Ethical Leadership: Right Relationships and the Emotional Bottom Line

The Gold Standard for Success

by
Desmond Berghofer and Geraldine Schwartz

 

Fraud and falsification are highly destructive to market capitalism and, more broadly, to the underpinnings of our society…Our market system depends critically on trust.  Trust in the word of our colleagues and trust in the word of those with whom we do business.

Alan Greenspan ⁽¹⁾
Former Federal Reserve Chairman

 

Wisdom traditions that encompass the history of human civilization have right relationships as their core value.  Each of these traditions enjoins their leaders and citizens to act with compassion and thoughtful tenderness towards others, which is the hallmark of the noblest spirit of our humanity.  Trillions of acts of decency, respect and fair play have allowed societies to evolve from their primitive beginnings to conditions where the rule of law and a constitution of rights and privileges protect men and women in modern diverse democracies. 

Unfortunately, it is when hard won improvements to the common good go terribly wrong that we most notice them.  This does not mean, however, that we should take rare incidents of wrong doing to be the description of society.  Rather, we need to mine human wisdom for the gold standard across time in order to establish “best practices” for the future.  In so doing we come to understand that we are social creatures, driven by our emotions whose life force flows into the spaces between us.  If we pollute the emotional environment with toxins of dishonesty, anger and greed, we diminish the quality of the atmosphere in which we operate.  Conversely, if we flood this space with integrity, fairness decency and enthusiasm, we are empowered to deliver our best performance and creativity.

This is where leadership becomes most important; but not just leadership at the top.  While we know that senior leaders set the tone for action, they do not by themselves achieve the outcome for the organization.  It is how leaders at every level act to inspire and promote right action that determines the performance and the culture of the whole.  This article addresses this most important contribution to organizational success, namely, the emotional tone that permeates throughout and how it influences the many choices made by those who lead and those who carry out the day-to-day activities of doing business.

In this article we also show that just as humanity can no longer ignore the impact its activities have on the physical environment, so people cannot ignore the effect of the quality of their relationships on bottom line profitability.  As described by Daniel Goleman ⁽²⁾ in his book, Social Intelligence, there is an emotional economy that underlies the performance of the human capital on which all business success is built.  Working with social and emotional intelligence is the hallmark of the ethical leader.  This article examines the qualities of such a leader who has the courage to stand up for what is right and knows not only what to do but also what is worth doing.  The article also describes how the qualities of ethical leadership can be developed through training, how they can be measured, and how they benefit the individual, the team, the organization, and society as a whole.  Finally, we conclude with an assessment of the relevance and importance of these qualities to leadership development practitioners everywhere.

 

The Ethical Leader in Action

In her important recent book Megatrends 2010: The Rise of Conscious Capitalism, Patricia Aburdene ⁽³⁾ describes “Leading from the Middle” as one of seven new megatrends shaping the way that business is responding to the challenges and crises of our time.  In the middle is where you find a host of ethical leaders, “ordinary” managers operating from the strengths of “values, influence and moral authority.”

Aburdene describes how Barbara Waugh, a corporate change agent at Hewlett Packard, has nourished the initiatives of middle managers to lead the corporation in ways it would otherwise not have gone, or certainly not as quickly or effectively: “bringing technology and infrastructure to the world’s poorest countries;” gathering in-house “sustainability advocates” to become a “potent minority” to influence HP in “making a difference in the world;” sponsoring a senior scientist’s dream of a “One Mile Walk through Time” to illustrate how we got to where we are and how we must think about the challenges ahead.  All of these activities show the ethical leader in action, emphasizing that organizational success is not just about profits, but most of all about building relationships that release the energy and creativity of people inside and outside the organization to work together to make a difference.

 

What is Ethical Leadership?

The ethical leader understands that positive relationships are the gold standard for all organizational effort.  Good quality relationships built on respect and trust—not necessarily agreement, because people need to spark off each other—are the single most important determinant of organizational success.  The ethical leader understands that these kinds of relationships germinate and grow in the deep rich soil of fundamental principles: trust, respect, integrity, honesty, fairness, equity, justice and compassion.  Stephen Covey ⁽⁴⁾ calls such principles the “laws of the universe.”  The ethical leader knows that by acting in accordance with these laws, living in harmony with these basic principles, human enterprise flourishes and is sustained.

Early last century the German philosopher and theologian, Martin Buber, described these successful relationships as “I-Thou” relationships, in which people recognize the intrinsic worth and value of others and treat each other with sincerity and respect.  In the language of the 18th century German philosopher, Immanuel Kant, this is the principle of always treating the other person as an end and never merely as a means to serve your own personal interests.  The ethical leader moves and acts in a world of I-Thou relationships, where in any situation, to the fullest extent possible in the circumstances, the intent is to honor and respect the worth of the other person.

In this way the ethical leader embraces the act of service as described by Robert Greenleaf ⁽⁵⁾ in his concept of “servant leadership.”  The effective leader acts as a servant to others engaged in the enterprise, not in any sense of inferiority, but as one who empowers others to achieve success by focusing on right action.  The ethical leader understands the truth of our interconnectedness to each other, and that it is through our willingness to serve each other that we release our combined energy and potential to benefit the greater good of which we are all a part.

 

The Importance of Ethical Leadership

Fostering positive relationships provides benefits at three levels of organizational life.  It is important to the individual as he or she comes to work every day and engages in activities that can fall anywhere along a spectrum from rewarding and fulfilling to disempowering, toxic and debilitating.  No less in need of empowering ethical relationships is the team, large or small, formal or informal, project-focused or maintenance-oriented—in every case it depends on supportive relationships among team members.  Finally, the organization as a whole with vast spans of communication and disparate areas of responsibility needs a bonding agent to make people feel they are making a unique and valuable contribution to the whole.  Ethical leadership across all three levels nourishes the relationships that empower human enterprise.

Individual personal well-being. Patricia Aburdene ⁽⁶⁾ decries the impact on 21st century life of what she calls “unconscious capitalism,” a human doctrine focused on profit and unmindful of the collateral damage to people, society and the ecology of the planet.  The megatrends she describes constitute the rise of “conscious capitalism” where people let their actions be guided by moral principles.  This way of thinking recognizes that in addition to the economy of financial transactions there is an emotional economy where emotional exchanges are registered in our bodies and determine the quality of our mood and performance.  Biologist Bruce Lipton ⁽⁷⁾ and psychologist Daniel Goleman ⁽⁸⁾ have produced an impressive body of research, which reveals that the internal chemistry that supports our life and well-being is being driven and molded to a very large extent, and for better or for worse, by others.  Just as we can no longer ignore the environmental science on climate change, so we can no longer afford to ignore the human cost that science is revealing about the effect of emotional toxins on our work, family and personal environments.

Energizing the team.  Modern evolutionary theory outlines the extent to which collaboration and team effort have played a major role in our species’ rise to dominance.  Research by Daniel Goleman ⁽⁹⁾ illustrates time and time again in workplaces ranging from high tech scientific establishments to manufacturing plants and sports teams that “the whole is never the sum of its parts.”  It will always be greater when people work together, supporting and encouraging each other to achieve their personal best and compound the performance of the team.  This kind of team effort derives from relationships where people value the worth of all members and where the leader working with emotional intelligence “lubricates the mechanism of the group mind.”

The organizational whole.  At the organizational level the best model to emulate for exquisite performance comes from biology in the form of our own physical human body.  Here trillions of cells work in perfect harmony and cooperation, somehow “knowing” what to do to support one another to produce health and well-being of the whole.  If an outlaw or cancer cell breaks this code and goes unchecked, it can destroy the body.  There is a clear analogy to the business organization.  Just as the disease of cancer or other breakdown occurs in the human body if the cells don’t work together, so in business organizations if people don’t honor each others’ worth and recognize their interdependence, so sub-optimal performance or even breakdown results.

 

Benefits to the Organization

An ethical organization is a community of people working together in an environment of mutual respect, where they grow personally, feel fulfilled, contribute to a common good, and share in the personal, emotional and financial rewards of a job well done.  There is a shared understanding that success depends on a constellation of relationships, both internal and external, not all of which are under the organization’s control, but which it can influence through the way it operates from a platform of ethical principles.

It begins by treating its people well, knowing that a satisfied and happy workforce will share that emotional contentment in positive interactions with customers and clients.  Similarly, ethical leadership in the organization means that it will maintain positive relationships with its contractors and suppliers thereby reaping the benefit of their good will and service in return.  Externally in the community and society at large, the organization operating on ethical principles will have a stellar reputation as a good corporate citizen, honoring its social responsibility and demonstrating a willingness to carry on its activities in accordance with all regulatory requirements.  Operating in this way, the organization enjoys the prospects of continuing economic success where its products and services are well received and its reputation engenders good will, which translates into ongoing support in the community and in the marketplace.

 

Implications for Leadership Development

Understanding the importance of ethical leadership for organizational achievement has significant implications for leadership development.  The key to business success is getting things done and we now understand more clearly than ever before that this depends on those who manage in the middle.  Patricia Aburdene ⁽¹⁰⁾ says it succinctly: “The leadership that millions of managers practice—quiet, modest, behind-the-scenes—is more persuasive and more effective than the bold, heroic leadership we associate with CEOs and other top leaders.” Joseph Badaracco ⁽¹¹⁾, author of Leading Quietly: An Unorthodox Guide to Doing the Right Thing, makes the same point: “The vast majority of difficult, important human problems—both inside and outside organizations—are not solved by a swift, decisive stroke from someone at the top.  What usually matters are careful, thoughtful, small, practical efforts by people working far from the limelight.”

Knowing this, the focus of leadership development should be on producing leaders in the middle who have personal ethical competence, who are good models for those around them, and who can empower others to get the work done in ways that promote harmony and maintain good relationships.  This calls for leadership development specifically focused on training ethical leaders throughout the organization.

 

Developing Ethical Leaders

A dominant theme in the literature on leadership is that it can and must be taught.  The success of enterprises large and small depends on seeing leadership as a set of skills and competencies that can be learned through study and practice.  When it comes to ethical leadership such learning must take the form of deep personal reflection guided by materials that distill the essence of moral principles and leadership insights into specific qualities or characteristics.  Exhibit 1 shows example items from a set of three measures called The Ethical Leadership Scales developed by the authors specifically for the purpose of teaching ethical leadership ⁽¹²⁾.

 

Exhibit 1. The Ethical Leadership Scales

Ethical Competence Scale

Personal Record Form

Personal Ethical Competence
How we maintain our personal commitment to an ethical life

Foundational Characteristics	How we are grounded in thought and action	Always in Place	Usually in Place	Sometimes in Place	Rarely in Place	Never in Place	Chosen Value
Characteristic	Explanation	10-9	8-7	6-5	4-3	2-1
1.Trustworthiness	Being reliable and dependable Being willing to admit mistakes Being true to your word Being worthy of confidence Keeping promises

 

Ethical Leadership Scale

Personal Record Form

Relationship to Self	Personal Qualities of the Ethical Leader	Always in Place	Usually in Place	Sometimes in Place	Rarely in Place	Never in Place	Chosen Value
Characteristic	Explanation	10-9	8-7	6-5	4-3	2-1
1.Acts with integrity	Keeps promises and commitments and expects others to keep theirs Maintains loyalty to those not present Apologizes sincerely Acts with honesty Takes responsibility and cleans up after mistakes

 

Ethical Organization Scale

Personal Record Form

Relationships in an Ethical Organization	Qualities of an ethical organization	Always in Place	Usually in Place	Sometimes in Place	Rarely in Place	Never in Place	Chosen Value
Factor	Explanation	10-9	8-7	6-5	4-3	2-1
Relationships with the workforce	Creates a safe, healthy, attractive work environment for its workforce Treats members of the workforce with dignity and respect Provides fair and equal opportunity for advancement without regard for ethnicity, gender, age or other distinctions Provides physical and mental health support for members of the workforce Provides meaningful work Encourages self-development for members of its workforce

 

Beginning with the understanding that effective ethical leadership depends on personal ethical competence, the Ethical Competence Scale is used to give respondents the experience of reflecting in a comprehensive and rigorous way on the level of their ethical competence across 30 items covering personal ethical competence, social ethical competence and global ethical competence.  This personal reflection is followed by small group discussion, simulation and role playing focused on where and how these specific competencies apply in their industry or business.  Examples of real or potential ethical breaches are raised and participants are challenged to apply creative thinking to identify strategies and solutions for dealing with these problems.

Following this rigorous focus on personal ethical competence, the Ethical Leadership Scale is used to engage participants in reflecting more specifically on the leadership qualities needed to ensure their group or team maintains positive ethical relationships in all its work.  There are 40 items on this scale covering relationship to self, relationship to others and relationship to the whole.  Techniques of role playing, simulation and scenario writing are used to enhance this experience.  In all of this work there is no substitute for deep personal engagement in the issues, because this kind of learning must move from head to heart and then from heart to heart throughout the team.

At the level of the larger organization, the Ethical Organization Scale is used to engage leaders at different levels and from different parts of the organization to consider how well the organization as a whole is doing on such issues as treatment of the work force, relationships with customers or clients, relationships with contractors and suppliers, and external relationships in the community and society at large.  There are ten items on this scale.  The kind of discussion engendered by these items usually reveals discrepancies in the perception of leaders about various facets of organizational ethical performance.  Uncovering these differences provides fertile ground for problem solving and creative thinking about what needs to be done to improve things.

The kind of leadership learning described above needs to be spread out over time, allowing the concepts and principles to be internalized, and providing for opportunities to bring real life issues to the table for discussion and potential resolution.  Depending on the size of the organization and other factors such as location of offices, manufacturing plants and stores, the learning should be carried out both with team leaders from different operations meeting together, and with team leaders working with their own team members to understand the strength of an ethical team.  Face to face meetings can be supplemented with online and other forms of interactive distance learning.

It is most important that the learning be guided by materials that embody the new knowledge from science and from research on leadership as well as the ancient principles from ethics so that participants are challenged to think broadly and deeply about their work.  The 21st century is taking us into uncharted territory in terms of what it means to act as global citizens transcending all barriers as we struggle to live together well in an interdependent finite world.  The future is now literally in our hands, and we need to be vigilant, resourceful and comprehensive in our quest for new learning to carry us through.  Nowhere is this more important than in the learning we embrace through leadership development.

One of the further implications of the learning process discussed above is the need for leadership development practitioners to enhance their own learning about ethical leadership.  Marrying the study of ethics with leadership reveals a new discipline of study with ethics at the core supplemented with content from several other disciplines including leadership, psychology, history, economics and ecology.  Exhibit 2 presents the structural elements of the discipline of ethical leadership ⁽¹³⁾.

 

 

 

The authors are currently using the leadership development model described above in a project called Focus on Ethics, which they are conducting for the real estate industry in the Lower Mainland of British Columbia in Canada.  Working with the leadership of two large real estate boards in Metro Vancouver and the Fraser Valley, they have designed a program to raise ethical awareness among a core group of approximately 80 real estate professionals in a number of offices.  From this group 20 will receive additional training to become Facilitators of Ethical Leadership.  The facilitators acting under the guidance of the project managers will then train their own teams so that several hundred real estate professionals become exposed to focused study on how ethical practice benefits their industry.  This model for disseminating learning across a network of relatively independent real estate offices is expected to impact several thousand professionals over the following years, bringing a corresponding enhancement of ethical practice across the whole profession.

 

Measuring Improvement in Ethical Leadership

The approach to the development of ethical leadership described in this chapter can essentially be seen as a targeted intervention aimed at raising the standards of ethical practice within and across an organization, association or profession.  As such the outcome is measurable in a variety of ways.

Individual perception.  Because behavior is directly influenced by thinking, the first place to look for change is in the perceptions of those who have gone through the learning process.  How have their perceptions of their own ethical competence changed as a result of their learning?  The Ethical Leadership Scales described above are designed to measure this change when they are used for that purpose as a research instrument.

Measuring change in perception.  The items on the Ethical Leadership Scales are scored from 1 to 10 according to how strongly the quality in question (for example, integrity) is perceived by the respondent to be in place in his/her behavior, across a range of judgments from “never in place” to “always in place.”  Specific instructions are given on how the scoring is to be done.  The instrument is scored in this way as a pre-test, that is, at the beginning of the training period before any discussion about content has taken place.  Using an anonymous research number, participants report their scores on each item as well as their total score, which is calculated out of a possible 100 to give an “ethical quotient.”  Neither the individual item scores nor the total score are of any particular interest to the researcher.  What is of interest is the change that takes place after the participant has gone through the learning process (the intervention).  To measure this change the participants complete the instrument a second time following the learning process (the post-test) and report their scores in the same way as they did on the pre-test.  Using a statistical analysis of variance, the researcher is then able to ascertain what changes in perception have occurred.  This information then provides new content for discussion about exactly what kind of learning has taken place.  In some cases the scores increase, showing that the learner perceives improvement; in other cases the scores decrease, showing that the learner probably has a better appreciation after the learning of what a particular ethical quality implies.  In all cases it is certain that the participants have been engaged at a deep reflective and emotional level in thinking about their ethical competence with respect to their organizational work, as well as in their personal lives.

Objective organizational measures.  A whole range of factors in corporate life are affected by the ethical behavior of the organization as a whole and by the behavior of workers within the organization.  At a personal level stress related illness reflected in the taking of sick leave or in absenteeism is a clear factor.  Staff turnover and grievances filed against management are other factors.  External factors include customer complaints, number of returned items, expressed dissatisfaction of contractors and suppliers, cases of litigation triggered by unethical behavior, and community unhappiness with corporate behavior as reflected by media reports, citizen protest, etc.  Improvement in ethical leadership can be measured by assessing changes in a positive direction of these kinds of factors.  To do this thoroughly requires the establishment of appropriate research protocols that measure conditions before and after the implementation of an ethical leadership development process.  Ultimately, improved ethical leadership will positively impact the financial bottom line of the organization or individual units, so this is the most comprehensive measure of all.  Specific efforts aimed at setting up the appropriate research measures and implementing the learning program will be well rewarded by overall improvement in performance.

 

Leadership Learning

Everything that has been said in this article points to the conclusion that there is much to learn about how and why ethical leadership needs to be developed and nourished in organizations and throughout society as a whole.  The content of this leadership learning can be summarized in ten points that identify the essentials of the learning process and its wider implications.

1. First of all is the fundamental understanding that ethical leadership is principle based.  It is anchored in moral or natural laws that are just as real in their effect as physical laws, such as the law of gravity.  Moral principles of trust, respect, integrity, honesty, fairness, equity and compassion if honored will return benefits in many ways; if broken, they will bring negative repercussions that usually affect not only the violator but innocent people as well.
2. It follows from its grounding in moral principles that ethical leadership is focused on service.  The ethical leader takes care that other peoples’ priority needs are being served.  This is done by forming I-Thou relationships and always treating the other person in a relationship as an end, never merely as a means to benefit oneself.
3. An organization’s work flourishes when leaders throughout the formal structure take responsibility for ensuring that the work performed under their charge is ethically grounded.  Of course, it is important that sound ethical behavior is modeled at the top, but it is the leaders in the middle who will ensure that high ethical standards are set and maintained in the units under their charge.
4. All leadership development begins with the conviction that leadership is a skill that can be learned.  Ethical leadership is grounded in a set of competencies that can be strengthened and developed through carefully designed opportunities for reflection, dialogue and practice.
5. Competence in ethical leadership can be measured through changes in perception of the leaders and by objective measures of organizational performance.  Leadership development initiatives must be carefully designed to ensure that valid before and after measurements are made.
6. The foundational characteristics of both the human and natural world are unity, interconnection and interdependence.  As ethical leaders distributed throughout the organization honor these principles consistently in carrying forward the work of their teams, so things work better in every way throughout the whole.
7. When the organization is functioning with good ethical relationships throughout, people are healthier and happier, and productivity measures improve in every way.  There is an emotional bottom line that supports the financial bottom line.  Ethical leadership honors the emotional needs of people for respect and meaning, which are reflected in “quantum leaps in personal and organizational effectiveness.” ⁽¹⁴⁾
8. Ethical leadership is a discipline in its own right.  It has a body of knowledge to be mastered and standards of practice to achieve.  Leadership development practitioners need to look to their own mastery of this discipline to enhance their own effectiveness in fostering ethical leadership.
9. The influence of a well functioning, ethically grounded organization goes far beyond its own operations.  As an integral component of society that functions as a network of institutions, organizations, communities and individuals, the ethical organization has unlimited scope for influencing and promoting the common good.
10. In the 21st century as never before people everywhere are moving forward into a common future of global interdependence.  If that future is to be enlivened with hope and the sense of meaning that lies at the core of human experience, it is of critical importance that leaders everywhere be the models of ethical competence that we now know without equivocation to be the source of human well-being and happiness.

 

It All Comes Down to This

In this article we have said much about the importance of ethical leadership and how it can be fostered and nourished.  We do not say that ethical competence is a replacement for good business sense or wise political judgment.  What we do say, however, is that business sense, if it is to be good, and political judgment, if it is to be wise, must be anchored in ethical leadership.  Without that clear moral guidance we are on a ship plowing through dangerous waters without chart or compass.  The stakes are now too high for such reckless adventurism.  All of us are both passengers and crew responsible for each other.  We know we can do that best and achieve the gold standard in outcome when our relationships are right.

 

References

(1) Remarks by Alan Greenspan on CNBC, July 16, 2002, quoted by Patricia Aburdene in Megatrends 2010: The Rise of Conscious Capitalism (Charlottesville: Hampton Roads, 2007)

(2) Daniel Goleman, Social Intelligence: The New Science of Human Relationships (New York: Bantam Books, 2006)

(3) Patricia Aburdene, Megatrends 2010: The Rise of Conscious Capitalism (Charlottesville: Hampton Roads, 2007)

(4) Stephen R. Covey, Principle-Centered Leadership (New York: Summit Books, 1991)

(5) Robert Greenleaf, The Servant as Leader (Minnesota:  The Robert K. Greenleaf Center, 1970)

(6) Patricia Aburdene, op cit

(7) Bruce Lipton, The Biology of Belief (Santa Rosa: Elite Books, 2005)

(8) Daniel Goleman, Emotional Intelligence (New York: Bantam Books, 10th anniversary ed., 2005)

(9) Daniel Goleman, Working with Emotional Intelligence (New York: Bantam Books, 1998)

(10) Patricia Aburdene, op cit

(11) Joseph L. Badaracco, Jr., Leading Quietly: An Unorthodox Guide to Doing the Right Thing (Boston: Harvard Business School Press, 2002)

(12) More information on The Ethical Leadership Scales can be found at www.ethicalleadership.com

(13) A more detailed explanation of the Discipline of Ethical Leadership along with a bibliography of related books can be found at www.ethicalleadership.com

(14) Stephen R. Covey, op cit