Leadership for ethical culture and climate

Leaders who engage in unethical behavior set a damaging example for their teams and can significantly contribute to the development of a toxic organizational culture. Theranos is a case in point. Theranos, once led by Elizabeth Holmes, promised to transform healthcare with technology that could conduct a wide range of tests using just a few drops of blood. However, it misled investors, regulators, and the public with false and unreliable data. The company’s deceptive leadership led to significant financial losses for investors and eroded trust in the healthcare industry, potentially putting patients at risk. Take the case of Volkswagen. The Volkswagen emissions scandal involved the installation of software in their diesel vehicles to cheat emissions tests. This resulted in the cars emitting pollutants far above legal limits. The scandal shed light on a culture of dishonesty and ethical leadership issues within the company. Executives knowingly approved and implemented the software, prioritizing short-term financial gains over compliance with regulations. The repercussions included heavy fines, lawsuits, and a significant drop in sales, tarnishing Volkswagen’s reputation.

According to Schein (2017, p. 183), leaders embed their beliefs, values, and assumptions in the following ways:

• What leaders pay attention to, measure, and control on a regular basis
• How leaders react to critical incidents and organizational crises
• How leaders allocate resources
• Deliberate role modeling, teaching, and coaching
• How leaders allocate rewards and status
• How leaders recruit, select, promote, and excommunicate Secondary

And reinforce and stabilize these in the following ways:

• Organizational design and structure
• Organizational systems and procedures
• Rites and rituals of the organization
• Design of physical space, façades, and buildings
• Stories about important events and people
• Formal statements of organizational philosophy, creeds, and charters

Mission

Consensus on the core mission and identity doesn’t guarantee that key members have common goals, and subcultures may work at cross purposes to the mission. The mission is often not well articulated, and a common language and shared assumptions are needed to achieve consensus on goals and move from an abstract sense of mission to concrete objectives within specified cost and time constraints (Schein, 2017).

The impact of leadership on organizational culture cannot be overstated. It consistently emerges as the strongest predictor of a toxic culture, highlighting the fundamental need for leaders to exemplify and uphold ethical behavior while holding themselves and their colleagues accountable for toxic behavior. Ethical leadership is crucial in setting the organization’s tone, influencing employees’ behavior and attitudes, and shaping the overall corporate culture. In fact, ethical behavior constitutes a fundamental component of many leadership theories. For instance, transformational leadership places emphasis on ethical role modeling, authentic leadership prioritizes principled decision-making, and spiritual leadership highlights the importance of leader integrity and ethical treatment of others (Bedi, 2016). Therefore, it is essential for them to be intentional about creating an environment within their businesses, recognizing its direct influence on the overall ethical tone of the organization.

Vision, mission, and values are articulations of what the organization aims to achieve and the values of leadership. As such, they reflect the ideals of the leader. Stakeholders should be able to readily understand from all three how to behave in a particular way and why. Creating perceptions of ethical leadership is a challenging endeavor because many employees are not physically or hierarchically proximate to leadership, meaning they do not have direct contact with them. Employees may be cynical about the ethical pronouncements of leaders, especially in an unethical or toxic business organization. Employees will quickly call out a leader who says one thing but acts another way, so it is incumbent on the leader to build a reputation for ethical behavior. Figure Reputation Matrix lays out the reputational damage to leaders who do not “walk the talk.” If leaders are to be seen as ethical leaders, they must be perceived as both legitimate and credible role models. This, in turn, will increase the probability that employees will imitate the model’s behavior.

Leadership Values

Grounded in the traditions of Plato, Aristotle, and St. Thomas Aquinas, the framework developed by Riggio et al. (2010) offers a structured way to identify and evaluate the virtues central to ethical leadership. They outline a set of cardinal virtues, along with practical descriptors of each, which together provide a useful foundation for examining the nature and demands of virtuous leadership.

The concept of character as the cornerstone of ethical leadership often oversimplifies the complex nature of ethical leadership. While character is undoubtedly important, it is not the sole determinant of ethical leadership.

Kantian Leadership

Ethical leaders who adhere to deontological ethics prioritize adherence to universally accepted moral principles, emphasizing the importance of duty and rules. According to deontological ethics, leaders focus on acting in a manner consistent with principles such as honesty, fairness, and respect for individual rights, irrespective of the potential consequences or outcomes of their actions.

More specifically, according to Kantian theory, leadership entails increased follower participation and the protection of dissenting voices. A Kantian leader recognizes that not all decisions will result in unanimous agreement, but the decision-making process should incorporate the input of all stakeholders and garner their support. Rational rules and principles endorsed by those affected must establish a common purpose. Kant would argue that business relationships cannot be solely economic; they are inherently interactions among individuals and thus subject to moral considerations. Consequently, the leader-follower dynamic cannot be purely transactional. Finally, a leader should function as a decision proposer rather than a decision imposer, in line with the kingdom of ends formulation of the categorical imperative. The leader has the authority to propose both ends and means for achieving those ends, as well as decision-making rules. However, it is essential that the leader refrain from commanding or imposing these propositions based on their authority (Bowie, 2000).

The leader should:

• consider the interests of all the affected stakeholders in any decision it makes.
• have those affected by the firm’s rules and policies help determine the rules and policies before they are implemented.
• in cooperation with others in the organization, establish procedures to ensure that relations among stakeholders are governed by rules of justice.

Leadership should NOT

• always give the interests of one stakeholder group priority.
• when a situation arises where the needs of one set of stakeholders must be sacrificed for the humanity of another set of stakeholders, make the decision because there is a greater number of people in one stakeholder group than in another.

References

Bedi, A., Alpaslan, C.M. & Green, S. (2016). A meta-analytic review of ethical leadership outcomes and moderators. Journal of Business Ethics, 139, 517–536. https://doi.org/10.1007/s10551-015-2625-1

Bowie, N. E. (2000). Business ethics, philosophy, and the next 25 years. Business Ethics Quarterly, 10 (1), 7-20. https://doi.org/10.2307/3857690

Riggio, R. E., Zhu, W., Reina, C., & Maroosis, J. A. (2010). Virtue-based measurement of ethical leadership: The leadership virtues questionnaire. Consulting Psychology Journal, 62(4), 235–250. https://doi.org/10.1037/a0022286

Schein, Edgar. (2017). Organizational culture and leadership (5th ed.). Wiley.