Module 06: Ethical leadership, followership and organisational - - PowerPoint PPT Presentation

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
• rganisation 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

• r 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

• rganisation.

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

• rganisation 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

• nes, 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.

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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.

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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.

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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

Ethical leadership and a compliance culture Leaders often use either a compliance approach or an integrity approach to maintaining an ethical culture. A compliance approach is characterised by ensuring that minimum standard standards of behaviour are maintained. Policies and procedures promote compliance more than principles, obedience is valued more than debate, and the culture is overseen by officers with such nice titles as “compliance officers” and “risk managers” .

19 Created by Dr G. L. Ilott, CQUniversity Australia

Ethical leadership and integrity By contrast, an integrity approach focuses on values and principles and instilling these into the whole organisational culture. Key documents are Statements of Values, Codes of Ethics and Codes of

• Conduct. Of course, there are compliance issues here too, but the first

emphasis is to ingrain values and principles in the organisation first,

• ut of which good policies and practices will flow.

20 Created by Dr G. L. Ilott, CQUniversity Australia

Ethical leaders need ethical followers At the risk of stating the totally obvious (but stay with me, this is important!), leaders need followers to lead. Leadership and followership is a symbiotic relationship. To extend this little lesson in the obvious, all leaders are also followers. No-one ever sits at the top

• f the tree, everyone has to report to someone else. Therefore, the

study of followership should be as important as leadership, but it isn’t.

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The courageous follower

Most writers on followership approach followers only through the relationship as a support for the leaders (where, of course, the real action really takes place). However, other writers are now focusing on the need for followers to be “courageous” and hold their leaders to account. Chaleff (2009) is a good example of this approach. Courage is the great balancer of power in relationships. An individual who is not afraid to speak and act on the truth as [he or she] perceives it, despite external inequalities in a relationship, is a force to be reckoned with. Courage implies risk. If there is no risk, courage is not needed. Life…is full of risk at every turn, at every moment. We usually structure our lives to reduce risk to an acceptable level. Courage requires a willingness to raise our level of risk, at least in the short term (Chaleff, 2009, p.20).

22 Created by Dr G. L. Ilott, CQUniversity Australia

Conclusion

Organisational factors such as corporate culture play an important role in ethical decision making. Corporate culture is a set of values, beliefs, goals, norms, and ways of solving problems shared by the members of an organisation of any size. Culture can influence whether decisions made by people within the organisation will be ethical or unethical. Leaders also have the ability to influence both the corporate culture and the ethical tone of an organisation.

23 Created by Dr G. L. Ilott, CQUniversity Australia