A good leader should be able to solve organisational problems in moral and ethical methods. However, many leaders and CEOs often do the other way round and end up making unethical choices.
We can learn from the case of the largest bankruptcy in U.S. history. In What Went Wrong at Enron, it is explained that about 257 public companies with US$258 billion in assets declared bankruptcy. Behind the case, business leaders blamed terrorism when the actual causes of bankruptcy were due to many internal factors such as financial risks that didn’t pay off, accounting manipulations that seemed smart at the time, loss of competitive advantage, or breakdowns in execution. What makes it worse was that the CEOs in charge had no doubt to jump ship before the rest of employees did.
A solution taken by leaders places a question to why they did such thing and abandoned their responsibility altogether. To assume that all of the leaders in Enron were evil, greedy, and selfish is too simplistic, the book’s author said, so there must be more to the story. Thus, to understand truly, one must look deeper into the moral and ethical stance of an organisation and the role of leadership in creating a culture of values. Ethical and moral behaviour is when leaders take full responsibility rather than abandonment when seemingly unsolvable problems occur within his organisation.
Robert Jackall wrote that modern bureaucracy has created a society within a society, in which there is a set of ethical standards that might not be consistent with those of the larger society. This inconsistency of social norm can be one of the leading explanations of why certain corporate leaders do what they did (failed to meet responsibility) and do not feel ashamed.
As long as they are successful, they will be fine. Personal integrity and reputation mattered, but in business, there is also a “dog eat dog” mentality. Hence, when it comes to business, there is an emphasis that morals and ethics sometimes take a back seat.
“We have all experienced situations in which our professional responsibilities unexpectedly come into conflict with our deepest values… we are caught in a conflict between right and right. And no matter the option we choose, we feel like we’ve come up short.” – Joseph Badaracco
According to Polok and Schokley-Zalabak, ethical and moral dilemmas are when different approaches yield different decisions but we still have to choose. If what is right is clear to you, it is not a dilemma, though it might require courage to follow through.
What does that mean for leaders? Leaders are the most important and powerful influence on the culture of an organisation and are responsible for creating credibility and trust. The higher someone is on the organisational ladder, the greater the amount of trust that is placed in their shoulders.
Nicholas Emler’s study revealed that employers hold their leaders to high moral standards. Emler also found that power causes leaders to be more dishonest and hypocritical. There is an increasing sense of distrust from lower stakeholders like employees, community and customers since leaders constantly serve only the interests of upper-class shareholders and themselves. As a consequence, leaders might not tell the truth to employees and do whatever it takes to increase stock value, resulting in trust erosion. When trust disappears, work suffers.
To foster a clear and consistent moral and ethical stance for an organisation’s culture, there must be leadership development. In the development, there should at least the following two factors.
However, there might be some limitations when employers only rely on the programs above, added Emler. For example, a candidate for a leadership position might seem good at the beginning but during his leadership, he becomes unreliable. Thus, with this kind of limitation, it will be best to focus on refining certain abilities such as clarity in values, appreciation for procedural fairness, and awareness of one’s strengths and limitations. Being sufficiently independent of CEOs and retaining the capacity to remove immoral executives in a timely manner are also effective for corporate governance. Yet, an employer should make sure that trust does not erode while maintaining independence.