Ethical Leadership

Updated on March 20, 2024
Article byPrakhar Gajendrakar
Edited byPrakhar Gajendrakar
Reviewed byDheeraj Vaidya, CFA, FRM

Ethical Leadership Definition

Ethical Leadership is the demonstration of practices that are well aligned with the code of conduct and appropriate actions in the workplace, building a healthy professional relationship with colleagues, seniors and subordinates. Employees in senior positions with power must exhibit and promote moral behavior, integrity and values.

Ethical Leadership

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When people in power behave ethically, value others’ perspectives, and respect their beliefs and rights at work, they create a better professional ecosystem, lead by example, and induce the same qualities in others. In the modern corporate world, this is expected of a leader.

Key Takeaways

  • Ethical leadership is creating a workplace environment that is based on ethical actions and practices, respecting other rights, perspectives and beliefs.
  • It saves companies from practicing malicious activities that eventually lead to scams, frauds, and corporate scandals.
  • Firms with unethical leadership practices do not follow rules or respect policies, tend to have bad reputations, and do not have long-term market presence.
  • Ethical leadership is essential for employees who aspire to become professional role models, team leaders, and influential senior executives.

Ethical Leadership Explained

Ethical leadership is the concept of observing the right practices and promoting integrity and honesty in the workplace. When a company operates ethically, it establishes clear policies and guidelines about work and professionalism. Ethical leadership is also an integral quality among managers, executives, and team leaders. When a team leader practices ethical leadership, they promote and encourage the right behavior, conduct, and mindset among colleagues, team members, and the whole organization.

It is mostly about leading by example, inducing the normatively appropriate behavior and code of conduct through personal actions, and ensuring that a correct model of moral behavior is introduced in the workplace. In the modern corporate world, an ethical leader is highly appreciated and treated as a business leader with principles holding a position of power.

The ethical leadership theory suggests that managers following it make investors, employees, clients and customers feel safe about the organization and build trust and goodwill in the market. It reaches beyond partners and vendors and constitutes a long-term vision. On the contrary, companies with unethical behavior often get involved in scams, scandals, and corporate frauds and have no market reputation, leading to eventually shutting down or disappearing from the market. It is highly advised that companies should practice ethical leadership at every level, boosting morale and inducing loyalty in people.

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The characteristics of ethical leadership are –

  • The very first characteristic of this leadership is to become someone the employees can look up to and lead them by example.
  • Empathy is a basic important characteristic of a leader as it shows that the person is trying to understand other employees’ problems and issues.
  • Another great characteristic is transparency. Many leaders practice transparency to build trust and loyalty among their colleagues and team members.
  • An ethical leader has zero tolerance for unethical practices and violations of guidelines and company policies.
  • Such leaders are often ready to evolve and change their work and operating styles to match the new trends, again setting an example for others.
  • The qualities of ethical leadership are often achieved through open communication and discussion, letting people know their roles and responsibilities and their expectations.
  • One of the very basic characteristics is that such leaders are driven by morals and personal values that are reflected in their work.
  • An ethical leader is never afraid to accept their mistakes and make amendments to improve.
  • Ethical leadership showcases fairness and awareness of implicit biases.


Below are two examples of ethical leadership:

Example #1

Starbucks’s racial bias incident from 2014 is a very popular one. One day, when two African American individuals entered Starbucks located in Philadelphia and asked the manager to use the bathroom, the manager told them that it was for paying customers only, so they sat down and started waiting for their friend to arrive before placing an order.

The manager called the police, and the men were arrested for trespassing. The news of the arrest circulated fast and ignited many protests in the U.S. The then CEO Kevin Johnson fired the manager, apologized to the two men and conducted a new racial bias training on May 29th, 2018, to educate 175,000 Starbucks employees. It announced temporary closure of 8,000 stores, which cost Starbucks around $12 million in lost profit.

Starbucks is well known for its ethics, and Johnson was known for his ethical leadership. The company has the most diverse leadership groups in corporate America, as five of the 14 board members are women, and five are from racial minority groups.

Example #2

Suppose David owns a bottling plant. He treats every employee with equal respect. Irrespective of their designation and level of responsibility. David has hundreds of workers in his factory but, from time to time, organizes town hall meetings and ensures that a brief level of transparency is maintained and good laws for the workers are induced. He listens to every single worker’s problem and gives them proper consideration.

David also likes to lead by example; everyone now shares the level of respect and work ethic he introduced in the company organization. People have boosted morale and genuinely like to work for David. Every time there is a new policy proposed, David takes the advice and opinions of every employee and worker making them feel heard and recognized, and only makes decisions based on anonymous voting. If there is a chance to make a profit by being involved in wrongful practices, David lets it pass, exhibiting integrity and a strong value system.

These are some simple practices of ethical leadership that make David a strong and visionary ethical leader.

Advantages And Disadvantages

The advantages are –

  • It induces good qualities like loyalty, integrity, honesty and dignity in the workplace and among customers and clients.
  • Ethical leadership helps in building long term relationships, both professional and personal, among the employees and management.
  • Prevent companies from scandals, scams, unethical practices and malicious and unethical activities.
  • Boost morale and performance of employees in the workplace.
  • Ethical leadership transforms good managers into examples to follow and learn from
  • Inform employees about their rights and induce accountability in them, along with inspiring them to maintain a level of dignity at work.

The disadvantages are –

  • It becomes challenging to stay consistent with all the decisions all the time in all the scenarios.
  • When respecting everyone’s beliefs, it becomes difficult to manage employees with different sets of values.
  • Ethical leadership is good, but it prevents people from taking risks and taking another route to solutions.
  • It is tough to maintain ethics in a big organization with multiple locations, as it requires constant monitoring and control.
  • Ethical leadership is costly, requires universal support, and highly depends on the leaders who dictate the policies.

Ethical vs Unethical Leadership

The main differences between ethical leadership and unethical leadership are –

  • Ethical leadership is based on integrity, dignity and honest working. In comparison, unethical leadership contributes to deceitful behavior and harmful activities.
  • Ethical leadership is a structure of standard protocols, individual beliefs, rights, professionalism and right behavior, but unethical leadership has no rules or regard for any policies or professionalism.
  • Ethical leadership breeds socialism, but unethical leadership is the product of capitalism.

Ethical vs Transformational Leadership

The key differences between ethical and transformational leadership are –

  • Ethical leadership implies the idea of doing the right thing and respecting the standard boundaries at the workplace. On the other hand, transformational leadership is practiced to encourage, inspire and motivate employees.
  • Ethical leadership preserves the rights and dignity of employees and the workplace environment. Still, some leaders opt for transformational leadership, which involves working as a team with colleagues to bring about change.
  • Ethical leadership helps in building goodwill and long-term relationships, but transformational leadership helps employees change their self interests and become better and more productive.

Frequently Asked Questions (FAQs)

1. How to maintain ethical leadership?

Achieving ethical leadership and maintaining it are two different tasks, and both are equally challenging; however, companies, in order to maintain their ethical practices, can –
– Introduce training programs for all employees
– Remain consistent with their decisions even if it costs them profit.
– Formulate strict policies against violations.
– Respecting boundaries, values and personal morals at the workplace.

2. Why is ethical leadership essential?

Ethical leadership is essential because –
– In a nutshell, it normalizes correct behavior and actions and doing the right thing always.
– Inspire people and encourage correct behavior, respecting the values and morals of everyone.
– Makes the workplace environment healthy, professional and stable

3. What are the five principles of ethical leadership?

The five principles of ethical leadership are –
1. Honesty encourages being honest to work and the operation along with the teams and company
2. Justice – This ensures that every task, operation, activity or practice performed is rightful and without any sense of fraud and malice.
3. Respect – Ethical leadership involves respecting everyone’s beliefs, emotions, moral values and behavioral rights.
4. Community – It involves always working and helping the society and community grow, striving to make it better.
5. Integrity – It is an important principle as integrity refers to being true and consistent all the time in all situations.

This article has been a guide to Ethical Leadership and its definition. We explain its examples, characteristics, advantages, & comparison with unethical leadership. You may also find some useful articles here –

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