When Toshiba CEO Hisao Tanaka resigned after a $1.2 billion accounting fraud came to light, it highlighted the need for ethical leadership. He’d set unreachable sales targets effectively coercing managers to commit fraud to meet profit requirements. Sadly, this wasn’t the first such scandal at a major company.
A new study in the Journal of Business Ethics suggests that “the leaders involved in these scandals must have at some point been considered ‘ethical leaders’ by at least some of their followers, some of the time.”
This raises an interesting question for business leaders: If you work to hire great people why do they acquiesce with their leader’s ethical failures?
The study looked at several interesting questions:
- How does your status in an organization affect your perception of ethical leadership?
- How effective is ethical leadership in making an organization a good place to work?
The research found that as seniority in the organization increased managers were more likely to perceive their managers as ethical. The theory behind the research was that as manager’s rise higher in organizations they have invested more in the success of the organization. Additionally as managers rise through the company beliefs about what makes a good leader become more nuanced to reflect the more complex organizational reality that they see.
Looking at the second question, the researcher found that where a manager was perceived as an ethical leader then it had a positive impact on employee commitment, how fair they perceived the organization and on career satisfaction.
The study showed that about 1/3rd of employee commitment, satisfaction and perception of organizational fairness could be attributed to the presence of ethical leadership. What does this mean in the real world?
First, there are definitely benefits to be had from promoting a commitment to ethical leadership at all levels. An organization with strong ethical leaders will tend to see:
- higher levels of employee engagement and thus productivity,
- job satisfaction will be higher, thus holding down wage demands, and
- staff retention rates will be better leading to reduced recruitment costs.
However there is a problem, and this is that as mangers rise in rank they will tend to see their managers as being more ethical than they are seen by others further down the career ladder.
One example of the problems that this causes could be senior management believing that they were acting ethically whilst junior staff considered them to be corrupt. Whilst that may be an extreme point of view it’s a useful model for understanding why we keep having corporate scandals and management seems woefully unprepared for them.
One potential solution would be to introduce an ethical leadership question into employee satisfaction surveys.
“Would you recommend, John Doe, the President of this company, as an ethical leader?”
The important results would not be that junior staff thought that senior management was unethical – there are many reasons why they do – but how that perception changed over time. A significant change could act as a warning to management that they needed to consider their own behavior with new eyes before regulators or the press started asking hard questions