Dame Anita Roddick of The Body Shop, James Burke of Johnson & Johnson, Sir Adrian Cadbury of Cadbury-Schweppes, Max De Pree of Herman Miller, and J. Irwin Miller of Cummins were business leaders whose careers exemplified ethical management (Murphy & Enderle, 1995). Anita Roddick (2000), founder of the worldwide retail cosmetics chain The Body Shop, suggested that companies should begin to focus on a new bottom line, making moral decisions. Thus when a new soap factory was needed, instead of being attached more conveniently to headquarters in a prosperous area of En gland, it was placed in an area of Scotland with 70% unemployment. Jobs were provided for 100 people who had been out of work for nine years, and 25% of the profits were plowed back into the community. An enthusiastic work force was created. Roddick also suggested that along with safe products, companies provide audits of their environmental performance.
Cyanide poison had been inserted into some Tylenol capsules after manufacturing. Although advised by FBI personnel that it would be an overreaction, James Burke, as CEO of Johnson & Johnson, advocating openness and candor, ordered a very costly recall. And when it was determined after a second poisoning incident that even tamperproof packaging could not be guaranteed to make the capsules safe for the consumer, the capsule form was abandoned permanently. For Burke, these actions were the right thing to do and consistent with his moral beliefs. Furthermore, the maintenance and enhancement of trust and goodwill was worth the cost of abandoning the highly profitable product.
Adrian Cadbury was an advocate of openness in dealing with ethical issues. Bribing prospective international purchasers was eliminated by demanding that bribes be shown on the purchase invoice. Openness also applied to gifts. Would a gift be an embarrassment if mentioned in the newspaper? For Cadbury, ethical actions were more important than ethical intentions. In making decisions, one’s personal rules of conduct had to be considered, followed by the interests of others who would be affected by the decision.
Max De Pree, as CEO of Herman Miller furniture (after consultation with Peter Drucker), arranged for the CEO’s salary to be no more than 20 times the pay of the average factory worker. For De Pree, integrity—a fine sense of one’s obligations—was the first requirement of leaders. In his speeches and writings, De Pree called for justice and the fair distribution of results. The leader had to be the steward of limited resources; had to exercise personal restraint; and had to keep in mind the common good of customers, managers, and employees. Also, there needed to be room for God, family, and others in one’s life.
J. Irwin Miller of Cummins, Inc., a manufacturer of diesel engines, argued that business had a responsibility to help solve the nation’s social problems. Leadership must be provided to help reduce discrimination, poverty, and pollution. Managers needed to set an example of commitment and trust before they could expect either from their employees. Employees learn the values of the organization from the example set by the top executives, not from the executives’ sermons and espousals of corporate ethics. Furthermore, Miller advised business schools to add character and selflessness as bases for selecting students. Instructors needed to set an example of ethicality. The content of any course ought to take account of moral issues in decisions reached (Murphy & Enderle, 1995).
And yet, despite the many bright examples of ethical business leaders and honest political leaders, the news has continued to be filled with stories of corrupt and fraudulent executives. Ciulla (1998) could rightfully begin her book on the ethics of leadership by saying, “We live in a world where leaders are often morally disappointing” (p. 5). Self-aggrandizement among CEOs has increased. In 1965, for Fortune 500 CEOs, the ratio of their average compensation to that of a factory worker was 24 to one. In 2006, in the United States, the ratio was 262 to one (Anonymous, 2006).
According to Scott and Hart (1991), modern management arose with the promise that it would bring material affluence, material growth, and abundance. Its organizations were to be the engines of progress and prosperity. Professional managers who were skilled, competent, rational, and efficient replaced the idealized, wealthy, and powerful entrepreneurs of the nineteenth century. Professional managers were expected to be men with moral integrity. But by 1910, Woodrow Wilson was cautioning against the unrestrained power of some top corporate managers. In 1922, William Riply warned of their unregulated control over corporate assets. Adolph Berle and Gardner Means wrote in 1933 that society was in danger of becoming hostage to the professional managers’ private cupidity. Burnum (1941) noted that the management elite was always able to get more than its fair share by using its power. But Barnard (1937) argued that unless managers had a strong sense of responsibility and were moral, cooperative, enlightened, and fair, they would be “winnowed out” because their organizations would perform poorly. Despite the importance of the ethics of management and leadership, it is only in the past several decades that this has become a major issue for empirical surveys and experimental research.
There is much ancient and modern philosophical literature on ethical theories of leadership, and there are hortatory commentaries, but they contain little empirical evidence to confirm or refute derived hypotheses or propositions. The evidence is anecdotal, qualitative, and subjective rather than quantitative and objective. Nevertheless, ethics has been in the domain of philosophy for 2,500 years. Moral philosophies contain the principles and rules that leaders may use to determine right and wrong (Ferrell & Fraedrich, 1994).
Deontology treats ethics by considering the values inherent in the rules of human behavior or in the behavior itself. Teleology focuses on the consequences of rules or actions. Virtues are studied in theories about actions that fulfill good purposes or lead to right outcomes (Elliott & Engebretson, 1995).
[Its study] can be as rigorous [as social science research methods]. The philosophical study of ethics is not just a matter of opinion. Adequate treatment of any area of applied ethics involves sound argumentation, astute articulation of the relevant questions and a strong footing in the realities of the practice that is being analyzed. (Ciulla, 1994, p. 2)
Plato’s republic was an ideal city-state of 5,000 inhabitants, to be led by an ethical philosopher-king. Plato recommended a formal program of education and development for the ruler and his guardians, supported by the working class. The ethical ruler needed to maintain justice and avoid self-interest and abuse of power. For Confucius, ethics was a matter of duty rigidly determined by tradition. The leader sought harmonious living in a well-ordered society. Harmony was derived when all people fulfilled their obligations to one another and to the rules of society. Particularly important were duties to parents and rulers. For Lao-tzu (sixth century B.C.E.), the best rulers behaved so that their people thought they had succeeded by themselves. The best leaders were not noticed. The worst were feared and reviled. Machiavelli (1469–1527) said in The Prince (as noted in Chapter 7) that rulers only needed to appear to be moral but did not actually have to be. A ruler had to be an authority who knew how to use his power to provide justice and order. Thomas Hobbes held that only through authority could an ethical order be established, because people were self-interested, naturally assertive, and power-seeking. Only anarchy could result if they were not ruled by firm authority (Ciulla, 2004).
According to Immanuel Kant, a deontologist, reason demands that moral duty transcends all other duties. Kant’s categorical imperative was that we ought to believe that what is right for others is also right for us. It was a detailed version of the Golden Rule based on reason, not religion. It was the commanding influence of moral principles (Corsini, 1999). We have a moral duty to satisfy the legitimate needs of others as dictated by logic and reason. We ought to tell the truth because it is the right thing to do. Morality depends on the intention of doing good, not on outcomes. For Kant, morals were self-evident and derived from the natural order. Universal moral duties ought to direct one’s conduct consistently and in all circumstances. Leaders must act on their strongly held beliefs even if not in their own self-interests (Ciulla, 1998).
David Hume, however, rejected reason as guide to morals in favor of emotions; and Baruch Spinoza emphasized the importance of the self. Utilitarians such as Jeremy Bentham (1823/1948) and John Stuart Mill argued for the greatest good for the greatest number (Elliot & Engretson, 1995). Friedrich Nietzsche envisioned a superman, a morally superior person who found the greatest power in self-control, art, and philosophy; his will to power made it possible to create the world, not accept it as it was. The superman was in control of his passions and was not motivated by self-interest. His virtues included sympathy, generosity, and honesty. John Dewey (1987) noted that societies change as a consequence of resolving conflict, a process in which leadership is essential. Rediscovered every several years in the psychological literature about the relationship between leaders and followers, and leaders and the situation is William James’s (1882) observation of their influence on each other. Kierkegaard (1971) followed in the tradition of Kant but stressed the importance of religion to ethical thinking. Rawls (1985) provided a new philosophical view of justice and fairness. Kohlberg’s (1969) six stages of moral development influenced the study of leadership ethics in psychology, education, and business management.
Ethical standards are considerably different for tradition-alists and nontraditionalists. Traditionalists are more Machiavellian: equity is more a matter of entitlement, and questionable ethics are justified in corporate settings if they benefit the organization rather than oneself (Mason & Mudrack, 1997). Militarists and pacifists differ on whether killing in wartime is ever justifiable. Circumstances may make a difference. A leader of a country declares a just war when the country fights to defend itself against an unprovoked attack, and even some pacifists may then change their minds. How much unintended collateral damage is morally acceptable?
Deering, Cavenagh, and Kelly (1994) surveyed individual and group differences in attitudes toward moral questions using Forsyth’s Ethical Position Questionnaire (1980). They reported that 83% of the teachers and 66% of the business majors in the survey scored low in relativism and agreed that a universal set of moral principles ought to be followed. Although most ethical theorists, such as Kant and J. S. Mill, are absolutists, many liberal arts undergraduates accept few absolute moral principles as valid and water down their moral reasoning with a relativistic point of view. “An ethical absolutist … treats ethics like math. … There are right and wrong answers to moral questions. The answers are the same for all people, in all places and at all times. … Someone who thinks 5 1 7 5 13 is simply wrong” (Irvine, 2002, p. 43). For relativists, it all depends on who and what is involved. Lying is absolutely wrong, but the absolutist makes exceptions to moral rules for conditional claims. Lying is, therefore, permissible if it will save a life. Also, telling young children about Santa Claus or that they have done a good job or that their handiwork is beautiful is acceptable. Lying to fulfill a promise to keep a secret may be acceptable. A public official may prevaricate early in an emergency to prevent panic, at the expense of losing credibility and circulating false rumors. It is important, though, to get the truth out as soon as feasible. At times, we shade the truth to avoid seeming too harsh and critical. “An ethical relativist … [adds] relativistic clauses to … ethical judgments … [and] is disinclined to label an activity as right or wrong. … Rather the activity may be wrong for him (or her) but right for others. … The activity may be wrong for one culture but right for another culture” (p. 43).
Burns (1978) maintained that to be transformational, leadership had to have moral ends and had to raise the moral consciousness of followers. Rost (1991) held that to be leadership, the leader-follower process had to provide for ethical means—autonomy and the valuing of the individual leader and follower. Coercion, manipulation, and use of authority could not be leadership or ethical (Potts, 2001). Yet unethical leaders might use ethical means for immoral ends, unethical means for moral ends, or both.
Dimensions of Ethical Leadership. Northouse (2001) designed a questionnaire about six briefly stated ethical cases. The scores reflected how much a leader agreed with each of six ethical approaches for dealing with each case. (1) Egoistic: maximizes what is best for the leader (2) Utilitarian: promotes the greatest good for the greatest number; (3) Personally virtuous: the leader is good, worthy, and humane; (4) Distributing justice: each follower is treated fairly; (5) Dutiful: the leader’s ethical duty is fulfilled; and (6) Caring: leaders nurture those with whom they have special relationships.
Importance of Leadership Ethics. Barnard (1938) introduced ethical considerations about leadership in his examination of the moral modes of administration. The administrator had to work with people who differed in their moral codes concerning right and wrong. The administrator’s role in dealing with moral dilemmas was to adjudicate among alternative opinions and provide acceptable reasons for moral decisions. But not until the last few decades has the ethics of organizational leadership become a prominent subject of theory and research.
Offerman, Hanges, and Day (2001) noted that founders’ often set the moral climates of their organizations and that a climate may remain long after the founder is gone. Shared perceptions of what is right and wrong behavior often stem from the personal values and motives of the founders and other early leaders of the organization (Dickson, Smith, Grojean, et al., 2001). Bloskie (1995) discussed the role that ethics, morality, principles, and values should play in leadership. Any works on the subject are likely to be a discourse on robust applied ethics and a superficial examination of leadership, or vice versa. Nonetheless, Kanungo and Mendonca (1996/1997) argued that without a consideration of ethics, understanding of leadership is incomplete: “Ethical values are always involved with leadership, regardless of whether or not leaders are explicitly aware of the fact.” “The best leaders recognize their responsibilities as the chief custodian of the values of their group” (Knapp & Olson, 1996, pp. 84, 85). Leaders balance the fundamental values of the organization with the needs of its stakeholders, such as organizational survival and the bottom line (GrensingPophal, 1998). Included among the worst leaders who made Fortune’s list of the “greediest executives” (2002) were those who awarded themselves the generous amounts of stock and stock options approved by their boards of directors and who cashed out while their organizations were laying off workers, taking severe losses, and approaching bankruptcy. “The not-so-secret dirty secret of the crash [at the end of the 1990s] as [shareholders] were losing [70% to 100%] of their holdings, top officials of many companies that have crashed the hardest were getting immensely, extraordinarily, obscenely, wealthy” (Fortune, September 2000).
A firm’s ethical reputation has practical importance. A survey by Duke University of 650 graduate business students from 11 top MBA programs found that ethical and political reasons (and possibly the future insecurity of the industries) affected their willingness to accept employment in particular industries. Almost 82% of the students said they would not work for tobacco companies, which had suppressed for 30 years the internal findings about the health risks of cigarette smoking. From 20 to 36% said they would not join firms with questionable environmental problems, liquor marketers, or defense contractors (Randall, 1994). The large and prestigious accounting firm of 40,000, Arthur Andersen, lost so many clients in 1992 in the wake of the Enron scandal due to the malfeasance of a few managing auditors, that it was forced into bankruptcy and dissolution.
Role of the Corporate Manager: Agent or Trustee? Theoretically, if the role of the manager is to act as an agent for the owners (shareholders) of the corporation, then morally the manager agrees to act under their direction on their behalf. The owners consent to accept the agent’s actions in substitution for their own. The manager’s duties are to do what the agent has proposed to do, to accept reasonable directions from the owners, and not to act contrary to the owner’s interests, bearing in mind the interests of the other stakeholders of the organization. An ethical problem may arise when the manager is expert and the owners are not. Ordinarily, the individual shareholders have no institutional way to give routine instructions to the manager. They have to own a sizable percentage of shares to carry much weight. As a consequence, it makes more sense morally to regard the manager as a trustee of the organization. As a trustee, he or she ought to consider the rights of all the other stakeholders in the organization. A trustee has a moral duty to advance the shareholders’ interests as well as the interests of the other stakeholders in the organization, such as the employees, customers, and community (McMahon, 1972). As a trustee, a manager and leader helps to lessen the gaps among others created by conflicting values and to adapt—in the face of competing perspectives and creative tension—to new approaches (Heifitz, 1994).
Hodgeson (1994) viewed leadership as a moral activity. Leaders should respect the basic human dignity of followers and their rights and ability to make choices regarding their own affairs. To point to ethical principles of leadership implies that ethics and morality are absolute rather than relative. There are ethical imperatives—e.g., “thou shall not kill.” But the absolute principle is conditional. Thou shall not kill except in self-defense or to save others’ lives. To kill in war requires that it be a just war. Other exceptions, such as abortion and euthanasia, remain controversial. For Kant (1959/1985), it is a categorical imperative that humans be treated as ends, not means. Thus employees should be assigned to meaningful jobs and not treated impersonally as a means of production or service (Bowie, 1998). Irvine (2000–2001) argued that cultures tend to be far more similar in morals and ethics than different. It is circumstances that are different. The traditional Inuit left their elderly out in the cold to die, to avoid starvation of the whole family. The world lead-ers most admired by thousands of respondents—leaders such as Abraham Lincoln, Martin Luther King Jr., Jesus, Mahatma Gandhi, and Eleanor Roosevelt—all had strong beliefs about matters of principle. They were admired for their commitment and willingness to stand up for their beliefs (Kouzes & Posner, 2002).
The ethics of transformational leadership have been questioned. More often than not, these criticisms are about pseudotransformational leadership and inauthenticity (Bass, 2001)—discussed as vices of leadership later in this chapter. On the basis of his reading in philosophy and literature and his experiences on active duty and as a prisoner of war, Admiral James B. Stockdale (1981) drew up a list of universal ethical principles of leadership. In paraphrase, some of them are
1. If individual freedom is pushed to the limit, equality is lost. If you subordinate every social value to equality, freedom is sacrificed.
2. In a rigid hierarchical organization or a bloated bureaucracy in which people are trying to manipulate others, you need to avoid the temptation of thinking only about yourself. Sooner or later it becomes clear that the greatest good, the key for survival and self-respect, comes from solidarity with the others, not from taking credit for their good work or from superficial theatrics.
3. There is no moral economy in this world in which virtue is rewarded and evil is punished. The biblical Job lived a virtuous life and then with no reason or logic suffered the loss of all of his goods and reputation. Life is not fair. People need to be prepared for failure.
4. A good leader appreciates contrariness. You shouldn’t force people to do what you think is good for them.
5. Goethe wrote that you should not appeal to what persons are but rather to what they might be. According to Aristotle, persuading people to reach their potential was a matter of reason (logos), emotion (pathos), and—most important—the leader’s character.
6. A leader’s moral responsibilities cannot be escaped. You cannot use your position as a shield against responsibility for your actions.
Cialdini (2001) has argued that although it is ethical to use expert advice and authority as a shortcut to deliberation and thoughtfulness in making good decisions, it is unethical to counterfeit or exaggerate consensus, social proof, expert authority, commitment, reciprocity, or scarcity as reasons for taking action. A controlled experiment demonstrated that 120 undergraduate college students could be taught to discriminate between honest authoritative advertisements and manipulative ones.
The success of leaders may eventuate in unethical behavior. They may lose strategic focus and develop an inflated belief in their own ability to control outcomes. With privileged access to resources and enhanced status as a consequence of their successful leadership, they may be tempted into unethical acts for their own benefit at the expense of their exploited followers (Ciulla, 1998). The ordinarily ethical leader is corrupted by personal motivation, positional power, and success (Ludwig & Longe-necker, 1993). Ethical norms may be violated when the well-meaning leader transforms individuals and their values to attain organizational goals but damages individual members (Stephens, D’Intino, & Victor, 1995). The righteous King David had an ethical lapse when he wanted to marry Bathsheba: he abused his acquired power to arrange the death of Uriah, her husband.
Ethics in Negotiations. The transactional leader may be highly successful at negotiating agreements with followers, but at the expense of maintaining ethical standards. The personally moral leader may lower standards in order to achieve settlements (Giampetro-Meyer, Brown, Browne, et al., 1998) or to achieve success by “cutting corners” or pressuring followers to produce (Fleming, 1999). Volkema (2001) presented data showing that among the tactics least offensive to moral sensibility were exaggerating an offer or demand, pretending not to be in a hurry, hiding one’s bottom line, and making vacuous promises.
Tenbrunsel and Messick (2001) reviewed the temptations to be unethical in negotiating. Ethical transparency and full disclosure about preferences and alternatives could shift to shading the truth. Negotiators are prone to unethical misrepresentation, false threats, false promises, and falsely demeaning the opponent’s best alternative to reaching an agreement. Some of these behaviors appear acceptable—such as making a high opening demand and pretending to be in no hurry to reach an agreement. Unethical behavior tends to escalate as a consequence of expectations about the ethics of the opposition. Differences in power also increase the unethical behavior of the negotiators.
Trade-Offs. Winston Churchill was supposed to have said that Lady Astor would not sleep with him for £10, but would for £10,000. Socially conscious investors are willing to accept lesser returns from mutual funds that invest only in firms that meet standards of social acceptability. Consumers may use a firm’s services even though a competitor offers a lower price, because of the firms’ ethical stance on the moral role of business in society. Conversely, consumers may boycott the products of a firm because they view the firm as engaged in unethical practices; for instance, Nestlé was accused of selling powdered infant formula in developing countries with unsanitary water supplies. A trade-off may cause an ordinarily moral leader without a strong enough character to ignore or engage in an unethical act because of its unusually beneficial effects for himself or herself or others. Ordinarily ethical leaders may fail to maintain standards so as to protect a family member. Moral actions may be sacrificed for opportunities and expediency (Dunfee, 2001). Ethical constraints are weakened by severe social, political, and economic conditions. Managers in the post-Communist nations of Eastern Europe used their new personal power to act abusively at the expense of their followers. This behavior was a legacy of the former Communist leadership and the socioeconomic conditions they left (Luthans, Peterson, & Ibrayeva, 1998).
Formal Ethical Education in Professional Schools. The Association of American Medical Colleges (AAMC) has listed altruism, knowledge, ability, skill, and duty as goals for graduating students. Compassion is given high priority for physicians; nevertheless, patients are likely to prefer a cold but knowledgeable and skilled physician to one who seemed warm but less expert (Gans, 2002). Rest (1988) concluded that deliberate educational interventions in the curricula in schools of law and medicine can effectively raise the moral reasoning of the students, as measured by Defining Issues Test (DIT) scores.
Business schools need to do more to teach business law and proper accounting practices. Many business schools have added ethics courses to their curricula. Taking into account the numerous corporate scandals and the amount of cheating in school, Sowell (2000) inferred that ethics courses in business schools have failed. Of approximately 2,000 MBA students entering one of 13 leading business schools, 68% agreed that maximizing shareholders’ interest was the prime responsibility of corporate management. The figure rose to 82% at the end of the first year (Reiter, 2002). One reason may be the domination of many business schools by economists who believe that the sole purpose of business is to maximize shareholders’ interests. Sowell’s point of view is supported by Ponemon (1993). In a controlled experiment, he found that a semester course in auditing for 73 senior undergraduate and 53 graduate accounting majors did little to raise the students’ level of moral reasoning. Etzioni (2002) suggested that part of the problem is what are acceptable lines of moral reasoning in business. Some people see business as a poker game in which bluffing and avoiding disclosure are permissible. Some argue that morality is relative and depends on who benefits from actions. Some suggest that customers may be gained by lying and cheating even though telling the truth may pay off in the long run.
On a more positive note, Williams and Dewett (2005) found empirical evidence to support the value of teaching ethics to enhance business students’ moral development, ethical sensitivity to ethical issues, and appreciation and skill in dealing with complex ethical decisions. Penn and Collier (1985) found that business education promoted moral development. Compared with a control group of students in a marketing course, students in a business ethics course became more aware of and more sensitive to ethical issues, according to pre-post testing (Gautschi & Jones, 1990). Skepticism and relativistic attitudes changed to a better understanding of the scope of ethical issues and the complexity of making ethical decisions when students kept logs to reflect on ethical issues during a course in business ethics (MacFarlane, 2001). And students who took a business ethics course showed greater flexibility in reasoning afterward than they had shown before, as well as an increased ability to incorporate the complexities of circumstances. These students were dealing with a complicated case of CEO decision making (Carlson & Burke 1988).
The reputation of organizational leaders depends on their morality as persons and as managers and executives (Trevino, Hartman, & Brown, 2000). They may be moral in beliefs and ethical in behavior; they may be amoral in beliefs and neutral in ethical behavior; or they may be immoral in beliefs and unethical in behavior. Trevino, Brown, and Hartman (in press) conducted one-hour or longer interviews with 20 senior executives from different firms and 20 ethics officers from the same firms. The interviewees were asked to describe anonymously the ethical behavior of another executive. After answering in detail, they then were asked to describe an “ethically neutral” executive.
The ethical executives were more likely than the ethically neutrals to be perceived as people-oriented. The neutrals were more likely to be seen as self-centered and uncaring about others. Compared with the neutrals, ethical leaders were more often seen as role models of ethical conduct who led by example and “walked the talk,” who were more likely to do the right thing and were honest, trustworthy people of integrity. They were perceived as more likely to be good, open communicators and receptive listeners, as well as influential, inspirational, courageous, and strong. In short, they were more likely to be transformational leaders. Yet they were more likely to be transactional leaders as well (see Chapter 22). They set standards of conduct, reinforced ethical behavior, used rewards and punishments to hold people accountable for ethical standards, and did not tolerate ethical lapses. Ethical executives cared a great deal about the bottom line but were also concerned about multiple stakeholders, the common good, the community, and society. They were concerned also about the means of achieving business goals, not just the ends. Ethically neutral leaders differed from their ethical counterparts in being more short-term-oriented and financially oriented and being less aware of ethical issues.
Organizational leaders can serve as moral exemplars:
The moral impact of their leadership presence and behaviors [has] great power to shift the ethics mind-fulness of organizational members … [They can] establish a social context … of positive self-regulation that becomes a clear and compelling organizational norm in which people act ethically … and corporate culture in which principled actions and ethics norms predominated (Thomas, Schermerhorn, & Dienhart, 2004, p. 56).
Excellent basketball coaches were identified as premier role models in interviews with nine of their peers. Not only were the coaches highly successful, competent teachers, committed to personal values and principles, but they also shaped the character of their players (Gerdes, 1994). Twenty-three living Americans were nominated as leading moral exemplary lives, because they: (1) integrated self-concepts and moral goals, did not compartmentalize morality apart from other motivating factors, and engaged in a broad range of commitments; (2) used moral concepts frequently in describing themselves; (3) denied that they had moral courage despite their history of moral courage; (4) behaved morally almost automatically and expressed certainty over doubt in their moral decision making; (5) converted seemingly depressing unfortunate occurrences into positive life-affirming events; and (6) exhibited high levels of religious faith and spirituality.
The Ethical Leadership Scale (ELS) was constructed, refined, and validated by Brown and Trevino (2002). Forty-eight brief statements were drawn from in-depth interviews with 20 ethics officers, 20 executives, and 20 MBA students. The statements were reduced to 21 items by means of an exploratory principal axis factor analysis with an oblique rotation of data from 154 MBAs from three large public universities and 127 employees from a large financial services organization. A confirmatory factor analysis followed using 184 employees from the same financial service. The analyses extracted and confirmed a single ethical leadership factor. The final instrument consisted of 10 items rated by subordinates about their supervisor, such as “When making decisions asks what is the right thing to do”; “Disciplines employees who violate ethical standards”; “Has the best interests of the employees in mind”; “Makes fair and balanced decisions”; and “Defines success not just by results but also [by] the way they are achieved.” The ELS demonstrated convergent and discriminant validity for 571 employees from the same organization and 86 MBAs with correlations with MLQ transformational leadership ranging from .82 to .91 and correlations with LBDQ consideration (.72) and cognitive-based trust (.79).
Relation to Moral Reasoning. In this chapter, we describe the measurement of moral reasoning using the Defining Issues Test (DIT; Rest, 1979). People who reason ethically may not always act ethically. Managerialism was supposed to usher in material affluence and social harmony. According to Barnard (1938), the organizing principle of consensus and material growth was its moral authority. Organization required cooperation; organizations would fail if their leaders were immoral. Management was the steward of modernization, peace, and prosperity. Those in leadership positions must have impeccable moral integrity. In its absence, according to Gardner and Means (1933), the public interest would become hostage to private cupidity. For Drucker (1954), it was management’s responsibility to make whatever is in the public good become the organization’s self-interest. Progress depended on the technical rationality of management. For Simon (1947), management was responsible for the application of logical positivistic science and controlled experimentation for progress (Scott & Hart, 1991). But Scott and Hart (1991), writing about the business scandals of the 1980s, declared that the concept of managerial responsibility was put to shame by management frauds, abuses, and mismanagement. Nonetheless, a fundamental task of leadership may be to persuade people to go beyond a selfish agenda because left to their own devices, they will follow selfish rather than broader agendas (J. Hogan & R. Hogan, 2002).
We are at the end of a 300-year trend in decoupling the physical world of science, technology, and business from the moral landscape. The moral meltdown that leaves people working in an amoral context produces dissociation from the community. The profane earning of a living is disconnected from our sacred and spiritual cultural heritage (Reeves-Ellington, 1995). In a telephone survey of 1,500 respondents, one-third said they had seen un-ethical activities in their organization in the past year (Ethics Resource Center, 2001). J. Patterson and P. Kim (1991) conducted an anonymous survey of a random sample of 2,000 managers and workers. One-third judged the workers to be more ethical than the managers and only 9% to 13% saw the reverse. A majority judged the managers to be more greedy and willing to take credit for another’s work; workers were judged much less so.
One cause is competitive pressure. Heggarty and Simms (1978) found that demands for performance resulted in unethical management decisions. Burnham (1941) argued that since management was in control of resources, it would use its power for self-interest. Selfless management was unlikely. Management controlled the organization’s resources.
Management Corruption. The financial system exacerbates the pressure to concentrate on short-term interests, preventing managers from attending to social responsibilities (Korten, 1996). Supposedly serving the public and the shareholders, certified public accountants (CPAs) who audit the accounts of their clients are paid by the clients (Ruland, 1993). Bartol and Martin (1990) showed that managers awarded unjustifiably large raises to subordinates who threatened to use their connections with senior executives. According to Baucus and Near (1991), other environmental causes may include rapidly changing market conditions, patterns of wrongdoing in an industry, and lack of legal enforcement. Additionally, uncertainty, opportunities, and crises may be involved. Internal antecedents may include lax controls and a lack of standards. Important also are development, role models, education, work, early life, family experiences, and prior success and failures. Another factor is understanding one’s duties and obligations in order to be able to fulfill them (Anonymous, 1997). Trust among members of a group or organization may be seen as an implicit moral duty. Although problematic, an explicit sense of, moral duty to trust one another could be effected and justified (Hosmer, 1995).
It is one thing to know what is right to do; it is another thing to do it (H. C. Smith, 1993). Good business may outweigh good ethics. Unethical behavior may be practiced contrary to one’s moral beliefs. Other matters may override one’s desire for a moral decision. Leaders may value political success and economic improvement over ethical behavior (Fritzsche & Becker, 1984). Opportunity may take precedence over ethics (Zey-Ferrell & Ferrell, 1982). A low risk of getting caught may tempt people to engage in illegal behavior (Fraedrich & Ferrell, 1992). Striving for goals over lengthy periods of time may generate unethical leadership behavior (Street, 1994). Leaders and managers may know right from wrong but convince themselves that ethically dubious enterprises are not only expedient but all right. We are more willing to harm others if we are pressured by authority (Milgrim 1974), if we are dealing with strangers rather than friends (Yamagishi & Sato, 1986), if we are at a distance from rather than close to those to be harmed, and if our self-efficacy is threatened (Bandura, 1989). But we are less likely to succumb to pressure to harm others, or to acquiesce in unethical commands if we are at Kohlberg’s (1969) highest stages of moral reasoning (stage 5 or 6) and consider all people and universal ethical principles, rather than at the lowest stages (1 and 2—the stages of self-interest and personal aspirations). In between (in stages 3 and 4), we are conventional; we obey the rules to avoid being punished, or we conform morally due to social pressure. Whereas 75% of people at the highest stages have refused to obey ethically dubious orders, only 13% at the lowest stages refused (Stewart & Sprinthall, 1994). Noted for his boastfulness about taking a hard line in cutting costs and for his ruthless layoffs that imperiled operations, “Chainsaw A1” Dunlap (1998)—at stage 1—was the epitome of the unethical CEO (Bennis, 1997). Dunlap severely harmed earnings at Sunbeam Corporation before he was fired. He bragged about his efforts to sharply downsize the firm (Dunlap & Andelman, 1996), efforts that subsequently resulted in a serious fall in sales and stock prices. Eventually, Sunbeam went bankrupt. Un-ethical accounting practices that inflated stock prices led to shareholder suits, personally costing Dunlap $15 million to settle an SEC investigation (Anonymous, 2002).
Daboub, Rasheed, Priem, et al. (1995) suggested that characteristics of a top management team, such as business education, seniority, and functional background, serve to enhance or neutralize illegal activity. The trustworthiness of banking executives was severely questioned and a number went to jail as a consequence of the savings and loan scandals of the 1980s. According to a New York Times CBS poll in 1985, 55% of the American public believed that the majority of corporate executives were dishonest and that executive white-collar crime was rampant. Of 671 executives surveyed in 1987, more than half said that they bent the rules in order to get ahead. A Prentice-Hall survey in 1990 revealed that 68% of employees believed that executives’ unethical behavior resulted in the decline of business standards, productivity, and success. A majority of the employees justified their own malingering as a consequence of their perception of executives’ unethical behavior (Gini, 1996). The Enron scandal of 2001 showed how widespread and devastating corruption could be, as it involved conspiracy and fraudulent behavior by the chief executives Ken Lay and Jeffery Skilling, and 16 chief executives in finance, accounting, and other units, all of whom pleaded guilty. Additionally, two other senior Enron executives in finance and accounting were convicted, as were three Merrill Lynch senior executives: a vice president and the heads of asset leasing and investment banking. Arrogance, recklessness, greed, buttressed by the size of the incentives, underlay the executives’ wrongdoing. The corruption and criminality at Enron were paralleled at other giant firms, such as WorldCom, Adelphia, and HealthSouth (Eichenwald, 2006). The scandal resulted in the bankruptcy of Enron; the near destruction of one of the big-four auditing firms, Arthur Andersen; the loss of employment by thousands of Enron’s employees, 4,000 in Houston alone; and the loss of employees’ pensions and savings. Thousands of shareholders were left with worthless shares (Barrionuevo, 2006).
In a survey of a representative sampling of 747 human resources professionals, 53% reported they had observed misconduct occasionally (46%) or often (7%) within their organization during the past year; this misconduct violated the law or the organization’s standards of ethical business. But 21% failed to report the misconduct, for fear that they would not be seen as team players; and 70% agreed that American business managers would choose profits over doing what is right. Almost all agreed that in the long run, good ethics makes good business sense; but 63% felt that ethical conduct was not rewarded. Only 69% said that their CEO was sufficiently committed to ethical business conduct; 68% felt that this was true of the rest of top management. However, more than four out of five human resources managers rated those closest to them—their direct supervisor and those they directly supervised—as sufficiently committed to ethical business behavior. The larger the organizations in size, the more likely they were to have a written code of ethical standards. Just over half of those with fewer than 100 employees, but 94% of those with over 5,000, had a code. Training in ethical standards of business was provided by 61% of these, and most employees (85%) said they occasionally or frequently used the principles they learned. Included in Martin Marietta’s ethical code were: avoiding conflicts of interest; not accepting payments, gifts, or entertainment from suppliers and customers; maintaining complete and accurate books, records, and communications; preserving assets; cost-consciousness; compliance with securities, restrictive trade practices, and antitrust laws and regulations; not biasing or falsifying accounts; and avoiding political contributions, disciplinary actions for violating the code, supervisory failures, and retaliation for reporting violations.
Frauds and swindles such as making secret deals to profit insiders, securing loans with phony assets, selling assets that do not exist, trading of company stocks by insiders, and attempting to “corner” or manipulate a market seem to mount up in boom times and are discovered when the economic bust suddenly occurs. The scandals revealed in the first decade of the twenty-first century involved larger amounts of wealth and more major corporations and their senior executives than in the past, and more questionable business and auditing practices than usual. The wars in Afghanistan and Iraq produced a wave of shady deals and corruption by government contractors. The scandalous bankruptcies at Enron, Tyco International, Global Crossings, Adelphia, WorldCom, and other companies forced financial restructurings that were first brought to light in 2002. They resulted from the looting of these corporations by their top executives and no doubt led to negative feelings among employees and shareholders about corporate leadership. A few top executives, left uncontrolled by friendly, highly paid boards of directors and unchecked by unethical auditors, gave themselves as much as a fifth of a large firm’s profits in the form of extraordinary perquisites, salaries, sweetheart deals, stock awards, and pensions, and ignored the corporation’s investment needs and the rights of the other stakeholders—the lower-level managers, employees, and shareholders. The boundary between ethical and unethical compensation has become fuzzier. The fact that the CEO’s compensation in 2005 averaged 262 times the pay of the average worker in the same firm made it difficult to maintain the rationale that the top executive’s compensation was a reasonable practice, legal, and a matter of supply and demand. An ethical decision would be based on a more beneficial and equitable distribution of the firm’s returns (Balcom & Brossy, 1997).
Example: Health Care As reported in the Minneapolis Star Tribune and by the attorney general of Minnesota, the not-for-profit Allina Health System of 16 hospitals, 47 clinics, and health care insurance units publicly espoused values such as wise use of resources, financial accountability, and earning the community’s trust; but lavish expense accounts were provided. The hypocrisy was illustrated by eight Allina executives who attended an ethics seminar and charged Allina for a $1,500 dinner. A vice president of Medica, its subsidiary health insurance firm, was reimbursed $8,000 for his late fees at a golf club, to take care of his golf clubs, and to pay for his wife’s use of the locker room. In 2001, Allina lost $71 million and its former subsidiary laid off 20% of its workforce (Heuerman, 2002).
Example: Labor Union The founders of labor unions and their successors fought hard to improve their constituents’ welfare and working conditions. Nevertheless, corruption and exploitation of the rank and file crept into union movements, sometimes to counter employers’ militancy, sometimes to take care of unscrupulous politicians, sometimes to deal with pressure from mobster’s, and sometimes for the self-aggrandizement of the union leaders. Bouza (1996) noted that by 1995, 400 officials of the Teamsters Union had been charged with corruption and removed. In addition to the Teamsters, three other national unions were listed by the federal government as being controlled by organized crime.
Why? Unethical behavior by executives takes place in spite of ethical codes, laws, regulations, and ethics officers at large firms and agencies. So that “business ethics” does not become an oxymoron, reforms are needed. Marino (2002) noted that corporate officers need to be kept in the loop of information concerning executives’ wrong-doing.
Ulmer (1996) suggested that senior executives fail to set an example by their personal behavior. Their misconduct provides a rationalization for everyone else to ignore ethical codes and considerations. They place unreasonable demands on those at lower levels, causing the latter to reveal incompetence and providing them with an excuse to cut corners. Borrowing from Aristotle and Kant, Jeannot (1989) argued that virtuous character is required of leaders. They need practical wisdom, autonomy, and a sense of responsibility. At the same time, business actions and accounting numbers need to be made more transparent. Taking personal responsibility for actions and ensuring a transparent supportive money trail could do the same for political ethics.
Enforceable laws and regulations may also be important. The scandals have resulted in a new federal law tightening accounting rules and toughening penalties for white-collar crime. The Sarbanes-Oxley Act made the CEO liable for the deliberate falsification of earnings in order to raise the price of the firms’ shares (Lowenstein, 2002). The New York Stock Exchange began requiring all listed firms to provide a code of ethics. An ethical code is the norm for larger organizations. But scandals occur in firms despite their written codes of ethical conduct. According to an analysis of the codes of 75 Canadian firms and three American studies of corporate codes, their main purpose is to protect the firms against misconduct against them instead of promoting the firms’ ethical responsibilities (Lefebvre & Singh, 1996).
Despite the laws, regulations, and codes and the punishments for violation, why do managers and executives engage in unethical and illegal behavior? Fraud in organizations commonly involves cooperation among otherwise ethical, upstanding members of the community. They justify corrupt acts. They have logic-tight compartments—dishonesty in business and loving care for the family at home. Newcomers to the organization are socialized into corruption (Anand, Ashforth, & Joshi, 2004). Bazerman, Bazerman, and Messick (1996) attributed the answer to psychological aspects of decision making. In weighing the desire for gain against possible punitive consequences, all but the one favored aspect of the decision will be ignored. Decision makers are confident that the risk of getting caught is overrestimated, or controllable, or can be ignored. Future events are perceived as more likely to be good than bad for the decision makers. They seek information only to confirm what they already believe. Unethical executives are further motivated by the rationalization that their gains are justified and are fair compensation for what they have contributed (Jenkins, 2002).
What motivates unethical behavior at lower levels in an organization? One’s superiors may be an important factor. As a result of pressure from above to reach quarterly goals, sales teams at Global Crossings and Qwest engaged in dubious practices and suspicious deals. Higher-ups were able to overstate actual sales by approving network swaps.
Changed Norms. Ethical norms change. Ethical norms are broken. Physicians and lawyers at one time were not permitted to advertise. On the Internet prior to 1994, advertising was informally banned through self-regulation by its mostly educational, scholarly, and scientific early users. The costs were kept low. Management of the Internet was kept at a minimum. Then two lawyers advertised their services in news groups, and refused to quit. The dam was broken. The Internet was flooded with advertising, which led to congestion requiring a greater increase in Internet management. The World Wide Web that followed became even more congested with increased traffic and graphics (Fukuyama, 1995). With commercialization, both became targets of deceptive practices and fraud.
Bending the Rules. Of over 100 members of the executive advisory panel of the Academy of Management Executives, 87% said it was a common rationale to “bend the rules” to get the job done, and 77% said this was a common justification if performance standards were unfair and overly restrictive. Similar large majorities agreed that bending the rules was commonly justified in an emergency or if the rules were ambiguous or outdated. Most felt such rule-bending was appropriate behavior. But only between 19% and 27% felt it was appropriate to bend the rules under political or social pressure to do so, to pay back favors, or because “everyone does it.” The five most important personal reasons they gave for not bending the rules were: (1) to avoid jeopardizing their jobs, (2) to avoid damage to their reputation, (3) to avoid being held responsible, (4) to avoid creating an unwanted precedent, and (5) their own code of ethics. Also, bending the rules might prove embarrassing and jeopardize the organization and others (Veiga, Golden, & Dechant, 2004).
Van Buren (2002) called for changing the contractual norms for employee-management relations to increase fairness. Employee consensus is usually lacking in the exchange agreements between them. “The goal of any movement for worker justice should be to restore the ability of workers to exercise rights of consent; that is to participate in meaningful ways in corporate governance processes with regard to employment policies and practices” (p. 2).
Ciulla (1998) suggested that leaders who do not look after the interests of their followers and other organizational stakeholders are not only unethical but also ineffective. Lee Iacocca made a moral gesture by cutting his yearly salary to one dollar, showing solidarity with his workforce when Congress bailed Chrysler out of bankruptcy. Ethics and business effectiveness also came together for Alan Weil, whose law firm’s offices at the World Trade Center were destroyed by the terrorist attack of 9/11. He first checked to see if all his employees had escaped safely, then rented the necessary space in another building and arranged the same day by telephone for 800 desks and 300 computers to be delivered. The firm was open and ready for business the next day.
Ethical Imperatives. The ethical leader ought to be fair and truthful, avoid harm to others, and keep promises. But these absolutes must be conditional, depending on particular circumstances. Often supervisors are faced with dilemmas—two equally capable employees for instance, and room for only one promotion, so that only one or the other can be treated fairly. Should the supervisor tell the truth to a satisfied, valued employee—that her future in the firm is limited—increasing the likelihood that she will seek employment elsewhere? How much can we harm others by laying them off to save on expenses and at the same time support lavish bonuses for senior managers? It is more ethical as well as more effective to inform job applicants and new recruits about the rules and infractions as well as both the positives and the negatives in their prospective assignments. Recruits selected for employment are less likely to quit when the employment interviewer fairly presents to the job applicant both the positive and the negative aspects of the job rather than the good points alone. The subsequent orientation of newly hired employees with both positive and negative aspects of the job further reduces their propensity to quit. False expectations are avoided.
Ethical Reputation and Commitment. Simon Webley and Elisa More reported in a British study that companies with a clear commitment to ethical conduct outperform those with no such commitment. The ethical companies were more effective between 1997 and 2001, as gauged by return on capital and added economic and market value (E. Munson, 2004). Galvin (2000, p. 99) summed up the value of an ethical reputation to e-business, noting that “if four online retailers sell the same book at the same price, most people will purchase the book from the site they trust the most.” According to Panken (undated), in the ideal capitalist marketplace the most efficient organizations should survive and prosper. “The inefficient should sink in a sea of red ink” (p. 40). But ideally, capitalism should not mean minimizing expenses but rather optimizing benefits for all the stake-holders in the organization. Ideal socialism implies “To each according to his needs and from each according to his abilities.” National political economies are now more or less regulated in differing proportions between the capitalistic ethics of efficiency and the socialistic ethics of need controlled by the market, politics, economic and social legislation, and “do-it-yourself” work. In all, ethically, there should be fairness of opportunity to earn a living in an atmosphere of respect.
Ethical Reputation, Product Quality, and Consumer Satisfaction. Galvin (2000) cited a number of reports attesting to the payoff to firms from ethical leadership and honesty and fairness in business. According to the Ethics Resources Center, “high standards in the way companies deal with their employees and customers translate into better product quality and assured customers” (p. 99). The ethical intentions of 144 insurance agents depended more on their moral obligation to disclose possibly unfavorable information to clients than to the compensation system. According to a 1999 Walker Report, “companies viewed as highly ethical by their employees were six times [more] likely to keep their staff members. On the other hand, 79% of employees who questioned their bosses’ integrity said they felt trapped at work or were likely to leave their jobs soon” (p. 99). A Harris poll reported in 1988 that 89% of 1,200 workers and managers felt it was important for leaders to be honest, upright, and ethical, but only 41% said met these their current supervisor criteria (Hughes, Ginnett, & Curphy, 1993). The job satisfaction, commitment, and identification of 257 employees were positively correlated with their perceptions of the ethical behavior of management, but their perception of their organization’s ethical climate was of less consequence (Spitzmueller, Gibby, & Stanton, 2003). Having a reputation for the virtues of forgiveness, optimism, compassion, trust, and integrity was found, in 75 interviews in a small hospital and an environmental consulting engineering firm, to contribute to subsequent success after the hospital and the firm downsized. A confirmatory survey of 804 respondents in 18 firms found that those with a reputation for integrity, trustworthiness, reliability, and dependability were more profitable after downsizing. Innovation was associated with optimism, trust, integrity, and forgiveness; customer retention was associated with a reputation for optimism and trust; employee was linked with a firm’s reputation for trust and compassion (Cameron, Caza, & Bright, 2002).
Corporate Social Responsibility. Corporate social responsibility ought to be assessed by the extent to which all of the stakeholders’ concerns are considered, including those of the community and the public. According to Black and Härtel (2002), firms that are adaptive in their orientation to social responsibility consider and value stakeholder interests in their operations. Firms disengaged in corporate responsibility are the opposite. They place little value on stakeholder’ interests or ethical business conduct. The missionary type adopts any social cause not limited to its own business operations and sometimes may disturb some of its own stakeholders. The economic type acts only on matters it considers of instrumental value to the firm and its stakeholders. Community sponsorships, cause-related marketing, and strategic philanthropy are illustrative. Strategic corporate responsibility is shown when automobile companies invest in engines that use alternative, less polluting fuel. A network of firms oriented to corporate social responsibility would enhance the effort (Johnson & Brennan, 2002).
Socially Responsible and Irresponsible Accounting Statements. Pruzan and Thyssen (undated) suggested that accounting statements can be prepared that reflect a consensus among stakeholders’ shared values and how the organization has lived up to them. Compared with a traditional accounting statement, such statements involve more values and more stakeholders. Operationalized, concrete verbal expressions in the statement can be applied to creating questionnaires to evaluate the organization’s ethical performance. But short-term stock options for CEOs militate against ethically sound corporate governance. Sixty large firms that had to restate their accounts of 1999 or could not certify their 2001–2002 accounts because of corporate accounting irregularities were matched with 60 firms that did not have these problems. Compared with the CEOs of the “clean” firms, the CEOs of firms with irregularities were more likely to have short-term stock options and were judged to be “un-principled” agents of their corporations (O’Connor & Priem, 2003). Fraudulent accounting statements were also found by Troy, Smith, and Gordon (2003) in firms compared with matched firms when their CEOs were younger, did not have an MBA, and had more of their compensation based on stock options. The firms with fraudulent accounting engaged in riskier acquisition strategies, were more distressed financially, and lacked external audit oversight. When superiors turned a blind eye to fraudulent reports, subordinates were more likely to make such reports, especially if the subordinates were more generally accepting of social dominance (Smith-Crowe, Umphress, Brief, et al., 2003).
Ethical Climate. Individual character is a source of information about ethical climate (Anonymous, 1997). Over the long run, confidence in the leadership and its institutions depends on the character of the leader. The ethical climate of an organization often is a consequence of the character, motives, and values of its founders and early leaders (Dickson, Smith, Grojean, et al., 2001). It was also assumed that firms with an earned reputation for social responsibility were led by moral executives. In 95 studies, Margolis and Walsh (2001) carefully selected ethically exemplary and ethically notorious firms. For this, they reviewed a number of lists of firms according to the firms’ perceived social responsibility. The firms’ reputations on nine criteria including social responsibility were obtained by asking executives, outside directors, and corporate analysts. Also obtained were five additional measures of corporate social responsibility toward community, diversity, employee relations, the natural environment, and product safety and quality (pp. 9–10). Control variables were applied to the analysis of the “good” and “bad” firms. In 80 of the 95 studies, the data about corporate social performance preceded successful financial performance. Of these, 53% predicted financial performance. In 19 of the 80 studies, financial performance preceded social responsibility. Here the results were even more positive: 68% supported the argument that financially successful firms could afford to be socially responsible.
Bansal and Roth (2000) conducted interviews in Britain and Japan at 53 firms to ascertain what prompted their sense of ecological responsibility. It was seen as a matter of good business, for instance, to turn a waste product into something of value. This improved the firm’s image, reputation, and legitimacy and avoided penalties and fines. It was the right thing to do and made the firm a good citizen, a morally better company, and a company that felt good about itself. However, managers’ moral intentions—for example, those of 130 to 138 executives in the metal finishing industry regarding their firm’s dealing with wastewater—were moderated by their moral intensity and the magnitude of the consequences. The executives’ attitudes, norms, and sense of self-efficacy along with the financial costs and the ethical climate affected their ethical decisions (Flannery & May, 2000).
Ethical Constraints on Organizational Leaders’ Influence. There are limits on what a superior can ask of subordinates and what the subordinates are permitted or expected to do. Superiors have a positive duty to avoid influence that violates ethical norms of society. They ought to use their influence to promote the common good of the organization and its members (Kelman, 2001). The values and decisions of subordinates should be respected. With justice and fairness, leaders ought to promote the welfare of subordinates and avoid harming them (Beauchamp, Faden, Wallace, et al., 1982). Ethical considerations ought to constrain leaders from being too coercive or directive in group decision processes (Peterson, 2001). Conversely, top managers’ perspective on illegal corporate activities can make a difference to what leaders at all levels are tempted to do unethically (Daboub, Rasheed, Prien, et al., 1995). A corporation’s code of ethics ought to be consistent with its incentive system, which should avoid shortcuts at the expense of the reputation and long-term survival of the corporation (Darley, 2001). Ethical congruence of the leader and the organization tends to increase the leader’s job satisfaction, commitment to the organization, and intention to remain with the organization (Arnaud, Ambrose, & Schminke, 2002). Ethical considerations may cause an amoral leader to avoid giving a direct order to a subordinate to carry out an unethical act, but instead the leader will indirectly hint that the act be carried out. The subordinate can resist the suggestion or claim a misunderstanding if the ethical violation is discovered (Roloff & Paulson, 2001). Perreault (1997) reviewed how subordinates can make a difference in whether an ethical decision emerges in a situation. Often they are unaware of their potential impact. They ought not remain loyal to an unethical leader. Followers are ethical to the extent that they pursue the goals and practices of an ethical leader. Like leaders, they ought to be sensitive to ethical issues and to reason, decide, and act ethically.
Ethical Failures. Allinson (1995) attributed several disasters—the first Hubble space telescope, the Challenger space shuttle, the fire at the London Underground King’s Cross Station, the ferry flooding at Zeebrugge in Belgium, and the aircraft tragedy at Mount Erebus in Antarctica—to the irresponsibility of management and its failure to be ethically centered. For instance, in the case of the flawed Hubble telescope, management actively discouraged quality control. Top management disowned responsibility for finding out and ensuring that the final product was problem-free and of the highest quality. They did not consider it their duty to inquire if there were any problems. They did not show respect for their employees by paying attention to suggestions and warnings. With regard to the need for independent testing, they ignored consultants. President Bill Clinton’s dalliance with Monica Lewinski was a private affair, but once it became public knowledge, this unethical behavior and the attempts to cover it up with lies led to impeachment proceedings and loss of trust in the president.
Society is undergoing a spiritual revolution (Haasnoot, 2000) and a new awakening that cannot be ignored by organizational leaders (Judge, 1999). This awakening is moving people to a higher level of transcendence and morality, beyond Kohlberg’s highest stage (stage 6). Some observers see spirituality as the “hottest new management theory,” an opportunity to exploit religious language in service of organizational performance (Wallace, 2001). Southwest Airlines, Ben and Jerry’s, and numerous other firms have taken on programs reflecting spiritual issues (Lewis, 2001). More than three-fourths of respondents in a Gallup poll in 1999 said they felt a need for spiritual growth (Moch & Bartunik, 2002). Mysticism is being introduced into management (Conlin, 1999). Spirituality has been important to the leader-follower relationship in Taoism for over 2,500 years (Johnson, 2000).
Meaning. Spirituality is a mind-set that becomes a way of existing at all times and places. It is an approach to life that includes a transcendent being and a sense of oneness with the universe (Bruce & Plocha, 1999). It is a striving to integrate one’s life and a desire for wholeness in the midst of fragmentation, for community in the face of isolation and loneliness, for meaning, and for enduring values (Pielstick, 2000). Václav Havel, former president of the Czech Republic and leader of the “velvet revolution,” commented, “In my own life, I am reaching for something that goes far beyond me and the horizon of the world that I know. … In everything I do I touch eternity in a strange way” (Bolman & Deal, 1996, p. 530).
Concepts and Theory. Kanungo and Mendonca (1996) found a spiritual quality in the faith that many followers have in their charismatic leaders. Conger (1991) saw a spiritual union between charismatic leaders and their followers. Sanders, Hopkins, and Geroy (2002) maintained that the consciousness, moral character, and faith inherent in spirituality move transformational leadership into a higher transcendental leadership, applying consciousness, heart, and soul in the leader’s daily accomplishments. According to Matusak (1997), servant leadership has deeply spiritual underpinnings. Greenleaf (1977), its originator, assumed that leaders exist primarily to serve their group of followers. The followers grant allegiance to the servant leader in order to achieve common goals. Servant leadership is deeply spiritual but has become a secular approach to promoting service to others, empowerment, shared decision making, participative management, and a holistic approach to work and to personal development (Lee & Zemke, 1993). May and Whittington (2003) describe affirmative leadership built on passages in the gospels of the New Testament that they compared with principles of servant and transformational leadership.
Relation to Religion. Religious tradition contains support and rules for spiritual seekers. Ethical principles often derive from religion, just as religion depends on spiritual experience. Such spiritual experience in a larger community of faith can lead to moral discourse and ethical behavior (Moch & Bartunik, 2002). Ordinarily, spirituality depends for collective discipline and knowledge on the stewardship of religion. But the relationship between spirituality and religiosity is complex. Conclusions drawn from reviews of evidence about religiosity and ethical behavior, ranging from cheating to criminal activity, are mixed. Religious role expectations, religious identity, and religious motivation may need to be considered as moderators (Weaver & Agle, 2002). Hicks (2002) argued that spirituality cannot be divorced from religious expression. Nevertheless, as noted by Roof (1999), among baby boomers at midlife, only 79% with a religious identity reported that they were spiritual and 54% without a religious identity said they were spiritual.
Relation to Leadership. Religious and philosophical teachings on morality and ethical behavior are being recast into research on spirituality and leadership. Bruce (2000) remarks that spiritual leadership pays special attention to the interconnections between God, humanity, and the world of nature; the immanence of the past and future in the present; issues of brotherhood and community; and the rejection of materialism. Emmons (1999) says that spirituality transcends the physical and the material. It provides an ability to experience heightened states of consciousness as well as to sanctify everyday experiences and solve problems. It involves the capacity to be virtuous (Cowan, 2002). Jesus, in his spiritual mission, was both transactional and transformational in his leadership (Ford, 1991). Whittington, Kageler, and Pitts (2002) found 10 principles of leadership in Saint Paul’s first letter to the Thessalonians. But Hicks (2005) cautioned that organizational leaders should not promote a single spiritual framework. Rather, they ought to create a structure and organizational culture in which members can respectfully negotiate religious and spiritual diversity. A basic beginning is respectful pluralism, that welcomes fundamental aspects of each member’s identity and dignity. Fry (2003) derived a causal theory of spiritual leadership from a model of motivation. Spiritual leadership is seen as creating vision and congruence of values that foster organizational commitment and productivity in individuals and teams. Fry distinguished between spirituality and religiosity but assumed a universal need for spirituality and a humanistic, theistic, or pantheistic higher power. Leaders need to get in touch with the core values of their followers and communicate these values through vision and personal action to create a sense of spiritual survival.
Whereas the spirituality of religious fundamentalists is emotionally justified by a faith in a mythology of the past, the spirituality of religious liberals is more rationally oriented toward a future predicated on continued advances in science, technology, and human betterment (Armstrong, 2000). Both religious fundamentalists and religious liberals engage in leadership that is transformational. But more pseudotransformational leadership and more irrationality are likely to appear among fundamentalist religious leaders and followers.
Effects. Milliman and Neck (1994) suggested that spiritual-based values can increase commitment, team-work, sense of service, and personal growth. Support was provided in a controlled longitudinal experiment by Fry and Malone (2003) using 223 elementary and middle school employees. A sense of spiritual survival, finding meaning in life, and the value of spiritual leadership were fostered that influenced a sense of well-being, commitment, and productivity.
Bolman and Deal (2001) present a parable about a manager who has found organizational life hollow and unfulfilling. His mentor helps the manager to put spirit and emotion into his leadership. The manager is awakened to his own inner world of feelings and soul. The mentor helps the manager to find spirit all around and to recognize the importance of working with others with the gifts of love, power, authorship, and significance. These gifts depend on timing for acceptance and value. The gift of love involves compassion, consideration, and caring. The gift of power is a sharing to bring about autonomy and empowerment. The gift of authorship provides a sense of accomplishment. The gift of significance uses ritual, celebration, and spontaneity to credit shared creativity at the workplace. It remains a challenge for organizational leaders to introduce more spiritual values in the workplace and to evaluate the effects on performance and satisfaction.
Given a moral dilemma, moral reasoning entails why people make the ethical decision they make and what considerations are most important to the decision. But knowing and deciding what is right to do may not result in doing right. Leaders can have an important moral effect on those they lead. The leader may simply ask what is the right thing to do. The leader may direct or request more systematic deliberation on what is the right thing to do, to add confidence in the answer. Thus effective moral reasoning is needed by human resources executives if they are to satisfactorily balance the organization’s fundamental values, employees’ and other stakeholders’ interests, and the firm’s profitability (Grensing-Pophal (1998). The leaders’ own values affect what they decide is right and wrong. Their moral decisions will depend on the importance they attach to terminal values such as inner harmony, social recognition, and family security, and to instrumental values such as being responsible, courageous, and imaginative (Hughes, Ginnett, & Curphy, 1993). It might be expected that moral reasoning correlates with moral action; that is, the more people are able to reason ethically, the more likely they are to behave ethically (Perreault, 1994), however the relationship is complex (Mudrack, 2002), as will be noted below
Measurement. Moral reasoning is most frequently measured by the P score on Rest’s (1979, 1986) Defining Issues Test (DIT). The DIT has been used in over 500 studies and over 12,000 cases (Mudrock, 2000). For each dilemma presented, the respondent chooses the right action to be taken, rates the relative importance of 12 reasons in deciding, and ranks the four most important of these. The P score of a respondent is the proportion of reasons cited that respect rights, values, and universal principles (Kohlberg’s post-conventional stages 5 and 6). The average P score for adults, in general, is 40.0. P scores increase with age and education. Available averages are those for junior high school students, 21.9; senior high school students, 31.8; college students, 42.3; graduate business students, 42.8; and advanced law students, 52.2. Delinquents have low P scores: 16-year-old delinquent boys, 18.9; prison inmates, 23.5. At the high end are seminarians (59.8) and moral philosophers and theologians (65.2). Professionals score higher than adults in general: physicians, 49.5; staff nurses, 46.4 (Rest, 1993). Blasi (1980) failed to find significant correlations in only 18 of 75 studies of P scores and ethical behavior.
Nonetheless, knowing and choosing the reasons for the right thing to do is not the same as doing the right thing. Rule-bound leaders, those who are consistent in their choice of actions and the reasons they deem most important, earn high utilization (U) scores. The U score indicates whether people would act according to their reasoning. People who explain a decision by giving one important reason that is in conflict with another reason they regard as highly important earn low U scores (Thomas, 1985). Thus U scores are moderators that enhance the correlations of P scores with other expected measures of ethical behavior (Thomas, Rest, & Davison, 1991) and help to explain why moral decisions alone (P scores) failed to correlate with behavior in 18 of 75 studies (Blasi, 1980). Mudrack (2002) demonstrated that the negative correlations of P, U, and Machiavellianism (Christie & Geis, 1970) were high only when high U scores were added to P scores in a regression equation. Similar results were obtained by Mudrack (2002) with the multiple correlation of P added to U scores predicting right-wing authoritarianism (RWA; Altemeyer, 1998).
Principled Moral Reasoning. Traditionally, moral reasoning about the best solution to a moral dilemma was principled moral reasoning: applying general principles and rules relevant to the case to decide on the most just solution. Following Paine (1991), Reiter (2002) argued for a second approach: character-based moral reasoning. Here, the judgment is based on testing available actions against a rational theory that serves as a standard of what is right and good. But there is often a disconnect between the theoretically right thing to do and its actual application—between moral thinking and moral application. Furthermore, moral choice is supposedly impersonal and based on rationality. Broad general decision rules relevant to all similar cases are applied (Kupperman, 1991). However, competing moral claims may engender unresolvable conflicts that do not permit unique solutions. Using principled reasoning to decide on the right thing to do may result in more harm than good to all concerned. King Solomon threatened to give half of an infant to each of two women who were claiming to be its mother. The character of the decision maker supposedly has no effect on the moral decision. The social and historical context is ignored.
Principled participants who also believed strongly in a just world reasoned most ethically on the DIT. Morally principled leaders move their followers to higher ethical levels. Dukerich, Nichols, Elm, et al. (1990) found in a study of 21 four-person groups that if the emergent leaders were more principled in their reasoning, their group’s moral reasoning achieved a higher level of ethical reasoning, as measured by the DIT. Similar results were obtained in a follow-up experiment in which members higher in DIT level were assigned as leaders of the groups. Nonetheless, after 118 business students completed the DIT, they engaged in a realistic competitive simulation calling for the sharing and use of common resources. During the competition, in comparison with their DIT scores, their scores on principled moral reasoning declined, as measured repeatedly by a “reasoning list” equivalent to the DIT (Reall, Bailey, & Stoll, 1994).
Character-Based Moral Reasoning. In real life, leaders do not use systems of rules to reach moral decisions. Rather, their moral deliberations are personal and contextual. To reason in this way, leaders need to (1) be ethically sensitive, to identify ethical issues; (2) be able to reason ethically;(3) conduct themselves ethically, with the ability to appreciate and empathize with another’s situation; and(4) understand ethical leadership and how organizational factors affect the individual (Paine, 1991). Reiter (2002) suggested that the first two requirements are met by both principled and character-based moral deliberation, but the latter two call for character-based ethical conduct and ethical leadership as described extensively by Johnson (1993) and Senge (1990).
Reiter noted that one’s “circle of concern” is a ring of actions and events one cares about. A leader’s smaller circle includes the concerns that he or she can do something about proactively, to head off ethical problems early. Leaders should begin moral deliberation with the end in mind. In agreement with Burns (1978), Reiter pointed out that moral leaders should focus on clarifying values and achieving valued ends. They ought to facilitate interaction by converting disputes into win-win situations, seeking first to understand, and using empathic communication. Moral leaders ought to see problems from other points of view and search for alternative solutions. They ought to continue to clarify what is important and continue to see current reality more clearly (Senge, 1990). Moral imagination is needed by leaders for character-based moral deliberation in order to explore various courses of action to harmonize conflicting values and conceptions of reason (Johnson, 1993).
Moral Decision Making. Covrig (2000) described how 11 school administrators coped with making decisions that forced them to violate one cherished value in order to satisfy another. Sometimes, these decisions were seen as challenges rather than dilemmas, or as dilemmas for which there were routine decisions. Various models of the moral decision-making process were proposed. For instance, Trevino (1986) emphasized the need for the moral dilemma to stimulate moral awareness in the decision maker. Sensitivity to the dilemma should be moderated by reinforcement, by the character of the work, and by the organizational culture. The decision maker’s ego strength, locus of control, and field dependence should also be considered. As noted elsewhere, a leader’s moral judgment comes after moral awareness and sensitivity indicate that a moral problem exists, a decision to act is made, and action is taken (Rest, 1986). Moderators such as timing, opportunity, and available sanctions occur. Jones (1991) proposed that the impetus to decide depends on the dilemma’s social and critical consequences and on its closeness in time and space to the decision maker.
Rest (1984) saw a logical progression in moral reasoning. It begins with interpreting the situation involving possible ethical actions and the welfare of those affected by them, and then making and persevering in a moral choice. According to Langenderfer and Rockness (un-dated), the facts are identified, then the ethical issues and stakeholders. The norms, principles, and values are defined and the best course of action is chosen consistent with them and the consequences of alternatives. There is consultation with trusted others before the decision is made.
Leadership and Moral Development. John Gardner (1990) charged leaders with the task of revitalizing the values and beliefs they shared with their constituents—including moral values. Leaders “must conceive and articulate goals in ways that lift people out of their petty preoccupations and unite them toward higher ends” (p. 191). Galaz-Fontes, Hernando Morelos, et al. (1991) held that moving followers up in the stages of moral development depends on their leadership. Hollander (1995) said that ethical concerns of leaders and followers were essential to developing trust and loyalty between them. Hollander suggested that in their need for power and distance, self-serving leaders become detached from their followers’ reactions. Poor leadership damages trust, loyalty, and teamwork and raises, in the followers, questions about the ethics of equity, responsibility, and accountability. Paine (1997) suggested that ethical leaders influence the development of morality of their group and organization by: (1) leading by example; (2) developing a framework of aspirations and standards of the behavior they expect of others in the organization; (3) aligning the organization with the framework of structures that maintain its ethicality; and (4) dealing with external challenges to its morality and integrity. Graham (1995) detailed the relations between leaders and followers’ in ethical development according to Kohlberg’s (1969) six stages of individual moral development. Leaders at stages 1 and 2 are most likely to foster transactional leadership and dependable task performance by followers. Managers at stages 3 and 4 focus on role and institutional relationships. Managers at stages 5 and 6 most likely are transformational. More managers, and adults in general, reason at stages 3 and 4, but those in larger organizations are more likely to reason at lower levels. Reasoning is also likely to be at a lower stage of morals when it concerns business rather than nonbusiness matters (Weber, 1990).
Williams (1994) suggested that transformational leaders had positive effects on followers’ “organizational citizenship behavior” (OCB), but only if the leader was trusted. Turner and Barling (undated) asked 58 supervisors of nonfaculty personnel at a Canadian university to complete Rest’s (1990) Defining Issues Test. On that basis supervisors were sorted into three categories of moral reasoning: (1) stages 1 and 2, preconventional moral reasoning; (2) stages 3 and 4, conventional moral reasoning; and (3) stages 5 and 6, post-conventional moral reasoning. The supervisors were rated by 173 subordinates using the Multifactor Leadership Questionnaire to assess the supervisors’ transformational and transactional leadership scores. The transformational leadership scores increased linearly and significantly from preconventional through conventional to post-conventional moral reasoning. Conversely, the trend was reversed for transactional active management by exception. The less morally mature the supervisors, the more they were likely to practice management by exception (N. Turner, 1998).
Leader Styles, Moral Values, and Ethical Consequences. The coercive, autocratic leader values authoritarian rules and directions, to be obeyed uncritically. Such leadership is a cause of groupthink, pressure to conform, and biased stereotypes of out-groups (Sims, 1992). Behavior is less ethically developed than it is under democratic leadership. Rule-bound leadership found in bureaucracies and organizational hierarchies constrains moral reasoning and sense of moral responsibility. Mud-rock (2002) found that the DIT P scores of 317 U.S. Coast Guard personnel were significantly lower than adult norms. But P scores rose with rank from seaman to captain, reflecting education and age.
The transactional leader attaches most importance to exchange agreements with instrumental compliance and enforceable contracts. The contract has to have moral legitimacy (Donaldson & Dunfee, 1994) that depends on telling the truth, keeping promises, and fair distribution of rewards and valid incentives. It recognizes the diversity of values and motivations (Rawls, 1971) and virtues in leaders and followers such as honesty, reliability, integrity, sensitivity, and a sense of reciprocity (Burns, 1978). In high-quality exchanges between leaders and members, role obligations are valued and met. (For full details about such exchanges, see Chapters 15 and 16.) The referent value is the personal relationship with the supervisor. For the institutional leader, cultural expectations about the fulfillment of social and organizational duties are deemed important.
Commentaries about ethical charismatic leaders (charismatic leadership is detailed in Chapter 21) and transformational leaders (Chapter 22) are consistent with each other. The ethical charismatic leader does what is morally right, goes beyond self-interest for others’ benefit, and favors empowerment over control and followers’ internalization of the leader’s influence (Conger & Kanungo, 1998). Ethical charismatic leaders use their power to serve others rather than for personal gain. They align their vision with followers’ needs. To deal with organizational and societal interests, they rely on internalized moral standards instead of convenient external moral standards that satisfy their own self-interest (Howell & Avolio, 1992). Transformational leaders’ moral values take into account the costs and benefits to all stakeholders, the application of distributive justice, and universal moral principles (R. S. Peterson, 2001). In the Netherlands, 73 CEOs of small and medium-size profit and voluntary organizations were rated by their 125 direct reports. The MLQ survey and TAT testing examined how much they were charismatic and used their power motivation in a morally responsibility way. (The voluntary organizations focused on altruistic goals and morally responsible actions such as environmental protection, human rights, or animal welfare.) Overall, a sense of high moral responsibility was near the same mean level in for-profit and voluntary organizations; but in profit-making organizations the CEOs were more likely to be rated as highly charismatic even when they were not seen as morally responsible.
Rest’s (1990) Defining Issues Test (DIT) was completed by 132 managers to measure their moral reasoning. Also, the Multifactor leadership Questionnaire (Bass & Avolio, 1995) was completed by their 407 subordinates to assess the managers’ transformational and transactional leadership. Moral reasoning correlated significantly (r 5 .26) with transformational but not with transactional leadership. Again, transformational but not transactional leadership increased with successive stages of Kohlberg’s moral maturity (Turner, Barling, Epitropaki, et al., 2002). Sixty-one senior executives higher in transformational leadership were lower in the Hall-Tonna (1944) values cycle 2 (Kohlberg’s moral development stage of personal aspirations). They scored higher on values cycle 5 matching Kohlberg’s higher moral stage of concern for others’ rights (Goeglein, 1997). Such leaders provide examples of ethical behavior that should raise the moral standards and values of their followers (Stephens, D’Intino, & Victor, 1995). Brown and Travino (2003) found more trust and liking of their leaders among employees when the leaders were more transformational, but employees’ un-ethical conduct was unaffected.
Accounts. Moral reasoning is not as strong might be expected among accountants, nor is it related to their success. The Arthur Anderson auditing firm’s debacle of 2001 may be explained by the rather less-developed moral reasoning of accountants and auditors when their DIT scores are compared with those of other professionals. Seminarians, judges, and nurses score at the highest levels. At midlevel are CEOs, physicians, dentists, generals, and admirals. Below them are lawyers, college seniors, and staff and senior accountants. Still lower in DIT scores are college freshmen, accountant partners, and junior high school students. A representative U.S. sample of 650 CPAs drawn by mail with a response rate of 31% provided 57 senior CPAs, account managers, and accounting partners. Over a two-year period, those promoted had DIT scores of 36.1; those not promoted had scores of 41.2; those leaving their firm had scores of 48.3. Considerably more results from three studies also indicated that ethical socialization in the accounting firms’ leaders resulted in lower ethical reasoning (Ponemon, 1992).
Personal and Moral Development. Torbert (1991) observed that the stages in personal development have a moral logic consistent with the historical development of moral philosophies from Hobbes in the seventeenth century to Rawls (1971) in the twentieth century. Later-stage leaders are capable of more nuanced ethical judgments (Lichtenstein, Smith, & Torbert, 1995). Torbert found that 24% of 37 first-line supervisors and 9% of 177 junior and middle managers were diplomats for whom what is right depends on social norms. Ethics were a matter of consent. Interpersonal conflict was to be avoided. A majority of first-line supervisors (68%), 43.5% to 47% of middle managers, 66 senior managers, and 104 executives were technicians. They were assertive, critical, legal-istic, Kantian, and concerned about rights and duties. Only 8% of first-line supervisors were achievers, but from 33% to 40% of managers and executives were achievers. The system’s success ruled their logic. They were organizers and directors. Like Rawls, they subscribed to a sense of fairness and justice and had internalized moral standards that balanced the ethics of Rousseau and Kant. Only 5% of junior and middle managers and hardly any senior managers were found by Torbert (1991) to be at the lowest stage, opportunism. Opportunists were governed by their own interests and giving tit for tat. They were Hobbsian and utilitarian in ethical philosophy and interpersonally manipulative and deceptive. As moral maturity develops from one stage to the next, there is an increase in: (1) ability to accept responsibility for one’s actions, (2) empathy for others who hold different or conflicting worldviews, and (3) tolerance of stress and ambiguity (Bartunek, Gordon, & Weathersby, 1983).
General Norman Schwarzkopf declared that managers and leaders are more likely to fail because of lack of character than lack of competence (Mason, 1992). Many CEOs see themselves as needing primarily to watch out warily for their near-term performance. Everything that can be quantified is quantified, and tighter controls are imposed. They avoid risk and long-term investment in research and development (Levinson, 1988). Legal suits, Securities and Exchange Commission regulations, and state and federal legislation emerge as reactions to questionable senior management practices. A 1989 New York State law required that the board of directors consider the costs to the community of accepting a takeover bid, as well as the benefits to the shareholders.
Morality is a set of values and social beliefs about right conduct. Moral behaviors are acceptable; immoral behaviors are unacceptable. Ethicality is concerned with implied standards such as fairness, justice, kindness, the differences between right and wrong, and morally acceptable conduct. The character of a leader involves his or her ethical and moral beliefs, intentions, and behavior. Various questions need to be asked about the character of leaders. Are there just a few bad apples in business leadership? A few rogue politicians in government? A few unethical health administrators? A few immoral religious pastors? A few unethical military and police officers? A few unethical educators? Are leaders using acceptable political means for their self-aggrandizement (Dalton, 1959), or are immorality and lack of ethics endemic among leaders of organizations and societies? Does power corrupt? We will try to examine these and related questions in this chapter.
The robber barons—entrepreneurs who dominated business leadership in the last half of the nineteenth century—brought on the regulatory reforms of the first half of the twentieth century. The latter part of the twentieth century saw history repeating itself. The many business scandals that continued into the twenty-first century reinforced the public’s lack of confidence in the ethics of business executives. Fox (2000) noted that confidence in business leadership declined from a high of 70% in the late 1960s to about 15% in the late 1980s. By 1989, the costs of corporate crime—ranging from illegal dumping of waste to price fixing—had greatly exceeded the costs of street crime. Almost every day there were reports in the media about violations of ethical conduct by national and local leaders which Fineman (2006) described as “the fraying of America’s moral fabric” (p. 31). A total of 110 senior officials during the eight years of the Reagan administration (1981–1989) were accused of illegal or unethical conduct (Thomas, 1988).
More statesmanship and less politics are needed from our political leaders. Statesmen are magnetized by the truth, unwilling to give up their good name, unable to put their interests ahead of the nation’s. They avoid evasion, broken promises and lies for the sake of political victory. They are prepared for self-sacrifice (Halprin, 1998). But an untarnished hero is hard to find. Mother Teresa disclosed that she mistreated subordinates and took money from dictators. President Kennedy plotted to kill Fidel Castro and cavorted with call girls in the White House (Gibbon, 1997).
Ethical issues in communities and organizations increased greatly as a consequence of the increasing complexity and sensitivity of our society and the vast expansion of the mass media. It was difficult for enforceable laws to keep up with the ethical requirements of business and technological advances, property ownership, and political and military developments in the twentieth century. Unfair discrimination against minorities came to be treated as a violation of human and legal rights. Influence peddling became government-regulated lobbying. Many new governmental environmental constraints were imposed. Collective bargaining was legalized, and workers became stakeholders in corporations rather than just a means of production (Steidlmeier, 1989). The military was forced to reexamine its ethical guidelines, prompted by its warfighting emphasis in the last decade on precision engagement and protection of forces. How much collateral damage to civilians could be tolerated? The requirements for protecting forces have resulted in a dys-functional aversion to casualties and eroded a core value: the possible need for self-sacrifice (Shaping American Military Culture in the Twenty-First Century, 2000). The U.S. military response to terrorism and insurgency in the Middle East has resulted in unethical mistreatment of detainees and killing of innocent civilians.
Questions have always been raised about what is right and good or wrong and bad in work, trade, and political, social, and family life. These issues have accompanied the rise of humankind. Moral codes in primitive cultures accompanied the rise of civilization. The questions have been addressed in writing for more than 2,500 years by philosophers such as Plato in the West and Confucius in the East. However, only in the past several decades have they become a study in the behavioral sciences following commentaries on organizational life and moral concerns formulated much earlier in philosophy, sociology, political science, and social psychology.
Ciulla (1996) suggested that to teach leaders to be ethical, you have to develop their moral imagination, critical thinking skills, and emotional strength to act on what is morally right. Secular and religious schools consider, in their curricula, honesty, democracy, acceptance of others from different races and of different ethnicity, caring for friends and group members, patriotism, moral courage, and the Golden Rule. Religious schools add spirituality, providence, and faith. Character education with a range of virtues has been introduced. Anecdotal reports of positive effects such as reduced conflict, reduced expulsions, and more orderly classrooms have appeared in places as disparate as Tyler, Texas and New York City. Liberals and conservatives seem able to agree about what values to focus on (Sharpe, 1994).
Moral authority … and the idea of … ethical leadership emerged as … important themes in the secular educational leadership literature in the 1990s … [Included were] moral reasoning … and how a humanistic, person-centered articulation and embodiment of moral value provides the type of role model that inspires teachers and students. (Bess & Goldman, 2001, p. 432)
Character is the complex of moral, social, and reli-gious traits. It is what we actually are, in contrast to our personality—what we appear to be (Corsini, 1999). Leadership is an expression of who we are, not just something we do. Therefore much of it must develop from the inside out through both conscious and subconscious beliefs. Leaders guided by their internal character rather than their external personality are more open to opportunities for learning, more meaningful purposes, adaptability, and maintenance of balance (Cashman, 1998). Thompson (2000) agrees that inner spirit is more important than outer strivings in the development of leaders. Posner (2002) has suggested that leaders need to go within to find “what grabs hold of them and won’t let go. … Just what is it that I really care about?” (p. 3). “Authentic leadership comes from inside out” (p. 6).
Character integrates leaders’ morals and ethical behavior with their personalities. It is grounded in core values, such as integrity, trust, truth, and human dignity, that shape the leaders’ vision, ethics, moral literacy, and excellence. It empowers mentorship (Sankar, 2003). Its moral rectitude strengthens the position of political leaders who depend on public opinion (Mitchell, 1993). In the U.S. Army, doctrine gives primacy to the character of leaders and soldiers and their ethical behavior. Honor, courage, and commitment at the heart of the character expected in members of the U.S. Marine Corps (Lynch, 1995). Gal (1989) stressed the need for Israeli combat leaders to have strong moral commitment and conviction. Commitment to the profession rather than to one’s career should motivate the office corps. Commitment rather than obedience should motivate compliance.
Good and Bad Character Traits. A leader with good character will have internalized the Platonic virtues of prudence, justice, temperance, and courage, as well as honesty, compassion, keeping promises, and dedication to the common good. A leader of bad character is motivated by vices such as greed, cruelty, indifference, and cowardice. Acts of leadership may be good or bad. Deontics relates to the effects of these actions, particularly on the well-being of others. The moral point of view of leaders depends on whether these effects benefit or harm the interests, rights, or duties of the affected parties. Interests may be self-interests, group interests, and interest in the greatest good. Rights may have to do with fair distribution and basic liberties. Duties may include fidelity to relations with others and the community (Goodpaster, No. 7). Ethical executives run firms with applied codes of ethics, have clear channels upward for whistle-blowers, reward integrity, and give the same training in ethics to executives, managers, and employees. All ought to know what to do, for example, if offered a bribe (Stern, 2002). George Washington was transformed from a military hero to the new republic’s moral symbol as he refused, repeatedly, the powers and privileges of a king or dictator. His virtues were seen by the public as making him incorruptable (Schwartz, 1983).
Importance of Culture. Cultures clearly differ in what are seen as important traits of character. Whereas 79 American CEOs revealed more intuitive personalities, 87 Taiwanese CEOs were more reliant on sensing. The Americans valued honesty, self-esteem, and happiness more than the Taiwanese did; the Taiwanese attached more value to cheerfulness, competence, a comfortable life, a world of peace, and social recognition. The Americans were more spiritual than the Taiwanese. The Americans placed more of a premium on moral values and individualism; the Taiwanese on aesthetic values and collectivism (Judge, 2001). The many parallels in Chinese and Jewish cultural tradition, such as family-centeredness, valuing of education, rootedness in history, and survival despite continued hardships, are also seen in the character of the Chinese and Judiac ideal leaders: the Chinese junzi and the Jewish zaddik. Both were meritorious, elite, moral men. Their nobility was due to their character, not their birth. Nietzsche (1886) saw ethical concerns as an affliction of the weak character; but to support a moral position or to take an ethical stance in the face of an immoral climate, to be a whistle-blower, requires strength of character (see Singer, 1996). (The impact of culture on character traits will be greatly expanded in Chapter 32.)
The Golden Rule is found in all the world’s major religions and many of its minor ones. In Buddhism it appears as “Hurt not others in ways that you yourself would find hurtful;” in Brahmanism, “Do naught unto others which would cause you pain if done to you;” in Judaism, “What is hateful to you, do not to your fellowman;” in Christianity, “Whatsoever ye would that men should do to you, do ye even so to them;” in Islam, “A believer desires for his brother that which he desires for himself;” in Zoroastrianism, “Refrain from doing to another whatsoever is not good for (one) self;” in Confucianism, “Do not unto others that you would not have them do unto you;” and in pagan Wicca, “An it harm none, do as ye will” (Morgana’s Observatory, 1997).
Virtues are positive character traits that are helpful to others in intention, such as fairness and integrity. The virtuous person recognizes and does the right thing. Among Aristotle’s four virtues—prudence, justice, fortitude, and temperance—prudence is recognizing and making the right choice in specific contexts; fortitude is the courage to pursue the right path despite its risks; justice is fairness; and temperance is self-discipline and moderation of emotions and indulgences. “A person of good character … is someone who through repeated good acts achieves an appropriate balance of … virtues in his life” (Woodward, 1994, p. 39). Virtues cannot be instrumental. A virtue in search of a reward in not authentic (Cameron & Caza, 2002). Peterson and Seligman (2004) enumerated and described six virtues: (1) Wisdom—creativity, curiosity, open-mindedness; (2) Courage—bravery, persistence, integrity; (3) Humanity—love, kindness, social intelligence; (4) Justice—citizenship, fairness, leadership; (5) Temperance—forgiveness, humility, prudence; (6) Transcendence—gratitude, hope, humor. Socialized traits of leadership tend to be virtues; personalized traits of leadership tend to be vices. Vices are negative traits of character, such as lying and abusiveness, that are hurtful to others. (They will be discussed later as the dark side of leadership.) Moral values are virtues; immoral values are vices. The expression may be states, contingent on circumstances, or traits—that is, individual predilections.
O’Toole (1995) found the virtues of trust, integrity, listening, and respect for followers in the four American presidents (Washington, Jefferson, Lincoln, and Theodore Roosevelt) whose faces were carved on Mount Rushmore. Four CEOs—Max De Pree of Herman Miller, James Houghton of Corning Glass, Robert Galvin of Motorola, and Jan Carson of SAS—were identified as “Rushmoreans” with the same virtues as the four presidents. Rushmoreans are able to lead change. They overcome the “ideology of comfort and the tyranny of custom.” Bennett’s Book of Virtues (1994) listed self-discipline, compassion, responsibility, friendship, work, courage, perseverance, honesty, loyalty, and faith. According to Bennett, Americans care about character as expressed in ideals of behavior. We need to educate youth in the importance of good character. Yet such a program of nostalgic moralism can turn into political fascism (Morrow, 1994). Integrity and selflessness are usually seen as prime virtues of leaders (Augustine, 1997). Kets de Vries (1995, p. 199) suggested that clinical observation was needed to unravel the knotty questions about the character of top executives. Their observed character traits needed to be understood as consequences of their thoughts and emotions: “Our internal theatre, in which the patterns that underlie our character come into play, influences our behavior throughout our lives and builds an essential role in molding of leaders.” Kets de Vries mentioned Henry Ford’s close relationship with his mother, who loved him unconditionally but died when Ford was 13. This experience was coupled with a difficult relationship with his father, whom Ford perceived as disapproving his career plans. These might be clues to why Ford was unable to retain executives and old friends. It might account for why he famously stuck to the model T for 19 years and “any color paint for the model as long as it was black” despite a big loss of market to competitors who produced more modernized cars in a variety of colors.
The virtue of integrity is at the core of character and ethical leadership. Integrity was mentioned as important to leadership by almost all of 45 British chief executives (Cox & Cooper, 1989). Decrane (1996) declared that integrity of character is overriding for a leader in any field. Integrity is not synonymous with a wide range of virtues such as conscientiousness and honesty, but it is highly correlated with them. It is predicted with a multiple correlation of .20 by the “Big Five” traits: extroversion and agreeableness (Martinsen, 2001). Coherence of values, aims, and behaviors demonstrates a leader’s integrity (Bloskie, 1995). It is the virtue of leaders who do what they say they will do, who keep promises, admit their mistakes, and follow through on their commitments. Such leaders are almost universally esteemed and admired, according to a survey of over 15,000 respondents reported by Kouzes and Posner (1992). Integrity determines the credibility and trustworthiness of the leader. This leader behavior, consistent with the leader’s espoused values, reflects the leader’s integrity (Yukl, 1998). For Ayn Rand objectivists, integrity is loyalty to rational principles. It is practicing what one preaches regardless of emotional or social pressure. Irrational considerations are not allowed to overwhelm rational convictions. The values involved are morally justifiable (Becker, 1998). For Rand, egoism—pursuing one’s own actual best interests—is good in that it is in one’s best interests to be rational, to be realistic, to aim for being productive, to not sacrifice one’s own convictions to the wishes of others, and to never seek what is unearned and undeserved. Along with Edwin A. Locke and Jaana Woiceshyn—disciples of the philosophy of Ayn Rand (1959)—many economists argue that the pursuit of one’s self-interest in an open, free market achieves the greatest good for society. Nevertheless, in an experiment in which students were each given tokens that they could exchange personally for money or share with a group to exchange, 40% to 60% chose to share. The exceptions were graduate students in economics. They rejected sharing (Rhoad, 1985).
Leaders with the virtue of integrity are truthful rather than deceptive. They avoid making exaggerated claims. They are loyal and supportive of their deserving followers. They keep confidences about sensitive information. They set an example of what they expect from their followers and take responsibility for their own actions. In negotiations, leaders with a reputation for integrity can be trusted to keep agreements. They are trusted by their followers not to be exploitative or manipulative. They are perceived as dependable (Yukl, 1998). When McCall and Lombardo (1983) compared successful and “de-railed” managers, they found that the successful managers were stronger in integrity. They were more attentive to their tasks and their subordinates. The derailed managers were less dependable and more concerned with impressing superiors or competing with rivals. They were seen as too ambitious and too ready to get ahead at the expense of others. They were more likely to break promises.
Measurement of Integrity. Craig and Gustafson (1998) developed the Perceived Leader Integrity Scale (PLIS) that includes several factors of integrity shown by a supervisor’s lack of morals and ethics. They winnowed down 100 items originally gathered from undergraduates to 31 based on 299 university employees. Typical items that emerged as indicating a lack of integrity included “Would take credit for my ideas,” “Would steal from the organization,” and “Deliberately fuels conflict among employees.” As a validation of PLIS, Parry and Proctor-Thompson (2002) found that among 6,025 managers throughout New Zealand, PLIS accounted for as much as 35% of the variance of the MLQ transformational leadership factors. The PLIS correlated .49 with satisfaction with leadership and .47 with the motivation of the followers. Brown and Figufe (2001) took a broader approach and included in the assessment both ethical and unethical aspects of leadership, such as various virtues and vices of character, decision making, uses of the reward system, and management symbolism. The survey was administered to 585 supervisors and their direct reports in a division of a large financial services organization. Four factors emerged: (1) Ethical interaction and decision making—“Fair and objective when making decisions”; (2) Ethical symbolic management—“Talks to employees about work-related ethical conduct”; (3) Unethical financial focus—“Is driven above all else by financial considerations”; (4) Unethical lack of integrity—“Acts unethically at work.” Same-source errors were avoided in correlating the factors with leader personality and personnel data. Quite a few statistically significant relationships were obtained. The supervisors’ assessed “Big Five” agreeableness predicted their direct reports’ appraisals of ethical factors. Lack of agreeableness predicted unethical financial focus. Older supervisors were higher in ethical symbolic management and lower in both unethical factors. Ethical role models contributed to ethical symbolic management, and number of direct reports contributed to unethical lack of integrity.
Den Hartog (1997) found a positive integrity factor in role modeling containing such behavior as meeting obligations, setting a good example, being reliable, and doing what one says. A negative integrity factor included acting without considering others’ feelings, holding others responsible for things that were not their fault, and behavior not consistent with expressed values. Den Hartog found that perceived integrity correlated more highly with trust in management than inspirational factors did.
To help manage legal compliance, Trevino, Weaver, Toffler, et al. (1999) created a six-item scale to be completed by employees. This scale assessed integrity indirectly by asking the employees how much their supervisor cared about ethical behavior. Another indirect measurement of integrity was the Self-Reported Inappropriate Negotiation Strategies Scale (SINS). It listed 30 deceptive negotiation tactics, according to MBA students. Three of five factors that emerged were: (1) misrepresentation or lying, (2) deliberate misuse of information, and (3) false promises. Consistent with the tendency of women to be somewhat more transformational, women were more likely to avoid using these tactics. Self-rated competitive persons were more likely to use them (Robinson, Lewicki, & Donahue, 2000). The problem with direct measures of integrity is that the percentage of false positives is very high (Ronald & Zacharias, 2003). The direct tests are highly susceptible to faking and coaching, according to a research review by Alliger and Dwight (2000).
Authentic leaders are true to themselves and to others. Leaders may deceive others by not being true to themselves; they ignore Polonius’s admonition to Laertes in Shakespeare’s Hamlet, “This above all: to thine own self be true, and it must follow, as the night the day, thou canst not then be false to any man” (Clemens & Mayer, 1977). Herb Kelleher, the highly rated CEO of Southwest Airlines, declared that he didn’t have a leadership style except being himself. Ruth Rothstein, chief of the Cook Country Bureau of Health Services in Chicago, described herself as very honest about herself; she never forgot that she had risen from being an organizer for the United Packing house union and a laboratory technician at Jackson Park Hospital in 1940 to head an agency with 12,000 employees and an annual budget of $650,000. She declared, “I don’t delude myself. … I am willing to face up to [my weaknesses]. … I put a lot of emphasis on being truthful. If I say it, that is what I mean to do. … You don’t have to love me, but you have to trust me. … I think you build trust by being authentic” (Heuerman & Olson, 1999).
Authentic leaders are trusted. They do what they say they will do. They look at themselves honestly. They tell the truth. They have core values that are translated into actions congruent with their identity (Heuerman & Olson, 1998). Authentic transformational leaders align their interests with those of others and may sacrifice their own interests for the common good. Their communications can be trusted. They articulate their followers’ real needs and envision an attainable future. They sound the alarm when real threats arise. They set examples to uplift the moral values of their followers. They are concerned for their followers’ development and well-being.
Measurement of Authenticity. Henderson and Hoy (1982) defined authenticity as the extent to which a leader was viewed by others as exhibiting a salience of self over role. That is, the authentic leader did not rely on the narrow prescriptions of the role to justify personal actions. The authentic leader did not manipulate followers or treat them as objects. Such a leader accepted responsibility for her or his own personal and organizational actions. This description of authentic leadership was confirmed empirically for 42 elementary school principals, using a 32-item survey instrument (Henderson & Hoy, 1982). That instrument was subsequently refined by Henderson and Brookhart (1996) for more general use as the Organizational Leader Authenticity Scale (OLAS), with a form for a leader’s staff (SAS). A typical positively scored item was, “My supervisor accepts and learns from mistakes.” A typical negatively scored item was, “My supervisor seems to talk at you and not with you.” Data were collected from 63 educational leaders and their 835 staff members for OLAS and SAS along with other measures. According to path analyses, leader authenticity had a sizable impact on staff members authenticity (r 5 .47). The authenticity of both leader and staff contributed to organizational health and a positive organizational climate. Additionally, leader authenticity correlated .83 with the leader’s supportive but not directive behavior (.04), initiation (.61), consideration (.81) and influence (.54).
A virtue of leadership is being just and fair. Some leaders are more just and fair than others; this may be a consequence of the individual leader’s character as well as conditional on circumstances. Being just and fair may be a matter of how the leader distributes reward and punishments, how others are treated and informed, and which procedures are used and when. Sometimes it is a matter of time. What may be ethical and fair in the short run may be unethical and unfair in the long run. Sufficient time is often needed to test whether a pharmaceutical drug is beneficial or harmful. Taking the drug DES reduced morning sickness in pregnant women but caused birth defects (Messick & Bazerman, 1996).
Figure 9.1 A Model of the Effects of Leader and Staff Authenticity on Organizational Health and Organizational Climate
NOTE: All relationships are significant to the .01 level. N = 63.
SOURCE: Henderson and Brookhart, 1996, p. 97.
Forms of Justice. Distributive justice is the fairness with which rewards and resources are distributed to members of a group or organization, consistent with their contributions, in comparison with others, or both. Even with the best of intentions, according to interviews with senior executives of an online division of a large parent firm, during the first 22 months it was difficult to maintain distributive justice in the new division because of complexity, ambiguities, and required speed (Brown & Gioia, 2002). Rawls (1985) examined the limits to fairness and the impossibility of completely eliminating disadvantageousness. There is inherent unfairness in the differences among us at birth: in our brains, beauty, inherited health and wealth, and the way we are parented. Society needs to provide equal opportunities within these constraints.
Justice comes in several forms of procedures or processes. Procedural justice follows along with other forms such as interactional justice (fairness of treatment) and informational justice (fairness of disseminated information). Procedural justice depends on high-quality information, well-informed opinions, consistency across different groups of employees, suppression of personal bias, and consideration of moral standards (Thibaut & Walker, 1975). Interactional justice involves the informational and interpersonal approaches to implementation that depend on the adequacy and timeliness of information about the procedures, and sensitivity to the quality of interpersonal relations (Konovsky & Folger, 1991). The various forms of justice tend to intercorrelate above .50 and are collectively referred to as organizational justice (Bell, 2001). Judgment of the fairness of the distribution of resources depends, in particular, on whether the procedures used to make the distribution are seen as just (Lind & Tyler, 1988). However, Turillo, Folger, Lavelle, and Umphress (2002) suggested that many leaders suffer from a distributive bias. They overestimate how much employees care about distributive outcomes and underestimate how much employees are concerned for procedural and interactional justice.
Distributive Justice. Although Rawls (1967) agreed that rewards and resources should be distributed for the “greatest good for the greatest number,” he proposed that this required a fair distribution that can meet the expectations of the most privileged to the least privileged—from the wealthy entrepreneur to the poor unskilled worker. The social system affects their life prospects differently from before birth and according to their different natural attributes. But the system must allow liberty of the person, freedom of thought, and political equality. The differences in distribution are just if the greater expectations of the most advantaged, who play a role in the social system, improve the expectations of the least advantaged (Ciulla, 1998, 2004).
In international joint ventures in developing countries, local employees find it unfair that foreign expatriates are compensated more highly. However, Chen, Choi, and Chi (2002) found that Chinese locals’ sense of unfairness was decreased if they were paid more than Chinese locals in other joint ventures, if they accepted the rationale for the discrepancy, and if the expatriates were more interpersonally sensitive toward the locals. As is usually the case, perceived distributive justice increased with satisfaction with compensation and with decreased intentions to quit.
Leventhal (1980) suggested six rules for just and fair processes: (1) Be consistent among people and across time; (2) Suppress the self-interests of authorities; (3) Use accurate information; (4) Maintain opportunities to make corrections; (5) Consider representative concerns; and (6) Maintain compatibility with social and moral values. Leaders can influence whether fair and just outcomes are achieved. They can determine who will be included in decision making. They can set the agenda. They can prioritize deliberations (Hoyt & Garrison, 1997). Leaders may also be able to convince others that they are fair in their procedures and distribution of information, when in fact they may not be (Greenberg, 1990).
Bell (2001) asked MBAs from one business school, in an e-mail survey, if they had ever received a performance evaluation “that was not as positive as they hoped or expected.” Of 1,051 respondents, 130 had received such an appraisal. They completed the Colquitt Organizational Justice Scale (2000) to measure their perception of procedural, distributive, interpersonal, and informational justice as members of an organization. Procedural justice correlated highest with distributive justice (.69). Interpersonal justice correlated highest with informational justice (.71). The lowest correlation among the four types of justice was .47. One hundred ten participants also completed a retrospective “shame and guilt” scale adapted from Marschall and Tangney (1994). They answered questions about their loss of self-efficacy, the meaning of the organization to them personally, and their affective commitment to the organization. Regression analyses indicated that a perception of the organization as just and fair in all four types of justice reduced the participants’ shame, guilt, loss of self-efficacy, and loss of identification with the organization.
These finding were consistent with other research showing that if a recipient considers negative feedback just and fair, the feedback is more likely to be accepted and less likely to have deleterious effects on the recipient (Lind & Tyler, 1988). In considering settling disputes with management, 301 employees of a large firm believed that among arrangements not requiring intervention by a law court, voluntary mediation provided the most justice and fairness, compared with mandatory mediation and binding arbitration (Richey, Garbi, & Bernardin, 2002). In one study, 143 employees who had a strong “exchange ideology” of fairness and justice, according to their supervisor, exhibited less affective commitment when they viewed their work environment as unfair. No such tendency was found in employees who were indifferent to a fair exchange (Witt, Kacmar, & Andrews, 2001).
Equity theory predicts a sense of being treated unfairly when we see others whom we consider similar to ourselves in effort, performance, status, experience, etc., being treated beneficially while we are not treated in the same way (Thibaut & Kelley, 1959; Mowday, 1987). Highly correlated measures of procedural, interactional, and distributive justice were rated by 265 students holding full-time jobs (31%) of part-time jobs (69%). Fairness was seen when leaders were judged to form higher-quality leader-member exchanges (LMXs) with employees who contributed more to their work group, and lower-quality LMXs with employees who seemed to have contributed less to the work group. In controlling for LMX quality satisfaction with supervision was higher if greater justice was perceived. At the same time, those employees higher in performance and organizational citizenship behavior were more negatively affected if they felt that the leaders were unfair in their differentiation (Erdogan, 2002).
Tyler (1984) found that perceived procedural justice depended on how much control employees had in presenting information to their supervisor on their trust in the supervisor, and on the supervisor’s respect for them. When procedural justice was perceived, high-quality LMXs were not as important in contributing to performance, commitment, or citizenship behavior (Sanchez, Bauer, & Trujillo, 2002). Nevertheless, Scandura and Tejeda (2003) reported that for 275 supervisor-subordinate dyads, job performance was better when LMX was of high quality and employees perceived that appraisals of their performance were fair. Bazerman, White, and Lowenstein (1995) concluded from a review of research that judgments of distributive justice are “remarkably nuanced, responding to a wide range of … situational and individual … factors.” At the same time, “there are pervasive biases” in the way that fairness is judged, and “inconsistencies in the importance” placed “on fairness in different contexts” (p. 39).
Interactional and Informational Justice. Gratton and Zaleska (2002) analyzed over 300 semistructured interviews with employees to examine the roles played by line managers and human resources (HR) professionals in the enactment of justice. The context was eight large organizations in the United Kingdom, ranging from pharmaceutical and telecommunications firms to a hospital and a postal service. Interaction injustice was most frequently mentioned by interviewees—specifically, a lack of dissemination of information about promotions, rewards, and development:
The greatest outrage [occurred] when employees felt that satisfactory explanations were not provided by the HR (Human Relations) function, and they were not given feedback about procedures, particularly [about] pay and reward decisions. … They blamed HR if they perceived the … procedures to be mute and secretive.” (p. 11)
HR was expected to design and develop equitable processes. Line managers were expected to tailor policies to meet individual needs and suppress their own biases. When implementing policies, HR was expected to provide opportunities for employees to voice their opinions. Insensitive treatment from a line manager, rather than a sense that procedures were unfair, generated feelings of unfairness. The style of the line manager as well as the HR professional was important in determining whether justice or injustice was perceived. “A skilled HR professional or line manager with clear people-centered values and behaviors could have a positive effect on [employees’] perception of justice” (p. 16).
There are leadership styles, such as servant leadership, that call for extreme altruism. Many other leadership styles also stress the importance of helping others or sacrificing for others (Kanungo & Conger, 1993). Altruism is the virtue of selflessness, reducing personal benefit for the sake of others (Margolis, 1982). But it is not usually associated with the world of business and utilitarian organizations. Supposedly, “the path to profits is not paved with caring concern but with Darwinian cleverness” (p. 37). Nevertheless—just as in our private lives when we devote time, energy, and money to charitable and public causes—altruism has a place in the management of our organizations. Even though a corporation is competing in the marketplace, the complexity of the market calls for more interdependence, attention to cooperation as well as competition, and consideration of all the corporation’s stakeholders. Altruism may be utilitarian in the expectation of reciprocity for good deeds; it may be an act of impression management; and/or it may be genuine and morally right. Also, altruism has been found to correlate with self-esteem, perceived competence, internal locus of control, and decreased alienation (Caza, 2002). Altruism is the first factor in one widely used measurement, Organizational Citizenship Behavior (OCB; C. A. Smith, 1983).
In 1993, the Academy of Management Executives surveyed a panel of 40 executives, 24 human resource executives on a conference board council, and peers in their own firms on the question “In the past 20 years, do you think acts of corporate altruism have increased, decreased, or stayed the same?” Of the total, 52.5% said altruistic acts had increased, 31.7% said they had stayed the same, and 15.8% said they had decreased. Three corporate practices were seen by the vast majority (80% to 90%) as utilitarian ethics that benefit the company: (1) empowering management practices; (2) company-wide emphasis on cooperation; and (3) attention to work and family needs of employees through family-friendly policies. A majority noted three genuinely ethical practices that were the right thing to do and for which the company expected no payback (Anonymous, 1993, p. 90): (1) a strong commitment to the disadvantaged in the community (64%); (2) recognizing people in the company and demonstrating concern and support for others (60%); and (3) having a well-understood and practiced set of corporate ethics (51%).
Martin-Marietta, now part of Lockheed-Martin, provided telephone and mail addresses of its ethics office, whose director reported directly to the president, the chairman of the five-member ethics committee. Its code of ethics gave examples of conflicts of interest, such as acceptance of gifts from those seeking to do business with the firm, placing business in a firm owned or controlled by an employee or employee’s family, and acting as a consultant for a customer or supplier. Offering, giving, or soliciting bribes or kickbacks were forbidden. Financial statements, books, and records had to reflect accurately all transactions of the corporation. As a major government contractor, the corporation had to be especially sensitive to control of costs and had to follow rigorous procurement standards. It was every employee’s duty to preserve the corporation’s plants and equipment. In compliance with the Securities and Exchange Commission, antitrust regulations, and political campaign finance laws, the following were not permitted: “insider trading” of securities, restriction of trade that is harmful to consumers, and unapproved corporate political contributions. Disciplinary action would be taken against employees who participated in or authorized violations of the code, or who had deliberately failed to report a violation. Action would be taken against the violator’s managerial superiors if the violation reflected their lack of diligence or supervision or if they retaliated against the employee who reported the violation.
Should Leaders Be Altruistic? In letters between E. A. Locke and B. J. Avolio, Locke, a disciple of the libertarian philosopher and novelist Ayn Rand (1964), argued that leaders should think and act in a rational way, with self-interest rather than altruism as the basis of action. By accomplishing their own interests, they will display their highest principles and achieve their highest performance. Implicit in the virtue of rationality are honesty that refuses to fake reality, integrity based on loyalty to one’s rational judgments, independence in using one’s own rational judgment to sustain one’s own life, taking responsibility to be productive, judging others by a rational standard, and taking pride in being a self-made soul and seeking moral perfection. Leaders ought to listen to others but make their key decisions themselves. They ought not to pursue careers out of duty or obligation. They ought to seek to hire the best possible people and follow their best judgment as rationality dictates. Because it is the rational thing to do, they ought to treat clients and employees fairly; and they should not feel guilty if they succeed in becoming wealthy. Avolio countered that in many situations, competing interests could not be satisfied. The most effective leaders are those who transcend their own interests for the good of their group, organization, or society. Soldiers are called upon for self-sacrifice. Rationality itself may often be in the eye of the beholder (Avolio & Locke, 2002).
The American Association of Medical Colleges called for medical students to be knowledgeable, skillful, and dutiful as well as altruistic. The order of importance is debatable, since most patients would prefer a “cold but smart doctor [to] a warm, dumb one” (Robinson, 2002). Other virtues of leadership include conscientiousness, wisdom, courage, dutifulness, compassion, and trustworthiness. The virtue of benevolence is also important to leadership. When the leader is benevolent, followers will display good organizational citizen behavior (Skarlicki & Dirks, 2002).
Conscientiousness. Conscientiousness tends to predict better job performance and good organizational citizens behavior. It correlates with fewer acts of delinquency such as stealing in work settings (Barrick, Mount, & Strauss, 1991). It also combines with supportive leadership to promote safe behavior at work (Griffin, Neal, & Burley, 2000). Although ability was expected to moderate the effects of conscientiousness on job performance, that was not found in three large samples of managers (Mount, Barrick, & Strauss, 1999). However, conscientiousness may be expected to impede performance when speed is more important than thoroughness, when rapid decisions are required but information is limited, and when rules stifle creativity (Collins, 1998). Sometimes conscientiousness may fail to predict effective management performance (Robertson, Baron, Gibbons, et al., 2000). According to an examination by Moon (2001) of 360 decisions, when conscientiousness was associated with personal striving for achievement, commitment to making effective decisions escalated. But when conscientiousness was associated with an other-centered orientation, commitment de-escalated. Among the middle managers in 131 Fortune large global firms, conscientiousness mapped most distant from “entrepreneurial” as a desired trait—especially in the pharmaceutical industry as compared with the food industry (Chun, 2003). Conscientiousness and moral development begin early in life with bonding, cooperation, affection, and happy interactions. Parental influence and values are embraced (Kochanska, 2002).
Wisdom. This virtue allows the leader to activate bodies of factual and strategic knowledge simultaneously to address practical and uncertain aspects of life. It promotes understanding of what is true and right and guides effective rational and moral judgment. Requiring practical wisdom of the moral leader is consistent with Aristotle’s virtuousness and Kant’s moral leader as an autonomous individual (Jeannot, 1989; Baltes, 1999).
Courage. Courage is a mix of instant or longer emotional and cognitive states related to taking action in the face of vulnerability, risks, dangers, potential losses, and consequences to oneself. Courage and bravery occur as exceptional events outside the bounds of norms, routines, and expectations about how people should act in a specific context (Worline, 2002). Leaders or followers face uncertainties and dangers for the good of the group or organization in an exceptional event of potential danger to the collectivity. For Gal (1984), moral courage is the essence of leadership. In addition to remaining ethical, U.S. presidents need moral courageousness.
Compassion. Compassion is a central virtue in many religions. If authentic, it reflects a genuine empathic concern for others’ pain (Batson, 1991). It is a virtue of benefit to individuals, organizations, and society (Wuthnow, 1991). It may involve an active regard for the other person’s good aimed at alleviating the other’s pain (Blum, 1980). It played a role in the politics of presidents Bill Clinton (“I feel your pain”) and George W. Bush (“compassionate conservatism”). In the workplace, it can increase feelings of well-being and resilience and enhance productivity (Dutton, Frost, Worline, et al., 2000). Compassion and self-sacrifice were shown by Abraham Feuerman, owner of Malden Mills, whose mill burned down. Instead of laying off the workforce while rebuilding the mill, he continued to pay the workers their wages while the mill was being rebuilt. Unfortunately, however, because of overseas competition he was unable to repay the loans needed to continue.
Dutifulness. A sense of duty is a virtue expected of professionals. They need to avoid being self-serving. To the best of their ability, they ought to apply the principles of their profession. For instance, certified public accountants (CPAs) are accountable when auditing their clients’ financial statements. The statements presented to the public need to be transparent and true (Piaker, 2002). In times of crisis, self-sacrificial leaders are looked at most favorably, according to a controlled experiment by Halverson, Holladay, Kazama, et al. (2004) involving 203 undergraduates. Israeli Colonel Eli Geva was self-sacrificial when he ended his military career in 1982 by refusing an order from his superior to move his troops into Beirut because he had grave reservations about the role of the Israeli military in Lebanon (Avolio, 1999).
Forgiveness. This is a virtue that abandons justified resentment, bitterness, and blame in response to harm or damage (Enright, Freedman, & Rique, 1998). The injustices, pain, and suffering inflicted on the nonwhite population of South Africa were met by Nelson Mandela, who spent 27 years in prison, with a plea for forgiveness and reconciliation. Desmond Tutu led the Truth and Reconciliation Commission to provide forgiveness from the testifying victims and amnesty for perpetrators of offenses including rape, torture, and murder during aparteid. To obtain forgiveness, the perpetrators had to confess voluntarily and in public. The wrongdoing had to be acknowledged. The offenses were due to political, government, or police policies. Civil war was averted (Cameron & Caza, 2002). Followers who forgive a leader’s threats and punitive behavior are generally more agreeable and emotionally stable in personality. If they are more spiritual and religious, they believe that they are more forgiving. If they are more forgiving, they like and empathize more with the leader and do not ruminate about the leader’s actions (McCullough, 2001). Forgivers are physically ill less often and recover faster from illness. They feel more empowerment, hope, and self-esteem (McCullough, 2000).
British treasury officials displayed inhumane vice when they explained as “natural causes” the reason for the starvation of the Irish peasantry during the potato famines of 1845 to 1849. Sir Charles Trevelyan, in charge of organizing relief, promulgated the following principles:
1. Starving men given government handouts would grow to depend on them rather than working for their bread. Therefore, food was to be provided only in county workhouses. (Useless work projects were set up for men too weak to work.)
2. Government intervention to lower the price of wheat and corn would injure traders and merchants.
3. When rent was not paid, the only remaining option for the tenant was emigration or dying. (The tenant’s cottage was often burned.)
The population was reduced from 8 million to 3 million. Benjamin Jowett heard a political economist say that he feared the famine of 1848 would not kill more than a million people, and that this would scarcely do enough to do much good. Although not as extreme, such reactions can be found today in leaders and managers who justify unethical managerial behavior. A survey of 3,450 managers in three industries from 28 countries disclosed that managers were more inclined to justify vices in some countries than in others. Counter to some of the hypotheses of the investigators, Parboteah and Cullen (2002), those living in socialist countries—higher in religiosity, higher in social inequality, higher in access to education, but lower in industrialization—were more likely to justify unethical behavior such as buying stolen goods, cheating on taxes, lying in self-interest, and accepting bribes in the course of one’s duties. Men were more likely than women, and younger employees were more likely than older employees, to justify unethical behavior.
Deceiving, Lying, and Cheating. These are common vices, seen in many of the traits and behaviors mentioned here. An exemplar of the vices of leadership was Sam Goldwyn, a founding father of the Hollywood movie industry. He was hard, ruthless, and arrogant. He was a chronic liar and compulsively rude. He cheated when he could. He quarreled continually with his partners. He was deceptive. People never knew how they stood with him. He had a dismal view of ethics in business (Berg, 1989). Like Goldwyn, many leaders have states and traits that may bring harm to their associates. They may be corrupt as well as incompetent (Kellerman, 2004). They may use their power and position to be abusive and unjust. They may hoard privileges, betray loyalties, or neglect responsibilities (C. E. Johnson, 2001). They are particularly insidious when they appear beneficial but are actually harmful. They lack authenticity and sincerity. Often they are hypocritical. There are those who may benefit some at the expense of others. Frank Lorenzo boldly persuaded financiers to provide the money for takeovers of businesses, like Eastern Airlines, that were in trouble. “By behaving with startling audacity at the edge of legality or beyond—violating past practice, lying, and employing hitherto unused legal devices, such as bankruptcy, to achieve his goals” (p. 251), he aroused hatred and fear in employees and managers at the companies he threatened, bankrupted, and stripped (Turner, 1993). For many politicians, selfish, personal private aggrandizement has been coupled with aggressive public preaching of altruism and social responsibility. Such has been the case with numerous dictators. Womanizing has been common among powerful reform politicians including Kemel Atatürk, Fidel Castro, John F. Kennedy, and Bill Clinton.
Moral identity of a negotiator appears to affect how much lying will occur. Aquino, Ray, and Reed (2003) engaged 224 students in simulated negotiations in a counterbalanced experiment. One student negotiator, who had access to privileged information (while the other negotiator did not), lied about it unless moral identity was important to the negotiator and lying was not rewarded.
Followers may also exhibit behaviors intended to harm their leaders and organizations. For instance. Skarlicki, Barclay, Patent, et al. (2002) showed that when laid off, untrustworthy employees (despite management efforts to explain the reasons) retaliated by such actions as destroying important documents and also considered getting even in other ways.
Self-Serving. When they can, self-serving leaders disregard the rights, values, and feelings of others. They reinterpret moral principles for their own benefit. They rely heavily on manipulation. They are unlikely to inhibit their use of power. They detach themselves from how they are perceived by their followers. They act in whatever ways will benefit themselves the most, ignoring the expense to others. Muttayya (1977) found that self-orientation in Indian leaders was associated with less commitment to principled public conduct. Fox (2000) has held that American political culture is dominated by self-serving, expediency, indifference, and opportunism. He questions how much progress we have made toward responsible government. Mitchell and Scott (1990) agreed that corruption, scandals, abuses of public and private trust, and the endemic lack of moral leadership are supported by an ethic of personal advantage and the value of short-run individualism. But a certain amount of this may be necessary. In order to win New Jersey’s electoral votes in 1932, Franklin D. Roosevelt befriended Frank Hague, a known corrupt political boss, in order to gain his crucial support (Schoenbrun, 1984).
House and Howell (1992) called attention to the differences between personalized, self-serving, exploitative charismatic leaders and socialized charismatics. Whereas socialized charismatics were collectively oriented, egalitarian, and nonexploitative, personalized charismatics inhibited their need for power and were Machiavellian, authoritarian, and narcissistic. Roberts and Brindly (1955) saw the risk in training leaders to be charismatic: if these leaders were self-serving, they would practice deception and exploit their followers. Self-serving Machiavellian leaders try to maximize their self-interests. They are more likely to be egotistical and narcissistic. Like Napoleon, the self-aggrandizing “Chainsaw” Al Dunlap (Dunlap & Andelman, 1996) was proud to say how convinced he was of his own greatness (Nocera, 1996). O’Connor, Mumford, Clifton, et al. (1995) contrasted biographies about the rise to power of 38 personalized and 44 socialized world leaders as judged by five psychologists. The degree of self-serving of the leaders was seen in how much: (1) they felt they would not get what they desired because the world is uncertain; (2) they sought to subdue or convert others; (3) they viewed other people as instruments to achieve their own goals; (4) they were selfish, extremely self-interested, and overly concerned with self-satisfaction; and (5) they felt a strong need to protect themselves and to monitor their thoughts and actions in the presence of others. Personalized leadership—highly related to self-serving—correlated with harm to society, a failure to adhere to morality, and a lack of benefit to individuals. Such leadership was likely to be destructive rather than constructive. Kaiser Wilhelm II was partially responsible for inflicting World War I on humanity as a consequence of his preoccupation with emotional self-interest (Dietrich, 1981). Powerful, self-serving leaders use their power to satisfy their need for more status and esteem. They are rude and sexually exploitative. They collect symbols of prestige: offices, homes, and cars. They keep their subordinates weak and dependent. They centralize authority for making important decisions (McClelland & Burnham, 1976). Saddam Hussein may have seemed irrational, but he represented the extreme of self-serving and calculating craftiness. Anyone who did not support him was his enemy. Anyone within his control who opposed him was subject to severe punishment, including execution. Any movement that would threaten his power was met with force including poison gas. He was unconstrained by conscience. His murderous behavior was consistent with the culture of violence in which he grew up. He had messianic ambitions and dreams of glory as supreme leader of the Arab masses. In invading and looting Kuwait, then trying to destroy its rich oil fields, he defied the military power of the United Nations, led by the United States. He rose like a phoenix after Iraq’s disastrous defeat in 1991, once more to challenge the United States and the United Nations for the following 12 years, again at the expense of Iraq’s civilian economy and population. At the same time, during his three decades in power he built a modern secular state unlike most in other traditionally religious countries. His violent overthrow was followed by insurrection, civil war, and chaotic conditions bordering on anarchy despite a democratically elected government to replace him.
Most leaders are neither completely self-serving nor completely altruistic. Additionally, self-serving may do some good. Bolino (1999) suggests that leaders may display good organizational citizenship to impress others as a technique of impression management. Or it may be a matter of ingratiation or manipulative politicking. Ferris, Bhawak, Fedor, et al. (1995) noted that good organizational citizenship will be seen as prosocial if it is sincere, but as self-interested politics if it is insincere.
Greed is self-serving, seen in the compensation of too many U.S. CEOs and senior executives, relative to their employees. Conger (2005) noted that prior to 1930, professional managers—the agents of owners and shareholders—did not become millionaires like entrepreneurs and owners such as the Rockefellers. In 1929, Eugene Grace of Bethlehem Steel was the first professional chief executive to be awarded a bonus of $1.2 million. By 2000, Dennis Kozlowski, CEO of Tyco, obtained a compensation package of $137 million. According to Conger, there are seven reasons for greedy, unjustifiable compensation, a vice widespread in the United States despite monitoring and regulating by the Securities and Exchange Commission.
1. Corporate governance makes the CEO the leading corporation decision maker as the chairman of the board of directors. The directors vote on the compensation of the CEO and expect reciprocity. Many if not most of the directors are CEOs in other corporations and don’t raise objections.
2. Outside compensation consultants who provide guidance and benchmark data depend on the CEO to buy other business services they provide.
3. For the media and the public, the CEO is a romantic hero who single-handedly triumphs over daunting challenges.
4. Corporations are conceived of as property of an owner rather than as a social institution accountable to the public.
5. Transparency is lacking in the compensation package.
6. Tax codes provide deductions for options and grants of restricted stock.
7. Too many senior business executives have narcissistic personalities.
Narcissism. Nietzsche’s (1886) ego-enhancing, inner-directed, self-determined superman had many good qualities but also many elements of the narcissist. He had a sense of duty and responsibility to his unique self. He was free of the expected and was a point of contact with the future. Narcissism, as measured by the Narcissistic Personality Inventory (NPI), includes an inflated sense of self-importance and fantasies of success, superiority, power, beauty, and brilliance. Admiration is sought. Sometimes narcissism is a force for good; more often it is a vice. It is immoral when it leads to exploitation of others, expectations of undeserved special favors without reciprocation, indifference, and lack of empathy for others (Raskin & Hall, 1979). Narcissists “are capable of being extremely charming and manipulative and extremely cruel to others whenever it is in their self interest to do so. … Narcissists appear to experience little self-doubt … as a result of their behavior” (House & Howell, 1992, p. 98). Kets de Vries (1994) does not find it surprising that many narcissists, with their need for power and prestige, become leaders. They act out fantasies created by their followers, who become uncritical, submissive, and dependent. Self-loving leaders take advantage of their followers’ loyalty by ignoring the followers’ needs. Steyrer (2002) used a model to show how the grandiose self of the narcissistic, charismatic leader, when confirmed by attention received, is socially dramatized and results in fascinated, impressed, emotionally stimulated followers who may subsequently engage in destructive acts. Sankowsky (1995) added that such leaders are likely to abuse power. They share their belief system with their followers. Narcissistic leaders only want to hear advice that confirms their opinions; they reject anyone who challenges them. According to Hogan and Hogan (2002), unhealthy narcissistic leaders combine a grandiose sense of certainty with disdain for subordinates. They ingratiate themselves with those above them in the organization and brutalize those below them. Like Walter J. Connelly, Jr., who ruinously expanded the Bank of New En gland, they are good at self-promotion. Normal rules don’t apply to them (Goleman, 1990). Narcissists have also been found by Helland and Blair (2005) to engage in unethical leadership behavior such as insensitivity to others, manipulative communication, and pseudotransformational behavior.
Hypocrisy. John Gardner (1990) notes that leaders must combat the hypocrisy that proclaims values and then proceeds to act in violation of them. Hypocritical leaders formulate moral standards that they refuse to apply to themselves. They do not accept the same consequences for ethical violations that they demand of others (Dyson, 2001). Smith and Craig (2002) saw insincerity in many CEOs who called for reforms in business and accounting practices to deal with unethical reporting. These CEOs were dissembling; they called for needed changes but weren’t aggressive in carrying them out. Bla-lock (1996) found that the many executives valued self-respect but were ready to commit financial fraud.
Falseness or Inauthenticity. “Leaders sometimes behave immorally … because they are blinded by their own values” (Terry, 2003, p. 67). They may truly believe they are acting altruistically when in fact they are being self-serving. Concern for collective outcomes in the interests of altruism may harm opposing interests of individuals.
Inauthentic pseudotransformational leaders appear to support the common good, but their own self-interests have a higher priority. They ask to be trusted but cannot be. They create artificial and phantom needs in their followers. They manufacture artificial crises. They stretch the truth. They arouse fantasies and delusions in their followers. The example they set for their followers is inconsistent with or even the opposite of what they proclaim is right. At the extreme, they may be psychopaths who mask their antisocial traits, present a prosocial demeanor, and remain successful leaders (Babiak, 1995). They treat opposition as disloyalty. They “pass the buck” and blame others for their own mistakes. False expert authority in dishonest advertising can be more persuasive than true expert authority although it is possible to immunize students against such ads with brief training (Cialdina, Sagarin, & Rice, 2001).
True, authentic transformational and charismatic leaders respect the rights of others and may appeal for universal brotherhood; inauthentic leaders focus on “us” against “them” and demonize opponents. Authentics are open; inauthentics wear masks. True leaders tell followers what they need to hear; false leaders mislead, prevaricate, and tell followers what they want to hear. Authentics truly empower followers; false leaders appear to empower but actually create dependent followers. Authentics aim to develop their followers into leaders; inauthentics want to develop submissive disciples.
Authentic leaders, in general, are authentic and empathetic; inauthentic leaders shed crocodile tears. Authentic leaders build arguments on truth and evidence; inauthentics build arguments on ignorance, prejudice, and half-truths. Authentic leaders espouse fairness and human rights. Inauthentic leaders are ingratiating, patronizing, and condescending toward others; they talk about concern for the environment, humanity, and society but actually are interested in exploiting them (Bass & Steidlmeier, 1999).
Opinions among historians differ about whether Adolf Hitler actually believed he was doing the right thing. H. R. Trevor-Roper thought that Hitler was convinced of his own rectitude. Alan Bullock called him an actor who sometimes believed his role. Lucy Dawidowicz saw Hitler as a double-talking schemer (Gates, 1998). Hitler was the epitome of the pseudotransformational leader, frequently deceiving others and sometimes even deceiving himself (Evans, 2003).
Pseudotransformational Leadership. The behavior of pseudotransformational leaders is inauthentic although they may appear to be like transformational leaders. They are hypocritical politicians who preach the need for morality yet take bribes. They create the impression that they are doing the right thing, but secretly avoid doing so. They ask their followers and others to trust them, but they cannot be trusted. They make exceptions for themselves. Sometimes they may be blinded by their own values (Price, 2003) and come to believe they are doing the right thing by “killing with kindness” or saving a village by destroying it. The pseudotransformational leader’s idealized influence produces a false messiah like Jim Jones who leads all his followers to destruction. The pseudotransformational leader highlights “we-they” differences. (“We have good values. They don’t.”) Such leaders seek power and status at the expense of their followers. They indulge in fantasies of power and success. They believe they know the right answers, which can be sold through impression management; but they may be deceiving themselves. Their visions are grandiose. They engage in self-displays to get attention for themselves. They may lack a sense of responsibility. The pseudotransformational leader’s inspirational motivation appeals to unrealistic fantasies that make it difficult for followers to face reality. These are spiritual leaders who are false prophets, captains who sail under false colors. “They profess strong attachment to their organization and its people but privately are ready to sacrifice them. They downsize their organization [at the same time they] increase their own compensation, and weep crocodile tears for the employees who have lost their jobs” (Bass & Steidlmeier, 1999, p. 187).
Pseudotransformational leaders’ intellectual stimulation uses false assumptions, overweighs authority, and underweighs reason (Sankowsky, 1995). These leaders feed on their followers’ ignorance and willingness to accept ambiguity, which provides opportunities for the leaders’ enhancement. They set and control the agenda to manipulate the values of importance to followers to reach decisions favorable to themselves. They argue that they are doing the right thing but actually do so only when their own interests are not threatened (Howell & Avolio, 1992). They substitute emotional arguments for rational discourse (Bass & Steidlmeier, 1999). Pseudo-transformational leaders’ individualized consideration creates dependent instead of empowered followers. The leaders expect blind obedience and loyalty. They maintain personal distance between their followers and themselves (Bass, 2001). The leaders exploit the feelings of their followers to maintain deference toward themselves (Sankowsky, 1995), and encourage fantasy and magic in visions of shared goals. They seek to maintain a parent-child relationship with their followers. They are publicly altruistic but privately self-serving. Privately, they are contemptuous of altruism (Howell & Avolio, 1992); privately, they are deceptive, domineering, and egotistical even when their public image is as holy savior. Television and radio preachers caught in ethical scandals are examples.
The esoteric leaders of extremist militias in the United States are pseudotransformationals. They manipulate their followers’ fear of change by claiming that they can halt or reverse its impact. They offer simple explanations for complex changes in society. They pursue returning to a fictitious, glorified past. They advocate using violence against those whom they perceive as responsible for extreme changes in society and benefiting from such changes (Katner, 1996). The radio commentator Rush Limbaugh and the outspoken black political leader Louis Farrakhan are examples of popular pseudotransformationals. “Rush Limbaugh and Louis Farrakhan live well off ignorance … with great charisma. … [They] look like giants to people of minor intellect. … They exploit … frustrated people for personal gain in the name of doing good for the entire nation or race” (Lockman, 1995, p. 9a).
President George W. Bush was pseudotransformational in 2001 when he asked Congress for a resolution to take the country to war against Iraq in response to Al Qaeda’s terrorist attacks of 9/11. He may have been misled by faulty intelligence about Iraq’s nuclear weapons, but rationally he must have known that Saddam Hussein was a secularist dictator opposed to the Islamists, that at the time there were few terrorists hiding in Iraq, and that Saddam was an enemy of Al Qaeda and its leader, Osama bin Laden. Nevertheless, Bush eventually made a preemptive strike against Iraq to overthrow Saddam. Instead of thwarting terrorism and Iraq’s nuclear activity, the effect of going to war in Iraq in 2003 was a great increase in the number of terrorists worldwide, a loss of international popularity for the United States, and the alienation of the Muslim world (Woodward, 2004). Pseudotransformationals dominate, exploit, manipulate, and self-aggrandize rather than seek consensus or foster trust (Connor, Mumford, Clifton, et al., 1995).
Kellerman (2000) ruled out Hitler as a leader because his influence was destructive and evil, even as he probably had a greater impact on the twentieth century than any other man. It seems more reasonable to say that he was a leader but, unfortunately for the world, a pseudotransformational one. In the same way, Potts (2001) conceives of leadership as inherently ethical, since its purpose is to do good (see Burns, 1978) or to use only good means (see Rost, 1991). According to Potts, any other influence in organizations or movements is manipulative management. Does this mean that management without leadership is inherently unethical? It makes more sense to regard leadership with harmful means and ends as false leadership, also keeping in mind that such leadership may be attempted, successful, or unsuccessful, and effective or ineffective whether or not it aims to do good (see Chapter 6).
Arrogance and Hubris. Kroll, Toombs, and Wright (2000) note that narcissism may generate arrogance and hubris when coupled with ignoring the rules, achieving many successes, and uncritically accepting many accolades. Such a pattern is seen in executives who pursue expansion for its own sake, make unwise and overpriced corporate acquisitions, take uncalculated risks, and knowingly violate moral and legal regulations. Hubris can be outspoken: “Chainsaw” Al Dunlap bragged that he could resurrect almost any dying business. Appointed CEO at Sunbeam in 1996, in 11 months he had eliminated 60% of its management and half its workforce—actions he said were difficult but should have been done by his predecessors (Turner, 1997). Dunlap was fired a year later. The firm subsequently went bankrupt.
Arrogant executives are excluded from the “humor network”—joking on the job (Duncan & Feisel, 1989). Likewise, the arrogance of military leaders has led them to underestimate the enemy, overestimate their own force and position, and ignore the advice of their staffs. Arrogant business and military leaders both rely on simplistic formulas for success and fail to pay attention to changing realities.
By 1812, except for some early, forgotten setbacks, Napoleon had lost very few of the 35 battles of which he himself had been in command and now had become the master of continental Europe and all its royal rulers. Russia and Tsar Alexander were the exception. They were of little threat to Napoleon’s French Empire. But to satisfy his arrogant character, he assembled 150,000 French troops and 350,000 from other nationalities of Europe and set out to march the 800 miles to Moscow, where he expected that the Russians would formally surrender, submit to his authority, and acknowledge his supremacy over the continent. He had plenty of warnings of problems from his staff, which he confidently overlooked. The problems were to be handled by his will to succeed. He lost 50,000 at the Battle of Borodino and all but 20,000 of the remaining 450,000 because of his failure to consider his stretched supply lines, the Russian winter, Russian resilience, and guerrilla warfare. The defeat led to his downfall over the next three years.
Lack of Social Inhibition. Lack of social inhibition can be a vice. Socially uninhibited people are less effective as leaders despite their need for power and affiliation. They concentrate on dominating others and on winning at the expense of someone else (McClelland, 1985).
Abusiveness. Abusive leaders are arbitrary, condescending, and patronizing. They indulge in emotional outbursts (Ashforth, 1994) and use physical or verbal aggression. A leader’s verbal aggression seeks to inflict pain on the self-concept of a subordinate. It is not mere impersonal argumentation (Marrs & Turban, 2002). Physical abuse by supervisors was more common in earlier industry, but nonphysical abuse continues, though it is more constrained by cultural and organizational sanctions. Abusiveness results in employee job dissatisfaction, role conflict, intentions to quit, and reduced organizational commitment (Tepper, 2000). Supervisor bullying, frightening, or threatening employees (Rayner, 1997) may be witnessed by 40% to 60% of employees, although it is likely to be confused with autocratic, directive, “no-nonsense” leadership (Sablynski, 2002). Abuse of power may be subtle when followers regard the leader as a parental figure (Sankowsky, 1995).
High Self-Monitoring. High self-monitors have the vice of overconcern about appearing unfavorably in what they say and do. They tend toward amorality. They avoid investing in emotional relationships. They are less committed to their current friends, current colleagues at work, and sexual partners. They are more ready to change employers. They are less constrained about pursuing opportunities wherever they may be found (Kilduff & Day, 1994). In a survey of members of a Canadian human resources professional organization, high self-monitors were more willing to behave unethically in eight scenarios in work and nonwork settings (Wahn, 2003).
Document Falsification. Into the early 1990s, as the principal financial institution for a number of Gulf sheikhdoms, arms traffickers, and terrorist organizations, and with branch banks worldwide, the Bank of Credit and Commerce International (BCCI) was ideal for moving funds among the sheikhdoms, arms traffickers, and terrorists because it was flexible in falsifying documents. Illegal and immoral transfers were kept from being transparent. The bank even arranged for princes in Abu Dhabi to pay the families of 16-to 20-year-old virgins and to pay for training them (London Sunday Times, 1992). Enron overreported $9 billion dollars in profits aided by Arthur Andersen auditors. This “cooking the books” cause of bankruptcies in a number of other large firms in 2002. Wessel (2002) listed 18 major corporations, from Adelphia to Xerox as following questionable practices. Adelphia, audited by Deloitte & Touche, failed to properly disclose $3.1 billion in loans and guarantees to its founder’s family. Xerox, audited by KPMG, was fined $10 million but did not admit or deny that it inflated revenues and profits from 1997 to 2000 by including future payments on existing contracts.
Malevolence. This vice of destructive leaders brings harm, pain, and suffering to others (O’Connor, Mumford, Clifton, et al., 1995). If the vice is intentional and deliberate, the leaders are malevolent in personality. According to Goldberg (1995), they know what they are doing and understand the consequences of their actions. They choose doing evil over doing good in the hope of reducing their own shame and self-contempt, which they project onto others. They feel that they are superior to others and that they live by a higher morality. They become addicted to finding reasons for their cruel and insensitive behavior. They are unable, unwilling, and afraid to examine the dark, unknown side of themselves and believe they already know what needs to be known.
Masked Intentions. Dasborough and Ashkanasy (2002) theorized that depending on whether a leader was in a positive or negative mood, members’ attributions about the leader’s intentions would influence their evaluations and interpretations of his or her leadership and whether the attempted leadership was truly transformational or pseudotransformational. Leaders high in Machiavellianism can conceal their intentions and be evaluated by members as authentically transformational when they actually are pseudotransformational. When the members are in a negative mood, they will be more likely to view the leader as self-serving.
Leaders with many of the vices listed above have been described as toxic by Lipman-Blumen (2005). She noted that such leaders are plentiful in all walks of life and display different vices at different times. Nevertheless, they are tolerated and sometimes admired. They survive despite their faults. Often, they achieve status as celebrities and are supported by the media’s myopia about ethical considerations. Among other actions of toxic leaders, she noted that they: (1) do more harm than good to followers; (2) violate the basic human rights of their own supporters; (3) consciously feed illusions to their followers that play on the followers’ fears and needs; (4) mislead followers with lies; (5) stifle criticism of themselves; (6) engage in unethical, illegal, and criminal acts; (7) cling to power; (8) scapegoat others; and (9) ignore or promote incompetence, cronyism, and corruption.
Investigative journalism has, since its inception, put a spotlight on managerial and entrepreneurial corruption. Nonetheless, there has been a marked paucity of empirical research on managers’ attitudes toward corruption and the ethics of their behavior. Pitt (1985) gave middle and senior managers in South Africa 15 scenarios involving ethical considerations and asked them to indicate whether they regarded the manager’s behavior as wrong, how frequently such behavior had been observed, and what the company should do about it. Over 90% thought it was definitely wrong to accept a large bribe or to tell competitive bidders their rivals’ offers for the manager’s own material benefit. But 4 out of 10 thought it “understandable” for a firm that had just been awarded a contract by a project engineer to give the engineer a tip. Similar proportions thought it was all right for a geologist to use inside information about new developments to purchase company shares, and for a purchasing manager to accept an invitation from a supplier for a “night on the town” hosted by the supplier’s secretary. Over 90% said they had observed colleagues and friends accepting a potential supplier’s invitation to lunch and accepting a bottle of whisky as a Christmas gift from a supplier. Half or more said they had seen colleagues or friends accepting free trips and entertainment from suppliers, as well as conducting insider trading. Only 34% thought the company should take legal action in the case of large bribes, although 62% would fire the bribe taker. Similar reactions were registered for releasing information prematurely to rival bidders, but a plurality would only give such employees a warning for insider trading, accepting free trips, and filing false expense claims.
Although there is much divergence in ethical opinion among managers, a high set of standards can be described and appreciated. Six interviews were held with six leaders who were identified by well-informed observers as models of ethical leadership. These ethical leaders expressed a strong commitment to the mission of their organization, derived great satisfaction from progressing toward the mission, and empowered others to contribute to it. Furthermore, they cared for the various stakeholders in the organization, not only the owners and stockholders, and had a broad sense of community. They also remained informed about what was going on in their complex organizations. In all, they believed that bad means could not be justified to gain good ends (Shapiro, 1985).
Three sets of questions need to be answered in determining whether one is making the right ethical decision:
1. Is it legal and legitimate? Will this decision violate laws or regulations? Will it violate organizational policies or standards or community norms? Will it violate agreements with unions, outside agencies, or other organizations?
2. Is it just and fair? Is everyone involved being treated equitably? Will some people be helped unfairly at the expense of others?
3. How will you feel after making the decision? How will you feel about yourself? Will you be proud of what you did? Would you be pleased to see the decision published in a newspaper and read by family and friends? (Anonymous, undated).
Nepotism. Favoring family members over others for selection, promotion, and organizational support may be embedded in constitutions, cultures, traditions, customs, and norms. Yet it may be unethical when a less qualified relative is chosen over someone more qualified. There are well-known family political dynasties such as the Bushes, Romneys, Longs, and Kennedys. In many countries widows and daughters are elected to replace their husbands and fathers. Brothers and sons are frequent successors to Muslim leaders. Sons may take over authoritarian governments after the death of their fathers. The great majority of American businesses are family-owned. Descendents of Henry Ford, the founder, have been chosen as succeeding CEOs of Ford Motors. Leadership in the crafts and service industries often passes from father to son. Numerous leaders in the movie and television industry owe their positions to their parents’ careers in the industry. The father-son tradition continues in trade unions, the military, entertainment, the media, and religious institutions. Family name, connections, and wealth may be exploited; and it may not be regarded as wrong to give a qualified relative an opportunity in competition with an equally qualified stranger (Bellow, 2003). Affirmative action for family members has become an acceptable norm in the United States and in family-built and family-dominated businesses and in collectivistic cultures such as India, Singapore, and Taiwan. But there is a cost. People who are not family members feel that they have less of a future in the business.
The unethicality of 15 acts was analyzed by Pitt, Watson, and Nel (1990), who sent 500 questionnaires to purchasing managers in organizations over 500 in size. The managers rated how wrong the actions were and what punishment was justified, if any. Proposed punishments depended on the harm done to the organization by the wrongful actions. Two actions judged completely wrong were accepting bribes to award a large contract and giving a bidder on a contract information about all the rival bids. Perpetrators ought to be punished by dismissal and possibly legal action. Justifying only a warning but judged as almost equally wrong were siphoning fuel from a manager’s company car to his wife’s filing false expense claims, and keeping a trunk full of groceries discovered after returning from a supplier. At the other extreme, it was seen as understandable or not wrong to accept Christmas gifts, lunch from a supplier, or an invitation to a sporting event. In another study, using three scenarios of unethical behavior, 337 upperclass undergraduate students said that the perpetrator was morally wrong if they empathized with the victims of the possibly harmful actions (which involved selling autos or real estate). The likelihood that the harm would occur was irrelevant (Carlson, Kacmar, Wadsworth, et al., 2001).
In its December 19, 2002, issue, Time magazine named three whistle-blowers as “Persons of the Year,” an honor ordinarily reserved for world leaders. Coleen Rowley, a middle manager, sent a letter to the director of the FBI about evidence of the 9/11 conspiracy that was ignored, and testified critically to the U.S. Senate that the agency was bogged down in bureaucracy and careerism; Cynthia Cooper, an internal auditor at WorldCom, alerted its board of directors to $3.8 billion in accounting irregularities; and Sherron Watkins, an Enron vice president, sent memos warning the CEO that improper accounting could cause the firm to collapse.
An ethical conscience, courage to act on one’s ethical convictions, concern for others, ego strength, and inner locus of control are character traits of whistle-blowers in reacting to unethical authority (Perrault, 1997). They are willing to report the unethical behavior of higher-ups (Mumford, Gessner, Connelly, et al., 1993). Whistle-blowers also reveal character traits of spirituality and moral absolutism. Compared with pragmatists, idealists who strongly believe in a just world make the most mature ethical decisions about whistle-blowing. In an Australian study, Windsor, Trevino, Ashkanasy (2001) found that given the expectation in an “in-basket scenario” that management condoned unethical behavior by punishing rather than rewarding a whistle-blower, highly principled respondents—those who scored highest on Rest’s (1993). Defining Interests Test (DIT)—responded most ethically. In contrast, pragmatic respondents—those scoring lowest on the DIT—were lowest in ethical responses.
Motivation to Intervene. For 398 employees in one study, willingness to intervene in the event of witnessing social-sexual behavior at work was affected by recognizing the behavior as a moral issue, by its moral intensity, and by the moral ideology of the witness (Bowes-Sperry & Powell, 1999). In the case of an office romance between an older married senior executive and a younger single employee, taking action was more likely if work was disrupted and the young person was believed to be motivated by job concerns. The desire to intervene was increased by group norms, and by the perceived reactions of the guilty parties (Barnett, Bass, & Brown, undated).
Whistle-blowers can be stimulated by leaders who give immoral orders and suggest actions that are ambiguous so that blame for wrongdoing can be diverted from the leaders (Kelman & Hamilton, 1989). The whistle-blowers may delay or procrastinate until others confirm the seriousness of the unethical behavior. They will act to report the violation of organizational rules if preventive attention is urgent; if the violation is frequent or seriously harmful; if their relations with the violator are not close; if they feel responsible for doing so; if they are less concerned about the violator’s reactions to the whistle-blowing; if fewer emotional, financial, time, and other personal resources may need to be committed by the whistle-blower; if the time and place are appropriate for a confrontation; and if it is likely that the whistle-blowing confrontation will end the violation (Newall & Stutman, 1991).
Deterrents to Whistle-Blowing. In the U.S. service academies, reporting on peers’ unethical behavior, as called for by the honor system, was in conflict with the institutional norms of mutual support and teamwork. At the Naval Academy, the accepted slogan was, “Never bilge your classmates.” Those who blew the whistle and disclosed mass cheating on an electrical engineering examination were expelled, while those who cheated but remained silent were not. For the midshipmen, the honor system was a joke that protected lying and cheating and punished those who blew the whistle (Caplan, 1994).
Galvin (2000) saw 1999 as a banner year for lapses in business ethics, and anticipated the even bigger scandals to come in the years immediately following. The Internet has brought increased opportunities for cheating, lying, and stealing. It has also brought many additional problems, costs, and risks of unethical behavior by corporate leaders and the led, ranging from anonymous sexual harassment to improper contact with competitors by leaders to fix prices and by employees to reveal proprietary information. Stock fraud, bogus business accounting, insurance scams, copyright violations, corporate espionage, and illicit data mining about unsuspecting customers have increased substantially with the increased use of the Internet. Over 60% of employees say they use their office e-mail for personal purposes on company time. Over 50% of firms say they monitor—without permission—their employees’ e-mail; but 61% of employees surveyed said it was all right for the firm to do so. When seeking reasons to discharge an employee, firms find the monitored information a good source.
Many leaders serve as examples of ethical behavior and make moral decisions attributable to their character and professionalism. Others are amoral or immoral. Empirical research on leadership ethics was rare before 1975, although its philosophical underpinnings go back to ancient Greece and China. Spiritual leadership has taken ethical issues to a higher stage. Ethical and moral principles of leadership are well established but remain less well practiced. More attention needs to be paid to organizational and corporate social responsibility. Moral reasoning about what is right, good, and important is principle-based or character-based. Moral reasoning develops from self-interest to seeking the interests of others.
The character of a leader can be delineated in terms of virtues and vices. Among the virtuous traits of leaders are integrity, authenticity, and fairness. Justice may be distributive, interactional, or informational. Other virtues of leaders include altruism, conscientiousness, wisdom, courage, and compassion.
Unethical practices include nepotism, questionable decisions, wrongful behavior, and false accounting statements. The Internet has contributed to many new forms of wrongdoing. Whistle-blowers need a strong set of virtues and the willingness to confront those of much higher status than themselves.