Question

Chapter 11 discusses ethical leadership. Do you believe that one can be an ethical leader and maximize shareholder value? Explain your answer and give an example of a company that demonstrates your point of view.

Answer 1

Prominent leadership failures like the Worldcom & Enron scandals of the past decade & the latest financial industrial crisis have wreaked extensive havoc on the lives of innumerable persons, raising manifold questions regarding the apparently widespread dearth of ethics in modern corporate culture. For now, our increasingly interrelated political, economic & social structures demand that genuinely ethical leaders make decisions which include stakeholder requirements & viewpoints from beyond the confines of a single organization/ constituency / group. The challenge to ethical leadership in contemporary business lies in balancing economic & noneconomic accountabilities. For example, the virtues of service & justice demand that an ethical leader makes sure that decisions “do no harm” to the wider community in which they function, a noneconomic aim that may be at odds directly with the economic aim of maximizing worth for primary stakeholders like shareholders & staff.

At the organizational-level, a dedication to wider ethical behavior is usually framed as business social performance. Some studies suggest that firms balance service to stakeholders (both noneconomic & economic) differently throughout the lifecycle . Mature corporations react proactively to external stakeholders (i.e., business social performance is high), whilst firms in start-up mode, in growth phase, or in decline phase demonstrate low social performance.

Organizational factors which effect individual ethical behavioral patterns are of special interest to this analysis. Individual ethical behavior is facilitated by both internal factors (e.g., beliefs, values) & external ones (e.g., peer influence & career level) . It is recommended that a business code of conduct, specially one enforced with sanctions & rewards, augments individual moral decision-making. Contrary to the increase of business social performance in mature establishments, individual moral behavior decreases as a business grows in size . Additionally, ethical organizational ethos facilitates individual moral behavior. These 2 factors have considerable implications for how ethical leadership manages corporate growth. These factors underscore the accountability of leadership to engage in moral practices, articulate expectations about moral behavior, &execute rewards / sanctions for compliance (or a dearth thereof) to a moral code of conduct.

Some claim that our corporate capitalist arrangement is basically inept of balancing the demand to “do well” (generate worth for shareholders) & to “do good” (behave morally toward the community in which the business functions). Others claim that individual behavioral strategies, like enhanced moral behavior at the middle management level in big corporations may serve to redress the disparities created between pursuit of profitability & fulfillment of public goals . It is yet to be seen whether a viable future characterized by widespread enhancement in living standards, education, health and opportunity is feasible in a late capitalistic society. I suggest that, to this end, genuine ethical leadership in corporations needs acknowledgement of wider obligations; the essentials of respect, justice, service, truthfulness apply not just to a leader’s subordinates & main stakeholders, but also to society.

Successful firms like Aflac & Voya have fathomed that what used to be afterthoughts in the corporate world, are now basic requirements for any business wanting to thrive.