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Business Ethics

What Makes an Ethical Business Leader?

Jun 02, 2016

ethical business leaders

A rash of major business scandals erupted in 2015, leading many experts to question the role of ethics in today’s corporations:

  • Volkswagen programming its cars to cheat on emissions testing
  • 7-Eleven got caught doctoring its payroll to cover up its systemic underpayment of wages
  • Soccer officials who were indicted by the FBI for accepting bribes in exchange for hosting rights for events

And that’s just to name a few.

The Importance of Creating an Ethical Business Culture

With business schools pumping out morally impaired graduates — an estimated 20 to 30 percent of business students were unable to identify an ethical dilemma when presented with one — it’s no wonder the role of ethics in business has taken center stage lately. Corporate leaders are beginning to recognize the importance of creating an ethical business culture, and it’s incumbent on them to help set the moral tone for their organizations.

In a survey of CEOs from 64 countries, nearly two-thirds named ethics and values as the top organizational attributes that drive employees to do their best work. The executives also identified inspirational leadership as one of three most critical leadership traits for effectively guiding an organization.

When asked by the Harvard Business Review to identify the most important traits needed to thrive in a C-suite position, senior consultants at a global executive-search firm emphasized the importance of integrity and a reputation for ethical conduct.

“Personal integrity and ethical behavior… are far more important now because of the speed of communication,” one consultant said.  Another added that today’s hiring companies demand unquestionable ethics, and several agreed that ethical conduct would be a key priority moving forward.

Why does ethical leadership matter? For starters, employees who rate their leader as ethical have higher job satisfaction and commitment — primarily because “followers are attracted to ethical role models who care about them, treat them fairly, and set high ethical standards,” according to Ethical Systems, a research-based organization devoted to business integrity.

Ethical leadership encourages a workforce to be more helpful while discouraging unethical behavior. It also creates a psychologically safe environment where employees are more likely to report any misconduct to management.

Characteristics of an Ethical Leader

Although anyone can be taught to be an ethical leader, most share certain innate characteristics that propel them toward ethical action.

Researchers have identified several key traits typically found in leaders who exemplify ethical principles:

Conscientiousness. The tendency to be thorough and careful is a key common trait among leaders who are seen as ethical by their followers. A conscientious leader is more prone to following established rules, such as a corporate code of ethics or moral standards of behavior.

Moral identity. Another driver of ethical behavior is the amount of importance leaders places on defining themselves as good, moral people.

Cognitive moral development. A capacity for sophisticated thinking about ethical issues is another trait ethical business leaders typically share. According to Lawrence Kohlberg's theory on the development of morality, the highest stages of moral development “involve a recognition of the social contract and of universal ethical principles.”

Warning Signs of an Unethical Leader

Without a solid grounding in business ethics, it’s easy for leaders to become caught up in the cycle of greed and the quest for power. Some of the qualities common among unethical leaders include:

Transactional leadership. Unlike a transformational leader, who encourages followers to act in the interest of the collective rather than themselves, transactional leaders guide behavior using a system of rewards and punishments. This approach is inconsistent with moral leadership because it ignores employees’ needs and aspirations.

Poor decision-making. The ability to make ethical choices hinges on an executive’s decision-making process. An unethical leader will often make decisions based on self-interest and personal gain. Failure to consider the impact of decisions on company stakeholders can also lead to unethical behavior — sometimes unintentionally.

Focus on external gratification. “When leaders focus on external gratification instead of inner satisfaction, they lose their grounding,” said the Harvard Business Review. “Often they reject the honest critic who speaks truth to power. Instead, they surround themselves with sycophants who tell them what they want to hear. Over time, they are unable to engage in honest dialogue; others learn not to confront them with reality.”


If ethical leaders bring out the best in their employees, unethical leaders undermine productivity, drive away good employees and spread the behavior throughout their organizations. With the increasing emphasis on business ethics, it’s more important than ever for executives to provide a solid role model for their employees.

To learn more about creating an ethical culture for your business, check out our training course: Ethics in the Workplace.

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