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The Relationship of Leadership Style and CEO Values to Ethical Practices in

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Article  in  Journal of Business Ethics · January 2003

DOI: 10.1023/A:1023085713600

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The Relationship of Leadership
Style and CEO Values to
Ethical Practices in Organizations
ABSTRACT. This study analyzes the relationship
between CEO values, leadership style and ethical
practices in organizations. The ethical practices of
formal statement of ethics and diversity training are
included in the study, as well as four categories of
values based on Rokeach’s (1973) typology including
personal, social, competency-based and morality-
based. Results indicate that all four types of values are
positively and significantly related to transformational
leadership, with transactional leadership positively
related to morality-based and personal values, and
laissez-faire leadership negatively related to com-
petency-based values. When size of company and
values are controlled, transformational leadership
explains a significant amount of change in formal
statement of ethics, and transactional leadership
explains a significant amount of change in diversity
training.
KEY WORDS: ethical practices, high-technology
firms, transformational leadership, values
Jacqueline N. Hood, Ph.D. is a Professor and Director,
Transportation Management Research Center (T-
MARC) at the Anderson Schools of Management,
University of New Mexico. She received her Ph.D. from
the University of Colorado at Boulder. Professor Hood
has written numerous articles for management, entre-
preneurship, and psychology journals. Her research
interests include leadership, diversity in organizations,
organizational culture, and business ethics. Professor
Hood consults for profit and nonprofit organizations on
team building, organizational development, conflict
management, and enhancing communication effectiveness.
Professor Hood previously held positions as Associate
Dean at the Anderson Schools of Management and as
Chair of the Department of Organizational Studies.
Journal of Business Ethics 43: 263–273, 2003.
© 2003 Kluwer Academic Publishers. Printed in the Netherlands.
Jacqueline N. Hood
Introduction
Researchers and managers have increasingly been
interested in the evolution and consequences of
corporate ethical performance. This interest is
due to multiple factors, including the growing
lack of confidence in ethical corporate practices
and the current emphasis on quality of life
(Carlson and Perrewe, 1995). Increasing legal
attention to ethical practices regarding the
environment, management of diversity, employ-
ment, and product development and distribution
has drawn further attention to the ethical orien-
tation of organizations. This study adds to the
literature on developing and maintaining an
ethical orientation in organizations by examining
the underlying values and leadership style of the
top manager and their effects on corporate
ethical practices.
An individual’s values are the basic principles
and tenets that guide beliefs, attitudes, and
behavior (Gordon, 1996). A value is believed to
be the most abstract type of social cognition,
whose function is to guide the individual’s
adaptation to the surrounding environment
(Kahle and Goff Timmer, 1983). Thus, values are
the point at which the individual intersects with
society (Grunert and Scherhorn, 1990). Rokeach
(1973) classified values into either terminal values
(desirable end-states of existence), or instru-
mental values (modes of behavior or means of
achieving the desirable end-states). Terminal
values can be further divided into social or
personal values, and instrumental values can be
divided into morality-based and competency-
based values. Social values include such items
as freedom, equality, and world at peace and
morality-based values include such items as
264 Jacqueline N. Hood
politeness, helpfulness, affection, and forgiveness.
These types of values imply an interaction with
others or a social basis. Personal values include
such factors as self-respect, broadmindedness, and
courage and competency-based values include such
items as logic and competence. These two types
of values are more centered on the individual and
do not necessarily imply a broader social or
societal perspective.
Previous research has found that values vary
according to occupational category, with execu-
tives valuing self-respect, family security,
freedom, a sense of accomplishment, and happi-
ness most highly (Frederick and Weber, 1990).
The relationship between leadership and values
has long been studied in the management liter-
ature (e.g., Barnard, 1938; Selznick, 1957).
Selznik (1957) argued that the real task of
leadership is to create a social structure of shared
values. After this structure has been established,
the organization attempts to maintain the under-
lying values as the environmental context
changes. More recent literature on organizational
culture has observed the guiding and directing
purposes of values in the functioning of organi-
zations (Enz, 1988; Sathe, 1983; Schein, 1985).
Schein (1985) notes that top managers attempt
to communicate their organizational values to
employees to shape behavior and lead the firm.
The ethical orientation of the manager, in terms
of traits and behaviors, is a key factor in pro-
moting ethical behavior in an organization
(Carlson and Perrewe, 1995; Posner and Schmidt,
1992) and to creating an ethical organizational
culture (Trevino, 1986, 1990). An ethically
oriented organization is one that has the capacity
to reflect on values in the decision making
process and establish how managers can use these
observations in managing the organization
(Carroll, 1987). The CEO is often seen as the
individual primarily responsible for creation of
the ethical orientation of the organization
(Hanson and Valasquez, 1988). A recent model
by Agle (1996) emphasizes the relationship
between leadership and organizational ethics with
CEO attributes as antecedents to CEO behavior,
organizational strategy and structure, and orga-
nizational policies and procedures.
The leadership style of the CEO thus serves
to communicate and exhibit the values that lead
to an ethical orientation in the organization.
Burns (1978) proposed that the leadership process
occurs as either transactional or transformational.
Transactional leadership is based on bureaucratic
authority and legitimate power in the organi-
zation. Transactional leaders emphasize task
assignments, work standards, and employee com-
pliance. These leaders rely on rewards and
punishment to influence employee performance.
Transformational leadership, on the other hand,
is a process that motivates followers by appealing
to higher ideals and moral values. Transforma-
tional leaders are able to define and articulate a
vision for the organization and then inspire fol-
lowers to carry it out.
Transformational leadership has been related
to the long-standing literature on virtue and
moral character, such as the Socratic and
Confucian typologies (Bass, 1999). This style is
seen as originating in the personal values and
beliefs of leaders, not in an exchange relationship
between leaders and followers (Bass, 1985; Burns,
1978). Transformational leaders are believed to
operate out of deeply held personal value systems
that include values such as justice and integrity
(Bass, 1999; Kuhnert and Lewis, 1987). Burns
notes that these values cannot be negotiated or
exchanged between individuals and that trans-
formational leadership is moral if it deals with
the true needs of the followers as defined by the
followers (Burns, 1978). The leader is guided by
values such as respect for human dignity and
equality of human rights. The moral leader
supports and enacts comprehensive values that
“express followers’ more fundamental and
enduring needs” (p. 42).
In addition, transformational leaders are
believed to gain influence by exhibiting impor-
tant personal characteristics, including self-
confidence, dominance, and a strong conviction
in the moral righteousness of one’s beliefs (Bass,
1985; Bass and Avolio, 1986). Hitt (1990) con-
ceptualized leadership as conduct fundamentally
anchored in ethical attitudes and choices about
ways to use one’s power and influence over
others. Recent findings (Girodo, 1998) indicate
that transformational leaders following a devel-
opmental view concerning interpersonal ethics.
 The Relationship of Leadership Style and CEO Values
Thus, although values are the foundation upon
which the transformational leader operates, trans-
formational leader behaviors go beyond a values
basis. The transformational leader is said to
exhibit inspirational leadership that includes
individual consideration, intellectual stimulation,
and charisma (Bass, 1985; Bass and Avolio, 1989;
Bass and Avolio, 1990). Thus, the transforma-
tional leader will take actions that enhance the
well being of the organization and its members,
regardless of his or her foundational values.
A third type of leadership process is extremely
passive and has been termed laissez-faire
(Yammarino and Bass, 1990; Yammarino et al.,
1993). A laissez-faire leader is inactive, not proac-
tive or reactive and tends to avoid decision
making and other supervisory responsibilities
(Den Hartog et al., 1997).
The ethical orientation of the organization is
revealed through formal and explicit activities of
business life on a daily basis (Carlson and
Perrewe, 1995). Organizational policies and pro-
cedures outline the basis of these activities. A
formal statement of the organization’s ethical
stance is a means through which the values and
ethical orientation of the organization are trans-
mitted to employees. Ethical practice in an
organization also includes policies toward and
treatment of employees. Training in managing
diversity is one means to emphasize an ethical
stance of valuing individual differences in the
organization (Cox and Beale, 1997). These two
ethical practices are examined as outcomes of the
ethical orientation of the organization. The
results analyze the relationship between CEO
values, leadership style, and ethical practices in
organizations. Given the discussion above, the
following hypotheses are investigated:
Hypothesis 1a: Social and morality-based values
will be significantly related to ethical prac-
tices.
Hypothesis 1b: Personal and competency-based
values will be unrelated to ethical practices.
Hypothesis 2: Transformational leaders will
exhibit higher levels of all four types of
values than transactional or laissez-faire
leaders.
265
Hypothesis 3: Holding values constant, trans-
formational leaders will exhibit significantly
higher levels of ethical practices than trans-
actional or laissez-faire leaders.
Method
Sample
A survey instrument was sent to the CEO’s of a
sample of 2000 small to medium size high-
technology firms throughout the United States.
The sample was taken from the Corporate
Technology Information Services Directory
(CorpTech) (1996), which lists companies
according to SIC code and CorpTech major
codes, e.g., automation, biotechnology, defense,
energy and medical. The sample of 2000 firms
was generated through computerized random
sample selection of the over 49,000 organizations
on the CorpTech database. A total of 382 useable
surveys were returned for an effective response
rate of 19.6%. The resulting response rate is
consistent with other studies using CEOs as
respondents (Hood and Young, 1993; Simmons
and Aupperle, 1990).
The survey was mailed to the sample firms
twice to ensure a higher response rate. The
second copy of the survey was mailed four weeks
after the first distribution; with a reminder card
sent two weeks after the first mailing and another
reminder card mailed two weeks after the second
mailing, as recommended by Mangione (1995).
In addition, nonrespondents were called after the
first reminder card to personally request their
participation in the project.
A broad cross-section of industries is repre-
sented in the sample from computers and
subassemblies to software and biotechnology.
Table I presents a profile of the responding firms.
As this Table shows, sixty-two percent of the
sample employs fewer than 24 employees with
more than 92.5% employing less than 500
employees. Almost 36% of the firms have a sales
volume of less than $1 million with 34.9% having
sales of $1 million to $5 million and about 19.6%
having sales between $5 million and $50 million.
Thus, 90.4% of the firms in the study have less
266 Jacqueline N. Hood

TABLE I responding firms did not differ significantly from

Profile of responding firms the nonresponding firms. Comparisons of
responding firms with the nonresponding firms
Variable Number Percent on number employees (t = 0.21, df = 1954, n.s.),
of firms sales revenue (t = 0.90, df = 1933, n.s.), annual
percentage growth in number of employees (t =
Sales volume
Under $1M 137 035.9
– 0.74, df = 1755, n.s.), and age (t = 0.40, df =
$1M to $5M 133 034.9 1998, n.s.) revealed no significant differences.
$5M to $50M 075 019.6 These statistics indicate that the sample is
$50M to $500M 010 002.6 reasonably representative of the population of
Over $500M 011 002.8 high-technology firms in the CorpTech database.
Not Given 016 004.2
Total 382 100.0
Number of employees Measures
Up to 24 237 062.1
25 to 49 045 011.8 Values. Fourteen values derived from a list of
50 to 499 071 018.6 values developed by Rokeach (1973) were
500 to 4999 014 003.6 included in this study. These values consist of
Over 5000 005 001.3 terminal values or desirable end-states of exis-
Not Given 010 002.6 tence, and instrumental values, which are modes
Total 382 100.0 of behavior or means of achieving the terminal
Nature of products or services values. The CEO respondents were asked to rate
Automation 013 003.4 the importance of the values on Likert scale of
Biotechnology 017 004.5 1 to 5 with 1 = not at all important and 5 = very
Chemicals 006 001.6 important. The values variables were skewed
Computers 053 013.9 towards “very important” in this study. In order
Defense 005 001.3 to maintain the assumption of normality neces-
Energy 007 001.8 sary for regression analyses, the square root of
Environment 014 003.7 each value was used in the analysis to eliminate
Manufacturing 022 005.8
the skewness of the variables (Tabachnik and
Advanced materials 011 002.9
Medical 022 005.8
Fidell, 1983). Factor analysis of the fourteen
Pharmaceuticals 005 001.3 values resulted in four factors with eigenvalues
Photonics 018 004.7 greater than 1.00 and explaining 57% of the
Software 101 026.4 variance. The factors included: (1) morality-
Subassemblies and based values (forgiveness, politeness, helpfulness,
components 032 008.4 affection, and responsibility); (2) social values
Test and measurement 023 006.0 (freedom, equality, and world at peace); (3)
Telecommunications 017 004.5 personal values (honesty, self-respect, courage,
Transportation 008 002.1 and broadmindedness); and competency-based
Not Given 008 002.1 values (logic and competence). The alpha relia-
Total 382 100.0 bilities for these scales were 0.76, 0.67, 0.57, and
0.44, respectively. The reliability on the last
measure is low, but given the face validity of the
than $50 million in sales. Only 2.8% of the firms measure, it was felt to be satisfactory for the
have sales of over $500 million and only 1.3% purposes of this study.
had more than 5000 employees. Most (82.5%) are
privately owned firms with an average historical Leadership style. The Multifactor Leadership
growth rate in employees of 37%. Questionnaire (Bass and Avolio, 1995) was used
Tests for nonresponse bias revealed that the to measure leadership style. The CEO respon-
 The Relationship of Leadership Style and CEO Values
dents were asked to judge how frequently a list
of forty-five statements fit their behavior (0 =
not at all and 4 = frequently, if not always). Four
dimensions to transformational leadership were
measured. The first is charisma. A charismatic
leader provides a vision, instills pride in the
follower, increases optimism, and gains respect
and trust through his/her actions (Bass, 1985;
Bass and Avolio, 1989). The second dimension
of transformational leadership is inspiration or
the capacity of the leader to act as a model for
subordinates. The inspirational leader uses
symbols and images to focus efforts (Bass, 1985).
A third dimension is individual consideration. The
considerate leader is part coach and mentor,
provides continuous feedback, and links the
individual’s current needs to the organization’s
mission (Bass, 1985; Bass and Avolio, 1990). The
fourth dimension of transformational leadership
is intellectual stimulation. The intellectually
stimulating leader provides followers with a flow
of challenging new ideas that stimulate rethinking
of old ways of doing things (Bass, 1985). This
dimension of transformational leadership arouses
recognition of their beliefs and values in sub-
ordinates. The alpha reliability for the transfor-
mational leadership scale was 0.85.
Three dimensions help define transactional
leadership. The first dimension is contingent
reward. The leader using this dimension rewards
followers for attaining designated performance
levels (Bass, 1985). The second and third
dimensions of transactional leadership are two
types of management-by-exception. Management-
by-exception occurs when the leader intervenes
to make a correction when something goes
wrong (Bass, 1985). The two types of manage-
ment-by-exception are active and passive. The
active form characterizes a leader who actively
seeks variances from standard procedures and
takes action when deviations occur. The passive
form characterizes the leader who takes action
only after the deviations occur. The difference
is that in the active form the leader looks for
deviations whereas in the passive form, the leader
waits for problems to emerge (Hater and Bass,
1988). The alpha reliability for the transactional
leadership scale was 0.60.
Transactional and transformational leadership
267
are both active processes of leadership. The third
type of leadership process is laissez-faire, which
is extremely passive and may more closely be
related to a lack of leadership. Laissez-faire
leadership was also measured in the study
(Yammarino and Bass, 1990; Yammarino et al.,
1993). The alpha reliability for the laissez-faire
scale was 0.56.
Ethical orientation. Ethical orientation in the
organization is measured in this study by two
variables, including having a formal ethics policy
and company training programs on valuing
diversity. The survey asked the CEO’s to rate
their level of agreement with three statements on
a scale of 1 = strongly disagree and 5 = strongly
agree. Two items measured formal statement of
ethical stance including “this company has a
formal statement of its ethical stance” and “the
mission for this company includes a statement of
ethical practices and behavior.” This measure had
an alpha reliability of 0.76. Diversity training
programs was rated with the statement “this
company has training programs for employees on
how to work with diverse individuals.”
Finally, size of the organization was controlled
since it may influence the formality of policies
and procedures, including ethical practices. As in
previous studies (e.g., Dalton et al., 1999; Schuler
et al., 2002; Shen and Cannella, 2002) sales was
used in the analysis as a proxy for size.
Results
Pearson correlations of the study variables are
shown in Table II. As expected, the ethical
practices of formal statement of ethical stance and
diversity training are significantly related (r =
0.43, p < 0.01). Transformational leadership is
significantly related to transactional leadership
(r = 0.32, p < 0.01) and significantly negatively
related to laissez-faire leadership (r = –0.22, p <
0.01). Transactional leadership is significantly and
positively related to laissez-faire leadership (r =
0.25, p < 0.01), as has been found in other
studies (e.g., Singer and Singer, 1990). Finally, all
four types of values were significantly and posi-
tively related to each other, indicating that
268 Jacqueline N. Hood

TABLE II
Pearson correlations for study variables

Variables 1. 2. 3. 4. 5. 6. 7. 8. 9.

1. Ethical statements 1.00

2. Diversity training **0.43** 1.00
3. Transformational
leadership **0.22** **0.12** 1.00
4. Transactional
leadership **0.18** **0.17** **0.32** 1.00
5. Laissez-faire leadership 0.02 *0.11* *–0.22** **0.25** 1.00
6. Morality-based values **0.14** **0.17** **0.27** *0.11* 0.03 1.00
7. Social values **0.17** **0.14** **0.17** 0.05 0.01 **0.52** 1.00
8. Personal values *0.13* 0.09 **0.37** **0.17** 0.09 **0.55** **0.36** 1.00
9. Competency-based
values 0.04 0.07 **0.23** 0.07 *–0.14** **0.34** **0.21** **0.43** 1.00

* p < 0.05; ** p < 0.01.

respondents rating a value as very important
tended to rate all values as very important.
Hypothesis 1a states that morality-based and
social values will be significantly related to ethical
practices. This Hypothesis is supported with
morality-based and social values being positively
and significantly related to formal ethics state-
ments (r = 0.14, p < 0.01 and r = 0.17, p < 0.01,
respectively) and to diversity training (r = 0.17,
p < 0.01 and r = 0.14, p < 0.01, respectively).
Hypothesis 1b states that personal and compe-
tency-based values will be unrelated to ethical
practices. This Hypothesis was partially supported
with no significant relationship between personal
and competency-based values and diversity
training, and no significant relationship between
competency-based values and formal statement
of ethics. However, contrary to the hypothesis,
there was a significant relationship between
personal values and formal statement of ethics
(r = 0.13, p < 0.05).
Transformational leadership is also significantly
related to all four types of values, including
morality-based, social, personal, and compe-
tency-based values (r = 0.14, p < 0.01; r = 0.17,
p < 0.01; r = 0.37, p < 0.01; and r = 0.23, p <
0.01, respectively). Transactional leadership is
significantly related to morality-based values and
personal values (r = 0.11, p < 0.05 and r = 0.17,
p < 0.01), with laissez-faire leadership signifi-
cantly and negatively related to competency-
based values (r = –0.14, p < 0.01).
Hypothesis 2 proposed that transformational
leaders will exhibit higher levels of values
than transactional and laissez-faire leaders. This
hypothesis was investigated by regression analysis
of the three leadership styles on each of the four
categories of values (see Table III). All four
regression equations were significant (p < 0.01).
Findings indicated that when the three styles
of leadership were entered into the regression
equation, transformational leadership was signif-
icantly and positively related to all four categories
of values (p < 0.01). Furthermore, laissez-faire
leadership had a significant but negative rela-
tionship to competency-based values (p < 0.05).
Hypothesis 3 proposed that holding values
constant, transformational leaders would exhibit
significantly higher levels of ethical practices than
either transactional or laissez-faire leaders. One
factor that may influence this relationship is size
of the company. Sales range was used as a proxy
for size of the company. Hierarchical regression
analysis of values and leadership styles on ethical
practices appears in Table IV.
Sales range was entered into the equation first
as a control variable and was significantly related
to both formal statement of ethics and diversity
training (p < 0.01). In the next step, the values
categories were entered into the equation in a
 The Relationship of Leadership Style and CEO Values 269

TABLE III
Regression analysis of leadership styles on values

Variables Morality-based Social values Personal values Competency-

values based values
b b b b

Transformational leadership **0.29** **0.18** **0.35** **0.19**

Transactional leadership –0.01* –0.01* 0.06 0.03
Laissez-faire leadership 0.08 0.05 0.03 –0.14*
R2 0.08 0.03 0.14 0.07
F **9.86** *3.49* *18.94** **8.58**

* p < 0.05; ** p < 0.01.

TABLE IV
Hierarchical regression analysis of values and leadership styles on ethical practices

Steps and variables b R2 ∆R2 F N

Statement of ethics
1. Sales range *0.24** 0.06 18.89
2. Social values *0.18** 0.09 0.03 15.61
3. Transformational leadership *0.18** 0.12 0.03 14.47 316
Diversity training
1. Sales range *0.19** 0.04 12.20
2. Social values *0.15** 0.06 0.02 9.73
3. Transactional leadership 0.13* 0.08 0.02 8.57 316

* p < 0.05; ** p < 0.01.

stepwise fashion because of the relatively high Discussion

correlations among these variables. As shown,
social values were significantly related to both
formal statement of ethics and diversity training
(p < 0.01). Finally, leadership styles were entered
into the equation in a stepwise fashion.
Hypothesis 3 was partially supported with trans-
formational leadership positively and significantly
related to formal statement of ethics (p < 0.01).
However, transactional leadership entered the
equation when diversity training was the depen-
dent variable (p < 0.05). Thus, when control-
ling for types of values, transformational leaders
exhibited a greater tendency to have formal
ethical statements and transactional leaders were
more likely to use diversity training.
This study analyzed the relationship between
CEO values, leadership style and ethical practices
in organizations. Current business scandals high-
light the need to understand how the values of
the CEO impact ethical policies and behaviors
in the workplace (Matzek, 2002; Schmitt, 2002;
Tolson, 2002). The findings reveal that the ethical
orientation of the CEO is a critical issue to
consider in understanding ethical practices in
organizations.
The results of this study showed that social
and morality-based values are directly related to
ethical practices of formal statement of ethics and
diversity training. Social values include the values
of freedom, equality, and world at peace and
270 Jacqueline N. Hood
morality-based values include the values of
forgiveness, helpfulness, politeness and affection.
These two groups of values take a broad
perspective, in which social values indicate a
concern for the welfare of others, and morality-
based values indicate the importance of and
concern about the interaction the individual has
with others. Personal values include honesty,
self-respect, courage, and broadmindedness.
Competency-based values include logic and
competence. Both of these categories of values
are focused on the individual rather than on an
interaction with others. Morality-based and social
values, more so than personal or competency-
based values, tend to link the individual with
society. Thus, leaders exhibiting these values
are likely to foster ethical practices in the orga-
nization.
Contrary to the hypothesis, a significant rela-
tionship between personal values and formal
statement of ethics was also found. A formal
statement of ethics implies that organizational
members are expected to act with a degree of
integrity in their daily business lives. Since
personal values include honesty and self-respect,
integrity or honor and virtue are underlying
currents in this category of value. The CEO
valuing honesty and integrity might believe that
having a formal statement of ethics clearly
illustrates these values. In fact, it has been noted
that the basis for effective leadership, and, more
particularly, ethically based leadership, are the
traits of honesty and integrity (Carlson and
Perrewe, 1995; Kirkpatrick and Locke, 1991).
Future research could begin to investigate the
individual effects of the four personal values of
honesty, self-respect, courage and broad-mind-
edness to further clarify this result.
CEOs who perceive themselves as transfor-
mational leaders also rated all four categories
of values highly, as predicted. This type of
leadership style suggests a more character or
value-based style of leadership (Bass, 1985).
Transformational leaders inspire others to follow
them through the use of symbols or images.
These symbols and images provide ideals that
followers believe in and aspire to and are con-
nected to deeply held values and beliefs of the
followers (Burns, 1978). The transformational
leader provides these aspired to ideals by fol-
lowing their own internal beliefs about what is
good and just for themselves and for others.
Not surprisingly, laissez-faire leadership was
also related to competency-based values, but in
a negative direction. Since this leadership style
implies a basic lack of interest or behavior
towards leadership, these leaders would not tend
to value competence. In fact, these individuals
are most likely indicating their own perceived
lack of competence through a dearth of leader-
ship behavior.
When size of the company and CEO values
were held constant, transformational leadership
was significantly related to formal statement of
ethics. Thus, values of the CEO do not solely
account for the ethical practices in organizations.
Transformational leadership style itself tends to
foster ethical practices in organizations (Carlson
and Perrewe, 1995). The skills of the leader in
defining the values-based vision, communicating
it to followers, and using power effectively to
carry out the ideal appears to also play a critical
role in implementation of ethical practices. Other
factors unrelated to values may also influence
the use of transformational leadership by the
CEOs. For example, since leaders who exhibit
transformational leadership behavior are more
likely to be rated as effective than transactional
or laissez-faire leaders (Bass, 1985), individuals
may exhibit transformational leadership behav-
iors by modeling other successful leaders without
having an underlying values basis for using
this style. Future research might explore this
modeling effect by investigating whether
managers do model other successful managers’
behaviors, and, thus, if the transformational
leadership style is spread through the organiza-
tion through modeling. The impact of other
personality and character trait variables on ethical
practices in organizations beyond leadership style
may also be explored in future research. Finally,
future researchers might investigate the relation-
ship between leadership style and ethical prac-
tices in organizations taking into account
whether the CEO is a founder of the organiza-
tion. Investigators could study the influence of
the founder’s values and leadership style on
ethical practices in the organization, and how
 The Relationship of Leadership Style and CEO Values
this might be carried through to succeeding
generations.
Transactional leadership was significantly
related to diversity training when controlling for
size of the organization and values. Since diver-
sity training is often related to legal prescription,
these leaders may simply be following what is
believed to be socially correct or mandated.
Thus, these leaders would add diversity training
for employees in order to ensure that they
themselves would avoid punishment for non-
compliance with society’s expectations. The
dynamics of the type of ethical practice used in
an organization and the preferred leadership style
could be explored in future research by analyzing
an array of ethical practices in relation to lead-
ership style. The transactional leader appears to
choose certain practices that are ethically based,
but the underlying motivation for doing so might
be different than that of the transformational
leader. Future research might explicitly explore
the leader’s motivation behind the ethical
practice.
From these results it appears that transactional
leaders may follow ethical practices that are legal
mandates, whereas transformational leaders
would go beyond simple legal prescription and
implement more voluntary socially responsible
and ethical practices within the organization. The
types of ethical practice preferred by transactional
leaders could be contrasted with the preferred
ethical practices of transformational leaders in
future studies.
Limitations of the study include the fact that
CEOs were asked their perceptions on values and
leadership style, which may lead to a social desir-
ability bias. Concerns with socially desirable
responding might be particularly warranted in the
case of values, which are essentially the goals
individuals consider socially desirable (Schwartz
et al., 1997). Yet, ethical practices are actual
behaviors that people exhibit, either the practice
exists in the organization or it does not. Thus,
the concern about socially desirable responding
is somewhat mitigated in this study. Future
studies might consider asking followers for their
assessment of the values and leadership style of
the CEO to help allay this potential bias. In
addition, common method variance is a poten-
271
tial concern with survey methodology. Interviews
or observation would provide additional means
of assessing both leadership style and values.
The study addressed an underdeveloped area
in leadership and values studies by analyzing the
relation between these factors and actual ethical
practices in organizations. Clear links between
values and ethical practices and values and
leadership style were found. The relationship
between leadership style and ethical practices was
more complex, and warrants additional research.
The ethical practices followed in organizations
today is a critical issue for managers to consider
in today’s business environment. Organizations
will need to consider both the values and the
leadership styles of the top management team in
order to ensure that ethical practices are observed
within the organization.
Acknowledgements
The author wishes to thank Yolanda Sarason and
Catherine Banbury for their assistance in the
early stages of the research. This research was
partially supported by research grants from the
University of New Mexico Research Allocations
Committee, and the Department of
Organizational Studies, Anderson Schools of
Management, University of New Mexico. An
earlier version of this paper was presented at the
International Association for Business and
Society.
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Anderson Schools of Management,
University of New Mexico,
Albuquerque, NM 87131,
U.S.A.
E-mail: jnhood@unm.edu