User:MGMT90018 2015S2 Ethical Leadership/sandbox

This page is being edited as a part of class assignment for MGMT90018 Managerial Psychology

Definition
Ethical leadership is most widely 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". To simplify, ethical leadership refers to leadership that is directed by respect for ethical beliefs, values and for the dignity and rights of others. Ethical leadership is often related to concepts such as trust, honesty, consideration, charisma and fairness.

Ethical leadership is a process rather than traits that are exercised, directed and communicated to assist employees to make ethical decision in the workplace based on organization norms and values. Personal traits play an important role in shaping individual leadership ability, however this is incomplete without any proactive efforts to influence employees’ behavior in an ethical manner and still manage to attain specific organizational goals, such as company's profitability. The expected behaviors of ethical leaders are setting success beyond outcomes, process of achievement, disciplining all ethical conduct amongst their employees and engaging employees in discussion of business ethics or value.

Ethical leadership is evidenced to be one of the key factors to determining the success of a company. Studies have reported that leaders are the key personnel in shaping ethical conduct of business of a company, through their influence of employees across the organization.

History
In the Mesolithic era, 10,000 years ago, hunter-gatherers sustained egalitarian leadership commands, which are also referred to as “reversed dominance hierarchies”. They denoted shared power and adoption of flexible leadership among their group members. The main reason for such allocation is to eliminate “upstartism” in the group. However, this leadership style greatly shifted during the post-agricultural era. Some members preserved the low-power leadership model, while others selected a precursor of modern organizational cultures that developed as a reaction to the new opportunity and attract resources, power, and wealth.

O’Brien and Laland in 2012 argued that the increasing level of social complexity has resulted in a large set of challenges. Leaders today are expected to have the capability to manage their people and the power to direct them in achieving their goals. A successful leader should be equipped with key elements such as skills behavior and the ability to maintain a social relationship. In this respect, behavior is closely related to ethics, which refers to the way someone as a leader present and interacts with others in accordance to his or her circumstances.

Ethical leadership has only received research attention in the recent years due to the growing interest in organizational behavior and psychology. In the past, organizations were focused only on their financial performance as a measure of corporate success. The focus on ethical leadership has only emerged following the occurrence of several corporate ethics scandals. Today, good financial performance does not indicate favorable reputation if the organization does not conduct their business ethically. The role of organizational ethical leadership has become crucial in order for the company to remain profitable.

Business ethics and organizational financial performance were initially seen as diametrically opposed. In a survey conducted in 2011, the Institute of Leadership & Management examined 2,500 UK workers and results showed that the majority of company leaders were prioritizing profitability over ethical considerations. However, the responsibilities of business leaders’ today extend beyond the economic benefits of the organizational stakeholders. Leaders are also expected to maintain a good relationship between the business and society.

Antecedents
There are various elements such as personal, situational and cultural factors which may influence an individual to engage in ethical leadership.

Personal Factors
Individual characteristics may affect an individual's engagement in ethical leadership. These personal factors are listed below:

1. Big Five Personality Traits
Big Five Personality Traits is an assessment model to describe an individual's personality based on five dimensions. These dimensions include agreeableness, conscientiousness, extraversion, neuroticism and openness to experience. Research has found that 3 out of 5 of these dimensions (i.e. agreeableness, conscientiousness and neuroticism) are closely related to ethical leadership.


 * Agreeableness refers to a person's ability to cooperate with others and willingness to put others’ needs above their personal interest. Studies have shown that a leader with high agreeableness tends to be gentle and understanding in nature. They are more likely to guide their employees on decision-making and treat them in a fair and respectful manner. However, leaders with high agreeableness may potentially be seen as less ethical as they are more likely to make exceptions to existing rules or policies in an organization.


 * Conscientiousness refers to a person's moral sense of right or wrong and their self discipline in trying to achieve their goals. A leader with high conscientiousness often complies with the rules and procedures in an organization and are success-driven through communicating information with their employees. They are also more likely to perform their task in a systematic manner that is consistent with existing policies in the organization.


 * Neuroticism refers to a person's ability to control and handle negative emotions. Main characteristics of a neurotic leader are low self-esteem, easily stressed, low confidence and frequent moodiness. Neurotic leaders are less likely to be perceived as ethical leaders due to their inability to provide guidance and cooperate with their employees. They lack the capacity to create an organizational vision and may be unable to resolve conflicts that arise in the workplace.

Research has found a positive correlation between the Big Five Personality traits of agreeableness, conscientiousness, emotional stability, and ethical leadership, while openness to experience and extraversion are not related to ethical leadership.

2. Moral Identity
Moral Identity is defined as a set of principles that guide an individual's behaviors and decision making. Moral identity serves as a self regulated mechanism in assisting an individual to act ethically in a given situation. Studies have shown that moral identity has a strong influence on ethical leadership, as an individual would have more concern about the interests of others if he/she has a strong moral identity. They are more likely to engage in voluntary behavior such as charitable acts and tend to avoid from unethical behaviors. Moral Identity can be divided into two dimensions: symbolization and internalization.


 * Symbolization refers to taking the right actions to demonstrate personal moral traits. A leader with high moral identity in the dimension of symbolization tends to behave in ways that are consistent with their own self-awareness. They are more likely to direct and promote ethical behaviors to their employees.
 * Internalization refers to the moral traits embedded in a leader's self-concept. A leader higher in the dimension of internalization is likely to avoid any unethical situation. Unethical behaviors by employees under such a leader are usually taken seriously by the leader and may result in punishment for the employee.

Both dimensions – symbolization and internalization - are positively related with ethical leadership. Moral Identity can be a source of motivation for leaders to engage in ethical behaviors that are consistent with their self-concept.

Situational Factors
Some external factors such as Role Modeling and Moral Intensity affect a person’s engagement in ethical leadership.

1. Role Modelling
Gibson defined Role Model as ‘‘cognitive construction based on the attributes of people in social roles and an individual perceives to be similar to him or herself to some extent and desires to increase perceived similarity by emulating those attributes’’. There are two different types of role models that contribute to the development of ethical leadership:
 * Childhood Model Parental modelling is crucial and has a significant impact on an adult’s moral behavior. The standards and values that are passed on through parental action indirectly develops ethical attribute in children. Leaders who are equipped with strong ethical models are more likely to promote and bring these moral values into the organization. However, the childhood model only has a strong impact on younger leaders, because the impact on a leader progressively diminishes when the leader starts to make greater career progression and more work dominated role models become available.
 * Career Model can be an informal or formal mentoring program that aims to encourage development of ethical leadership in the workplace. Supervisors are mostly selected for the role of career model as they work most closely with an individual. Individuals are exposed to how supervisors make daily decisions and learn through observation of supervisor behaviors. By engaging with the role model, an individual is exposed to more values and attributes on ethical leadership and imitates these behaviors in their future career.

Research has demonstrated the positive relationship between these 2 role models (childhood models and career models), and ethical leadership. Social learning theory states that majority of human behavior is learned through modeling and individuals use the role models’ values and attributes as a guide for their own actions. Having an ethical role model has a positive impact in an individual in becoming a future ethical leader.

2. Moral Intensity
Moral intensity of an issue has an effect on how a leader making ethical decision and how they are perceived as ethical leaders. Moral intensity is strongly influenced by two components - the magnitude of consequences and social consensus.


 * Magnitude of consequences defined as the possible harm that raised from a scenario. A leader prefers to handle the issues more ethically if they are aware of the consequence of the issues which may bring potential harm to the organization and society. Leaders are often seen as an ethical leader if they managed to handle any intense situation ethically and able minimized the potential harm.


 * Social Consensus refers to the ethical norms that existed in a particular scenario. Leader who work in a strong ethical environment are often better in dealing intense situation. Thus, this allows them to demonstrate their ethical leadership in such scenarios. Moral identity also strengthens the correlation between ethical context and ethical leadership.

Moral Intensity is positively related to perceived ethical leadership if the leaders have the ability to handle the intense situation appropriately.

Cultural Factors
Culture factors are an important antecedent in ethical leadership. Culture factors identified are listed below:

1. Ethical Climate
Ethical Climate is defined as a workplace environment that supports ethical decision-making and the practice of ethical related attitudes or behavior within an organization. Various types of corporate culture can influence how ethical decisions are made, including:


 * Democratic culture encourages employees to be responsible for their own actions, and helps to promote the development of ethical behavior.
 * Authoritarian culture places emphasis on rules and procedures to influence employee behaviors. Employees may have less flexibility to decisions that are ethical, but contradictory to organizational rules.

Ethical leadership is more likely to be developed when there is a supportive ethical climate in an organization. The higher the ethical climate in a workplace, the higher possibility that employees will commit to ethical behavior.

2. Code of Ethics
A code of ethics refers to a written statement listing organizational principles, values and codes of conduct, with the purpose of communicating such items to employees and other stakeholders.

The code of ethics in an organization is a formal method for top management to create an ethical culture in the organization. A Code of Ethics serves as a guideline for translating managerial ethical beliefs into behavior that helps to increase motivation for employees to act ethically. An individual tends to have a strong ethical belief when the organization is highly supportive of ethical behavior.

3. Tone at the Top
There are two ways by which top management can influence employees to behave ethically.


 * Role Model Top management is often seen as a role model due to their status and power. Their behaviors can indirectly influence employees actions and decision-making. Studies have shown the level of ethical behavior an employee displays is highly dependent on the leader's principles. An ethically oriented CEO and effective communication with employees is key in embedding ethical culture into the organization. This shows the importance of having an ethical leadership in the top management in creating an ethical environment in an organization.


 * Rewards and Punishment Scheme The extent to which ethical leadership is displayed at different levels is closely associated with the frequency of the ethical behavior occurred among the employees. Unethical behavior could be indirectly approved if there is no action taken against these behaviors. Similarly, employees are likelier to engage in ethical behavior if they are held accountable for their own decisions and are aware of the possibility of punishments being imposed for breaking the rules.

Various studies have found that followers who engaged in a “high quality social exchange relationship” with their superiors are less likely to engage in inappropriate workplace behaviors.

Individual Outcomes
Ethical leaders are honest, trustworthy and behave in a non-bias, fair manner and express duty of care toward their employees. Various studies had revealed ethical leader's direct impact on various aspects of individuals they are leading, which described as follows:

1. Job Satisfaction
Individuals experience greater job satisfaction which results in a heightened life satisfaction when they perceive to be working with ethical leaders. This is explained by the individual’s increased organizational commitment which suggests that employees are more inclined to take extra measures to benefit the organization without the desire of being rewarded. This is also known as organizational citizenship behavior (OCB). OCB individuals are found to be more committed in their work as they take a sense of pride being under the management of these ethical leaders and truly care for the long term success of the organization. This ethical climate further results in a lower intention of a job change.

2. Family Satisfaction
A study found that ethical leaders affect employees' spouses’ family satisfaction positively. This is explained by the “work-family spillover" effect which states that an individual’s work behavior would spillover to the family. When employees experience a more satisfied and happier mood at work, they are reported to have a better work-family relationship. On the other hand, when employees are dissatisfied with their job, their work-family relationship are less satisfactory. Thus, in the context of ethical leadership, the satisfaction of the employee’s spouse and family are maintained due to the elevated mood and well-being of the particular individual.

3. Work Motivation
Ethical leaders create work environment which cultivates and nurtures the well-being of employees. These organizational leaders act in the best interest of employees, which in turn affects individuals to take more initiative in their work and be more promotion-focused. This is mediated by the strong sense of belonging individuals feel in the organization. Another means by which ethical leadership increases individual work motivation, especially intrinsic motivation, is through the structuring of the job. Ethical leaders create job designs which allows for high employee participation but with low levels of overlap between individual tasks. This provide opportunities for the growth and development of every employee. High levels of intrinsic motivation is then developed as the opportunity for advancement in the organization is comprehended.

4. Strengthen Self-Efficacy
Individuals develop and reinforce their self-efficacy under the governance of ethical leadership. Employees observe and learn how to best act and behave in the organization through modelling those of their ethical leaders. This is explained by the follower’s desire not to merely be like the leaders but the desire to enjoy the benefits which comes along with behaving in such a manner (i.e., the power, status and various privileges which these ethical leaders get to take pleasure in).

5. Employee Well-Being
Various studies indicate that job satisfaction is the foundation of employee well-being. Employee well-being includes the physical and mental health of the individual, which is found to be able to minimize job stress. This is explained by the positive state of emotion the individual experiences which affects their health in the same manner. However, Burke refutes this view by suggesting that when an employee’s personal moral ethics does not align with the leader’s moral conducts, they experience more stress at work which results in a lower employee well-being. Consequently, individuals’ moral principles have to be aligned with that of the ethical leaders in order for them to experience a greater employee well-being.

Team Outcomes
Many studies have revealed the effect of ethical leadership on team outcomes. Several factors were identified:

1. Employee Voice Behavior
Ethical leaders are more open and provide opportunities for the development of employees. This creates a psychologically safe environment for employees’ voice behavior. Employees are less likely to feel overwhelmed by speaking up and receiving feedback as the climate is more encouraging. As more voices and opinions are being expressed and heard, more innovative and creative ideas develop. This enhances the team’s ability to better cope with environmental changes and be at the forefront of competition.

2. High Leader-Member Exchanges
In light with the perception that ethical leaders treat their employees more equally, a study related to leader-member exchange theory suggested that individuals/group of individuals who receive better treatment from their leader(s) are more obliged to return this favor to their leader(s). This willingness to exchange is a result of employees' increased sense of belonging and boosted motivation levels. With increased motivation levels, increased effort is put into the job, creating more productive and better performing teams.

3. Low Turnover Intention
Given the satisfaction of followers under the leadership of ethical leaders, they are less likely to resign from the organization. Consequently, team dynamics are strengthened and stronger bonds are built among the group of individuals as they work with the same people over a long period of time. Successively, more effective communication between the team is developed which surges job productivity. Another factor which contributes to low turnover intention is found to be follower’s satisfaction with their supervisors/leaders. This satisfaction is proposed to result in a more trusting and collective work culture cultivating teamwork.

4. Work Productivity
A trusting relationship between ethical leaders and followers are developed as ethical leaders make decisions for the betterment of the employees and organization as a whole. Organizational justice is present through their governance. This notion of trust creates a more meaningful employee-employer relationship which expand beyond economic exchange, to the extends of the willingness of employees in taking more initiative in their work resulting in increased job productivity. Consistent with the Big 5 personality traits factor, a study by Walumbwa, Morrison, Christensen & Amanda further supported this view; stating that ethical leadership develops group conscientiousness by their motivational influence towards in-group behaviors which is found to be positively correlated to team performance.

Organizational Outcomes
Rapid research have been conducted examining the organizational outcomes produced by ethical leadership. Several aspects which promote organizational effectiveness are identified:

1. Organizational Ethical Culture
The leaders of the organization have the power to cultivate and motivate behaviors. A recent study revealed that ethical leaders can affect the corporate social responsibility (CSR) behavior of the organization through “organizational ethical culture”. Many organizations are cultivating this notion of CSR into their business as it is constantly evidenced to be able to increase the competitive advantage and financial performance of an organization.

2. Enhanced Reputation
Findings show that ethical leadership improves organizational reputation which results in a better business relationship and market value. This business relationship extends across the employees, customers, suppliers and other stakeholders. Employees are indicated to be more trusting of the leaders and loyal to the organization. Customers and suppliers have more confidence entering into a business deal with the organization while shareholders are more assured of their investments with the firm.

3. Reduced Costs
Ethical leadership is found to be negatively correlated with counterproductive work behavior which includes absenteeism, bullying, and employee turnover. This is due to the relationship employees have fostered, with the organization built through the notion of trust and reciprocity. With the absence of these counterproductive work behaviors, the organization can reduce numerous costs, e.g. when employee turnover is tapered, costs on recruiting, training and developing a new employee is reduced.

Ethical Leadership Scale
The Ethical Leadership Scale (ELS) developed by Brown, Trevino and Harrison is a leading tool for measuring ethical leadership. The ELS was developed based on a social learning perspective; that ethical leadership is the modelling of ethical behavior and promotion of such behavior to followers through personal interactions, reinforcement and decision-making. To develop the ELS, the researchers originally designed a 48-item survey using a deductive approach based on the social learning perspective. However, this was then refined to the final 10-item ELS. The items in the ELS are listed below:


 * 1) Conducts his/her personal life in an ethical manner
 * 2) Defines success not just by results but also the way that they are obtained
 * 3) Listens to what employees have to say
 * 4) Disciplines employees who violate ethical standards
 * 5) Makes fair and balanced decisions
 * 6) Can be trusted
 * 7) Discusses business ethics or values with employees
 * 8) Sets an example of how to do things the right way in terms of ethics
 * 9) Has the best interests of employees in mind
 * 10) When making decisions, asks “what is the right thing to do?”

Ethical leadership dimensions considered for ELS items include communicating, caring, role modelling, fair treatment of employees, honesty and ability to listen to employees and considered of importance to employees. A leader that scores highly on the ELS would be considered to display ethical leadership based on these dimensions.

Leadership Virtue Questionnaire
The Leadership Virtue Questionnaire (LVQ) adopts a virtue-based approach to measuring ethical leadership. The basis for this approach is the four cardinal virtues of prudence, fortitude, temperance and justice as described in the ancient texts of Aristotle and St. Thomas Aquinas. The LVQ consists of 19 items, separated into each of the four cardinal virtues:


 * Prudence refers to leaders' willingness to consult others and consider consequences in their decision-making process
 * Fortitude refers to leaders' level of courage in making morally correct decisions, standing up for ethical beliefs in adverse situations and not practicing favoritism in ethical dilemmas
 * Temperance measures their desire for power and recognition of achievements
 * Justice rates leaders on whether they treat others with respect and fairness, and willingness to give credit to others

Leaders who are rated as ethical on the LVQ were found to generate in their followers, greater moral identity, psychological empowerment and organizational identification.

Ethical Leadership at Work Questionnaire
The Ethical Leadership at Work Questionnaire (ELW) is a 38-item questionnaire that considers seven dimensions of ethical leader behavior: Unlike most other measures, the ELW takes a multidimensional approach to measuring ethical leadership and was developed based on behaviors that were perceived as ethical by both followers and supervisors.
 * Fairness refers to the leader treating others in a fair manner
 * Power sharing refers to the inclusion of followers in decision making and listening to them
 * Role clarification where the leader clarifies responsibilities, expectations and performance goals
 * People orientation refers to the care, respect and support for followers
 * Integrity measures whether the leader is shows consistence of words and acts, and keep promises
 * Ethical guidance rates whether the leader communicates about ethics, explains ethical rules, promotes and rewards ethical conduct
 * Concern for sustainability measures whether the leader cares about the environment and stimulate recycling

Ethical Leadership Questionnaire
The Ethical Leadership Questionnaire (ELQ) was developed on a definition of ethical leadership as consisting of three interrelated dimensions of ethics: ethic of critique, ethic of justice and ethic of care, and by measuring the presence of these three ethics in an individual. The ethic of critique was also found to relate significantly to ethical sensitivity, which itself is the ability of an individual to recognize the moral aspects of a situation. The ELQ is a 23-item questionnaire encompassing these three ethical constructs. The ELQ is a tool for leaders to reflect on their general conduct in the workplace and their style of resolving ethical dilemmas. The questions measure whether a leader is fair, willing to challenge injustices, possesses the ability to develop good relationships and working environment, the basis by which they make ethical decisions and their listening ability.

James E. Burke
James E. Burke was CEO of Johnson & Johnson (J&J) during a two safety scandals surrounding Extra Strength Tylenol in the 1980s. Even prior to the scandals, Burke displayed signs of his ethical leadership by ensuring the continued relevance and reaffirming the corporate values stated in the Credo of J&J when he took over as CEO. During the scandals, Burke emphasized the importance of preserving consumer trust in the company, which could only happen through moral and ethical behavior. Burke received recognition for his handling of the crises and focus on ethical business values to overcome the challenges.

Adrian Cadbury
Adrian Cadbury is a former Chairman of Cadbury Schweppes. He was heavily focused on building a culture of fairness and openness within Cadbury Schweppes and in its external deadlings. He also encouraged other company executives to spend more time and attention to developing personal relationships within the company.

Howard Schultz
Howard Schultz is best known as CEO of Starbucks. In 2011, Schultz sent an email criticizing the state of politics in the USA and subsequently led a boycott of political contributions. Following that, Schultz conceived the idea of spurring job creation by making capital available to small businesses, where most new job creation took place. Starbucks would serve as an intermediary for small-business lending, based on the company's lending programs in some of its foreign markets. Through Starbucks, customers would be able to donate to financial institutions that loan to small businesses, which therefore will ease small businesses to have access towards credit.

Further readings

 * Reilly, E. C. (2006). The future entering: Reflections on and challenges to ethical leadership. Educational Leadership and Administration, 18, 163-173
 * McQueeny, E.(2006). Making Ethics Come Alive. Business Communication Quarterly, 69(2), 158-170
 * Wee, H. Corporate Ethics: Right makes might. Business Week Online
 * Stansbury, J.(2009). Reasoned Moral Agreement: Applying discourse ethics within organizations. Business Ethics Quarterly. 19(1), 33-56
 * Seidman, D. (2010), Bloomberg Business Week. Ethical Leadership: An Operating Manual. 10, 1-2

Category:Leadership