Running head: LEADERSHIP AND UNETHICAL DECISIONS

Leadership and Unethical Decisions Joseph Bahnsen Catrina Cook Mandy Crabtree Terri Dalton Doris Davis Siena Heights University

LEADERSHIP AND UNETHICAL DECISIONS LEADERSHIP AND UNETHICAL DECISIONS Unethical behaviors and practices have plagued the workplace for many, many years. These practices place a large burden on corporations, companies and organizations. Beyond being a burden to the organization, the individual who has been identified as being unethical in their practices find their reputations are irreversibly harmed. Organizations who implement and utilize successful leadership and ethical business practices are likely to become more successful as they build trust within their community and business network (Gunthorpe, 1997). Despite the fact some unethical behaviors are illegal and

put the organization at risk, some leaders and management still chose to behave unethically (e.g., skim profits of the top, hide theft through accounting, steal work supplies for personal use, etc.). Even more shocking, many of these unethical practices never reported. The basis of this paper is to identify and discuss various unethical behaviors and consequences throughout a number of business entities and government offices. The paper will cover a series of unethical behaviors and their consequences throughout a number of hypothetical situations including: (1) unethical hiring practices; (2) unethical practices through self-employment; (3) unethical practices resulting in the loss of employment; (4) unethical practices when employed as a consultant; (5) elected public officials and unethical practices; and (6) incarceration as a result of unethical practices. Unethical Hiring Practices When hiring individuals within an organization, a supervisor has the authority to hire the best possible candidate for the position. Yet, a supervisor may choose to hire someone else going against the policies and best interest of the company. For example, a supervisor committing unethical practices may hold interviews for an open position then hire someone with inadequate

LEADERSHIP AND UNETHICAL DECISIONS skills due to nepotism, discrimination, favoritism, etc. (Cloud, 2006). Durbin (2009) where unethical practices are observed, yet ignored, the unethical behavior continues and can even become detrimental to the organization (Dubrin, 2009).

Nepotism, which is defined as the unfair practice of a powerful person giving jobs and favors to relatives (Merriam-Webster, n.a.), seriously undermines the process of interviewing and hiring the most qualified applicant for the position (Cloud, 2006). However, supervisors are not the only people committing these unethical hiring practices. For example, a human resource manager may have a personal relationship with the applicant outside of the organization so they push their application to the top of the interview list. Family friends may receive special treatment and/or perks including a higher rate of pay or a better paying position within the organization (Arasli, 2006). Aside from nepotism or hiring personal friends, some supervisors refuse to hire a perfectly qualified applicant due to the supervisors discriminatory views. Cloud (2006) states supervisors can discriminate against a number of traits during the hiring process, such as: age, gender, height, weight, ethnic background, employee health screening information, race, religion, disabilities, and wages (Cloud, 2006). For example, when a person is being interviewed by the company, he/she may have all of the required qualifications necessary to perform the job well; however, the supervisor in charge of the hiring may discriminate and not hire the qualified person. Another example of unethical practices involves the supervisor discriminating against an individual based on his or her health condition such as, HIV/AIDS. The supervisor may feel the individual is qualified for the position. However, the supervisor may be apprehensive about hiring an individual with pre-existing health condition such as, HIV/AIDS because it may put others at risk for being exposed to the disease in the workplace (Leonard, 1985).

LEADERSHIP AND UNETHICAL DECISIONS Another unethical hiring practice, according to Arasli, Bavik, & Ekiz (2006) involves

employing applicants who do not have the necessary skills and qualifications to perform the job. In larger organizations, someone from Human Resources typically narrows down the number of applicants by only passing along the applicants who meet the qualifications to perform the job (Arasli, 2006). Imagine an applicant who knew someone working in the human resources in the organization they are applying to. The applicant then asks their human resources contact to assist them in attaining the job even though they do not have the skills necessary to perform the job adequately. The likelihood the applicant will remain employed is very low because they lack the skills necessary to perform the job (Dubrin, 2009). As a result, they are relieved of their position and the organization experiences a quick turnover. When a person in the company commits an unethical hiring practice and their supervisor fails to act or discipline the individual, the supervisor then puts the company at risk in addition to the risk achieved through the unethical hiring practices. Measures should be in place to help identify unethical hiring practices to ensure the organization employs only those who are qualified for the position without the use of nepotism and/or discrimination to narrow down the number of qualified applicants in the applicant pool. If unethical hiring practices are discovered, then action should be taken immediately to reprimand the person who committed the unethical practices. Unethical Practices through Self-Employment Self-employment, a risky venture for many, can quickly turn into a different monster from most other kinds of employment. People still choose the path of self-employment for various reasons; however, unethical practices can occur in both large corporate organizations as well as at the self-employment level. When an employee is unethical in a large company or

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organization, it makes the entire organization look bad. In contrast, when unethical practices are identified at the self-employment level, it only looks bad for the individual. This often begins a chain of events geared in a negative direction. Typically with self-employment there is less ground left to stand on to recover after unethical practices have been exposed. When unethical practices are identified in regards to a person who is self-employed through the retail of a product or service, the individuals name can become sullied. This can carry a heavy burden if enough of the target client population is made aware of the unethical practices. Oftentimes people refuse to offer their business to an unethical organization. This can cause sales and/or income to drop drastically, which consequently exposes the organization to the risk of having to stop doing business, or even risk bankruptcy (Hyytinen, 2008). Hyytinen and Rouvinen (2008) states when individuals leave self-employment and begin working for a company there are many repercussions. Typically, there is a large decrease in gross pay, a large amount of personal dissatisfaction and the possibility of only finding part-time employment or no employment at all (Hyytinen, 2008). There are a number of ways for a self-employed individual to act in an unethical fashion. When compared to a larger organization, the unethical acts of the self-employment individual tend to occur on a smaller level or scale. Robson and Wren (1999) suggest one of the perks for people to become self-employed is being offered different stipulations on paying taxes in the individuals favor. However, Robson and Wren (1999) then go on to suggest there is a higher correlation of tax evasion and self-employment. This practice is commonly identified by the Internal Revenue Service and when identified the only person responsible is the self-employed individual (Robson 1999). The consequences and repercussions of this offense could include having to pay the taxes which would have been assessed before the fraud was committed, paying

LEADERSHIP AND UNETHICAL DECISIONS fines and fees, and a possible prison sentence pending the severity of the offense. This series of events can potentially lead to the demise of the self-employed entity. Unethical Practices Resulting in the Loss of Employment According to Mattord and Whitman (2011), there are three general causes of unethical

behavior: (1) through ignorance of policies, procedures and the law; (2) as the result of accident or oversight; and (3) when the unethical behavior is committed intentionally. Training and education are the best ways of ridding an organization of unethical practices caused through ignorance and accidents, however, intentional unethical behaviors will not likely be fixed through education or training. (Mattord, 2011). Unethical behavior can lead to extreme consequences for the company and the employees involved. Collins (2009) states an organizations reputation can attract or repel employees and customers. Reputations can be severely damaged when lawsuits and accusations of unethical behavior appear in the media, or when customers register complaints with the Better Business Bureau (Collins, 2009). Typically, when the media exposes an organization for malpractice or unethical behavior the organization experiences a major downward spiral. When businesses lose employees due to unethical decision-making behavior, the cost to the business can be very high. Collins (2009) notes employees should either be fired or disciplined based on the egregiousness of the unethical behavior; however, these two short-term solutions do not address the systematic root of the unethical behavior (Collins, 2009) Codes of conduct and codes of ethics are in place to help deter unethical practices within an organization (Collins, 2009). One way of assisting with the deterrence of unethical practices is to have an ethical decision-making framework in place. According to Collins (2009), answering the following questions, which are grounded in moral philosophy, can help employees

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understand the ethical ramifications of the action under consideration: (1) Who are all the people affected by the action? (2) Is the action beneficial? (3) Is the action supported by a social group? (4) Is the action supported by national laws? (5) Is the action in the best interest of the greater number of people who are affected by it? and (6) Are the motives behind the action based on truthfulness, respect and with integrity toward each stockholder? Implementing a systematic approach to identifying unethical behavior can significantly reduce the behavior (Collins, 2009). According to Collins (2009), a great example of loss of employment due to unethical behaviors occurred the early 2000s. Kenneth Lay, Bernie Ebbers, Dennis Kozlowski, and other high-level corporate executives were handcuffed, paraded before the media, and found guilty of crimes associated with greed, theft, and other unethical behaviors (Collins, 2009). These CEOs were fired, fined, and imprisoned due to their separate parts of unethical behavior including fraud, malpractice, falsifying documents, obstruction, and other illegal activities (Collins, 2009). Regardless of their position within an organization, when an employee commits unethical behaviors they run the risk of termination or even prison. Unethical Practices When Employed as a Consultant Working as a consultant entails giving a clientele expert advice in a professional manner. With this being said, clientele expect their consultants to be experts in a specified subject matter. When consultants are identified as being unethical within their practices, their clientele may ultimately drop the consultant or never hire them in the first place. After all, a large portion of being a consultant is the reputation which precedes you. Positive word of mouth and a following are traits which lead to being a successful consultant. According to Redekop and Heath (2007), as popular as the question in regards to the relationship of being a consultant and practicing unethical behavior is, there has been very little research into the topic. They state one of the largest controversial issues with regards to an

LEADERSHIP AND UNETHICAL DECISIONS unethical consultant is they learn more and more from every job they encounter. Therefore, they learn, grow and gain experience from previous clients and situations. They then apply this new knowledge and insight with future prospective clients.

When a company hires a consultant or an expert, they expect to see results. Yet unethical practices performed by a consultant can be disguised at first; however, the ramifications become apparent as time progresses. Gunthrope (1997) states two different things happen when a company discovers they have been dealing with an unethical consultant: (1) the company who hired the consultant will have to regroup and potentially have to seek out a new consultant; and (2) the company may have to pay fines and penalties as result (Gunthrope, 1997). Unethical consultants could possibly be held responsible for their wrong doings. Regardless, both of these scenarios will have financial costs associated with them. According to Gunthorpe (1997) there will always be some kind of financial consequence associated with unethical behavior. When reputations are compromised, there will likely be a reduction in business costing the organization to experience monetary losses (Gunthorpe, 1997). Elected Public Officials and Unethical Practices When we voters elect officials into office we expect them to do a good job, and we respect and trust them or we would not be giving them our vote. We also experience personal letdown when they fail us. As voters, we invest ourselves in these people and when they fail us we feel cheated, and nobody likes to feel cheated on a bad investment. Bad behavior in politics can trickle down into society. Arnott (2003) states, Business and politics are mirrors of society (Arnott, 2003, p. 1). Most of the scandals which make politicians fall from grace do not actually encompass wrongdoings with government business or decisions. Arnott (2003) states it is their personal

LEADERSHIP AND UNETHICAL DECISIONS lives and scandals which typically get them into trouble. Sometimes a good apology is all the public needs to hear in order to let these scoundrels back into their good graces. However, our society is probably over tolerant of dishonesty and corrupt behavior. It is too easy to get away with unethical behavior. It is too easy to resume ones career even after getting caught in the act (Arnott, 2003, p.4). A good example of a fallen politician would be former Mayor of Detroit, Kwame Kilpatrick. It is public knowledge in the Detroit area, Kwame Kilpatrick is a very charismatic person. This is possibly what allows him to fool so many people. Regardless, Kilpatricks

downward spiral began with an extramarital affair and some revealing text messages. After some investigating, Kilpatrick was charged with thirty counts of racketeering, bribery, mail fraud and wire fraud from the Civic Fund1 just to name a few. He was later found guilty on thirteen of the thirty counts ("Kilpatrick trial," 2013). Kilpatrick would make side dealings with Detroits elite businessmen, including businesses such as COBO Arena, in order to get premier contracts in the city ("Kilpatrick trial," 2013). These side deals included round-trip flights on private jets, $6,000 Cartier watches and bags of cash paid to the Kilpatrick's or their confederates ("Opinion," 2012). Doing business with the city under Kilpatrick had a Third World quality to it. In many undeveloped countries, bribery is chalked up as a cost of doing business ("Opinion," 2012). A witness in Kilpatricks trial, Mary Fleming, testified in court that Kilpatrick attempted to pay her for the furnishing of the Mayors Mansion. Approximately $11,000 in furnishings was requested by the Kilpatrick's, and when Fleming was given a check to pay for it from the Civic Fund, she was told it was in error. This testimony helped to prove Kilpatrick illegally used funds,

The purpose of the Civic Fund was to promote neighborhood improvement and activities for young people ("Kilpatrick trial," 2013).

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which were designated to help the youth, from the Civic Fund on personal and political expenses ("Kilpatrick trial," 2013). In conclusion, good ethics are the result of admirable people setting an acceptable set of behaviors for others to follow. People should not believe they are above the rules because they attained a position as an elected official and were bestowed a little bit of power by the voting public. Elected Officials are not an exception to the rule of ethics; rather their behavior should be the governing rule of ethics as they lead by example. As seen in the City of Detroit, when an elected official becomes corrupt with power, the city and its constituents suffer as well. Incarceration as a Result of Unethical Practices Leadership roles are developed through ones own experiences, worldviews, and values. These factors are deeply embedded in each leader. However, the susceptibility to unethical leadership behaviors is a possibility for every leader. Therefore, leaders and organizations should institute effective accountability structures within the organization forcing people to take responsibility for their own actions. Recently, there has been an overabundance of organizational leaders exposed for a variety of unethical behaviors. For some, the end result was incarceration while others received what seemed like a slap on the wrist. The incidents leading up to the trial exposed several patterns of deceit and unethical behaviors contributing to the demise of various organizations, yet the behaviors became the norm for the organization as more and more individuals failed to address the issues of corruption. Enron is a primary example of this unethical behavior. Enron had a 64-page Code of Ethics policy approved by the companys board of directors At the time, Enron enjoyed their reputation for being fair, honest and highly respected (Fowler, 2002). Enrons Code of Ethics instructed an employee shall not conduct himself or herself in a

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manner which directly or indirectly would be detrimental to the best interests of the Company or in a manner which would bring to the employee financial gain separately derived as a direct consequence of his or her employment with the Company (Fowler, 2002). In regards to Enron, many asked how a company could gross billions of dollars and also declare bankruptcy. According to Fowler (2002) this caused many to question the leadership of the organization. What they discovered was unethical behavior and corruption seemed to be rooted throughout the company. There was a combination of leadership failure, a corporate culture which seemed to supported unethical behaviors, and the complicity of the investment banking community. As a result, numerous Enron executives were charged with criminal acts including fraud, money laundering, and insider trading . For example, Ben Glisan, a former treasurer was charged with two dozen counts of money laundering and fraud. He later received a prison term, post-prison supervision, and financial penalties of more than million dollars (Fowler, 2002). Andrew Fastow, former Enron Chief Financial Officer (CFO), faced 98 counts of money laundering, fraud, and conspiracy in connection with the improper partnerships he facilitated (Fowler, 2002). Fowler (2002) also states Fastow engaged in several activities challenging the foundational values of the companys Code of Ethics. Fastow set up and operated partnerships called related party transactions to do business with Enron. In the process of allowing Fastow to create and manage these lucrative private partnerships, Enrons board and top management gave Fastow an exemption from the companys Code of Ethics. Fastow later pled guilty to one charge of conspiracy to commit wire fraud and one charge of conspiracy to commit securities fraud. He was subsequently sentenced to a term of ten years imprisonment and was made to forfeit millions of dollars (Fowler, 2002).

LEADERSHIP AND UNETHICAL DECISIONS Ashforth and Anand (2003) define corruption as the misuse of authority for personal, subunit and/or organizational gain. Corruption and unethical behavior generally grow and develop over time. Three downward norms can lead to this behavior: (1) divergent norms; (2) the spiral of pressure; and (3) the spiral of opportunity (Ashforth, 2003). Nieuwenboer and Kaptein (2008) stated the social identity theory is used to explain the mechanisms of each of these spirals (Nieuwenboer, 2008). The first factor, divergent norms, occurs when organizations typically develop a set of

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norms which are far removed from the generally accepted norms. According to Nieuwenboer and Kaptein groups may be placed in isolated positions which result in members losing touch with generally accepted norms outside of the organization. Over a period of time, their behavior deteriorates creating an opportunity for corruption to grow (Nieuwenboer, 2008). The second factor is the spiral of pressures which deals with the type of corruption which increases or protects ones status. This entices individuals to engage in corruption because they believe it may increase ones performance. Once a person commits performance driven corruption there is an increase in pressure to commit more and more corruption to maintain ones performance rating (Nieuwenboer, 2008). The final factor, according to Nieuwenboer and Kaptein (2008) is the spiral of opportunity. The risk of getting caught or punished is so exciting to the individual it does not deter their unethical behaviors. This engenders a change in prototype and typically begins when leaders fail to punish others for engaging in corrupt activities (Nieuwenboer, 2008). By letting certain situations slide, the unethical behaviors become more prototypical. Unethical behavior of leaders can also be compared to the formation of a tornado. Chandler (2009) states the perfect storm results from the combinative effect of rotating winds,

LEADERSHIP AND UNETHICAL DECISIONS temperature, and atmospheric pressure. Similarly, unethical behavior of leaders occur when a conflux of factors interact between leaders (rotating winds), followers (colliding hot and cold temperatures), and the situational conflux (atmospheric conditions), catalyzed by a critical incident pulling everything into its center (similar to the vortex of a tornado). Just as tornado activity is difficult to predict and may result in damages, loss of property, personal injury and even death, so too can unethical leadership (Chandler, 2009).

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According to Chandler (2009) ethical leadership behavior is defined as the organizational process of leaders acting in a manner consistent with an agreed upon standard of character, decency and integrity, which upholds clear, measurable and legal standards which foster the common good over personal self-interest. Unethical leadership occurs when leaders act in a manner inconsistent with the agreed upon standards and foster distrust because of personal interest. Unethical behavior has to have a catalyst starting place. A tipping point will prompt all subsequent unethical behavior, similar to the vortex of a tornado drawing everything into its fury (Chandler, 2009). Conclusion Though unethical behavior exists in nearly every facet of life, as mentioned in this paper, there is clearly negative consequences that go along with the behavior. It does not matter is the decisions are small or on a larger scale, there are consequences. Unethical decisions, when they are exposed tend to give a bad reputation to either the person or the corporation. After this tarnished view is something many will remember forever, and for those that chose to forget, it typically takes a time, effort, and money to get back to their neutral image. Practicing integrity and honesty in all we do is key to avoid going down the wrong path.

LEADERSHIP AND UNETHICAL DECISIONS Works Cited (2013). Kilpatrick trial. Crain's Detroit Business, Retrieved from

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http://go.galegroup.com/ps/i.do?id=GALE|A323120520&v=2.1&u=lom_sienahul&it=r& p=GPS&sw=w&asid=40226989c1be7a5d24c59a5a93ef3c1a (2012). Opinion. Crain's Detroit Business, Retrieved from http://go.galegroup.com/ps/i.do?id=GALE|A323120520&v=2.1&u=lom_sienahul&it=r& p=GPS&sw=w&asid=40226989c1be7a5d24c59a5a93ef3c1a Arasli, H., Bavik, A., & Ekiz, E. H. (2006). The effects of nepotism on human resource management. International Journal of Sociology and Social Policy, 26(78), pp. 295 308. doi:10.1108/01443330610680399 Arnott, R. D. (2003). Who's minding the store? Financial Analysts Journal, 59(6), 4-8. Retrieved from http://search.proquest.com/docview/219228134?accountid=28644 Ashforth, B., & Anand, V. (2003). The Normalization of corruption in organizations. Research in Organizational Behavior, 25(1), 1-52. Chandler, D. J. (2009). The perfect storm of leaders unethical behavior: A conceptual framework. International Journal of Leadership Studies, 5(1), pp. 69 - 93. Retrieved from http://www.regent.edu/acad/global/publications/ijls/new/vol5iss1/IJLS_Vol5Is1_Chandle r%20%282%29.pdf Cloud, D. H. (2006). Integrity: The Courage to Meet the Demands of Reality. New York: HarperBusiness.

LEADERSHIP AND UNETHICAL DECISIONS Collins, D. (2009, November 30). Reducing Ethical Risks: An Organization Systems Solution. Retrieved from edgewood.edu: http://businessethics.edgewood.edu/Optimal%20Ethics%20Risks.BH.pdf Craft, J. (2010, November). Making the case for ongoing and interactive organizational ethics training. Human Resource Development International(13), pp. 599 - 606.

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Dubrin, A. J. (2009). Leadership: Research Findings, Practice, and Skills (6th ed.). Mason, OH: South-Western Publishing. Fowler, T. (2002, October 21). The Pride and the Fall of Enron. Houston Chronicle, p.B1. Retrieved from http://chron.com/default/article/Enron-s-corporate-tumble-was-a-longtime-coming-2083723,php Gunthorpe, D. L. (1997). Business ethics: a quantitative analysis of the impact of unethical behavior by publicly traded corporations. Journal of Business Ethics, 16(5), pp. 537 543. Retrieved from http://search.proquest.com/docview/198118387?accountid=2864 Hyytinen, A., & Rouvinen, P. (2008, April). The labour market consequences of selfemployment spells: European evidence. Labour Economics, 15(2), pp. 246 271. doi:http://dx.doi.org/10.2139/ssrn.888407 Leonard, A. S. (1985). Employment discrimination against persons with AIDS. University of Daytona Law Review, 10(3), pp. 681 - 703. Mattord, H., & Whitman, M. (2011, June 23). Readings and Cases in Information Security: Law and Ethics. Stamford: Cengage Learning.

LEADERSHIP AND UNETHICAL DECISIONS Merriam-Webster. (n.a.). Merriam-Webster Free Dictionary. Retrieved from http://www.merriam-webster.com/dictionary/character

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Nieuwenboer, N., & Kaptein, M. (2008). Spiraling down into corruption: A dynamic analysis of the social identity process that cause corruption in organizations to grow. Journal of Business Ethics, 83, 133-146. DOI 10.1007/s10551-007-9617-8 Redekop, B.W., & Heath, B. L. (2007) A brief examination of the nature, contexts, and causes of unethical consultant behaviors. Journal of Practical Consulting, 1, 2. Retrieved from http://www.regent.edu/acad/global/publications/jpc/vol1iss2/redekop/redekop.htm Robson, M. T., & Wren, C. (1999). Marginal and average tax rates and the incentive for selfemployment. Southern Economic Journal, 65(4), 757-773. Retrieved from http://search.proquest.com/docview/212118537?accountid=28644