With stakeholders and shareholders vying for attention, Chief Executive Officers need to create a new ethical leadership strategy to build trust and credibility in society and deliver quantifiable results.
More and more, the general public, including employees, customers, and suppliers, demand leaders to speak up and act ethically - quickly when it comes to fairness and justice in their organizations and throughout society. The new challenges that are in front of the leaders cannot be outsourced or delegated when companies want to build and keep the trust of their stakeholders. Likely, they were not even in the picture when most executives today were at business school or busy climbing the company ladder's ranks. The new demands call for a radical change in how business leaders perceive and ethically conduct themselves.
The current conception of ethical leadership views leaders as morally responsible individuals within their organizations. However, it doesn't discuss how to reconcile the gap between stakeholders' internal and external expectations. Negotiating this complicated relationship is a matter of integrating what could seem to be conflicting principles and values based on the fiduciary obligation to maximize investment returns, ethical commitments to meet the purpose of the business and make a positive contribution to the world outside. It's a challenging balance. For instance, retrofitting factories to reduce carbon emissions to support sustainability goals in the environment could be the best decision to make. However, it could cost companies thousands of dollars in improvements and productivity losses, negatively impacting quarterly earnings, degrading the balance sheet, and reducing shares prices.
CEOs, as opposed to being charismatic or heroes, need to be moral integrators. People who understand this conflict and can use collaboration and listening to navigate an environment in which the concept of accountability can be defined in various ways by different groups.
The most common term for a leader refers to one who is a leader and has followers. But, this standard definition is not a complete representation of everything that the term "leadership" refers to. For example, to attract followers, leaders must be able to influence and motivate others.
Leadership is a combination of the ability to visualize and imagine. It requires optimism, determination, and imagination which are the kind of traits that create faith that can turn others into followers. To be a leader, you must be able to clearly articulate an idea and work towards transforming a vision into reality to benefit the entire community. In the words of Warren G, Bennis said, "leadership is the capacity to translate vision into reality."
However, leadership is the complexity and rigor of a business. Leaders' decisions aren't always simple since many of the findings need compromise, and sometimes horrible choices need to be made. In addition, leadership requires a strong character, conscientiousness and honesty, and moral courage to achieve strategic goals. So, leaders need to be aware of who they are and think without the illusion of being deceived.
This is the primary reason that integrity is the direct quality a leader should have - since it allows leaders to accurately assess the things they can and can't do candidly. Self-awareness helps leaders identify and acknowledge their strengths and weaknesses, which can help improve their team's capacity to succeed.
Ethics are the formalization of the morals of an individual, which guide the choices they make and the actions they perform. For example, someone who believes that raising animals in a zoo to eat is morally unsound could choose to follow the vegan ethic.
Ethics-based administration began to gain prominence starting in the early 2000s, in large part due to corporate scandals like those at Enron. This infamous energy company went under due to fraud. The past has shown that the literature on ethics has described ethical leaders as "moral people," meaning that they are morally responsible in their actions and act as "moral management," meaning that they create an environment that encourages others to act ethically.
The definition of entrepreneurship has been improved by introducing the aspect of moral entrepreneurialism, which is when leaders invent new standards of conduct that contribute to moral growth and increase trust with stakeholders. Take the CEO of Seattle-based Gravity Payments, Dan Price, who instituted in 2015 the minimum wage of $70,000 for his employees. Or a menstrual hygiene business with various gender identities in its advertisements, rather than just gender-neutral (people with a sense of identity based on their birth sexuality).
The financial and operational advantages that come from ethically-driven leadership can be substantial and measurable. Research has shown that ethical leadership enhances the bottom line and generates positive returns. It also fights corporate misconduct, like financial fraud. There is a connection between moral leaders and positive employee performance. When employees trust their leadership to be ethical, they are more likely to voice their concerns whenever they notice an issue.
Employees of ethical leaders are more content with their work and more inclined to go that extra mile. In social psychology, this is known as the behavior of an organizational citizen (OCB). OCB refers to discretionary actions by employees that are not covered by a formal system of compensation and performance management and that are beneficial (or meant for benefit) to the business. For example, OCB is demonstrated by an employee who stays late and works on weekends to assist others in completing a time-sensitive deadline or helps create office-wide social events and provides homemade desserts to celebrate team members' birthdays. Ethical leaders increase OCB, as studies have shown that OCB is a key contributor to improved company performance.
Additionally, leaders must conduct themselves with integrity to instill peace and order in their organizations. Integrity allows leaders to understand the conditions that need to be set up to help propel their organizations towards achieving their objectives.
An organization governed by charisma or emotion is likely to create alarming levels of dependence on the leader, leading to ambiguity regarding the future. If leaders aren't honest, they could be victims of their egos dominating themselves, causing disastrous consequences for their organization. A lack of integrity limits the ability of a leader to create an environment that is nurturing and positive.
Integrity is the most critical quality that leaders must have to be in complete acceptance of their duties. If, by his leadership, a moral leader doesn't believe that he is capable of enhancing the performance of his organization, he won't be willing to do so. But, on the other hand, the integrity of his character will force him to take whatever action is necessary to ensure his company's achievement, even if it requires his resignation.
Integrity allows leaders to show respect to other people, but also for themselves. Because of this, integral leaders can discern between what is right and wrong and happily encourage others to opt for the moral choice when they are in doubt. A company's ability to make ethical decisions and effectively communicate is primarily based on the honesty and integrity demonstrated by its leadership every day.
The leaders who exhibit the qualities of integrity can channel their egos off of themselves and focus on the bigger goal of creating an outstanding company because their focus is on the organization and not on their careers. In the end, they don't just need help when they are in need, but they also admit to the fault and accept responsibility for the outcomes of their company. The integrity of their character allows leaders to understand the level of accountability they must take to improve their company's capacity to be successful.
Apart from being aware that honesty must be the standard for any company operating legally as well as ethically, tangible benefits of a higher level of business integrity:
1) Positive Organizational Culture
Creating a work environment that promotes moral behavior from the boardroom to the floor increases faith and appreciation. A company culture that is built on honesty and decency instead of negativity and mistrust will bring positive results throughout all levels of the business.
2) Employee Attraction and Retention will be easier
It's not surprising that this type of culture will make it easy to attract the talents you require and retain the people you already have. In addition, people prefer working for organizations that provide a great working environment with a positive image, a good reputation, and an underlying sense of mission; in a study conducted by recruitment experts Robert Half, 75% of respondents cited integrity as one of the top qualities for business leaders to possess.
On the other hand, you must recruit people with the same moral rigor. A clearly defined notion of integrity in business will allow you to develop an employee pipeline that is reflective of your company's values.
3) Improved Customer Relationships
If your clients and customers consider your company trustworthy and reliable, they'll think of you more favorably. Accenture discovered that 64 percent of US buyers, buying decisions are influenced by the business's ethical standards and integrity. Integrity in business aligns your values with other buyers and transforms your customers into advocates.
4) Improved Business Performance
As demonstrated in the previous paragraphs, ethics-based performance has been verified to correlate with the performance of businesses. In contrast, prioritizing profit over integrity is detrimental to business relationships and may cause irreparable damage to your business's image.
5) Reduced Compliance and Governance Risk
The reputational harm isn't the only danger you'll be facing due to a lack of integrity. Risks of regulatory violations caused by unprofessional business practices can leave you vulnerable to fines and penalties. In addition, the cost of direct and indirect remediation could be high.
6) Ability to Deliver on CSR Obligations
In today's increasingly interconnected world, companies cannot afford to ignore how they fulfill their social obligations. As a result, the expectation is that businesses will have an impact that is positive not just on the business side but also in the communities they work in and across society.
CSR, ESG, Governance, Risk and Compliance (GRC) -These similar concepts are increasing in importance for customers, stakeholders, and employees. If you attempt to tackle any of these without the foundation of business integrity could result in the possibility of being accused of greenwashing or insincerity.
7) A Strong Supply Chain
Integrity in the business world can aid in building stronger relationships with suppliers. In a world where the concept of provenance is becoming more essential to consumers and unpredictability of circumstances can alter businesses strategies, sustainable supply chains are more necessary than ever. Partner with suppliers that share the same values of your business, and everyone is benefited.
8) Enhance Relationships with Your Stakeholders
A business integrity code can be found throughout your organization and help you communicate more effectively with employees, investors, regulators, and other influencers.
Every day, executives face challenges and situations that require moral integration. Viral videos that feature racist remarks from employees pay equity issues and sustainability targets, and ransomware demand to name some. They need the capacity to go beyond the current management practices. They must be able to communicate in more authentic ways with their stakeholders without jeopardizing their integrity. Being moral integrators, they could assist their shareholders in embracing initiatives that promote social justice by transposing their actions into terms that are compatible with their fiduciary relationships. Additionally, the leaders of an organization can work with stakeholders to identify their desires and fears for change and then identify ways of developing solutions. In the end, these strategies can result in results that increase trust and confidence in society and create long-term shareholder value.
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