Describe the deficiencies in ethical leadership at stacy's firm

Chapter 11: Ethical Leadership Chapter Introduction Book Title: Business Ethics: Ethical Decision Making and Cases Printed By: Kennisha Holloman (kholloman@grantham.edu) © 2019 Cengage Learning, Cengage Learning

Chapter Introduction

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Chapter Objectives

Define ethical leadership

Examine requirements for ethical leadership

Realize the benefits that come from effective ethical leadership

Understand how ethical leadership impacts organizational culture

Learn about the different styles of conflict management

Understand how employees can be empowered to take on responsibilities in

ethical leadership

Examine leader–follower relationships

Learn about leadership styles and how they influence ethical leadership

Use the RADAR model to determine how ethical leaders handle misconduct

situations

An Ethical Dilemma

Stacy, a recently hired employee of a growing local CPA firm called Dewey,

Cheatume, and Howe, just passed all four parts of the CPA exam. The University of

Virginia prepped her well for her new job, and the partners had high expectations for

Stacy because she scored near the top of her graduating class. As a result, Stacy

was fast tracked and performed at an advanced level on some jobs. This was due,

in part, to her excellent skill set and also because of heavy firm turnover at the

senior level.

Because of the long hours and her inexperience, Stacy started to make simple

errors such as not meeting time budgets. She began working off the clock because

she did not want management to know she had a hard time handling the workload.

After a few months, she casually mentioned the extra hours to a coworker, who told

her working off the clock is considered unethical and the company has strict policies

against it. Stacy was not only embarrassed but also upset that the company never

made this known to her—particularly since she knew her immediate supervisor

knew full well what she was doing. Stacy stopped working off the clock and began to

work more quickly to get things done in the expected time frame.

A few weeks ago, Stacy learned her recent work on a tax return had to be redone;

Stacy mistakenly charged the wrong client for the return. Doug, one of the partners,

publicly reprimanded her by saying, “Next time it’s coming out of your pay check.”

Later that same week, as Stacy helped interview a candidate for one of the open

accounting positions, she accidentally chipped the glass table in the conference

room. When Doug heard about it, he said, “I hope your personal insurance covers

the table. You’ll need to speak to the secretary and get this replaced.”

Over the following months, the firm continued having more resignations. It became

so problematic that the Senior Board requested a psychologist interview all staff

members. When Stacy was interviewed, she described the poor treatment of

employees and unreasonable expectations. Apparently, other employees had the

same complaint. The resulting report from the consultant pointed toward numerous

management problems at the company. Shortly thereafter, the partners responded

in a way the staff did not expect: They took the report personally. As a result, rumors

began to surface that the firm was going to go up for sale. Still, the interviews for

staff positions continued. One Monday morning a memo surfaced stating that all

staff doing interviews for new hires were to “present the firm in a positive and

favorable manner.” Stacy was one of those staff members doing the interviews.

Stacy did not know how to portray the firm in a positive manner when she was so

miserable. She particularly disliked Doug. It seemed to Stacy that Doug made it his

mission to torment her by criticizing her every move. He hovered around her desk

and made comments about making sure not to mess up again.

After getting advice from one of her coworkers, Stacy decided to approach Doug

about his behavior. He did not take it well.

“Look, if you think I’m being too hard on you, then maybe you should just leave,”

Doug responded. “It’s obvious you are not cut out for this business.” Doug continued

to berate Stacy for her “shoddy” work until she was close to tears.

“If you want to make it in this business, honey, you got to realize when to pick your

fights. Me, I’m not in the habit of losing.” Doug walked off in a huff.

The next day Stacy was to interview someone for a lower-level accounting position.

As she walked down the hallway, Doug approached her.

“I hear you’re going to be interviewing a new candidate today. Just remember, make

this company look good. No whining about your bad work experience.”

Stacy contained her anger when she entered the room and sat down in front of the

candidate. She did her best to act professional and stifle her emotions. The real

dilemma came when the candidate asked about the firm’s culture and how Stacy

personally liked working there. She swallowed. She did not know how to sugarcoat

her answer without making it an outright lie.

Questions | Exercises

1. Describe the deficiencies in ethical leadership at Stacy’s firm.

2. What type of conflict management style does Doug have? Are there more

constructive ways for him to handle conflicts with employees?

3. Describe the alternatives Stacy has answering the candidate’s question

and the advantages and disadvantages of each.

Leadership is a basic requirement for developing an ethical corporate culture and

reinforcing ethical decision making among employees. For this reason, we devote an entire

chapter to the leadership qualities that support ethical conduct in business. While it is

important to have a CEO and board of directors committed to ethical decision making, it is

equally important all employees understand their roles in becoming ethical leaders. There

are many examples of ethical leadership failures, resulting in ethical and legal crises that

damage firms. The former CEO of Diamond Foods led the company on a massive

acquisition spree using debt to finance the purchases. In order to make its financial

statements look better, the company used improper accounting methods to artificially inflate

earnings. As a result of this misconduct, Diamonds reputation suffered and both the

company and the CEO were forced to pay penalties to the Securities and Exchange

Commission for the fraud. On the other hand, companies such as IBM, Procter &

Gamble, and Zappos may have minor ethical transgressions; however, their leadership

keeps them on the right course in responding appropriately and recovering from ethical

issues. Many companies founded by ethical leaders such as Milton Hershey, founder of

Hershey Foods, experienced few ethical crises over the years.

This chapter demonstrates the importance of leadership in creating an ethical culture. We

first provide a definition of ethical leadership and explore its relationship to ethical decision

making. Next, requirements of ethical leadership are provided, followed by how ethical

leadership benefits the company. The relationship between ethical leadership and

organizational culture is examined, as well as ways ethical leaders can manage conflict.

Managing conflict appropriately identifies potential issues and reinforces a firm’s ethical

climate. An important part of leadership is the implementation of employee-centered

leadership. Employee-centered leadership recognizes that while not everyone will be a

manager, every employee can and should practice leadership skills to support ethical

decision making. An essential component of employee-centered leadership is

communication. Without communication all attempts at maintaining an ethical culture fail.

We describe common ethical leadership styles proven effective in building an ethical

corporate culture. Finally, we conclude with a model to address ethical issues and

misconduct disasters. Leaders can use this model to guide the firm’s ethical culture, detect

ethical risk areas before they become problematic, and develop methods of recovery if an

unethical decision or disaster occurs.

It should be obvious that ethical companies are not 100 percent misconduct free. There will

always be employees or managers that push the boundaries of acceptable conduct as well

as situations not anticipated in ethics, compliance, or risk assessment programs. Recall the

10-40-40-10 rule in employee conduct; people are motivated by different values, resulting in

ethical diversity. Additionally, ethics programs can always be improved, making it important

to periodically audit the program to uncover weaknesses. Similarly, ethical leaders have

weaknesses and are not free from mistakes, or lapses and blind spots, in oversight. What

separates them from unethical leaders is how they respond to ethical issues, interact with

stakeholders, and learn from their mistakes. All managers and most employees will witness

misconduct at some point in their careers. What is important is how they respond to it.

Chapter 11: Ethical Leadership Chapter Introduction Book Title: Business Ethics: Ethical Decision Making and Cases Printed By: Kennisha Holloman (kholloman@grantham.edu) © 2019 Cengage Learning, Cengage Learning

© 2020 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder.

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