Some say that ethics is absolutely necessary for establishing a successful business, while others see ethics merely as an optional bonus in one’s leadership style. The great thing about ethics is it provides you with set standards on how to approach various business scenarios, and without it, you run the risk of impairing your team and damaging your business. This is why good morals and values, as well as honorable principles, must be at the forefront of your leadership.
A leader cannot be entirely effective without ethics since it is a set of guiding principles by which the team conducts business. It’s how a leader earns the team’s trust and respect, encouraging them to imbibe the same values. It’s also a great way to establish a strong reputation for the business.
Stick around to find out what ethical leadership is all about, its pros and cons, as well as the reasons why it is essential for a leader to be truly effective in managing a team. You will also come across some tips on how to constructively establish a strict code of ethics to define the values and principles your team and your business stand for.
What Happens When a Leader Is Not Ethical
The word “ethics” comes from the Greek word “ethos,” defined as a “way of living.” It reflects on how people behave in a society — in how we conduct ourselves, interact with each other, and account for our way of thinking. Ethics is what defines for us what is fair and unfair or morally good and bad. Simply put, being ethical is knowing the difference between what’s right and wrong — and always choosing to go down the honorable path.
In the workplace, ethics is applied in the way we go about various business functions. Bear in mind that it is not as simple as always doing what’s right or just. It’s not always a simple case of choosing to do what’s socially acceptable.
Rather, ethics is also about how we do things, guided by good principles and the right values. Ethics provides us with a compass and a map to steer us in making the most honorable and beneficial decisions for the business.
We hear stories every day of both leaders and employees exhibiting unethical behavior in the workplace. Some of them are entirely aware of their actions, while others aren’t even conscious that they’re misbehaving at all.
Here are some examples of unethical behavior in the workplace:
- Making decisions based on personal interests alone.
- Not owning up to mistakes and allowing others to suffer the consequences.
- Wasting company time (e.g., frequent tardiness, making calls for a personal business, taking long, unnecessary breaks, checking your social media accounts while on the job)
- Conflicts of interest
- Not being transparent about the business’s true state of affairs (presumably to keep employees in the dark, trick them into staying, or enticing them to do what you want)
- Abusive conduct (e.g., racism, gender-based mistreatment, using foul language)
- Favoritism
- Corruption (e.g., bribery and misuse of influence)
- Theft (this includes taking home an expensive piece of office equipment, a whole ream of bond papers, or even just a small box of staple wires, and falsifying expense reports)
- Fraud (e.g., tampering with official documents, altering financial statements, manipulating customer feedback)
Consequences of Unethical Leadership
When a leader is not ethical, their thoughts and actions reverberate throughout the team and are translated into how the organization operates. The repercussions of unethical leadership include:
Losses
There is much to lose when there is a lack (or absence) of ethics in the way a leader is managing the team. Losses can come in different forms, whether financial, severed business ties, or with regard to lost opportunities.
For instance, a 2012 Global Fraud Study by Certified Fraud Examiners (CFEs) states that in the 1,388 cases of occupational fraud they studied from nearly 100 countries around the globe, ⅓ constituted corruption, resulting in a median loss of about $250,000.
On the other hand, theft, which made up the bulk of the fraud cases with a whopping 86%, resulted in a median loss of about $120,000. Deception, which constituted only less than 8% of the cases, resulted in massive losses of about $1 million.
Low Employee Morale
Unethical leadership can make employees feel demotivated in the workplace. Job satisfaction will inadvertently be affected, causing employees to start looking for other opportunities where they can feel happier and fulfilled about their job. When your employees no longer feel excited about going to work, you will soon notice your turnover rate rising, along with expenses relating to training and hiring new workers.
Furthermore, with low morale in the workplace, efficiency and collaboration are significantly affected, in turn influencing a dip in team productivity.
Legal Problems
Unethical conduct can get you in trouble with the law and may significantly disrupt your business operations. It can get you and your business enmeshed in legal issues, dilemmas that are completely avoidable yet extremely taxing to get out of.
Having to focus time and effort on getting out of such sticky situations will undoubtedly take time away from efficiently operating the business. Moreover, money will unquestionably be involved when engaging in legal battles, and company finances will certainly be involved, effectively taking away from potential earnings and profits.
Bad Corporate Image
Your business will be judged based on how leaders and employees conduct themselves in business. Building a positive image will be extremely challenging if the people within the organization conduct themselves in unethical ways.
For instance, if an employee of a car company interacts with a potential client in such a way that it soon becomes evident that they are only after making a quick sale — any sale — even if the client’s needs and wants aren’t properly addressed, the client will soon feel antagonized and pressured. They will probably decide to move on to another car brand, forever branding the company as unethical and unprofessional.
Why Do Ethics Matter in Effective Leadership?
Ethics matter in effective leadership because it is one of the driving forces that pushes a team harmoniously forward toward common objectives. It defines what the team and the organization stand for. By clearly establishing the ethical standards you want your team to live by, you’re essentially conveying to the world what your business is all about.
The Advantages of Ethical Leadership
Fosters Trust
When leading a team, trust must be established both internally and externally. As a leader, your guiding principles can help you build a strong reputation and will guide you in becoming the best version of yourself — your personal identity.
It is also essential that you and your team members trust and respect each other so that the team functions like a well-oiled machine. This can be accomplished by adopting a strict behavioral standard to which everyone is expected to adhere.
On the other hand, trust is also necessary when dealing with the outside world — your customers, potential clients, business partners, and even your competitors. Your ethical leadership will mold and define the kind of reputation your business will be known for.
Helps Build a Solid Reputation for the Business
In the example above relating to the car salesperson, ethics plays a significant role in how the employee should have handled the customer. Questions that should’ve been explored include:
“Am I addressing the customer’s and his family’s needs for a vehicle?”
“The customer has some wrong impressions about the car he’s interested in. Should I correct him even if it means I might lose the sale?”
“Should I highlight the competitor’s flaws so that my brand emerges on top?”
The right answers to these questions would have undoubtedly built a solid reputation for the business, especially if the client felt satisfied with how professionally and fairly the salesperson handled the most problematic and awkward issues. The salesperson’s words and actions would have reflected on the company and placed it in a more positive light.
Improves Business Profitability
Businesses with a shady code of ethics may suffer from dissolved business partnerships. Other companies, especially those that uphold high ethical and moral standards, prefer building ties with equally reputable and dependable organizations.
Your business may also experience a reduction in company stock prices, especially when your unethical and unscrupulous conduct becomes highly apparent in the industry. People generally shy away from organizations they deem unworthy of trust and respect because this typically means the company is unstable.
Furthermore, you might start noticing a decline in client base and customer loyalty. People are typically hesitant in rendering support to organizations they perceive to be unprofessional, unprincipled, and fraudulent.
How To Embrace Ethical Leadership
Conducting yourself honorably and ensuring that your outlook and behavior resonate strongly among your team members is a great way to encourage them to adopt the same standards. It’s all about being consistent, intentional, and mindful of your thoughts and actions and how they directly affect the people around you.
Here are some tips:
Clearly Define Right from Wrong
Clearly define which behaviors are acceptable and which are not, then commit to sticking to the right path in whatever situation you’re in. Some organizations establish a Code of Ethics so leaders and employees have a clear and strong guide on how to go about their various functions in the organization. This is a great way to ensure that your employees know exactly how to conduct themselves and what the repercussions are in case of misbehavior.
Apply the Golden Rule
“Do unto others as you would have them do unto you.”
The Golden Rule is certainly something we should strive to adhere to, and being in the business setting is no exception. Essentially, it is about treating others the way you would want them to treat you. Conversely, you also shouldn’t treat others in ways you wouldn’t want to be treated.
Be a Leader of Integrity
Ethical leaders know that honesty, transparency, and accountability are excellent tools in their thrust to influence their team in adhering to the same guiding principles and standards of conduct. By ensuring that these values and a strong level of integrity thrive in the workplace, leaders can establish a strong sense of camaraderie, collaboration, and sense of unity within the team.
At Sancus Leadership, we know the value of transparency, especially in decision-making processes for the business. Inviting your team to join you in these endeavors not only creates trust and teamwork — it also ensures that ethics are engraved deep in the team’s core since each member will be involved in laying out plans of action for the business.
Be a Good Role Model
Strive to establish ethics as a way of life, not just a set of guidelines you consciously try to adhere to. The philosophies of ethics must be deeply ingrained in your being that it eventually comes naturally to you. One way of doing this is by always demonstrating it through your thoughts, words, and actions.
By practicing what you preach, you become a good role model your employees can trust and want to emulate.
Keep Abreast of Changing Norms
Ethical norms are evolving, constantly adjusting to the ever-changing times. What was once acceptable and honorable behavior may now be deemed inappropriate and insensitive.
A friend shared a situation her cousin encountered in a well-known pharmaceutical company. This particular organization has been around for decades and has carved quite a strong reputation for itself in the industry. It’s known for its top-of-the-line products and esteemed executives, most of them doctors, renowned for their professionalism and extensive knowledge of the ins and outs of the business.
When her cousin joined the organization, he was caught off-guard by the evidently traditional way they conducted business. One aspect particularly stood out — their apparent lack of consideration for gender equality.
The head honchos of the firm valued male employees over females, especially when it came to promotions, apparently basing their decisions solely on flawed, gender-based assumptions. They argued that male workers are more reliable and can focus more on the job since they do not have to be distracted by family and household issues.
Needless to say, many other socially tone-deaf issues arose during his short stint with the company. My friend’s cousin finally decided to leave when he realized he cannot work with a company whose values, morals, and ethical standards are not aligned with his. He figured this is also the reason why there is a high employee turnover rate in the organization.
This pharmaceutical company might have avoided losing valuable assets if only they had been keener in keeping abreast of changing norms.
Final Thoughts
Leaders cannot be effective without ethics because it is a set of guiding principles that establishes them as someone worthy of trust, respect, and deference. When a leader is unethical, team morale will be adversely affected, giving rise to inefficiency, poor productivity, and high employee turnover. Unethical leadership also endangers the organization by establishing a bad reputation.
Ethical leadership is all about knowing what’s right from wrong, and committing to always choosing the fair, just, and righteous path. It’s a surefire way to earn your team’s loyalty, secure a solid reputation for your business, and acquire a loyal client base.
