadership captures the leader’s personal moral traits.  Ethical leaders demonstrate high levels of integrity, trustworthiness and honesty. They also conduct themselves ethically by doing the right thing when they are faced with an ethical dilemma. They are honest when communicating with peers, and exhibit high levels of concern for other people. Additional to living their private lives in accordance with standards of morality, ethical leaders also uphold their values when making decisions that may have an effect on others (McLachlan, 2008).

Ethicalleaders are also moreprospective to findways to fostertheir subordinates well-being andstandard of work-life. Asopposed to onlyconcentrating on bottom lineoutcomes, conductedresearchindicatesthatethicalleadersimpact on thetaskdesign of jobs in a manner that allowssubordinates to experiencetasksignificance and independence in their work(Piccolo, Greenbaum, Den Hartog, & Folger, 2010).This results toemployeesdemonstratinghigher levels of effort, which subsequentlyresultstohigher levels of organizational citizenship conductandtaskperformance. Therefore, when an organizations’ leadershipexpand its thinking beyond an exclusivefocus on bottom-line outcomes by endeavoring to improvesubordinateswell-being, they may unintentionallyregisterhigherprofits.

Ethicalleaderstreatemployees by listening to them, exhibitingtrustworthiness, treating them in a justmannerandtaking into consideration their interestwhenmakingdecisions(Brown, Trevino, & Harrison, 2005). In return, employeesrepay an ethicalleader with similarlydesirablebehaviors.

Characteristicsand Behaviorsof Ethical Leadership

According to Fraedrich, Ferrell, & Ferrell(2009, p. 135) Ethical leadership is founded on holistic thinking which encompasses the complex and difficult issue that organizations handle on a daily basis. Ethical leaders need to be equipped with knowledge as well as experience to allow the make the ethical decision. The authors add that ethical leadership requires an individual todemonstrate courage and the possess comprehensive information to make decisions that will be the best in the long run. Strong ethical leaders stick to their principles and if necessary, are ready to leave the organization if its corporate governance system is flawed such that it is impossible to make the right choice. They identified seven habits that are characteristic of highly effective ethical leaders. These they highlighted as: ethical leaders have strong personal character; ethical leaders are proactive; ethical leaders consider stakeholders interests; ethical leaders have a passion to do right; ethical leaders are role models for the organizations values; ethical leaders are transparent and actively involved in organizational decision-making; and finally, ethical leaders are competent and adept managers who take a holistic interpretation of an organization’s ethical culture.

According to Hester(2003, p. 8), ethical leaders listen, learn and praise others for their dedication and hard work. Ethical leaders recognize that organizations and organizational systems are communities and therefore, encourage personal development, networking, and innovation. Ethical leaders are demanding but fair. Although recognized by the importance of their office and concomitant responsibilities, ethical leaders are admired because of their integrity and because they make others feel equally important and necessary to the health and vitality of the organization and organization system. The author adds, although ethical leaders are demanding and energizing, they are not controlling, as one of their goals is the growing of future leaders. They are at ease in letting the expertise and skills of other take the lead in producing learning results. They are individuals of vision and give so that others are able to grow.

The Importance of Ethical Leadership in the Modern Business Environment

The importance of ethical decision making of leaders is emphasized by a number of studies and theories. Christen and kohl (2003) as stated by Eldakak(2014, pp. 19-21) in their study highlighted the importance of ethical decision making particularly in emergency scenarios. The study marks ethical decision making as the tool of coping with the challenges of emergencies. It also serves the purpose of assuring stakeholders in the state of problem. Gini (2004) stated that ethical values guide about maintaining a balance between the needs of individuals and organization. According to Bell (2005) the literal meaning of the word ethics elaborates its importance in the decision making process for leaders particularly. According to this study, the behavior of a leader in critical situations determines the behaviour of followers which ultimately influences the integrity of the organization. The vision about wrong or right defines the ethics of the leader. The capability of making decisions based on ethical values and the approach to handle a situation depends on how much a person values principles and morality.

As organizations come under increasing scrutiny, having a robust set of organizational values and clear ethical guideline has never been more important. These values are declarations and affirmations of the attributes and behaviors that really matter to an organization and its staff, and it is critical that they are effectively established and communicated. So as to be more appealing and noteworthy to stakeholders, employees, and customers, organizational values must truly exemplify the practices that are valued and respected by an organization and reflect the behavior that they recruit on, reward and encourage (McLachlan, 2008).

An organization’s leadership can impact an ethical issue intensity by means of rewards and punishment, organizational values and codes of conduct.That is, the leadership of an organization can influence the supposed significance of ethical issues by means of positive and negative incentives. If an organizations’ leadership does not identify and educate company employees on the problem areas, the concerns may not reach the critical awareness level of some employees. According to Peterson & Ferrell(2005, p. 8) “New employees who lack experience in a particular industry may have trouble identifying both ethical and legal issues. Employees therefore need to be trained as to how the organization wants specific ethical issues handled.”Therefore, distinguishing the ethical issues that employees are likely to be faced with is a substantial stride in cultivating employee’s ability to make decisions that enhance organizational ethics.

Federal regulations that hold responsible employees as well as the organization for unethical practicesnecessitates businesses to critically look at areas of possible ethical and legal risk. According to the United States sentencing commission guidelines and the Sarbanes-Oxley Act of 2002, these strong regulations and legislations enhance ethical leadership. In situations where leadership fails, particularly in corporate governance, there is imposition of punitive penalties. When organization leadership communicates the importance of particular ethical practices, the intensity of the issue is elevated. The more an organization’s employees recognize the significant role that ethical practices play, the less probable they are to engage in activities that are questionable and against the ethical practice of the business. Consequently, ethical issue intensity should viewed as a key factor in the decision making process in an organization, for the reason that there exists many opportunities for a business entity to influence and educate employees on the importance of high-risk issues.

How to Promote Ethical Leadership in an Organization

Although most organizations have a statement of values, most are not effective enough at influencing behavior. However, according to a report by the Institute of Leadership and Management (2011, p. 11) there are several areas that organizations can address to raise the levels of engagement and alignment with values across their organizations, thereby promoting organizational ethics both at management level as well as at employee level. These measures include:  linking values to strategies; targeting middle managers; tackling breaches openly; developing leaders at all levels; being aware it is not all black and white; bringing the organizational values to life; building values in consultation; and regular reviewing and communicating publicly.

Linking values to strategy involves building a set of organizational values that do link with targets. This will be an effective way of influencing behaviour. If values are contrary or irrelevant to the business goals, the organization’s leaders find themselves pulled in different directions trying to achieve both. However, when values are tied with the strategic objectives of an organization, the way people are expected to behave and the goals they require to achieve work in tandem. Targeting an organization’s middle managers involves persuading them that values are part of the business case, and in return the middle level managers will persuade the rest of the organization. Middle managers hold the key to closing the disconnect between directors and those managing frontline staff. They play a bridging role and are also major organizational influencers. With regards to tackling breaches only as a means of advancing values by the leaders in an organization, it involves openly reporting ethical breaches without fearing the negative consequences for doing so. A clear and conscience as well as supportive whistleblowing policy is necessary if organizations aim at remaining aware of the real behaviors occurring everyday in their workforce.

To advance ethical leadership in an organization, there is need to develop leaders at all levels of the organization. Leaders at every level have a critical role in proactively communicating and showcasing the organizations’ values. The quality and focus of leadership is fundamental to ethical organizational behaviour, therefore, leaders should be recruited and developed to embed and embody the values of the organization. A values-based leadership approach influences the behaviors that are encouraged from leaders and is linked to inclusive leadership. Being aware it is not black and white involves being aware that in certain moments and situations managers may feel unable to or unsure about applying the organizations values easily. Thus there is need to motivate people to be the best they can be and act on the basis of what they believe to be right, based on their complete values, and make sure they feel able to discuss it with their leadership if there is conflict between personal and organizational values. Building values in consultation on the other hand involves consulting stakeholders when establishing organizational values. These signals to the stakeholder, especially employees, that senior leadership consider building value statement a very important part of their role. This promotes the establishment of a more ethical operating environment, with greater openness and confidence in dealing with ethical breaches.

Lastly, regular review and communicate publicly involves an organizations’ leadership being honest about organizational values. This involves making declarations of what the public can expect of the organization and links it with its own values, making them clear and visible both internally and externally.


In conclusion, the need for ethical leaders in the business marketplace is increasingly becoming a necessity for most organization. Presently organizations are utilizing this form of leadership as a form of marketplace strategy that enables them to gain competitive advantage by making the employees more motivated and inspired, while at the same time giving the public and the consumer a perception that the organization is driven not only by bottom line but also by a commitment to offer quality products inspired by ethical standards. It is therefore imperative that any organization  that aims to remain competitive in the future business marketplace begin to embrace ethical leadership as part and parcel of its organizational values and culture.


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