The Role of Ethical Leadership in Business

The Role of Ethical Leadership in Business

Adhering to a set of ethics can bring you numerous personal benefits. You can build more honest, trusting relationships with friends and family members. You may find it easier to make consistent life decisions. And, of course, you can enjoy the self-satisfaction of staying true to your principles.

But acting ethically is also beneficial in the workplace. Ethical leadership—the practice of setting a moral example for others—is a vital part of today’s business environment. Not only does a business leader who practices ethical decision making set the tone for their industry, but they can also push their companies to new heights.

In this guide to ethical leadership in business, we’re answering questions like “What is ethical leadership?”—how ethical leaders play a fundamental role in shaping their respective organizations—and how you can become one yourself.

What is Ethical Leadership?

Ethical leadership is a leadership style that emphasizes the importance of following moral guidelines. At its core, ethical leadership is about being a positive role model for others—whether they’re above or below you in the chain of command.

Ethical leaders understand the role that trust, transparency, and accountability play in building a strong and sustainable organization. They show that they value honesty, integrity, respect, and community in everything they do. By setting an example of ethical behavior, ethical leaders inspire their employees and colleagues to follow suit, creating a ripple effect throughout the organization.

In practice, ethical leadership involves exploring how every decision will affect the organization and its stakeholders. Before making choices, ethical leaders ask themselves questions like:

• Is this the right thing to do?
• How will this decision impact others?
• Is this decision consistent with the organization’s ethical values?

By considering the moral implications of their actions, ethical leaders can make better decisions that align with their values and promote their organization’s long-term success.

How Does Ethical Leadership Play a Role in Business?

Big or small, business decisions don’t happen on their own; there are people behind every choice. Those people could be directly involved in the decision-making, but they can also be indirectly involved—for example, if they developed an algorithm that processes data to make automatic decisions.

Either way, when the stakeholders who make decisions strive for ethical leadership, the whole organization presents itself as more ethical. With that in mind, ethical leadership can impact every aspect of a business.

More specifically, ethical leaders can help organizations mitigate risk by recognizing any moral or ethical issue that may arise. By addressing potential problems as soon as possible, ethical business leaders can ensure their organizations maintain legal and regulatory compliance.

Adhering to a strict ethical code is different from following the law to the letter. After all, legality does not always equal morality. Historical systems like slavery and segregation were deemed immoral long before they were made illegal. Ultimately, ethical leadership means following business ethics and the law to make the best possible decisions.

4 Reasons Why Ethical Leadership in Business is Essential

So, ethical leaders help businesses make the right choices. But how do these choices benefit their organizations? Here are four arguments for ethical leadership in business.

1. Ethical Leadership Improves Employee Job Satisfaction

According to a study published in Frontiers in Psychology, ethical leadership and employee job satisfaction are inextricably linked. In general, workers tend to be more engaged and fulfilled when they perceive their leaders to be transparent, honest and fair.

These higher levels of job satisfaction can ultimately lead to a lower employee turnover rate. Since hiring and training are expensive, ethically led companies can benefit financially from happy workers.

Developing a positive workplace culture has a positive impact on hiring, too. As you can imagine, many workers prefer to work for brands that share their values. As such, companies renowned for their ethical and transformational leadership can attract better talent. With more highly-skilled employees, ethical businesses stand an even better chance of succeeding.

2. Ethical Leadership Attracts Loyal Customers

Just as ethical leaders develop ethical businesses, ethical businesses attract conscientious customers. People want to work for organizations that align with their beliefs, and consumers want to shop for brands that reflect their moral values.

Case in point: according to the World Economic Forum, global polls show that a majority of consumer brand preferences “are driven by an alignment of their values and the brands’ purpose.”

For example, a 2022 poll commissioned by Google Cloud found that “66% of shoppers are now seeking out eco-friendly brands.” Going further, the same poll found that 55% would even “pay more for more sustainable products.”

And these trends go beyond sustainability. Customers will often look for social enterprises with leaders who push for ethical practices like:

• Supply chain transparency
• Fair employee compensation
• Data protection and privacy
• Charitable giving