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Course ID Number: MAGGOTS-8 Stephanie Lynches I I Course Title: Ethics in Business or Title: Faculty Mentor: Dry. I Assignment Number Assignment Number 2 – Paper: Leadership: Trustworthiness and I I I Ethical Stewardship Learner Comments: Please find attached hereto my paper for Assignment Number 2. Thanks. Faculty Use Only Leadership: Trustworthiness and Ethical Stewardship Everett D. Cord MAGGOTS-8: Ethics in Business Dry.

Jennifer Scott, Professor Northeastern University September 2, 2012 Abstract This paper investigates the relationship between the elements of leadership behavior, trustworthiness and ethical behavior. In this paper, evidence is presented to support a positive correlation between an organizational leader’s received ethical behavior and trustworthiness on the part of the remaining people in the organization.

KEY WORDS: leadership, trust, trustworthiness, ethical behavior Introduction The problem to be investigated is the relationship between the elements of leadership behavior, trustworthiness and ethical behavior and their effects on sustainable organizational culture. In the global marketplace, the importance of understanding the relationships between leadership behavior, perceptions about leaders trustworthiness, and the ethical duties implicit in the psychological contract have become increasingly important (Caldwell, Hayes, and

Long, 2010, p. 497). It is increasingly recognized that character and competence are critical requirements for leading with integrity and building trust in organizations (Kola and Rear, 2006). Scholars and practitioners have increasingly acknowledged the gap of trust between leaders and followers, which undermines employees’ commitment, impairs wealth creation, and creates increased transaction costs in organizations throughout the world (Caldwell et al. , 201 0, p. 497).

This indicates that leadership off company needs to ensure that they develop an organizational culture that uses ethical stewardship to develop a ensue of corporate trustworthiness among its various stakeholders so that it can enhance its sustainability in a highly competitive market (Sebastian, E. , 201 1, p. 1). Leadership Behavior According to Lousier and ACH (2004, p. 5), leadership is ‘the process of influencing leaders and followers to achieve organizational objectives through change”. Schemers (1997, p. 7) provided a three-factor model of leadership that involves three critical tasks of leaders: (1) relationship development – the interactions of the leader by which (s)he develops relationships, identifies sired outcomes, monitors the needs of those achieving results, and sustains high levels of personal commitment from stakeholders; (2) resource utilization – the tasks involved in obtaining financial resources, balancing competing demands, and managing resources to achieve goals efficiently and effectively; and (3) image management – the behaviors essential in creating a reputation involving the melding of beliefs with one’s actions to behave congruently with how one advertises so that one’s image is consistent with followers’ expectations.

Relationship development behaviors reflect a people-centered focus on adhering (Liker, 1961) that involves creating personal connections with others to increase shared ownership and commitment (Kola and Rear, 2006). Leadership and Ethical Behavior Gin (1998) defined ethical leaders as leaders who use their social power in their decisions, their own actions, and their influence on others in such a way that they act in the best interest of followers and not enact harm upon them by respecting the rights of all parties (see also Kananga, 2001). Rather than focusing on the intent or motivation of ethical leaders (see Brown, Terrine and Harrison, 2005, p. 0) specified ethical leadership in terms of behavior as: ‘the demonstration of normatively appropriate conduct through personal actions and interpersonal relationships, and the promotion of such conduct to followers through two-way communication, reinforcement, and decision-making”. Hence, ethical leaders model and encourage ethical behavior in subordinates by communicating their standards and using rewards as well as discipline to reinforce appropriate and less appropriate behavior. Moreover, implicitly enclosed in this definition is leader’s intent is to avoid harm onto followers and act in the best interest of others. The Influence of Ethical Leaders Even though the ethical leadership field is relatively young, it is quite clear that ethical leadership provides many positive aspects for followers.

This is especially illustrated by the fact that ethical leaders receive positive evaluations from followers (Brown, et al. , 2005), they also treat employees in a fair and respectful way, and create a trusting environment that positively influences employees’ satisfaction and dedication (De Hooch & Den Warthog, 2008; Weaver, Terrine and Angle, 2005). Hence, ethical leadership also entails aspects of airiness such as procedural (i. E. , perceived fairness of the procedures that are used to make decisions), distributive (i. E. , perceived fairness of the outcomes one receives), and interpersonal fairness (i. E. , the respect and recognition one receives from one’s supervisor).

In creating a fair and trustful environment, ethical leaders stimulate ethical, and proboscis-employee behaviors (Mayer, Sunken, Greenberg, Barded & Salvador, 2009; Wallaby & checkbooks, 2009). Some research has disentangled the processes which affect why ethical leaders have these positive influences on followers. Stouten, et al. , (2011) revealed that ethical leaders are able to discourage deviant behavior (i. E. , bullying) through balancing workload and improving job design. These results highlight ethical leaders’ concern for the circumstances under which employees perform their job. Piccolo showed that ethical leadership increased employees’ task significance, which resulted in improved performance. Wallaby, et al. (2011) also highlighted several additional underlying processes through which ethical leadership affects employee performance. That is, employee performance was (partially) explained by the laity of the exchange between leader and employees (Leader-Member Exchange, ELM), employees’ self- efficacy, and their social identity. In addition to these beneficial outcomes for followers, focusing on ethics also reveals positive consequences on a larger organizational scale. For example, unethical conduct has been shown to result in severe consequences. Firms that are “caught” having engaged in unethical conduct suffer from substantial costs up to 41 % of their market value, largely as a result of a damaged reputation (Karaoke, Lee, & Martin, 2008).

Furthermore, such reputations also matter or business partners as organizations who have been accused of misconduct find it more difficult to maintain the business networks they need (Sullivan, Handbills, & Page, 2007). Business Leadership Ethics and Reputation Risks According to Young and Hasher (2010), “traditionally, the practice of ethics management has focused on corporate ethical values within the organization and sequential activities to prevent, detect, report, and respond to misconduct”. But this focus on misconduct limits people’s understanding of ethics as a form of reputation capital that has value in important business relationships (Young and Hasher, 2010, p. 2). Just what is “reputation capital” or “reputation risk”?

Reputation capital can be loosely defined as the value derived by leaders from refusing to engage in certain business practices. Reputation capital increases value to the firm by increasing the perception of trustworthiness of leaders on behalf of stakeholders. For example, some Coos refuse to do business with tobacco, fire arm or alcohol businesses on the premise that they embraced a corporate culture that did not want to make money off other people’s misery. Other Coos (and stockholders) refuse to do business with companies that have records of civil and human rights violations. Trustworthiness and Ethical Stewardship Leaders earn the trust and fellowships of others by being trustworthy and accountable (Wood and Winston, 2005; Caldwell et al. , 2010, p. 500).

By virtue of honoring the commitments owed to integrate goals and values – both instrumental and normative – trustworthy leaders demonstrate a morally virtuous commitment that others are willing to follow (Burns, 1978; Caldwell et al. , 2010, p. 500). Corporate governance has traditionally involved the responsibilities of those who own an organization and those who serve as its appointed managerial leaders and agents (Carroll and Bucktooth, 2003; Caldwell et al. , 2010, p. 501). Thus, corporate governance imposes on business and their leaders an instrumental duty to maximize long-term wealth creation to benefit all of the stakeholders served by the firm (cuff. Hosier, 2007; Post et al. , 2002; Selenium, 1992; Caldwell et al. , 2010, p. 501).

This long-term emphasis means that leaders will avoid self-defeating short-term decisions that inflate market value but that impair the firm’s fundamental mission – despite the allures and seductions of a Wall Street model that panders to short-term financial targets and stock prices (cuff. Paine, 2002; Prefer, 1998; Caldwell et al. , 2010, p. 501). At the normative level, ethical stewardship is also committed to the “welfare, growth, and wholeness” of stakeholders, rising to the level of honoring transformational obligations that create new opportunities and airframe traditional command-and-control notions of leadership (Caldwell et al. , 2002; Caldwell et al, 2010, p. 501). Linking Leadership, Trustworthiness and Ethical Stewardship

There is a positive correlation between ethical leadership behavior and stewardship and trustworthiness on the part of stakeholders. Ethical stewardship of an organization is essential if the organization is to perform at an optimal level, taking into consideration, not only the profit motive, but those values that will make the organization a good corporate citizen. Ethical stewardship has to be fully integrated into an organization’s culture, so that employees and other stakeholders know what is expected of them and what they can expect from the organization’s leaders (Sebastian, 2011, p. 3). Conclusion To achieve sustainability in today’s global marketplace, organizations must develop trust between its leaders and stakeholders.