Business Ethics Business Professional Integrity

LEADERSHIP ETHICS: THE INTEGRITY CAPACITY CHALLENGE Dr. Joseph A. Petrick Executive Director Institute for Business Integrity Wright State University Leadership Ethics Lecture Series Ohio Northern University March 7, 2007 AGENDA A. B. Leadership Ethics and Rebuilding Stakeholder Trust Integrity Capacity Model for Leadership Development 1. Leadership Process Integrity Capacity 2. Leadership Judgment Integrity Capacity 3. Leadership Developmental Integrity Capacity 4. Leadership System Integrity Capacity Microeconomic and Macroeconomic Improvements 1. Improved Microeconomic Moral Accountability 2. Improved Macroeconomic Moral Accountability New Agenda for Responsible Leadership C. D. Leadership Ethics and Rebuilding Stakeholder Trust 1. Ethical Leadership Failures 2. Literature on Leadership is Vast. 3. Need For a Current Working Definition of Leadership 4. Need for a Current Working Model of Moral Leadership Working Definition of Leadership • Leadership is an influence process, both visible and invisible, in a society inherited, constructed, and perceived as an interaction of persons in human (and inhuman) conditions of partnership and/or inequality – an interaction measured by ethical values and by the degree of realization of intended, comprehensive, emergent, balanced and sustainable change. Integrity Capacity Model of Moral Leadership The individual and collective capability for repeated process alignment of moral awareness, deliberation, character and conduct that demonstrates balanced judgment, enhances sustained moral development, and promotes supportive systems for moral decision making. Integrity Capacity Model of Moral Leadership 1. Individual and Collective Integrity Capacity as both Intrinsically and Instrumentally Valuable 2. Integrity Capacity as an Intangible Strategic Asset that Enhances Power and Reputational Capital Instrumental Value of Leadership Integrity Capacity Leadership Integrity Capacity Reputational Capital Sustainable Competitive Advantage, Multiple Stakeholder Trust & WorldClass Performance Dimensions of Leadership Integrity Capacity 1. Leadership Process Integrity Capacity: Moral Coherence 2. Leadership Judgment Integrity Capacity: Moral Soundness 3. Leadership Developmental Integrity Capacity: Moral Maturity 4. Leadership System Integrity Capacity: Moral Wholeness Leadership Process Integrity Capacity: Moral Coherence The alignment of individual and/or collective leadership moral awareness, deliberation, character, and conduct on a sustained basis, so that moral coherence results. Leadership Process Integrity Capacity: Moral Coherence MORAL AWARENESS Perception Sensitivity MORAL DELIBERATION Analysis Resolution MORAL CHARACTER Cognitive Readiness to Act Volitional Readiness to Act MORAL CONDUCT Responsible Sustainable Virtues That Build Leadership & Collective Character 1. 2. 3. 4. 5. Intellectual Virtues Moral Virtues Social Virtues Emotional Virtues Political Virtues Leadership Judgment Integrity Capacity: Moral Soundness The balanced and inclusive use of key ethics theories and their subordinated cognate theoretical resources in the analysis and resolution of individual and/or collective ethical issues that demonstrate the moral soundness of leadership judgment. Leadership Judgment Integrity Capacity (R2C2): Moral Soundness Flexibility Build Virtuous Character Enhance Supportive Contexts Internal Follow Right Rules Achieve Good Results External Control Positive & Negative Zones of Leadership Moral Judgment Integrity (R2C2) Negative Zone Abdicates Authority Positive Zone Wastes Energy Context Character Slows Production Shows Consideration Envisions Changes Disrupts Continuity Facilitates Interaction Acquires Resources Negative Zone Amoral Professionalism Collects Information Initiates Action Destroys Cohesion Maintains Structure Stifles Progress Provides Structure Offends Individuals Rules Neglects Possibilities Results Leadership Judgment Integrity Capacity Based on Respecting Four Human Nature Drives Negative Zone Positive Zone Context DRIVE TO LEARN Character DRIVE TO BOND Negative Zone Amoral Professionalism Rules DRIVE TO DEFEND DRIVE TO ACQUIRE Results Ranges of Moral Judgment Evaluation using R2C2 ™ Quantitative Ranges 0–1 2 3 4 5 6 7 8 9 – 10 Qualitative Anchors Extremely Unacceptable Under-emphasis Unacceptable Under-emphasis Minimally Acceptable Emphasis Below Average Emphasis Average Emphasis Above Average Emphasis Optimal Emphasis Unacceptable Over-emphasis Extremely Unacceptable Over-emphasis Judgment Integrity Capacity Graph & Global Leadership Ethics Communication DILBERT CEO LACK OF LEADERSHIP JUDGMENT INTEGRITY CAPACITY LEADERSHIP EXTREME CONCERN FOR PROFITS Flexibility Context (ADAPTABILITY) Character (INVOLVEMENT) Internal External Results (EFFECTIVENESS) Rule s (CONTINUITY) Control Leadership Developmental Integrity Capacity: Moral Maturity The organizational and extra-organizational cultural cognitive improvement of individual and/or collective leadership moral reasoning capabilities from a stage of self-interested connivance, through a stage of external conformity, and onto a stage of internalized commitment to moral principles that demonstrates moral maturity. Leadership Moral Development Stages & Their Work Cultures Principled Integrity HOUSE OF INTEGRITY Democratic Participation Allegiance to Authority (Commitment) HOUSE OF COMPLIANCE Popular Conformity Machiavellianism (Conformity) HOUSE OF MANIPULATION Social Darwinism (Connivance) Leadership Moral Development Stages & Leadership Theories Principled Integrity Democratic Participation Allegiance to Authority Principled Transforming Leadership Theories Majority Participation and Servant Leadership Theories Institutional Contingency Leadership Theories Leader-Membership Exchange (Conformity) Theories Path-Goal/Transactional Leadership Theories Autocratic Coercive Power Leadership Theories Popular Conformity Machiavellianism Social Darwinism Leadership System Integrity Capacity: Moral Wholeness The development and alignment of the moral infrastructure within the organization and the shaping of the external moral environment of the leader’s organization to provide a supportive context for moral wholeness in decision making. Leadership and Internal System Integrity Capacity Organizational Moral Environment • Compliance-Based Systems • Prevent Criminal Misconduct • U.S. Federal Sentencing Guidelines (USFSG) • Sarbanes-Oxley Act (SOX) • Integrity-Based Systems • Enable Responsible Conduct Compliance-Based Organization Internal Systems 1. Establish compliance standards and procedures 2. Assign high level individuals to oversee program 3. Exercise due care in delegating discretionary authority 4. Communicate and train Compliance-Based Organization Internal Systems 5. Monitor, audit, and provide safe reporting system 6. Enforce appropriate discipline with consistency 7. Respond to offences and prevent further misconduct 8. Comply with USFSG & SOX requirements Integrity-Based Organization Internal Systems 1. Moral Leadership at the Top 2. Ethics Needs Assessment & Compliance Standards in Place 3. Ethics in Strategy and Structure 4. Integrity Steering Committee 5. Statement of Values/Written Code of Conduct 6. Ethics Policy and Procedure Manuals Integrity-Based Organization Internal Systems Ethics in Selection, Socialization, and Performance Subsystems 8. Ethics in Appraisal, Rewards/Recognition/Incentive, and Development Subsystems 9. Ethics in Communication Processes and Work Attitudes 10. Ethics Training and Education Programs 11. Ethics in Decision-Making/Meeting Processes 7. Integrity-Based Organization Internal Systems 12. Organizational Integrity Advisor Responsibilities 13. Ethics Reporting, Whistleblower Protection and Conflict Resolution Processes 14. Enforcement Processes of Ethical Standards 15. Ethics Monitoring, Auditing & Improving Subsystems 16. Ethics System and Quality Work Process Control and Improvement Ethical Leadership Assessment Instrument 1. Listens to what employees have to say 2. Disciplines employees who violate ethical standards 3. Conducts his/her personal life in an ethical manner 4. Has the best interests of employees in mind 5. Makes fair and balanced decisions Ethical Leadership Assessment Instrument 6. Can be trusted 7. Discusses business ethics or values with employees 8. Sets an example of how to do things the right way in terms of ethics 9. Defines success not just by results but also by the way that they are obtained 10. When making decisions, asks “what is the right thing to do?” Source: M.E. Brown et al. / Organizational Behavior and Human Decision Processes (2005) 97:117–134 External System Integrity Capacity 1. Domestic External Moral Environment • Corruption Elimination and/or Control • Industry & Professional Standards • Proactive Positive Stakeholder Relations & Triple Bottom Line Accountability 2. Global External Moral Environment • Corruption Elimination and/or Control • Industry & Professional Standards • Proactive Positive Stakeholder Relations & Triple Bottom Line Accountability Improved Microeconomic Moral Accountability A. Individual Leadership Accountability Improvement 1. Demonstrated Process Integrity Capacity: Moral Coherence 2. Demonstrated Judgment Integrity Capacity: Moral Soundness 3. Demonstrated Developmental Integrity Capacity: Moral Maturity 4. Demonstrated System Integrity Capacity: Moral Wholeness Improved Microeconomic Moral Accountability A. Collective Leadership Accountability Improvement 1. Demonstrated Process Integrity Capacity: Moral Coherence 2. Demonstrated Judgment Integrity Capacity: Moral Soundness 3. Demonstrated Developmental Integrity Capacity: Moral Maturity 4. Demonstrated System Integrity Capacity: Moral Wholeness Improved Macroeconomic Moral Accountability A. Professional Association/Industry Accountability Improvement 1. Strengthen leadership professional education 2. Strengthen leadership for institutional reform 3. Strengthen professional/industry/education accountability links B. Political Economy Accountability Improvement 1. Balancing types of capitalism/economic democracy 2. International leadership harmonization through global business, government & NGO linkages 3. Domestic & global governance board reforms Balancing Types of Capitalism Negative Zone Positive Zone Entrepreneur Capitalism DRIVE TO LEARN Communit y Capitalism DRIVE TO BOND Negative Zone Amoral Professionalism DRIVE TO DEFEND DRIVE TO ACQUIRE Regulatory Capitalism Investor Capitalism New Agenda for Responsible Leadership in Organizations • National commission with task forces on improving microeconomic levels of leadership integrity capacity accountability • International commission with task forces on improving macroeconomic levels of leadership moral accountability • Integrity capacity building skills in mainstream leadership professional education LEADERSHIP ETHICS: THE INTEGRITY CAPACITY CHALLENGE Dr. Joseph A. Petrick Executive Director Institute for Business Integrity Wright State University Leadership Ethics Lecture Series Ohio Northern University March 7, 2007