Leading ethically: Does it pay?

by Valeria Velina, Katharina vom Dahl, Ina Stößel, Pablo Haufschild, and Angelica Pinto |



In regard to countless corporate scandals due to unethical behavior in the past decades, the topic of ethical leadership has become more important than ever. In this post, we will give you a quick overview on recent findings in the academic literature on ethical leadership.

After defining the leadership style and stating the main characteristics of it, a study on its effectiveness will be conducted. The post will conclude with recommendations of action that show you how this management style should be executed and when it is most effective to use it.


What is Ethical Leadership?

When searching the literature for a definition of ethical leadership it can be noticed that ethical leadership is often associated with transformational, servant or authentic leadership styles (Demirtas, Hannah, Gok, Arslan, & Capar, 2017; Bedi, Alpaslan, & Green, 2016; Brown, Treviño, & Harrison, 2005; Kalshoven, Den Hartog, & De Hoogh, 2011; Waldmann, Wang, Hannah, & Balthazard, 2017; Eisenbeiss, 2012; Wang, Feng, & Lawton, 2017). While transformational leaders are supposed to have very high ethical standards and act as role models, authentic leaders are characterized by being able to view problems from different perspectives and always considering the ethical consequences of their actions (Brown & Treviño, 2006). Furthermore, servant leaders are said to be very moral-laden and are trying to lead by serving others (Sendjaya & Cooper, 2011). As can be deduced from these associations ethical aspects play a huge role in a variety of different leadership styles. Thus, it is equally important to state that while ethics are an ancillary matter in these styles, ethical leadership is all about communicating ethical standards and encourage ethical behavior (Bedi et al., 2016).

Although ethical leadership has become a popular topic in the academic literature in the past years there is still some discord on a clear definition of this concept (Wang et al., 2017). Even though it leaves some space for interpretation a widely utilized definition was proposed by Brown et al. (2005: 120). They define ethical leadership as “…the demonstration of normatively appropriate conduct through personal actions and interpersonal relationships, and the promotion of such conduct to followers through twoway communication, reinforcement, and decision-making.”

In this defintion Brown et al. (2005) suggest a social learning approach and highlight two key aspects of this leadership stlye: first, ethical leaders are “moral persons” who act as role models and thus, demonstrate ethical behavoir. Second, they are “moral managers” and encourage ethical behavoir by using rewards and punishments. Through observational and imitational learning followers will start to behave similar to their leaders (Kalshoven et al., 2011). In addition, Meyer, Kuenzi, Greenbaum, Bardes and Salvador (2009) used the social exchange approach and suggest that followers are more likely to reciprocate a leader´s support when being treated respectfully and fairly. In support of this, further studies have shown that ethical leadership has a positive correlation with affective trust in the leader and negative correlation with abusive supervision (Brown & Treviño, 2006).

However, by putting focus on the relationship component the defintion leaves open what exactly “normatively appropriate conduct” is. Through this lack of a clear definition of the management style, ethical leadership is often described by its’ various characteristics which will be presented in the following secion.


How to Lead Ethically

The following chapter aims to describe the key characteristics of ethical leaders by illustrating the aspects of their traits and behaviors. Based on the previously mentioned definition of Brown et al. (2005), an ethical leader is specified as a “moral person” and “moral manager”. In order to analyze the effectiveness of ethical leadership to improve team performance, it is important to understand what constitutes ethical leadership behavior.

Many scholars have defined a moral individual by the attributes of being honest, just, decent and trustworthy (Brown et al., 2005; Brown & Treviño, 2006; Nyberg, 2008; Yidong & Xinxin, 2013; Zhu, May, & Avolio, 2004). All of these leaders’ traits, however, demonstrate correct ethical acting and provide moral identity to followers. But being a role model and behaving ethically is not enough in order to be an efficient ethical leader. Moreover, the previously mentioned ethical leadership literature points out that in order to influence ethical behavior of followers, it is necessary to implement a reward system, which encourages ethical behavior.

Leaders reinforce their followers’ tendencies for behaving according to ethical standards, by punishing them for unethical behavior and rewarding them for correct ethical behavior in the workspace (Brown et al., 2005; Treviño, Brown, & Hartman, 2003). Furthermore, De Hoogh & Den Hartog (2008) suggested that ethical leadership involves a two-way communication based on ethical standards. Moreover, Treviño et al. (2003) required people orientation. Similar to Treviño et al. (2003) results, Zhu et al. (2004) and Mayer et al. (2009) showed that loving behavior in the organization, where each leader shows respect to the followers’ human nature, is a significant facet of ethical leadership and is integral to the construct. The results of previous research show that ethical leaders can strengthen morality, autonomy, people orientation and social responsibility of their followers (Brown & Treviño, 2006; Yidong & Xinxin, 2013).

All of the characteristics described above contribute to a leader’s common goal, which is to increase their followers’ work motivation in order to achieve a higher team performance. The following chapter discusses the empirical evidence for the effectiveness of this leadership style.


Is Ethical Leadership Effective?

As initially said, the importance of ethical practices in the context of management is steadily growing. This fact also raises the question of the impact of an ethical leadership style. Several  scientific studies have examined the outcomes of ethical leadership in the past years (Brown & Trevino, 2006; Kalshoven et al., 2011; De Hogh & Den Hartog, 2008; Toor & Ofori, 2009).

One commonly examined and in leadership theory much-noticed construct is the effectiveness of an ethical leadership style. Leadership effectiveness describes a leader’s ability to influence the work unit performance positively (Yukl, 2008). Consequently, a leader is constituted as effective “if a leader is able to influence his subordinates or organization in such a way that positive outcomes are realized” (Madanchian, 2017:1044).

The empirical based research on the linkage between ethics in leadership and perceived leadership effectiveness is limited, but developing (De Hogh & Den Hartog 2008). Most of the studies found empirical evidence that ethical behaviour positively relates to perceived leadership effectiveness (Brown & Trevino 2006; Kalshoven et al. 2011; De Hogh & Den Hartog 2008; Toor & Ofori 2009). Early studies have shown that perceived leadership effectiveness is associated with a leader`s honesty, integrity and trustworthiness (Den Hartog et al., 1999; Kirkpatrick & Locke, 1991; Kouzes & Posner, 1993; Posner & Schmidt, 1992).

Khuntia and Suar (2004) examined ethical leadership of Indian private and public-sector managers and found a positive linkage with job performance, job involvement and commitment. In line with that, Brown et al. (2005) found that perceived effectiveness, subordinates` satisfaction with their job, followers` job dedication and the willingness to report problems are significantly positively affected by ethical leadership. The research of De Hoogh and Den Dartog (2008) also shows empirical evidence for a positive correlation between ethical leadership and top management team effectiveness. A follow-up research by Kalshoven et al. (2011) confirmed this and moreover found evidence for a positive and significant correlation between ethical leader behaviour and perceived leader effectiveness, satisfaction with the leader, team commitment, organizational commitment and trust. In line with that are the findings from Toor and Ofori (2009) which show that ethical leadership is significantly associated with effectiveness, subordinates’ extra effort and job satisfaction. Additionally, further studies have shown that ethical leadership is also expected to have direct positive effects on attitudes and ethically appropriate behaviour of employees (Brown et al., 2005; Kanungo, 2001; Treviño et al., 2003).

Furthermore, Kalshoven and Den Hartog (2009) conducted a study on intervening factors regarding the relationship between ethical leadership and leader effectiveness and discovered that trust and prototypically are key mediators – whereby being a prototype enhances trust and thus, leads to leader effectiveness. Summarized, ethical behaviour in leadership context is likely to enhance employee effort and loyalty (Piccolo, Greenbaum, Den Hartog, & Folger, 2010).

Considering the variety of leadership styles and methods with all their respective advantages and disadvantages leads to an investigation of situational aspects and implications of ethical leadership. Thus, it appears that in certain circumstances ethical leadership may not be the most beneficial choice of leadership-style. Raineri (2006) suggested that this is especially the case in extreme and stressful situations, such as restructuring-periods or even hostile situations for the organization. Additionally, according to this result ethical leadership seems to be rather unsuitable for changing or banishing deep-rooted habits of followers. On the contrary, ethical leadership may be the suitable choice in difficult situations when other leadership approaches failed already. In comparison to despotism or situations of organizational silence, ethical leadership often positively effects overall performance and organizational climate (Simonetta, 2017).



Ethical leadership is a still developing but popularity-gaining leadership style, which is hardly influenced by subjective determinants of the performing leaders. Hence, leaders’ personality traits normatively considered as “ethical” and further the power to influence followers towards the normatively desired behaviour are key factors for thriving with ethical leadership.

As a more practical and managerial implication, ethical leadership likely offers several promising benefits such as increased leadership effectiveness with positive effects on productivity and follower satisfaction – hence should be evaluated for integration or enhancement in most organizations.

Indeed, due to the strong dependence between the individual leader’s ethical beliefs and competencies and the prospective organizational outcomes, the concept of ethical leadership ought to be seen less as a systematic-secured leadership method than as more personaldependent leadership style. Therefore, the most critical part for any organization lies within the evaluation of the eligible human capital, especially regarding the selection of leaders with high integrity, who conduct their job in an ethical manner (De Hoogh & Den Hartog, 2008).

Furthermore, a situational evaluation is advisable as empirical data suggests that situational factors like a stressed organizational environment seem inconsistent with ethical leadership style (Simonetta, 2017). In addition to the general organizational environment, the management level for implementation of ethical leadership delivers another crucial decision criteria for the assessment of ethical leadership styles. On one side, the executive-level, ethical leadership develops a higher impact on organizational outcomes. Whereas on the other side, the supervisory-level, ethical leadership leads to more personal and group-specific outcomes.

This brings another layer of individual need for evaluation (Brown & Treviño, 2006). Overall, looking at the strong upside of the empirical-stated benefits with this leadership style accompanied by relatively rare-occurring exclusion factors, organizations should constantly evaluate the possible application of ethical leadership style.



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