Several attempts have been made to guide human behaviour by establishing norms and values. These norms and values constitute a significant portion of a given community’s culture. No community or organisation can exist without norms and values. Likewise, businesses cannot exist without the institution of a robust moral code that guides the behaviour of employees with respect to what is right and wrong.
Norms and values have existed from the very day of creation when man was given instructions to guide his conduct and behaviour in the Garden of Eden. Right there in the garden, he was charged to be a steward of God’s creation; and this could be viewed as the first form of human governance on earth.
The outcome of man’s actions in the garden, however, proves that the struggle to do right or wrong, both in the presence and absence of rules and regulations, is an inherently human problem. This is the case in every human institution as well. However, through the able tutorship of ethical leaders, rules and regulations of organisations will be complied with, and they will achieve their goals.
Corporate governance and ethical leadership
Corporate governance has been defined by the Organisation for Economic Cooperation and Development (OECD) as systems and processes within and by which authority is exercised and controlled in corporations, and the mechanisms by which corporate bodies and their leadership are held accountable.
The OECD goes on to state that the policies, procedures and structures put in place when managing an entity’s activities are crucial to the growth and sustainability of that entity. Good corporate governance therefore goes beyond taking strategic decisions; it also includes creating an organisational culture that supports ethical behaviour relevant to achieving organisational goals and objectives. At the centre of good corporate governance is ethical leadership.
Ethical leadership is a form of leadership whereby individuals demonstrate acceptable and appropriate conduct for the common good of an organisation. It includes establishing a set of sound principles and values. These values and principles include but are not limited to decency, integrity, trust, transparency and accountability.
One key component of ethical leadership is creating a system that supports fair treatment of individuals that any corporate entity interacts with, regardless of their status, ethnicity, age, race or political affiliation. Ethical leadership requires the integration of diversity and inclusiveness in the general architecture of an organisation’s culture. Diversity goes beyond race, gender, religious orientation or any like categorisation. It also includes thinking styles, personality types, and cognitive abilities. Organisational leaders must recognise that collaborative experiences from different cultures, identities and ethnicities strengthen an institution.
Ethical leadership requires that the right signals are sent to subordinates when they behave inappropriately. Corporate leaders must communicate the organisation’s culture to promote moral behaviour among their subordinates. Leaders must not make exceptions for unethical behaviour. Leaders should have zero-tolerance for behaviour that is seen to be very unethical. In doing so, they build consistency and credibility and avoid confusion and doubts about accepted behaviour.
The need for ethical leadership
In recent years, the high number of corporate fraud scandals and malpractices have renewed general interest in ethical leadership. The unexpected collapse and rampant demise of well-established corporate bodies such as Enron and WorldCom in America, and the collapse of numerous financial institutions in Ghana, have led to the increased interest in ethical leadership.
Embezzlement and financial impropriety, creation of fake revenue and receivables, procurement breaches and inflation of contracts – to mention a few – are grave cancers killing many institutions in Ghana. Corporate leaders who are deaf to ethical issues usually rationalise their unethical actions. Although often complained of in political and national governance, this behaviour is mostly predominant in the corporate environment and institutional management.
Interestingly, most corporate institutions in Ghana have professionals serving on their boards. These professionals, including lawyers, accountants, engineers and IT personnel, have all signed up to some code of conduct that prescribes the ethical values required by them per their profession. However, the presence of such professionals has not eliminated the ethical challenges which corporate entities face daily.
It must be noted that being a professional goes beyond passing one’s exams or obtaining the right competencies and experience. Being a professional also includes abiding by the code of conduct of their respective professions; especially when such professionals are called upon to act in their professional capacity on boards.
Integrity, the centre of ethical leadership
At the centre of ethical leadership is integrity. Corporate leaders must act with integrity. Many scholars have argued severally that a degree of dishonesty is required in every business. This degree of dishonesty, though minute, is purported to keep the company afloat. Unfortunately, such leaders who spearhead acts of dishonesty do not consider the fact that once the dishonest act is found out, they may lose trust with stakeholders of the company. These acts of dishonesty will inadvertently affect the company’s goodwill.
A company that is otherwise thriving on the business market can come crashing down in seconds just because of one act of dishonesty. Is it worth it? Is it worth the shame and disgrace that will be brought on not only the leader but also the company and its stakeholders at large? The answer is of course a big “no”! The leadership of corporate institutions should place the value of honest behaviour far above any profit or gain that they may derive from dishonesty.
Leading by example
Corporate leaders must act ethically as an inspiration to their subordinates. Subordinates look up to their leaders for ethical guidance. Their subordinates replicate leaders’ unethical actions more than their ethical actions. Sometimes, leaders act with little self-reflection. Corporate leaders must incorporate self-reflection into their ethical leadership practices.
Self-reflection requires that leaders question their actions to ensure that all decisions being made are in the organisation’s best interest. The unethical behaviour of leaders can erode the organisational brand when not checked and curbed.
Corporate leaders must practice what they preach. Leaders must appropriately align their values, words, and deeds. If they do not hold themselves to the same standards they hold their subordinates to, their credibility and reputation will suffer. To lead by example, leaders must make a conscious effort daily. Leading by example is a conscious choice that must be made daily.
The need to display exemplary ethical behaviour is not restricted to the stakeholders including shareholders, employees, customers, suppliers and the broader community of persons who interact with a business. The leadership of any organisation is expected and required to demonstrate exceptional ethical leadership to ensure the company experiences steady growth.
Merits of ethical leadership in an organisation
Knowing how to behave in the workplace and how to lead others to behave appropriately is essential to building an organisation’s reputation.
Reputation is built on repetition. Persons charged with governance must consistently and continuously exhibit ethical behaviour. Customers are always excited to do business with institutions generally perceived to have a solid inclination to good ethical behaviour. Customers’ loyalty increases when they perceive and witness ethical leadership; which trickles down to the quality of goods and services rendered by companies.
Quite apart from the growth that businesses experience when there is ethical leadership, the ripple-effect of positive employee behaviour occurs. It helps build a culture of trust and respect, which accrues significant benefits to the organisation; such as lower employee turnover, higher productivity and loyalty.
The strength of an entity’s governance system, in essence, has a direct bearing on its growth and sustainability. For the smooth functioning of corporate governance, ethical behaviour – especially by the leadership – is essential. Ethics should be at the heart of corporate governance.
The company’s success rises and falls with ethics; thus, every organisation should take careful steps to ensure that ethical leadership is not only seen to be demonstrated but is exhibited with a touch of excellence. Negligence of business ethics in corporate governance can indubitably lead to corporate failure.
Frank is a member of the Institute of Chartered Accountants (Ghana), Chartered Institute of Management Accountants (UK), Chartered Global Investment Analysts Institute (USA) and Chartered Institute of Taxation (Ghana).
Email: [email protected]
Lauraine is a Lawyer called to the Ghana Bar. She is a Junior Associate at Ghartey & Ghartey Law Firm. She holds an LLM in International Business Law from Osgoode Hall Law School-York University, Canada.
Email: [email protected]