Ethical Leadership: 5 Traits, 3 Ethical Scandals, Applicability

Ethical leadership style is a leadership style in which leaders show common moral and ethical values in their behaviors. In short, ethical leadership is all about doing the right thing. We will go through the definition, importance, scandals and examples, characteristics, and criticism of the applicability of ethical leadership in this article. We will list famous ethical leaders as well.

In this article

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What is Ethical Leadership?

Ethical leadership is doing the right things no matter the situation and conditions even if it will cause the company to lose money. Several scandals even in Fortune 500 companies like the Volkswagen emission cheat, Facebook’s Cambridge Analytica scandal, and controversies about Uber increased the importance of ethical leadership even more than before.

Volkswagen, Facebook, and Uber are just a few examples of several ethical scandals. These examples show that when people are at powerful levels, they can be greedy, and make poor ethical choices even if it will cause their companies or even themselves to end up in court.

For ethical leaders, doing the right thing and common moral values are at the top of everything else. Ethical leadership requires being fair, and showing integrity and trust. Ethics is at the bottom of the leadership behavior of ethical leaders. Ethical leaders do the right thing even if it will cause financial losses to their organization. Research shows that ethical leadership makes it more likely that the teams will be loyal, dedicated, and ethical, in return.

Ethical leadership is similar to Authentic Leadership in many aspects.

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Why is Ethical Leadership Important?

Ethical leadership is important, because “trust” is a value and asset that cannot be earned through money. Trust is gained over long years of quality, sustainability, and doing the right things in order. However, all several years of reputation can be lost with a single case or failure. That is why ethical leadership is vital to the reputation and integrity of an organization.

Robert Bosch, the founder of Bosch, a famous German multinational engineering and technology company, short quote about trust tells us everything:

“I would rather lose money than trust.”

Author and ethical leadership expert Linda Fisher Thornton lists several connected reasons that can cause ethical failures by individual leaders and organizations.

Individual causes include ignoring boundaries such as organizational or industry codes, following the herd, or lack of self-control.

Organizational causes include a lack of positive role models, a lack of codified standards of behavior and training, and a lack of accountability.

Three Ethical Leadership Scandals

There are lots of scandals caused by a lack of ethical leadership in organizations. We will list the top three scandals as an example here.

1- Enron – Biggest Chapter-11 Bankruptcy in History

The Enron scandal is for sure the top corporate scandal of all time. The scandal started in 2021 when financial analysts started to question Enron’s annual report. The reports were prepared using irregular procedures and it was not easy to track how the company was making money. Andrew Fastow and others at Enron’s poor ethical leadership orchestrated a scheme to use off-balance-sheet special purpose vehicles (SPVs).

The SEC began to investigate the issue and found that Enron was hiding billions of dollars in liabilities through its subsidiary companies or the companies they controlled. Enron was showing in their reports that they were profitable although they had severe cash flow problems.

Enron’s share price fell from $90.56 to under a dollar as the crisis unfolded, with Enron forced to file for what was then the biggest chapter-11 bankruptcy in history.

2- Volkswagen (VW) Emissions Scandal

The Volkswagen emissions scandal is also known as “emissionsgate” and “dieselgate”. The scandal started to unfold in 2015 when the EPA (US Environmental Protection Agency) announced that VW had cheated emissions tests.

Volkswagen’s poor ethical leadership created cheating software for the diesel cars. The cars going through laboratory testing with this software were imitating that they were emitting 40 times less nitrogen dioxide than actual emissions.

Based on estimations, the scandal affected up to 11 million cars worldwide.

3- Facebook Data Scandal – Cambridge Analytica

In March 2018, the Guardian and New York Times reported that a firm called Global Science Research had accessed and used data from millions of Facebook users in 2013 without the consent of the users.

Facebook’s poor ethical leadership privacy policy allowed apps to access users’ names, birthdays, and locations. Even though 30,000 users were using Global Science Research’s app, they could access 87 million Facebook users’ data. These analyses and user data were sold to Cambridge Analytica where they launched highly-targeted campaigns, especially for the undecided voters. It is believed that these campaigns affected the elections in favor of Brexit and Trump.

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Good Examples of Ethical Leadership

There are several good examples of ethical leadership as well. Let’s go through two good examples of ethical leadership.

For instance, Toyota called their vehicles when they discovered brake and pedal issues. Instead of ignoring the issue, their strong ethical leadership decided to call the vehicles before it caused further accidents or problems. There were some cases where Toyota cars were doing unintended acceleration and brake problems. Toyota called the models causing the problems and changed their problematic parts although it caused significant cost and operation for the company.

Patagonia is another example of where strong ethical leadership is present. The company applies environmental and welfare responsibility programs. Patagonia’s programs force it to reduce its footprint by converging water, eliminating toxins, and reducing emissions. Now only that, they are trying to power their facilities with 100% renewable energy. Although these programs cause more costly production and more expensive production, Patagonia’s ethical leadership values the environmental concerns at the bottom of its entire company philosophy.

5 Characteristics of Ethical Leadership

There are several characteristics of ethical leadership. Although they follow rules and policies, in some cases, especially if the rules and standards are against self-interests or company interests, being ethical can be hard. We have listed the top 5 characteristics of ethical leadership.

1- Ethical Leadership Fosters Integrity and Trust

As integrity and trust are the backbone of ethical leadership, we should not be surprised that the first trait is integrity and trust. By the way, integrity and trust is the 2nd top demanded leadership skill professionals expect to see in their workplace. See the leadership skills survey results.

Ethical leaders follow the rules, ethical standards, and moral principles. They are fair and at equal distance to all members of the group. Their actions are taken as a role model by others. Therefore, leaders must be trustworthy.

You should have seen examples where leaders or managers go along better, and have more personal relationships with some individuals compared to others. Humans are social, and this can be. However, your personal relationships must not affect your work and attitude toward the people in your team.

2- Communication

Ethical leaders are excellent communicators. They use several different communication strategies to pass along their values, inspire their teams, and give clear instructions.

Communication, relationship, and interpersonal skills are crucial for leaders. Based on research, executives and managers spend 90% of their time on communication. Ethical leaders frequently communicate with their team and inform them about the news, situations, and issues. Therefore, communication is a critical trait of ethical leadership.

Professionals seek for confident and easy communication with their leaders. They expect to see emotional intelligence and leaders who can see the issues from different perspectives. Have you seen leaders go to their room in the morning, go to meeting after meeting until the evening, and not set aside any time for their team? That’s an example of bad communication.

Leaders should wander around and be visible to the people in their team. So, people should feel comfortable when communicating with their leaders and the leaders should be easily accessible. That is why professionals pick communication as the top leadership skill.

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3-Feedback (giving and receiving)

Communication requires “give and take.” Ethical leaders understand that the world isn’t just about them, and they listen actively to other people and accept good advice, no matter where it comes from or who gives it. Feedback is crucial in authentic leadership.

Good communication also involves feedback. It can be incredibly difficult for leaders to get the feedback they need to improve, no one wants to tell the CEO that his idea stinks!. However, ethical leaders work hard to create a culture of open communication. They know they are not perfect, and they hire people who are willing to tell them so.

In many cases, leaders or managers come together with their team members annually or every six months to make a performance review. This is a very long period. Leaders should be visible and approachable. The feedback mechanism should be two-way. Leaders should give feedback to the team members, well, this is normal. However, leaders should be mature enough to receive any type of feedback from team members as well.

Actually, feedback is one of the best ways to see how others see you. Therefore, make sure you establish a productive feedback mechanism in your organization.

4- Perseverance – Commitment

Perseverance and commitment is another important ethical leadership skill. Once the goals are set, leaders should be perseverant throughout the journey to reach the goals.

It can be a long journey, and there can be disasters, roadblocks, impediments, and issues affecting the team to reach its goals. Professionals seek perseverance and commitment leadership skills in their management to go over the issues with patience.

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5- Ethical Leadership Requires Conflict Management and Negotiation

Conflicts are unavoidable wherever there is human interaction. You should not be afraid of the conflicts. However, ethical leaders must have conflict management and negotiation leadership skills.

There are five types of conflict management techniques:

Avoiding: This is simply delaying to make a decision about the issue.
Competing: Addressing the conflict directly and trying to solve the conflict as quickly as possible.
Accommodating: This is resolving the issue by giving in to the opposing party.
Compromising: This is referred to as “lose-lose” as well. Each side is pushed to make some sacrifices to reach a resolution.
Collaborating: This method looks for “win-win” resolution. Parties look for a solution that will make everyone happy.

Ethical leaders should use their leadership skills to overcome conflicts in the best way. Win-win may not be the ultimate outcome in some circumstances.

Debates About the Applicability of Ethical Leadership

Being “ethical”, building “trust”, and showing “integrity” sounds appealing. However, it is not easy to follow ethical leadership characteristics when it is not mandated or regulated.

For instance, consider that you are the executive leader of a coffee chain that has stores worldwide. The regulations in the countries you operate in do not require you to employ fair trade policies to power the coffee shows with renewable energies, use recycled materials, etc. If you apply ethical leadership and use fair trade coffee products, equip coffee shops with renewable energy power supply and recycled materials, the costs will increase and decrease your strengths against your competitors.

Do you remember that Boeing’s 737 Max MCAS issue caused a few airplane accidents? Authorities investigating the airplane crashes concluded that the design of Boeing’s new flight control system, MCAS (Maneuvering Characteristics Augmentation System) software, repeatedly pushed the jet’s nose down and caused the accidents.

After further investigation of the issue, it has been found that, although further testing and FAA regulations are required in case of such a major development in maneuvering systems of an airplane, Boeing’s poor ethical leadership pretended in the documentation that there was not a massive change requiring further tests and FAA regulative tests. Because these tests would cause additional time and costs for the company. So, if the airplane crashes had not happened, although this new system requires additional tests, the company would have avoided and saved time and cost.

Famous Ethical Leaders

There are several famous ethical leadership examples. We will go through three examples of ethical leaders.

1- Gay Ridge – CEO of WD40

Gary Ridge, CEO of WD40 passionately speaks about how creating a culture of trust (not fear), respect, and candor has been transformative: “Leadership is about learning and teaching. Why waste getting old if you can’t get wise? We have no mistakes here, we have learning moments,” he explained in a Forbes interview. Under his ethical leadership values, Ridge has seen the company have a 90% staff retention rate and shareholder value increase year on year in the last 14 years.

2- Yvon Chouinard – Founder of Patagonia

Another great example of ethical leadership comes from the outdoor clothing company Patagonia which thanks to its founder, Yvon Chouinard has a strong ethical core. Patagonia is famous for its donations of at least 1% of sales or 10% of profit to environmental groups. They are supporting environmental groups because they are pioneers of mountain climbing clothing.

3- Rose Marcario – CEO of Patagonia

Marcario joined Patagonia in 2008 as a CFO and then became a CEO in 2014. Since then, she raised the ethical leadership of the company to a new level. She is one of the great leaders who affected our lives in the last 25 years.

Whilst also achieving financial success, Marcario has fought to defend public lands and has created Patagonia Action Works to help its customers become involved in environmental and social activism. She has also encouraged customers to exchange and repair their clothes rather than always buying new ones – standing true to the idea that “you do things not when it is convenient or when someone is watching, but because it is the right thing to do.”

Is it easy to encourage people to exchange or repair their clothes, rather than buy new ones? It is against the sales and profitability of the company. However, as the pillar of ethical leadership, they foster the “right thing”.

Summary

Ethical leadership is acting compliant with the rules, policies, and standards and doing the right thing whatever it takes. It is important in this age especially when several reputable companies go through scandals such as the Volkswagen emissions scandal, Boeing’s testing scandal, and Facebook’s Cambridge Analytica scandal.

Ethical leadership has common traits such as integrity, trust, efficient communication, feedback, perseverance, and conflict management. Although it has several benefits, applying ethical leadership is not as easy as it is told. It may cost time and budget to apply ethical leadership practices and it is not practical in today’s highly competitive age.

Gay Ridge, Yvon Chouinard, and Rose Marcario are three famous ethical leaders.