Nov 21, 2018 in Business


For a leader to be successful in his or her endeavors, they must consider ethics in guiding other employees. By definition, ethical leadership is a form of leadership in which the leader identifies his or her core values and has the courage and will to apply them for the good of the organization and other people around. Ethical leadership begins by defining ones core competencies and applying them with the hope of improving others. There are numerous theories of ethical leadership that this paper will analyze as well as other theories. Even though ethical leadership is a topic that has not been fully explored by researchers, this paper will examine various principles of ethical leadership and review the advantages and challenges of ethical leadership to organizations.


Ethics have been defined as a set of rules, most of which are written today, that govern the conduct of an individual within a given society. Each profession can be considered a society, thus is expected to have an established code of ethics that determine what is right and what is wrong. The main purpose of a code of ethics is to ensure that there is justice and fairness in the interactions between the members of the society. In business industry, the management is expected to act according to the industrial ethical guidelines within which it acts as a whole with business. This is done in order to ensure that the company has a good image with not only their shareholders and consumers but suppliers, distributors, other important stakeholders, and often competitors. When considering the definition of leadership, it is important to note that depending on the style of leadership used, the definition may vary. To a transformational leader, the leadership would be all about inspiring people being led and significant changing for a better tomorrow. In a participative leadership style, on the other hand, leadership would be defined as engaging those being led in order to form strong bonds that bring about collaboration and supporting system, both vital in task accomplishment within the organization. Regardless of the leadership style, it should be appreciated that a leader must be able to lead the way towards the goals and objectives set, whether by inspiration, example or coercion, which is simply determined by the conduct and character of the leader in question. Nowadays, an ethical leadership is a concept that sometimes has been at the forefront of concerns as far as management is concerned. Most businesses have not only discerned the differences between a manager and a leader, but also appreciated the merits of leadership over management. This means that today leadership is a pivotal part of the commercial organization. These organizations have gone further to establish their preference with respect to ethical leadership especially in the wake of corporate scandals that exposed unethical conduct of the management on very influential companies like WorldCom, Enron, and some others. This paper focuses on ethical leadership within organizations. In this respect, the paper analyses various theories and principles of ethical leadership. In addition to this, the paper examines the challenges and advantages of ethical leadership in organizations.

Ethical Leadership Theories

Ethical leadership theories have been divided into two main domains, namely conduct and character. Under the conduct domain, there are theories based on the concept of consequences with respect to the leader actions. These theories are known as teleological theories. Another category under this domain would be those that are based on the leader’s duty as dictated by their contract or unwritten agreement, and these will be discussed in deleontological theories. The character domain is, on the other hand, represented effectively by the virtue based on ethical leadership theories.

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Teleological Theory

The teleological theories in ethical leadership are formulated around the idea that the leader is motivated by the consequences of their actions. Herein, the leader carefully makes decisions that benefit them, their organization or employees, or even an interested third party depending on the prevailing circumstances. These theories highlight the autonomy of a leader as far as decision making is concerned, thus being highly applicable for organizations that have a corporate structure devoid of checks and balances for the top tier leadership. The theories include ethical egoism, utilitarianism and altruism. In all these cases, it should be mentioned that whether good or bad, the consequences are considered before the action is taken.

Ethical egoism is a theory, according to which the leader makes decisions based on their best interests. Being a leader in any commercial organization, their best interests may be high compensation packages, exorbitant rewards and bonuses, high share prices and volumes in the financial markets, high credit ratings among financial institutions, good business deals, and even good internal marketing. Regardless of the motivation, the leader is herein believed to make their decisions based on the possibility that they will achieve something their hearts are set to. In most cases, this is very dangerous considering that it is all about the self, and such strong motivation becomes hazardous if unchecked. For example, if the aim is to increase the share prices and volumes in the financial markets so as to make the leader’s resuming colorful, they may engage in doctoring financial statements in order to encourage shareholders to buy stocks even when the company is not performing well as it was in the case with Enron. The need for establishing reputation of successful management often leads to the need for covering up when things do not go as expected, and this is often the root of corporate fraud.

On the other hand, utilitarianism is a theory that leaders seek for maximizing the potential of the organizations by minimizing indulgence and limiting the access to resources in a way that implies scientific management. This theory suggests that the leader is likely to act in a way that is strict and very limiting towards the employees, but only so that they can minimize expenditure and maximize productivity. This theory is largely applicable in task-oriented organizations where the leadership is often focused on the tasks at hand rather than the people and the processes. Thus, they try to limit the interaction between people in order to save time and money while focusing on productivity. This theory is highly inefficient in today’s world although at some point it may have been popular in China, Germany, and India. The consequence here is anoperational efficiency with reduced costs and increased productivity within the organization, implying a disregard of motivation or retention among other things that are especially significant nowadays.

Furthermore, altruism is a theory in which the leader’s motivation is the best interests of the people they lead. This theory is in line with the transformational theories where the leader’s actions are determined by how they will affect people led by them. Altruistic leadership is all about dedicating oneself to the betterment of others, and a pure example of this is the case of Mother Teresa who was a true altruistic leader. Such leaders are rather scarce but when they exist, they tend to achieve much more as they not only inspire growth but also form strong bonds of trust and loyalty with their subjects.

Deontological Theory

According to this theory, the leader is obliged to act in a way that is morally considerate given that they have individuals who look up to them. Thus, all their actions are based on the question of whether it is right or wrong, and how they will be perceived by people they lead. Among other things, the leader here is expected to act in a way that is truthful and fair, but only with respect to their subjects. This theory does not cover the actions of the leader in cases where the subjects can be considered as excluded, such as in closed door meetings and deals. The leader is bound to avoid pretending to forget their moral obligations. Yet there are cases when their subjects would never really know about their actions. In such circumstances that present an opportunity for unethical conduct, for example, a leader of an organization could bribe another organization in order to secure lucrative business dealings with them. In such a case, the employees are only likely to hear that their leader has managed to clinch a good deal for the company. The specifics are often left out of the briefing until a whistleblower emerges. Consequently, this means that under the deontological theory of ethical leadership, the leader is able to hide their wrong actions and conduct themselves ethically when being in the public eye. It should be mentioned that the leader feels safe as long as they do all the bad things in private under this theory. Furthermore, it means that there is a room for misconduct especially when the leader feels safe and away from the judgment of their subjects. The problem with acting in a certain way out of duty is that there is not enough motivation, and the leader can just easily lie about their actions provided they are not caught. Nevertheless, acting out of the need for being inspirational and setting an example to others is a noble path. When taken truthfully, it could have some lucrative rewards including being a role model, earning respect and unconditional loyalty of the subjects, and being considered a trustworthy member of the society. A leader who is motivated by their duty to subjects is likely to know always the right thing to do. However, whether they actually do the right thing or not depends on the stronger pressure be it duty, personal gain, etc.

Teleological and deontological theories are based on the leader’s conduct, implying that they seek for understanding the motivation behind the leadership decisions. Generally, conducts are considered to be expressions of one’s character. It should however be mentioned that character determines his or her conduct in the absence of strong external influences, though, for some reason, business leadership is all about external influences.

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Virtue-Based Theory

The virtue-based theory of ethical leadership is constructed around the notion that leaders are actually born or rather made over time but not simply becoming through a leadership training seminar. With this in mind, it should also be considered that virtue-based leadership centers on helping people, thus having a good character with respect to honesty, fairness, humility, justice, patience, etc. All these characters enable the leader to interact with their subjects in a constructive and influential manner in order to guide them to be whatever they are supposed to be within the given organization. Unlike the conduct-based theories, which are aimed at giving directions, this theory implies that leadership is simply about telling the people where they are supposed to go and letting them find their own way that will benefit them as individuals, their careers, and the organization as a whole.

When defining leadership, this theory does not consider the skills and academic competencies but rather the leadership qualities that come naturally and are only enhanced through leadership training. For example, when interviewing a potential employee for a leading position, a company that believes in virtue-based leadership would consider realizing whether the desired candidate is humble, can stay calm in a tight situation, offer helping out when people get stuck with a task, inspire people, lead through actions, or, among other things, even treat their team members with fairness. Ethical leadership in such a circumstance is more about how the leader perceives themselves and others with a major emphasis on equality, fairness, and justice. In such a case, honesty is approached with caution seeing as there are cases when it will only break an individual’s spirit, thus the need for practicing positive reinforcement or ‘sugar coating’ is barely fair.

A good example of virtue-based ethical leadership would be the case of Arthur Andersen, the accounting and management consultancy firm that not only oversaw the audits at Enron but also offered management advice. The leadership here was entitled to be honest in as far as the performance and practices at Enron were concerned. However, they chose to let the auditors look the other way when there were inconsistencies in their client’s financial reports rather than risking their business relationship. The leader here was comfortable with the situation because they were not naturally-oriented towards fairness and justice. The requirements for navigating through these circumstances successfully were not a part of their character, thus limiting the ability to come out unscathed by fraud. Moreover, a virtuous leader is able to discern whether a given risk is worth taking based on their individual characters. Similarly, a leader who feels uncomfortable about deceiving millions of shareholders and creditors would not allow their subordinates to collude with clients as it happened in the Arthur Andersen case in terms of Enron company Virtues are, in this case, considered to be drivers of ethical conduct; where honesty, equality, and fairness drive away misconduct like bribery, collusion, and fraud. In this theory, it should be mentioned that virtues are often universally acknowledged unlike moral obligations, which vary by different cultures.

Other Theories on Ethical Leadership

Apart from three main domains of ethical leadership theories, there are a number of diverse perspectives on ethical leadership that will be discussed below. These include Burn’s perspective and Greenleaf’s perspective, both of which are quite relevant to the discussion of ethical leadership. These two perspectives present a simplistic view on leadership without necessarily being reductive about it.

Burn’s Perspective

According to James Burns, leadership is all about getting people to do what they are supposed to do without having to force them. This implies invoking their free will so that they can enjoy their designated tasks and responsibilities within the organization. In this situation, a leader is expected to be not only charismatic in terms of how they attract and inspire people, but also very patient and generous as they need to inspire full transformation in their subjects. The idea here is not just to accomplish tasks and move on, but rather to use processes that are in line with the organizational objectives. However, it should be also with some benefits to the people with respect to the individual and career development goals. Thus, the implication is that the transformational style of leadership takes precedence by virtue of its effectiveness in relation to ethical conduct. The leader is expected to provide guidance to the followers, especially in cases where there are conflicts that need personal involvement. This means that for ethical leadership to exist, emotional intelligence is a pivotal concept given the need for the leader to understand themselves and their followers in order to have better interactions and guidance.

It should be mentioned that among other things, Burn’s perspective on ethical leadership emphasizes on qualities like fairness, equality, liberty, and justice. In this case, fairness implies that the leader should not be biased when, for example, seeking for hiring a supplier, the considerations should be free and fair, preferably with suggestions from other members within the organization and with a thorough debate over the merits and demerits of every option. Lack of these checks and balances open the leader up to personal biases and, in some cases, even to bribing the suppliers. On the other hand, equality exists with respect to the shared opinions. The main point behind asking for the subjects' opinions is to find out what they think, and when these opinions are consistently shot down without a good justification of their becoming a waste of time. Considering the followers as equals is important as it enables the leader to respect them and listen to their opinions for the betterment of the organization. In the procurement case, for example, these followers could have the best breakdown in terms of the merits and demerits of each supplier based on their knowledge of the materials being supplied. Liberty is all about giving people the space that they require to flourish. A team has often a leader in order to centralize responsibility in such a way that there is someone to take responsibility when things do not go as planned. A leader who practices liberty as a core value enables their followers to take responsibility for their decisions and actions within the team, thus allowing them for innovation and growth. This also improves accountability provided that the followers control their actions and are thus inspired to have good results at all times. Justice, on the other hand, comes with conflict resolution, where an ethical leader is expected to refrain from taking someone's sides and rather giving each individual the kind of response that they deserve for their actions within the organization. This not only ensures a peaceful working environment but also encourages the formation of cordial working relationships since the leader is a just peacemaker.

Greenleaf’s Perspective

Robert Greenleaf differs from James Burn because his perspective on ethical leadership emphasizes more on servant leadership theories than on transformational leadership. This opinion inclines more to altruism, where the leader is motivated by the needs of their subjects. This theory is also rather virtue-based due to the fact that the leader must have a natural inclination to serving people. It can thus be stated that Greenleaf’s perspective on ethical leadership is a combination of conduct- and character-based theories where the leader must be a natural servant in order to lead, and their main motivation must be in their subobdinates' needs. In any organization, the followers include, among other salient stakeholders, the employees and the investors as well as the consumers, suppliers, and distributors.

This means that an ethical business leader should be concerned about the needs of their employees, investors, consumers, suppliers, and distributors. For example, an ethical leader under this perspective should be able to ensure that the products being sold to the consumers are of good quality and at a fair price. To the investors, they should ensure that the company is performing at its best in order to minimize risks and maximize profits. To the suppliers, fair procurement practices and prices should be a priority, while relevant partnership terms and provisions are crucial to the distributors. When it comes to the employees, it is considerably fundamental that an ethical leader is ready to understand the needs and expectations of the employees in order to provide the best solutions available within their powers. This may include fair compensation practices, adequate motivation, retention strategies, and generally good working relations for career growth and development within the company and industry as a whole. Considering the needs of the stakeholders as the primary motivation, it is probably the most effective way to be an ethical leader while seeing as these needs overpower personal motives that could easily culminate into temptations for unethical conduct.

All these theories and perspectives about ethical leadership bring us to the conclusion that in order to be an ethical leader, one should be able to pick out theories that work best for the specific situation and ensure that they are guided by moral constructs of right and wrong, goals and objectives set in the organization they represent, the needs and expectations of the society and their salient stakeholders.

Principles of Ethical Leadership

From the theories and perspectives discussed in the previous sections, seven principles have been identified as crucial to ethical leadership. Two of them are recent in terms of their relevance to management. These principles help not only to ensure that the leader is on the right path, but also that they are able to resist fraud regardless of the circumstances into which they are tempted. Numerous studies on occupational fraud indicate that the ability to justify one’s fraudulent activities is a determining the eventuality of fraud itself. People who are able to justify fraud and unethical conduct are thus more likely to fall prey, and these principles provide a shield from these justifications. They include respect, service, justice, honesty, growth or change, cultural and emotional intelligence.


An ethical leader not only respects people they work for but also those they work with. It should be considered that the greatest temptation for a leader is autonomy, where no one within the organization can question his or her actions. Leaders should be able to make final decisions within an organization. However, they should also have to account for their decisions, and this can only happen if they are respectful towards those around them. Respect is thus an enabler for accountability, which can be considered a critical factor in ensuring that ethics is adhered to by the top tier management of the organization.


When looking for motivation to lead, the need for serving is a step in the right direction. When a leader is inspired to act in order to meet their own needs, they only serve their personal whims, thus making it easy for them to fall prey to unethical conduct. A self-serving leader will work towards a larger bonus regardless of the company's status and the stakeholders' returns. Moerover, they will doctor the accounts in order to cover this up. Nevertheless, when they consider satisfying their own needs as the main motivator, they are likely to work towards a good performance so that they can register the highest possible returns for the investors, rewards and benefits for the employees, more business for the suppliers, and eventually a bigger bonus for themselves. Their personal gains, in this case, should come as an afterthought once all the stakeholders’ needs have been catered to. This is actually supposed to be easy since a well performing organization translates a well-paid leadership, and when the company is not performing well, the leader should take it as an initiative to work towards better performance rather than doctoring the books to ‘steal’ an undeserved bonus from the company.


In the relationship between the organization’s leadership and their stakeholders, justice is a fundamental concept. It is often easy to take sides when dealing with suppliers, distributors, or even competitive employees. However, this opens up the doors to unethical behavior as taking sides implies that the leader has a nonprofessional relationship that could be indicative of bribery among other unethical behaviors. Embedding justice into one’s leadership practices ensures that they are always trusted to make the right decision even in a tough situation. They can always defend their position in a rational and logical manner, other than resorting to ambiguity and oblivion that could also be indicative of unethical conduct.


Honesty and transparency are great defenses against unethical leadership given that no one is willing to be openly wrong. Organizations that emphasize on openness often have their leadership acting according to the rules and regulations unlike those who have ways of leaving things hidden from the public. One other necessary factor in occupational fraud is the expertise to cover up a discrepancy, and honesty is likely to force this cover up. When a leader is honest, they are unable to lie to their subordinates. In the event that they are about to do something wrong, they consider the response of their subjects and decide against the action.


Growth is a principle that dissuades the leader from activities that could destroy the organization or their individual career. This implies looking at the long-term effects of their actions and weighing them against the short-term benefits. The Enron case may, for example, have allowed the leadership to take home such hefty pay packages but in the long term they lost their jobs, their careers, and even destroyed their reputations for good. Others were even prosecuted, thus tainting their records for life. This means that focusing on the long-term objectives is likely to protect the leader from unethical behavior. An individual who is focused on change is able to appreciate the entire process of innovation and implementation without rushing through and anticipating quick results. Most companies actually fall into fraudulent operations because their leaders lack the patience for establishing their reputation to the point that they become deserving of certain business deals. They do not consider the importance of the growth trajectory, and are thus willing to do anything to get to the top. This fact results, among other things, in unethical conduct like bribery, doctoring financial reports, and even insider trading.

Emotional Intelligence

This is not entirely a principle but rather a quality, which is both natural and learned. It embraces understanding one’s own emotions in order to understand others for better relations within the organization. An emotionally intelligent leader is the one who is able to form effective working relationships that are not only beneficial to the employees but also inspiring to the leader. Being close to the subordinates requires a certain level of trust and openness and also implies being scrutinized on a regular basis. As such, emotionally intelligent leaders are unlikely to be unethical seeing as they are open to their subjects and interact with them regularly. Moreover, they are a source of inspiration, and their actions must be guided by the concept of morality. An emotionally intelligent leader must consider the consequences of their actions as well they are expected to be always right or face a lot of judgment from their subordinates. Furthermore, in order to avoid this situation, the leaders are prompted to always act in a manner that is ethically justified regardless of the circumstances.

Cultural Intelligence

Cultural intelligence refers to understanding one’s culture as well as those of others in order to ensure that there are not many cases of misunderstanding. This principle helps in multinational organizations to consider various definitions of ethics across different cultures. For example, an Indian manager would be comfortable receiving gifts as tokens of appreciation for doing business with an American company, whereas the American culture may not condone such an expectation, considering it an act of corruption. In the event that the American organization’s leader is culturally competent, they would set out to explain the situation to the Indian manager in order to avoid complications in the American context of business ethics. Cultural intelligence also prevents leaders from putting their employees in positions that would appear unethical for the leader including body contact with an individual from a culture that emphasizes personal space.

Challenges of Ethical Leadership

As a concept of management, ethical leadership faces a lot of challenges including corporate culture, corporate governance, and social constructs. An organization’s corporate culture is the way in which people inside the organization interact especially as far as decision making is concerned. Companies having a bureaucratic nature tend to rely on the top tier management to make all the crucial decisions and pass the orders down the corporate ladder to the implementation points. This means that among other things, the managers in these organizations have the autonomy to make any decisions without involving their employees. This kind of power is a factor for unethical behavior, thus presenting a challenge to ethical leadership within the organization. If presented with a tough situation, the leader here is likely to resort to unethical solutions provided it would get them out of the predicament and no one would have the right or grounds to question them.

Corporate governance refers to the system of checks and balances within an organization where the shareholders, leaders, and employees are all organized to ensure effective management of the company’s activities. A company with good corporate governance is likely to have a comprehensive network of checks and balances at every level of operation. This is done in order to ensure that all the decisions being made are agreed upon by more than two individuals. Companies whose corporate governance is somewhat flawed, are unable, however, to keep their leadership in check as they tend to consolidate the decision making powers at the top. In such organizations, it is much easier for the leader to act unethically as they are able to make autonomous decisions and follow-up decisions in order to cover up their misconduct. This opportunity is yet another challenge to otherwise ethical leader if presented with the right conditions.

Social constructs also impede ethical leadership by invoking the biases of the leader. For example, in the society where gift giving is acceptable, the business leader is likely to be affiliated with the entity that has the ability to offer the best or most expensive gift. The fact that this gift is given after the tender or partnership has been awarded further allows for justification, which is yet another primary factor in fraud and unethical behavior. This generally means that in order to eliminate unethical leadership, all these gift-giving expectations must be shunned so that business interactions are conducted based on merit and not on the partner’s gift-giving capacity.

Benefits of Ethical Leadership to an Organization

Among other things, ethical leadership is pivotal to the growth of the business organization especially in the present times where competition is rife and a good reputation can go a long way to market the organization not only to the customers but also to investors, creditors, suppliers and distributors. Companies that are able to create an image of ethical excellence attract the right stakeholders’ support for better organizational performance and sustainable business. This means that the main benefit of ethical leadership to the organization is competitive advantage through the projection of a positive corporate image. There also are other benefits that can be broken down as follows.

Cost Effective Operations

When an organization has ethical leadership, it is likely to follow the rules and regulations in its activities. This means that it will adhere to safety regulations, employment law, and quality management among other procedures that could be ignored in unethical settings. While all these procedures are rather costly and time-consuming, they save the company a lot of money and time as well as keeping the employees safe, protecting the organization from lawsuits by the employees, and ensuring that the products and services being released in the market are actually up to standard, thus preventing consumer lawsuits and dissatisfaction.

Job Satisfaction

Employees who work under an ethical leader are often more likely to keep their jobs because the ethical leader may be strict about the rules but he or she is also considerate about the needs of the employees. They work towards creating a working environment in which the employees can thrive on the benefit of the company and its shareholders, thus also benefiting the employees in the end. Additionally, as it is stated in Greenleaf’s perspective, an ethical leader is generally motivated by the need for serving the employees and stakeholders, thus making the needs of the employees a major concern. This implies that the employees are likely to be treated very well under an ethical leader.

High Productivity

Job satisfaction is a great motivation for high productivity within an organization. Employees who are treated well are more likely to focus on their work, thus ensuring that they generate as much output as expected of them by the organization. This ensures that under their ethical leader, the employees are able to devote themselves all to the company in return for the leader’s consideration and efforts. The leadership styles that are in line with ethical leadership also allow for mentorship and inspiration, thus encouraging individual and career growth. These further improve the employee’s as well as organization’s productivity.

Actualization of Company Goals and Objectives

Once a leader is unable to get distracted by the external factors that may lure them into unethical conduct, they have time to focus on the company’s goals and objectives. Equipped with all the right skills and competencies, such leader is able to provide adequate guidance to the rest of the employees in order to direct them to the objectives be it in long-term or short-term aspect. It should be mentioned that an ethical leader has a good influence on their subordinates, and thus they can give the right guidance to the entire organization leading to an actualization of the goals and objectives.


Ethical leadership is a concept that should be widely embraced in businesses across the globe. This is mainly because it has quite a number of benefits that include better organizational performance, employee retention due to the high levels of job satisfaction, efficient operational costs, and others. Companies that have ethical leaders are generally more attractive to other companies, suppliers, distributors, consumers, and even employers. Actually, it should be taken into consideration that among all the choices of leadership styles, leaders need to pick out the concepts that will make them ethical leaders especially bearing in mind the principles of ethical leadership that can also serve as deterrents of fraud and unethical conduct.


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