Ethics

In the early 2000s, there were multiple revelations of corporate corruption, greed, and criminal behavior that made front-page news and sent companies into bankruptcy or even closure. In the fall of 2001, executives from Enron, an energy supply company based in Houston, Texas, admitted to accounting practices that overstated the company’s financial position for four years (Amiri et al., 2020). This accounting practice was unethical and sent Enron stock into a nose-dive costing investors millions of dollars. At the same time Tyco International, a toy company, found its CEO to be using company resources for personal gain, including multi-million-dollar homes and other very expensive purchases. The CEO reportedly took millions of dollars costing the company its reputation in the ensuing scandal. Unfortunately, scandals like these only serve to remind consumers and investors that companies might not be trustworthy and create the need for a strong code of ethics in all corporations.

Ethical leadership communicates the desired conduct through communication and decision-making. Ethics is the right or wrong of actions; not whether an action is legal, but whether it is right. You might have heard the expression, “if you can’t tell your mother, you shouldn’t do it.” This highlights the importance of making decisions that you are proud of and would willingly tell people about. Business ethics involves applying those same principles of ethics to a business environment and business decisions. Ethics are important when we think about leadership because followers pay attention to the leader and the decisions they make. Being an ethical leader means making good decisions for yourself and your followers, as well as guiding the corporation ethically and fairly.

Ethics are important both personally and professionally. We want to make good decisions as we navigate our lives, but also to be conscious of the decisions made as a leader at work. Leaders are important in creating an ethical environment and modeling what ethics look like in daily activities and decisions. Imagine having a leader who told you to clock in and go to work, but they clocked in and socialized but didn’t get right to work. We would feel that they were telling us one thing, but they were doing something different. Eventually, we might stop getting immediately to work and might socialize as well because we would follow our leader’s actions rather than their words.

The impact of Ethics on Organizations

Ethics also have a true cost to an organization. When a leader is unethical, there is higher absenteeism and turnover and lower job satisfaction than in companies with an ethical leader (Stewart, Volpone, Avery, & McKay, 2011). Employees don’t stay at companies where the leader is not looking out for the employees and isn’t making good decisions. When an employee leaves, the company must replace them which costs time and money. The cost, therefore, of an unethical leader is the true cost in time and money to replace employees that were valuable workers and who have left because they no longer wanted to work in an unethical environment. If a company is unethical, employees usually know that from the way business is conducted, how employees are treated, and that uneasy feeling about performing a task in a way that might not feel right.

Johnson & Johnson, the pharmaceutical company, has long been seen as an ethical company with a strong code of conduct. The company’s Code of Business Conduct can be viewed using the link below.

Johnson & Johnson Code of Business Conduct

How Leaders Create Ethics in an Organization

Having an ethical leader contributes to the creation of group norms and acceptable behavior where employees are less likely to participate in unethical behavior. If organizational leaders model ethical behavior and reinforce the importance of ethical actions and decision-making, employees will do the same and will focus on the ethics of their own actions (Peek, 2021). Ethical behavior is important because a company’s reputation depends on the actions of its employees. An unethical company will lose customers, and may eventually suffer economically. If we found out our favorite company was stealing from customers by overcharging them, we would stop shopping there, and we might even tell other people to stop their patronage as well. Ethics are important to ensure a company’s reputation remains positive and that customers feel good about the companies they support.

Organizational ethics affect a company’s stability and long-term growth. Ensuring that a company is ethical ensures that it can stay in business and satisfy its customers for years to come. As you move into leadership positions in the future, you will be called on to make difficult decisions, including decisions where ethics may play a part in the actions you take. Ensuring that business leaders approach all problems and opportunities from an ethical place, ensures that the company will try to do the right thing with fairness as a guiding principle.

Summary

While leadership may seem out of reach for many of us, understanding how leadership works in our lives is very important. We will work for many different companies and people throughout our career, with many even considering starting and owning a company or business. How you choose to manage and lead others will be very important to your professional success. We have reviewed many different types of leadership styles and traits recognizing there is no one best way to practice leadership. This concept should be important in our decision-making about our work futures, and we should hold our leaders to high standards. To follow someone means that we believe in their vision and guidance, and we want to be part of what they are promoting. If that is not the case, however, we may be following the wrong people.