Ethical leadership and its importance in modern business ventures

The concept of ethical leadership has been widely explored in many contexts, however, its role in organizational success has been relatively undervalued in research. While researchers have connected ethical leadership to team performance (Lin et al., 2019; Banks et al., 2021; Chamtitigul and Li, 2021), occupational stress (Zhou, Jin and Ma, 2015; Schwepker and Dimitriou, 2021), and even innovation (Shafique, Ahmad and Kalyar, 2019; Ullah, Mirza and Jamil, 2021), there is scant empirical evidence showing how it can play a role in longevity and vitality of organisations.

In a business environment where most startups and corporate ventures fail within the first five years of launch, examining the role of ethical leadership can prove critical in changing the narrative. This article establishes the meaning of moral leadership and its importance in the present business scenario, where companies are struggling with success.

Leadership beyond morality

The demonstration of normatively appropriate conduct through personal actions and interpersonal relationships, and the promotion of such conduct to followers through two-way communication, reinforcement, and decision-making.

Brown, Treviño and Harrison, 2005, p. 120

However, ethical leadership goes beyond morality; leaders have the power to encourage subordinates to uphold moral behaviour, which in turn fosters trust and ultimately results in corporate success. Ethical leaders are role models of a role where they are initiating the practical expression of ethics. Ethical leaders also have a good impact on the workplace, since employees feel appreciated and valued for their contributions. Ethical leadership has been linked to higher employee morale, dedication, and lower turnover (Suifan et al., 2020; McKenna and Jeske, 2021). Maintaining an environment conducive to long-term performance thus becomes critically dependent on ethical leadership.

Accountability constitutes an integral part of ethical leadership

One of the many values that make up ethical leadership is accountability. In ethical leadership, accountability refers to a leader’s duty to take responsibility for their choices, actions, and results (Bergsteiner and Avery, 2022). Brown and Treviño (2006) suggest that ethical leaders must prioritise accountability because it sustains credibility and confidence in the business operations. Accountable leaders own up to their mistakes as well as their accomplishments, which promotes honesty and openness in the workplace (Brown & Treviño, 2006).

Moreover, according to Frisch and Huppenbauer (2014), accountability involves more than simply how leaders act; it also entails setting up internal systems within businesses that encourage ethical behaviour at all levels. These systems aid in guaranteeing the constant upholding of moral principles. Leaders who take responsibility for their actions foster an environment of transparency that allows others to voice concerns without worrying about facing consequences (Frisch & Huppenbauer, 2014). Similarly, by owning up to their weaknesses and vulnerabilities, responsible leaders help ensure the psychological safety of their teams (Gardner et al., 2011).

Ethical leaders play fair

Fairness plays a crucial role in fostering a sense of loyalty and belonging in employees, as it encourages constructive work behaviour when demonstrated by leaders (Colquitt, 2001). Furthermore, it has been concluded that fairness in behaviour is a quality of great leaders and that this quality boosts organisation al morale and lowers conflict in the workplace (Hassan et al., 2013). The notion of fairness comprises two distinct aspects:

1. Distribution, wherein the results are commensurate with the contributions made by each individual.
2. Process, wherein decisions are made through consistent procedures (Folger & Cropanzano, 1998).

Accordingly, fairness is paramount in instituting an organisational culture since it guarantees that leaders make the right decisions for others or treat them fairly, which boosts employees’ morale and satisfaction (Cropanzano & Stein, 2009).

Ethical leaders are empathetic

An integral part of ethical leadership is empathy, which refers to an individual’s capacity to adopt another’s feelings and experiences (Decety, 2020). According to Brown and Treviño (2006), empathy enables leaders to comprehend and experience another person’s emotions, establishing a fundamental basis for compassion, trust, and equity among team members. Empathetic leaders are well-positioned to think about the ramifications of their actions on others. As a result, they will encourage moral decision-making and reduce the likelihood of unethical behaviour (Kellett, Humphrey & Sleeth, 2006). Empathetic leaders are better placed to identify and address the emotional and social needs of their employees.

This relational feature enhances the job satisfaction and commitment of employees and even the global ethical climate of the organisation (Zoghbi-Manrique-de-Lara & Suárez-Acosta, 2014). It has also been assessed that empathic leadership encourages open communication as it makes workers feel appreciated and understood, which increases accountability and transparency (Northouse, 2019). This in turn makes the leaders role models of ethical behaviour and encourages employees to behave appropriately.

Ethical leaders ensure transparency in business processes

Transparency is increasingly being acknowledged for the promotion of trust, responsibility, and moral character of people.

Ethical leaders are to act transparently as they make decisions and communicate to foster trust and minimize ambiguity among their followers.

Brown & Treviño, 2006

Since their actions are transparent, observable, and subject to scrutiny, ethical leaders who value transparency are better positioned to foster an atmosphere of justice within their organisation (Kaptein, 2019). Furthermore, empirical data suggests that leadership openness yields positive organisational outcomes like worker satisfaction, engagement, and organisational commitment (Avey et al., 2012). Openness enables leaders to create a secure atmosphere that fosters moral behaviour and discourages immoral behaviour. Therefore, one facet of ethical leadership that has been advocated to foster moral behavio u r and trust within a company and act as a foundation for long-term organisation al success is transparency (Eisenbeiss, 2012).

Importance of long-term business success

Success in a broad sense refers to the achievement of goals and objectives in whatever sector of human life. In business, the meaning of success can be interpreted in many ways such as (Chittithaworn et al., 2011):

• Survival
• Financial
• Market presence and sales growth
• Social presence

Other dimensions of success in the business context include stakeholder relationships, work-life balance, personal satisfaction, contribution to society, public recognition, and innovation (Kirkwood, 2016).

The importance of business success

Businesses contribute immensely to the economy and society. Not only do they create jobs, but they also increase a country’s gross domestic product and income levels, improve quality of life, and enable community development through corporate social responsibility (CSR) initiatives, contributing to education and healthcare (Lussier and Marom, 2014). There is also mounting evidence showing that most corporate ventures end up in failure.

The most common reasons are irregular funding, knowledge gaps, lack of mentorship, and external environmental issues. However, business failure has been linked to ethical leadership in a few studies. Pathania and Tanwar (2024), attribute entrepreneurial failure to a lack of leaders’ efficiency and poor management, while Alabdullah and AL-Qallaf (2023), find that ethical leadership has a direct impact on the financial performance of a firm.

Ethical leaders promote long-term profitability through a positive and flourishing organisational culture

Ethics influences profitability considerably over time. Businesses that have ethical leaders foster loyalty, trust, and dedication towards the organisation, leading to the development of a stable, stable workforce and organisation. Ethical leadership helps businesses stay out of difficulty with the law and helps to avoid public relations disasters. Establishing a strong ethical foundation is essential for new business ventures to build a positive brand image that attracts investors and customers. According to Jones et al. (2016), customers are more inclined to support a business that is believed to be ethical.

As noted by Brown and Treviño (2006), ethical leadership may readily govern organisational culture in a new business setup through norms, values, and practices, i.e., a culture of trust and collaboration. These are elements that are vital for startups seeking to attract and retain a committed and driven staff. Since many workers today prefer workplaces that align with their values and ethical standards, such leadership also helps to attract and retain talent (Neubert et al., 2009). Since ethical leadership offers a framework for an ethical organisational culture that emphasizes social responsibility, it has become increasingly important and appealing to start-ups. Research indicates that ethical leadership fosters stakeholder trust, which enhances long-term profitability and business reputation (Brown & Treviño, 2006). As role models who shape employees’ attitudes and behaviours, ethical leaders play a critical role in shaping these ethical standards (Yukl et al., 2013).

References

• Alabdullah, T. T. Y. and AL-Qallaf, A. J. M. (2023) ‘THE IMPACT OF ETHICAL LEADERSHIP ON FIRM PERFORMANCE IN BAHRAIN: ORGANIZATIONAL CULTURE AS A MEDIATOR’, Current Advanced esearch on Sharia Finance and Economic Worldwide , 2(4).
• Banks, G. C. et al. (2021) ‘Ethical leadership: Mapping the terrain for concept cleanup and a future research agenda’, The Leadership Quarterly , 32(2).
• Bergsteiner, H. and Avery, G. (2022) ‘Responsible Leadership’, in Encyclopedia of Corporate Social Responsibility . Springer, pp. 2055–2059.
• Brown, M. E., Treviño, L. K. and Harrison, D. A. (2005) ‘Ethical leadership: A social learning perspective for construct development and testing’, Organizational Behavior and Human Decision Processes , 97(2), pp. 117–134.
• Chamtitigul, N. and Li, W. (2021) ‘The influence of ethical leadership and team learning on team performance in software development projects’, Team Performance Management , 27(3/4), pp. 240–259. doi: https://doi.org/10.1108/TPM-02-2020-0014.
• Chittithaworn, C. et al. (2011) ‘Factors Affecting Business Success of Small & Medium Enterprises (SMEs) in Thailand’, Asian Social Science , 7(5), pp. 180–190.
• Decety, J. (2020) ‘Empathy in Medicine: What It Is, and How Much We Really Need It’, The American Journal of Medicine , 133(5), pp. 561–566.
• El-amine, N. M. and Mohammed, D. (2023) ‘Analysing Startups Failure Factors: Evidence from CB Insights Tech Market Intelligence Platform’, Journal of Economic Growth and Entrepreneurship , 6(1), pp. 10–30.
• Kirkwood, J. J. (2016) ‘How women and men business owners perceive success’, International Journal of Entrepreneurial Behavior & Research , 22(5).
• Lin, C.-P. et al. (2019) ‘Modeling team performance from the perspective of politics and ethical leadership’, Personnel Review , 48(5), pp. 1357–1380. doi: https://doi.org/10.1108/PR-07-2018-0277.
• Lussier, R. N. and Marom, S. (2014) ‘A Business Success Versus Failure Prediction Model for Small Businesses in Israel’, Business and Economic Research , 4(2).
• McKenna, J. and Jeske, D. (2021) ‘Ethical leadership and decision authority effects on nurses’ engagement, exhaustion, and turnover intention’, JAN , 77(1).
• Pathania, A. and Tanwar, S. (2024) ‘Decoding startup failures in Indian startups: Insights from Interpretive Structural Modeling and Cross-Impact Matrix Multiplication Applied to Classification’, Journal of Entrepreneurship, Management and Innovation , 20(2), pp. 93–116.
• Schwepker, C. H. and Dimitriou, C. K. (2021) ‘Using ethical leadership to reduce job stress and improve performance quality in the hospitality industry’, International Journal of Hospitality Management , 94(April).
• Shafique, I., Ahmad, B. and Kalyar, M. N. (2019) ‘How ethical leadership influences creativity and organizational innovation: Examining the underlying mechanisms’, European Journal of Innovation Management , 23(1), pp. 114–133.
• Suifan, T. S. et al. (2020) ‘Does ethical leadership reduce turnover intention? The mediating effects of psychological empowerment and organizational identification’, Journal of Human Behavior in the Social Environment , 30(4).
• Ullah, I., Mirza, B. and Jamil, A. (2021) ‘The influence of ethical leadership on innovative performance: modeling the mediating role of intellectual capital’, Journal of Management Development , 40(4), pp. 273–292.
• Zhou, H., Jin, M. and Ma, Q. (2015) ‘REMEDY FOR WORK STRESS: THE IMPACT AND MECHANISM OF ETHICAL LEADERSHIP’, Central European Journal of Public Health , 23(2), pp. 176–180.