Ethical Leadership in Business: Why It Matters

A diverse group of businesspeople in a meeting

Looking to mitigate the risk of another savings and loan crisis, subprime mortgage meltdown, or billion-dollar Ponzi scheme, more American businesses are focused on instituting ethical leadership.

Business leaders who engage in unethical behavior can leave companies and their cultures forever blemished. Their unprincipled decisions erode profits, sully brand names, and damage relationships with clients, employees, and investors.

Ethical leadership in business matters today because its positive effects can permeate a number of areas, from hiring and accounting practices to managing product development and customer data. Also, companies with ethical leaders and practices tend to perform better, according to Ethisphere.

Learning and incorporating leadership skills that are focused on doing the right thing can help existing and aspiring business leaders benefit their organizations. Leaders can establish a strong ethical skill set through experience and by pursuing a leadership degree, such as a master’s in management and leadership.

What Is Ethical Leadership?

Ethical leadership in business is focused on the collective values, morals, and beliefs of individuals and their organizations. The role of business leaders is to uphold and exemplify a company’s ethical values and embody the heart and soul of an organization.

These leaders do more than merely manage staff. Ethical leaders take the lead, inspire others by what they say and do, and set high standards. Ethical leaders don’t direct others but rather guide and nurture them, according to Business News Daily. Even their virtual personas on social media mirror the company’s and their own values.

Leaders set the tone for a company’s culture and mission. Pair that with a clearly defined code of conduct and employees are more likely to feel empowered to act ethically, whether they’re in accounting, product development, human resources, customer service, sales, or information technology. Employees also tend to perform better and conduct themselves ethically when they are treated fairly and feel respected, trusted, and valued.

How to Incorporate Ethical Leadership in Business

Serving as an ethical leader encompasses more than following a policies and procedures manual. Incorporating ethics into leadership strategies involves a thoughtful course of action.

Develop an Environment of Transparency

Ethical leaders possess strong communication and interpersonal skills, act with honesty, and treat others with respect. Executives who are transparent with employees and encourage feedback through open communication help to make others feel connected and comfortable.

An environment of transparency also can breathe life into a business. Business owners who are struggling financially or who need input fare better in the long run by being transparent with colleagues and employees. Staff members are more likely to support leaders who are willing to open up about frustrations with losing clients, making payroll, and other stressors. Employees sense their employers’ honesty and vulnerability and are quick to get on board.

Build a Dynamic Culture Based on Ethical Values

Ethical leaders define their organization’s culture and prepare to protect it at all costs. While a company may fall out of favor with customers who do not share its values, leaders who take a stand on issues such as environmental protection, gun violence, and human rights earn respect, according to Forbes.

Dick’s Sporting Goods, for example, has scaled back sales of firearms due to repeated incidents of gun violence. The company began by pulling assault-style weapons from store shelves following the Parkland, Florida, school shooting in 2018. While the stance risked alienating its customer base of responsible gun owners and cost the company short-term profits, the ethical decision earned it widespread respect and spurred Walmart, Kroger, and other retailers to follow suit with their own gun policies.

Institute and Adhere to a Code of Conduct

Businesses express what’s expected of employees at work and in the public eye through a code of conduct. This document is revisited annually in many cases to ensure compliance. Establishing policies and procedures for workplace cultures also helps to create a more consistent environment that’s easier to regulate.

Build a Workforce with Similar Values

Executives and companies that become known for aligning with certain values, morals, or beliefs attract those with similar views. An organization’s stance on issues can prove to be a boon for attracting talent.

Building a workforce that is an extension of a company’s values also can boost the bottom line. Research conducted by Accenture found that, on average, companies that are inclusive of people with disabilities performed better financially over a four-year period and had 28% higher revenue than other similar firms, according to Forbes.

The Challenges to Incorporating Ethical Leadership

Those in charge can face obstacles to implementing ethically focused elements.

Maintain Values During Growth Periods

Ethical leadership can be tested during periods of exponential growth. Executives must work to balance strategic growth with integrity in situations where doing the right thing can be difficult or costly in the short term. As companies grow, according to the Houston Chronicle, some lose sight of their mission and can more easily put profits above ethical behaviors.

Remain Transparent During Change

Change requires readiness, according to research published in Frontiers in Psychology. While businesses need to undergo continuous change to compete, employees can develop negative attitudes and view change as a threat. Ethical leadership in business during periods of uncertainty can have a positive impact on employees’ readiness for change.

Combat Toxic Workplace Culture

Unethical leadership creates an atmosphere of fear of retaliation or termination and can give rise to internal whistleblowers. Ethical leaders who have inherited workplace cultures that have turned hostile and distrusting must work to regain trust.

Maintain a Consistent Message

Inconsistent messaging from higher-ups makes deploying ethical leadership strategies difficult. What employees need most is consistency from leaders. Workers are more willing to rally behind ethical leadership when messaging is clear and consistent.

Gain Relevant Skills for Ethical Leadership in Business

Those focused on ethical leadership in business can introduce strategies based on a foundation of values, morals, and beliefs to navigate roadblocks in their organizations. Leaders working toward incorporating ethically focused leadership skills should consider Maryville University’s online Master of Arts in Management and Leadership. The program consists of eight industry-specific concentrations: Cybersecurity, Health Administration, Human Resource Management, Information Technology, Marketing, Project Management, Software Development, and Business Data Analytics. Discover how Maryville can help you build practical, relevant skills as you pursue your professional goals.

Recommended Reading

The Importance of Business Ethics

MA in Management and Leadership vs. MBA: Comparing Two Key Advanced Degrees

Organizational Development Guide: Definition, Process & Development Models


Business News Daily, “How to Be an Ethical Leader: 4 Tips for Success”

CNN, “Dick’s Sporting Goods Will Stop Selling Guns at 440 More Stores”

Ethisphere Magazine, “A Clear Correlation: Ethical Companies Outperform”

Forbes, “Seven Bold Leaders Reveal How Ethical Leadership Is a Boon to Business”

Frontiers in Psychology, “How Ethical Leadership Shapes Employees’ Readiness to Change: The Mediating Role of an Organizational Culture of Effectiveness”

Houston Chronicle, “The Advantages of Ethical Behavior in Business”

Houston Chronicle, “Challenges of Ethical Leadership”

Houston Chronicle, “What Is the Most Important Influence on Ethical Behavior in the Workplace?”

The Philadelphia Inquirer, “Dick’s Sporting Goods CEO Says Overhauled Gun Policies Cost the Company a Quarter of a Billion Dollars”

Be Brave

Bring us your ambition and we’ll guide you along a personalized path to a quality education that’s designed to change your life.