The Role of Ethical Leadership in Business
Reviewed by Jacob Imm
May 24, 2023
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
3. Ethical Leadership Appeals to Investors
Many businesses rely on private investors for funding, especially in the beginning. Because breaches in business ethics can have catastrophic financial and reputational consequences for brands, investors may be more drawn to organizations with ethical leaders.
A 2022 study in the Journal of Management Control found that an emphasis on ethical conduct may not necessarily make investors more likely to invest, but “violating general norms of good corporate conduct leads to a significantly reduced” willingness to invest.
When businesses without ethical leaders act immorally, governments or regulatory bodies can charge them with hefty fines. These fines—along with the negative press that often accompanies them—can cause the value of an investor’s stocks to plummet. Overall, organizations that lack ethical leadership may be too risky to invest in.
4. Ethical Leadership is Good for Business
These benefits point to one conclusion–a moral leader is an asset to any organization. Everything from attracting and retaining customers to decreasing turnover rates through employee satisfaction positively impacts a company’s bottom line. Similarly, avoiding unethical choices that can trigger fines or reputational consequences is also financially prudent.
What’s more, ethically-led organizations often receive positive press about their decisions and initiatives. These glowing articles and news segments can lead even more people to discover and embrace the brand.
All in all, ethical leadership in business makes sense.
How Do You Become an Ethical Leader?
At this point, you can probably recognize the importance of ethical leadership in the business world and beyond. Now, you might be wondering how to learn more about this leadership style.
In general, there are a couple of ways to gain the tools and skills of an ethical leader.
Pursue a Degree in Ethical Leadership
Ethical leadership wasn’t always a college major. In the past, interested students may have had to pick up ethical leadership skills by pursuing ethics or double majoring in philosophy and business.
However, the growing focus on ethical business and moral leadership has increased demand, and many institutions now offer an ethical leadership degree. For example, North Central College offers a bachelor of arts (BA) in ethical leadership.
Studying ethical leadership in a structured classroom environment allows you to explore the fundamental theories of ethics and leadership before applying them to the “real world.” Through relevant readings, lectures from established leaders, and thought-provoking projects, you’ll examine abstract and concrete concepts in ethical leadership.
When you enroll in an ethical leadership program, you’ll expand your horizons through courses like:
- Design Thinking for Social Impact
- Leaders Without Borders
- Social Innovation
- Leadership for Change-Making
- Ethical Leadership
- Leadership and Place
- Ethnic and Religious Conflict Resolution
These courses (and others like them) can help you prepare for careers in politics, management, marketing and more.
Work Under an Ethical Leader
Outside of the more formal structure of a classroom, you may be able to learn the foundations of ethical leadership at work or in an extracurricular activity. Because a crucial part of ethical leadership is leading by example, you can pick up many skills and theories by working closely with a mentor who exhibits accountability, transparency and trustworthiness.
That said, studying ethical leadership in college may also give you a chance to work for an ethical leader. Ethical leadership professors tend to practice what they preach, so you can learn a lot just from taking classes. Many college programs also offer opportunities for preceptorships, internships, and work experience.
Discover Ethical Leadership for Yourself
No matter where you absorb the foundations of leading ethically, ethical leadership plays a significant role in today’s corporate, political, and social environments. As time goes on, ethical leaders will likely become even more important.
With that in mind, the best time to dive into ethical leadership is now. And the best way to learn about ethical leadership is to enroll in an ethical leadership program.
When you explore ethical leadership at an institution like North Central College, you gain the theoretical knowledge and hands-on experience needed to succeed as an ethical leader—in your professional and personal life.
Jacob Imm is the associate director of communication in the North Central College Office of Institutional Communication. He has 13 years of collegiate communications experience and has worked with hundreds of college students. He has a bachelor’s degree from the University of Notre Dame and a master’s degree from Northern Illinois University.
Guo, K. (2022). The relationship between ethical leadership and employee job satisfaction: The mediating role of media richness and perceived organizational transparency. Frontiers in Psychology, 13. https://doi.org/10.3389/fpsyg.2022.885515
People prefer brands with aligned corporate purpose and values. World Economic Forum. (2021, December 17). Retrieved February 16, 2023, from https://www.weforum.org/agenda/2021/12/people-prefer-brands-with-aligned-corporate-purpose-and-values/