The Hard Truth: America is desperately in need of ethical leadership

Courtesy of Wikimedia Commons | Since 2015, Volkswagen has faced severe public backlash after admitting to its role in the emissions scandal.


Noah Wilbur | Opinions Editor

In the last century, Americans have stood by and watched prominent businessmen — such as Cornelius Vanderbilt and John D. Rockefeller — flout long-standing laws and focus solely on increasing the bottom-line while ignoring any moral compass.

Unethical behavior has become commonplace across the U.S. since then as a growing number of existing firms and start-ups attempt to exploit loopholes in our codified law — and even flat out break the law in many cases — for the simple purpose of achieving further monetary gain and strengthening their competitive advantages.

From Volkswagen and Wells Fargo, to Monsanto and Theranos, there is a lengthy list of companies who failed to encourage and promote ethical values and thus faced extensive public backlash in addition to tremendous expenditures related to reparations, civil settlements and the like.

Let’s consider the Volkswagen emissions scandal as a real-life case. In 2015, the Environmental Protection Agency (EPA) accused Volkswagen of knowingly rigging thousands of vehicles by installing software designed to falsely pass emissions tests in the U.S. This misconduct eventually led to over $30 billion in reparations and civil fines alone — a costly reminder of the consequences that arise by failing to foster an ethical culture.

The point being, as the preceding evidence makes abundantly clear, unethical behavior is widely prevalent throughout the American business community due to the lack of ethical leadership from senior management, supervisors and other administrative personnel.

What’s most interesting to me is that the top leadership teams of major corporations as well as young ambitious start-ups continue to engage in impropriety even though considerable research — and common sense — proves that such behavior is damaging and inevitably leads to financial distress and brand reputation loss.

In fact, several new studies confirm that ethical leadership is indeed imperative for ensuring the long-run health of a firm as it improves profitability and productivity while also enhancing brand reputation.

For example, according to Linking Ethical Leadership to Employee Well-Being: The Role of Trust in Supervisor, ethical leadership actually increases productivity among the workforce for the simple reason that employees have greater trust in those superiors who demonstrate principled and honest decision-making.

In particular, the study discovered a significantly positive relationship between ethical leadership and trust in the supervisor. In addition, it also claimed that a positive correlation exists between trust and work engagement, as well as a negative correlation between trust and emotional exhaustion.

Put simply, when trust exists between employees and their superiors, productivity rises because employees are less emotionally exhausted, more motivated and more engaged with the tasks at hand. Businesses then reap the benefits of more efficient operations and internal processes.

Not to mention, consumers are increasingly uninterested in companies involved in questionable business practices who also lack any social commitment. A survey from Mintel found that 56% of U.S. consumers quit purchasing from businesses perceived as unethical. What’s more, it revealed that over 35% of consumers will stop buying from brands perceived as unethical even if no substitute is readily available.

Most importantly, there is widely-known and credible research confirming the fact that firms led by ethical leaders are more profitable in the long-run relative to their unethical counterparts. The United Kingdom’s Institute of Business Ethics (IBE), in a comprehensive study lasting several months, concluded that companies demonstrating an “ethical culture” financially outperformed in three critical profitability measures: market value added, economic value added and price-to-earnings ratio.

Although progress has admittedly been made in recent years, there is still plenty of room for improvement as every other day it seems a new story emerges of another distinguished enterprise partaking in questionable behavior that is either completely illegal or right on the verge of breaking the law.

In order to foster an inclusive and thriving business community in America, it is imperative that businesses both large and small reevaluate, clean up their act and focus on principles that drive value to all stakeholders involved, not just the shareholders in search of a handsome return for their investments.