Module 06: Ethical leadership, followership and organisational culture ACCT20080 Corporate Governance and Ethics 1 Created by Dr G. L. Ilott, CQUniversity Australia
Learning Objectives After completing this chapter, you should be able to: 1. Explain the effect of corporate culture and structure on ethical decision-making 2. Explain the roles of leadership, power and motivation on ethical decision-making 3. Apply theories of ethics to understand the ethical duties of leadership and followership. 2 Created by Dr G. L. Ilott, CQUniversity Australia
Organisational factors: the role of ethical culture and relationships • Organisations are more than structures in which we work. • Often the corporation is conceived as a “fictional” person and although not a “real” person it has an abstract legal personality that is distinguishable from the people who comprise it. • We need to understand how the culture and structure of an organisation can influence the ethical decisions made by the people within it. 3 Created by Dr G. L. Ilott, CQUniversity Australia
The role of corporate culture in ethical decision making Problems may arise when there is a misalignment between the formal and informal culture. Sethia and Von Glinow (1985, cited in Ferrell et al., 2015, pp. 186–188) proposed two basic dimensions of an organisation’s culture: 1. concern for people and 2. concern for performance. This provides four dimensions representing the four general types of organisational cultures as apathetic, caring, exacting, and integrative. 4 Created by Dr G. L. Ilott, CQUniversity Australia
Four dimensions of culture An example of an apathetic culture (low concern for people, low concern for performance) could be a government department where performance is rated impersonally through performance indicators but staff do not feel as though they are not a part of it. Performance simply becomes a measure and people are expendable. An example of a caring culture is one in which people are uppermost in management decisions. Performance is important, but management believe that if the people feel valued and important, then high performance and employee "buy in" naturally follows. An exacting culture is all about performance and nothing else. An integrative culture has both high regard for people and high regard for performance. 5 Created by Dr G. L. Ilott, CQUniversity Australia
Differential association Ethics is a component of the corporate culture and a failure to monitor or manage the culture can lead to questionable behaviour. A number of studies support the idea that differential association (i.e. learning ethical or unethical behaviour when interacting with others) influences ethical decision making. 6 Created by Dr G. L. Ilott, CQUniversity Australia
Whistle-blowing Some employees will not participate in illegal or unethical conduct and this leads to them blowing the whistle on the company. Whistle-blowing can involve internal reporting of activities to management or external reporting to outside agencies such as the media or regulatory bodies. Table 7–3 in Ferrell et al. (2015, p. 194) provides a list of questions that should be asked when deciding whether or not to "blow the whistle". Unfortunately whistleblowers are often ostracised and “punished” for their deed even where they had good cause and made the revelations/accusations in good faith. The tide does, however, appear to be slowly turning. 7 Created by Dr G. L. Ilott, CQUniversity Australia
Leaders influence corporate culture Corporate culture is influenced by organisational leaders. Leaders can exert pressure on employees to conform to their expectations. A leader’s ability to motivate people has a key role in maintaining an ethical organisation. The authors’ list five power bases which leaders can use to influence and motivate others in the organisation to be ethical or unethical, including reward power, coercive power, legitimate power, expert power, and referent power. 8 Created by Dr G. L. Ilott, CQUniversity Australia
Role of leadership A company’s leaders at the board and executive management levels play an important role in promoting and maintaining an ethical organisation. As stated in ASX corporate governance principle 3: 'The board of a listed entity should lead by example when it comes to acting ethically and responsibly and should specifically charge management with the responsibility for creating a culture within the entity that promotes ethical and responsible behaviour (ASX, 2014, p. 19). 9 Created by Dr G. L. Ilott, CQUniversity Australia
The role of structure The ability of management to lead and extract ethical performance from and organisation is also bound up in how the organisation is structured. Decentralised (also referred to as "flat" or lateral organisations) organisations require a very different management and leadership dynamic than the traditional hierarchical, highly structured organisation. Lateral organisations are often considered to be more "nimble" than hierarchical ones, but the leadership must also be more dynamic and motivational in order to imbue this nimbleness in the workforce, while also representing the ethical standards expected. 10 Created by Dr G. L. Ilott, CQUniversity Australia
The role of structure (2) The type of structure used can create opportunities for unethical behaviour. How groups come together and work together is critical to the ethical performance of the organisation. Formal (e.g. committees, work groups and teams) and informal (e.g. grapevine, social clubs and unions) groups can impact on corporate values, beliefs, patterns and rules. In some instances these groups will adopt their own rules and values which may be inconsistent with the organisation’s rules and values. 11 Created by Dr G. L. Ilott, CQUniversity Australia
The importance of Leadership and Followership in an ethical corporate culture 'Leadership is a basic requirement for developing an ethical corporate culture and reinforcing ethical decision making among employees' (Ferrell et al., 2015, p.310). 12 Created by Dr G. L. Ilott, CQUniversity Australia
Ethical leadership defined and appreciated The leaders of a business can be ethical, unethical, or various points in between. However, there is no doubt that the values and ethics of leaders will be reflected in that part of the organisation they are leading. It takes ethical leaders to turn that corporate culture into an ethical culture. Ethical leaders motivate those around them to follow shared values and to incorporate them into the organisation's norms, policies and practices. It is this ability to motivate ethical behaviour that makes ethical leaders so essential in any successful corporate endeavour. 13 Created by Dr G. L. Ilott, CQUniversity Australia
7 habits of strong ethical leaders Ferrell et al.(2015, p. 313) provide a useful guide to the "seven habits of strong ethical leaders (see Table 11-2 on page 313). These habits, or characteristics, are: 1. Strong personal character 2. A passion to do the right thing 3. Proactivity 4. Awareness of stakeholder needs 5. Being role models 6. Active and transparent involvement in decision making 7. A holistic view of the firm's ethical culture. 14 Created by Dr G. L. Ilott, CQUniversity Australia
A strong personal character A strong personal character means that ethical leaders have strong principles which they are not afraid of following. More than that, they will not be deterred from following the principles they believe in. 15 Created by Dr G. L. Ilott, CQUniversity Australia
The passion to do right The passion to do the right thing means that ethical leaders prioritise the best interests of the firm and its stakeholders. Decisions are not just "about me" or about one group over another. Ethical leaders have a firm idea of what constitutes "right" and "wrong" and actively seek the "right" outcome. 16 Created by Dr G. L. Ilott, CQUniversity Australia
The proactive leader Proactive leaders do not leave having a good ethical culture to chance —they become deeply involved in making it happen. Likewise, they don't wait for ethical issues (or worse, ethical dilemmas) to arise. Instead, they identify where such challenges are likely to arise and make preparations to either prevent or ameliorate their impact. 17 Created by Dr G. L. Ilott, CQUniversity Australia
promoting values Finally, ethical leaders promote the values and vision of the organisation. They build relationships with staff and stakeholders and look for "win/ win" situations with the organisation's stakeholders. I think you can agree that being an ethical leader must be hard work! However, there are real and lasting benefits for the organisation, that includes: • Higher employee satisfaction, commitment and performance • Strong relationships are built with stakeholders, and • Long-term value-building for the organisation. 18 Created by Dr G. L. Ilott, CQUniversity Australia
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