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Leadership and business ethics

Are leaders wolves for business ethics?

Valérie Petit and Sarah E. Saint-Michel

In the Nicomachean Ethics, Aristotle reminds us that we learn about morality not only in treatises but also, and perhaps above all, by observing and imitating the virtue of others and particularly that of powerful individuals whom we refer to as leaders (Aristotle 382–322 bce; see 1999). In contemporary society, what better medium than the cinema to depict the vices and virtues of the powerful? An archetypal film on leadership and business ethics, The Wolf of Wall Street (Scorsese 2013), offers a case study of ethics and leadership in the context of business. Situated in the hurly burly of Wall Street in 1980s America, the film tells the story of the rise, fall, and redemption of a young stockbroker, Jordan Belfort. The story of power, business, and ethics may serve as motif for an exploration of the complexities of business leadership and its ethical (or non-ethical) dimensions.

The Wolf of Wall Street is a well-known story inspired by events during the emergence of the financial capitalism that continues to dominate today’s globalized economy. The career of Jordan Belfort (played by Leonardo DiCaprio) begins with the stock market crash of 1987 and the subsequent bankruptcy of the firm where the young stockbroker had started his career. Faced with difficult circumstances, Belfort and an associate set up a stockbroking firm, which enjoys rapid—and undisguised—success. Underpinning this success is their willingness to engage in circumventions of the law, as well as fraudulent practices (such as the “pump and dump” by which clients are manipulated to buy a stock which Belfort then sells at an inflated price). These actions prove effective because of the charisma and influence of Belfort. But the young broker crosses not only a legal line but a moral one: his hubris leads him to indulge in drugs, prostitutes, harassment, and violence (Petit and Bollaert 2012). In sum, Belfort becomes corrupted by power and money, and loses all sense of proportion and values, resulting in his downfall (including prison). The Wolf of Wall Street depicts a paradoxical business leader: a dominant figure who is the slave of his own addictions, as fascinating and charismatic as he is pathetic and vile in his appetite for excess.

With this story in mind, this chapter offers a comprehensive introduction to the concepts, theories and approaches to have emerged from leadership studies. The first section explores the relationship between leadership and business ethics, focusing on the question of whether the very idea of leadership should include an ethical component. It turns out that, for many scholars, there is a contested and unresolved debate as to whether leadership may be construed in neutral or in ethical terms. The second section focuses on the main models and theories of “ethical leadership.” The third section concentrates on the personal characteristics of leaders—their character and psychology, vices and virtues. The fourth section explores a series of issues related, in a broad sense, to social responsibility, including questions of diversity in corporate leadership.

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Theoretical foundations: desperately seeking ethics in leadership

Il n’est pas deux peuples sur la surface du globe qui soient vertueux de la même manière.¹

Marquis de Sade, Justine ou les malheurs de la vertu

Is Jordan Belfort a leader? One viewer might suggest that, yes, this charismatic, intelligent and self-confident individual is a leader because he managed to get hundreds of employees and clients on board, all willing to believe and do anything for him. However, another might disagree, pointing out that Belfort’s very lack of morals, in both his goals and the means he employs to achieve them, disqualify him outright from the category of leader. This second view sees Belfort less as a leader than a manipulator and tyrant. On this view no individual can be considered a leader if that person disregards the law and the moral obligations that should be otherwise linked with the responsibility that comes with exercising power, including running a company. But the first view takes a rather Machiavellian perspective: ethics is no more than an optional facet of leadership, so all that counts is the effectiveness of one’s influence. How we describe Belfort, therefore, hinges on a key challenge facing anyone who wants to understand the relationship between leadership and business ethics. Before turning directly to this debate on ethics and leadership, it might be helpful to examine several salient definitions of the very idea of leadership.

Defining leadership

Leadership is a wide-ranging concept and area of research (Bass 2008) that has generated a volume of publications whose enormity may suggest the disproportionate fascination that the subject of power holds for thinkers (Meindl 1995). Nonetheless, the words of James MacGregor Burns remain pertinent: “Leadership is one of the most observed and least understood phenomena on earth” (Burns 1978: 2).

There is now relative consensus in the field as to how to define leadership. One commonly used definition, which nonetheless seems circular, characterizes leadership as, “a multidirectional influence relationship between a leader and followers with the mutual purpose of accomplishing real change” (Rost 1993: 92). A more recent and accurate account defines leadership in terms of, “the process of influencing others to understand and agree about what needs to be done and how to do it, and the process of facilitating individual and collective efforts to accomplish shared objectives” (Yukl 2010: 26). The second definition reminds us that leadership is a relational and interpersonal phenomenon manifest in the reciprocal (though distinct) influences between a leader (or several when it is shared) and his followers as they act together toward some shared ends.

The influence of the leader is drawn mainly from the representations (beliefs), desires, and behavior of actors rather than on coercive or manipulative means. In this vein, researchers view leadership as rooted chiefly in the behavior of and relationships among actors rather than as derivative simply from the position, status, power, or expertise of the leader. Many academics draw a distinction between power (an individual’s capacity to act) and leadership, a form of influence drawn from an individual’s capacity to get other individuals to do what he wants without resorting to coercion, manipulation, or constraint. However, leadership must be distinguished from another kind of influence, social influence, which relies not on the beliefs and consent of actors but on group norms and group pressure. In sum, leadership is the result of a process in which followers freely and voluntarily recognize an individual’s leadership (leadership attribution). Recognition leads to commitment and obedience.

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Since the interpersonal influence of leadership can draw strength from various behaviors and triggers (whether rational, emotional, or value-based), it is possible to explain the diversity found in leadership styles and in leaders themselves. Similarly, while the goals of leadership are always common goals, they can reflect diverse aspirations: economic performance, change, perhaps general well-being, even the preservation of the status quo. Given that leadership forms are extremely diverse, one question that has occupied researchers since the 1980s has less to do with identifying the characteristics of the “good leader” than in understanding this changing phenomenon and the harmony between leadership style and the circumstances of an organization. Such harmony is an important factor in leadership performance and can ensure its positive impact; nevertheless, beyond this consensus about the nature of leadership, many issues remains unresolved.

Among these questions is, as noted at the beginning of this section, whether leadership is always moral. In so far as Joseph Rost specifies that leadership aims towards “real change,” then one may infer that his definition locates ethics—the idea of a real, positive, or beneficial change—at the heart of leadership. Yet Gary Yukl’s definition, which appeals to influence, understanding, and “shared objectives,” does not seem to mention ethics. Is leadership qua leadership inherently ethical? Or, alternatively, is effective leadership ethical?

Articulating leadership and ethics

Most research studies on leadership have long concentrated on explaining leadership in terms of effectiveness. Whereas explicit definitions of leadership maintained this task-oriented and morally neutral approach, a moral dimension, like a return of the repressed, has been re-introduced to rework the theories and models of leadership, perhaps spurred by the academic hope of finding the answer to the question raised by philosophers about power: “Implicit in all these theories . . . is an ethical question. Are leaders more effective when they are nice to people, or are leaders more effective when they use certain techniques for structuring and ordering tasks?” (Ciulla 1995: 14).

By articulating this implicit question, Joanne Ciulla not only clarifies (1995) the crux of the relationship between leadership and business ethics but indicates why so many theories try to empirically demonstrate that the good leader not only achieves goals but also demonstrates consideration for people. This desire to understand not just effective leadership but “good effective leadership” explains why ethics specialists describe most leadership theories as “normative” (Ciulla 2013). This normative issue has consequence on the conceptual articulation of leadership and ethics: Ciulla distinguishes between two different ways of combining these two concepts: either ethics is a contingent modality, dimension or consequence of leadership, though not essential to the concept itself, or one speaks of leadership as inherently ethical. For example, Ciulla asks, “How do you answer the question, ‘Is Hitler a leader?’” (1995: 13). If leadership is inherently ethical, then Hitler was not simply a bad leader but no leader at all. On the other hand, based on the non-moral criterion of effectiveness, then one could inquire as to whether Hitler was an effective leader in achieving his aims and those of his followers. As these two perspectives reveal, the articulation between ethics and leadership remains ambiguous. As noted by Ciulla, beyond the ambivalence of scholars themselves, we have to deal with the paradoxical nature of power and leadership: “Power is one source of immorality for leaders and morality is one source of power for leaders” (2005: 327).

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But why is this discussion about a normative foundation to leadership theories so important? The term leader in contemporary society is one that is highly valued and valuable. The fact that it can be used to describe individuals who are indiscriminately immoral seems problematic, especially if the criterion of leadership is the chief basis on which we select and evaluate our future corporate leaders. In the following sections we explore some contemporary work on business ethics and leadership, even as many of these inquiries do not distinguish adequately the ambiguity at the heart of leadership and ethics (Smith and Lewis 2011).

The moral manager: navigating ethical leadership

Like pornography, we only recognize moral leadership when we see it. The problem is, we so rarely see it.

(Gini 2004: 40)

At what point does the sight of Jordan Belfort’s behavior begin to put us ill at ease? Is it his initial lies as he begins to win over naive clients? The scenes of sexual orgies and cocaine consumption on company premises? Or his insider trading, tax fraud, and blind disregard for the consequences of his behavior for his colleagues? Or perhaps we need to wait for the reaction of the tax authorities before suddenly overcoming our fascination for this charismatic leader and discovering with horror the extent of his depravations? In many respects, the history of theories about ethical leadership is also a story about a delayed and horrified response from leadership and management academics as they observed scandalous behavior among some business leaders and realised that it was widespread at the highest level in companies. In the realm of business, most theories describe a virtuous model of leadership and contrast it with unethical behavior. The authors seek to show, with varying degrees of awareness, that their models of moral leadership also prove economically effective. Clearly most of these theories are normative, at least in the sense that they attach, contingently if not essentially, a notion of ethics to their definitions of leadership (Ciulla et al. 2013). The ethical conceptions reflect, typically, the implicit moral norms of the authors or the period and culture in which they live.

Servant leadership: the spiritual approach

The theory of servant leadership is often presented as one of the oldest theories of ethical leadership in the field of leadership studies (Parris and Peachey 2013). Developed in the United States in the late 1970s by Robert Greenleaf, a former manager of research at AT&T, the servant leadership theory breaks with the traditional vision of the leader (Greenleaf 1977). Greenleaf has defended the idea that leaders must put the needs of followers before their own needs, thereby upholding the moral obligation to serve others. “The servant leader . . . begins with the natural feeling that one wants to serve, to serve first. Then conscious choice brings one to aspire to lead” (Greenleaf 1977: 13–14).

More recently researchers have proposed a scale to measure servant leadership that includes five dimensions: altruism, egalitarianism, community-building, interpersonal support, and moral integrity (Liden et al. 2008; Reed et al. 2011). Some empirical studies show the positive effects of servant leadership on the performance and ethics of staff and organizations: a servant-led organization enhances leader trust and organizational trust (Joseph and Winston 2005); organizational citizenship behavior, procedural justice (Ehrhart 2004; Walumbwa et al. 2010); prosocial and altruistic behavior (Ebener and O’Connell 2010; Hu and Liden 2011; Ehrhart 2004; Walumbwa et al. 2010); and team and leader effectiveness (Mayer et al. 2009; Schaubroeck et al. 2012).

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But, beyond its popularity and its positive effects on organizations and companies in particular, the servant leadership theory illustrates not only a critique of then existing models of leadership but, above all, the explicit and conscious return of morality to the heart of leadership. The originality of servant leadership rests in its use of spirituality (Fry 2003), especially Christian spirituality, to bring about this return of morality. The apostle Mark wrote that Jesus told his disciples: “whoever wants to become great among you must be your servant, and whoever wants to be first must be slave of all” (Mark 10: 43–44). But Greenleaf added that he had been inspired by reading Journey to the East, the spiritual novel by Herman Hesse (2013), whose character of Leo exemplifies the servant leader par excellence yet whose leadership became apparent only after his death (Greenleaf 1977). Recent studies have also emphasised the link between servant leadership and the individual’s beliefs and spiritual practices (Fry 2003; Reave 2005; Freeman and Auster 2011). Yet in its operational details the servant leader also manifests the values of care—loving others, self-sacrifice, trusting others.

While the servant leadership theory follows a spiritual path to resituate morality at the heart of leadership, it also offers a critique of the dominant model of leadership and of the managerial culture in contemporary businesses. Here, the leader is in the unusual position of stewardship: he acts on behalf of others rather than on his own behalf. By respecting others and by ensuring sound relationships within the group, he makes certain the common good can be served by everyone collectively. Furthermore, the servant leader takes an egalitarian view of the leadership relationship, conceived more as a partnership that is based on the empowerment of others. The moral scope of this model is clear when one compares the servant leader with the abuses of power or the self-serving behavior of other leaders.

Transformational leadership: the ideals or value-based approach

The transformational leadership model is also regularly considered as an ethical model, even though, unlike servant leadership, its advocates do not explicitly emphasise this aspect (Bass and Stodgdill 2009). Unlike the servant approach, the transformational model emphasizes the actual transformation of the followers or of society and focuses on the more idealized, charismatic, and visionary qualities in a leader.

The origins of the transformational leadership model, as defined by Bernard Bass (Bass 1985), a psychology researcher, can be traced to the political science research of James MacGregor Burns (1978). Burns drew a distinction between the transactional and transformational styles. He considered the former to be the traditional form of leadership, focused on the exchange of resources (material or psychological) that occurs between a leader (who receives obedience) and followers (who receive material goods). The transformational approach looks to more elevated needs (self-fulfilment, pursuit of an idealised goal) and seeks to achieve the positive transformation of followers and ultimately of their environment. Drawing on Burns, Bruce J. Avolio and Bernard Bass (1991) set about describing the behavior of these transformational leaders, including those in business. They suggested that four behaviors contribute to the establishment of transformational leadership: idealised influence—the leader acts as a model of identification and projection for his followers, generates trust and admiration, and displays conduct consistent with the values he promotes; inspirational motivation—the leader motivates others by offering a vision that is full of meaning and generates enthusiasm and optimism; intellectual stimulation—the leader stimulates creativity and encourages his followers to change perspective without judging them; and individualized consideration—the leader plays a role as personal development coach, listens to and deals with each individual according to his or her uniqueness or talents.

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A number of empirical findings suggest that the transformational style is more effective in terms of followers’ work involvement (Meyer et al. 2002) and goal achievement than the transactional style and has a positive affect on these features: the psychological well being of followers (Meyer et al. 2002), self-efficacy (Dvir et al. 2002), psychological empowerment (Avolio et al. 2004), creativity (Hoyt and Blascowitch 2003), citizenship behavior (Podsakoff et al. 1996), and group cohesion (Bass et al. 2003). However, most likely due to its predominance, this model has been the subject of fierce debate when it comes to the importance it places on ethics.

In its original form, Bass’s model makes no mention of ethics or morality and thereby appears to break away from its two main sources of inspiration—Max Weber and J.M. Burns. The great German sociologist described the charismatic leader as belonging to a romantic and idealistic tradition in which the leader not only prophesises a better world but rattles the existing order with the strength of his conviction and values (Weber 1947; Petit 2012). The charismatic leader embodies the force of an ideal and proves to be a master at mobilising followers. Bass also seems to break from Burns, who had placed the moral commitment of the leader at the heart of transformational leadership: “such leadership occurs when one or more persons engage with others in such a way that leaders and followers raise one another to higher levels of motivation and morality” (Burns 1978: 2).

In reality, however, there was no split from either Weber or Burns: subsequent research and discussions on transformational leadership reveal the profoundly normative and moral nature of Bass’s model. Terry L. Price (2003) and Ciulla (2005) highlight the moral ambivalence of transformational leadership, suggesting that, yes, if we strictly adhere to Bass’s definition then we could argue that Hitler, based on his charisma, was at once a transformational and immoral leader who manipulated negative ideals and values and brought about a nightmarish transformation of Germany and Europe. However, when Bass was questioned about the place of morality in his model, he responded that truly transformational leadership is always moral and its means and its aims are guided by positive values; otherwise, the leader is pseudo-transformational (Bass and Steidlmeier 1999).

Authentic leadership and the virtue-based approach

Although servant leadership and transformational leadership are currently the two most studied ethical leadership models, others are emerging. The virtue-based approach and the ethics of care (which some categorise as part of virtue ethics; see Halwani 2003) is currently enjoying renewed interest (Crossan et al. 2013; Flynn 2008; Palanski and Yammarino 2007), and thus Aristotle and Confucius are invoked in studies of the foundations of leadership and the conduct of leaders.

One particular and very contemporary instance of the virtue-based approach is that of “authentic leadership,” as developed in the United States since 2000 (Gardner et al. 2011). The notion of authentic leadership was developed both by academics and professional leadership figures such as Bill George, former CEO of Medtronic (George and Sims 2007). In his book, co-written with Peter Sims and entitled True North: Discover Your Authentic Leadership, the authors unearthed the ancient notion of authenticity, or at least an ancient notion as reworked by latter day psychologists. Susan Harter, who embraces “positive psychology” (with its emphasis on the qualities that enable meaningful living), defines authenticity in terms of “owning one’s personal experiences, be they thoughts, emotions, needs, preferences or beliefs” and as desiring to know oneself and behave in a manner that is consistent with one’s values and personal opinions (Harter 2002: 382). Authentic leadership can be defined as “a pattern of leader behavior that draws upon and promotes both positive psychological capacities and a positive ethical climate, to foster greater self-awareness, an internalized moral perspective, balanced processing of information, and relational transparency on the part of leaders working with followers, fostering positive self-development” (Walumbwa et al. 2008: 94). Of course, these positive attributes, so generally phrased, could play a role just about everywhere in life, so it is incumbent on the defenders of authentic leadership to explain what is particularly distinct in their characterizations. Some have contended that authenticity requires a deep self-knowledge: To display authentic leadership, we must understand our true nature, what we believe and value, and act transparently towards our followers (Avolio et al. 2004).

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To assess authenticity in leadership some measurement scales have been developed (Walumbwa et al. 2008), the most commonly used being the Authentic Leadership Questionnaire (ALQ). This scale measures four dimensions: self-awareness (the individual can describe exactly who he is, his strengths, weaknesses and values), relational transparency (the person is transparent and honest), balanced processing (the person is objective yet open towards other opinions), and moral consistency (the individual acts in accordance with the values he promotes). The personal traits that provide the bases for authentic leadership include optimism, hope, resilience, and self-monitoring (Jensen and Luthans 2006), while its outcomes include satisfaction, motivation, commitment, civic mindedness, happiness among followers, along with a negative consequence of fatigue or “burnout” (Wong and Cummings 2009; Walumbwa et al. 2008; Jensen and Luthans 2006).

The theory of authenticity is closely linked to that of transformational leadership: it is an extension thereof and a response to criticisms of the moral ambivalence attached to the transformational leader. Even so, Ciulla’s objection (2013) continues to hold: the starting definition of authenticity is normative, yet it seems plausible that an individual could be both authentic and authentically tyrannical, driven by negative values and immoral goals.

Beyond the model of authentic leadership, a number of studies on virtuous leaders have flourished since the 2000s, perhaps inspired by positive psychology. Kim S. Cameron (2011: 25) summarizes the virtuous (or responsible) leader in three ways: “as being accountable for performance and being dependable in achieving promised performance”; as someone who has a certain amount of room for manoeuvre and a willingness to act with authority (Salancik and Meindl 1984); and as someone who has commitments towards different stakeholders within the organization (Maak and Pless 2006). Cameron argues that one central element has been overlooked—virtuousness—which he carefully distinguishes from virtue. He defines virtuousness as, “the most ennobling behaviours and outcomes, the excellence and essence of humankind, the best of the human condition, and the highest aspirations of humanity” (2011: 28).

Examples of virtuous leadership might be illustrated by the senior leaders at Prudential’s Relocation Company contacting senior executives at BP Oil Company shortly after the Gulf of Mexico oil spill. They offered to provide free relocation services from the UK to the US until the spill was cleaned up. The rationale: we want to help, and we think that it is the right thing to do (2011: 27).

Cameron suggests that virtuousness acts as a fixed point, as a reference for leaders. He thereby clearly accepts the normative dimension of his model and specifies the three assumptions that underpin it: a eudaemonic assumption that there is an inclination towards good in all humans; an inherent value assumption that virtuous action has no goal other than virtuousness, an end in itself; and an amplification assumption that virtuousness generates and sustains or amplifies positive energy. In conclusion, Cameron emphasises that responsible leadership with virtuousness helps identify a universally accepted standard for what leaders can consider the best for individuals and their organizations: “Virtuousness represents the best of what humankind aspires to achieve, and responsible leadership in pursuit of the highest good is a worthy aspiration” (Cameron 2011: 32).

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The moral person: exploring the character of business leaders

I want you to back yourself into a corner. Give yourself no choice but to succeed. Let the consequences of failure become so dire and so unthinkable that you’ll have no choice but to do whatever it takes to succeed.

Jordan Belfort, The Wolf of Wall Street

The story of Jordan Belfort reminds us of the negative way in which many of us perceive the lack of morality among some corporate leaders, whether we attribute the cause of this ethical weakness to the character of the individual (rotten apples theory) or to the power system that corrupts them (dirty hands theory). In this section we review relevant work dedicated to the qualities, personal or moral, of ethical and unethical leaders.

Ethical leaders

There are various ways of characterising the personality or character of ethical leaders. Some key aspects are highlighted below, including moral development, as well as particular virtues. A first question to ask is whether ethical leaders manifest a higher stage of moral development.

Cognitive moral development might seem crucial in manifesting ethical leadership. Al Gini (2004) suggests that ethical leaders have developed a higher stage of cognitive moral development, which itself refers to how a leader thinks about what is right or wrong and his or her capacity of principled reasoning (Kohlberg 1984). Notably, Lawrence Kohlberg’s model (1984) of development emphasises the individual’s path from family acceptance to social norms to a final stage at which one acts on self-chosen but universal moral rules. Individuals who have reached the final stage of moral development are more likely to manifest ethical behavior, i.e., integrity, honesty and high moral values (Gini 2004).

Similarly, the notion of morality, and moral identity in particular, is a key aspect in the personality of ethical leaders. Moral identity has been defined as “a self-conception organized around a set of moral traits [e.g., honesty, care, compassion]” (Aquino and Reed 2002: 1424). But not all individuals will possess such a self-conception and these individuals cannot, therefore, be ethical leaders. Leaders with a high moral identity are more likely to manifest behaviors in line with morality and ethics and to make strong efforts to find the best solution and carefully examine ethical perspectives (Mayer et al. 2012).

A second question regarding ethical leaders is whether these individuals possess special virtues or character strengths? One study (Peterson and Seligman 2004) identifies six traditional virtues (courage, temperance, justice, prudence, humanity, and transcendence) and twenty-four character traits that, typically, serve to enable ethical leadership. Subsequent work (Neubert et al. 2009) also suggests that these six virtues are powerful determinants for the characterization of ethical leaders. Acting ethically requires wisdom and knowledge to transmit new viewpoints, courage to take on established views, justice to put in place and sustain procedures that are equitable and fair for all, temperance to act with self-control and reflection, and lastly transcendence to offer a positive and enthusiastic vision of the future.

Unethical leaders

As a counterpoint to portraits of virtuous leaders, authors like Barbara Kellerman (2004) and Jean Lipman-Blumen (2006) offer a profile of “negative” leaders. They identify seven types of negative leaders and negative motivations: the incompetent, who have neither the motivation nor the ability to sustain effective action; the rigid, who can be competent but are unyielding and unable to accept new ideas; the intemperate, who lack self-control and are enabled by followers who either do not want to or cannot intervene; the callous, who are uncaring or unkind, ignoring the needs of followers; the corrupt, who lie, cheat and steal; the insular, who draw a clear boundary between the welfare of their immediate group and that of outsiders; and the evil, who commit atrocities, using their power to inflict severe physical or psychological harm. This classification has not been empirically validated but enables us to debate what we mean by the term negative leader. For Kellerman, a negative leader is unethical and has non-beneficial effects on those around him or her. But this impact is not only due to a lack of personal morality; it can also stem from two other deficits, which Kellerman does not address.

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One deficit may be cognitive: a leader causes harm due to his inability to correctly analyze the situation (Price 2003). The debate on this is open but requires development. Lamentably, the question of the cognitive capabilities of leaders is currently almost as taboo as that of their addictions, yet it is of critical importance in a world in which the amount of information and the speed with which it circulates are increasing exponentially.

Another deficit may arise from a personality disorder such as narcissism. This subject also needs careful consideration, especially in light of recent studies on narcissism in companies (see, for a review, Bollaert and Petit 2010). As early as the 1970s, Christopher Lasch (1979) highlighted the “culture of narcissism” in contemporary society. More recent research has revealed that narcissistic personalities progress more quickly and receive higher levels of recognition in companies (Spurk et al. 2016; see also Maccoby 2000). On the other hand, several studies in the fields of finance and behavioral strategy have shown that the hubris of corporate leaders has negative implications on company performance and organizational ethics (Petit and Bollaert 2012). However, few studies have focused on the antecedents of hubris, and in particular on the importance of individual and contextual factors that may encourage or discourage it (Owen and Davidson 2009).

Ethical leadership in the age of corporate social responsibility

Power is one source of immorality for leaders and morality is one source of power for leaders.

(Ciulla 2005: 327)

The story of Jordan Belfort exists alongside the rise of efforts to encourage corporate social responsibility (CSR). The misuse of leadership and the misbehavior of leaders has fueled an awareness within societies and companies of the necessity of responsible leadership. But what is leadership in the age of CSR? How might the corporate realm prevent the rise of a Jordan Belfort, James Cayne or Ken Lay? In this section we offer a broad approach to responsible leadership, which emphasises three challenges for responsible leaders: two of these pivot around power and its consequences, the third turns on new manifestations of diversity.

Preventing the intoxication of power

Corporate leadership gives a business leader great discretion and impact on his or her surroundings. Beyond the legitimacy they enjoy because of their position within a hierarchy, high-level managers are perceived as role models (Bandura 1977). The special power bestowed by their status raises two important questions.

The first concerns the possibility of negative consequences that might ensue for the leader and follower relationship. The reports on the Milgram experiment (1963) described the loss of agency that may occur among those who follow orders and no longer question the morality of a leader’s decision or their own conduct. Other studies of charismatic but particularly powerful leaders (Avolio and Yammarino 2002) reveal the risks of such an influence on followers (stress, burnout, lack of objectivity).

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A second issue is the ethics of the leader and his or her ability to resist the intoxicating appeals of power. The rise and fall of Jordan Belfort illuminates how a leader’s psyche and conduct can be affected by power. The intoxicating effects of power are captured in the classical Greek notion of hubris. As explained by Petit and Bollaert: “Hubris describes a sense of overweening pride, a defiance of the gods, which was then punished through the intervention of Nemesis, who wrought various forms of death and destruction on the hubristic hero and the general population” (2012: 23). The authors define hubris, in the context of business, as a consequence of great power given to an individual in a context of low regulation and few constraints on the leader’s behavior. They identify five species of conduct or belief that manifest business hubris: a grandiose sense of self; an overestimation of one’s abilities and likelihood of success; a sense of uniqueness; the belief that one is set above others; and the belief that neither the law or a higher power (God) should constrain one. The authors appeal to both corporate governance and culture, as well as leadership authenticity to counter the temptations of power.

There are many different ways of approaching such solutions but most research in this area has focused on the notion of ethical climate (Victor and Cullen 1988) or ethical culture (Treviño 1990)—the characteristics of the organization which do or do not support ethical behavior and attitudes among employees (Treviño et al. 1998). Drawing on social learning theory, Michael E. Brown and Linda K. Treviño (2006) suggest that a reward system that supports ethical conduct, the fair treatment of employees, and the infusion of ethical concerns into daily organizational decision-making should support ethical leadership over time. In this type of environment, ethical leadership is viewed as desirable, so leaders develop and maintain conduct that exemplifies, and conduces others to, ethical leadership. Similarly, the members of such organizations develop an acute sense of what constitutes ethical and fair behavior, have a heightened understanding of ethical problems, and avoid unethical behavior by discouraging undesirable conduct (Treviño 1986). The expectations associated with ethical leaders should take root in an ethical culture shared and understood by all members of their units, so that ethical leadership and ethical cognition and behavior become reinforcing (see Schaubroeck et al. 2012).

It is partly because the image of the trader had become one of decadence and cynicism that Jordan Belfort was able to model his behavior so that it coincided with this stereotypical image. Scorsese’s film is an illustration of the importance for Belfort at the beginning of his career of conforming to a model, which he felt was symbolic of traders. Inspired by these models, he adopted the attributes he perceived as typical of traders: disproportionate self-esteem, drug and alcohol consumption and cynicism. The model—and representation—of traders thereby shaped his behavior.

With this example in mind, let us now consider the effects of leadership expectations on leaders and leadership. The ultimate aim of implicit leadership theories is to explore how each individual defines what a leader is or should be (Lord et al. 1984). Individuals develop cognitive structures containing the character traits and behavior they expect in leaders (Lord et al. 1984). Followers categorise leaders based on a process of comparison against the prototype of an ideal category. Because leadership represents the phenomenon of influence, studies have correlated a leader’s behavior and the expectations of his followers (Lord and Maher 1993). So when a disparity arises between the expectations of followers and their appreciation of the behavior actually displayed by their leader, the followers tend to lose trust in him and even devalue his abilities, leading to the failure of the leadership process (Epitropaki and Martin 2005).

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Studies of the representations of leadership suggest that the loss of trust can be particularly harmful when leaders do not have the traditional characteristics of a leader, i.e., a man with qualities such as assertiveness, mastery, and combativeness (Eagly 1987; Eagly and Karau 2002). This is backed up by the metaphor “Think leader—Think male,” highlighted by Virginia Schein (1973, 1975). Studies have shown that followers devalue the leadership behavior of those (including females, blacks, or disabled persons) who do not conform to their expectations of their prototype of a leader (Heilman 2001). From this perspective we understand that some misconduct may also result from stereotyped expectations on the part of stakeholders and conformism on the part of leaders. As in The Wolf of Wall Street, representations of leadership in the case of traders can encourage leaders to behave in a way that is not necessarily natural for them. Brutality and decadence symbolised the image of the trader, and so Jordan Belfort sought to fashion his behavior in conformity with this representation.

Leadership and CSR: diversity, gender, cross-cultural management

As organizations become globalized, so too do their workforces. Workforce diversity refers to the composition of work units in terms of the cultural or demographic characteristics that are salient and symbolically meaningful in relationships among group members (DiTomaso et al. 2007: 474). Researchers have addressed a range of categorical differences, such as race (Dovidio et al. 2002), ethnicity (Portes and Rumbaut 1996), gender (Heilman 2012), sexual orientation (Ragins et al. 2003), physical ability (Colella and Varma 2001), and religion (Islam and Hewstone 1993). Through social categorisation (Turner and Tajfel 1986), individuals may be victims of inequality, stereotypes, and prejudices that lead to direct or indirect discrimination (Dipboye and Colella 2005), and thus find it difficult to access positions of power or leadership (DiTomaso et al. 2007).

However, the studies conducted on leadership are based, typically, on models that exclude all notions of diversity (Eagly and Chin 2010). The result of this omission is that a) researchers have not questioned the limited access of some individuals to leadership roles, and b) there has been a failure to identify the potential pool of available talent that could provide effective leadership but was historically excluded from leadership roles as it did not match the traditional vision thereof (Eagly and Chin 2010). Faced with these contemporary problems (Werhane 2007), the ethical leader cannot remain indifferent and should seek to raise awareness among those around him of these issues, either by informing or training his colleagues (Treviño et al. 2003). The consequences of discrimination may include less committed employees, increased staff turnover, and reputational damage (Goldman et al. 2006). Organizations must therefore rely on their leaders to push forward fair and ethical practices at an organizational level that allow for the inclusion of all employees without distinction. By putting in place such practices for all of their followers, ethical leaders can be perceived as role models who establish an inclusive work environment for all staff members (Shore et al. 2011).

Gender is a major element of diversity. Given that 39.6 percent of the world’s labor market are women (WorldBank 2014), and just 12 percent of board positions are held by women (Catalyst 2016), a more balanced representation of the two genders in positions of leadership seems important. Despite progress on the role of women in organizations, it remains strikingly clear that women are under-represented in leadership positions. What might explain this status quo? What role can ethical leaders play in moving forward?

Two main theories offer a framework that emphasizes the conflicting relationships between gender and leadership. Madeline Heilman (2001) articulated the lack of fit between women’s attributes (e.g., communal characteristics) and those required to succeed in a leadership role. Alice Eagly and Steven Karau (2002) also promoted this idea in their role congruity theory; the mismatch between women’s typified gender role (e.g., communal characteristics) and the leader’s expected role (e.g., independent decision-making, for example) produces biased evaluations. Therefore, both the lack-of-fit model and the role congruity theory suggest that expectations about female attributes induce two kinds of norms: descriptive beliefs designate what women and men are like—the consensual expectations about what member groups do (Heilman 2012); and prescriptive beliefs designate injunctive norms about what women and men should be—the consensual expectations about what group members should ideally do (Cialdini and Trost 1998). Therefore, women in leadership positions are the targets of two forms of prejudice (Eagly and Karau 2002): 1) less favourable evaluations of their potential to carry out leadership functions, compared with their male counterparts; and 2) less favourable evaluations of their actual leadership behavior because independent agency is perceived as less desirable in women than men. Followers devalue the leadership behavior of women as it does not correspond to the prototype of the ideal leader (Heilman 2001). Ethical leaders have a critical role to play in transforming the mentality of their stakeholders by making them aware of the values of morality, ethics and justice.

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A third element of diversity is cultural. Does ethical leadership vary from one culture to another? Is there a universal form of ethical leadership that transcends culture? Several studies have provided empirical evidence that there is both convergence and divergence in the meaning and importance of ethical leadership across cultures. For example, drawing on the Global Leadership and Organizational Behavior Effectiveness study (or GLOBE), Christian Resick et al. (2006) measured four dimensions of an ethical leader: integrity, altruism, collective motivation, and empowerment. They conclude that these dimensions are common to all six of the countries studied (China, Hong Kong, Taiwan, United States, Ireland and Germany). However, the extent to which each dimension is valued varies from one society to the next. The authors surmise that the concept of ethical leadership appears universal but key dimensions of leadership differ across cultures. These results were later corroborated by a qualitative study (Resick et al. 2011) examining the differences and similarities in the notion of ethical/unethical leadership in the same six countries. Even if “ethical leadership is likely to be represented by similar categories of attributes and behaviours across cultures” (Resick et al. 2011: 451), the scope and priority of the categories may vary from one culture to the next, with managers in Ireland, the US, and Taiwan emphasizing character and accountability, managers in Germany, Hong Kong and China focusing on consideration and respect for others.

Concluding remarks

In the example of Jordan Belfort in The Wolf of Wall Street we locate some of the complex and paradoxical links between ethics and business leadership. In current leadership studies the concept of ethics remains crucial, even if its invocation is sometimes less than fully or clearly articulated. In this sense, business ethicists have additional work to do in articulating the nature of leadership and business leadership in particular. There are at least two avenues for further development, one theoretical the other empirical. Scholars of leadership and of business ethics should bridge their efforts in order to clarify the moral foundations of business leadership and they should develop more empirical research on leadership more closely attuned to the challenges of CSR and business.

Essential readings

The best reference or overview of leadership theories is that of Bernard M. Bass and Ralph Stodgdill The Bass Handbook of Leadership (2009). The most recent and comprehensive collection of contributions on leadership and ethics is that of Joanne B. Ciulla, Mary Uhl-Bien and Patricia H. Werhane, Leadership Ethics (2013). Two thoughtful essays on the ambivalence and the challenges of bridging leadership and business ethics are Linda K. Treviño, Laura P. Hartman and Michael Brown’s “Moral Person and Moral Manager” (2000) and Joanne B. Ciulla’s, “The State of Leadership Ethics and the Work that Lies before Us” (2005). For a review of the work done on the “dark side” of business leaders, see Helen Bollaert and Valérie Petit, “Beyond the Dark Side of Executive Psychology” (2010).

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For further reading in this volume on the ethical and psychological qualities of entrepreneurial leaders, see Chapter 16, The ethics of entrepreneurship. On virtue and character, see Chapter 7, Can profit seekers be virtuous? On various theoretical perspectives on management, see Chapter 26, Theoretical issues in management ethics. On the responsibilities of governance officers and corporate leadership, see Chapter 24, Corporate governance. For a discussion of ethical climate in business organizations, see Chapter 27, The ethics of managers and employees. A consideration of moral blindness and self-deception may be found in Chapter 4, Teaching business ethics: current practice and future directions. On issues of leadership and a diverse workforce, see Chapter 8, Feminist ethics and business ethics. For a discussion of business leaders as trustees, see Chapter 36, Business ethics in South Asia: Gandhian trusteeship and its relevance for the twenty-first century.

Note

1    There are not two populations on the surface of the globe who are virtuous in the same way.

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