The Impact of Leadership Ethics on Business Productivity - Case Study Example

The impact of leadership ethics on business productivity Introduction Ethical issues in business include the rights, responsibilities, and duties between a business organization and its employees (Bello 228). There are kinds of leadership ethics that cause conflicts and dissatisfaction among employees. To a greater extent, this conflict and dissatisfaction handle the success or failure of organizations. Leaders in business organizations exhibit some unethical behaviors which may include harassment, discussing employees’ personal issues, unfairly assigning work, and stealing from employees among others. Over the recent past, there has been increased the attention that has been placed on the ethical failures of business organizations. Wide media coverage of unethical issues has damaged the reputations of many business organizations and eroded the trust of various stakeholders including the employees. Despite researchers’ increased focus on the topic of ethical leadership, there are rising cases of unethical practices in business organizations (Bello 228). Some behaviors such as abuse of power, sexual misconduct, and discrimination have become rampant in today’s business environment. Researchers are directing their focus on the ethical behaviors of corporate leaders and the impact on employees’ productivity. Ethical leaders provide cultural motivations for ethical behavior, such as reward systems for ethical conduct and decision-making. The main reason intensive research has been conducted on the concept of ethical leadership and the various approaches is that the results are either directly or indirectly observed in the organizations. A leader and their behavior and actions affect the productivity of employees, their job satisfaction, their perceptions of justice, and their sense of trust toward one another and toward the organization (Bello 231). The Concept of Ethical Leadership The concept of ethics in organizational leadership has been largely explored (Bello 228). The word ethics comes from the Greek word ethos. There is no clear definition of ethics. However, ethics shows what is best to do. The concept is defined either by a reflective process relating to the notion of what is good or by a collection of normative rules. Ethics appears to overlap these two dimensions because it is at once internal and external; it is endogenous. On the other hand, leadership is defined as a process in which a person influences other persons to achieve a universal goal (Bello 229). Three basic theories have been used to explain how people become leaders. These theories are the leadership theory, the process leadership theory, and the great event theory (229). Consequently, ethical leadership is defined as “the demonstration of normatively appropriate conduct through individual actions and their interpersonal relationships and the promotion of these values to the followers” (Bello 229). Drawing from the above definition, ethical leaders are example setters who can set examples and withstand temptations that may occur along the way. Ethics guides leaders in the process of reflection for them to distance the subject from what is happening. Reflection helps ethical leaders to identify norms, values, and conclusions by anticipating the possible consequences of a decision. A review by Bello indicates that good and ethical conclusions contribute to the success and productivity of an organization (229). Behaviors of Leaders and their effects Business ethics is about how employees balance their employment morals with their everyday morals. One of the past studies on the U.K. and other companies based in Europe revealed that the most significant ethical issues in organizations are corrupt dealings and payments’ facilitation (Bello 228). Others are bribery, discrimination, harassment, and bullying. The survey cites companies such as Mitsubishi Motor Corporation that settled $34 million in fine in 1998 for engaging in pervasive sexual harassment. In 1996, Texaco paid $176 million fine for racial discrimination, and Pacific Corporation paid $37 million for the customer and environmental fraud (Webley, Basran, Hayward & Harris). These cases are not only common in developed countries; they are also rampant cases in developing countries. For instance cases of unethical practices by the leaders in Nigeria corporations have led to the failure of many corporations. Bello indicated that the Nigerian banking sub-sector was on the verge of collapse in 1997 (228). Cadbury Nigeria was also affected by a financial scandal where it had falsified financial statement (228). Ethics must begin at the top and flow downwards. When leaders shrink from their moral obligations, they cannot set a good example for their followers. Leaders are the main determinants of the outcome of organizational goals. They help set the tone for employee behavior which may include appraisal, promotion, and strategies. Ethical Leadership and Employee Productivity Dealing ethically with employees involves considering their physical, emotional, intellectual, and spiritual needs. Ethical leadership can lead to higher employee satisfaction and employee commitment. Employees enjoy working for ethical companies and are less likely to leave ethical organizations. Employees were found to enjoy being associated with managers that are honest, respectful, credible, and fair (Bello 229). Also, organizations achieve better employee retention and attraction when employees have an opportunity to work for ethical employers. These factors translate into significant cost savings for the firm and serve to increase employee productivity. Ethical leaders impart ethical practices in their employees. Ethical leadership is a foundational requirement for impacting the long-term market valuation of the firm. There is a positive association between the ethical commitment of employees and a firm’s valuation on the stock market. An earlier study examined the impact of leadership ethics on employee productivity in the organization (Washington 1). The study sought to use the collected data to ascertain whether there is a connection between leadership ethics and employees dissatisfaction. The study also established a connection between employees dissatisfaction and the productivity and success of the organization. The majority of the respondents strongly believed that unethical leadership results in poor work productivity (Washington ii). Half of the respondents indicated that they hated their jobs and declared their intentions to quit because on their leaders actions and behaviors. Failure by leaders to motivate their employees by setting a good example of ethical behaviors and actions affects the attitude of employees making them not to accomplish what they should have accomplished (Bello 229). 50% of the respondents felt that lack of leadership ethics has become rampant (Washington 1). 80% of the respondents also felt that most of the policies that apply to employees do not apply to their leaders (Washington 36). Leaders take personal time in utter violation of companies’ policies. The same leaders deny their employees permission also to take their personal time. As a result, employees feel de-motivated and fail to conduct their duties and responsibilities conclusively (36). The respondents did not find any reason they should not be awarded some personal time if their leaders are taking their personal time. An ethical leader understands the principle of human capital. Such a leader knows that by developing human resources, he will increase the value of the business. Ethical leaders strengthen the connection between profits and the development of people, thus achieving ethical goals as well as business objectives. In one review, failure in ethical leadership was also found to be increasing employee turnover and decreases the chances of attracting new employees (Bello 229). Unethical leadership also increases the costs associated with employee turnover, increase employee supervision, decrease in job satisfaction, and decrease in employee productivity (229). Reduced Productivity as a result of Fines and Penalties The second pressure is the risk of severe penalties and costs incurred by unethical and illegal conduct. These include civil and criminal litigation brought by stakeholders or governments, as well as fines and other penalties assessed by regulatory bodies, such as the U.S. Securities and Exchange Commission (SEC). Shareholders are the ones who suffered significantly as a result of the bankruptcy, collapse, or devaluation of companies, such as Enron, WorldCom, Global Crossings, and Adelphia. These failures led to some civil suits as well as prosecutions under the criminal law, but there was also a groundswell favoring additional legal action. Among the major contributing factors that drove these companies into bankruptcy was the disclosure of previously hidden, undisclosed or purposefully manipulated and misstated financial information. Ethical Leadership and Internal Benefits Agarwal and Malloy (143) identify a positive pressure on companies to act ethically so that they accrue the benefits, whether real or perceived, of reduced employee turnover, increased employee commitment, improved productivity, and higher levels of employee trust gained from ethical business behaviors. Cullen, Parboteeah, and Victors (2003) studies of the ethical climate of an organization measured the impacts of leader behaviors on followers. The study findings stated that the deterioration of the organizations ethical climate leads to reduced commitment, increased intention to leave, increased turnover, and deterioration in organization citizenship. In turn, the authors conclude that improved levels of an organizations ethical climate contribute to increased commitment, improved organizational citizenship, and reduced turnover and intentions to leave. Leadership Ethics and Corporate Social Responsibility In their examination of Enron Scandal, Sims and Brinkmann (243) found out that, issues of corporate social responsibility and business have been under heightened scrutiny in the last 50 years. The renewed interest in business ethics and CSR is accompanied by increased calls for ethical accountability. Lack of unethical behaviors in business organizations is still embarrassingly common-place. Recent scandals in organizations suggest that certain related core ethical values and practices such as accountability, transparency, integrity, honesty and caring are critical to the field of business ethics. Business ethics places the greatest focus on the ethical responsibilities of business as opposed to other responsibilities such as legal, economic and philanthropic. CSR is the obligation of business executives to take actions which protect and improve both the society’s and own interests or; the unending commitment by an organization to behave in an ethical way which contributes to economic development while improving the employees’ quality of life as well as that of the society. Schein (245) identified ways in which leaders influence, reinforce, or change ethical norms within an organization. These can be summarized as the ways in which a leader: i. gives attention to problems or areas of interest, ii. how a leader reacts to crises, iii. performs purposeful role modeling, iv. allocates rewards, and v. uses criteria for selection of new personnel, selection for promotion, and selection for dismissal. Through these five mechanisms, a leader can create, change, or reinforce an organization’s culture. Sims and Brinkmann (243) applied Schein’s frame of reference to a case study of Enron Corporation, and accordingly provided insights into the downfall of the company. At a time when Enron was held as an example organization with its code of ethics and ethics programs, “the Enron executives used (Schein’s) five mechanisms to reinforce a culture that was morally flexible thus opening the door to ethics degeneration, cheating, lying, and stealing” (Sims & Brinkman 243) The company’s leadership attention to profit at all costs clearly put rules, restraints against self-dealing, and morality into the position of obstacles to be overcome in pursuit of the goal, as opposed to standards to be upheld. From the outside, Enron appeared to be “an excellent corporate citizen, with all the corporate social responsibility and ethical business tools” (Sims and Brinkmann 243). Sims and Brinkmann’s summary of Enron executive behavior may become a model for describing the principals in most of the recent scandals. The authors conclude “personal ambition and greed seemed to overshadow much of their corporate and individual lives” (Sims & Brinkman 253). Enron executives’ objective was to maximize their individual wealth by initiating and participating in scandalous behavior to the detriment of the company. In their examination of Enron scandal, Sims and Brinkmann (243) found out that simply creating a code of ethics and compliance program does not add up to ethical behaviors. Enron had even won prices for its ethics program, a program designed more for impression management than ethical thoughtfulness (243). Their study concluded that ethical decision-making is heavily influenced by the corporate culture and the top leadership of the organization. The leadership ethical or unethical behavior was found to have a profound effect on the culture and resultant ethical tone of the organization. Also, Enron’s culture was found to be an excellent example of corporate cultures that promote conformity. Sims and Brinkmann (243) examination of Enron concluded that leaders were focused on the bottom line and promoted short-term solutions that were immediately financially sound despite the fact that they would cause problems for the organization as a whole. Rules of ethical behavior were simply obstructions to achievement. The study also found out that Enron’s top executives set the tone for this culture that in the end affected the company bringing it to a downfall. Discussion and Conclusion As researchers have found out, business environments have recently been marked by the effects of some highly visible cases of corruption and illegal business practices (Sims and Brinkmann 243). These cases of perceived unethical behaviors have significantly impacted on business organizations. For example, events, such as the failures of Enron, Arthur Anderson, WorldCom, Global Crossings, Adelphia, and others, have generated genuine concern that the leaders of corporations are unethical. Enron management’s win-at-all-costs focus helped to create an egotistical organizational culture that pushed profits at the expense of the company’s long-term survival, ultimately leading to the company’s downfall (Sims and Brinkmann 243). Through Enron’s examination, this study has shown how the institutions of integrity served to undermine the integrity of the institution. Enron leaders’ personal ambition and greed seemed to overshadow much of their corporate and individual lives. The reason Enron top executives partook in fraudulent behavior without being caught is due to a failure in ethical leadership and corporate culture. Enron leaders violated shareholder and employee trust on a massive scale. The violation of ethics led to the Enron’s bankruptcy, making it the greatest bankruptcy scandal of all time. In cases of ethics and corporate social responsibility, the potential for leaders to behave unethically is limitless. Despite the more obvious examples of unethical organizational practices, many go on almost routinely unnoticed in some organizations. A continuing theme of deception and lack of transparency in financial dealings, alleged misuse of corporate funds, and allegations of “raiding the corporate treasury” by senior executives of companies, such as Tyco and Adelphia, raises issues of self-interest, self-dealing, and blatant theft. Other unethical behaviors include harassment and misuse of employees among others behaviors. Restoration of organizations’ competitiveness can no longer be solely based on technological advantage, the size of the economy, the educational level of the leaders, or the strength of financial institutions. Increased competitiveness must also rely on improvement in work ethics, equity and fairness in the work environment, and moral values of both leaders and employees. The perceived integrity of leaders has a direct relationship to employee job satisfaction, retention, commitment, and turnover as those employees in disagreement with their leaders with lower perceived integrity exit the organization. In order to promote a robust organizational productivity that can elevate an organization, this study suggests that the awareness of both the context in which an organization is embedded, and the direction of ‘organizational becoming’ should be maintained. The organizational productivity is undermined by the vantage point problem, where corporate leaders lose sight of the repercussions of their deeds on stakeholders and the larger operating environment. When organizational leadership ethics is incongruent with the operating environment, it is a sure sign that the organization will not be productive or may not survive. This study concludes that corporations can be productive if corporate leaders are morally aware. Also, ethical leadership has been found to be specifically critical for organizational productivity. Works Cited Agarwal, James and Malloy, David. The Role of Existentialism in Ethical Business Decision-Making. A European Review. 9(3): 143-154 (2002). Print. Bello, Shukurat. Impact of Ethical Leadership on Employee Job Performance. International Journal of Business and Social Science. 3(11): 228-236 (2012). Print. Cullen, John., Parboteeah, Praveen and Victor, Bart. The Effects of Ethical Climates on Organizational Commitment: A Two-Study Analysis. Journal of Business Ethics. 46(2): 127-141 (2003). Print. Schein, Edgar. Organizational culture and leadership. San Francisco: Jossey-Bass. (2004). Sims, Ronald and Johannes Brinkmann. "Enron Ethics (Or: Culture Matters More than Codes)." Journal of Business Ethics 45: 243-56 (2003). Print. Washington, Gloria. The Impact of Leadership Ethics on Employees’ Productivity in Business and Industry. Phd Dissertation. 1-66 (2010). Print Wesley, Simon., Basran, Sabrina., Hayward, Andrew. and Harris, David. Corporate Ethics Policies and Programmes: UK and Continental Europe Survey. A publication of the Institute of Business Ethics. (2010). Accessed [May 17, 2015] http//www.ibe.org.uk Read More