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Ethical Leadership in Business

By Edited Nov 13, 2013 0 0

Ethical Standards

Communicating the ethical guidelines with stakeholders is how a particular business develops its public image.  Not only do the stakeholders demand the company following rules and regulations, but they also expect the company to prosper while following the rules and regulations.  The challenge, to the management, is taking these two expectations and developing a company where success is achieved but not at the expense of compromising the ethics and morals established by the company’s guidelines. 


Maintaining ethical standards is essential to success of the business.  Not having or not following guidelines presented can lead to a “slippery slope” where individuals in the company are more prone to start off with minor violations and could lead to major violations that could be the demise of the company.  Such examples are prevalent in the news resources on a daily basis.  One just has to pick up the newspaper, read a business, journal, or turn on the evening news to hear about the latest CEO or high executive in a company, committing fraud or doing something potentially harmful to hurt the reputations of companies that have been around for decades or even longer. 



These executive not only hurt the company’s reputation they work for but also those leaders in companies that do have high ethical standards and expect their employees to following the standards of practice without exception.  The consumer of products will judge all actions with scrutiny, hesitation, and think all problems that arise in a company are a result of unethical practices of a CEO or high executives. (Singhapakedi, 1996). When in fact, the problems could be better attributed to economic depressions, subtle trends in supply and demand, or just the natural ebb and flow of the market.


Baseball Analogy

Sports provide us an analogy about businesses for following ethical guidelines.  For instance, in baseball both teams are expected to not only know the rules, but also to play by those rules.  Both teams train the players to be the best they can be while following the rules of the game.  The bases are the same distance from home plate and each other for both teams.  The bases are 90 feet away and stay the same when the St. Louis Cardinals are at bat as they do when the Atlanta Braves are at bat.  This makes the play fair for both teams.  When the St. Louis Cardinals have more runs at the end of the game than the Braves, the Atlanta team cannot whine “we had a different standard we had to conform to and were therefore at a disadvantage than the Cardinals team.”  Yes human error does occur even when the rules and standards are the same.  The umpire might miss a call, or a fan may interrupt the game by running onto the field naked, but with internal rules of the game, and external rules of society, millions of people come out and sing “take me out to the ballgame…” and are entertained and provide an economic stimulus to the community the ballpark is located. 


The fundamentals of baseball rules are presented to the ball player back in his young formative years while playing the game of baseball in the youth leagues around the country.  By the time that young player grows up to be on a Major League Baseball team, these rules have been ingrained in his psyche.  But even with these years of learning, there are some players that are still trying to gain an unfair advantage by not following the rules of everyone else, i.e. using steroids.  These players give the National Pastime of baseball a black eye even though most players abide by the rules.  Baseball violations have been such a problem and have been considered by some to be a threat to economic stability of some major metropolitan areas, which the United States Congress has intervened on a few cases in the history of baseball.  Two examples were the 1911 Black Sox controversy and the recent steroid use by very prevalent players.

Ethical Leadership


To combat the temptations that employees are faced with government establishes certain rules that companies must following to be in compliance.  The company should compliment these rules by injecting their own morals and hold themselves to higher standard than the government does.  Because let us be honest, the government is not well known for its own ethical considerations.


The company will make efforts to present the ethical considerations to the public by way of the mission statement and public presentation of the companies’ guidelines for all employees to following.  However, there is much more needed work than just putting thoughts to paper and then distributing those pamphlets to people inside and outside of the company.  Words on a paper are just that to stakeholders if those words are not put into action by the employees. 


I believe putting the ethical considerations into practice and presenting to the stakeholders, start at the top.  Ethical leaders set the standards and act according to the standards to be an example to the employees they lead.  They must be truthful and present to the employees and stakeholders, to the best of their knowledge, what is happening within the company, as long as it does not compromise the intellectual property rights of that company.


Lessons from Enron

Upper management at Enron was made aware of the ethical violations of Enron and Arthur Anderson but failed to act on that information.  Some might argue the ethical violations that were taking place before knowledge of the situation were serious and I agree.  However, I believe even after statistical and physical proof of an ethical violation has taken place and the people in charge do not take action to thwart the problem, is a bigger ethical violation. 


Effective Leadership Starts at the Top but does not End There

So what are the things that an effective leader should do to communicate the ethical considerations to all stakeholders.  Those stakeholders include the shareholders, employees, communities, states and nations.  In today’s global economy the reach of ethical standard involve more people that we could fathom.  In fact, it would be difficult to determine just to what effect a company’s choice to follow or not follow ethical standards could have on an relatively unknown person or company in a third world nation for example.  It is analogist to the philosophical question related to chaos theory “does the flapping of the wings of a butterfly in the Amazon basis, cause a sand-storm in the Sahara desert.


The first thing a company should do is establish a written policy manual to include the ethical considerations.  This written policy manual is a contract with the public on how the company will perform business.  Yes, technically, this policy manual is for the employees, but the employees are expected to follow these policies in the public and within the functional operations of the company.  59 % of American adults that work believed their organization is highly ethical.  56% believe that the ethical guidelines of the company are effectively communicated by the management team.  65 % of people who witness ethical violations in their work do not report them (Smith, 2003).  There is a failure somewhere in the system with dreadful statistics like these.


Once a company has established a written policy/contract with the public, there are actions steps that must be taken by the leaders of the company. The first and foremost thing a leader should do is follow the ethical standards himself.  Simple enough said, but some do not think simple is the best policy.  It is not a black and white issue as most see it when reading the policy manual. If a leader is corrupt and does not follow a standard then the subordinates would consider this “normal” in the company operations.  This would give them the “out” they need to rationalize this when considering their own behaviors.  The leader is the public face of the company and all the stakeholders look toward the leader as the tell-tale sign of whether a company is something they should invest in. 


The second thing the leader must do is hold those under him/her accountable for following or not following these ethical guidelines.  By doing this, she/he is telling the stakeholders that the ethical considerations are held at a point in the company than any one employee.  If the ethical violations are more ramped than just one or a few employees, then there are more important aspects that need to be looked at, like hiring or promoting standards.  The message sent to the public by taking a look at all employees is “you, the stakeholders, are the best resource this company has.” (Brownell, 1996). This will gain more trust from the stakeholders and will allow the company to have better support if or when a time comes when the company is faced with an ethical dilemma.


Making Ethics the Rule, not the Exception

Setting normative ethics is not enough to make a judgment call on whether or not a company or a certain employee’s actions are in the best interest or the organization.  The leader has the responsibility to influence the practice of each employee for them to WANT to follow the company policy on ethics.  This can be done by establishing an environment based some on simple compliance and also by basing the desire to follow the guidelines person to that person.


Simple compliance can be done with the deterrent of threat for loss of job, wages, and litigation.  There are many ways a company could achieve this from establishing anonymous tip hotlines to having an open door policy to managers.  However, the best way to convey the message to employees and public, therefore all stakeholders, is to quickly, efficient, and correctly identify and correct ethical violations. 


However, I believe the best way to communicate a company’s policy to adhere to ethical standards, it to simply hire ethical people.  I agree this is a lot easier said than done.  A company should provide some kind of test to determine what person’s answers would be considered an ethical behavior and what personal attributes of a potential employee could provide information to determine if a person is ethical. 


This hiring standard again sends the message to the stakeholders is this company finds ethical behaviors imperative to the future of the company.  This unwritten but fully complied rule will provide the potential information the stakeholder may need to determine if they want to put their assets of time and money into this company. 


Ethical Leadership
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Meeting the Ethical Challenges of Leadership: Casting Light or Shadow
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  1. Brownell, J. and Jameson, D. "Getting Quality out on the Street: A Case of." Cornell Hotel and Restaurant Administration Quarterly,. Volume 37 (1996): 28-33.
  2. Singhapakedi, A., Roa, C., Vitell, S. "Ethical Decision-making: An Investigation of Services-marketing Professions." Journal of Business Ethics. 15 (1996): 635-644..
  3. Smith, Shawn, J.D. "Communicating Ethical Values to Your Employees.." Communicating Ethical Values to Your Employees.. 21/Feb./2007 <Web >
  4. Walters, J. "Defining and Communicating Ethics in Your Business.." Defining and Communicating Ethics in Your Business.. 21/FEB/2007 <Web >

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