Leadership: Facing Moral and Ethical Dilemmas
"We need a Nobel Prize in business, awarded to organizations
that demonstrate how business effectiveness (meaning survival,
market share, profits, and stock value) results directly from ethical
behavior. A society that is not built on ethics – on fairness,
freedom, and mature hearts and minds – cannot survive for
long." -- Peter Koestenbaum, 2002
Last year in the U.S. alone 257 public companies with $258 billion
in assets declared bankruptcy . This was a huge increase over the
previous year's record of 176 companies with $95 billion. Big Fortune
500 companies aren't supposed to collapse, yet this year is expected
to be worse.
Taking a look at what went wrong and why
these companies failed reveals moral and ethical shortcomings.
Many negative factors contributed to their demise: a bad economy,
financial risks that didn't pay off, accounting manipulations that
seemed smart at the time, loss of competitive advantage, breakdowns
in execution, growing too fast, and rapidly changing market preferences.
But to understand truly, one must look deeper, into the very hearts
and souls of the leaders who guide corporate responsibility. One
must look at the moral and ethical stance of an organization and
the role of leadership in creating a culture of values.
September 11 th was a tragedy that brought
harsh consequences for many businesses for which one can blame
terrorism. These bankruptcies, on the other hand, are more frightening
in that we brought them on ourselves. True, one can point fingers
at the CEO's in charge. There is no doubt that some were in a position
to know when to jump ship before the rest of us.
But how do large organizations get to that point virtually overnight?
What creates the organizational culture that allows a house of
cards to be built in the first place? What drives good leaders
to make unethical choices? To assume that all of the leaders in
Enron were evil, greedy and selfish is too simplistic. There is
more to the story, and we must understand how such ethical violations
and consequent collapses occur.
How Can It Happen?
In 1986 the space shuttle Challenger
exploded causing the death of seven astronauts. A
subsequent investigation of the culture at NASA revealed important
lessons. There was not one single error that occurred, and neither
did the managers intentionally commit wrongdoing. Yet it could
have been prevented. The errors were years in the making. NASA
engineers noticed damage to crucial O-rings yet they repeatedly
convinced themselves that this level of damage was acceptable.
One analyst described it as "an incremental
descent into poor judgment."
The culture at NASA was extremely success-oriented.
They had hired the best of the best, and had set highly complex
and sophisticated performance goals. The pressure to succeed gradually
mounted until minor violations of standards became the standard.
Nothing looked wrong until it was all over.
The culture at Enron was very similar. They
hired the brightest from graduate schools. Success was rewarded
and non-performers shunned. The emphasis was on the numbers and
immediate success rather than on long term values. There was a
gradual descent into poor judgment, denial, failure to challenge
the system, greed, deceit, ego, wishful thinking, poor communications
and lax oversight. But it was apparent only in retrospect. No one
noticed at the time as everyone was immersed in the culture.
The question to ask is not how did this happen at Enron, but how
is it happening in one's own organization right now? What are the
standards and how and to what degree are they communicated and
reinforced? Where are standards being violated? As a leader, in
what ways is one contributing to a loosening of ethical and moral
Is Business Ethics an Oxymoron?
Robert Jackall (1997) suggests that
the modern bureaucracy has created a "society within a society" in
which there is a set of ethical standards that may not be consistent
with those of the larger society. This
might help explain how certain corporate leaders could do what
they did and still look at themselves in the mirror. Our current
capitalistic society goes along with these sub-societies, as
long as they are successful. Enron was touted as one of the most
innovative organizations five years in a row by Fortune magazine.
Only when there is a collapse is there a cry of "foul."
In America , the Protestant work ethic
at one time formed the basis of good business relationships.
A person's word was his bond
and business could be counted on with a handshake. Personal integrity
and reputation mattered. But in business, there is also a "dog eat dog" mentality.
Somehow, when it comes to business, there is such an emphasis
on success, that morals and ethics sometimes take a back seat.
The larger an organization, the more
complex the strategy and operations. Thus,
the easier it becomes to stretch standards and change numbers
to reflect what is desired, rather than what is. Meeting the
numbers seems more desirable than sticking to reality. Besides,
one might reason that "reality" or "truth" is
really just a question of which version, which perspective, is
Here's the way one cynical executive
put it: "Let's be honest.
We lie and our colleagues lie to us. People prefer to tell each
other what they want to hear...
I don't need perfect people, I need successful people who can think
for themselves and get the job done. If they need to tell a little
white lie, I can live with that."
Many corporations value stock prices and dividend and financial
reports over customers, product or service quality. There is such
an emphasis on the bottom line, that even customer satisfaction
becomes secondary. Jim Collins, in his research for his book Good
to Great , emphasizes that sustainably successful companies are
the ones that always focus on understanding and meeting customer
needs. When this is done successfully, it delivers stakeholder
Facing Ethical Dilemmas: Living in the Gray
In business, not only are we faced
with questions between right and wrong, but between right and
right. According to Joseph Badaracco
(1998), "We have all
experienced situations in which our professional responsibilities
unexpectedly come into conflict with our deepest values...we
are caught in a conflict between right and right. And no matter
which option we choose, we feel like we've come up short."
"Between right and wrong is a troublesome gray area." – Boeing
Research on moral standards and business
ethics is sparse. Weber in 1998 found that 85.9 percent of managers
claim that they draw their moral standards at work from the expectations
perceived in the work environment. Trevino (1990) adds that organizational
norms that are embodied by the corporation's culture are strong
determinants of individual thought and behavior in the workplace.
Gillespie (1997) notes that corporate culture is recognized as
a key contextual influence in establishing and maintaining norms.
The morality and ethics of the modern workplace are influenced
by the leaders of the organization. There is an increasing sense
of distrust of leaders' motives since they are seen to serve shareholders
and themselves, rather than the employees, the community, the environment,
or even the customers! They are seen as not telling the truth,
and doing whatever it takes to increase stock value.
Such erosion of trust may be pandemic. What
happened at Enron and WorldCom colors all employees' views of how
leaders operate. When corporate culture is undermined by distrust,
the original excitement and enthusiasm about a job turns to cynicism,
alienation and disengagement. When this happens, work suffers.
Leaders Have a Responsibility for Creating Trust and
Leaders are the most important and powerful influence on the culture
of an organization and are responsible for creating credibility
and trust. It is obvious that employees contribute more when they
are working for something they believe in. Kouzes and Posner (1987)
put it well:
"There is more to work than is
commonly assumed. There is rich opportunity here for leaders
to appeal to more than just the material rewards. Great leaders,
like great companies and countries, create meaning, not just
The aim is to operate organizations in such
a way that they achieve stated goals and do so in a manner that
is consistent with the higher values of the organizational community.
When employees have no clear picture of the moral or ethical stance
of the organization, they tend to operate at the lowest perceived
Creating and promoting institutional integrity
becomes one of the most important functions of leadership. Moral
and ethical stances need to be consistently reiterated and clarified.
One of the most pervasive issues in the American workplace today
is the injustice of corporations paying millions in bonuses to
executives and haggling over pennies with salaried and hourly employees.
Until this issue is addressed and adjustments made, leaders will
have a hard time rebuilding trust and credibility in organizational
An analysis of the relationship between ethical
behavior and effective leadership reveals that it is a matter of
examining both ends and means. A business enterprise must be profitable
in order to survive. Service organizations must satisfy consumers'
expectations. Government must meet the needs of its citizens. The
ends are the very reason for existence of the enterprise. At the
same time, the means by which they achieve those ends are increasingly
What can be done to foster a clear and consistent moral and ethical
stance for an organization's culture?
development must include programs on ethical reasoning and
decision making. This must be an ongoing process, not a one-shot
affair at fulfilling a requirement. The most effective leadership
development programs include coaching and/or mentoring. Through
executive coaching, issues of personal ethics and moral responsibility
must be explored and aligned with organizational values.
programs must include selection, development, evaluation and
rewards policies that are aligned in such a way as to reflect
their support of the values of the organization. When a person
is selected for promotion, or is rewarded, the organization
is making a statement: this person represents our values and
There are powerful economic, political, social
and cultural forces at play in our lives today that may lead us
to feel powerless to oppose them. It may seem easier to go along
rather than to speak out. Each person must weigh alternatives and
make choices in light of personal values and goals, but also with
consideration to organizational and professional success.
As leaders wake up to needed reforms, there
will be an increased emphasis on the need for leadership development
programs that include coaching on ethical and moral values. There
must be a drive for ethical responsibility if organizations are
"Never doubt that a small group of committed people can change
the world; indeed, it is the only thing that ever has." -
How to Solve an Ethical Dilemma
Peter Drucker (2001) refers to the
Hippocratic oath of 2500 years ago in his writing about business
ethics. A professional should
promise he or she will "not
knowingly do harm." He states
that it is not an easy rule to live up to, but that "its very
modesty and self-constraint make it the right rule for the ethics
that managers need, the ethics of responsibility."
Given that ethical and moral dilemmas present themselves on a
daily basis, what do the experts say are the steps for solving
an ethical dilemma? Life and business are rarely simple, and between
right and wrong there is a lot of gray area.
There are two major approaches that
philosophers use in handling ethical dilemmas. One
is to focus on the practical consequences of what we do, and
the other focuses on the actions themselves and the rightness
of the action alone. The first school of thought argues "no harm, no foul." The
second claims that some actions are simply wrong in and of themselves.
Here is a three-step process for solving an ethical problem:
Step One: Analyze the consequences
• Who will be helped by what you do?
• Who will be harmed?
• What kind of benefits and harms are we talking about? (Some are
more valuable or more harmful than others: good health, someone's
trust and a clean environment are very valuable benefits, more
so than a faster remote control device.)
• How does all of this look over the long run as well as the short
Step Two: Analyze the actions
all of the options from a different perspective, without thinking
about the consequences.
do the actions measure up against moral principles like honesty,
fairness, equality, respecting the dignity of others, people's
any of the actions "cross the line?"
there's a conflict between principles or between the rights
of different people involved, is there a way to see one principle
as more important than the others?
option offers actions that are least problematic?
Step Three: Make a decision
Take both parts of your analysis into account and make a decision.
How to Solve an Ethical Dilemma by The Center for Business and
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guide to the largest bankruptcy in U.S. history, John Wiley & Sons,
Gardner , H., Csikszentmihalyi,
M., & Damon, W. Good Work:
When Excellence and Ethics Meet, Basic Books (2001).
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analysis." Paper presented at the Society for Business Ethics
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(Eds.), Organizational reality: Reports from the firing line.
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Review, November (1957).
Robinson, D., & Garratt, C.,
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on results, integrity and concern, Jossey-Bass (1997).
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Resources is a Leadership Consulting, Training and Executive Coaching
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Intelligent People; Emotional Intelligence-Based Interviewing and
Selection; Multi-Rater 360-Degree Feedback; Career Coaching; Change
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Dr. Maynard Brusman
Consulting Psychologist and Executive Coach
Trusted Advisor to Senior Leadership Teams
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