RISEBA

4th Year European Business Studies

Ethical Leadership
Leadership & Organizational Behavior
Group 11
 “In the corporate arena, current research is
demonstrating that it is possible for a company to
practice strong ethics and sustainable development
while still remaining financially profitable. In fact, if all
things are equal, 85% of the general public will prefer to
purchase or do business with a company that practices
strong business ethics. As the global recession
continues to escalate, more people will be interested in
investing and spending their money where it will
accomplish the most good, for them and for society.”

(Lawson, 2008)

Group 11: Ethical Leadership 14.12.2010 2

Table of Content
 Definition of Ethics
 Ethical leadership
 Business Ethics
 Corporate Social Responsibility
 Practical Examples

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Values + Morals = Ethics

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Definition of Ethics
 Values:
Core beliefs or desires that guide and motivate
attitudes and actions

 Morals:
Customs and personal beliefs of individuals about
what is right and wrong, i.e. what people actually do

 Ethics:
Standards of conduct that indicate how one should
behave based on principles about right and wrong, i.e.
what people ought to do

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Definition of Ethics (2)
There are three possible approaches to ethics:

 SocialEthics – based on Greeks‘ idea of rules of civilized living,

but which is different from one group/society to another
 Company A may have different ethics than Company B by
virtue of different set of values

 TranscendentalEthics – rely on absolute concept of right and

wrong and a sense of justice, which is applied equally
 Organizations are moving towards this concept of ethics

 Tactical
Ethics – based on obeying rules or laws in order to avoid
penalties
 Self-interest rather than a sense of right or wrong

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Where does being unethical
end and ethical begin?
What is ethical behavior?

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Ethical Behavior
 To a very large extent, values decide what is
and is not ethical
 But: Different people hold different values

which lead to different perception about

ethical behavior
 Unethical behaviors include all actions that

result in unfairness to others, whether those

behaviors are legal or not

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“. . .Ethics is central to
leadership because of the
nature of the process of
influence, the need to engage
followers to accomplish mutual
goals, and the impact leaders
have on establishing the
organisation’s values“

(Northouse, 2001)

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Ethical Leadership
 Ethical Leadership is leadership that engages in
ethical conduct that is based on right and
wrong behaviour towards members of the
society (Ciulla, 1998)
 Ethical leadership encompasses three realities:
1. Ethical leadership is not a universal norm,
2. Trust is both the foundation of and the result of
ethical leadership,
3. Ethical leadership that is composed of a
combination of vision and values-based
management is the best approach

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Ethical Leadership (2)
 Ethical leadership requires ethical leaders
 There is a close link between

transformational leadership and morality:

„Transformational leaders are moral leaders“
(Burns, 1978)
◦ Moral elevation of individual followers
◦ Collective efforts to accomplish change
◦ Consideration about not only what is good for
themselves, but also what benefits their
organization, community and nation

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4P Characterics of Ethical Leaders
4 cornerstones for sustainable success
in organizations:

 Purpose – reconcile the

organizational purpose such as profit
 People - attentions to people’s needs
and wants
 Planet – Proper consideration for the
world we live in (environment, natural
resources, heritage, fair trade, other
cultures etc)
 Probity – encompassing integrity,
compassion, honesty; enabling the
other potentially conflicting aims to
be harmonized

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Dimensions of Ethical Leadership
Barnard (1938)
 Traits  Role Model
◦ Honesty, Integrity, Trust, ◦ Authentic, ethical actions,
Respectful, Dignity Community building

 Behavior  Rewards/Discipline
◦ Openness, Morality, ◦ Holds people accountable
Concern for People for ethical conduct

 Decision-making
 Communication
◦ Value-based, Fair ◦ Conveys ethical/moral
messages
Moral Person Moral Manager

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Dimensions of Ethical Leadership

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Business Ethics
 Concern is increasing today for ethics in
organizational operations
 Structured examination of how people and
institutions should behave in the world of
commerce
 Unethical behavior of organizations towards:
◦ Investors – cheating directly, unethical actions to
achieve profits
◦ Employees - discriminatory recruitment/promotion,
unfair pay schedules, employee safety
◦ Customers – advertising, product safety, labeling

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Code of Ethics
 Most companies that wish to improve their ethical
behavior develop codes of ethics for their
organizations
 The code of ethics informs about:  
◦ The upper-level management’ commitment to ethical
behavior
◦ Ethical behavior is expected from every employee

 The code defines the behavior business executives

consider ethical/unethical, and it provides a set of
written guidelines for each employee to follow

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Code of Ethics (2)
 Implementing a code of ethics also involves
communicating ways in which the code
should not be violated; however, the major
focus of it should be positive

 Management’s actions should demonstrate

the code rather than just provide lip-service

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Racism
Race discrimination occurs when a person is treated less
favourably on the grounds of race, colour, nationality, ethnic or
national origin.

It is unlawful to discriminate in:

 recruitment
 pay (including bonuses and shift premiums)
 other terms and conditions (e.g. holidays)
 access to opportunities or benefits (e.g. promotion, training,

bonuses)
 dismissal
 or by disadvantaging a worker in any other way on racial

grounds

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Negative Impact of Racism
 loss of confidence  disharmony in the
 stress workplace
 humiliation
 unhappy workers
 insomnia
 reduced output
 reduced profits
 low morale  high sickness levels
 anxiety
 physical sickness
 bad work performance

Racism at work can make Impact of racism on the

employees suffer from: organisation:
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Nelson Mandela
 the most significant black
leader who stood against racism 
and apartheid in South Africa
 dreamt of a democratic and free
society in which people live
together in harmony with equal
opportunities

An anti-racist organisation culture:

 increases profits

 enhances enterprises ability to

carry communal responsibility for

the society

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Corporate Social Responsibility
Definition of Corporate Social Responsibility

 Business for Social Responsibility (America’s largest organization devoted to

CSR)
“Business decision making linked to ethical values, compliance with legal
requirements, and respect for people, communities, and the environment
around the world.”  

 Prince of Wales Business Leaders Forum

“Open and transparent business practices that are based on ethical values and
respect for employees, communities, and the environment. It is designed to
deliver sustainable value to society at large, as well as to shareholders.”

 European Commission
“A concept whereby companies decide voluntarily to contribute to a better
society and a cleaner environment.”

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Why is CSR so important?
Why is it relevant for companies?

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Importance of CSR
 Powerful tool for survival
 Globalization – maintaining competitiveness
 EU example – regulations to all member states, buyers

sensitivity towards CSR

 Highly skilled employees want to be associated with

companies with good business practices/reputation

 Investors prefer companies with strong CSR programs
 There is a growing perception among enterprises that

sustainable business success and shareholder value

cannot be achieved solely through maximizing short
term profits, but instead through market-oriented yet
responsible behavior

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Key Issues adressed by CSR
 Governance
 Environmental management
 Stakeholder engagement
 Labour standards
 Employee and community relations
 Social equity
 Responsible sourcing
 Human rights

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Arthur Anderson
 Audit and consulting company for corporations
 Motto before owners death: " Think straight, talk
straight“ (1947)
 Clients demanded higher profit margins  compromise
morality leading fraudulently altered the statements of
such companies as: Sunbeam Products and WorldCom
 Most famous scandal case was the fraudulent auditing
of US energy giant Enron  AA shredded vital
documents sourcing the audit of Enron in 2002
 After investigation, AA lost almost all of its clients and
business, a lot of audited companies went bankrupt
including Enron

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Wikileaks
 An organization that allows whistle blowers and other anonymous
sources to publish documents that are otherwise not easily available
to the public

 Wikileaks Released:
◦ video from a 2007 incident in which Iraqi civilians and journalists were killed by U.S. forces
◦ more than 76,900 documents about the War in Afghanistan not previously available for
public review
◦ a package of almost 400,000 documents about the War in Iraq
◦ 86 telephone intercept recordings of Peruvian politicians and businessmen involved in the
"Petrogate" oil scandal
◦ a story about corruption by the family of the former Kenyan leader Daniel arap Moi
◦ allegations of illegal activities at the Cayman Islands branch of the Swiss Bank Julius Baer
◦ TO BE CONTINUED... !?

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Wikileaks (2)
 Strong focus it brings to the anti-
war movement
 Very counter-surveillance nature
that has enabled people to
circumvent the mainstream news
media that has tendency to
become a political mouthpiece
 Increased fear in the government
and a sense of increased security
among anonymous reporters and
journalists
Pro
 Although Wikileaks supports an
anti war sentiment, they also
provide some very solid
justification to continue the war
 Records and reports are often
fragmented and incomplete
 Difficult to source, classify, verify
and then review documents
 System that leverages crowd
sourcing; it renders a lot of
legitimacy questions about the
content being leaked or published
Contra
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Wikileaks – Good or Bad?

To which extent is it (un)ethical?

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 Principles for Ethical Decision-Making
1. Step back from every decision before you make it and look at
it objectively
2. Strive for fairness rather than polarised 'winner takes all'
outcomes
3. Learn from history and previous situations.
4. Get the facts from all possible perspectives
5. Check the law
6. Consult widely - especially with critical people, and especially
beyond your close circle of (normally) biased and friendly
advisors, colleagues, friends, etc.
7. Consider cause and effect in the deepest possible sense
8. Resist the delusion and arrogance that power and authority
tends to foster.
9. Beware of justifying decisions according to religious faith
10. Aim for solutions and harmony, objectivity and detachment

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References
Articles:
 Orme, G. & Ashton, C (2003) Ethics – a foundation competency. Industrial and Commercial Training , Vol. 35 (5)

pp. 184-190
 Wells, B. & Spinks, N. (1996) Ethics must be communication from the top down! Career Development

International, (1/7) pp. 28-30

 Noviceciv, M.; Buckley, M.R, & Brown, J.A. (2005) Barnard on conflicts of responsibility. Management

Decision, Vol. 43 (10) pp. 1396-1409

 Storr, L. (2004) Leading with integrity. Journal of Health Organization and Management , Vol. 18 (6)

pp.415-434
 Sintonen, T.M. & Takala, T. (2002) Racism and ethics in the globalized business world. International

Journal of Social Economics, Vol. 29 (11) pp. 849-860

 Ciwtis Branscome, G. (2008) ICMA Conference. Public Management, (June)

 Aaronson, S.A. (2003), Corporate responsibility in the global village. Business and Society Review , Vol.

108, (3), p. 310

 European Commission (2001), Promoting a European framework for corporate social responsibility , Office

for Official Publications of the European Communities , Luxembourg, p. 5

Websites:
 http://www.businessballs.com/ethical_management_leadership.htm

 http://www.scribd.com/doc/3934672/Importance-of-CSR-to-Business

 http://www.twotomorrows.com/news/what-csr
 http://www.corporatenarc.com/Arthur-Anderson-Scandal.php
 http://www.islandcrisis.net/2010/12/good-sides-bad-sides-wikileaks

Group 11: Ethical Leadership 14.12.2010 30

Thank you for your
attention!
Any Questions?

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