The role of leaders in creating ethical organization PDF

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The role leaders play in Creating Ethical Organizations Name Course Instructor’s Name Date

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2 The role leaders play in Creating Ethical Organizations Introduction Organizational ethics are as good as their leaders. Creating an organization that embraces a culture promoting ethical conduct and responsibility requires leaders to serve as role models (Engelbrecht et al., 2017). Leaders must always be at the forefront both in words and deeds. In the process of establishing a culture of ethics and responsibility, organizational leaders create principles that would help their members adhere to and aspire to become ethical in the practice and profession. Leaders play a significant in establishing ethical organizations by engaging in behavior that strengthens ethical orientation, establishing an ethical culture, minimizing disqualifiers, developing ethical training programs, and creating ethical codes of conduct. Fostering a culture of ethics and responsibility through an individual's work has been one of the most important principles used by many companies. Individuals must be responsible for their conduct. Many organizations believe that ethics is a natural way of guiding peoples' behavior within an entity(Engelbrecht et al., 2017). Ethics plays a key role in the performance and achievement of any organization, although this phenomenon has applied in determining behaviors of individuals within the society, it applies to organizations as well. Therefore understanding organizational ethics is critical for every leader before seeking to develop such a culture. Organizational ethics is an organization's responsibility to carry out its activities in a respectable, appropriate and honest manner (Engelbrecht et al., 2017). An organization that has developed an ethical climate is likely to improve its employees' morale and enhance their commitment toward every task they carry out. Further, it facilitates an involved and retained workforce.

3 Ethical Leadership Ethics within an organization is a function of the leaders' actions rather than policies and procedures. Good leaders take time to model the kind of ethical behavior they want to see in their organizations. If members of an organization perceive their leaders to be less truthful or dishonest, they will reflect the same in their activities and operations within the company (Bratton et al., 2020). Although there could be a set of rules, regulations, and procedures to govern behavior within an organization, this is not the best and most effective approach to modeling ethical behavior. Leaders inspire others through their conduct, they must live by example and provide safe mechanisms for reporting violations within the company (Bratton et al., 2020). There are several reasons why organizations embrace unethical behavior, these include; the pressure of growth from the shareholders, efforts by the senior leadership to achieve its set goals, greed, and impending financial losses. If the senior leadership within an organization fails to subscribe to the established code of conduct, there are minimal chances that the leaders at the lower level and employees will esteem the codes of ethics (Bratton et al., 2020). Therefore, senior leaders have a central role in ensuring that ethical standards are adhered to, otherwise, the rest would have no reason to apply the ethical principles consistently and uniformly. Unethical behavior within any given organization results from either acts by the senior leadership or organizational actions (Engelbrecht et al., 2017). When seniors leaders such as the CEOs act with self-interest and for personal gain, they influence the entire company. Organizational actions are measured in terms of the financial returns of the company after factoring in fines. When organizations engage in unethical practices, it affects their reputation, profitability and may expose them to huge fines. Every industry has regulations that govern

4 ethical conduct or its companies. Companies' profits are hurt by fines exposed by regulators when they miss the industry-specific ethical standards (Engelbrecht et al., 2017). Internal ethical behavior has a direct impact on the company's overall ethical standards. Due to this, organizational leaders try their best to foster ethical behavior within their companies. Engaging in behavior that strengthens ethical orientation Components of ethical leadership Leaders have the responsibility of influencing their subordinates through their actions, they must manifest behavior that reflects ethical principles they have set (Hegarty & Moccia, 2018). Although regulations play a critical role in achieving ethical behavior among the employees, most people are more influenced by what they see their leaders do. Some of the key components of ethical leadership include gratitude, justice, humility, magnanimity, mercy and compassion, integrity, and resilience. It also involves objectivity and prudence. Gratitude Gratitude is the act of being thankful and an expression of sincere joy in response to a kind of gift. Gratitude expresses great humility in an individual's interaction with others within the company. It makes people perceive leadership humanely rather than as a figurehead role exclusively (Hegarty & Moccia, 2018). Gratitude is a significant component of good leadership that demonstrates that leadership is relevant only when there are people to be led. Good leaders will always show appreciation for the efforts of the employees they lead and this improves their morale (Hegarty & Moccia, 2018). Every leader would want their company to grow a sense of community, this is achieved through developing gratitude. Ethical leadership embraces gratitude and teaches the subordinates to emulate the same. Therefore, leaders have the responsibility of

5 demonstrating that they appreciate their employees' work. They must demonstrate this rather than just speaking about it (Schruijer & Vansina, 2002). Although gratitude has been fundamentally associated with religion, studies show that it is a personality characteristic that promotes internal happiness within an individual (Hegarty & Moccia, 2018). Through gratitude, there are increased connections between the employees, and this improves their levels of performance. Improved performance and increased levels of satisfaction and happiness are the key ingredients many companies seek. Humility Leaders should demonstrate humility in their interactions with their juniors within the company. Employees are keen on observing their leaders' approach to issues and will always reflect the same in their dealings with others (Hegarty & Moccia, 2018). Humility is an important ingredient of trust. It consists of one's awareness of the limitations and makes them act based on this fact. Humility refers to being modest and unpretentious. By practicing humility, employees understand that their leader needs them thereby building a sense of justice and positive hope within the entity (Schruijer & Vansina, 2002). Humility suggests that employees are a source of confidence and strength to their leader. While demonstrating humility, employees begin to understand the need for them to value their relationship with their leaders and will always remain confident without showing aggressiveness. Justice Justice is a critical component of ethical leadership and is one of the ways through which leaders can influence their employees ethically. Previous studies have demonstrated that justice is a significant predictor of behavior and attitude within the workplace (Schruijer & Vansina,

6 2002). Employees tend to compare their performance as well and remuneration within the organization. Since every employee would want to be recognized, leaders must demonstrate justice as a way of motivating them. Employees are keen on observing any element of favoritism among their leaders and would soon replicate it in their dealing with others (Bratton et al., 2020). Therefore, leaders will always embrace a system of fairness and transparency when handling sensitive issues. They must avoid exercising favoritism in either stereotypical, generational, or social contexts. Unfair treatment of employees may cause them to engage in deviant and negative activities. Mercy and Compassion Although many regard mercy and compassion as religious intonations, they are significant in every organization. Ethical leaders would want their employees to remain compassionate while dealing with their colleagues in the workplace (Hegarty & Moccia, 2018). However, this must be reflected in how they treat their subordinates. Mercy and compassion "represent the deep understanding a leader has of the difficulties subordinates may encounter in the execution of their duties." It involves the commitment and empathy to civil behavior and non-belligerence within an organization. "In a professional environment, exercising these virtues can present as being tough-minded on problematic issues while also being warm-hearted toward those who are causing the problem to address and correct behavioral problems" (Hegarty & Moccia, 2018). Ethical leadership would want to see a team that cares for one another and that works together. While apathy denotes the lack of a caring attitude or sympathy, mercy and compassion are courageous acts of caring for the suffering. Leaders have the responsibility of influencing ethical behavior through demonstrating mercy and compassion. Prudence and Objectivity

7 Ethical principles require employees to engage in thoughtful deliberation before taking any action (Schruijer & Vansina, 2002). This can prevent defiant and aggressive behavior within the workplace. Although the ethical codes may restrict individuals from engaging in aggressive behavior, it may be less effective if employees witness otherwise from their leaders. Therefore, leaders can demonstrate ethical behavior within the workplace by demonstrating prudence. Leaders must consider the ramifications of their actions on all parties involved before settling on the appropriate decision (Schruijer & Vansina, 2002). By being exact and deliberate in their moves, leaders can influence their employees to make calculated moves, considering the ramifications and outcomes. Establishing an ethical culture in the organization Corporate culture has been identified as a mechanism through which organizations reduce corruption in the united kingdom and the United States (Filabi & Bulgarella, 2018). Following the Global Financial Crisis, financial institutions have been particular on establishing active management of their organizational culture while focusing on its impact on the behavior and conduct of their employees. Most financial regulators in the United States have adopted culture as a regulatory imperative. "Financial Industry Regulatory Authority (FINRA), which serves as the broker-dealer regulatory organization, required in their 2016 regulatory and examination priorities letter that companies report on various metrics relating to their culture" (Filabi & Bulgarella, 2018). The regulatory organization asked companies to consider how their culture relates to risk compliance and management practices. Besides, the body urged companies to avoid conflicts of interest and ensure ethical treatment of customers. Culture has been perceived as a basic component of organizational ethics. "Beyond the financial services sector, since 2004 the U.S. Sentencing Commission has officially recognized

8 the role of organizational culture in creating ethical conduct"(Filabi & Bulgarella, 2018). According to the Federal Sentencing Guidelines for Organizations, organizational culture promotes commitment, ethical conduct, and compliance to the regulations. The Financial Conduct Authority, a body regulating conduct among organizations identified cultural reforms as one of its strategic plans in the financial year 2015-2016. According to FCA, market integrity and efficiency are affected by poor organizational culture and internal controls (Filabi & Bulgarella, 2018). The organization has also established the Senior Managers Regime that aims at changing the corporate culture by improving accountability structures and systems for managers who are charged with the role of overseeing conduct. On the other hand, the banking industry has established the Banking Standards Board, a body that promotes improvement in the standards of behavior among banking institutions in the U.K. The industry-led BSB aims at restoring public trust in the banking industry. The Banking Standards Board has also aimed at establishing the culture of assessments among the organization. "The BSB assessments of organizational culture at the firms have enabled, among other benefits, a better understanding of the apparent mismatch between values espoused by firms and the perceptions by some of their employees on how business is done" (Filabi & Bulgarella, 2018). Culture has been a key determinant and a tool for understanding behavior within organizations. According to Newman et al. (2017), "addressing the reality of culture is necessary when combating the risk of corruption and misbehavior." Every organization must give culture the attention it deserves as a complex system and multi-system framework that influences ethical behavior. This system can either be in the formal or informal elements within the company. The formal elements include; employee selection systems, training programs, official communication

9 among leaders, the codes of conduct, and the company's internal policies (Newman et al., 2017). It also includes the management of performance and goal setting. On the other hand, the informal elements of organizational culture include; myths and stories told about the company, norms of daily behavior within the organization, and rituals that help employees to understand the company's values and identity. Response to misconduct Leaders have a role in developing an organizational culture with a proper response to misconduct. The culture should enable employees to speak boldly about unethical behavior without feeling insecure about the outcomes (Newman et al., 2017). "A culture grounded in ethics presupposes that employees perceive a certain level of control over ethical outcomes and that there exist resources that can help them take action against unethical occurrences" (Newman et al., 2017). If the organization's culture makes employees develop a fear of retaliation, it lacks components of ethical standards. This makes it difficult for employees to report instances of ethical breaches. Differences in individuals' perceptions pose a serious ethical challenge since everyone comes with a new level of insight. By establishing a predetermined approach to decisionmaking, leaders can avoid ethical problems in the organization. They should ensure that all employees have a considerable degree of awareness of ethical issues and set this as a precondition for decision-making. Besides creating an ethical culture, leaders have the responsibility of ensuring that all employees are made aware of the company's culture and the ethical requirements. According to Filabi & Bulgarella, (2018), “lack of awareness is not only detrimental to one's ability to make ethical decisions but also indicative of an immature culture."

10 Organizational ethos Leaders have the responsibility of shaping organizational ethos to guide behavior within their organizations. Organizational ethos is deep-rooted beliefs held by members of the organization. Filabi & Bulgarella (2018) explains that "ethos runs deeper than what people perceive on the level of daily experiences and other transient factors. Selfish versus benevolent assumptions can affect how employees process information and respond to others (Warrick, 2017). They can impact the priorities people set. And they can influence the way employees to frame ethical dilemmas, use resources, and engage with each other." Developing a Benevolent Orientation Leaders are responsible for creating an orientation that promotes ethical behavior within the organization. A benevolent orientation focuses on the common good of the company rather than concern for individuals' interests (Filabi & Bulgarella, 2018). People have a general tendency of focusing on what benefits them directly rather than considering how their actions impact others and how the organization affects their actions. A benevolent orientation is critical for developing an ethical culture within an organization since it defines what is right in less selfish and myopic terms. Filabi & Bulgarella (2018) argue that "organizations that cultivate a benevolent orientation are positioned to achieve a higher level of moral development. They may embrace a larger, more complex purpose, ponder challenges from different angles, and tackle ethical questions with greater humility and openness.” This helps members of the organization to avoid parochial and petty thoughts and strengthens their moral sensitivity. Besides, benevolent orientation deepens employees’ awareness of the dilemmas and challenges facing the company. Social contract

11 Leaders have the responsibility of establishing appropriate social contacts within their company. Social constructs are a set of shared perceptions about how the company relates to people and how employees relate to each other (Filabi & Bulgarella, 2018). Leaders should ensure that employees are treated fairly. If employees perceive preferential or treatment in terms of the observance and application of the set standards, they will experience injustice and demonstrate hypocrisy/dishonesty. However, if they experience trust, they have a perception that members will not harm one another. Building an appropriate social construct creates confidence and trust among members of an organization, and as a result, their actions will be more beneficial than detrimental. According to Filabi & Bulgarella, (2018), a social contract based on trust will likely strengthen the organization’s ethical focus by reinforcing the perception of a shared code of conduct. Leadership behavior Leadership behavior component I the influence that the leadership has on the company's ethics. Leaders have the responsibility of engaging in behaviors that strengthen organizational ethics rather than weaken them (Nedkovskiet al., 2017). What leaders do will either strengthen or weaken the company's ethical orientation. Traditionally, leadership is associated with the ability to motivate and influence others. It has a profound impact on how the organizational culture changes, either in favor of the desirable ethical orientation or in its disfavor. Minimizing Disqualifiers Leaders must avoid behavior that would disqualify them as role models of the desired ethical orientation (Nedkovskiet al., 2017). The disqualifier behaviors are practices that the company should avert in the process of setting the right ethical foundation and orientation.

12 Leaders have the responsibility of minimizing five major disqualifiers to influence ethical behavior. These include; organizational unfairness, abusive manager behavior, selfish orientation, lack of awareness, and the fear of retaliation. Organizational unfairness Recent studies show that employees pay more attention to how resources and outcomes are distributed in the organization as well as how the management implements processes and policies in the organization. Warrick, (2017) explains that "distributive and procedural unfairness can cripple a company's attempt to build a strong ethical culture for a variety of reasons. For example, justice operates as a basic motive, raising the symbolic meaning and evaluative relevance of any form of unfairness people experience at work." Besides, interracial and procedural injustice is a violation of employees' expectations of moral and reciprocal obligations. When leaders violate the agreed-upon rules, employees experience a loss of personal control and a threat to their social status. Organizational unfairness is a threat to an ethical culture and should be monitored. According to Nedkovskiet al., (2017), "organizational unfairness endangers basic motives, contradicts shared obligations, and portends negative personal consequ...