Why Businesses Need Strong Ethical Leadership

If the world were perfect, I wouldn’t be writing this particular blog nor would our newspapers and other media be filled with cautionary tales of how top managers let their ethics slide causing their companies, employees and society at large suffer the consequences.

When we read the lurid accounts of these ethical lapses, you begin to get the feeling that all of business is just one, giant morass of despicable and unethical behavior. The surprising question to many, however, is how and why so many business and employees allow their ethical standards to slide—and what can be done about it.

Ethical or unethical behavior in organizations is a function, as I see it, of both individual characteristics and cultural factors. On the individual side, managers expect as a minimum that employees will know right from wrong. To state the obvious, they won’t steal from the company, they won’t lie to customers, and they won’t kill co-workers. These are easy ethical decisions because they’re painted so blatantly black and white. But decisions concerning ethical behavior- in the real world – are often bathed in hazy shades of gray.

The cultural factors are a different story. And I’m reminded here of the old PBS TV program Media and Society, moderated by Arthur Miller. A Harvard law professor, Miller would offer his panel of experts from various disciplines hypothetical scenarios and generate truly riveting discussions about ethics in journalism and other media.

I am so reminded because, in real life, ethical lapses—while they seem so black and white to outside observers, are often cast in painfully vague shades of grey to the would-be perpetrator. When that happensall choices seem “right” given their unique set of circumstances.

A case in point: One of the players in the recent credit meltdown confided on national TV that his mortgage business began to suffer because so many would-be applicants were getting sub-prime mortgages from other, less ethical companies. Sure, he knew that sub-prime mortgages “could be” an unsuitable product for their financial situations, but he faced a real life dilemma: If he didn’t write sub-prime, he may be driven out of business.

So what is his ethical decision? Should he be guided by the paternal ethics of putting food on his table, paying his own mortgage, and clothing his children, or should he capitulate and go with the sub-prime flow because “everybody’s doing it”?

Moreover, if I were Arthur Miller, I would start adding nettlesome ethical considerations to this fellow’s predicament. Let’s say he has a daughter badly in need of a life-saving surgery and a mother who lives in a nursing home which he pays for. Without a solvent mortgage business, he has no income, no insurance. Without insurance his daughter may perish; without income his mother may wind up living in his basement. Now what should he do? After all, everybody else is writing these risky mortgages.

A real life example of the ethical quandary is how the Bush Administration dealt with the interrogation of those believed to be high-level terrorists. From the President on down, those responsible for protecting America from terrorist attacks to this day – despite all the “enhanced interrogation tactics employed – did and do believe themselves to be ethical.

It boiled down to a simple ethical question. If there was an honest belief that a terrorist had direct information as to a potential attack on America that could kill thousands of innocent individuals, is it ethical to violate the laws and all this country has stood for in order to secure the information and prevent the attack?

Also knowing that in the event the information was not secured and thousands of individuals lost their lives, then those who possibly could have prevented the attack and did not do so would be severely criticized.

Was it ethical for Abraham Lincoln to suspend many of the individual protection rights of the U.S. constitution to jail thousands of individuals who he believed were a threat to the Union?

Gray Areas Demand Ethical Leadership

My point here is not to paint impossible ethical puzzles but to reaffirm the crucial need for managers to define the gray areas of business life because the black and white areas will usually take care of themselves (unless you work for the Post Office). It is important to do this before the issue arises, not after.

Gray areas, of course, lurk everywhere in an organization: in sales, public relations, accounting, you name it. And the duty of a business leader is to put ethical skin and bones on these vague areas so that all employees know the right ethical decision to make in situations where, like the owner of the mortgage business above, they are unsure what is “right.”

In simple terms, I used to refer to these as “rules of engagement.” These are actions or non-actions to be discussed and agreed to by the management leaders and then broadly communicated to the entire organization. Then the test of leadership is to stand by and enforce these rules of action.

Leadership is the most important element of an organization’s ethical culture. Ethical culture starts at the top and is conveyed by example. The CEO and senior department heads and managers should live their lives with great personal integrity” and they ought to ‘‘do what they say they’re going to do.”

Leaders create and support an ethical culture in their organizations. They illuminate, communicate, and role model high ethical standards. In other words, ethical business leaders ‘‘talk the talk” and ‘‘walk the walk.”

Leadership, most notably senior management, must embody the organization’s values in their own behavior and must articulate those values in a way that is compelling for employees and all other stakeholders. Or as I like to say, everyone must work “in parallel” to everyone’s benefit.

But building and sustaining an ethical culture is also a two-way street. It requires senior management to demand ethical conduct at every level of the organization. It also must allow questions of ethics to flow from the bottom up without fear of reprisal or “shooting the messenger.”

Such leaders emphasize attention to goals other than economic. They program ‘‘ethics discussion” with workers and maintain the long-term view of relationships both within and outside the organization. Top managers create and maintain an ethical culture by consistently behaving in an ethical fashion and encouraging others to behave in such a manner as well.

I still say making these kinds of ethical decisions might be easier than it appears. We just have to ask ourselves, “Is this decision in parallel with my customers, my shareholders, my employees, and my other stakeholders?” If it’s not, don’t do it.

3 responses to “Why Businesses Need Strong Ethical Leadership

  1. Pingback: What’s So Hard about Doing the Right Thing?

  2. CSR Norms should be mandatory otherwise if There is no planet, no business ?

  3. Pingback: Blog 5 | ukurfi

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