Ethical Leadership Litmus Quiz

Of course occasionally an unethical act may start with just one or two people. But it usually takes more than that for unethical behaviour to happen.

Faced with unethical lapses many organisations resort to this as a way of excusing what’s occurred.  It’s not a credible defence any more. Ethical leaders know breaches of compliance and bad ethical behaviour can occur  for many reasons, not just due to one or two bad apples. Sometimes the problems are systemic. For example, the failure of GM to recall defective parts in its cars turned out not to be due just to one or two people. The issue, as reported in the enquiry, was shown to be due to the way people tended to work in silos and for example the legal people had virtually not contact with the actual people building the cars.

It is not obvious at all! Apart from genuine Saints, just  about anyone can have an ethical lapse–for example if you say you never lie…you just did! As a leader you also set the ethical context. Through your own behaviour you heavily influence whether someone behaves ethically or not. Leaders must therefore avoid jumping to conclusions and rushing to judgement over the behaviour of a stakeholder. This is particularly relevant around whistle-blowing. Too often leaders assume the person concerned is either disloyal, or out to cause trouble. Sometimes though, it’s the most committed employee who dares to speak up and make life difficult for the leadership by drawing attention to some ethical risk. A large proportion of employees are in fact ethically “neutral”. That is, they are not sufficiently engaged to have an ethical viewpoint. With suitable guidance and training they may be able to tap into their own values to take a more robust ethical position.

Even more important than rewarding for doing the right thing is for leaders to make sure the organisation does not reward unethical behaviour. Examples if this happening include: when the company fails to tackle ethical lapses for example. In effect it rewards those who are behaving badly; similarly when person who ignores core company values but is never the less promoted. In the early days of the US Oracle Corporation sales people were strongly rewarded for selling the company’s software, even when they knew it was faulty and often did not work at all. It took years to live down a company reputation for being untrustworthy. In 2013 HSBC found some of its staff were engaged in mis-selling in order to win large bonuses. The bank stopped rewarding this bad behaviour by no longer basing rewards on how many products a person sold.  Barclays too stopped paying branch or call centre staff commission based on sales volumes, introducing a new focus on service. Rewarding people financially or giving them a high profile simply for “being ethical” may prove count productive; the aim must be to make behaving ethically a normal way of behaving, not an exception.

Ethical decisions are seldom entirely obvious, that’s why they pose dilemmas. The best course of action may not be obvious and often with unknown or unpredictable outcomes.

For example, most responsible Western companies would never employ young children, either in their own subsidiaries or through their supply chain. Yet in some under-developed nations the refusal to hire children may drive them to begging or worse. Or a company may be required to do something in one country yet find it’s illegal somewhere else. For example, US regulations require a company to release certain financial information while local laws in China would not allow its subsidiary there to do so. Which should it do?

 This is a common myth of ethics at work. Formal ethics and legal compliance programs can have a positive impact. But these tend to limit risk not necessarily reduce it. Formal systems and specialist teams may still leave an organisation vulnerable to unethical acts and therefore reputational damage. Stakeholders need to see leaders determined to go beyond formal policies and win ethical engagement. This is when people feel motivated to speak up and use their own values to help decide what is right and wrong, not just rely on obedience, rules and conformity.

Integrity is certainly important. It is part of establishing your authenticity and commitment to leading a responsible organisation.

But it is not enough just to have integrity. An ethical leader needs to do far more. For example, integrity needs to be backed up by positive actions such as setting the ethical tone, holding people to account, using rewards and punishments to guide ethical behaviour in the organisation, showing zero tolerance for unethical actions.

Ethical principles exist and one view is they are universal. For example, integrity, respect, trust, honesty or pursuing sustainability do not change. They may vary in how they are applied in practice.

“There is no simple division between business ethics and human notions of morality on which whole civilisations are based. These concepts binds us all and will continue to do so well into the future.” The Ethical Enterprise:Doing the Right Things in the Right Ways, Today and Tomorrow, AMA, 2005-2015

Strictly speaking therefore there’s no such thing as business ethics. However there are emerging principles of right and wrong that mainly apply to the business world. For instance not paying bribes to win a contract, refusing to collude over pricing, not spying on competitors using unfair means and so on.

Ethics pervade all business decisions whether we see this or not. For example, a simple aim of maximising shareholder wealth may end up causing serious social or environmental damage. However, it is not inevitable that a business is unethical in some way. It may be hard to ensure all parts of a large organisation act responsibly but the whole point of ethical leadership is to aim for consistency so that everyone supports and lives the core values. This is why ethical leadership has such an important role in setting the tone and influencing the corporate culture.

Ideally this is how an organisation ensures it acts responsibly, that is it is values driven.  Unfortunately, it happens in few places right now.

Research by the UK CIPD organisation thoughfinds only about half of all employees will do this. The rest may either day nothing, or rely on formal rules, regulations and codes to deter colleagues from acting non-ethically. Achieving an ethical or responsible organisation requires a combination of approaches: formal Compliance methods involving control, rules, systems, monitoring and so on; plus the less structured or rigid approach of ethical engagement—values driven, culture based, self-awareness and so on.

It is far more important to talk about and promote core values. Rather than telling people to behave ethically, leaders should show concern for how results are achieved–that is being concerned with means, not just ends. Putting it slightly differently: “how we get there” matters as much as “whether we get there.”

The lead person on ethics should always be the company’s CEO.

Most (88%) CEOs agree: “The CEO should be the moral leader of the organisation”, National Survey of CEOs on Business Ethics, Centre for Ethics and Corporate Responsibility, 2008

This person should be setting the tone, and influencing ethical behaviour more than anyone else in the organisation. While compliance specialists are needed for creating the right tools for supporting the responsible company—codes, regulations, monitoring systems, legal advice and so on—there is no substitute for the CEO’s leadership on ethics. Beyond the CEO there is also the Board, maybe an ethics committee and other important ways to give a lead on ethics.

Ethical leaders expect to gain a reputation for transparency and they avoid lying at all cost. They cherish their personal integrity, which includes treating all employees with respect. and not deceiving them. You don’t lie to someone you fully respect. However a study of US CEOs in 2008 found the second most important ethical issues facing the general business community was “Lying on reports or falsifying records.” (National Survey of CEOs, on Business Ethics, Centre for Ethics and Corporate Responsibility.)

Ethical problems can occur just about anywhere in an organisation. Often it is not obvious an ethical issue exists or what is the right course of action.  One of the most notorious examples is the Shell decision to dump a redundant oil rig in the sea. The leadership thought this was a sensible option with strongly supporting financial data. It turned out to be a highly controversial plan. A combination of internal opposition from staff and outside interest groups led to the board dropping the proposal. Similarly the GM decision not to recall cars with defective starter mechanisms bi-passed both the lawyers and the senior management  who only belatedly realised this was a serious ethical lapse.

The CEO is mainly responsible for seeing the organisation has a viable and properly promoted ethical plan.This responsibility extends to making sure the plan is properly throughout the organisation. Specialist can certainly help. But it’s a mistake to leave it mainly in their hands. They will usually be process-driven, worrying less about values, or how to affect human behaviour. Their main focus is likely to be on installing reliable systems, codes and monitoring methods.

Ethical leaders consistently back values. This means they may sometimes need to defend employees from unfair criticism or unreasonable customer behaviour. Ethical leaders do not subscribe to the view that the ends justify the means. Success at any cost is not a way of behaving.  Even though customers are vital to a company’s success this cannot be at the expense of core values—for example, honestly, respect, openness.

“You have heard time and time again that the customer is always right; that is dead wrong. The customer is not always right. Many times they are wrong… know, that at the top in your company, we will support no customer who asks you to operate in a way that conflicts with our moral principles. You can count on it, we will stand behind you. The customer goes; you stay. Carl R. Bergquist,  Chairman & CEO of Bergquist Company