August 11, 2015

What Does the “Ethical” in Ethical Leadership Actually Mean?

Due to the disastrous consequences induced by unethical and immoral decisions of corporate CEOs and executives, “ethics” and “morality” have become important topics in today’s business environment. To understand ethical and moral decisions by managers across all levels, academics have been and are conducting research on ethical leadership and provide both theoretical and practical suggestions. Ethical leadership, which is defined as “the demonstration of normatively appropriate conduct through personal actions and interpersonal relationships, and the promotion of such conduct to followers through two-way communication, reinforcement, and decision-making”, is reported to promote positive organizational outcomes including promotion of corporate ethical culture and corporate social responsibility activities. Especially, since those in the upper levels in the corporate’s hierarchy tend to exert greater influence on corporate culture and outcomes than those in the lower levels, ethical leadership is considered an important virtue for top executives in business.

However, there is one important issue in ethical leadership which is not fully discussed in the business context: what does “ethical” mean in ethical leadership? Or, in terms of the definition provided above, what is “normatively appropriate conduct?” If there are contrasting theories of ethics, under any controversial situation it is possible that one may not conclude a leader’s action solely as ethical or unethical. In fact, not only CEOs and top executives, but also lower level managers and lay people often face situations requiring decision making where different ethics theories support different actions. Historically, from the ancient Greek period, the topic of ethics has been discussed. In application to business contexts, scholars suggest various methods to measure both business ethics and ethical leadership. Among them, there is an approach using fictional situations. In each scenario, respondents take the role of the manager in charge of the situation and are asked to make decision based on his or her own ethical guideline. After that, each respondent is asked to state the reason behind their decisions. In the remaining of this post, I will first introduce three important ethical perspectives, namely deontological, consequential, and virtue-based perspective, respectively. And then, I will provide an example of hypothetical scenario and describe different ethical actions on the situation based on different ethics theories.

Kantian Ethics vs. Utilitarian Ethics

In terms of business ethics, among the various ethical theories in philosophy, two major theories are frequently compared and contrasted: deontology or Kantian approach, and consequentialism or Utilitarian approach. Based on deontological account, the morality of an action is based on whether the action adheres to a rule or rules. It does not concern the outcome of an action at all, therefore an action can be judged as either right or wrong by its adherence to rules. For example, lying in terms of deontological ethics is always wrong regardless of any potential benefit(s) that might come from lying. In contrast, based on consequential account, the rightness or wrongness of an action is judged by the consequences of one’s conduct. From this account, for example, lying can become either a right action or a wrong action based on its final consequence. Traditionally, in the business context, both scholars and practitioners have approached morality issue from either deontology or consequentialism. However, a third approach, namely virtue-based ethics or Aristotelian ethics, is getting more and more attention recently, especially among the scholars who conduct research on ethical leadership. According to Aristotle and other virtue-based ethics proponents, the character of the agent rather than the nature or consequences of the act itself should matter when judging the rightness or wrongness of an action. In terms of lying, virtue scholars would focus less on lying in any particular instance and instead consider the character of the liar. As such, the morality of lying would be determined on a case-by-case basis, which would be based on factors such as personal benefit, group benefit, and intentions (as to whether they are benevolent or malevolent).

Now, let’s move onto an exercise. Assume yourself as the charge person of the following scenario. After reading the short story, answer to the question following the scenario and your reason for the answer:

Collusive efforts of local manufacturers has barred the Rollfast Bicycle Company from entering a large Asian market. Rollfast management expects to net 5 million dollars annually from bicycle sales if it could penetrate the market. Last week a businessman from the country, contacted Rollfast management and assured them that he could smooth the way” for the company to sell in his country for a “grease” fee of $500,000.

If you were responsible, would you pay the bribe or so-called “grease” fee?

This is an example that scholars have used in measuring ethical leadership or ethics in business. Although the yes/no answer is important in judging one’s morality, the more important part of the question is the reason behind it. Let’s start with deontological ethics. From deontological perspective, bribe is illegal, against company policy, or not right in itself. Therefore, the only answer in this situation is “no” to the deontologists. In contrast, to consequentialist, if the bribing will surely lead to the increased revenue and is considered in the Asian country as a “custom”, this will benefit both the company and the businessman requesting bribe, resulting in bribing as an ethical action. From virtue-based accounts, the judgment of the action differs case by case. However, while the consequentialists focus on the final outcome of the action, virtue ethics emphasize the character of the decision maker. If the decision maker is considered as a reliable and moral person and the decision is based on his or her own ethical guideline, be it deontology, consequentialism, or another perspective, then the manager’s action becomes ethical regardless of whether he or she bribes or not.

As I have shown in the example above, sometimes there exists no single “moral” or “ethical” action in business context. Therefore, when we need to make any ethical decision, it will be important to acknowledge that there exists diverse perspectives on ethics and it is possible that one action can be considered as “ethical” by one party but as “unethical” by another.

Shin Han is a doctoral student in positive organizational psychology at Claremont Graduate University and works as a research associate in LeAD labs. He is interested in ethical leadership and is working on how ethical leadership is related to various organizational outcomes. He earned a BA degree in psychology from Korea University, Seoul, Korea, and a MS degree in social and public communication from London School of Economics (LSE), London, UK. He also worked as a market researcher at an international marketing research agency for over 4 years and has conducted various market research projects.