1. MODULE IV
ETHICAL LEADERSHIP
Leadership is the process of influencing the efforts of an individual or a group toward certain
goals in a given situation. The long-term success of an organization, community or society
depends on good leadership, not just on technical proficiency and skillful management. Good
leadership must be grounded in ethical values. There are tensions between personal values and
goals, on the one hand, and organizational, community, or societal values and goals on the other.
Ethical leadership involves recognizing and
reconciling those tensions.
WHAT QUALITIES ARE REQUIRED OF AN ETHICAL LEADER?
An ethical leader must have a philosophical or theological basis from which he or she derives his
or her understanding of ethics. Without this basis, one's practice of ethical behavior will be
constantly changing as a result of changing circumstances and
personal preferences. It can be likened to building a house on a reinforced foundation or building
it on shifting sand. Those who do the hard work of building their ethical behavior upon
philosophically or theologically derived moral absolutes are like the
house built upon the reinforced foundation. Secondly, for a leader to be trustworthy, he or she
must possess character, competence and commitment. Character is the combination of moral
qualities by which a person is judged apart from intellect and
talent. It is the alignment of one's speech and actions with one's core beliefs about reality, life
and truth. More simply, character has to do with one's demonstration of virtue.
Leaders must prove themselves competent in positively and effectively leading people to
accomplish significant tasks that are tied to compelling visions. In their book, The leadership
Challenge, authors James Kouzes and Barry Posner put forward five basic
leadership competencies that they gleaned from interviewing hundreds of organizational leaders.
These five competencies are: Challenging the Process, Inspiring a Shared Vision, Enabling
Others to Act, Modeling the Way and Encouraging the Heart. Along with
these five competencies, we would add Maintaining Accountability, and Maintaining Personal
Perspective and Balance. Proficiency in all these competencies, along with
others specific to particular contexts, is a minimum requirement for any organizational leader.
Trustworthy leaders must make strong commitments to their organizations, their constituents,
their values and to the work of leadership. Without commitment, the
character and competence of the leader remains disengaged. With commitment, the leader's

2. character and competence are engaged in a specific place with a specific purpose to accomplish.
For those who desire to be moral and credible leaders,
they must demonstrate virtuous leadership in speech and actions, publicly and privately, 24 hours
a day.
Individuals aspiring to be moral leaders must also recognize that the test of time is compelling; it
builds patience, and in some, a rich humility. Finally, every principled leader will encounter at
least a few times when he or she must choose "to die right rather than live wrong." Ethical
leadership cannot be separated from hard and costly choices. Leaders must keep clearly in mind
the ethical boundaries that they will not violate, no matter the cost.
MORAL QUALITIES
First among moral qualities is the courage to own the responsibility of one's action, should the
action prove wrong later on. John Kennedy once aptly remarked "Success is a bastard. It has
many fathers. Failure is an orphan. Nobody owns it." A perfect example of owning one's
responsibility is provided by Abraham Lincoln. After the battle of Gettysburg, Lincoln urged
General Meade to pursue Lee in his retreat, attack him, and with one bold stroke, end the war. A
friendly note came with the above order: "The
order I enclose is not a record. If you succeed, you need not publish the order. If you fail,
publish it. Then if you succeed, you will have all the credit of the movement. If not, I will take
the responsibility."
Next comes the sense of fairy play and justice. A leader must possess this quality to be able to
motivate his men into action. Here is an illustration from the life of Thomas Jefferson, a great
United States President: The one point on which the President was adamant was that he
absolutely refused to appoint kinsmen. Nepotism was a hateful idea.
Finally, a leader should have integrity. Lack of integrity in him decays the character of his
followers also. As the saying goes, "Trees die from the top." During the Second World War
when the supply of meat was rationed in England, Winston Churchill used to
receive no more quota of meat than the least important person in the country.
QUALITIES OF HEAD AND HEART
First among these is forgiveness and compassion. Gandhi, Lenin, Lincoln and several other
leaders possessed this quality.

3. Next comes Knowledge. If it is not so, the leader has no justification to lead his followers.
Knowledge of a subject is important but what is more important is the knowledge of human
nature.
A leader must possess decisiveness. Vacillation is fatal for a leader. But rigidity of decision is
equally bad. It is the way of an autocrat.
A leader must also possess empathy or social sensibility. It is the ability to look at things
objectively and understand them from another's point of view. It is the capacity of the individual
to project himself mentally and emotionally into the position of another person. This quality
enables the leader to anticipate the sentiments and reactions of
others and to prepare his own strategy accordingly.
Building Employees' Morale: Good leadership is indispensable for high employee morale. The
leader shapes the thinking and attitudes of the group. He develops good human relations and
facilitates interactions among the members of the group. He
maintains voluntary cooperation and discipline among followers.
Last comes initiative. Given a sense of purpose and direction, the success or failure of a leader
very much depends on his initiative in organizing the means to achieve his objective. Initiative
simply means doing the right thing without being told.
STYLES OF LEADERSHIP
Leadership style refers to a leader's behaviour. Behavioural pattern which the leader reflects in
his role as a leader is often described as the style of leadership. Different leadership patterns
exist among leaders in different times and in different situations. Leadership style is the result
of leader's philosophy, personality, experience and value
system. It also depends upon the types of followers and the organisational atmosphere prevailing
in the enterprise. Different types of leadership style are:
1. Autocratic leadership
2. Participative leadership
3. Free rein leadership
In practice, a leader may use different styles over a period of time, but one style tends to

4. predominate as his normal way of using power. For example, factory supervisor who is
normally autocrat may be participative in determining vacation schedules and free rein in
selecting a departmental representative for safety committee. It should be noted that this
classification is not scientific. In practice, a leader adopts a combination of styles because there
are thousands of in-between styles of power which each manager applies in his own way.
1. Autocratic or Authoritarian Leadership
The autocratic leader gives orders which must be obeyed by the subordinates. He determines
policies for the group without consulting them, and does not give detailed information about
future plans, but simply tells the group what immediate steps they must
take. He gives personal praise or criticism to each member on his own initiative and remains
aloof from the group fro the major part of the time. Thus under this style, all decision making
power is centralized in the leader.
Autocratic leadership can be negative because followers are insecure and afraid of leader's
authority. Such leaders may be called strict autocrat who relies on negative influences and gives
orders which the subordinates must accept. Leadership can be
positive also because the leader may use his power to disperse rewards to his group. When his
motivational style is positive, he is often called a benevolent autocrat. The benevolent autocrat is
effective in getting high productivity in many situations and he
can develop effective human relationships. There is another type of autocratic leader, known as
manipulative autocrat, who makes the subordinates feel that they are participating in decision-
making process even though he has already taken the decision.
Thus, autocratic leader makes his subordinates act as he directs and does not permit his
subordinates to influence his decision. Frustration, low morale and conflict develop easily in
autocratic situations.
2. Participative or Democratic Leadership
In this type of leadership, the subordinates are consulted and their feedback is taken into the
decision making process. The leader's job is primarily of a moderator, even though he makes the
final decision and he alone is responsible for the results. The management recognises that the
subordinates are equipped with talents and abilities and that they are capable of bringing new
ideas and new methodologies to work setting. Thus the group
members are encouraged to demonstrate initiative and creativity and take intelligent interest in
setting plans and policies and have maximum participation in decision making. This ensures
better management-labour relations, higher morale and greater job satisfaction.

5. This type of leadership is specially effective when the workforce is experienced and dedicated
and is able to work independently with least directives, thereby developing a climate which is
conducive to growth and development of the organisation as well as the
individual personality.
3. Laissez-faire or Free-reign Leadership
In this type of leadership, the leader is just a figure-head and does not give any direction but
delegates the authority to subordinates so that they must plan, motivate, control and otherwise be
responsible for their own actions. He lets the subordinates develop their own techniques for
accomplishing goals within the generalized organisational policies and objectives. The leader
participates very little and instead of leading and directing, he becomes just one of the members.
He does not attempt to intervene or regulate or control
and there is complete group or individual freedom in decision making. This type of leadership is
highly effective when the group members are highly intelligent and are fully aware of their roles
and responsibilities and have the knowledge and skills to accomplish these tasks without direct
supervision.
ETHICAL BUSINESS STRATEGY FORMULATION
Personal values and ethics are important for strategists as they are custodians of immense
economic power vested in business organisations by society. Having personal values by
strategists is one thing but is it right to let them affect the considerations for strategy formulation
and implementation? This is a tricky question. A more relevant question is: Can strategists
prevent their personal values affecting strategy formulation and implementation? Christensen
C.R., Andrews K.R. and others attempt to answer:
"Executives in charge of company destinies do not look exclusively at what a company might do
or can do. In apparent discard of the second of these considerations, they sometimes seem
heavily influenced by what they personally want to do". If we look at
the following proposition: "All managerial decisions are subjective in the ultimate analysis and
the effectiveness of such decision depends critically on the purity of mind of the decision
maker", we find that it is indeed true. Guided by this, it can be added that "purity of mind" can
come only from having the right connection between values, ethics and strategy. It is imperative
that strategists have to take strategic decisions not only on the basis of purely economic reasons
but have also to consider values and ethics.
Strategists have to reconcile divergent values and modify values, if necessary. Modification of
values is frequently required for strategy implementation. A particular strategy, say of

6. expansion, may create value requirements such as stress on efficiency, risk taking attitude, etc.
Implementation may be sub-optional if existing values do not conform to these requirements. In
such cases, modification of values is necessary. But what was said of corporate culture is true
for values too: they are difficult, if not impossible, to change. A judicious use of politics and
power, redesigning of corporate culture and making systematic changes in organisations can help
to modify values gradually.
SOCIAL RESPONSIVENESS AND STRATEGIC MANAGEMENT
It is generally the top management which takes the major decisions regarding the choice of social
concerns, definition of the scope of activities, and resource allocation to social responsibility
functions. These decisions are based on the views, opinions, personal values and considerations
of the business ethics of the top management. Having
decided, in principle, to discharge social responsibility, the top management should seek to align
its social responsiveness with strategic management. By such an alignment is meant the
reflection of social responsiveness in all the phases of strategic management. Thus, the role of
strategists, strategy formulation and implementation and evaluation will be affected by social
responsiveness.
The role of board of directors is crucial in generating a high level of social responsiveness. The
environmental appraisal should help an organization's
strategists to forecast social concerns and issues that need urgent attention. Corporate appraisal
should assist the strategists is assessing corporate competence to tackle the social problems
which should, in addition, help the top management in setting the
priorities of social responsiveness. The choice of strategic alternatives could be guided by these
priorities. In fact, there is a strong case to argue that "the inner coherence of the corporate
strategy would be extended by choosing (social) issues most closely related to the economic
strategy of the company, to the expansion of its markets, to the health if its immediate
environment and to its own industry and internal problems. When it comes to
strategy implementation, social responsiveness would seek to alter the pattern of resource
allocation.
This is a crucial test for the top management to stick to its convictions. Without adequate
allocation of funds, not much headway can be made.
STRATEGY FORMULATION
RESOLVING MORAL DILEMMAS

7. INTRODUCTION
There are two ways to think about individual ethical decision making: a prescriptive approach
and a descriptive approach. The prescriptive approach, derived from philosophy, offers decision-
making tools (ways of thinking about ethical choices) that
prescribe what decision you should make as a "conscientious moral agent" who thinks carefully
about moral choices. They're designed to help you make the best possible ethical decision.
We know, however, that people don't always make the best decision. Prescriptions aren't always
followed. So, it's helpful to understand how people's minds really work - how people really make
decisions. The psychological approach relies on psychological
research and describes how people actually make ethical decisions. It focuses in particular on
the cognitive biases and limitations that often keep us from making the best possible decisions.
Hopefully, if we understand both approaches, we can improve our
ethical decision making.
Many ethical choices are clear-cut enough for us to be able to decide what to do rather quickly
because they pit "right" against "wrong." Is deciding whether to embezzle corporate funds a
tough ethical dilemma? Not really. Because embezzling is stealing and its wrong, period. There's
not much of a dilemma there. But things can get pretty murky in situations where two or more
important values, rights, or obligations conflict and we have to choose between equally
unpleasant alternatives. Consider the following
dilemma.
THE LAYOFF
You're the plant manager in one of ABC company's five plants. You've worked for the company
for 15 years. Working your way up from the factory floor after the company sent you to college.
Your boss just told you in complete confidence that the company will have to lay off 200
workers. Luckily, your job won't be affected. But a rumor is now circulating in the plant, and one
of your workers (an old friend who now works
for you) asks the question, "well. Pat, what's the world? Is the plant closing? Am I going to lose
my job? The closing on our new house is scheduled for next week. I need to know!" what will
you say?
This is a true ethical dilemma because two values are in conflict. Two "right" values that can
create significant conflict are truth and loyalty. As illustrated in the case, telling the truth to
your friend means that you may have to break your promise to be loyal to the company that has
treated you so well.

8. PRESCRIPTIVE APPROACHES TO ETHICAL DECISION MAKING IN BUSINESS
In this section, we'll outline some the major contemporary approaches that we think can provide
you with the most practical assistance. We'll then incorporate them into a series of steps that you
can use to evaluate ethical dilemmas, and we'll apply these steps to the short layoff case.
FOCUS ON CONSEQUENCES (CONSEQUENTIALIST THEORIES)
One set of philosophical theories is categorized as consequentialist (sometimes referred to as
teleological, from the Greek 'telos' or goal). When you're attempting t o decide what's right or
wrong, consequentialist theories focus attention on the result or consequences of the decision or
action.
Utilitarianism is probably the best known consequentialist theory. According to the principle
of utility, an ethical decision should maximize benefits to society and minimize harms. What
matters is the net balance of good consequences over bad.
A utilitarian would approach an ethical dilemma by identifying the alternative actions and
their consequences. For example, what would be the consequences (societal harms and benefits)
of my telling my friend what I know about the layoff? What would be the consequences (societal
harms and benefits) of not sharing what I know? This would be followed by a kind of mental
calculation of all the costs and benefits of these consequences. For example, one cost of telling
my friend would be that he or she
might tell others and send the plant into chaos. A potential benefit might be that I would retain
the trust of a valued friend. The "best" decision would be the one that yielded the greatest net
benefits for society, and the "worst" decision would be the one that yielded the greatest net harms
for society. So, if more people would be ultimately hurt than helped. If Pat informs her friend of
the impending layoff, a utilitarian would conclude that Pat shouldn't tell.
The utilitarian approach can be extremely helpful in thinking through an ethical dilemma.
Don't we generally look at the consequences of our own and others actions in trying to decide
what's right? And don't we consider who will benefit and who will be
harmed? When the state decides to build a new highway through our property aren't they using a
utilitarian rationale when they argue that the benefits to the community (increased development,
reduced traffic, fewer accidents, etc.) outweigh the harm to the few property holders who will be
inconvenienced by an eyesore in their backyard?
But a challenge involved in using a strictly consequentialist approach is that it is often
difficult to obtain the information required to evaluate all of the consequences for all individuals
who may be directly or indirectly affected by an action or decision.

9. Another difficulty with this type of approach is that the rights of a minority group can easily be
sacrificed for the benefit of the majority. For example, slave holders in the old south USA argued
that the greatest good would be served by maintaining the system of slavery. Nevertheless, the
utilitarian approach remains particularly important to ethical decision making in business for a
variety of reasons. First, utilitarian thinking - through its descendant, utility theory- underlies
much of the business and much of the
economics literature. Second, on the face of it, most of us would admit that considering the
consequences of one's decisions or actions is extremely important to
good ethical decision making. In fact, studies of ethical decision making in business have found
that business managers generally rely on utilitarian approach.
FOCUS ON DUTIES, OBLIGATIONS AND PRINCIPLES
(DEONTOLOGICAL THEORIES)
The word "deontological" comes from the Greek word 'deon' or duty. Rather than focusing on
consequences deontological approaches would ask. "What is Pat's
duty now she knows about the layoff?" Deontologists base their decisions about what's right on
broad , abstract universal principles such as honesty, promise keeping, fairness, rights (to safety,
privacy, etc.), justice, and respect for persons and property.
According to some deontological approaches, some moral principles are binding, regardless of
the consequences. Therefore, some actions would be considered to be wrong even if
consequences of the actions were good. In other words, deontologist
focuses on doing what is "right" (based on moral principles such as honesty), whereas a
utilitarian focuses on doing what will maximize societal welfare. An auditor taking a
deontological approach would insist on telling the truth about a company's financial difficulties
even if doing so might cause more harm than good and risk putting the company out of business,
whereas a utilitarian auditor would weigh the societal harms and benefits before deciding what to
do.
Some deontological theories focus on rights rather than duties or principles. The concept of
rights goes back to classical Greek notions of "natural rights" that emerge from "natural law".
Rights can be thought of as "negative rights" such as limits on government interference with
citizens' right to privacy or the pursuit of happiness. Or rights' can be thought of in more positive
terms, such as individual's rights to health and safety. The rights of one party can conflict with
the rights of another party, as when the
rights of the company to seek profits for its shareholders conflict with the rights of the
community to clean air or water. Furthermore, the rights of one party are generally related to the
duties of another. So, if we agreed that communities have the right to

10. clean water, business would have the duty to protect that right. So, how does a deontologist
determine what rule, principle, or right to follow? Some rely on
western biblical tradition or moral intuition for guidance. For example, the Golden Rule, familiar
to many of us, provides an important deontological guide: "Do unto others as you would have
them do unto you." In our layoff situation, the Golden Rule would suggest that Pat should tell her
friend what she knows because she would want her friend to do the same for her if the situation
were reversed. A major challenge of deontological
approaches is deciding which duty, obligation, right, or principle takes precedence because, as
we said earlier, ethical dilemmas often pit these against each other. What does the deontologist
do if one binding moral rule clashes with another? For example, the abortion debate rests on the
question of whether the rights of the mother or the foetus should take precedence. Another
difficulty of deontological approaches involves the difficulty of arguing for a rule or principle
that, if followed in a particular situation,
has devastating consequences. That's where consequentialist and deontologist approaches
conflict for example, what if Pat determines that telling her friend what she knows(in accordance
with the principles of honesty and respect for her friend as a person) could have devastating
consequences for the company as a whole? In response to this concern, some philosophers argue
that deontological principles (i.e. truth telling, promise keeping) don't have to be regarded as
absolute.
FOCUS ON INTEGRITY (VIRTUE ETHICS)
The virtue ethics approach focuses more on the intensity of the moral actor than on the moral act
itself. A virtue ethics perspective considers primarily the actor's character, motivation, and
intentions. This doesn't mean that principles, rules, or consequences aren't considered at all, but
they're considered in the context of assessing the actor's
character and integrity. For example, one's character may be assessed in terms of principles such
as honesty, in terms of rule following or in terms of consequences. In virtue ethics, character is
very much defined by one's community. Therefore, it's important to think about the community
or communities within which business people
operate.
EIGHT STEPS TO SOUND ETHICAL DECISION MAKING IN BUSINESS
1. GATHER THE FACTS
Ask yourself, "Are there historical facts that I should know? Are there facts concerning the

11. current situation that I should know?" Fact gathering is often easier said than done. You should
attempt to assemble the facts that are available to you before proceeding.
2. DEFINE THE ETHICAL ISSUES
Don't jump to solutions without first identifying the ethical issues or points of values conflict in
the dilemma. There are generally multiple ethical issues that go back to the deontological, or
principle-based.
3. IDENTIFY THE AFFECTED PARTIES
Both consequentialist and deontologist thinking involve the ability to identify the parties affected
by the decision. The consequentialist will want to identify all those who are going to experience
harm and benefits. The deontologist might want to know whose rights are involved and who has
a duty to act in the situation.
Being able to see the situation through others' eyes is a key moral reasoning skill. Lawrence
Kohlberg called this skill role taking. Frequently, you have to think beyond the facts provided in
a case in order to identify all affected parties. It often helps to begin with the individuals in the
case who are immediately affected and then to progressively broaden you're thinking to
incorporate larger groups. As you think of more and more affected parties, additional issues will
probably come to mind.
4. IDENTIFY THE CONSEQUENCES
After identifying the affected parties, think about the potential consequences for each of these
parties. It isn't necessary to identify every possible consequence. But you should try to identify
consequences that have a relatively high probability of occurring and those that would have
particularly negative consequences if they did occur (even if the
probability of occurrence is low).
5. IDENTIFY THE OBLIGATIONS
Identify the obligations involved and the reasons for each. Think in terms of values, principles,
character, or outcomes. This step, and the obligations you identify, may vary depending on the
people involved and they roles they play. For example, our faith in
our financial system depends in part on auditors' obligation to tell the truth about a company's
financial difficulties. Similarly, our faith in science as an institution depends on the integrity of
the scientific data and how scientists report it. So, the auditor and the scientist have a particularly
strong obligation to tell the truth.
6. CONSIDER YOUR CHARACTER AND INTEGRITY

12. In thinking about what you should do in an ethical dilemma, it can be also useful to consider
what your relevant community would consider to be the kind of decision that an individual of
integrity would make in an situation. You have to begin by identifying the
relevant community. Then, you have to determine how community members would evaluate the
decision or action you're considering.
A method that can help you with this process is known as 'disclosure rule'. It asks whether you
would feel comfortable if your activities were disclosed in the light of day in a public forum or in
some other medium. If you'd be uncomfortable telling your
parents, children, spouse, or clergy about your decision-you probably should rethink it. When
tempted to do anything in secret, ask yourself if you would do it in public. If you would not, be
sure it is wrong."
This kind of approach can be especially valuable when a decision needs to be made quickly.
Suppose someone in your organization asks you to misrepresent the effectiveness of one of your
company's products to a customer. You can immediately imagine how a story reporting the
details of your conversation with the customer would appear in tomorrow's paper. Would you be
comfortable having other's read the details of that conversation? The ideal is to conduct business
in such a way that your activities and conversations could be disclosed without your feeling
embarrassed.
7. THINK CREATIVELY ABOUT POTENTIAL ACTIONS
Before making any decision, be sure that you haven't unnecessarily forced yourself into a corner.
Are you assuming that you have only two choices, either "a" or "b". It is important to look for
creative alternatives. Perhaps if you've been focussing on "a" or "b", there is another answer "c".
For example, a business person who received an extravagant gift from a foreign supplier. This
situation could easily be conceptualized as an "a" or "b" situation. Should I accept the gift (which
is against the company policy), or should I refuse it (which will likely be interpreted as a slap in
the face by this important supplier). The "c" solution was to accept the gift as a gift to the
company that would be displayed in the headquarters entrance.
8. CHECK YOUR GUT
The emphasis in these steps has been on a highly rational fact gathering and evaluation process
once you know that you're faced with ethical dilemma. But don't forget your gut. Empathy is an
important emotion that can signal awareness that someone might be

13. harmed. And intuition is gaining credibility as a source for good business decision making. We
can't always say exactly why we are uncomfortable in a situation but years of socialization have
likely made us sensitive to situations where something isn't quite
right. So, if your gut is bothering you, give the situation more thought. In fact, this may be your
only clue that you're facing an ethical dilemma to begin with. So, pay attention to your gut. But
don't let it make your decision for you. Once you know you're facing an ethical dilemma, use the
rational decision-making tool to guide your decision making