Leadership and Ethics: 1 Leadership and Ethics: The relationship of leadership style in maintaining organizational ethical and moral behavior Athabasca University MBA-ITM Program Project Supervisor: Dr. Robert Sexty Applied Project Submission Prepared By: Daniel Northam For: Dr. Jim Dunn October 30, 2005 Leadership and Ethics: 2 Executive Summary How does leadership affect the public’s view of an organization? Just because we perceive some leaders to be ethical, do we see the organizations they lead as ethical and moral? Are there some fundamental characteristics, activities, or requirements that make a leader or an organization ethical? This investigation looks at the connection between leadership style and ethical failure. This investigation is undertaken by reviewing current scandals in large publicly held organizations through the review of investigative books. The goal of the research is to discover if there are key indicators that organizations can utilize to determine if their leadership is more likely to support, or derail, their ethical goals. To develop an ethical definition for the purposes of this research, an exploration of ethics is undertaken. The key element of the resulting definition is to define ethics as a process, avoiding the necessity of determining how or if an organization is capable of being ethical. For pragmatic reasons, an organization is deemed unethical if it or its employees engage in illegal activities, or if the organization fosters a situation or environment that takes advantage of a cycle of trust that exists between the organization and areas such employees, customers, and suppliers. This definition clearly puts the responsibility for an organization ethics into the hands of leadership. It is the priority and resources given to ethics by leadership that determines the importance attached to ethical behavior by those associated with the organization. To evaluate leaders, both internal and external leadership forces, with a focus on key elements affecting leadership in today’s organizations, are investigated to identify which key aspects of leadership are linked with ethics. Power, and the ability to wield power, are clearly identified as key aspects of leadership and form one of the core components of modern leadership theory. Thus, for the purposes of this research, leadership is defined as the use of power to get others to do what you want. Therefore, the simplest leadership models that focus on power are utilized to evaluate the study’s leaders. Ethics and leadership are linked by power in the context of an organization. Ethics requires power, in that the individual must have the power to act. Leadership requires power, the power given by those led. The decisions made by an individual on how they use power determine both their ethical and leadership qualities. Just as ethics cannot exist without leadership, leadership cannot exist without ethics since the very act of leadership generates ethical dilemmas that must be resolved. The research revealed all the leaders in the study used an authoritarian leadership style. Additionally, several key characteristics of leaders were identified within organizations that had ethical lapses. These characteristics revolved around three critical areas: the leader’s ego, the hiding of information, and the drive for success. Empirically it seems clear that leadership is a key element in scandalous Leadership and Ethics: 3 behavior in an organization, and by extension is central to any effort to prevent scandalous behavior. But, while this research has shown a high correlation between unethical behavior and authoritarian style leadership, it has not shown predictability between leadership style and ethical outcome. What can boards or organizations learn from this investigation? While no single leadership style directly implies ethical failure, authoritarian leaders were associated with all the ethical failures investigated. No matter the leadership style, and even with the best intentions of the employees and leadership, there will always be ethical stumbles within an organization. However, organizations with authoritarian leaders would do well to ensure that safeguards are in place and are being followed, particularly in the key area of finances. Most importantly, boards must not relinquish their responsibility as overseers of an organization. Organization ethics is a process. For those organizations committed to ethics, development and support of an ethics process can lead to greater ethical compliance not just of leadership but also of all organization employees. Boards, leaders, and employees each have a role in developing ethical behavior within an organization. All must work together to build an environment wherein unethical behavior is not allowed. It is through this shared responsibility that boards and employees can help to prevent authoritarian leaders from creating the next Enron, Worldcom, Bre-X, ImClone, Lincoln Savings & Loan, or Hollinger disaster. Leadership and Ethics: 4 Table of Contents 1. INTRODUCTION...................................................................................................... 6 2. ETHICS.................................................................................................................... 7 2.1. DIFFERENT DEFINITIONS/VIEWS ............................................................................. 7 2.2. WHAT IS ETHICAL BEHAVIOR .............................................................................. 10 2.3. BUSINESS AND ETHICS....................................................................................... 11 2.4. ORGANIZATION’S ETHICS.................................................................................... 13 3. LEADERSHIP ........................................................................................................ 14 3.1. IDENTIFYING LEADERSHIP................................................................................... 17 3.2. CHANGING CORPORATE LANDSCAPE................................................................... 18 3.3. GLOBAL ECONOMY ............................................................................................ 19 3.4. CHANGING WORKFORCE..................................................................................... 20 3.5. DEMANDS OF STAKEHOLDERS............................................................................. 21 3.6. RISE OF SERVICE .............................................................................................. 21 3.7. CHANGING LEADERSHIP LANDSCAPE................................................................... 22 3.7.1. Results Focused ...................................................................................... 24 3.7.2. Short-term vs. Long-term focus ............................................................... 24 3.8. POWER, CONTROL, DIRECTION, AND FOCUS ....................................................... 24 3.9. WHO IS A LEADER .............................................................................................. 25 3.10. LEADERSHIP DEFINED........................................................................................ 25 4. LINKING ETHICS AND LEADERSHIP .................................................................. 26 4.1. CONNECTING ETHICS TO LEADERSHIP ................................................................. 29 4.2. RELATIVE IMPORTANCE OF ETHICS IN SUCCESS .................................................... 29 4.3. VALUE OF ETHICS.............................................................................................. 30 4.4. ELEMENTS OF ETHICS........................................................................................ 31 4.4.1. Organizational Elements.......................................................................... 31 4.4.2. Leadership Elements ............................................................................... 32 4.4.3. Societal Elements .................................................................................... 33 4.5. ETHICAL LEADERSHIP FOR SUCCESS................................................................... 33 4.6. LEADERSHIP FAILURES....................................................................................... 34 4.6.1. Types/Causes of failures ......................................................................... 34 4.7. ETHICAL PERSON VS. ETHICAL ORGANIZATION..................................................... 35 5. EVALUATING ETHICS .......................................................................................... 36 5.1. SELECTING ORGANIZATIONS FOR EVALUATION..................................................... 36 5.2. METHODS OF EVALUATING ETHICS...................................................................... 37 6. EVALUATING LEADERSHIP................................................................................. 39 6.1. HISTORY OF LEADERSHIP MODEL PROGRESSION ................................................... 39 6.2. KEY LEADERSHIP MODELS .................................................................................. 40 6.2.1. Trait Theory ............................................................................................. 41 Leadership and Ethics: 5 6.2.2. Style Approach ........................................................................................ 42 6.2.3. Situational Approach................................................................................ 42 6.2.4. Transactional vs. Transformational.........................................................