Leadership and the importance of ethical decision-making

In an era where trust is as valuable as profitability, the spotlight on ethical leadership and decision-making has intensified. Leaders are responsible for steering their businesses towards financial success, but equally, they need to act as moral compasses for the rest of their organisations. It’s not enough to make decisions that are legal and profitable – they need to be ethical and responsible, too. 

What is ethical decision-making?

In business settings, leaders need to make decisions almost constantly, and these decisions can have a significant impact on their stakeholders – including their shareholders, their staff, and their customers – as well as their perception with the public. Sometimes, these decisions are extraordinarily difficult, and it’s less about choosing the best option, and more about choosing the least-problematic option. 

Ethical decision-making means evaluating these options from all angles and selecting the one that makes the best sense for the business and benefits as many stakeholders as possible, but also considers the moral implications. Typically underpinned by common principles like fairness, honesty, and respect for others, ethical decision-making requires leaders to consider the consequences of their decisions on their employees and customers, but also on their communities and the environment. It’s about more than compliance with laws and regulations – it’s also about committing to integrity and social responsibility. 

Why is ethical leadership important?

Ethical leadership can aid everything from financial performance to staff engagement and environmental sustainability within organisations. Yes, ethical leadership can be instrumental in mitigating the risks associated with unethical decisions – which can lead to legal penalties or damage to the organisation’s reputation in the press, on social media platforms like LinkedIn or Instagram, and with the public more generally. But on a more altruistic note, ethical leadership can also build trust and respect within businesses, which in turn is a positive contributor to the employee experience and well-being for team members. 

“History has shown that ethical leadership significantly impacts employee engagement,” explains a 2023 Forbes article, The Role of Ethical Leadership in Long-Term Organizational Success. “When leaders consistently display ethical behavior, they establish a culture of trust and fairness, leading to increased employee satisfaction and commitment.”

 

Ethical leaders – and their high-performing teams – are also likely to inspire greater confidence among other stakeholders, enhancing their reputation and encouraging stronger business relationships, all of which indicates that ethical, effective leadership is more than a moral imperative – it’s a strategic necessity.

The traits of an ethical leader

Ethical leaders are often characterised by common traits and competencies. These include:

• Strong decision-making skills. They can navigate ethical issues with confidence and clarity. 
• Empathy and compassion. They thoroughly consider the impact of their decisions on all stakeholders.
• Transparency and honesty. Both of these traits ensure open and honest communication within – and outside – the organisation.

Ethical business leaders are also typically committed to their own leadership development, routinely taking it upon themselves to read about the latest trends in leadership, complete further training, or conduct other self-directed study to build their leadership skills.

Emotional intelligence and ethical leadership

Ethical decision-makers often show a high degree of emotional intelligence, able to manage their own emotions and empathising with the concerns and perspectives of their stakeholders. This aids open communication and problem-solving, and creates better-informed leaders who are equipped to navigate ethical dilemmas and build trusting relationships with their teams and other stakeholders. 

Tips for leaders who want to make sure their decision-making processes are ethical

There are several strategies available to leaders who want to strengthen their ability for making ethical decisions.

1. Establish – and communicate – a clear set of ethical standards and guidelines within the organisation. These should be embedded with regular training and staff discussions on business ethics to keep the principles front and centre in people’s minds. 
2. Implement a transparent decision-making process. This should include input and perspectives from a diverse mix of team members. 
3. Cultivate an open work environment to discuss ethical dilemmas. This requires senior management empowering all team members to voice their concerns.

The relationship between leadership style and ethical decision-making

Leadership style can significantly influence the decision-making process. For example, transformational leaders who inspire and motivate their followers towards a shared vision are particularly effective in embedding ethical standards within their teams. These leaders emphasise the importance of moral values and ethical behaviour and lead by example in achieving organisational goals.

Utilitarianism is another leadership style that can promote ethical decision-making because it focuses on outcomes that benefit the most people.

In contrast, leadership styles that focus solely on financial performance can lead to unethical decisions and practices, while autocratic leaders can drown out wider ethical considerations with their own personal values or beliefs, so it’s important to factor in one’s own leadership style when making decisions and balancing business objectives with ethical imperatives. 

How leaders can embed ethical decision-making into organisational cultures

The best way to embed ethical decision-making into an organisational culture is to set the example at the leadership level. Demonstrate what ethical behaviour looks like. Develop partnerships and initiatives that prioritise or promote social responsibility. Create core values and mission statements that embed ethical principles and integrate them into daily practices. Then recognise and reward ethical behaviour across the organisation to build a culture that celebrates integrity and accountability.

Build a reputation for ethical leadership

Forge your future in ethical leadership with the 100% online MBA Leadership from Lincoln International Business School at the University of Lincoln. This flexible MBA has been created for ambitious professionals who want to fast-track their career progression, and is ideally suited to:

• individuals currently in or aspiring to management and leadership roles.
• entrepreneurial individuals looking to develop the skills and competencies to successfully launch a start-up business in the real-world. 

One of the key modules on this MBA focuses on governance and risk management, and aims to develop students who understand and appreciate the importance of going beyond financial information and supporting good ethical business practices to help companies sustain long-term success.