Ethics and Governance

Introduction
Leadership is a journey defined by both the means and the end. It is a means
of direction, to achieve defined goals and should be done in a manner that exhibits
fairness in dealing with issues as well as increased awareness and interest in
corporate responsibility. This implies that when leadership exists without ethics and
corporate governance, it is absolutely without direction and of little value.
This term paper seeks to highlight the basic concepts and contemporary
issues of ethical leadership and good governance. Ethical issues in management
and the development of systems of corporate governance are pressing concerns in
todays business. Therefore, an understanding of this is essential to those in
leadership roles.
Ethics is a branch of philosophy that studies the difference between right and
wrong. It is about what morals and values are found appropriate by members of
society and individuals themselves. Ethics helps us decide what is right and good or
wrong and bad in any given situation. With respect to leadership, ethics is about
who leaders aretheir character and what they do, their actions and behaviors.
Different people will approach an ethical decision with different points of
view, and different cultures approach ethics in different ways. This is personal
ethics. The context is also important as one has to look at the specific rules that
govern the situation. For example, if one is an auditor, they will be bound by the
relevant auditing standards in the jurisdiction where they are carrying out an
assignment. Then, as a professional, one must consider the principles of their
professional body which form the basis of their professional ethics.

A leaders own values, interests and experiences are the filter through which
they view any situation. It is important that they are aware of those filters because
they could influence professional judgement and they should strive to maintain
objectivity by being mindful of the fact that their personal values are just that personal and unique to them. Ethical leadership is understanding ones core values
and having the courage to live them in all parts of ones life in service of the
common good (Aliyu, 2013).
When separation exists between the ownership of a company and its
management, self-interested executives have the opportunity to take actions that
benefit themselves, with shareholders and stakeholders bearing the cost of these
actions. This scenario is typically referred to as the agency problem, with the costs
resulting from this problem described as agency costs. Executives make investment,
financing, and operating decisions that better themselves at the expense of other
parties related to the firm. To lessen agency costs, some type of control or
monitoring system is put in place in the organization. This system of checks and
balances is called corporate governance (David Larcker, 2011).
Corporate governance, therefore, is the system by which companies are
directed and controlled in the interests of shareholders and other stakeholders. Its
purpose is to facilitate effective, entrepreneurial and prudent management that can
deliver the long-term success of the company. At a minimum, this (monitoring)
system consists of a board of directors to oversee management and an external
auditor to express an opinion on the reliability of financial statements. In most
cases, however, governance systems are influenced by a much broader group of
constituents, including owners of the firm, creditors, labor unions, customers,
suppliers, investment analysts, the media, and regulators

Ethics, Corporate Governance & Leadership

In every social setting, there must be specified objectives to accomplish and
usually, some individuals are vested with the responsibility to plan, organize,
coordinate and harmonize, influence, direct and guide the affairs of these people
toward attaining the vision and mission of such group efficiently and effectively.
Such a person, regarded as a leader, sees to the realization of the goals of the social
setting. For leaders to attain success they must be ethical in their conduct and
demonstrate fairness in dealing with issues.
Ethics is central to leadership because of the nature of the relationship
between leaders and followers (Yukl, 2012). Leaders influence followers. This means
they affect followers lives either negatively or positively. The nature of the influence
depends on the leaders character and the impact of their behavior. Leaders have
more power - interpersonal and/or formal hierarchical power - and therefore have a
greater responsibility with respect to their impact on their followers.
There are five principles that are believed to lead to the development of
ethical leadership (DuBrin, 2010). These are:
i.

Respect for Others - Ethical leaders treat others with dignity and respect.
They treat people as ends in themselves rather than as means to their own
ends. This form of respect recognizes that followers have goals and ambitions

and confirms followers as human beings who have worth and value to the
organization. In addition, it leads to empathy, active listening, and tolerance
for conflicting viewpoints.
ii.

Service to Others - Ethical leaders serve others. They behave in an altruistic

fashion as opposed to behaving in a way that is based on self-importance.
These leaders put followers first in that their prime reason for being is to
support and nurture subordinates. Service to others is exemplified through
behaviors such as mentoring, building teams, and empowering.

iii.

Justice for Others - Ethical leaders ensure that justice and fairness are central
parts of their decision making. This implies treating all subordinates in very
similar ways, except when there is a very clear need for differential treatment
and there is transparency about why this need exists. In addition to being
transparent, the logic for differential treatment should be morally sound and
reasonable.

iv.

Honesty Toward Others - Ethical leadership requires honesty. Dishonesty

destroys trust - a critical characteristic of any leader follower relationship.
On the other hand, honesty increases trust and builds such a relationship.
Honesty means to be open with others by expressing our thinking and our
reality as fully as we can. This means balancing openness with disclosing only
what is appropriate in a given scenario.

v.

Building Community With Others - Ethical leaders build community with

others. This is crucial because leadership is about influencing others to
achieve a communal goal. This means that leaders develop organizational or
team goals that are appropriate for the leader and his/her followers. These

goals need to excite as many people as possible, and ethical leaders achieve
this by taking into account the goals of everyone in the team or organization.
Being an ethical leader will be easier if the following (Northouse, 2012) are
entrenched into leaders thinking:
i.

Is this the right and fair thing to do?

ii.

Is this what a noble person would do?

iii.

Am I respectful to others?

iv.

Do I treat others generously?

v.

Am I honest toward others?

vi.

Am I serving the community?

Over and above running their businesses ethically, leaders must be

concerned with their employees, their customers, their suppliers, their communities,
their shareholders, and themselves. Leadership is influencing people to achieve
communal goals; ethical leadership is achieving those goals in a way that is fair and
just to employees, customers, suppliers, communities, shareholders, and leaders
themselves.
Corporate governance is this holistic approach by which there is an overriding moral dimension to running a business, which permeates the entire
organization from top to bottom and embraces all stakeholders. This approach
recognizes that the interests of different stakeholders carry different weight, but it
does not, by any means, suggest that those with a major interest matter and the
rest dont. On the contrary, best corporate governance practice dictates that all
stakeholders should be treated with equal concern and respect. The principles
underlying such an all-inclusive approach include:

i.

Ethics

organizational

standards

with

high

moral

character

and

straightforwardness in all business relationships.

ii.

Balanced objectives - congruence of goals of all interested parties. This

translates to equal concern for all stakeholders - albeit some have greater weight
than others, a fair, neutral attitude between stakeholders, having respect for
rights and views of any other group with a legitimate interest.

iii.

Each party plays his part - roles of key players: owners/directors/staff

iv.

Judgement - reflecting the first three principles and giving due weight to all
stakeholders; Making decisions that will maximize organizations prosperity

v.

Accountability and transparency - to all stakeholders, a default assumption that

openness is best, being answerable for the consequences of decisions and
actions, as well as responsiveness to the need for corrective action.

vi.

Independence - not allow bias, conflicts of interest or the undue influence of

others to compromise their professional or business judgement.

vii.

Reputation - this is the view that other people have of the organization. A solid
reputation will contribute to new clients, repeat business, and goodwill with
normative, derivative and mixed stakeholders (employees, debtors, creditors,
regulators).
Summary & Conclusion
There is significant positive relationship between ethical leadership and good
governance. Ethics has variables that guide the performance of leaders, thereby
creating a direction for the leaders to focus, thus, enhancing good governance.
Corporate governance is comprehensive and balances the interests of
shareholders with all stakeholders. Many academic studies conclude that effective

corporate governance is key to generating and supporting continuously strong and

meaningful corporate profitability and growth of an organization.
When fully implemented, ethical leadership and good corporate governance
ensure that corporations are well-run institutions that earn the confidence of
investors and lenders. The quality of governance is of absolute importance to
shareholders as it provides them with a level of assurance that the business of the
company is being conducted in a manner that adds shareholder value and
safeguards its assets. This means that there is less uncertainty associated with the
investment.
Hence ethical leadership and good corporate governance is necessary in order to:
i.

Attract investors and assure them that their investments will be secure and
efficiently managed, and in a transparent and accountable process.

ii.

Create competitive and efficient companies and business enterprises.

iii.

Enhance the accountability and performance of those entrusted to manage

corporations.

iv.

Promote efficient and effective use of limited resources.

References
Aliyu, A. N. (2013). Ethical Leadership and Good Governance. European Journal of
Humanities and Social Sciences Vol. 27, No.1.
David Larcker, B. T. (2011). Corporate Governance Matters. New Jersey: Pearson
Education Inc.
DuBrin, A. J. (2010). Principles of Leadership. South-Western.

Financial Reporting Council. (2014). The UK Corporate Governance Code. London:

Financial Reporting Council Limited.
Northouse, P. G. (2012). Leadership: Theory and Practice. London: SAGE
Publications.
Yukl, G. A. (2012). Leadership in Organizations. New York: Pearson Education.