McCombs
Knowledge To Go
June 14, 2011
Challenges of Ethical Leadership
by Robert Prentice, The Ed & Molly Smith Centennial
Professor of Business Law and Faculty Director of
the McCombs Business Honors Program
I.
Introduction
A. Leadership Ethics is always a
timely topic.
I.
Introduction
A. Leadership Ethics is always a
timely topic.
1.
2.
3.
1980s: S&L Scandals
1990s & 2000s: Enron-era
Scandals
2000s: Subprime Scandals
Recently:
B. The adverse effects of these scandals
make one thing clear:
B. The adverse effects of these scandals
make one thing clear: ethical behavior
is essential to the effective functioning
of American capitalism.
II. “Moral Leadership” is Critical.
A. Moral Leadership has two aspects:
A. Moral Leadership has two aspects:
1. Managing:
•
•
•
•
Establishing ethical norms
Communicating them to employees
Punishing breaches
Rewarding compliance
Trevino: “[Leaders] must make their
expectations of others’ ethical conduct
explicit, and they must hold all of their
followers accountable for ethical
conduct every day through attention to
ethics in the performance management
systems.”
A. Moral Leadership has two aspects:
1. Managing:
•
•
•
•
Establishing ethical norms
Communicating them to employees
Punishing breaches
Rewarding compliance
2. “Walking the Walk”
B. Most adults do not have an adequate
moral compass and therefore “look
outside themselves for guidance in
moral dilemma situations. “ (Cropanzano &
Walumbwa)
C.
B. Most adults do not have an adequate
moral compass and therefore “look
outside themselves for guidance in
moral dilemma situations. “
C. In the workplace, they look to their
leaders.
D.
B. Most adults do not have an adequate moral
compass and therefore “look outside
themselves for guidance in moral dilemma
situations. “ (Crapanzano)
C. In the workplace, they look to their leaders.
D. Empirical evidence establishes that few
things impact a firm’s overall ethical climate
more than the actions of its leaders.
So, I take it as a given that:
1. Ethical leadership is critical to shaping
the ethical conduct of a firm; and
2. Ethical conduct by leaders is a critical
component of ethical leadership.
And yet…..
Jeff Skilling
William Aramony
Ken Lay
Bernie Ebbers
Richard Scrushy
Charles Keating
Al Dunlap
Dennis Kozlowski
III. Poor Decision Making is a Major
Cause of Unethical Actions.
III. Poor Decision Making is a Major
Cause of Unethical Actions.
A. Fundamental Attribution Error
1.
III. Poor Decision Making is a Major
Cause of Unethical Actions.
A. Fundamental Attribution Error
1. Dispositional vs. Situational
2.
A. Fundamental Attribution Error
1. Dispositional vs. Situational
2. Costa says: “There are truly
sinister businesspeople with
sinister intentions, but for the most
part, ethical and legal lapses are
the stuff of average people who
know better.”
B. Examples of Poor Decision Making.
1. Obedience to Authority.
1. Obedience to Authority
 Milgram study
1. Obedience to Authority.
 Milgram Study
 Stock analysts in the dot-com
boom
Henry Blodget
1. Obedience to Authority.
 Milgram Study
 Stock analysts in the dot-com boom
 Egil Krogh
2. Conformity Bias
 Forks
2. Conformity Bias
 Forks
 Lines
Solomon Asch
2. Conformity Bias
 Forks
 Lines
 Betty Vinson & “Moral Contagion”
IV. Leaders and Ethical Decision
Making
IV. Leaders and Ethical Decision Making
--Some decision making errors are
particularly troublesome for leaders
A. Overconfidence
A. Overconfidence.
• Driving/Auditing/Teaching
A. Overconfidence.
• Driving/Auditing/Teaching
• Morals, too
• Are you more moral than your
competitors, fellow employees, peers?
A. Overconfidence.
• Driving/Auditing/Teaching
• Morals, too
• Are you more moral than your
competitors, fellow employees, peers?
• 92% of Americans are comfortable
with their character
• Driving/Auditing/Teaching
• Morals, too
• Are you more moral than your
competitors, fellow employees, peers?
• 92% of Americans are comfortable
with their character
• This leads to decisions lacking
reflection; Ex: Enron
• Driving/Auditing/Teaching
• Morals, too
• Are you more moral than your
competitors, fellow employees, peers?
• 92% of Americans are comfortable
with their character
• This leads to decisions lacking
reflection; Ex: Enron
• Leaders, having had much success,
have even more confidence in
themselves and their character.
 Milliken found that “the combination of
power, optimism, and abstract thinking
makes powerful people even more
certain [than the rest of us]. The more
cut off they are from others, the more
confident they are that they are right.”
Ken Lay
•Minister’s Son
•Enron Code of Ethics
•Noted Philanthropist
•Convicted Felon
B. Self-Serving Bias
B. Self-Serving Bias
 Affects how we collect, process,
and remember information
B. Self-Serving Bias
 Affects how we collect, process, and
remember information
 Football game
B. Self-Serving Bias
 Affects how we collect, process, and
remember information
 Football game
 Causes people to conclude that what is
best for them is ethically permissible
B. Self-Serving Bias
 Affects how we collect, process, and
remember information
 Football game
 Causes people to conclude that what is
best for them is ethically permissible
 Leaders are particularly vulnerable
Ex: “instant entitlement bias”
 Leaders are particularly vulnerable
Ex: “instant entitlement bias”
•$15,000 umbrella stand
•$6,000 shower curtain
•$2,000,000 birthday party
Dennis Kozlowski
Tyco
C. Moral License.
C. Moral License.
• Most of us unconsciously engage in
moral self-regulation.
•
•
Moral compensation
Moral licensing
C. Moral License.
• Most of us unconsciously engage in
moral self-regulation.
• Experiments:
a. Self-Image
b. Chance to Volunteer
c. Racial Prejudice
C. Moral License.
• Most of us unconsciously engage in
moral self-regulation.
• Experiments:
• A particular problem for leaders.
When Ken Lay was found to have
violated Enron’s Code of Ethics by
investing in company that did more
than 80% of its business with Enron, he
called suggestions of impropriety
“form over substance.” Rules, he said,
“are important, but you should not be a
slave to rules either.”
[Bazerman & Tenbrunsel
D. Moral Rationalization
D. Moral Rationalization
• While we think we are reasoning to an
ethical conclusion, what we are often
doing is:
D. Moral Rationalization
• While we think we are reasoning to an
ethical conclusion, what we are often
doing is: rationalizing
D. Moral Rationalization
• While we think we are reasoning to an
ethical conclusion, what we are often
doing is: rationalizing
• Leaders tend to be extroverts prone to
impulsive behavior
• While we think we are reasoning to an
ethical conclusion, what we are often
doing is: rationalizing
• Leaders tend to be extroverts prone to
impulsive behavior
• The rest of us are so enamored of
leaders that we often judge them less
harshly than we would others
• “It is often shocking how top corporate
officials (like WorldCom’s Bernie Ebbers)
and high government officials (like New
York’s Eliot Spitzer) come to the view that
the rules that apply to everyone else do not
apply to them. Often they do outrageous
things with little or no effort to hide their
wrongdoing because they become so
convinced of their importance to their firm’s
mission, which somehow justifies their
exempting themselves from legal and ethical
standards that apply to others.”
Keltner et al.
Marital therapist Emily Brown: “Success
breeds its own blindness. I talked once
to a group of men who’d all become
millionaires before the age of 40 and
who’d had affairs. They think their
wives will never know. Everything else
in their lives has worked out….They
were completely blind to the harm they
had done. They just couldn’t conceive
that, as good men, they’d done
something bad.”
Hefferman
• Leaders are often tone deaf on ethical
issues and … have “uniquely selfserving rationalizations for their
unethical actions that often focus on
their rights and crowd out any
consideration or duties to or caring for
others.”
Dacher Keltner et al.
V. Conclusion.
V. Conclusion.
As you lead in your firm and your
community:
V. Conclusion.
As you lead in your firm and your
community:
• Be vigilant:
V. Conclusion.
As you lead in your firm and your
community:
• Be vigilant: keep your ethical antennae
up so you can spot ethical minefields
before you enter them
•
V. Conclusion.
As you lead in your firm and your
community:
• Be vigilant: keep your ethical antennae
up so you can spot ethical minefields
before you enter them
• Be wary:
V. Conclusion.
As you lead in your firm and your
community :
• Be vigilant: keep you antennae up so
you can spot ethical minefields before
you enter them
• Be wary: remember that even the best
intentioned people are prone to ethical
missteps
• Be vigilant: keep you antennae up so
you can spot ethical minefields before
you enter them
• Be wary: remember that even the best
intentioned people are prone to ethical
missteps
• Be humble:
• Be vigilant: keep you antennae up so
you can spot ethical minefields before
you enter them
• Be wary: remember that even the best
intentioned people are prone to ethical
missteps
• Be humble: “Humility is the solid
foundation of all virtues.” (Confucius)
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