Ethical Leadership: Creating An Ethical Culture

Linda K. Trevino, Ph.D.

Copyright 2005

Smeal College of Business, The Pennsylvania State University Ethical leadership research conducted with Laura Hartman and Michael Brown supported by the Ethics Resource Center Fellows Program

Executive leadership and ethical culture

ETHICAL CULTURE FORMAL SYSTEMS
Exec Leadership

INFORMAL SYSTEMS
Daily Leader Behavior /Heroes
Ethical and Unethical Behavior

Rules/Policies
Reward System Selection System Orientation/Training Decision Processes

Informal Norms Fair Treatment Rituals

Myths/Stories
Language

Executive Ethical Leadership The Good News!

Everyone we interviewed (40 interviewees) was able to quickly think of someone they would identify as an executive ethical leader and answer questions about that person for about an hour. That suggested to us that executive ethical leadership is not as rare as it may seem in the headlines.
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What We Learned about Executive Ethical Leadership

Its about reputation - perceptions from a distance of two dimensions (moral person and moral manager) that result in four types of reputation possible Executives must stand out from a (generally) ethically neutral background in order to be perceived by employees as ethical leaders
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Dimensions of Executive Ethical Leadership

Moral Person:
(leaders behavior)

Moral Manager:
(directs followers behavior)

Traits
honesty, integrity, trust

- Role Modeling
visible ethical action

Behaviors
openness, concern for people, personal morality

- Rewards/Discipline
holds people accountable for ethical conduct

Decision-making
values-based, fair

- Communicating
conveys an ethics/values message
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Executive Ethical Leadership Reputation Matrix

Moral Person
Moral Manager Weak Strong

Strong Hypocritical Leader

Ethical Leader

Weak

Unethical Leader

Ethically neutral (silent) leader

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Ethical Leadership Example

Moral Person
Moral Manager High High
Ethical Leader

Known to be a person of the highest integrity. Reinvigorated and revised corporate credo, launched annual credo survey after Tylenol crisis, required action plans to address problems, handled ethical violations swiftly

James Burke, Johnson & Johnson

Unethical Leadership Example

Moral Person
Moral Manager Low
Lied to employees & financial analysts, was condescending, belligerent and disrespectful of employees, made decisions and rewarded employees based upon bottom line only, left company crippled, accused of filing false financial reports - settled with SEC for half million dollars.

Unethical Leader Low Al Dunlap, Sunbeam

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Hypocritical Leadership Example

Moral Person
Moral Manager Strong Weak
Hypocritical Leader Jim Bakker of PTL Ministries
Talked about ethics, religion (doing Gods work). Yet, employees became aware of deceptive financial practices, conflicts of interest, lying to donors, theft of donor contributions, sexual liaisons, etc!

Ethically Neutral Leadership Example

Moral Person
Moral Manager Strong?
Intense focus on bottom line. Decentralized management style means that ethics management is left to business unit managers. Centralized ethics support structure that existed under predecessor dismantled. Described by Fortune magazine as tone deaf on ethics issues. Citigroup has dealt with a variety of conflicts of interest scandals.

Weak

Ethically Neutral Leader Sandy Weill, Citigroup

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Conclusions About Executive Ethical Leadership

To be perceived as an ethical leader, must be a visibly ethical PERSON and an ethical MANAGER with a consistent message

Being a moral person alone is insufficient

Executives are distant from most employees and, without moral management, bottom line messages can overwhelm all others. Moral management (proactive words and actions) gain legitimacy only if employees believe the exec is a principled, caring person who means what s/he says (counters cynicism)
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Being a moral manager is insufficient

Dilbert understands

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Conclusions

Executive ethical leadership is

Much more than traits (e.g., integrity) Requires great care to create and sustain an ethical culture that sends a consistent message that is at least as powerful as the bottom line drumbeat (via real attention to ethics in multiple cultural systems).

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Whats Next? What Can You Do?

How do you know what messages you and your organizations culture are sending?

Given that the higher one goes in the organization, the more rosy the perception of ethical climate!

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How Can You Change Ethical Culture?

ETHICAL CULTURE FORMAL SYSTEMS
Exec Leadership

INFORMAL SYSTEMS
Daily Leader Behavior /Heroes
Ethical and Unethical Behavior

Rules/Policies
Reward System Selection System Orientation/Training Decision Processes

Informal Norms Fair Treatment Rituals

Myths/Stories
Language

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