Ethical Leadership, Part 1: Perilous at the Top

The moral example set by leaders has a major impact upon the behavior of their subordinates, both good and bad, ethical and unethical. Despite their career success, leaders may be particularly vulnerable to ethical lapses.

Discussion Questions

1. Do you agree that ethical leaders have both individual as well as organizational responsibilities?  Why or why not?

2. Many sports figures say that they do not wish to be role models.  They don’t want the responsibility of having children look up to them for how to lead their lives.  Is it fair to put a responsibility on leaders of organizations to be role models for their employees?

3. The video mentions Ken Lay and Jack Abramoff as potential examples of leaders whose overconfidence in their own morality helped lead to their downfall.  Do you agree?  Can you think of other examples that have been in the news in recent years?

4. Many leaders in recent years have been involved in career-damaging scandals that involved personal improprieties—extra-marital affairs, most commonly.  Is this a particular problem for leaders?

5. If companies are prospering under a CEO’s leadership, should the CEO have any responsibility to also lead an upright personal life?

6. Can you think of any other reasons, besides the ones mentioned in the video, that might make it more difficult for leaders to stay on the straight-and-narrow than it is for regular people?

7. Have you ever done anything unethical because you “looked up the chain” and saw a superior doing something that you know recognize as improper?

Case Studies

Dennis Kozlowski: Living Large

Dennis Kozlowski came from modest circumstances. He began his career at Tyco International in 1975 as an auditor, and worked his way up the corporate ladder to become CEO in 1992. Kozlowski gained notoriety as CEO for the rapid growth and success of the company, as well as his extravagant lifestyle. He left the company in 2002 amid controversy surrounding his compensation and personal spending. In 2005, Kozlowski was convicted of crimes in relation to alleged unauthorized bonuses of $81 million, in addition to other large purchases and investments.

As CEO, Kozlowski was lauded for his risk-taking and the immense growth of the company. He launched a series of strategic mergers and acquisitions, rapidly building up the size of Tyco. During his first six years as CEO, he secured 88 deals worth over $15 billion. Strong growth was bolstered by a booming economy, and Tyco’s stock price soared as the company consistently beat Wall Street’s expectations. However, when the economy slowed, the company began to struggle.

Allegedly, Tyco paid for Kozlowski’s $30 million New York apartment, as well as personal gifts and parties, including $1 million of a $2 million birthday party for his wife. After Kozlowski paid a $20 million finding fee to a board member without proper approval, and paintings invoiced for Tyco offices ended up in Kozlowski’s apartment (among other irregularities), Kozlowski was criminally charged with looting more than $600 million of assets from Tyco and its shareholders.

While many questioned his lifestyle, others questioned the trial and conviction. Commenting on the case, civil rights lawyer Dan Ackman wrote, “It’s fair to say that Kozlowski…abused many corporate prerogatives… Still, the larceny charges at the heart of the case did not depend on whether the defendants took the money—they did—but whether they were authorized to take it.” Kozlowski asserted his innocence of the charges, stating, “There was no criminal intent here. Nothing was hidden. There were no shredded documents. All the information the prosecutors got was directly off the books and records of the company.”

Discussion Questions

1. Do you think Dennis Kozlowski was an effective leader for Tyco International? Were his actions ethically permissible? Why or why not?

2. As CEO of a major company, how might entitlement bias have affected Kozlowski’s behavior?

3. What rationalizations do you think Kozlowski might have used to justify his behavior in his own mind?

4. If you were in Kozlowski’s position, how do you think your actions would affect the behavior of your employees? Why?

5. Can you think of any other examples of leaders who have abused the power of their position? What similarities and differences do you see between them and Kozlowski?


Teaching Notes

This video introduces the behavioral ethics concept of ethical leadership and illustrates some of the ethical perils leaders may face. The moral example set by leaders has a major impact upon the behavior of their subordinates, both good and bad, ethical and unethical. Despite their career success, leaders may be particularly vulnerable to ethical lapses.

This video explains why it is particularly difficult for leaders to be as ethical as they wish to be and focuses on factors that can make leaders particularly susceptible to ethical lapses—even more than average people. Many of the Ethics Unwrapped videos address how cognitive biases, social and organizational pressures, and various situational factors can make it difficult for even well-intentioned people to be as ethical as they would like to be.

This video is the first of a two-video package that addresses how to be an effective ethical leader. Leaders must (1) act ethically themselves (this video, Perilous at the Top); and (2) know how to create an effective ethical culture (see Best Practices).

To learn about related behavioral ethics concepts to which leaders tend to be particularly susceptible, watch Overconfidence Bias and Self-serving Bias. For a closer look at the perils of a powerful leader with political influence, watch In It to Win: The Jack Abramoff Story and its accompanying short videos.

The case study on this page, “Dennis Kozlowski: Living Large,” takes a look at the former CEO of Tyco, who was an effective leader in his first few years as CEO, but eventually faced criminal charges over his use of company assets. For more detail about Abramoff and the lobbying scandal that eventually ended his career, read the case study “Abramoff: Lobbying Congress.”

Terms defined in our ethics glossary that are related to the video and case studies include: altruism, corruption, overconfidence bias, self-serving bias and prosocial behavior.

Behavioral ethics draws upon behavioral psychology, cognitive science, evolutionary biology, and related disciplines to determine how and why people make the ethical and unethical decisions that they do. Much behavioral ethics research addresses the question of why good people do bad things. Many behavioral ethics concepts are explored in detail in Concepts Unwrapped, as well as in the video case study In It to Win: The Jack Abramoff Story. Anyone who watches all (or even a good part) of these videos will have a solid introduction to behavioral ethics.

Additional Resources

Babiak, Paul, and Robert D. Hare. 2006. Snakes in Suits: When Psychopaths Go to Work. New York: HarperCollins.

Cropanzano, Russell, and Fred O. Walumbwa. 2010. “Moral Leadership: A Short Primer on Competing Perspectives.” In Managerial Ethics: Managing the Psychology of Morality, edited by Marshall Schminke, 21-52. New York: Routledge.

De Cremer, David, Eric van Dijk, and Chris P. Reinders Folmer. 2009. “Why Leaders Feel Entitled to Take More: Feelings of Entitlement As a Moral Rationalization Strategy.” In Psychological Perspectives on Ethical Behavior and Deicision Making, edited by David De Cremer, 107-120. Charlotte, NC: Information Age Publishing.

Grant, Adam. 2013. Give and Take: Why Helping Others Drives Our Success. New York: Penguin Books.

Heffernan, Margaret. 2011. Willful Blindness: Why We Ignore the Obvious at Our Peril. New York: Walker Publishing Company.

Keltner, Dacher, Carrie A. Langner, and Maria Logli Allison. 2006. “Power and Moral Leadership.” In Moral Leadership: The Theory and Practice of Power, Judgment, and Policy, edited by Deborah L. Rhode, 177-194. San Francisco, CA: Jossey-Bass.

Milliken, Frances J., Elizabeth Morrison, and Patricia F. Hewlin. 2003. “An Exploratory Study of Employee Silence: Issues that Employees Don’t Communicate Upward and Why.” Journal of Management Studies 40 (6): 1453-1476.

Moore, Celia, and Francesca Gino. 2012. Ethically Adrift: How Others Pull Our Moral Compass from True North, and How We Can Fix It.” Research in Organizational Behavior 33: 53-77.

Price, Terry L. 2006. Understanding Ethical Failures in Leadership. New York: Cambridge University Press.

Rhode, Deborah L. 2006. “Introduction: Where is the Leadership in Moral Leadership?.” In Moral Leadership: The Theory and Practice of Power, Judgment, and Policy, edited by Deborah L. Rhode, 1-54. San Francisco, CA: Jossey-Bass.

Shin, Yuhyung. 2012. “CEO Ethical Leadership, Ethical Climate, Climate Strength, and Collective Organizational Citizenship Behavior.” Journal of Business Ethics 108 (3): 299-312.

Wiltermuth, Scott S., and Francis J. Flynn. 2010. “Who’s with Me?: False Consensus, Brokerage, and Ethical Decision Making in Organizations.” Academy of Management Journal 53 (5): 1074-1089.

Zak, Paul J. 2012. The Moral Molecule: The Source of Love and Prosperity. New York: Dutton.

For resources on teaching behavioral ethics, an article written by Ethics Unwrapped authors Minette Drumwright, Robert Prentice, and Cara Biasucci introduces key concepts in behavioral ethics and approaches to effective ethics instruction—including sample classroom assignments. The article, published in the Decision Sciences Journal of Innovative Education, may be downloaded here: “Behavioral Ethics and Teaching Ethical Decision Making.”

A detailed article by Robert Prentice with extensive resources for teaching behavioral ethics, published in Journal of Legal Studies Education, may be downloaded here: “Teaching Behavioral Ethics.”

An article by Robert Prentice discussing how behavioral ethics can improve the ethicality of human decision-making, published in the Notre Dame Journal of Law, Ethics & Public Policy, may be downloaded here: “Behavioral Ethics: Can It Help Lawyers (And Others) Be their Best Selves?

A dated but still serviceable introductory article about teaching behavioral ethics can be accessed through Google Scholar by searching: Prentice, Robert A. 2004. “Teaching Ethics, Heuristics, and Biases.” Journal of Business Ethics Education 1 (1): 57-74.

Transcript of Narration

Written and Narrated by

Robert Prentice, J.D.
Business, Government & Society Department 
McCombs School of Business
The University of Texas at Austin

“What does it mean to be an effective ethical leader?  It means at least two things.  First, effective ethical leaders act ethically as an inspiration to others.  No single factor has a bigger impact on the ethicality of firm culture than the personal examples set by firm leaders. Second, they communicate and manage their organization’s culture so as to promote ethical action by subordinates.

Professors Cropanzano and Walumbwa have observed that most adults do not have an adequate moral compass and therefore “look outside themselves for guidance in moral dilemma situations.”  It is the leaders of their organizations to whom they primarily look, and studies show that few things impact the ethical climate of a firm more than the actions of their leaders.  Importantly, leaders’ unethical actions are copied by subordinates even more readily than their ethical actions.

Although it is especially important for leaders to act ethically, they are often particularly vulnerable to acting unethically. Professors Tenbrunsel and Bazerman note that it is clear that most people have high opinions of their own character and do not realize the substantial gap between how ethical they think that they are and how ethical they truly are.

Believing that we are moral people and will automatically do moral things, many of us act with little self-reflection and thereby often make ethical mistakes.  Overconfidence renders leaders particularly vulnerable, because they have typically had great success in their lives. Leaders are often given uncritical support, which Professor Frances Milliken found, leads them to be even more overconfident than the rest of us.  Think of Ken Lay, former CEO of Enron—minister’s son, noted philanthropist … convicted felon. Or of disgraced lobbyist Jack Abramoff—devout Jew, devoted family man …convicted felon.

Another behavioral factor that particularly affects leaders is the “instant entitlement bias.”  Studies show that if people are told that they are part of a team and that they should divide up resources allocated to the team, they tend to divide the resources equally among team members.  But if they are told that they have been selected as the “leader” of the team, even if they have done nothing at all to deserve that title, they tend to keep a much larger share of the resources for themselves.  In real life, leaders often fall victim to the instant entitlement bias, as can be seen in the lavish lifestyles often lived by corporate bigwigs.  Think of former Tyco CEO Dennis Kozlowski, who spent $2 million of company money on his wife’s birthday party.

Studies show that leaders tend to be extroverts who are prone to impulsive behavior.  Many surround themselves with “yes” men (and women) to gain the self-validation that we all desire. A study by Professors Flynn and Wiltermuth demonstrated that people at the center of social networks, such as CEOs, are more likely than others to mistakenly believe that other people agree with them regarding what is an ethical course of action.

It is often shocking how top corporate officers (like WorldCom’s Bernie Ebbers) and high government officials (like New York’s Eliot Spitzer) come to the view that the rules that apply to everyone else do not apply to them.  Often they do outrageous things with little or no effort to hide their wrongdoing because they become so convinced of their importance to their firm’s mission, which somehow justifies their exempting themselves from legal and ethical standards that apply to others.   For example, when Ken Lay was found to have violated Enron’s Code of Ethics by investing in company that did more than 80% of its business with Enron, he called suggestions of impropriety “form over substance.”  Rules, he said, “are important, but you should not be a slave to rules either.”

Professor Dacher Keltner of University of California at Berkeley, who studies ethical leadership, further finds that leaders are often tone deaf on ethical issues and that they have “uniquely self-serving rationalizations for their unethical actions that often focus on their rights and crowd out any consideration” of others’ rights.  As Professor Zak notes:  “Achieving high social status appears to make it not just lonely at the top but morally perilous as well.””