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CHAPTER 6

Leadership Ethics and Social Responsibility

The purpose of this chapter is to examine important issues about leadership ethics and social

responsibility. The focus is on leaders rather than on a general treatment of business ethics, and

includes a summary of the theory of ethics. Skill building is also incorporated into this chapter.

CHAPTER OUTLINE AND LECTURE NOTES

Being ethical and socially responsible is part of being an effective leader even if many financially

successful executives are unethical and socially irresponsible.

I. PRINCIPLES OF ETHICAL AND MORAL LEADERSHIP

Ethics is the study of moral obligations, or separating right from wrong. Also, ethics are the

accepted guidelines of behavior for groups or institutions. Morals are an individual’s

determination of what is right or wrong and is influenced by his or her values. A moral leader will

practice good ethics. Edwin H. Locke argues that ethics is at the center of leadership because the

goal of a rational leader is to merge the interests of all parties so that everyone benefits and the

organization prospers.

A. Five Ethical Leadership Behaviors

1. Be Honest and Trustworthy and Have Integrity in Dealing with Others. Trustwor-

thiness contributes to leadership effectiveness. It appears, however, that trust in

2. Pay Attention to All Stakeholders. Maximizing shareholder wealth is not a sufficient

3. Build Community. The leader helps people achieve a common goal, and searches for

4. Respect the Individual. Respecting individuals is a principle of ethical and moral

leadership that incorporates other aspects of morality. For example, if you tell the truth,

you respect others well enough to be honest. Keeping promises also shows respect.

B. Factors Contributing to Ethical Differences

Several reasons for differences in ethics and morality among leaders are listed next.

1. Leader moral identity. A moral identity involves a self-perception organized around a

2. Greed, gluttony, and avarice. Many people seek to maximize personal returns, even at

3. Rationalization and implied permission. People sometimes choose the wrong path based

4. Moral development level. A key factor behind ethical differences is the leader’s level of

5. Sense of entitlement. Many business leaders have developed a sense of entitlement.

7. Character of the person. A person’s character is contributes heavily to ethical

differences.

8. Motivated blindness. Seeing what we want to see and missing contradictory information

contributes to unethical leadership.

C. The Ethical Mind for Leaders

Howard Gardner believes that for a leader to stay ethical, he or she must develop an ethical

mind, or a point of view that helps the individual aspire to good work that matters to their

colleagues, companies, and society in general. A starting point is to believe that retaining an

II. GUIDELINES FOR EVALUATING THE ETHICS OF A DECISION

The Center for Business Ethics at Bentley College has developed six questions to evaluate the

ethics of a specific decision:

1. Is it right?

2. Is it fair?

3. Who gets hurt?

4. Would you be comfortable if the details of your decision or actions were made public

in the media or through email?

5. What would you tell your child, sibling, or young relative to do?

6. How does it smell?

Ethical issues that require a fun through the guide are usually subtle rather than blatant or an

issue that falls into the gray zone.

54 Chapter 6: Leadership Ethics and Social Responsibility

III. A SAMPLING OF UNETHICAL LEADERSHIP BEHAVIORS

Table 6–1 presents a sample of the type of unethical, immoral, and often illegal behavior engaged

in by business leaders whose acts have been publicly reported. It is possible than an appeal may

IV. LEADERSHIP, SOCIAL RESPONSIBILITY, AND CREATING AN ETHICAL

ORGANIZATIONAL CULTURE

Good deeds are important for leaders. Corporate social responsibility is the process by which

managers within an organization think about and discuss relationships with stakeholders, and how

they will work toward attaining the common good. Social responsibility involves a firm’s impact

on society. Here we look at a few socially responsible actions. Being socially responsible fits into

the “Thou Shalt” approach, versus “Thou Shalt Not.”.

A. Providing for Strategic Leadership of Ethics and Social Responsibility

B. Creating a Pleasant Workplace

A social responsibility initiative that directly affects the well-being of people is the creation

of a comfortable, pleasant, and intellectually stimulating work environment. The Fortune

designation of “best company to work for” fits directly here, as measured by the Great Place

to Work Institute.

C. Helping Build a Sustainable Environment

Socially responsible leaders influence others to preserve the external environment through a

variety of actions that go beyond mandatory environmental controls. Helping build a

sustainable environment can involve hundreds of different actions such as making packaging

D. Engaging in Social Entrepreneurship

A social responsibility initiative gaining momentum is social entrepreneurship, the use of

market-based methods to solve social problems. A research-based model of social

Chapter 6: Leadership Ethics and Social Responsibility 55

entrepreneurship emphasizes that compassion encourages social entrepreneurship.

Compassion in the model is viewed as a prosocial (helping others) motivation that connects

the individual with a suffering community and triggers sensitivity to the pain and needs of

others

E. Engaging In Philanthropy

A standard organizational leadership approach to social responsibility is to donate money to

charity and various causes. Many corporate leaders to demand a good return on investment

F. Working with Suppliers to Improve Working Conditions

An excellent opportunity for practicing social responsibility is for company leaders to work

G. Establishing Written Codes of Ethical Conduct

Written codes of conduct are widely used as guidelines for ethical and socially responsible

H. Developing Formal Mechanisms for Dealing with Ethical Problems

Many large employers have ethics programs of various types. An ethics committee to

establish policy and conduct audits is typical. Company ethics teams often establish and

I. Accepting Whistleblowers

A whistleblower is an employee who discloses organizational wrongdoing to parties who

can take action. Whistleblowers are often ostracized and humiliated by the companies they

hope to improve, and half the time they are ignored. Whistleblowers often go directly to a

J. Providing Training in Ethics and Social Responsibility

Ethics training programs reinforce the idea that ethically and socially responsible behavior is

both morally right and good for business. Much of the content of this chapter reflects the

56 Chapter 6: Leadership Ethics and Social Responsibility

D. Placing Company Interests over Personal Interests

V. ETHICAL AND SOCIALLY RESPONSIBLE BEHAVIOR AND ORGANIZATIONAL

PERFORMANCE

A model states that when demand for social responsibility investments increase, value-

maximizing managers will find it in their self-interest to make these investments even if cash flow

is reduced. Also, when demand for social responsibility investments is high, making these

investments the company’s market value might increase. A study in emerging markets found that

enterprises pursuing sustainability have consistently above-average growth rates and profit

margins.

VI. GUIDELINES FOR ACTION AND SKILL DEVELOPMENT

A solid foundation for developing a leadership career is to establish a personal ethical code. A

code of professional ethics helps a leader deal with such issues as accepting bribes, backstabbing

coworkers, and sexually harassing a work associate.

Chapter 6: Leadership Ethics and Social Responsibility 57

COMMENTS ON EXPERIENTIAL EXERCISES

Leadership Self–Assessment Quiz 6–1: The Leadership Ethics Quiz

A positive aspect about this scale is that it provides clues as to what actually constitutes unethical

behavior for leaders. An activity of potential merit would be to compare these scores with the

Leadership Self–Assessment Quiz 6–2: The Air Force Character

Attriubtes Checklist

The Air Force checklist is helpful in reviewing traits and behavior that are intuitively related to

having high character. Many of these ideas also support being a team player and a good

organizational citizen.

Leadership Skill–Building Exercise 6–1: Should “Dinosaur Power” Be

Placed on the Market?”

Leadership Skill–Building Exercise 6–2: Conducting an

Environmental Audit

This exercise provides a concrete task for students related to a topic of widespread interest.

Although the task might be self-explanatory, students might ponder how the exercise relates to

Leadership Skill–Building Exercise 6-3: Getting More Bangs for the

Buck with Layoffs

This skill–building exercise involves both ethics and social responsibility. If the team saves the

company a lot of money, many deserving more senior employees will be tapped for layoff. Yet if

Leadership Skill–Building Exercise 6-4: My Leadership Portfolio

58 Chapter 6: Leadership Ethics and Social Responsibility

Leadership Skill-Building Exercise 6-5: Company Policy for

Employee Recycling of Electronic Products

Here is an opportunity to practice policy formulation about an ethical issue. The policy should

serve as a general guideline yet not be so vague as to leave the reader without clear direction.

Statements contained in the policy can be straightforward, such as the following two statements

from Aurora Networks:

COMMENTS ON DISCUSSION QUESTIONS AND ACTIVITIES

1. If reputable companies such as IBM and Apple have been charged with using bribes to obtain

sales, why should you worry about being ethical?

A major issue here is to think about why being ethical is important, particularly if some workers

are reputable companies are unethical. Reasons for being ethical include the following: (a) the

2. The majority of business executives accused of unethical behavior have studied ethics either as a

subject in a business course or as an entire course. So what do you think went wrong?

3. Suppose you had inside information that your employer was thinking about declaring bankruptcy,

and you found out that a family member was about to purchase $20,000 in the stock of your

employer. To what extent would it be unethical for you to dissuade then family member from

making the investment?

The ethical purist can respond immediately that any use of inside information such as that

described is a form of insider trading, and therefore unethical and illegal. At the same time the

4. How can consumers use the Internet to help control the ethical behavior of business leaders?

5. What is your position on the ethics of a business leader receiving $100 million or more in annual

compensation?

We have all heard the arguments that top-level executives are paid so much because of

competition, as well as supply and demand. These are the same reasons given to justify awarding

6. Should leaders of companies that produce fattening food that can lead to cardiac problems and

obesity be targeted for being socially irresponsible?

Most students will probably say that the individual has a choice about eating fatty foods, so

servers of high-cholesterol food are not being socially irresponsible. However, an emerging trend

7. What social responsibility obligations should too-level management of major retailers have for the

severe injuries that often take place in their stores on Black Friday? (This is the highly-promoted

shopping event that takes place the day after Thanksgiving Thursday.)

Apparently some major retailers have come to believe that they do have social responsibility

obligations for these severe injuries. The retailers in questions have added extra security forces to

8. How fair do you think it is to deny an executive a CEO position he or she had been promised

because of a romantic relationship with a subordinate?

The answer to this question reflects directly on the student’s values and attitudes. Some people

think that a CEO should be a model of virtuous behavior, and therefore should be denied the CEO

9. As a present or future organizational leader, what can you do to be an ethical role model for

others?

10. In this chapter we have discussed ethical problems mostly in business. For sake of fairness and

balance identify a few ethical problems you have observed among lawyers, physicians, politicians,

or sports figures.

Answering this question helps the reader recognize that low ethics seem to be part of human

nature and cut across occupations. Many lawyers are disbarred because of factors such activities

PLAUSIBLE RESPONSES TO CASE QUESTIONS

Leadership Case Problem A: Are Drivers or Smartphones to Blame?

1. What role do you think this industry leader should play in encouraging safer use of their

smartphones?

Millions of people are so enamored with smartphones that they regard any criticism of these

devices as being frivolous or old–fashioned. Yet a believer in corporate social responsibility

2. With the negative perspective Derek has about the use of smartphones while driving, should

he be released from his position as the marketing manager?

3. How ethical and socially responsible are the opinions of Olivia and Raphael about the

advantages of smartphones in society?

Olivia and Raphael appear to be blinded by their enthusiasm for the role of smartphones in

society. It is fine to be a champion for company products. A strategic thinking leader,

Associated Role Play

A potential value of this role play is that it gives students the opportunity to discuss issues that

represent differences in value and perspectives rather than technical fact. A healthy discussion

could lead to policy changes that could help the company, such as sponsoring apps or seminars for

the importance of full concentration when driving.

Leadership Case Problem B: Let’s Go Green

This case illustrates a representative leadership approach to creating a sustainable environment.

Perhaps the leader is taking a relatively passive approach.

1. What do you think of the effectiveness of Monica’s leadership in sending an e-mail message

to encourage environmental sustainability?

2. What other leadership technique might Monica use to help prompt the hospitals and clinics

toward sustainability?

Department–level face–to–face meetings about the topic of sustainability might prove helpful

3. Help CEO Monica by stating a vision to cover her efforts toward sustainability.

Here is another opportunity for the student tor practice visioning—certainly a noble

leadership activity. Here is a possible vision for the sustainability component of the chain of

62 Chapter 6: Leadership Ethics and Social Responsibility

Associated Role Play

This role play focuses on what so many students do so well and enjoy doing: finding alternative

solutions to a problem of merit. The activity called for here is so natural it may not seem like role

playing. It would be informative for the various groups engaged in this role play to share their

suggestions about sustainability for the hospitals and clinics.