How To Use Ethical Leadership at Your Business

Just as a military commander might give up a strategic advantage to safeguard their troops, a business leader may face dilemmas where they must choose between personal gain and doing what is right. The choices made in difficult scenarios are a testament to the ethical compass of a leader.

Ethical conduct has emerged as a prominent factor in the selection of leaders. In a study on moral leadership, 86% of employees recognize the pressing need for moral leadership within organizations, and 46% are willing to make personal sacrifices, such as a pay cut, to have an ethical leader at the helm.

Table of contents:

• What is ethical leadership?
• Why is ethical leadership important?
• Ethical leadership examples
• Ethical leadership traits

What is ethical leadership?

Ethical leadership is the practice of leading with integrity, honesty, and fairness while making decisions that benefit both the organization and its stakeholders. Ethical leaders prioritize the well-being of their employees, customers, and the community over their own self-interest. They also demonstrate transparency in their decision-making processes and hold themselves accountable for their actions.

For example, an ethical leader will take responsibility for their mistakes, even if they were made in good faith, and acknowledge when they have fallen short of their standards.

Why is ethical leadership important?

Ethical leadership is pivotal in fostering a positive work environment and driving organizational success. Here are a few reasons why ethical leadership is crucial.

Builds trust and credibility

If you’re an ethical leader, your integrity and transparency create a foundation of trust, fostering open communication, collaboration, and teamwork.

And as a result, employees who report to managers who demonstrate moral conduct are 5x more likely to report satisfied customers and 7x more likely to expect better business outcomes in the coming year.

Enhances employee engagement and motivation

Employees who perceive you as an ethical leader feel valued and motivated to contribute their best efforts. Ethical leadership fosters a sense of purpose, increasing job satisfaction and productivity.

On the other hand, employees don't want to follow unethical leaders. Sixty-seven percent of senior leaders claim they’d like to leave if their CEO doesn’t act on a moral issue.

Cultivates a culture of ethics and compliance

Ethical leaders set the culture for the entire organization. By prioritizing ethical conduct, they encourage employees to act in accordance with shared values and norms, promoting a culture of ethics and compliance.

In fact, 74% of employees believe their colleagues will perform better if managers rely on ethics instead of power.

Mitigates risks and reputational damage

Unethical behavior can lead to legal, financial, and reputational risks for organizations. Ethical leaders mitigate these risks by promoting responsible decision-making and holding themselves and others accountable.

For example, leaders who overlook environmental regulations or engage in unethical practices such as pollution or misuse of natural resources can cause significant environmental damage and expose the organization to legal and financial risks. This unethical behavior can also harm the company’s reputation and credibility, especially if the organization is perceived as environmentally conscious.

Ethical leadership examples

In business and leadership, ethical conduct is a powerful force that drives success, strengthens relationships, and makes a lasting positive impact.

Here are examples of ethical leadership where individuals and organizations prioritize integrity, transparency, and accountability.

Demonstrating ethical leadership in the face of disaster

During Hurricane Maria in 2017, Mike Valentine, president and CEO of Baxter Credit Union (BCU), demonstrated ethical leadership by swiftly providing aid to the residents of Puerto Rico.

The company:

• Stocked ATMs with cash and extended access to everyone
• Provided 0% interest disaster-recovery loans
• Deferred interest payments on existing loans
• Accepted handwritten promissory notes for repayment when their network was unavailable

Valentine clarified that BCU’s primary focus was on ensuring its employees’ safety and meeting its members’ needs, despite incurring $3m in costs in the process.

The best part is that the decision was profitable in the long run — BCU quickly recovered the losses. Within two years, its membership grew 20%.

BCU’s conduct also helped it establish trust among its customers, employees, and partners. Its NPS (Net Promoter Score) scores soared, and partners narrate this story and boast about being a proud partner of BCU.

BCU’s commitment to its community during a crisis showcases how ethical leadership can drive success, strengthen relationships, and make a lasting positive impact.

Fostering an ethical culture

In 2023, Aflac appeared on the world’s most ethical companies list by Ethisphere for the 17th consecutive year. The company has been on the list since the award’s inception in 2007.

The company’s initiatives, such as the CareGrants program, provides essential assistance to those facing health care cost gaps. Its My Special Aflac Duck initiative supports children with cancer and sickle cell disease.

Aflac's publication of its Sustainability Bond Report further exemplifies its transparency and commitment to sustainable practices. It allocated $397m to communities, green buildings, renewable energy, and socioeconomic advancement and empowerment.

Taking the fall for the subordinate

Chris Cochran, host of the SecDevOps.AI podcast, recalls a pivotal moment from his early days leading a team of threat intelligence analysts.

His team was working on a project and couldn’t complete it on time, and his boss had to tell their director. His boss demonstrated leadership by taking responsibility for the delay. He even reframed the situation to highlight Cochran in a positive light.

This encounter left a lasting impact on Cochran, shaping his leadership approach. He now aspires to lead with accountability and a willingness to support and empower his team members.

Owning up to mistakes

Carm Huntress, CEO of Credo, a medical records retrieval company, reflects on an incident that  highlights the significance of ethical decision-making.

“We were confronted with a potential breach of sensitive health care data, where there was a possibility that we had inadvertently shared one client’s confidential information to another. The ambiguity of the situation was that we could only confirm the breach by reaching out to the client in question,” says Huntress.

Despite concerns about reputation damage, the team ultimately chose transparency and disclosed the potential breach. Surprisingly, this act of ethical responsibility strengthened the client relationship and garnered appreciation.

“The client expressed profound appreciation for our forthrightness, and this incident, paradoxically, served to strengthen our relationship.”

Ethical leadership traits

It’s not hard to spot an ethical leader — they stand out because ethical leadership encompasses specific traits and behaviors that distinguish them. Here are several essential traits exhibited by ethical leaders:

Integrity: Ethical leaders demonstrate unwavering integrity by aligning their actions with values and principles. They’re honest, transparent, and act ethically, even when faced with difficult choices. It doesn’t matter whether someone is watching them — they’ll adhere to their principles.

Accountability: Instead of looking for a scapegoat or way to avoid consequences, ethical leaders take responsibility for their decisions and actions. They hold themselves accountable and don’t hesitate to admit mistakes or learn from failures.

Empathy: The well-being of their employees and stakeholders is always a high priority for ethical leaders. They show compassion, listen attentively, and consider the impact of their decisions on others. This creates a positive work environment where people genuinely care about each other.

Fairness: An ethical leader treats everyone fairly and impartially, promoting a sense of justice within the organization. Instead of showing favoritism, they make merit-based decisions and ensure equal opportunities for all.

Courage: It takes courage to stand up for what’s right, despite opposition or adversity. Ethical leaders don’t hesitate to challenge unethical practices and take a moral stance, even if it means risking short-term gains.

Respect: Ethical leaders respect the dignity, opinions, and diversity of others. They create an inclusive environment where everyone feels valued and respected.

Transparency: Transparency is one of the main reasons why followers trust ethical leaders. They share information, provide feedback, and involve others in decision-making to promote a culture where people can communicate openly and honestly.

Guiding Principles: Ethical leaders live by guiding principles that inform their actions. They have a strong moral compass and adhere to ethical standards, even in challenging situations.

By embodying these traits, you can create an environment where workers can thrive and contribute to the organization’s success.

Ethical leadership sets the foundation for trust, integrity, and accountability within organizations, leading to improved employee engagement, stakeholder relationships, and long-term success.

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