Literature review - Ethics in Leadership

Introduction:

Leadership is not merely an innate talent or a result of formal education; it is a journey

of intentional growth. This article explores the essential connection between ethics and
leadership, highlighting the significance of ethical decision-making and its impact on
individuals, organizations, and society as a whole by analyzing the case study of The
Wells Fargo scandal. Drawing insights from various authors and researchers, we will
delve into the role of ethics in shaping effective leadership and examine the importance
of values, character, and ethical behavior in today's complex and ever-changing world.

Literature review

The Foundation of Ethical Leadership:

Bowen H. "Buzz" McCoy rightly emphasizes that becoming a leader is an intentional

process of growth that extends beyond genetic predisposition or educational
qualifications. It demands the will to face an array of tests, large and small, that push
individuals to define their values, character, and leadership style. Ethical decision-
making lies at the heart of leadership, as Joanne B. Ciulla asserts in her classic book,
"Ethics, the Heart of Leadership." Leaders must bear the ethical burdens that come with
their position of power and strive to cast light rather than shadow.

The existing body of research encompasses a comprehensive literature review

exploring the intricate relationship between leadership and ethics. Various theories and
empirical studies have shed light on the critical importance of ethical leadership within
organizational settings and its significant impact on outcomes. Notable theories,
including transformational leadership, servant leadership, and authentic leadership,
underscore the ethical dimensions of leadership by emphasizing the inspiration of
followers and the cultivation of a positive organizational culture. Empirical evidence
consistently demonstrates a strong correlation between ethical leadership and desirable
employee outcomes, such as job satisfaction, engagement, commitment, and
organizational citizenship behavior, ultimately leading to enhanced overall performance
(Brown et al., 2005; Piccolo et al., 2010).

The Consequences of Unethical Leadership:

History is replete with examples of unethical decision-making and the devastating

impact it can have. Numerous corporate scandals, such as Enron and Bernie Madoff's
Ponzi scheme, along with instances of fraudulent practices in various industries,
including finance and sports, have shaken public trust. Unethical behavior not only
tarnishes careers but also damages reputations and erodes the fabric of organizations
and society. It is evident that a dire need exists for ethics to be an integral part of
leadership.

Understanding Ethical Dilemmas:

Ethical dilemmas arise when important values clash, requiring leaders to make difficult
choices. Kidder's classification of ethical dilemmas sheds light on these conflicts. The
truth versus loyalty dilemma, the justice versus mercy dilemma, the individual versus
community paradigm, and the short-term versus long-term dilemma are all examples
that challenge leaders to prioritize and strike a balance between conflicting values.

Developing Moral Courage

Moral courage plays a crucial role in ethical leadership. It involves the application of
values, recognition of risks, and enduring hardships to make ethically sound decisions.
Leaders must demonstrate perseverance and commit to doing the right thing
consistently, even when faced with distractions and justifications for unethical behavior.
Whistleblowing, as an act of moral courage, holds the potential to expose wrongdoing
and bring about necessary change.

Codes of Conduct and Ethics Training

Establishing a code of conduct provides a written framework to guide ethical decision-

making within organizations. A well-crafted code, such as Johnson & Johnson's
"Credo," helps clarify an organization's values and principles, fostering a positive public
identity and enhancing trust among stakeholders. Additionally, ethics training empowers
employees to identify and navigate ethical dilemmas effectively. Participation from all
levels of the organization, including leadership, is crucial for the program's success.

The Role of Leadership in Promoting Ethical Behavior

Leaders must lead by example and actively practice ethical behavior to create an ethical
environment within their organizations. Ethical decision-making should be
acknowledged, rewarded, and integrated into the fabric of daily operations. A positive
approach to ethics, rather than a punitive one, cultivates a culture of integrity and
accountability.

Case Study - The Wells Fargo fraudulent account scandal

The Wells Fargo fraudulent account scandal serves as a prime example highlighting the
significance of ethical leadership and its role in preventing misconduct within
organizations. The scandal, which unfolded in 2016, involved Wells Fargo employees
opening unauthorized accounts and credit cards for customers without their knowledge
or consent, leading to financial harm and a breach of trust. This unethical behavior was
driven by the intense pressure to meet aggressive sales targets set by the organization,
putting profits above ethical considerations (McLean & Nocera, 2016).

The foundation of ethical leadership emphasizes the importance of values, character,

and ethical decision-making. In the case of Wells Fargo, the lack of ethical leadership at
various levels of the organization allowed the fraudulent practices to persist. Leaders
failed to prioritize ethical behavior and create a culture that valued integrity. The
relentless pursuit of short-term financial gains took precedence over the well-being of
customers and adherence to ethical standards. In fact, employees who attempted to
raise concerns about the unethical practices faced retaliation and were often
marginalized or terminated (O'Brien, 2016).
Understanding ethical dilemmas is a crucial component of examining the Wells Fargo
scandal in the context of ethics and leadership. The scandal highlighted the ethical
challenges faced by employees who found themselves in a truth versus loyalty
dilemma. On one hand, they had the moral obligation to be truthful about the fraudulent
practices occurring within the organization. On the other hand, they faced pressure to
remain loyal to their organization and conform to its goals and expectations.

In an ethical leadership framework, leaders are responsible for creating an environment

that encourages ethical behavior and supports employees in navigating such dilemmas.
However, in the case of Wells Fargo, the lack of support for whistleblowing exacerbated
the ethical challenges faced by employees. Many of them feared the potential
consequences of speaking out, including losing their jobs or facing retaliation from
superiors who promoted the unethical practices (McLean & Nocera, 2016).

This aspect underscores the critical role of leadership in fostering an ethical

environment where employees feel safe and empowered to raise concerns without fear
of reprisal. Ethical leaders prioritize open communication, transparency, and
accountability. They create a culture that values integrity, ethical decision-making, and
encourages employees to speak up when they witness misconduct or unethical
behavior.

Leadership's response to ethical dilemmas is a defining factor in shaping the ethical

culture of an organization. In the case of Wells Fargo, the failure of leadership to
address the truth versus loyalty dilemma contributed to the persistence of fraudulent
practices. Leaders must demonstrate moral courage and make difficult decisions that
prioritize ethical considerations over short-term gains or organizational pressures.

Moreover, ethical leadership involves providing the necessary support and protection for
whistleblowers. Encouraging a culture where employees feel safe to voice their
concerns without fear of retaliation is essential. Leaders should establish channels for
reporting misconduct, ensure confidentiality, and implement non-retaliation policies to
create an environment conducive to ethical behavior.
The Wells Fargo scandal serves as a cautionary tale, illustrating the vital connection
between ethics, leadership, and the management of ethical dilemmas. Ethical leaders
understand the complexity of these dilemmas and work towards creating an
organizational culture that values truth, integrity, and ethical decision-making. By doing
so, they foster an environment where employees are empowered to make the right
choices, even in challenging circumstances.

The consequences of unethical leadership are evident in the aftermath of the scandal.
Wells Fargo suffered severe reputational damage, loss of public trust, and faced legal
and regulatory consequences. The scandal showcased the devastating impact of
unethical behavior on both individuals and the organization as a whole. Thousands of
employees were terminated, and top executives faced public scrutiny and
Congressional hearings. Shareholder value significantly declined, and the bank had to
pay hefty fines and settlements totaling millions of dollars. The Wells Fargo case serves
as a reminder that ethical leadership is not just a moral obligation but also a strategic
imperative to protect the long-term viability and sustainability of an organization
(O'Brien, 2016).

The Wells Fargo scandal highlights the significance of codes of conduct and ethics
training in promoting ethical behavior within organizations. A well-crafted code of
conduct serves as a roadmap for employees and leaders, outlining the expected
standards of ethical decision-making and behavior. It provides clear guidelines and
principles that guide actions and reinforce the organization's commitment to ethical
practices.

In the case of Wells Fargo, a robust code of conduct that prioritized customer welfare
and ethical conduct could have played a vital role in preventing the fraudulent behavior
that occurred. It would have served as a guiding framework, reminding employees of
their ethical responsibilities and the importance of maintaining integrity in their actions.

However, it is important to note that a code of conduct alone is insufficient if it is not

actively supported and enforced by leadership. In the case of Wells Fargo, the unethical
practices persisted due to a lack of accountability and oversight by senior leaders. The
failure of leadership to uphold the values and principles outlined in the code of conduct
allowed unethical behavior to flourish within the organization (Shapiro, 2016).

Ethics training is also crucial in equipping employees with the knowledge and skills to
navigate ethical dilemmas effectively. It provides education on ethical decision-making,
raises awareness of potential ethical pitfalls, and encourages employees to apply
ethical principles in their day-to-day work. By investing in ethics training, organizations
empower their employees to make informed ethical choices and reinforce the
importance of ethical conduct throughout the organization.

In the case of Wells Fargo, the failure to ensure that ethics training was actively
practiced and supported by leadership contributed to the perpetuation of fraudulent
practices. The lack of emphasis on ethical decision-making and the absence of a strong
ethical culture allowed unethical behavior to go unchecked.

To prevent such ethical lapses, organizations must not only establish a comprehensive
code of conduct but also ensure that it is actively promoted, supported, and enforced by
leadership. Ethical leadership is essential in setting the tone at the top and fostering a
culture of integrity, accountability, and ethical behavior. When leaders consistently
demonstrate ethical conduct and actively reinforce the importance of ethical decision-
making, they create an environment where employees are more likely to make ethical
choices and prevent unethical behavior from occurring.

The Wells Fargo scandal serves as a powerful reminder of the importance of codes of
conduct and ethics training in promoting ethical behavior within organizations. A well-
crafted code of conduct sets the expectations for ethical decision-making, while ethics
training empowers employees to navigate ethical dilemmas effectively. However, these
efforts must be actively supported and enforced by ethical leadership to be truly
effective. By prioritizing ethics, organizations can establish a culture of integrity, prevent
ethical lapses, and safeguard their reputation and trustworthiness.
Furthermore, ethics training plays a vital role in empowering employees to identify and
navigate ethical dilemmas effectively. By providing education and resources on ethical
decision-making, organizations can equip their employees with the tools to make
ethically sound choices. However, it is not enough to simply provide training; it should
be an ongoing process that encourages open dialogue, promotes ethical awareness,
and fosters a culture of ethical conduct. In the case of Wells Fargo, the failure to ensure
that ethics training was supported and actively practiced by leadership allowed the
fraudulent practices to persist unchecked (O'Brien, 2016).

Ultimately, the Wells Fargo fraudulent account scandal is a stark reminder of the critical
role that ethical leadership plays in organizations. It demonstrates the need for leaders
to prioritize ethical behavior, establish a culture of integrity, and actively support and
reinforce ethical decision-making at all levels of the organization. By doing so,
organizations can avoid ethical lapses, maintain trust, and foster a positive reputation in
the eyes of their stakeholders.

Supporting evidence
Article 1 Organizational Ethics: A Practical Approach

The Wells Fargo scandal serves as a pertinent case study that exemplifies the
correlation between ethics and leadership, as highlighted by author Craig E. Johnson.
Conflict management is a crucial aspect of leadership, and managers often dedicate a
significant portion of their time to addressing workplace conflicts. Research suggests
that managers allocate approximately 20% to 40% of their time to conflict resolution
(Johnson, 2017). Ethical conflict management skills are essential for leaders to foster
collaboration and achieve organizational effectiveness.

Leaders face various challenges in their roles, including power dynamics, issues of
privilege, responsibility, and loyalty. Ethical conduct equips leaders to navigate these
challenges successfully (Johnson, 2017). The Wells Fargo scandal exemplifies the
consequences of unethical behavior within organizations. It resulted in reputational
damage, financial losses, reduced donations, and legal charges, impacting everyone
involved (Johnson, 2017). Integrating ethical practices into the organizational culture is
crucial to avoid such detrimental outcomes.

The research data and sources utilized support the correlation between ethics and
leadership. Ethical conduct not only enhances the work environment within
organizations but also establishes positive leadership that earns the respect and
commitment of employees. The Wells Fargo scandal serves as a cautionary tale,
highlighting the importance of ethics in leadership and the potential consequences of
disregarding ethical principles.

Ethics plays a vital role in leadership, and leaders who prioritize ethical behavior and
effectively manage conflicts contribute to the success and well-being of their
organizations. By implementing ethics in leadership practices, organizations can avoid
the negative consequences associated with unethical behavior and foster a positive and
productive work environment.

In conclusion, the Wells Fargo scandal serves as a cautionary tale, illustrating the
destructive consequences of unethical leadership and the critical importance of ethical
behavior in organizations. The scandal highlights the need for leaders to prioritize
values, make ethically sound decisions, and create a culture that fosters integrity and
accountability. Through the establishment of robust codes of conduct, ethics training,
and a commitment to ethical leadership, organizations can mitigate the risk of unethical
behavior and its damaging effects. By embodying ethical behavior and promoting an
ethical environment, leaders foster trust, strengthen organizations, and contribute to a
better world. As we navigate the complexities of the modern age, it is imperative that we
embrace ethics as a way of life and uphold its significance in leadership (McLean &
Nocera, 2016; O'Brien, 2016; Shapiro, 2016).

Conclusion

Overall, the article concludes that ethics and leadership are intricately connected, and
ethical conduct is crucial for creating positive impacts within organizations and society
as a whole. It emphasizes the need for leaders to prioritize ethics, develop ethical
competencies, and establish an ethical culture to foster trust, integrity, and ethical
behavior within their organizations. The evidence presented in the article supports the
correlation between ethics and leadership and highlights the significance of ethical
leadership in achieving positive organizational outcomes.

References:

McLean, B., & Nocera, J. (2016). Wells Fargo's pressure-cooker sales culture comes at a cost.
The New York Times. Retrieved from https://www.nytimes.com/2016/09/11/business/wells-
fargos-pressure-cooker-sales-culture-comes-at-a-cost.html

O'Brien, S. (2016). Wells Fargo fined $185M for fake accounts; 5,300 were fired. CNN
Business. Retrieved from https://money.cnn.com/2016/09/08/investing/wells-fargo-created-
phony-accounts-bank-fees/index.html

Shapiro, B. (2016). How Wells Fargo's culture may have spawned the bank's bogus account
scandal. NPR. Retrieved from https://www.npr.org/2016/09/15/494063244/how-wells-fargos-
culture-may-have-spawned-the-banks-bogus-account-scandal