1. Ethical Leadership: Creating An Ethical Culture Lecture by: Balakrishnan Muniapan

2. 2 Executive leadership and ethical culture FORMAL SYSTEMS INFORMAL SYSTEMS INFORMAL SYSTEMS Exec Leadership Exec Leadership Rules/Policies Rules/Policies Reward System Reward System Selection System Selection System Orientation/Training Orientation/Training Decision Processes Decision Processes Daily Leader Behavior /Heroes Informal Norms Fair Treatment RitualsMyths/StoriesLanguage Ethical and Unethical Behavior ETHICAL CULTURE

3. 3 Executive Ethical Leadership The Good News! Everyone we interviewed (40 interviewees) was able to quickly think of someone they would identify as an executive ethical leader and answer questions about that person for about an hour. That suggested to us that executive ethical leadership is not as rare as it may seem in the headlines.

4. 4 What We Learned about Executive Ethical Leadership It’s about reputation - perceptions from a distance of two dimensions (moral person and moral manager) that result in four types of reputation possible Executives must stand out from a (generally) ethically neutral background in order to be perceived by employees as “ethical leaders”

5. 5 Dimensions of Executive Ethical Leadership Moral Person: Moral Manager: (leader’s behavior) (directs followers’ behavior) - Traits - Role Modeling honesty, integrity, trustvisible ethical action - Behaviors - Rewards/Discipline openness, concern for people,holds people accountable personal moralityfor ethical conduct - Decision-making - Communicating values-based, fairconveys an “ethics/values” message

6. 6 Executive Ethical Leadership Reputation Matrix WeakStrong Strong Strong Weak Moral Person MoralManager Hypocritical Leader Ethical Leader Unethical Leader Ethically neutral (silent) leader ?

7. 7 Ethical Leadership Example High High High Moral Person MoralManager Ethical Leader James Burke, Johnson & Johnson Known to be a person of the highest integrity. Reinvigorated and revised corporate credo, launched annual credo survey after Tylenol crisis, required action plans to address problems, handled ethical violations swiftly

8. 8 Unethical Leadership Example Low Low Moral Person MoralManager Unethical Leader Al Dunlap, Sunbeam Lied to employees & financial analysts, was condescending, belligerent and disrespectful of employees, made decisions and rewarded employees based upon bottom line only, left company crippled, accused of filing false financial reports - settled with SEC for half million dollars.

9. 9 Hypocritical Leadership Example Strong Strong Moral Person MoralManager Weak HypocriticalLeader Jim Bakker of PTL Ministries Talked about ethics, religion (doing “God’s work”). Yet, employees became aware of deceptive financial practices, conflicts of interest, lying to donors, theft of donor contributions, sexual liaisons, etc!

10. 10 Ethically Neutral Leadership Example Strong? Moral Person MoralManager Intense focus on bottom line. Decentralized management style means that ethics management is left to business unit managers. Centralized ethics support structure that existed under predecessor dismantled. Described by Fortune magazine as “tone deaf” on ethics issues. Citigroup has dealt with a variety of conflicts of interest scandals. Ethically Neutral Leader Sandy Weill, Citigroup Weak

11. 11 Conclusions About Executive Ethical Leadership To be perceived as an ethical leader, must be a visibly ethical PERSON and an ethical MANAGER with a consistent message Being a moral person alone is insufficient Executives are distant from most employees and, without “moral management,” bottom line messages can overwhelm all others. Being a moral manager is insufficient Moral management (proactive words and actions) gain legitimacy only if employees believe the exec is a principled, caring person who means what s/he says (counters cynicism)

12. 12 Dilbert understands

13. 13 Conclusions Executive ethical leadership is Much more than traits (e.g., integrity) Requires great care to create and sustain an ethical culture that sends a consistent message that is at least as powerful as the “bottom line” drumbeat (via real attention to ethics in multiple cultural systems).

14. 14 What’s Next? What Can You Do? How do you know what messages you and your organization’s culture are sending? Given that the higher one goes in the organization, the more “rosy” the perception of ethical climate!

15. 15 How Can You Change Ethical Culture? FORMAL SYSTEMS INFORMAL SYSTEMS INFORMAL SYSTEMS Exec Leadership Exec Leadership Rules/Policies Rules/Policies Reward System Reward System Selection System Selection System Orientation/Training Orientation/Training Decision Processes Decision Processes Daily Leader Behavior /Heroes Informal Norms Fair Treatment RitualsMyths/StoriesLanguage Ethical and Unethical Behavior ETHICAL CULTURE