There is no question that the 2008 financial crisis intensified the spotlight on executive behaviour created by the Enron and WorldCom accounting scandals that previously rocked the business world (in 2001 and 2002, respectively) and led to the U.S. enactment of the Sarbanes–Oxley Act. Simply put, today’s business leaders are scrutinized like never before, and not just for their ability to lead their organizations to financial success. The pressure is on for CEOs to adhere to accepted values. And thanks to social media, leadership behaviour, even during personal time away from the office, is constantly being monitored by a mass market of judges ready to transmit news of transgressions around the planet in a matter of seconds. As a result, the price paid for departing from expected behaviour is steep for both leaders and organizations.
But does following the standard of what is considered good as a CEO really lead to sustainable business with higher profits? Or do nice people truly tend to finish last because investors and customers are willing to turn a blind eye if organizational objectives are repeatedly met? This article explores these questions by looking back in time and highlighting the findings of a recent study that examined the impact of ethical leadership on Judah — a nation noted for keeping its independence from 931 BC to 586 BC, a significant accomplishment, especially when compared to Israel, which lost its independence 136 years earlier (931 BC to 722 BC).
Based on the quantitative and qualitative data provided in the King James Bible (specifically Second Chronicles, chapters 10–36), Rowe (2014) noted that both Judah and Israel had 19 monarchs during their independent periods, but while every king of Israel was deemed unethical, eight kings of Judah stood out for being considered ethical. Ethical leadership in this case was defined by whether, according to the Bible, a king did right or evil in the sight of the Lord. By comparing the economic performance and success at war of the kings deemed ethical with the ones deemed unethical, Rowe (2014) set out to explore if the accepted leadership behaviours of the eight ethical kings contributed to Judah’s superior record of surviving as a separate state for more than a century longer than Israel.
Rowe (2014) noted that any study based on evidence culled from tendentious sources is open to criticism. However, the study in this case cited the following definition of ethical leadership offered by Brown, Treviño and Harrison (2005): “the demonstration of normatively appropriate conduct through personal actions and interpersonal relationships, and the promotion of such conduct to followers through two-way communication, enforcement, and decision-making.” And it is important to note that the standard for normatively appropriate conduct for each king of Judah is clearly set in the King James Bible. In other words, for the purposes of Rowe (2014), to have “done right in the eyes of the Lord” is defined as behaving in a normatively appropriate manner, which remained consistent through the 345-year period during which Judah was an independent nation.
Furthermore, since the study was able to judge a long line of leaders using a consistent standard, Rowe (2014) represents a unique statistical analysis of organizational performance over time. And the findings suggest that ethical leadership in Judah led to better organizational performance measured by economic and military success. The study also points out that the eight ethical kings of Judah ruled for about 33 years each, on average, while the average tenure of the 11 unethical kings was about 11 years. So normatively appropriate conduct also appears to have positively influenced tenure, offering ethical kings a much longer opportunity to influence the nation and increase its likelihood of survival.
After examining the impact of ethical leadership during the tenure of the 19 kings of Judah, Rowe (2014) posited that ethical leadership can lead to organizational excellence and personal rewards. There is obviously no modern organization that offers researchers a similar opportunity to examine the impact of leadership of one organization over a significant time period using a consistent standard. It is also true that few modern executives are responsible for national economies, and, although markets are highly competitive, not many of today’s CEOs run organizations engaged in war. But there are clearly modern-day examples of ethical leadership leading to excellence in performance.
Take Gary Hirshberg’s tenure as CEO of New Hampshire-based Stonyfield Farm, the world’s largest organic yogurt producer. Under his leadership, Stonyfield Farm — known for its “healthy food, healthy people, healthy planet” mission — led the charge on sustainability, and this adherence to modern normatively appropriate conduct is reflected in its rise from a seven-cow operation in the early 1980s into a business with more than US$350 million in annual revenue.
As head of a company named one of the world’s most ethical organizations by the Ethisphere Institute, Starbucks CEO Howard Schultz is an excellent example of ethical leadership resulting in personal rewards as well as organizational performance. Based on company reviews submitted by employees, for example, he has been billed as one of the “greatest leaders” on the planet by Glassdoor. Schultz’s vision for Starbucks as a company with a social conscience also landed him on Fortune magazine’s first list of the “World’s 50 Greatest Leaders.” Ethical leadership is clearly a major part of the Starbucks brand and this can be seen in its success.
Of course, to understand the positive influence that ethical leadership can have over time, it always helps to have a counter-example. So consider “Chainsaw Al” Dunlap — the notorious author of the best-selling book Mean Business — who made Time magazine’s 2010 list of Top 10 Worst Bosses thanks to his obsession with financials. He had considerable success as a leader at Scott Paper during the mid-1990s. As Time noted, Dunlap engineered a corporate restructuring at the company that cut a third of the workforce and sparked a 225 per cent rise in share value, not to mention an acquisition by Kimberly-Clark. Over the long haul, however, Dunlop’s “win-at-all-costs” approach was his undoing. At a 1998 meeting with Wall Street investors during his tenure at Sunbeam, for example, Dunlap was called to task for some accounting tomfoolery with sales numbers. After the meeting, as Time noted, he verbally accosted and threatened one skeptic of his strategy, yelling: “You son of a bitch. If you want to come after me, I’ll come after you twice as hard.” Sunbeam eventually dismissed Dunlap, but the organization was still forced to file for bankruptcy in 2001 as a result of his leadership.
And then there is Desmond Hague, the former CEO of Centerplate, North America’s largest hospitality business. After taking the corporate helm in 2009, Hague led South Carolina-based Centerplate to tremendous growth. But in 2014, video footage from a security elevator caught him kicking a puppy in frustration — which is not normatively acceptable conduct. According to The Globe and Mail, Hague’s behaviour might have been impaired by prescription drugs for anxiety and stress. Nevertheless, although the company initially announced that he would make amends via anger management courses, 1,000 hours of community service and a US$100,000 personal donation to animal welfare, Hague’s tenure as a leader quickly came to an end at Centerplate, where stated corporate values include being a “positive force in our communities.”
After using a common ethical standard to review 19 leaders of one organization between 931 BC and 586 BC, Rowe (2014) posited that organizations with ethical senior management will experience better long-term performance. Modern examples of how senior executives influence their organizations support this conclusion. As a result, organizations should seek leaders who demonstrate “normatively acceptable conduct.” By today’s standards, that means leaders who are concerned with how numbers are achieved as well as the organization’s impact on employees and the environment. It means leaders who are credible and genuine and possess what colleagues at Ivey call leadership character. And it means leaders who will ensure that subordinates follow their example.
For organizations that do this, ethical leadership will likely result in a scandal-free reputation, increased employee morale, job satisfaction and performance — and a positive bottom line.