Key Takeaways
- Ethical leadership is tested most in ambiguous situations where the right choice carries short-term risk or discomfort.
- Organizational culture plays a major role in ethical behavior by shaping what actions feel safe to raise or challenge.
- Long-term trust is built when leaders consistently align decisions with stated values, even under pressure.
“Ethical companies outperform in the long run.”
Daniels College of Business professor and ethics expert Corey Ciocchetti knows that’s the truth. And while corporate scandals fill newspapers and raise questions about leadership ethics in the modern business landscape, studies back up his statement.
Corey Ciocchetti
Take B Corporations for example. This group of businesses have a different view on success, serving employees, community and the planet over maximizing profit. Some of the most well-known B Corps include Patagonia, Toms and Ben & Jerry’s. This group, and the nearly 10,000 other B Corps, not only do good for stakeholders, but they also perform well on the balance sheet.
A recent study found that between 2019 and 2022, 76% of B Corps reported revenue growth, compared to only 60% of non-B Corps.
In an age where profit maximization and the introduction of AI have blurred the line of ethical decision making, ethics are more important than ever before.
“I think the challenges are greater right now with AI and now you have worldwide customers,” said Ciocchetti, the Bill Daniels Chair of Business Ethics and a professor in the Department of Business Ethics and Legal Studies. “So I think the moral challenges multiply as the businesses get more complex.”
Despite that, Ciocchetti is doubling down. He sees the issues in the business world and is trying his best to guide the next generation of ethical leaders at Daniels.
Why Leadership Ethics Matter
Ethical companies start at the top, with ethical leaders. Ciocchetti added that the relationship between leadership and ethics is intertwined.
“If you think about leadership without ethics, it’s doomed to fail,” he said. “If all you’re doing is teaching people leadership, what you’re teaching them is how to leverage power and build relationships and things like that. But if you’re teaching people to leverage power and build relationships without a moral compass, you get what we see today.”
Ciocchetti attributes much of the recent ethical failures in the business world to the need for short-term results. The pressure from employees, investors, stakeholders and shareholders can create a dangerous ethical environment that causes leaders to ignore their values.
“I think they might get away with it in the short term, but the consequences are down the road in the long term,” he said.
And, as evidenced in the study above, companies that focus on this long-term ethical future often perform better than those prioritizing short-term wins.
Common Ethical Dilemmas in Business Leadership
Balancing Profit and Ethical Responsibility
A looming earnings call or budget discussion can cause leaders to ignore their ethical values, as financial performance has become paramount in the business world. Corporate greed can also be a factor. Look at famous examples like Enron and Theranos, where financial gain and pride stood in the way of ethics.
Balancing profit and ethical responsibility can seem complicated, but Ciocchetti looks at it in more simple terms. For him, they shouldn’t be mutually exclusive.
“If you find your personal or company ethics in conflict with your desired business outcomes, then you need to rethink your business model,” he said. “Ideally your business model would fit right in with being ethical, good to your people and profitable.”
This might be challenging for your business, but it is paramount to sustainable, long-term success.
Addressing Unethical Behavior in a Leadership Team
There isn’t a perfect, one-size-fits-all solution for addressing unethical behavior in a leadership team, Ciocchetti said, but there are some tenets to follow.
He tries to impress on his students the importance of looking at each situation as a unique one and that they should use decision-making frameworks to help guide them.
“It’s never black and white,” he said. “I would look at the context and say, ‘Is this something where I could just sit this person down? Is this something where I need to take greater action?’”
Using a Framework for Ethical Decision-Making
Frameworks help set guideposts for decision making, Ciocchetti said, and are important tools in any leader’s toolbox. He simplifies it for his students, splitting each decision into four quadrants: short-term pleasure, short-term pain, long-term pleasure and long-term pain.
“What is in everybody’s best interests?” he asks his students.
There are many other models for making decisions, with each fitting different situations more effectively. Those include, but aren’t limited to:
Regardless of the method you use to evaluate, the most important thing is to be consistent in your decision-making process.
Transparency in the Decision-Making Process
Regardless of the situation and the decision ahead, transparency is crucial for ethical leadership. It ensures that the entire organization is on the same page. But it isn’t always easy to be completely honest about challenging situations.
“I think you should be as transparent as you can, particularly with your employees,” Ciocchetti said. “People just get scared to be transparent, but I think it’s a benefit.”
What are other Characteristics of Ethical Leaders?
Aside from transparency, Ciocchetti lists off a number of characteristics that make ethical leaders, adding that these are also applicable to relationships outside of work. The first characteristics that come to mind are ones that align with virtues, including:
- fairness
- honesty
- grace
- mercy
- kindness
- sincerity
“When you start throwing those virtues in there, I think that makes for a really good leader,” he said.
The Consequences of Ignoring Ethics in Business
Ciocchetti brings up philosophers Immanuel Kant and Aristotle when he talks about ethical decision making. And while it may seem strange to bring up these legendary philosophers in the business context, he sees no reason to ignore their sage advice.
“Just because you’re in business doesn’t mean you’re immune from the rest of life,” he said. “These are the smartest people ever to have lived. So, if the smartest thinkers ever write about this, then I would listen.”
Ignoring ethics in business can have catastrophic results. As evidenced by Enron, Theranos, and Volkswagen’s emission test avoidance, it can lead to a high-profile scandal and corporate failure. In some cases, it can lead to jail time. Even if the situation doesn’t rise to the level of those two famous cases, failing to include ethics in your decision-making will catch up with you.
Leading with Integrity: The Daniels Fund Ethics Initiative
Ethics is built into the curriculum at the Daniels College of Business, with all undergraduate students required to take coursework and attend the two-day Ethics Boot Camp. In total, the Department of Business Ethics and Legal Studies (BELS) offers 20 classes that touch on aspects of ethical leadership and the legal landscape in business.
Ciocchetti is passionate about the topic and is thrilled to see interest from current students increasing in the BELS minor. He believes this generation of students is more curious and compassionate than many before, and he’s optimistic that it will create more ethical leaders.
Frequently Asked Questions
Why do ethical dilemmas feel so difficult for leaders?
Ethical decisions often involve tradeoffs between results, relationships, and reputation. Leaders feel pressure when short-term performance conflicts with long-term integrity.
How can organizations reduce ethical gray areas?
Clear standards, transparent decision making, and accountability systems help people navigate uncertainty. When expectations are visible, ethical choices become easier to make.
What’s a warning sign of weak ethical culture?
When people are afraid to speak up or concerns are ignored, issues tend to grow quietly. Over time, silence becomes more damaging than mistakes.