The Need for Ethical Leadership in the Modern Business Marketplace

The Need for Ethical Leadership in the Modern Business Marketplace

The purpose of this paper is to demonstrate the important role that ethical leadership plays in the context of the modern business marketplace. To achieve this, the paper will present the concept of ethical leadership, where it will demonstrate that ethical leadership is what organization involved in unethical practices lack.The paper will also highlight some of the habits of highly effective ethical leaders.It will also present a case for the need for ethical leadership at the workplace highlighting the importance of ethical leadership in modern businesses. The paper will finally conclude by highlighting the role of ethical leadership in preventing ethical dilemmas commonly faced in many organizations.


The adeptness for a business entity to identify and address complex ethical issues has become a major priority in twenty-first-century business. In the recent times, various top and well known companies have been involved in scandals that have resulted in public affront about fraud and deception in business and a call for bettered business ethics as well as greater corporate responsibility. The media hype and debate that has enveloped highly visible ethical and legal lapses as a of well known organizations such as Enron, WorldCom, HealthSouth, and even Coca Cola, underscore the needfor business entities to assimilate ethics and responsibility into all business decisions. To a large extent as a retort to this crisis, organizational decisions and interests have come under increased inspection by different stakeholder such as investors, consumers, government agencies, employees as well as special interest groups. In addition, new regulations and legislations have been put in place to encourage higher ethical standards in business.

Founders of many corporations, such as Sam Walton, Bill Gates, Milton Hershey, Martha Stewart, Michael Dell, and Steve Jobs as well as Ben Cohen and Jerry Greenfield, left their ethical stamp on their companies. Their conduct set the tone, making them role models for desired conduct in the early growth of their respective corporations. In the case of Milton Hershey, his legacy endures, and Hershey foods continue to be a role model for ethical corporate culture. In the case of Sam Walton, Wal-Mart embarked on a course of rapid growth after his death and became involved in numerous conflicts with stakeholders groups, especially employees, regulators, competitors and communities. Despite the ethical foundation left by Sam Walton, Wal-Mart as well as most large corporations deal with hundreds of reported ethical lapses every month. This has been attributed to the lack of an ethical leadership whose sole objective is bottom-line.

Ethical Leadership and the Need for Ethical Leadership in an Organization

According to McLachlan(2008, p. 173),  in the business environment, honest competition is meant to improve the market for all stakeholders, but especially the consumer through lower prices and better quality goods and services. However, this is only attainable when the market practices are fair and honest and the consumers are fully and honestly informed about their buying options. However, this is never the case. Due to the drive for profits, companies engage in cheating resulting to unethical competition. In modern business environments, majority of businesses and its top leadership are appraised based on defined, tangible and objective short-term results such as accounting, financial, and market metrics of organizational performance. Not only does this approach for evaluating performance create an environment that incites innovation and continual growth, it also advances a climate that puts pressure on the company’s leadership to deliver and/or report favorable economic outcomes. The incentives for attaining financial objectives are hefty, including stock option appreciation and lucrative bonus packages, whilst the punishment for failing to realize targets can be severe. Such pressures have the prospective negative result of driving a narrow view of success, creating dilemmas, which are often of an ethical nature, in terms of how business decisions ought to be made. This is particularly problematic, for the reason that employees expect more from work than a narrow focus on bottom-line profits. Therefore, the ethical disposition of leadership plays a significant role in influencing the work environment wherein employees make decisions, this is for the reason that business leaders shape the tangible as well as perceived characteristics of work.

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 behaviorextrapolatedfrom the firms’leaders’behavior.According toBrown, Trevino, & Harrison(2005, p. 120)ethical leadership refers to “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 assumingresponsibility for their actions, and make use of rewards and retributionswhere apposite, to hold their subordinates responsible for their actions.

Whereas ethical conduct is reflected in diverse leadership models, including authentic leadership model(Gardner, Avolio, Luthans, May, & Walumbwa, 2005)and transformational leadership (Bass, 1985), ethical leaders as exemplified byBrown & Trevino(2006) differentiate themselves by demonstrating traits that are consistent with normative ethical values such as fairness, honesty and trustworthiness. These leaders make impartial and poised decisions, and actively consider the aptness of those decisions in terms of their ethicalconsequences. According toBrown, Trevino, & Harrison(2005), ethical leaders exhibit moral management behavior, reward employees for ethical compliance, communicate about ethics, and do not compromise ethical standards in the pursuit of short-term organizational performance and bottom-line. Through emphasizing on moral management by way oftransactional means such as rewards and punishment, ethical leadership is conceptually distinct from similar concepts such as idealized influence (Colquitt, 2001) and is likely to reveal itself in the manner in which the ethical leaders influence the work experiencein terms of a job’s core characteristics.

Treviño, Hartman, & Brown(2000), conceptualized ethical leadership 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 and pen 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). They make decisions that are independent and unbiased and follow ethical decision-making rubrics. The moral manager component of ethical leadership on the other hand captures the aspect of ethical leadership that is distinctive when matched to other leadership constructs such as idealized influence and interactional justice (Mayer, Aquino, Greenbaum, & Kuenzi, 2010). A moral manager serves as a role model for subordinates by manifestly upholding ethical standards as exhibited by the behavior of the manager (Treviño, Hartman, & Brown, 2000). He reinforces ethical behaviors in the subordinates by rewarding or disciplining the employees subject to ethical standards. He also serves the objective of communicating the significance of ethics to subordinates on a regular basis.

Brown, Trevino, & Harrison(2005, p. 119)provided a more comprehensive conceptualization of ethical leadership. He 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). The authors provided a theoretical basis for explaining the effectiveness of ethical leadership by borrowing on the social learning theory (Bandura, 1977). Based on this theory, employees are more likely to pay attention to leaders because of their ability to provide them with promotions, rewards and favorable work assignments. They also identify and emulate role models, a person who is viewed as trustworthiness and honest. Accordingly, an employee’s level of ethical behavior may be impacted by ethical leadership. Employees get to be aware of what is required of them secondhand (Bandura, 1977; 1986). They understand their ethical expectations that are within the organization by simply watching how the leadership of the organization handles situations(Brown, Trevino, & Harrison, 2005). Ethical expectations are also enforced by a leader’s behavior that includes disciplining or rewarding employees corresponding to the established ethical standards. Leaders also communicate to their subordinates the importance of practicing ethics and reflectingon what is the right thing to do when dealing with ethical dilemmas.

In addition to being unswerving in upholding ethical values, ethical leaders are more prospective to find ways to foster subordinates well-being and standard of work-life. As opposed to only concentrating on bottom line outcomes, conducted research indicates that ethical leaders impact on the task design of jobs in a manner that allows subordinates to experience task significance and independence in their work(Piccolo, Greenbaum, Den Hartog, & Folger, 2010).According to Piccolo, Greenbaum, Den Hartog, & Folger(2010)employees who experience meaningfulness in their work under ethical leaders demonstrate higher levels of effort, which subsequently results to higher levels of organizational citizenship conduct and task performance.Therefore, when an organizations’ leadership expand its thinking beyond an exclusive focus on bottom-line outcomes by endeavoring to improve subordinates well-being, they may unintentionally register higher profits as a result of employees being more engaged and ultimately more productive.

The social exchange theory(Blau, 1964), is often relied upon to explain the effectiveness of ethical leadership in advancing desirable organizational behavior among employees (Brown & Mitchell, 2010; Brown & Trevino, 2006; Mayer, Kuenzi, & Greenbaum, 2011; Mayer, Kuenzi, Greenbaum, Bardes, & Salvador, 2009).According to the Social exchange theory, “people respond to other peoples behaviors by repaying them in kind.” (Cropanzano & Mitchell, 2005). Ethicalleaderstreatemployees by listening to them, exhibiting trustworthiness, treating them in a just manner and taking into consideration their interest when making decisions(Brown, Trevino, & Harrison, 2005). In return, employees repay an ethical leader with similarly desirable behaviors.

Habits of Effective Ethical Leader

Seven habits were identified by, Fraedrich, Ferrell, & Ferrell(2009, p. 135) as characteristic of ethical leaders. These habits the authors 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 managers who take a holistic view of the firm’s ethical culture.

The Importance of Ethical Leadership in the Modern Business Environment

As organizations come under increasing scrutiny, having a robust set of organizational values and clear ethical guidelinehas 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 note worthy 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).

Growing empirical evidence submits that ethical leadership has a positive impact in checking unethical behavior by employees, even as it enhances employee well-being. Various studies have been conducted to study the correlation between ethical leadership and different forms of unethical behavior exhibited by employees, such as employee misconduct, bullying, and employee organizational deviance (Mayer, Kuenzi, &Greenbaum, 2011; Avey, Palanski, &Walumbwa, 2012; Mayer et al., 2009; Mayer et al., 2010). The findings revealed that in situations where leaders conducted themselves in a normatively appropriate manner and entrenched ethical practices in the regular organizational functioning, employees are more likely to commit themselves to work and are less likely to carry themselves in counterproductive and unethical ways.

The success of ethical leadership in averting unethical behavior can be realized through the leader’s preferment for an ethical climate According to Mayer, Kuenzi, &Greenbaum (2009; Victor & Cullen, 1988), ethical climate refers to “employees collective impressions of the ethical policies, practices, and procedures within an organization.” Mayer et al., (2011) in their study found that leaders have an unequivocal influence on subordinate’s perceptions of an ethical climate, which results to reducing employee misconduct.

Besides providing evidence that ethical leadership has a positive influence in averting organization unethical behavior, research has also found that ethical leadership is also effective in enhancing and bettering the well-being and standard of living of employees. Ethical leadership is positively correlated to employees approval with their superiors, trust in fellow work mates and the organization’s management, optimism and positivity about the organizational futureand job attitudes in terms of turnover intentions, organizational commitment, and job satisfaction (Ruiz, Ruiz, & Martinez, 2011; Neubert, Carlson, Kacmar, Roberts, & Chonko, 2009).

Empirical evidence also shows that ethical leadership is effective in advancing outcomes that directly profit an organization, including employees’ participation in organizational citizenship behaviors (OCB) (Mayer et al., 2009),  as well as higher levels of task performance (Piccolo et al., 2010).

The effectiveness of ethical leadership in advancing aspects of employee’s standard of work-life and well-being may be attained through various processes that enhance an employee’s view of the work environment. For example, Walumbwa and Schaubroeck (2009) in their study found that ethical leadership is directly positively correlated to the employee’s assessment of psychological safety.As a result of ethical leadership, employees are more prone to perceive that it is innocuous for them to engage in relational risk taking, that is, they feel psychologically sheltered; therefore they are more likely to express the opinions verbally in the organizations’ work context. A study conducted by Stouten et al. (2011) concluded that ethical leaders are in a position to improve subordinates working conditions and workload, which consequently makes them less likely to engage in bullying. Piccolo et al. (2010) also found out that employees of ethical leaders are more probable to experience independence and in the job as well as task significance, this has the extended effect of making employees exert more effort and attain higher levels of moth citizenship performance and task performance.

In summary, it is clearly apparent that leaders in general and ethical leaders in particular, possess a profound and intense influence on the behavior and well-being of their subordinates and all employees in general

The Role of Ethical Leadership in Preventing Ethical Dilemmas

Whilst ethical leadership limits the occurrence of unethical behavior, it is also effective in preventing a nearly exclusive focus in bottom-line outcomes which could result specific forms of unethical behavior such as accounting fraud, misrepresentation of contract terms and the release of dangerous products. Ethical leaders not only pursue market-oriented and financial outcomes, they also express care and concern about the means through which outcomes are attained. By castigating employees who violate ethical standards, setting an example of how to do things the right way and discussing business ethics with employees, ethical leaders influence the way in which employees begin perceiving their own responsibilities(McLachlan, 2008).

Research has exhibited that high-pressuresituations are related to unethical behavior (Robertson &Rymon, 2001).  More often than not, due to concentration on conventional goals of business entities, leaders may experience strain and pressure to solely concentrate on bottom-line outcome including stockholders wealth, performancetargets and profits, and this may result to unethical behavior. Rubin, Dierdorff, and Brown (2010) stated that ethical leaders may be effectual in handling such pressure and strain, even as they promote ethical standards. In consequence, ethical leaders are therefore more suited for top management as they can be able to handle and manage bottom-line pressures whilst remaining committed to ethical standards (Brown & Mitchell, 2010).

Ethical leaders would also be effective and valuable in top management of an organization as they promote ethical standards that “trickle down” to lower and mid-level managers (Mayer et al., 2009; Ruiz et al., 2010). Sequentially, lower level management adopts ethical leadership practices, which then influence employees’ unethical or ethical behavior.


From the paper it is apparent that in the present day business environment, the need for ethical leaders cannot be overemphasized. They bring a different perspective of business to an organization that is rarely found in conventional business managers whose main concern is to drive the bottom-line. Ethical leaders concentrate in improving the organization through the employment of ethical practices and values that are reflective of what an organization stands for. Ethical leadership concentrates on other non-conventional business goals such motivating ethical behavior, promoting employee well-being, enhancing a sense of responsibility in employees and giving them a sense of pride and attachment to the organizations. It also promote productivity and performance by enhancing their sense of commitment to the organization. These goals of an ethical leaders have the end result of driving the bottom-line of a business albeit indirectly and without exposing an organization to the risk of any legal action.



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