Knowing the difference between leadership and ethical leadership has never been more critical. Leadership is egocentric while ethical leadership puts others at the forefront.
Ethical leaders design cultures where it’s easy for people to do the right thing. They recognise they have a duty of care to the business for its continued survival. They also realise that they have a responsibility to the broader group of stakeholders. Leaders must ensure that these stakeholders do not suffer because of the way the company pursues success.
The Source of Unethical Behaviour
Recent scandals highlight the systemic source of much unethical behaviour. These scandals are due to the ethical errors of leaders. In particular, their failure to notice and take action when they get an inkling of unethical practices. If leaders had taken action, the cheating enabled at Wells Fargo and Volkswagen would not have happened. They don’t act because changing ‘business as usual’ may get in the way of achieving targets and business goals.
An ethical study by Professor Guido Palazzo had some interesting insights. It found that widespread unethical conduct emerges because employees are often unaware of what is shaping their choices. Influences are usually psychological, sociological, and organisational. Workplaces can narrow the information available to employees which then changes their behaviour choices. Or they may be pressured to follow the behaviour seen as acceptable by their peers. That’s what happened in libor banking scandals – the culture normalised cheating.
Culture is not neutral. It shapes conduct and motivates or saps employee efforts. Cultural norms often override personal values in the workplace. This is especially true in contexts where it is unsafe to voice concerns.
‘Motivated Blindness’ refers to when people overlook the negatives when it suits them. It happens all the time in business. The book Blind Spots: Why We Fail to Do What’s Right and What to Do About It, Bazerman, M.H. & Tenbrunsel, A.E. talks about this in-depth.
Motivated blindness may prevail where leaders don’t recognise the ethical risks they have created. These are often the result of short term incentives and targets. Command and control cultures contribute as well, inhibiting organisational learning.
Ethical blindness can also result from the lack of diversity around the executive tables. Management tolerates poor behaviour from high performers, and this promotes conduct risk as well. Stories often champion results and overlook how people achieve them.
Unethical conduct in business happens because the environment tolerates it. As early as 2002, there was evidence that Wells Fargo could not meet their sales targets without gaming the system. So, for the next 14 years until the final media scandal, many of the employees were aware that the culture was unaligned with the stated values. They just went along to get along.
How Companies Can Do Better
It’s time for leaders to better design their company contexts. They must do so to avoid being blindsided to its ethical risks. How can they start? It begins by leveraging new insights provided by the behaviour sciences. For more on this read our article for Strategic Finance on behavioural ethics.
Other key recommendations include:
- Make your CEO the culture champion. They need to recognise culture as a strategic asset that needs to be in sync with the needs of the time.
- CEOs ensure they encourage alternative opinions and perspectives to offset being blindsided by group-think.
- Make executive teams accountable for bringing company values to life in their areas.
- Have zero tolerance for general managers who send competing messages about acceptable behaviour. That is both in the way they behave and the conduct they reward.
- Recognise middle managers as people leaders. Upskill them to personify stated organisational values.
- Leverage insights from behavioural sciences to design the desired culture. Use behavioural economics insights to forewarn all levels of staff against known risks. Skill everyone to speak up.
- Redesign performance management systems to align with stated values.
- Build an internal story to engage and motivate employees around a shared purpose. Support this initiative with a communications plan. Translate it into multiple sub-stories relevant to each level of employees. Share this story with contractors, business partners, and suppliers to safeguard brand integrity.
- To gain insight into how you can strengthen the culture, run annual ethical surveys. The insights you attain can make the workplace a place where employees feel safe and do their best work.
Ethical leaders know that managing organisational culture is more than just repeating a set of company values. Instead, it’s about how you put these into action. Leaders must commit to linking their decisions to these values. It involves building and rewarding the right attitudes, disciplines, and behaviours. It’s about selecting leaders who have the appropriate set of skills. Leaders must be able to design contexts that empower direct reports to maintain ethical ambitions.
Ethical leadership begins by focusing in on the needs of those you are leading. It promotes cooperation between leaders at the top and managers in the middle. When they work together, this ensures they speak with one voice and act as one team. Together, they can make it easier for their direct reports to do the right thing.
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