Lecture 4

Ethical Leadership & Corporate

Culture

Business Ethics
Khalidah Khalid Ali
 Ethical Leadership

• Ethical leadership is the ability to cultivate

ethical behaviour in the workplace by role
modelling and motivating followers to observe
ethical conduct in their daily activities.
• Employees learn through observation. So,
leaders ought to send the right message by first
behaving ethically themselves and then
motivating their followers to observe ethical
conduct.
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 • The boundaries of ethical and unethical
practices are reflected in the organizational
values and ethical standards established by the
organization.
• Leaders can influence the behaviour of their
followers through role-modelling and
establishing systems and processes that
promote ethical behaviour.

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 • Leaders can encourage ethical behaviour
through two-way communication,
reinforcement and ethical decision-making.
• Ethical leadership embraces the values of
trustworthiness, respect, responsibility,
fairness and caring.
• In fact, an organization is ethical only if its
leaders are ethical.

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 Two Pillars of Ethical Leadership

• Trevino (2003), suggest two pillars of ethical

leadership:
– The moral person pillar represents the leader’s
personal traits, characters and altruistic motivation.
– The moral manager pillar represents the proactive
efforts of the manager to influence the way his
employees behave, ethically and unethically.

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 • Leaders must behave ethically in both their
personal and professional lives. They should
avoid being hypocrites.
• Role modelling alone is not enough to develop
ethical leadership. It has to be supplemented
by rewards and penalty system and constant
two-way communication about the importance
of ethics.

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 Characteristics of a ‘moral person’
and a ‘moral manager’
MORAL PERSON MORAL MANAGER
Traits Role modelling through visible
Integrity, honesty, trustworthiness, action
competence, respect
Behaviour Rewards and discipline
Do the right thing, concern for
people,
being open, personal morality
Decision-making Communicating about ethics
Hold on to values, objective/fair, and values
concern for society, follow ethical
decision rules

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 Setting the Right Tone from the Top

• The initiative by corporate leaders and the

board of directors to create an ethical
atmosphere in the workplace where everyone
takes ownership and responsibility to do the
right thing because it is the right thing to do.
• Toor and Ofori (2009), said that ‘ leadership
which lacks ethical conduct can be dangerous,
destructive and even toxic’.

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 • If the top management shirks, misuses
company assets, misrepresents the capabilities
and performance of the organizations, given
bribes, breaks the law, and engages in other
unethical practices, then the employees receive
the message that these types of behaviour are
not only acceptable, but perhaps expected.
• Employees watch the behaviour of their
managers, listen to what they say and follow
their lead.
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 Examples of actions that can be taken
to set the right tone from the top
1. Always act as role models by being ethical towards
employees, customers, suppliers, shareholders, and
regulators.
2. Actively embed values so that employees know that
ethics and honesty are important in the organization.
3. Regularly talk about the organization’s ethical values
and standards in all company events to show that ethics
is a priority.
4. Consistently ‘do as they say’ as opposed to double talk ,
where in the organization the leaders talk about the
importance of ethics and integrity, but ignore them in
their personal lives and social engagements.
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 5. Implement policies, processes and systems
to support the tone from the top.
6. Make it clear that compliance and ethical risks
are not tolerated, and infuse this stance in the
organization’s reward and disciplinary system.
7. Take immediate action to fix any ethical
problem and remedy the harm, which includes
taking appropriate action against the offending
employee in a swift and firm manner.
8. Provide, sponsor and endorse adequate and
regular ethical training on a code of ethical
business conduct of the organization.
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 Critical Elements of a Formal Ethics
Programme
• Formal ethics program provides ethical
safeguards in the workplace. This program
consists of a set of formal activities, policies,
practices, processes and procedures to deal
with ethical issues in an organization.
• This program aims to affect employees’
perception and view of ethical issues, and
most crucially, to guide them to address those
issues that arise on the job.
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 • It is also intended to support employees to
comprehend the ethical standards set by the
organization and ensure compliance with the
standards.
• Employees need to have ethical standards, training
and channels to seek advice when they encounter an
ethical dilemma in their daily work. Then, they will
be able to make an informed and ethical decision to
address such dilemma.
• The top management should take the lead to initiate
and sponsor this ethics program. This way, the top
management team and the employees’ immediate
supervisors can show strong commitment to create an
ethical atmosphere throughout the organization.
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 Critical Elements of a Formal Ethics Program

1. Core value statement – a written statement issued

by the top management team to convey the values of
the organization to employees and other
stakeholders.
2. Code of ethical conduct – a written set of rules,
policies and ethical principles to guide managers and
employees to behave ethically and to resolve ethical
problems at the workplace.
3. Compliance manual – a set of guidelines to guide
employees to understand and implement the relevant
rules, regulations and laws in their daily activities.
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 4. Ethics training program – a program to train
all employees to engage in ethical practices and
behaviour in the workplace environment and to
help them make the right decisions based on the
established ethical standards.
5. Ethics offices and compliance officers – administrators
who have a direct and full responsibility to oversee all
matters related to a formal ethics program and to advice
the top management, board of directors and employees on
ethical problem identification and resolution.
6. Whistleblowing policy – a policy that outlines the
procedure to disclose information about unethical or
illegal practices within an organization and specifies the
protection accorded to the whistleblower.
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 7. Ethics helpline – a confidential channel of
communication established for all members
of the organizations to report on ethical violations
and illegal activities to seek guidance on resolving
ethical problem or dilemmas.
8. Ethics audit – an on-going process to verify and
assess the adequacy and effectiveness of ethical
safeguards and to check that the managers and
employees closely follow the desired ethical
standards specified in the code of ethical conduct.
9. Ethics awards – recognition to employees who
have gone all out to demonstrate and embrace the
core and ethical values in their daily routine.
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 Common Provisions in a Code of Ethical
Conduct
• Accepting or refusing gifts from business partners
policy
• Conflict of interest
• Security of proprietary and confidential information
• Discriminatory human resources practices
• Commitment to environment and employee health and
safety
• Employees’ political involvement
• Relationship with and treatment of customers and
business partners
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 • Use of organizational assets and resources
• Accuracy and safekeeping of financial records
• Disclosure, transparency and access to information
• Employee relations
• Communications with shareholders, employees and
business partners
• Standards of personal conduct
• Compliance with laws and regulations
• Advertising and promotional activities
• Rights and dignity of all individuals
• Workplace harassment
• Use of illegal drugs and alcohol
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 Corporate Culture & Ethical Culture
• Corporate culture is the shared beliefs, values,
norms, customs, expectations and meanings of the
members of an organization that shape or influence
their thinking and behaviour. It is the way everyone
does things in an organization.
• Ethical culture is an unspoken understanding
amongst members of an organization of the
legitimate and unacceptable practices. It is the part
of corporate culture that promotes the ethical
values of an organization and guides employees to
understand the importance of doing the right thing.
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 Ethical Leadership & Ethical
Corporate Culture
• Ethical leaders play a dominant role to cultivate ethical
corporate culture in an organization. They embrace
ethical values in their personal and professional lives.
They make decisions based on ethical principles and
ethical values.
• Ethical leaders have a great influence on the way the
followers behave and perceive things in the
organization. Hence, they can influence and motivate
them to pay attention to ethics in their daily activities
through role-modelling and establishing policies and
reward systems that promote ethical practices.
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 • Ethical leaders can reinforce ethical behaviour
by talking about ethics and emphasize on the
importance of ethics to the organization.
• When leaders practice ethical leadership, the
followers learn the appropriate behaviour
through observing them and copying such
behaviour.
• Ethical leadership lets employees know the
boundaries of acceptable and unacceptable
behaviour in the workplace.
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 Conclusion

Ethical leadership is a critical component of an

ethical culture, which is an ultimate source of
ethical behaviour. They embrace a set of
universal ethical values and personal traits such
as trustworthiness, respect, responsibility,
fairness, caring and integrity. In other words,
ethical leadership is a precondition to an ethical
culture.

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