Businesses which are honest are more likely to succeed. However, there are many examples of leaders who engage in unethical practices to maximise profit.

A study conducted by University of Dallas psychologist Saul Gellerman suggests four rationalisations as to why good leaders sometimes make bad ethical choices:

1.  A belief that the activity is within reasonable ethical and legal limits — that is, it is not “really” illegal or immoral;

2.  A belief that the activity is in the individual’s or the corporation’s best interests — and that one is somehow expected to undertake the activity;

3.  A belief that the activity is “safe” because it will never be found out or publicised — the classic crime-and-punishment issue of discovery; and

4.  A belief that because the activity helps the company, therefore, the company will condone it and even protect the person who engages in it.

The trouble with ethics

Discussions on ethics are undoubtedly complex and abstract. Some philosophers have suggested looking at actions and consequences to judge whether an act is ethical or not.

Going with anecdotal evidence, the long-term consequences of unethical behaviour can be dire. There are many examples of corporations that fall apart due to the unethical behaviour of its executives or unsavoury business practices. Think Enron, WorldCom and Lehman Brothers, just to name a few.

Be part of the solution

Good corporate governance requires ethical decision-making. The 21st century leader has to be part of the ethical solution, not the problem.  To do this, a leader needs to understand what is involved in making ethical decisions.

Ethical decision-making

A leader facing an ethical dilemma has to acknowledge first what kind of decision maker he is. Stanley Krolick’s research gives an insight into four types of ethical decision-making styles. They are: the Individualist, the Altruist, the Pragmatist and the Idealist. An effective leader has to know which style to use for different situations.

The Individualist

An individualist is driven by personal survival, natural reason and the preservation of the status quo. His arguments appeal to self-interest. This decision-making style is important in circumstances that are a matter of life and death and the leader has to protect himself to protect others who depend on him.

The Altruist

The Greek philosopher Plato said: “If one has made a mistake, and fails to correct it, one has made a greater mistake”. Human beings inevitably make decisions that are sometimes wrong or even unethical. 

However, the impact of a bad decision can be lessened if appropriate counter actions are taken to rectify the situation. A leader in such a position needs to think like an altruist.

An altruistic leader is one who disregards his personal security for the benefit of others. The altruist’s behaviour can be categorised as belonging to the utilitarian school of ethics, meaning that he seeks the greatest amount of happiness for the largest number of people.

In the business world, an altruistic leader is expected to maximise profits for his organisation’s stockholders but his mission should not hurt the interests of other stakeholders.

The Pragmatist

A pragmatic leader is concerned with handling the current situation and emphasises facts and potential consequences of an action. In many ways, a pragmatist is concerned with the here-and-now rather than the future.

If businesses are unable to keep up with rapid changes, then they are going to fail. Leaders have to make decisions aimed at beating the competition and boosting profitability. A pragmatic leader who is focused on short-term gains may be tempted to engage in unethical activities to achieve his goal. 

The Idealist

An idealistic leader is one who is driven by principle, focusing on doing what is right rather than what is expedient. He considers the long-term implications of his decisions.

When a leader operates from a principled position, he is choosing to make decisions with an ethical dimension. But acting ethically has a practical benefit, which should appeal to the less idealistic. As the saying goes: what goes around will come around. Bad decisions have a knack of coming back to haunt you when you least expect it.