Ethical Leadership

This book is inspired by the observation of both practitioners and academics that, somehow, as the millennium has turned, we seem to have ventured onto a slippery slope where one organisational scandal erupts after another. Most people are aware of Enron in the United States and Northern Rock in the United Kingdom, and the accounting scandals that led to the introduction of Sarbanes Oxley in the United States and corporate governance codes in the United Kingdom and beyond. Since then, many firms have adopted strict ethical codes of conduct, some have even appointed chief ethics officers (Fombrun, 2004), and the number of courses and modules on ‘ethics’ in business schools and uni-versities has risen dramatically. These various measures, however, did not stop the recent spate of banking scandals, and the near meltdown of the global financial system. While there were rules in place designed to make the system function smoothly and safely, it seems that those who were in charge — the leaders of organisations — took a position that allowed them to find ways around these rules, by inventing products and transactions not covered by them, or by reinterpreting them so as to permit profit maximisation. They did this without regard for the possible consequences for the rest of society, and the term ‘greed’ has often surfaced in analyses of what happened.

As once-great companies are brought down by the misdeeds of their leaders, commentators on business ethics note that corporate scandals have assumed epidemic proportions. One writer on leadership goes as far as to say that modern society is suffering from a plague of bad leadership in both the private and public sectors (Allio, 2007). These commentators raise the intriguing question of how resourceful organisations end up with such poor leaders in the first place (Singh, 2008). Understanding the role of Corporate Psychopaths helps to answer this question. Psychopaths are people without a conscience who often end up in prison (Hare, 1999). They are one of the most studied of all people with personality disorders. A well-established, valid, and reliable method for identifying them exists, called the Psychopathy Checklist — Revised (PCL-R) (Hare, 1991; Hare at al., 1991). This checklist is used around the world, and has been called the ‘gold standard’ tool for identifying and assessing psychopathy (Edens, 2006; Mahmut et al., 2007; Edens et al., 2006).

Many authors would agree with Davis (Freeman, 1984; McWilliams and Siegel, 2000; Margolis and Walsh, 2001; Bansal, 2005; Mahoney and Thorne, 2005; Waldman and Siegel, 2008). This suggests that Friedman’s (1970) famous prescription, that in simply obeying the law a company satisfies their social responsibility, is insufficient. As a result, it is becoming increasingly important to understand the causes and motivations behind different approaches to corporate social responsibility. Although corporate social responsibility and social performance are not always synonymous with ethical and moral leadership, the strong correlation between these constructs is widely recognised (Swanson, 2008:231). Indeed, Berenbeim suggests that ‘most of the world does not distinguish between Corporate Ethics and Corporate Social Responsibility when it comes to determining what it means for a company to be ethical’ (Berenbeim, 2006:501). Rather than focusing on an elaborate theoretical justification of this perspective, this chapter embraces this perspective in its methods and interpretation of findings.

Recent high-profile accounting scandals involving major companies like Enron, WorldCom, Parmalat and Satyam, along with recent outcries over excessive CEO remuneration, have raised questions about the relationship between ethical leadership, financial incentives, and financial misreporting (Perel, 2003). One view is based on the assumption that the problem lies with the character and integrity of those CEOs who have been motivated by personal financial gain resulting from performance bonuses. According to this view, these scandals have occurred because the individual leaders concerned have lacked integrity, and have deliberately misled investors in order to protect high bonuses linked to company share price performance. Proponents of this view argue that this shows a need to reform the morals of CEOs in order to prevent such scandals in future (Bragues, 2008).

The conference at which this chapter was originally introduced started with the question: What is the meaning and role of ethics in effective leadership and corporate social responsibility in an age of globalisation? (Jones and Millar, 2009). Globalisation has had controversial effects (Beck, 2000; Castells, 2000). Recent outcomes of this process are ambivalent: while there has been substantial growth in the GDP of certain countries, we have also witnessed new forms of social exclusion (Mària, 2007:71f.). The mechanisms of this social exclusion are multifaceted: individuals are excluded for economic, political, social, or cultural reasons. Therefore, the struggle for a more inclusive form of globalisation is equally multifaceted (Mària, 2008:214f.).

The GLOBE project—Global Leadership and Organizational Behaviours Effectiveness — (House et al., 2004), is based at Wharton Business School in the United States. The project comprised 170 researchers in 62 soci-eties, and ran over an 11-year period. The project’s objective was to determine the extent to which the practices and values of business leadership are universal, and the extent to which they are specific to just a few societies. In this chapter, GLOBE project data is used to examine the relationship between ethical issues and the characteristics of the ideal leader as identified by Romanian middle managers. The study aims to elucidate the cross-cultural management issues that may arise for foreign companies doing business in Romania or with Romanian businesses, particularly as regards ethical behaviours. First, we discuss Romania’s ideal leadership profile in practice (as it is), then at value level (as it should be). Secondly, we analyse the GLOBE results in relation to the desired profile of the ideal leader. Finally, we discuss our findings, and formulate some conclusions and recommendations for international managers working in Romania.

This chapter discusses the role of ethics in strategic leadership within competitive and dynamic markets. Using two case studies, The Body Shop and the Nigerian Stock Exchange, we examine the need for a better understanding of the ethical aspects of leadership within corporations. The argument is that not only is it imperative for market-based institutions to be socially responsible to their stakeholders, but that virtue is an essential component of strategic leadership. The interactive effects of the prevailing micro and macro economic factors require a corre-spondent alignment between strategic leadership at the self, organisation, and societal levels. Our justification for these two cases is that a theory of ethical leadership needs to be generalisable, and applicable to the different socio-cultural environments within which organisations and businesses are incorporated. These different environments create complexities for competition, leadership, and decision-making.

After the establishment of modern China in 1949, the country went through several decades of political upheaval during which the Confucian education system underpinning the traditional Chinese value system was severely compromised (Bell and Waizer, 2010; Bond, 1986; Martinsons and Westwood, 1997; Davison et al., 2009). Meanwhile, economic reforms in the past three decades have brought with them the Western mindset that accompanies modern capitalism (Martinsons, 2008). However, the situation remains complex, given China’s immature institutional frameworks and legal system (Davison et al., 2009). On the one hand, trends show that there is now little room for traditional Chinese values in the face of invading Western concepts. On the other hand, it appears that certain Chinese values might have an edge in a fast-changing business environment, particularly the challenge to the West of the recent financial crisis (Jian, 2009; Panzner, 2009; Sung, 2008). Indeed, previous studies have shown that the present cadre of Chinese managers still exhibit Confucian values in their business dealings, and that these values still affect the commercial behaviour of Chinese managers (Burrows et al., 2005; Chan et al., 1998; Wright et al., 2002). Traditional Confucian values still influence the Chinese in several ways, apart from through the education system (Zheng et al., 2005). One of these channels is Chinese folk wisdom, the oral tradition handed down through the ‘family education’.

Ethics is concerned with moral obligation, responsibility, social justice, and the common good. It is about defining the practices and rules—written and unwritten — which inform responsible conduct and behaviour between individuals and groups in order to maintain, or enhance, the common good. Everything we do has a consequence, such that ethics is fundamental to the very essence of who we are, and what we value, both as individuals and as people. This chapter presents the findings of a study that aimed to identify those enablers that seem to help individuals to live and act ethically, and those stumbling blocks that prevent them from translating a theoretical knowledge of ethics and morals into action. The sample involved 646 middle managers enrolled on the MBA programmes of the University of Cape Town (South Africa) and Erasmus University (Netherlands). The chapter explains the approach taken and presents the findings, as a contribution to the debate on the practical steps that might increase ethical behaviour in individuals.

Once again, governments worldwide are seeking to impose new rules and restrictions on financial institutions and their leaders. It’s an age- old and predictable pattern — a scandal leads to cries of outrage, followed by legislation, regulation, and increased enforcement. It’s also a Newtonian approach to human behaviour, the belief that for every action there is or should be a reaction, and that an effective way to curb the normally encouraged drive to acquire is to make certain methods of acquisition unlawful. The problem is that human behaviour is much harder to describe and to predict than the effect of a force on a body in motion, so the blunt instrument of law and enforcement frequently strikes the wrong target, leading to unexpected consequences.

Globalisation, with its undisputed opportunities and benefits, constitutes a moral challenge (Bok, 2002; Combs, 2002; Singer, 2004; Starke-Meyerring, 2005). Postmodern worldviews now contest the dominance of secular, enlightenment values as the foundation of moral decisionmaking. They also challenge the elegant secular theories of human behaviour—rational choice, neoclassical economics, and humanist philosophy—that emerged in the modern era as a dominant discursive framework for understanding, negotiating, and explaining human values.¹ Although the modern embrace of reasoned secularism may have emerged as a pragmatically peaceful path to circumvent the perils of religious and tribal warfare in negotiating value conflicts, it requires a suspension of spiritual identity that is deeply offensive to some and outright unacceptable to other participants in an expanded world stage. The 2008 global economic meltdown lends credence to warnings from proponents of traditional morality about the corrosive effects of competitive free market capitalism as a rational foundation for world order (Ellul, 1984). Initiatives such as the Global Compact exemplify a growing insistence that human values should anchor wealth creation. Diverse stakeholders from nations, multinational corporations, and small businesses expect leaders to incorporate rather than exclude claims of religion, culture, and ethnic values, in response to their environment.

This chapter introduces a new framework for analysing and capturing the range of different leadership value systems. Building on the concept of ‘career anchors’ (Schein, 1990), this chapter introduces the concept of ‘spiritual anchors’, those patterns of deeply held spiritual motives, values, and attitudes that provide direction, meaning, wholeness, and connectedness to a person’s life or work. Based on a concept of spirituality derived from the Sufi tradition, supplemented by qualitative interviews conducted with 32 managers in Turkey, this article develops a typology of spiritual anchors, each of which can be thought of as the spiritual DNA of a person, or a fractal of that person’s holistic value system. The spiritual anchors stem from nine Sufi paths. Each of the spiritual anchors refers to a unique way of perceiving and practising spirituality. People from each of the anchors have a different perspective, and make a unique contribution to organisational life.

In this final chapter, we look at the skills, characteristics and competences an ethical leader is likely to need in the future. We also discuss the particular ethical challenge of leading in a global and an increasingly knowledge-based world. Finally, we reflect on future directions in leadership ethics.