SAGE Books

Leadership for Organizations

Ethical and Moral Leadership

By: David A. Waldman & Charles O’Reilly

Book Title: Leadership for Organizations

Chapter Title: "Ethical and Moral Leadership"

Pub. Date: 2020

Access Date: November 6, 2022

Publishing Company: SAGE Publications, Inc.

City: Thousand Oaks

Print ISBN: 9781544332727

Online ISBN: 9781544360508

DOI: https://dx.doi.org/10.4135/9781544360508.n6

Print pages: 79-97

© 2020 SAGE Publications, Inc. All Rights Reserved.

This PDF has been generated from SAGE Knowledge. Please note that the pagination of the online

version will vary from the pagination of the print book.

Ethical and Moral Leadership

Ethical and Moral Leadership

“Make people who work for you feel important. If you honor and serve them, they’ll honor and serve you.”

—Mary Kay Ash, founder of Mary Kay Cosmetics

“If you don’t give people information, they’ll make up something to fill the void.”

—Carla O’Dell, president of O’Dell & Associates

Learning Objectives

• 6.1 Explain the key principles of ethical and moral leadership

• 6.2 Compare leaders at different levels of moral development, and the implications of these levels on their behavior and performance

• 6.3 Appraise oneself in terms of predominant level of moral development

• 6.4 Discuss the kinds of actions that leaders can take to demonstrate ethical and moral leadership

• 6.5 Describe and deal with the paradox of control that leaders face

• 6.6 Appraise the types of issues that can complicate considerations of ethical and moral leadership

The topic of ethical and moral leadership (EML) has grown in importance in recent years. We are frequently exposed to stories in the media of leaders at various levels of management who have acted in an unethical or irresponsible manner.1 Some of these individuals have suffered a great personal price. As an example, Jeff Skilling, ex-chief financial officer (ex-CFO) and ex-CEO of Enron, has now served over 10 years in prison for his role in that scandal. Such individuals create problems not only for themselves but also for their organizations, as well as the image of the greater management profession. It should not be so surprising that the image of organizational leaders, especially those at higher levels of large corporations, is not very favorable. Overall, the public tends to lack confidence in these leaders,2 and they are largely not trusted to tell the truth.3

Nevertheless, research shows that organizations that are guided by leaders with a stronger ethical/moral compass do exist, and they tend to outperform their competitors.4 These organizations do so by first establishing an organizational climate that stresses such things as procedural justice, the establishment of fairness and consistency in how employees are treated. Organizations that have a climate of this nature are characterized by decision-making that is free of biases, favoritism, and personal interests.5 Top-level leaders are the ones who establish and reinforce such climates.

Procedural justice

the establishment of fairness and consistency in how employees are treated.

However, issues and challenges pertaining to EML are relevant to leaders at all levels of organizations. For top-level executives, it involves setting policies, making strategic decisions, and leading-by-example—all of which helps to establish an ethical climate. This climate gets reflected in the behavior of lower-level managers, for whom EML is relevant in terms of setting an example, enforcing ethical standards, acting in an

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open and truthful manner, and avoiding abusive behavior.

What is EML all about? In Table 6.1, we list seven principles that get at the core of EML.6 They involve values and beliefs, as well as behaviors in which ethical and moral leaders engage. Each of these principles is described in detail below. A guiding premise is that EML is not just about what is in a leader’s head (e.g., values); it’s also about the decisions and actions that the leader takes. With these principles in mind throughout this chapter, we organize our discussion of EML in terms of (1) the ethical/moral person, (2) ethical/moral actions as a leader, (3) responsibility and accountability, and (4) complicating questions.

Table 6.1 Principles of Ethical and Moral Leadership

1. Acting in accordance with one’s own (developed) sense of values or principles pertaining to justice and what is right

2. Speaking and acting truthfully—having integrity

3. Showing courage to go against established norms or popular opinion, if need be

4. Acting authentically with transparency—for example, by openly communicating and not concealing important information

5. Taking steps to actively identify moral/ethical issues and enforce standards

6. Serving the interests of others rather than just oneself—being responsible to a wide range of stakeholders

7. Assuming personal accountability for results pertaining to all stakeholders

The Ethical/Moral Person

Marine Corps General James Mattis (now the U.S. secretary of defense) argues, “You can’t make ethical decisions on the fly. It has to be ingrained in your mind for the entirety of your life.” He goes on to note that “if you run down the ethical sidelines, you’re likely to step out of bounds. You must coach yourself and your team to run in the ethical middle of the field.”7 It is difficult to consider what EML is all about without understanding its basis in what can be termed the ethical/moral person.’ In other words, an understanding of what it means to be an ethical or moral leader begins with a consideration of the person’s moral development, which gets at the core of the ethical/moral person.8 Bruce Lee once said, “Knowledge earns you power, but character earns you respect.” Character is something that develops in a person, largely in terms of his or her moral reasoning. As shown in Table 6.2, the moral development and reasoning of an individual would suggest three possible levels.

Table 6.2 Levels of Moral Development

Level 3 – Post-conventional

• Does not necessarily adhere to what others think is right vs. wrong

• Has a strong, internalized sense of right vs. wrong

• Tends to put the concerns of others, or the greater good, above his or her own self-interests

Level 2 – Conventional

• Lives up to the expectations, obligations, and norms of groups with which one feels a sense of identity (e.g., religious affiliations, clubs, professions, and so forth)

• Adheres to the laws of society

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Level 1 – Pre-conventional

• Acts in accordance with self-interests

• Follows the rules or the law in order to avoid getting into trouble

At the pre-conventional level, an individual is primarily concerned with following rules or laws in order to avoid penalty or punishment. These rules and laws can be in different entities with which the individual is associated, such as organizations or society as a whole. At the conventional level, the individual follows in line with the groups (e.g., fraternities, sororities, clubs, etc.) or societal entities (e.g., religious affiliations, cultural norms, etc.) with which he or she identifies. The individual is also very much in tune with simply correlating existing rules and laws with morality. In other words, conventional moral development would suggest that if it’s legal, it must be moral. The post-conventional person is in line with the principle in Table 6.1 of acting in accordance with one’s own (developed) sense of values or principles pertaining to justice and what is right. People who are at this level of development act in an independent manner when it comes to ethical or moral values, and if they perceive the necessity, post-conventional people might even violate the law to pursue their own perceptions of justice, right versus wrong, and so forth.

Pre-conventional

a level of moral development at which an individual is primarily concerned with following rules or laws in order to avoid penalty or punishment.

Conventional

level of moral development at which an individual follows in line with the groups (e.g., fraternities, sororities, clubs, etc.) or societal entities (e.g., religious affiliations, cultural norms, etc.) with which he or she identifies.

Post-conventional

level of moral development at which an individual acts in accordance with his or her own (developed) sense of values or principles pertaining to justice and what is right.

These different levels should not be viewed as stages, whereby an individual is at only a single level in his or her development. Instead, a person might be predominantly at one level, while showing signs of being at the other two levels. For example, an individual might in most spheres of life demonstrate that she is at the post-conventional level. However, when it comes to something like her personal tax returns, she might be more conventional or even pre-conventional by taking her accountant’s advice and claiming deductions that, while debatable, simply represent the norm for other taxpayers (i.e., conventional morality). Or perhaps she uses deductions that might be claimed without any likelihood of punishment by the Internal Revenue Service (IRS), that is, pre-conventional morality. Nevertheless, in behaviors involving most other individuals or endeavors, she is largely post-conventional. As another example, criminals are largely at pre-conventional levels of morality. But for certain issues (e.g., other criminals whom they encounter who are child predators), they may actually show signs of post-conventional thinking about right versus wrong.

Among these different levels of development, the conventional level is probably the most prevalent, and that is true in a lot of different spheres of life and for different roles that people take on. Think about the financial collapse of 2008 and 2009 and the fallout that ensued in the housing market. Many homeowners found themselves in a situation where the value of their homes was significantly less than the amount owed on mortgages. And many of those homeowners simply “walked out” on their mortgages—that is, stopped paying their lenders. Although many of these individuals realized that, in a way, it was wrong to do so (i.e., level 3 reasoning), they nevertheless reasoned that so many other people were walking out on their mortgages without immediate punishment. So why not just join the crowd? Such reasoning reflects either level 1 or 2 reasoning.

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Many people in leadership roles also engage in conventional, or level 2, reasoning and behavior. As an example, in 2005, Proctor & Gamble took over Gillette. The then CEO of Gillette, Jim Kilts, ended up taking a $160 million golden parachute deal. These deals involve contract agreements at the beginning of an executive’s tenure that lay out what would happen if the firm is taken over by another firm, and the executive’s employment is terminated. In the case of Gillette, his original employment contract included a golden parachute that specified $160 million in compensation if his employment was to be terminated through acquisition by another firm. To the naive observer, this might seem like an inordinate amount of money. It could even be considered unethical or unjust, since as in all takeover deals, at least some of the employees of Gillette were displaced without favorable severance packages. However, in CEO circles and the minds of many financial analysts, such a golden parachute deal would be seen as simply living up to the expectations of the CEO culture, at least with regard to CEOs of similarly sized firms. In other words, the CEO of Gillette was doing nothing more, and nothing less, than any CEO would do in his position. In short, he was following conventional moral development.

Two things should be apparent with the examples provided above. First, moral development can, at least to some degree, be in the eyes of the beholder. What some people view as conventional morality, or just “following the crowd,” might be viewed by others as immoral. Indeed, one of the things that can complicate a consideration of leadership is that it is largely in the eye of the beholder. What one person might identify as an outstanding leader, another person might view with doubts. Second, there may be an ongoing coarsening of conventional morality in society and various institutions (e.g., the institution of CEO and executive management). In other words, following the crowd may be increasingly becoming what many people might view as wrong in its nature. Stated another way, from an ethical/moral point of view, the “new normal” might not be such a good thing.

So how do you personally stack up in terms of these three levels of moral development? To answer this question, complete the survey shown in Appendix A. This instrument forces you to choose among three items, each of which may seem somewhat true about you. But you need to pick the one that is most true, then the one that is next most true about you, and finally, which one is least true about you. For the instrument to be accurate, it is important that you answer in terms of how you really are, as opposed to how you might like to see yourself. In other words, do not answer in terms of how you would like to see yourself; answer as you actually are on a day-to-day basis.

Actions as a Leader

As leaders, individuals can engage (or not engage) in a number of actions to demonstrate EML. We consider several key actions here: (1) serving as a role model for ethical values, (2) demonstration of courage, (3) enforcing ethical/moral standards, (4) openly communicating and sharing information, and (5) avoiding abusiveness. First, effective leaders in general, and ethical leaders in particular, realize that they are always “on stage,” so to speak. So others are watching what they do, or not do. Ethical leaders “walk the talk.” They do not expect others to do what they themselves are not willing to do. As an example, if a leader might expect a sales representative to not be exorbitant in terms of expenses that might be charged to a customer (e.g., meals or travel), the leader herself should practice such frugality.

Second, moral courage involves the strength to work through challenges and fears that may involve moral principles or uncertainties. Oftentimes, this means nonconformity and speaking up when immoral behavior is perceived. This can obviously be a difficult thing for a leader. For example, a leader (or any organizational member) may observe that hiring, promotions, favorable job assignments, and so forth may favor the majority of group members. However, people of different racial and ethnic groups are left out. It can take courage to speak up and at least raise the possibility of injustices.9

Third, and related to courage, leaders acting from EML make decisions that pertain to ethics and ethical infractions. Specifically, they enforce ethical standards, even if it might cause problems for the leader or be unpopular. Accordingly, the leader will show consistency in his or her enforcement of ethical violations, while avoiding making exceptions. Along with this consistency, the leader will show “sentinel-like” qualities in terms of monitoring his or her context for ethical violations. In some circumstances, it might be easier to simply adopt the maxim “see no evil, hear no evil.” However, an ethical/moral leader will think and act differently. At

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the same time, an ethical leader should be careful to not go too far in emphasizing the enforcement aspect of taking actions. If enforcement is overemphasized, negative fallout could occur in the organization, such as employee fear, lack of initiative, lack of risk taking, and so forth.

At first glance, it might seem like the enforcement of ethical standards might be anathema to leading with love (see chapter 2) and, instead, might be more akin to leading through fear. But in reality, a leader needs to maintain and enforce ethical standards for the ultimate good of not just the overall organization but also individual followers. For example, if a follower was continually violating ethical standards, it would do no good to just let the problem fester and linger. To demonstrate “tough” love, the leader would need to confront the issue, and perhaps even apply disciplinary procedures.

Fourth, operating from EML, an individual will lean toward open communication and the sharing of information.10 People in leadership roles tend to be privy to information that others at lower levels of the organization do not have. Nevertheless, the information can be relevant to those lower-level individuals in terms of their own personal needs and security. Examples include pending organizational restructuring (e.g., layoffs), negative information that could affect the future of the firm, radical changes in the technology that are used to accomplish work in a firm, and so forth. Organizations and organizational leaders who tend to not be open communicators might like to use expressions such as “need to know basis,” which would imply that only certain individuals (i.e., typically people at higher levels of the organization) should be privy to important information. To be fair, there can be rational reasons as to why only certain people should be privy to certain information, especially information pertaining to potential change in organizations. Specifically, there could be the fear of widespread panic if certain information, such as a pending layoff, was publicly announced. With that said, the ethical/moral leader will attempt to be as open as possible by sharing information whenever possible. In so doing, he or she will be leading with love, rather than fear.

In short, the idea is to try to avoid what has been humorously referred to as the mushroom perspective of leading: “keep them in the dark, feed them a bunch of crap, and hope that they will grow and be productive.” The problem is that it is just not an easy thing to avoid being a mushroom farmer as a leader. An example of the dilemmas that can be caused by either sharing or not sharing information can be seen in the case in Appendix B.

Sharing information as an open communicator relates to the principle in Table 6.1 involving speaking and acting truthfully, or having integrity. Indeed, integrity is oftentimes the first thing that people consider when asked about the qualities of an ideal leader. Speaking and acting truthfully can involve acts of both commission and omission. When a leader overtly tells a lie, that person is committing an act of commission. When a leader fails to pass on information that is relevant to the interests of others, that leader is committing an act of omission. Either way, the leader’s integrity comes into question.

Fifth, an ethical/moral leader attempts to avoid abusive or exploitative behavior. Abusive behavior involves the extent to which supervisors engage in the display of hostile verbal and nonverbal behaviors, excluding physical contact. The negative effects of abusive supervision are estimated to be $23.8 billion annually, and these include increased employee health care costs, absenteeism, and reduced productivity.11 It is important to note that abusiveness can be overt in the form of acts such as publicly ridiculing a subordinate. However, it can also be less overt (or passive-aggressive) in the form of ignoring or giving a subordinate the “silent treatment.”12 Either way, we view such behavior as improper at best and unethical at worst.

Abusive behavior is relevant to the issue of leading with fear, as opposed to leading with love, which we considered in chapter 2. Abusiveness can cause fear, which in turn can lead to a range of negative side effects, such as lack of innovation, people not speaking up about problems, people not willing to take risks, and so forth. One could argue that by enforcing ethical standards, a leader could induce fear. On the other hand, if the standard was enforced in a just and compassionate manner, it is likely to be considered reasonable tough love, rather than abusiveness.

Responsible and Accountable Leadership

As shown in Table 6.1, an important element of EML involves serving the interests of others, rather than

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merely one’s own self-interests. In other words, EML involves being responsible to others. For organizational leaders, these others can include a range of people and entities, including followers, owners or shareholders, customers, and the greater community or society. The key words here are can include. There can be differences in how a leader determines the breadth and nature of the “others” to whom the leader will acknowledge and show responsibility.

Servant Leadership

One way for a leader to show responsibility toward others, and certainly to lead with love, is for that leader to assume the role of servant. Servant leadership can most clearly be seen in the relationship between leaders and followers. It provides a mechanism for a leader to show responsibility toward others. In the specific case of followers, this means mentoring, providing necessary tools and information, helping to develop followers, and looking out for their welfare.13

Servant leadership

a way for a leader to show responsibility toward others (especially to followers) by assuming the role of servant, specifically by mentoring, providing necessary tools and information, helping to develop others, and looking out for their welfare.

As stated by Mary Kay Ash, founder of Mary Kay Cosmetics, “make people who work for you feel important. If you honor and serve them, they’ll honor and serve you.” When assuming this role, a leader will help followers to grow and develop, take care of problems (work related, and perhaps even personal) that followers might not otherwise be able to handle, and so forth. Figure 6.1 shows how servant leadership compares to a traditional, top-down structure. At the top of the figure, we can see a traditional, pyramidal top-down organization. Autocratic leadership is the primary mode of leading that is likely to be associated with such a structure. Lip service may be paid to customers or clients, but in many such organizations, it may seem like customers or clients are really at the bottom of the hierarchy. In contrast, the bottom portion of the figure shows how this structure can be turned upside down in terms of an inverted pyramid.

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Figure 6.1 Traditional Pyramid and Inverted Pyramid Structures

Is servant leadership just “pie in the sky,” so to speak, or can it be actually implemented in organizations? Skeptics might point to reasons for servant leadership not really being realistic, given short-term productivity or business demands, the nature of the workforce, and common pyramidal structures in organizations. In other words, they might argue that short-term demands and a largely irresponsible (or even lazy) labor force preclude any serious consideration of servant leadership. We argue that servant leadership can work in an organization but only if the traditional pyramidal and inverted pyramid find a way to come together. In other words, we recognize that most organizations will have some sort of formal pyramidal structure. But some organizations will also be able to simultaneously incorporate a more informal inverted pyramid into their cultures on a day-to-day basis.

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To simultaneously deal with both the traditional pyramidal structure shown in Figure 6.1 as well as the inverted pyramid, leaders face the paradox of control. Examples of this paradox in action involve

• maintaining overall control of situations, while at the same time offering autonomy to followers; • stressing conformity in how work should be done, while allowing for exceptions; • being clear with followers in terms of how things should be done but, at the same time, not being

picky or micromanaging; • placing high requirements on followers but also allowing them to make mistakes at the same time;

and • in an overall sense, realizing that the best way to maintain control is to let go of control.

If leaders can simultaneously deal with these seemingly contrasting actions, they are effectively handling the paradox of control, and they are demonstrating servant leadership. Southwest Airlines provides an example of both.14 Like most organizations, Southwest Airlines has a traditional pyramidal structure in place that includes employees, lower-level managers, and higher-level managers. Thus, in a formal sense, like other organizations, lower-level employees report to higher-level managers. But simultaneously, it has a servant leadership culture. For example, a paradox plays out at this firm by managers stressing high customer service requirements, while followers are allowed simultaneous leeway in exactly how customers are served. Further, mistakes are tolerated, as long as employees are attempting to serve customers’ needs. In the true sense of this paradox, management is able to gain control by giving up control.

Responsible Leadership Orientation

Especially at higher levels of leadership, executives increasingly deal with issues pertaining to corporate social responsibility (CSR). CSR essentially involves actions on the part of the firm that appear to advance, or acquiesce in the promotion of some social good, beyond the immediate fiduciary interests of the firm and its shareholders and beyond that which is required by law. Such actions may result in a company embodying socially responsible attributes in their products (e.g., the use of organic ingredients, lack of testing of products on animals, and so forth).15 It should also be noted that social good can pertain to a range of possible stakeholders, including employees, suppliers, and community groups (e.g., charities). The choices regarding policies and actions pertaining to CSR, including the extent and manner in which various stakeholder interests will be addressed, rests with the leaders of firms. That is, different firms will pursue different paths to CSR. These paths depend on the choices that leaders make, and those choices depend on their individual responsibility orientations.

Before considering those orientations, it is important to first reflect on why and how CSR is relevant to leaders, their policies, and their decision-making. First and perhaps foremost, CSR can make money for their firms, since there is consumer demand for “green” products and services, firms that are charitable, and so forth. Firms may even be able to charge a premium for their products and services if their CSR reputations are strong. Second, leaders may use CSR as an expression of their own values of serving others and society. In other words, some leaders may see CSR as a vehicle or mechanism through which they can realize their own values.

Third, beyond a sense of responsibility that is relevant to leaders and CSR, it is important to distinguish a sense of accountability. A leader may feel an obligation to attempt to serve the interests of one or more

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