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What is the link between Ethical Leadership and Business Ethics?

Ethical Leaders lead by Example

According to a Gallup Poll taken in 2013, only 21 percent of people characterized business executives as having “high” ethical standards—a little above lawyers (19 percent), but below bankers (28 percent) and journalists (28 percent). Whether that’s deserved or not, it’s nevertheless true that executives set the ethical tone at their companies. But employees have the power to improve it.

Employees engage in unethical behavior from time to time: an employee takes home company supplies; a manager submits personal expenses for reimbursement by the company; a member of top management pressures accountants to manipulate the financial results. These are just a few of the violations of virtually all company codes of ethics. The question is why does it happen and can anything be done to prevent it?

Ethical behavior must be modeled by the leader of an organization. For me the issue is not so much a lack of business ethics but it is a lack of ethical leadership by management. Underlying all leadership characteristics is the need for a strong sense of ethics – right and wrong – to help those in the organization that look for moral guidance when difficult issues arise or workplace conflicts occur.

Leadership and management go hand in hand. They are not the same thing. But they are necessarily linked, and complementary. Any effort to separate the two is likely to cause more problems than it solves.

Still, much of organizational development writings have been spent delineating the differences. The manager’s job is to plan, organize and coordinate. The leader’s job is to inspire and motivate. In his 1989 book “On Becoming a Leader,” Warren Bennis composed a list of the differences:

– The manager administers; the leader innovates.

– The manager focuses on systems and structure; the leader focuses on people.

– The manager relies on control; the leader inspires trust.

– The manager has a short-range view; the leader has a long-range perspective.

– The manager asks how and when; the leader asks what and why.

– The manager has his or her eye always on the bottom line; the leader’s eye is on the horizon.

– The manager is the classic good soldier; the leader is his or her own person.

– The manager does things right; the leader does the right thing.

In the new economy, where value comes increasingly from the knowledge of people, and where workers are no longer undifferentiated parts of an industrial machine, management and leadership are not easily separated. People look to their managers, not just to assign them a task, but to define for them a purpose. And managers must organize workers, not just to maximize efficiency, but to nurture skills, develop talent and inspire results.

The late management guru Peter Drucker was one of the first to recognize this truth, as he was to recognize so many other management truths. He identified the emergence of the “knowledge worker,” and the profound differences that would cause in the way business was organized.

With the rise of the knowledge worker, “one does not ‘manage’ people,” Drucker wrote. “The task is to lead people. And the goal is to make productive the specific strengths and knowledge of every individual.”

For businesses to become more ethical and inspire a new generation of leaders, the manager must share a vision of what it means to be successful in business. In the end it is not the bottom line profit, which is fleeting at best. It is the way that managers interact with people; how they treat their employees; how they deal with customers and suppliers; and whether they respect the accounting process and make decisions based on accurate and complete financial statements, not manipulated statements for short-term gain and to enhance one’s self-interests.

Managers and leaders are committed to ethical relationships and ethical decision making, and such decisions must be ingrained in the DNA of the organization.

It has been said that character is revealed over time and under pressure. Nothing could be more true than to observe how a crisis is handled by the management in an organization and whether underlying core ethical values are stressed (i.e., honesty, integrity, respect and responsibility), and not unethical values (i.e., profits, individual wealth, power and influence).

Blog posted by Dr. Steven Mintz, aka Ethics Sage, on October 6, 2015. Professor Mintz is on the faculty of the Orfalea College of Business at Cal Poly San Luis Obispo. He also blogs at:

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