Ethical Leadership in the 21st Century Essay Example for Free

Ethical Leadership in the 21st Century Essay Leadership is a critical component of the organizations culture as leaders can create, maintain, or change culture. Thus, leadership is significant to establishing an ethically oriented culture. The idea that corporate leaders are accountable for organizational ethics is not a new one. In 1938, management theorist Chester I. Barnard described the executives role in â€Å"forming morals for others† in his book The Functions of the Executive. Barnard suggested that the purpose of developing organizational morals is a distinctive characteristic of executive work going far beyond the moral challenges faced by individuals usually. Besides superior technical skills, a high capability for responsibility, and an intricate personal morality, this task requires moral ingenuity in defining an organizations code of ethics and instilling the basic attitudes that support it. According to a report from the Business Roundtable, a group of senior executives from major American corporations, leadership is crucial to organizational ethics. To achieve results, the Chief Executive Officer and those around the CEO need to be explicitly and strongly committed to ethical conduct, and give constant leadership in tending and mending the values of the organization. † (Business Roundtable, 1988). In surveys of practicing managers, honesty and competence appear as the most important qualities identified as essential to good leadership (Barry Z. Posner and William H. Schmidt, 1992, 33). This view was echoed by Vin Sarni, former CEO of PPG Industries, a large multinational firm, in a 1992 speech to Penn State business school students. Sarni said that the title CEO stands for Chief Ethics Officer, a statement that recognizes how important it is for the organizations leader to set the firms ethical standards (Trevino and Nelson, 1995). If the organizations leaders seem to care only concerning the short-term bottom line, employees rapidly get that message too. John G. Rangos, Sr. , the founder of Chambers Development Co. a waste management firm, demanded bottom-line results. When executives reported to him in 1990 that profits would fall short of projections, he is quoted to have said, â€Å"Go find the rest of it. † And so they did, until an outside audit in 1992 found that the company had erroneously reported strong profits in every year since 1985, though it was losing money all the time. Former employees say that, in the pursuit of growth, influenced numbers were tolerated, or perhaps even encouraged. One former employee who found discrepancies in 1988 was told, â€Å"This is how the game is played. (Trevino and Nelson, 1995) Leaders symbolize significant others in the organizational lives of employees, with considerable power qua behavior role models or simply power, in the meaning of being able to force others to carry out ones own will. Leaders example and decisions affect not simply the employees who report to them, but also the stockholders, suppliers, customers, the community, the country, and even the world. Considerations of the ethical component in day-to-day decisions will set the tone for others who interrelate with the company. Thus, the image of the business leader will affect how others choose to deal with the company and will have continuing effects, as all managers and employees look to the highest level for their cues as to what is suitable. Top executives must live up to the ethical standards they are espousing and imply ethical behaviors in others. Leadership can make a difference in forming an ethical or unethical organizational culture. Work on ethical and unethical charismatic leaders also highlights the significance of the leader in the ethics equation. More particularly, charismatic leaders can be very effective leaders, yet they can vary in their ethical standards. Such differences determine the degree to which an organization builds an ethically oriented culture, the types of values followers will be exposed to, and the role models with whom employees will have their most direct personal contact (Howell and Avolino, 1992, 43-54). One way to pull together the contributions concerning how organizational culture is shaped and reinforced by leadership style is to understand organizational culture as ethical climate. One could also ask to what extent the moral maturity of organizational cultures or climates, controlling reference group types, or dominating ethics types are interdependent or interacting with leadership styles. One could also ask if unethical leadership styles encourage an unethical climate or vice versa, if the effect of unethical leadership is reinforced or counteracted by the organizations ethical climate. Ethical dilemmas will frequently result in unethical behavior if an organizations leadership furthers an immature, indistinct, or negative ethical climate. Such unethical behavior is, of course, not only furthered by an unethical climate, but also reproduces such an ethical climate, in a system feedback fashion, being contagious and self-reinforcing (or perhaps infuriating internal or external counter reactions). In such instances, an organizations culture predisposes its members to perform unethically. Kent Druyvesteyn, former staff vice president, ethics, General Dynamics Corporation, made a similar point concerning leaders as ethical role models. People in leadership need to†¦set the tone by instance of their own conduct. We could have had all the workshops in the world. We could have even had Jesus and Moses and Mohamed and Buddha come and speak at our workshops. But, if after all of that, someone in a leadership position then behaved in a means which was differing to the standards that instance of misbehavior by a person in a leadership position would teach more than all the experts in the world (Trevino and Nelson, 1995). Clearly, the development of an ethical corporate culture depends on the tone set at the top. The earliest and most continuing normative formulation has underlined the responsibilities of business corporations to those affected by a companys decisions and policies. From the beginning, it has been felt that business has fiduciary duties and compulsions of performance that extend beyond the companys legal boundaries and economic goals. This view is identical to declaring that those who own the company should run it, or hire professional managers to run it, with an eye to the interests of others as well as their own. Therefore, business owners and managers are said to have a range of social responsibilities additionally to being responsible for the normal economic functions that one expects to find in a well-organized and well-run firm (Shaw, W. H. Barry, V. 2004). To maintain and diminish this perspective, its advocates have drawn on various economic, political, ideological, and socio cultural sources, though rarely acknowledging them as such. The business mind easily transmogrified this hoary maxim into the corporate context by adopting for executives the mantle of steward of the public interest, trustee of business resources, and corporate statesman anticipated to manifest a broad social vision, while not refuting their companys economic purpose and objectives (nor, it might be added, did it disturb their power). For the most part, these attributions of moral peerage were what might be called self-coronations or simple declaration, since no visible public selection process had elevated these corporate worthies to such vaunted peaks of public influence and function. Thus capable with self-anointed, regal-like responsibilities, corporate executives everywhere were advocated to adopt an enlightened self-interest perspective in approaching business decisions and originating corporate policies. To act otherwise was to risk serious inroads on business-as-usual. As the Committee for Economic Development put it, The policy of enlightened self-interest is also based on the intention that if business does not accept a fair measure of responsibility for social improvement, the interests of the corporation might actually be jeopardized. . . . By acting on its own initiative, management preserves the flexibility needed to conduct the companys affairs in a positive, efficient, and adaptive manner. The report averred that looking beyond todays bottom line would pay off in the long run by reducing social costs, dampening radical antibusiness protest, and attenuation the likelihood of government intervention into business affairs. certainly, the stability and public acceptance of business itself were said to be at risk: Indiscriminate opposition to social change [by business] not simply jeopardizes the interest of the single corporation, but also affects negatively the interest all corporations have in maintaining a climate conducive to the effective functioning of the entire business system. (Frank Abrams, 1951, p. 33). Theorists have, generally, identified four broad areas of corporate responsibility: economic, legal, moral, and social. The major premise of the four areas is found in the basic nature of the corporation, which is a surreptitiously based, economic entity with jural standing, whose members are expected to make decisions that will have a noteworthy impact on a number of constituents (Brummer, 1991). Thinkers and researchers do not always agree that a corporation has all four responsibilities. Some do not consider that corporations have a moral responsibility; others believe that moral and social responsibilities come after economic and legal ones. The economic responsibilities of corporations have been distinct in many ways. Milton Freidman, for instance, states that the economic responsibility of a firm is distinct by the corporate intervening goal. To him, a corporate overriding goal is maximum returns to investors. As long as a corporation works on the way to achieving this goal, it is deemed economically responsible (Freidman, 1970). Based on the same philosophy, Manne (Manne and Wallich, 1972) argues that the intervening goal of the corporation is to maximize shareholders profits. In the majority of instances, maximizing investors returns would lead to utmost profits, and vice versa. Herbert Simon, on the other hand, disagrees with the perception of profit maximization and strongly argues for profit satisfying. He contends that because executives should respond to a number of other objectives, factors, and constraints, and must do so in the framework of what he calls bounded rationality, they in fact seek to reach a mere satisfactory level of profit. Whether maximization or satisfying, economic responsibility proponents consider that the number one responsibility of businesses is, first, its shareholders, and then other constituents. However, the dilemma concerning the issue of harmonizing the firms economic association with its social orientation still lingers. A step in the direction of easing the confusion was taken while an inclusive definition of corporate social responsibility (CSR) was developed. A four-part conceptualization of CSR integrated the idea that the corporation has not only economic and legal responsibilities but ethical and philanthropic responsibilities as well (Carroll, 1979). The major point here is that for social responsibility to be established as legitimate, it had to address the entire spectrum of compulsions that business has to society, including the most elemental economic. Organizational responsiveness to social needs had its unveiling when early industrialists reacted to the social problem that industrialization was seen to have caused. Early on, economists as well as philosophers began to argue regarding the role of business in society and regarding what responsibility business has to society. Later, social theorists for instance Bell (1976), Bellah (Bellah et al. , 1985), and Wolfe (1989) continued the debate and raised it to a higher level of concept. They were not just concerned about the responsibility of the corporation as a social body but even more concerned concerning how the corporate revolution has altered social life. A recent evaluation of the literature recognizes no less than nine meanings for social accountability. The nine meanings were categorized by Sethi (1997) into three categories: social obligation, social reaction, as well as social responsiveness. Social obligation entails that a corporation engages in communally responsible behavior when it follows a profit within the constraints of law as forced by society. Consequently legal behavior in pursuit of profit is a communally responsible behavior, and any behavior not legal is socially negligent. Proponents of social responsibility as social compulsion offer four primary arguments to support their views first, they retain that corporations are accountable to their shareholders. Consequently, managers have the responsibility to manage the corporation in a way that would exploit owners interests. Second, socially responsible projects such as social improvement programs must be determined by law and left to the contributions of private individuals. Consequently, the government, through legislation, is best equipped to determine the nature of social development programs and to comprehend social enhancements in society. Businesses contribute in this regard by paying taxes to the government that correctly determines how they should be allocated. Third, it is a violation of management contract to give out corporate profits for social improvement programs. These actions amount to taxation without representation, according to Friedman (1970). Management is taxing the shareholders by expenditure their money on activities, which does not contribute directly to maximizing shareholders interests. Additionally, because managers are not elected public officials, they are taking actions that affect society without being accountable to society. Fourth, many people who subscribe to this school of thought believe that social programs financed by corporate managers might work to the disadvantage of society. In this sense, financial costs of social activities can, eventually, cause the price of the companys goods and services to increase, and customers would pay the bill.