Too often, we have been witness to spectacular moral lapses on the part of our leaders, from deliberate misinformation to outrageous corporate scandals. The leadership models of the past are proving inadequate, where only the bottom‐line results dictate success. Citizens, employees, consumers, and community members are now expecting a focus on ethics and morality.
In their new book, The Practice of Ethical Leadership – Insights from Psychology and Business in Building an Ethical Bottom Line, Engelke and Swegan — both seasoned consultants in leadership development — delve into the ethical challenges faced by leaders, the importance of ethical decision-making, and the role of values and ethics in shaping organizational culture. They provide a framework for ethical leadership while raising essential questions with which every human being — and especially those in powerful positions — must grapple.
When we think about recent outrageous corporate scandals — think Boeing, Wells Fargo, FTX, and the list goes on — is it right to assume that power corrupts?
Engelke: Power is an interesting phenomenon. In fact, society has grappled with harnessing power through political and judicial structures since its origin. Sociologists and psychologists assert that those who come to taste power are compelled to keep amassing it. Power must be controlled and channeled in order to prevent misuse or “misleadership” as Rick and I like to call it. Sadly, the democratic enterprise, or namely capitalist democracy, allows power to greatly concentrate. According to Credit Suisse, half of the world’s net wealth belongs to 1 percent of the population. This doesn’t prove that power corrupts, but it shows that there is work to be done.
Regarding Boeing’s technical issues and scandals, as well as Well Fargo’s fake accounts, these are consequences of ultra-aggressive bottom line-oriented performance cultures that utterly lack ethical leadership. This is one of many reasons why we set out to write this book.
What can the corporate world do differently to develop ethical leaders?
Swegan: This is a complex question. If training was the answer to creating the appropriate values, then there would be more ethical leaders. But that’s not the case. To develop ethical leaders, three actions stand out. First, hire and promote ethical leaders. While it may be hard to do, it’s a key first step. Hire ethical leaders and you have to do less development. Second, involve leaders and potential leaders in discussing moral dilemmas, decision-making, and organizational values. Potential leaders need an open forum where they can explore the ethical nuances of the decisions their leaders make and allow them the chance to discuss their perspectives. Lastly, develop a culture that supports ethical decision-making and behavior.
What are the most impactful actions leaders can take to ensure their organizations behave ethically?
Swegan: To some extent, this is a matter of scale. The larger the organization, the harder it is to ensure consistent ethical behavior. However, several actions stand out.
1) Focus on ethics as much as profit. Leaders need to deliver consistent messages on the importance of ethics and link that importance to the organization’s values.
2) Take a stand on ethical issues, both internal and external. Leaders drive the culture, but what they speak about and what they omit speaking about matters. This means being clear about and rewarding the behavior the organization expects and speaking up about external issues such as sustainability, environmental concerns, or social justice. Employees take cues as to what’s important based on what leaders emphasize.
3) Talk about ethical decisions leaders are making or have made. Providing the reasons behind a decision, particularly when the situation is ambiguous and right and wrong answers are unclear, is crucial.
How can organizations embed their corporate values into corporate practice?
Swegan: Begin by examining the values of your organization. Do the values describe expected behavior? Do they direct decision-making? Do they provide aspirational direction? Organizations need to begin the embedding process by ensuring that their values answer these questions first. Too often values sit on a wall as a poster without coming down off the wall to part of the daily fabric of the organization. Engaging the organization in an examination of the values is a critical first step.
Next leaders need to link what they say and do back to the organization’s values or guiding principles. Chip Bergh, the retired CEO of Levi Strauss, is a great example of this. He took a stand on gun control and immigration on behalf of Levi Strauss, and in every case, he linked those positions back to both the values of the organization and its heritage.
Leaders at all levels of the organization need to consistently speak about, reinforce, and model the use of the organization’s values daily, not just in monthly all-hands meetings.
What are some examples of emerging issues that pose ethical dilemmas for leaders?
Engelke: This is an interesting question. Ethical leaders may find themselves facing a multitude of ethical dilemmas. Assume, for instance, that you work in defense, pumping weapons into war zones to end conflicts. This is a contentious issue and is a passionately debated topic. Libraries of research will state that militarizing yourself to death will inadvertently generate more deaths. On the other hand, of course, there are the proponents of the Second Amendment claiming the exact opposite. This is a dilemma.
Or, imagine that you’re a decision maker at Boeing. Your success is measured through KPIs that are, of course, linked to company growth, market share, and the bottom line. Some safety-related processes are time-intensive — and, therefore, incur additional costs, which impact the bottom line. Values-based decision-making is given little consideration in such scenarios.
You write that organizations that operate responsibly benefit from a Return on Ethics (ROE). Please explain.
Engelke: Yes, such a benefit has been well-proven. One could also turn the argument around and ask what unethical behavior costs organizations. Think of Arthur Anderson, Lehman Brothers, Theranos, or Enron. In each case, the fraudulent behavior within top management caused these formerly highly regarded organizations to go out of business.
The traditional yardstick to gauge business success includes measurements such as ROI, EBITD, ROAS, NPS, and CSAT. However, a new metric, the Return on Ethics, takes into consideration customers, shareholders, employees, business partners, local communities, and the environment — representing the Six Facets of Ethical Leadership (SFEL). We’re seeing businesses modifying their practices in remarkable ways to support the community. The shoe manufacturer Toms, for instance, lets the community participate in its success: for every $3 earned, the company returns $1 to at-risk communities. Further, outdoor clothing company Patagonia is at the forefront of environmental sustainability and has introduced a program called Worn Wear in which it repairs customers’ damaged apparel free of charge.
In short, the ROE boosts the company brand, serves the community, and will likely help improve your company’s profitability.
Claas Florian Engelke provides consulting services in the fields of leadership advisory, assessment, and development. An advocate of discomfort, Florian invites his friends and clients to question themselves and what they take for granted in order to foster incessant learning and aspire to be the best versions of themselves.
Richard B. Swegan is an author and the founder and principal consultant of ARCH Performance. With a background in human resources and safety, Rick provides consulting to a variety of organizations on the developmental needs of potential leaders and makes recommendations on whether or not they should be hired.
Their new book, The Practice of Ethical Leadership – Insights from Psychology and Business in Building an Ethical Bottom Line (Routledge, March 28, 2024), offers effective suggestions for selecting and developing ethical leaders. To learn more, visit the website.
