The Importance of Ethical and Responsible Leadership in Business

Introduction

In the context of the current dynamically changing business environment, the role of ethical and

responsible leadership is crucial. On the one hand, global challenges pose new demands and

tasks for companies and employees (Tu et al., 2014). On the other hand, the necessity to propose

appropriate solutions regarding these problems and take corresponding actions regarding the new

situation is emerging. Thus, modern business requires leaders who can be defined as ethical and

take over new responsibilities. Ethical and responsible leadership implies not only the adherence

to laws and other guidelines but also responsibility for moral principles, sustainability, and

stakeholder welfare (Bachmann, 2017). Ethical decisions create the basis for trust between

companies and collaborators and sustainable organizations’ culture and success in the modern

globalized world. This essay will discuss ethical and responsible leadership in terms of its

definition and characteristics, examples of its implementation, decion-making processes, and

other aspects of its effects on companies and society.

What is Ethical and Responsible Leadership?

Ethical and responsible leadership can be defined as a type of leadership under which those in

charge of organizations make a point of considering how their decisions can affect their

stakeholders and make proper choices. It is not simply managing in accordance with the laws and

guidelines but taking action taking into account moral aspects and social considerations. They

are responsible for the outcomes of decisions and choose a line of development for their

organizations that are both favorable in the short-term perspective and can guarantee the

realization of long-term prospects for their employees, consumers, communities, the

environment, and others.

responsible leadership extends it by emphasizing the active creation of positive benefits for the

society and minimization of negative impacts. Responsible leadership may require a pro-active

approach to solving a range of social and environmental problems, even if they are not directly

linked to the needs of a specific company (Ko et al., 2017). This approach is related to the belief

that businesses are not isolated entities and should be considered parts of larger environmental

and social systems.

Responsible leadership is the key part of the positive organizational culture responsible for

employee engagement, performance, and innovation (Wasserman et al., 2015). It is valued not

only by customers and regulators but also by employees who become more selective and prefer

to contribute to organizations that appeal to their values. Responsible leadership also allows

coping with the challenges of contemporary reality, such as rapid globalization, digitalization and

automation, or environmental sustainability, all of which are related to a range of new ethical

dilemmas.

Examples of Ethical and Responsible Leadership

Ethical and responsible leadership in business can be demonstrated by the example of Patagonia,

an outdoor clothing and gear company in the US. The company and its founder Yvon Chouinard

have been commended for their persistent efforts to ensure environmental sustainability over

their profits. Thus, in the retail business, Patagonia’s management has set up a high standard of

ethical business practice. Patagonia launched its “Worn Wear” program in 2013 to encourage its

customers to repair and reuse instead of buying new clothes (Ims, 2019). The company not only

provides free repair of any Patagonia products but also buys back worn items, which are

refurbished and resold. The “Worn Wear” program thus works against the up-to-date fast fashion
model where people are encouraged to have, consume, and then discard items. In this way, the

company’s leaders demonstrated a position of preferring environmental sustainability to quick,

high profits.

This position facilitated the creation of a strong brand, which customers tended to be fiercely

loyal to. In the modern world, people feel increasingly tired of shallow consumerism, which is

oriented at the problem of status and thus could easily change their clothes and gadgets (Ziercke

et al., 2022). However, at the same time, they are more willing to support the ideas of companies

that they feel deeply passionate about (Ims, 2019). Despite their high cost, the rugged, simplistic

design of Patagonia’s products is highly valuable for the company’s target buyers, both for them

and for other people around them. It may also be regarded as another means of decreasing the

damage to the environment caused by the company’s production. Such a policy could naturally

attract like-minded people to the company’s staff whom it could be easier to motivate.

Making Good Decisions in Ethical Leadership

Ethical and responsible leadership presuppose a high level of consciousness regarding the

significance of the moral dimension for such decision-makers as leaders. In order to handle such

complex ethical dilemmas, leaders normally utilize certain established frameworks and theories

(Treviño et al., 2014). One of the most frequent ones is the utilitarian theory, the advocates of

which argue that the most ethical action is the one that brings the most benefits to the great

majority of people (Lemoine et al., 2019).

According to the implication of which moral gut is based on the inherent ethical right or wrong.

In other words, the decisions of its followers can be guided by specific moral rules or duties, for

example, honesty, transparency, or respect for the rights of every stakeholder (Fehr et al., 2015).

One of the practical frameworks that incorporate these theories is James Rest’s Four-Component
Model composed of moral awareness, moral judgment, moral intent, and moral behavior

(Treviño et al., 2014).

As an example of how these general descriptions apply in real life, consider a hypothetical

situation. Imagine a CEO of a tech company who found out about a serious security flaw in one

of their products several days before the launch (Zhu et al., 2015). The correct course of action

for an ethical leader would be to consider that there is an ethical problem – this is the first stage,

moral awareness.

For the second stage, moral judgment, the CEO, might employ utilitarianism: delaying the

release will protect more customers from the future harm, but it can also lead to lost investments

and available to their workers, making layoffs more probable. When using deontological ethics,

the CEO should evaluate their duty to their customers, which is to provide them with as safe a

productt. With virtue ethics, the focus should be on the necessity of acting honorably and

prioritizing long-term profits.

Next would be the third stage, moral intent, where the leader chooses the best options according

to the evaluation made in the previous step. Using Rest’s model (You et al., 2013), it is

announced that they are delaying the launch in order to fix a security flaw, which would be a

sufficient test of the moral intent. At the fourth stage, which is moral behavior, they are to resist

financial pressure to proceed with the launch and actually delay it, in addition to reallocating

resources to the bug fixing. This decision is acceptable from the point of view of ethics. The

security flaw was always going to be discovered at one point, but if the customers do so before

the release, the scandal will be even more cataclysmic.

Why Ethical Leadership Matters

Ethical leadership is not only the right but also the practical choice for the long-term success and
sustainability of businesses. Although associated with corporate social responsibility, the

advantages of ethical leadership go a long way as they can benefit businesses, employees,

customers, and other stakeholders. On the one hand, businesses prosper under the guidance of

leaders with ethical principles due to the culture of trust and integrity they promote, resulting in

improved financial performance. These companies enjoy scattered reputation and brand value,

which attracts more customers and investors while preserving loyal buyers and donors (Hoch et

al., 2016). On the other hand, employees benefit from having such leaders as they generally

experience higher job satisfaction and engagement. In detail, when their supervisors have strong

moral principles, they are also more likely to be proud of their profession, care about their job

and the fate of the organization, be productive or creative, as well as work extra hours (Wang et

al., 2016). Ethical leadership creates a psychologically safe environment where people can

openly discuss their concerns or even report them without fear of retribution (Mo et al., 2015).

There are a number of reasons why ethical leadership matters in business and the world at large.

To begin with, the requirements for ethical behavior on the part of corporations have become

more prominent and legally enforceable (Banks et al., 2021). It is also important to note that the

world is getting more transparent, with the growing role of digital media as inspectors of

businesses’ behavior (Tu & Lu, 2014). At the same time, with the growing severity of the

problems that people need to solve, they develop less patience to misconduct and more capability

and readiness to punish the responsible parties. Under these circumstances, ethical leadership is a

practical necessity for risk management and value creation (Ng et al., 2015).

Ethical leadership is vital because it is a stable foundation for business success, meaning steady

profit levels and a positive relationship between the corporation and other stakeholders. In the

modern period, ethics are becoming more important as laws change and public attitudes towards
business behavior become stricter (Bedi et al., 2015). Ethical leadership is a decisive factor in the

survival of businesses and to maintain a positive contribution to society in the long term.

Conclusion

This essay answered the question of why ethical leadership matters by reviewing its ethical basis

and the processes of decision-making that it implies. The example of Patagonia shows that

ethical leadership can lead to increased brand value for businesses, loyalty on the part of

customers, and employee satisfaction. Decisions that are in the best interests of all parties

involved bring positive results, fundamentally impacting society. It is already apparent that in the

contemporary era of global challenges, technological advances, and growing transparency

companies need effective and ethically sound leaders as they strive to develop respect and

sustainability. In this context, ethical leadership is likely to be viewed as a beacon, guiding

business organizations through uncertainty, helping to develop resilience, and create added value

for all stakeholders.

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