Modelling ethical behaviour at work

They hold the levers of power and determine the destiny of the firm. They have control over company reward and punishment processes.

Leaders influence important company outcomes such as pay rise and promotions. And because of this power of influence bestowed upon them by company processes, leaders exemplify what behaviour is appropriate and inappropriate for employees.

They set the ethical tone for the firm. Over the years, moral psychologists have observed that most employees look outside themselves to rules and laws and to the expectations of leaders and supervisors for guidance on what is ethically right.

The National Business Ethics Survey report of 2009 in the US concluded that leaders directly affect the ethical culture of their companies, and that culture is the largest influence on employee conduct, which follows that the better the tone above, the less misconduct observed in lower ranks.
Employees thus learn what to do, as well as what not to do, by observing the behaviour of their leaders.

Linda Trevino, an ethics proponent who has written a number of books on managerial ethics, identified what she called the social learning and the social exchange perspectives in understanding the influence of leaders on employees.

The social learning perspective suggests that leaders influence employee ethical and unethical conduct through modelling processes, and the social exchange perspective postulates that subordinates reciprocate with positive behaviour when they perceive that their leaders and supervisors prioritise and uphold ethical ways of doing business.
Modelling is a powerful tool for transmitting values and acceptable behaviours to employees. Leaders are models by virtue of their assigned role in the organisation and their status.

The salient nature of reward ensures that employees will make every effort to do what is rewarded and avoid doing what is punished.
Rewards and sanctions instrumentally inform employees about the benefits of modelled ethical behaviour as well as the negative effects of modelled unethical behaviour.
When leaders engage in inappropriate business practices, they create an environment that encourages employees to engage in such behaviour.

If company leaders are observed enriching themselves at the expense of the company and other stakeholders, employees learn that such behaviour is smart.
And if leaders are rewarded for cutting corners and engaging in other inappropriate business practices in order to meet short-term financial needs of the company, employees end up imitating such behaviour.

Equally, if a salesperson who is known to lie to customers in order to secure more sales is given a huge performance bonus at the end of the year, employees will learn that lying to customers is rewarded, and will copy such behaviour.

The CEOs of Enron and WorldCom at the turn of the century provide a good example. Bernie Ebbers and Ken Lay were celebrated by financial analysts and the American media as exceptional executive leaders who defied conventional wisdom as they continually surpassed Wall Street’s short-term financial expectations.

They were publicly hailed and financially rewarded for achieving extraordinary financial outcomes, but no one ever seemed to care what means the two used to achieve these astonishing outcomes.

Sadly, their subordinates followed their lead and became increasingly adept at inventing new and unethical ways with which to contribute to these “amazing” financial results. The eventual result was the dramatic fall in 2002 of the two corporate giants.

When employees believe that they have sound leadership, and are treated fairly by their leaders, they are motivated to give more of themselves in support of their leader and the organisation. Fair treatment and good leadership engenders satisfaction and loyalty among employees, and perceived unfair treatment and poor unethical leadership provokes strong negative reactions from employees.

Employees react to unethical leadership by stealing from the company, abusing sick leave, lying to supervisors, misusing company resources and so forth.