What Does It Mean To Be an Ethical Leader in Today’s Business Environment?

Dr. Purushothaman
December 12, 2013

How can you ensure that your company doesn't fall prey to the next big ethics scandal? If you think the answer is simply more legal training and compliance policies, you are at risk! Think about past headline news and the executives who have gone to jail. These were all smart people who likely knew that it was illegal to:

* Charge elaborate birthday parties to public corporations

* Trade on inside information provided by friends

* Materially misstate corporate balance sheets

* Destroy documents requested by state or federal agencies

* Lie under oath

If your answer was to make ethics an integral part of your corporate values, you are on the right track. But you may still be at risk. Various surveys of executives and CEO's over the last several years have shown that over 85% of large companies have a formal statement of values which includes ethics. Yet, business ethics problems persist.

So, how are we to explain these egregious lapses in conduct? How are you to ensure that one of your own executives won't have a lapse in ethical judgment? And, how can you raise your company above the public's skepticism and differentiate your company in a positive way by demonstrating your adherence to high ethical standards?

While there is much that companies must do to systematize the procedural and informational aspects of ethical compliance, the bedrock of ethical behavior is a strong ethical culture. In fact, promoting an ethical culture is a requirement of creating an effective compliance and ethics program as identified in the Federal Sentencing Guidelines.

Creating and changing organizational culture is a significant challenge that requires that executives and senior management transform the way they think about ethical leadership and their role in creating it. We see 4 key leverage points that can help shift executives' views:

1. Bar Being Raised: Understand the greater executive responsibility and accountability required by major shifts in the legal landscape including Sarbanes-Oxley and the Federal Sentencing Guidelines. Federal Law-Makers have raised the bar on both ethical due diligence requirements and on efforts to prosecute white collar crimes and send executives to prison.

2. Ethics and Performance: Recognize the critical link between ethical leadership and superior business performance whereby ethics is as much a business necessity as a moral imperative. Ethical reputation affects purchasing, job selection, and investing decisions. Research shows that many of the top risks that impact shareholder value are related to corporate reputation and relationships with suppliers, customers, employees, and investors.

3. Decision Making Culture: Acknowledge that in the absence of a culture of trust and a strong, familiar ethical decision making process, people under pressure may not produce the most ethical decisions. In all areas of our lives, we see common mistakes made by individuals and enterprises in responding to ethical challenges. There are steps we can take to inoculate ourselves.

4. Leadership Styles: Reflect on how various leadership styles impact ethics and how to integrate ethics into the organization's daily decision making process. It is no longer enough to have a formal ethics value and code of conduct. Each day we are faced with ethical decisions, large and small, and multiple opportunities to practice ethical decision making. Executives must be proactive and use these opportunities to build the ethical decision making muscle of the organization.

Read Related Recent Articles