Steps to ethical leadership

Creating an ethical culture should be a goal of every leader. It is not simply the morally right thing to do. Research repeatedly demonstrates the business case for taking ethics and culture seriously, with higher staff satisfaction and retention, reduced costs, increased productivity, reduced risk, and better customer outcomes being just some of the benefits.

"Organisations which are truly on a mission, led by passionate leaders who bring their employees, suppliers, and customers on the journey, are the most successful," said Mark Allen, FCMA, CGMA, the CEO of the TAG Accountants Community, an organisation bringing together UK accountancy practices offering tax, legal, consultancy, and financial services.

Ethical leaders put ethics at the heart of everything they do and are guided by moral principles such as integrity, honesty, and fairness. They empower those around them to also act in an ethical manner, thereby building a culture of doing the right thing throughout an organisation. Ethical leaders do the right thing even when this requires making decisions that may be unpopular.

Here are five top things you can do to provide ethical leadership:

Lead by example

People quickly lose trust in leaders they don't believe in, while they follow leaders they find inspiring. If you say all the right things but your words are found to be empty, you will quickly find people stop listening. By setting a clear example and acting as a role model for ethical decision-making, you inspire people to follow you and begin to raise their standards, expectations, and performance. Where leaders behave unethically, this can lead to people throughout the organisation seeing this as acceptable and following suit.

Whilst leading from the front is important, it is also vital to empower the people around you to act in an ethical way. Nigel Iyer, a CIMA fellow who is also a chartered accountant, has over 25 years of experience investigating fraud worldwide. He argues that "one of the finest ways management can demonstrate they care about ethics is to motivate everyone who works for them to play their part in protecting the company against unethical behaviour". When it comes to fraud, it is people working with the details — for example, those close to the money flows such as orders, payments, and account postings — who have the best opportunity to identify red flags, not necessarily the managers who are less involved in the nitty-gritty. By ensuring you lead from the front whilst instilling ethical thinking across your whole team, ethical thinking becomes business as usual.

Promote transparency

Would people in your team be happy to come and talk to you if something were concerning them? An ethical leader makes sure their staff know that they are always available for a chat. They promote a culture where employees are able to ask questions, challenge decisions, and speak up without fear of retaliation.

"An ethical organisation is one in which there is a culture of listening," Allen said. "You are working towards common goals, and listening and understanding is more valuable than dictating."

When decisions are made that affect your people, be open about the reasons and implications. Making excuses or downplaying the impacts will likely lead to resentment and a negative culture going forward. If there is an ethical lapse in a team or a company, trying to cover this up can be harmful. Instead, talking about what lessons can be learned is the quickest and most effective way to rebuild trust.

Prioritise fairness and avoid bias

People often feel comfortable surrounded by people like them, but this leads to close-minded thinking. Push yourself to seek out different opinions. Make sure everyone on your team is included in the conversation and is comfortable with participating fully and sharing their opinion. If you notice that a member of your team rarely speaks up in team meetings, have a quick chat with them to understand whether something is holding them back — perhaps they worry that their opinion would not be valued, or they are keeping quiet because they do not feel their views fit with the majority. Demonstrating that you are there for every member of your team and value all viewpoints can go a long way to creating stronger teams.

Allen said fairness is a key trait for an ethical leader. "Clearly, we all get on with some people better than others. But that does not mean that those people are right all the time. We must take a step back and look at the facts, rather than allowing emotion to affect our integrity." It is important you make sure you never show favouritism, as this can lead to resentment and distrust. Instead, act consistently and fairly.

Embed ethics in goals and performance targets

Unfortunately, the way we make decisions can be affected by pressures such as deadlines or tight budgets. Doing the right thing sometimes is passed over in favour of doing what is quicker or less costly. One way to combat this is to send a clear signal that you value how your team get things done in addition to what they deliver.

According to Iyer, "The true defenders of the organisation are the people that work for it, and they should be motivated to do so and justly rewarded." When it comes to detecting fraud, for example, managers need to "empower people in the organisation to show interest and a healthy curiosity, and reward them for showing initiative".

There are many ways to recognise ethical thinking and behaviour. Sometimes simply calling out people doing the right thing with a thank you is enough. Another option could be to hand out awards related to company values, singling out individuals who go above and beyond. Many companies have now formalised ethics in performance reviews, requiring employees to demonstrate how they have applied ethical values such as integrity throughout the year. Managers then assign a performance rating, which could impact financial rewards such as pay rises or bonuses, based on these values in addition to how successfully they met targets. Another option is to use one of the many platforms that allow employees to recognise the good work of others with points that can be converted into gift cards. Why not tie these recognitions to ethical values such as honesty, courage, or collaboration, allowing employees to call out great behaviours demonstrated by their colleagues?

Create ethics moments

Talk about ethics with your team regularly. This could be in a structured way, such as through discussing an ethical dilemma in each team meeting, or more informally, for example, through conversations in the office about ethics stories in the news.

Iyer suggests using real-life examples from within and outside your company. If there is an example of someone going above and beyond, talk about it. If something goes wrong, ask what lessons your team can learn. Exposing your teams to realistic scenarios such as typical frauds is an interactive way of developing a curious mindset and actively considering how to react in given situations. FM's "Ethics in Action" series offers a number of ethical dilemmas, which can be another useful way of stimulating discussion about ethics.

Ultimately, the mantra "treat others as you would like to be treated" is a good guide to follow. Think about the leaders who have inspired you, and learn from them.

Resources

Articles

• "Being Ethical in the Face of Wrongdoing", FM magazine, 30 January 2020
• "New Code of Ethics Is True to CIMA's Core Principles", FM magazine, October 2019
• "Managers' Quandary: Ethics or Targets?" FM magazine, 6 February 2019

Guidelines

• CIMA Code of Ethics
• AICPA Code of Professional Conduct

Podcasts

• "How to Encourage Ethical Corporate Behaviour", FM magazine, 12 February 2020
• "Driving Ethical Behaviour in a Global Organisation", FM magazine, 21 August 2019

Bryony Clear Hill is the associate manager—Ethics Awareness for CIMA members and is based in the UK. To comment on this article or to suggest an idea for another article, contact Drew Adamek, an FM magazine senior editor, at Andrew.Adamek@aicpa-cima.com.