Doing Well by Doing Good? Analyzing the Relationship Between CEO Ethical Leadership and Firm Performance

Abstract

Business ethics and firm economic performance have traditionally often been regarded as mutually exclusive ends. We challenge this “either-or” belief and analyze when and how ethical firm leadership and firm performance may harmonize well. In extension of earlier research on ethical leadership and performance at the individual and team level, we study the context–dependency of the organization level relationship between CEO ethical leadership and firm performance. We propose a moderated mediation model of the link between CEO ethical leadership and firm performance, identifying mediating (organizational ethical culture) and moderating (organizational ethics program) variables unique to the organization-level of analysis. CEO ethical leadership is argued to work through organizational ethical culture which promotes firm performance under the condition that there is a strong corporate ethics program in place. Results from a multisource cross-sectional study, in which we surveyed 145 participants from 32 organizations and validated organizational performance ratings by objective performance data, showed support for our conceptual model.

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Fig. 1
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Notes

  1. 1.

    An alternative way of reasoning could be that organizational ethical culture affects the selection of an ethical CEO and/or whether the existing CEO engages in ethical leadership (cf. Schein 2004). We therefore also calculated the reverse contingent indirect effect model (with organizational ethical culture as the independent variable, CEO ethical leadership as the mediating variable, the corporate ethics program as the moderating variable, and firm performance as the dependent variable). This model was not significant, corroborating our analysis which advances CEO ethical leadership as the influence on culture.

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Acknowledgments

The present research was supported by a project funding from the German Excellence Initiative of the Ludwig-Maximilians-University in Munich granted to the first author.

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Correspondence to Silke Astrid Eisenbeiss.

Appendix

Appendix

Items for Measuring Ethical Leadership

The CEO of my organization …

People orientation

is interested in how his/her employees feel and how they are doing.

takes time for personal contact with his/her employees.

pays attention to employees’ personal needs.

takes time to talk about work-related emotions.

is genuinely concerned about employees’ personal development.

sympathizes with employees when they have problems.

cares about his/her employees.

Integrity

keeps his/her promises.

can be trusted to do the things he/she says.

can be relied on to honor his/her commitments.

always keeps his/her words.

Fairness

makes his/her decision basing on accurate information collected beforehand.

makes consistent decisions that base on reliable standards.

considers in his/her actions the rights of his/her employees.

considers in his/her actions multiple viewpoints.

rewards performance in a fair manner.

rewards according to the responsibility the respective employee has.

Responsibility

feels responsible for society.

values long-term relationships with business partners.

is interested in a long-term orientation of success.

feels committed to the welfare of future generations.

organizes business processes in an environmentally friendly manner.

ensures that the organization is a “good citizen.”

creates awareness of the responsibility of organizations for society and environment.

offers followers the possibility for social engagement.

enforces the long-term organizational success against short-term wins.

realizes the responsibility of the organization for society.

Modesty

thinks that he/she is an ordinary person who is no better than others.

would not want people to treat him/her as though he/she were superior to them.

thinks that he/she is entitled to more respect than the average person is.

wants people to know that he/she is an important person of high status.

Items for Measuring Organizational Ethical Culture

  1. 1.

    The organization makes it sufficiently clear to each employee how he/she should conduct him-/herself appropriately toward others within the organization.

  2. 2.

    The organization makes it sufficiently clear to each employee how he/she should obtain proper authorizations.

  3. 3.

    The organization makes it sufficiently clear to each employee how he/she should use company equipment responsibly.

  4. 4.

    The organization makes it sufficiently clear to each employee how he/she should use his/her working hours responsibly.

  5. 5.

    The organization makes it sufficiently clear to each employee how he/she should handle money and other financial assets responsibly.

  6. 6.

    The organization makes it sufficiently clear to each employee how he/she should deal with conflicts of interests and sideline activities responsibly.

  7. 7.

    The organization makes it sufficiently clear to each employee how he/she should deal with confidential information responsibly.

  8. 8.

    The organization makes it sufficiently clear to each employee how he/she should deal with external persons and organizations responsibly.

  9. 9.

    The organization makes it sufficiently clear to each employee how he/she should deal with environmental issues in a responsible way.

  10. 10.

    In my organization, it is sufficiently clear to everybody how he/she is expected to conduct him-/herself in a responsible way.

  11. 11.

    In my organization, employees are never asked to do things that conflict with their conscience.

  12. 12.

    In order to be successful in my organization, nobody has to sacrifice his/her personal norms and values.

  13. 13.

    In my organization, employees have sufficient time at their disposal to carry out their tasks responsibly.

  14. 14.

    In my organization, employees have sufficient information at their disposal to carry out their tasks responsibly.

  15. 15.

    In my organization, employees have adequate resources at their disposal to carry out their tasks responsibly.

  16. 16.

    In my organization, employees are never put under pressure to break the rules.

  17. 17.

    In my organization, everyone is totally committed to the (stipulated) norms and values of the organization.

  18. 18.

    In my organization, an atmosphere of mutual trust prevails.

  19. 19.

    In my organization, everyone has the best interests of the organization at heart.

  20. 20.

    In my organization, a mutual relationship of trust prevails between employees and management.

  21. 21.

    In my organization, everyone takes the existing norms and standards seriously.

  22. 22.

    In my organization, everyone treats one another with respect.

  23. 23.

    The conduct of the top management reflects a shared set of norms and values.

  24. 24.

    The top management sets a good example in terms of ethical behavior.

  25. 25.

    The top management communicates the importance of ethics and integrity clearly and convincingly.

  26. 26.

    The top management would never authorize unethical or illegal conduct to meet business goals.

  27. 27.

    If a colleague does something which is not permitted, a manager will find out about it.

  28. 28.

    If a colleague does something which is not permitted, another employee will find out about it.

  29. 29.

    If a manager does something which is not permitted, someone in the organization will find out about it.

  30. 30.

    If someone criticizes other people’s behavior, he/she will receive feedback on any action taken as a result of his/her criticism.

  31. 31.

    In my organization, there is adequate awareness of potential violations and incidents in the organization.

  32. 32.

    Management is aware of the type of incidents and unethical conduct that occur in my organization.

  33. 33.

    In my organization, there is adequate scope to discuss unethical conduct.

  34. 34.

    In my organization, there is adequate scope to report unethical conduct.

  35. 35.

    In my organization, there is ample opportunity for discussing moral dilemmas.

  36. 36.

    If someone is called to account for his/her conduct, it is done in a respectful manner.

  37. 37.

    In my organization, there is adequate scope to correct unethical conduct.

  38. 38.

    In my organization, people are accountable for their actions.

  39. 39.

    In my organization, ethical conduct is valued highly.

  40. 40.

    In my organization, only people with integrity are considered for promotion.

  41. 41.

    If necessary, managers are disciplined in my organization if they behave unethically.

  42. 42.

    The people that are successful in my organization stick to the norms and standards of the organization.

  43. 43.

    In my organization, ethical conduct is rewarded.

  44. 44.

    In my organization, employees will be disciplined if they behave unethically.

  45. 45.

    If unethical conduct is reported to management, those involved would be disciplined fairly regardless of their position.

  46. 46.

    In my organization, employees who conduct themselves with integrity stand a greater chance to receive a positive performance appraisal than employees who conduct themselves without integrity.

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Eisenbeiss, S.A., van Knippenberg, D. & Fahrbach, C.M. Doing Well by Doing Good? Analyzing the Relationship Between CEO Ethical Leadership and Firm Performance. J Bus Ethics 128, 635–651 (2015). https://doi.org/10.1007/s10551-014-2124-9

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Keywords

  • CEO leadership
  • Corporate ethics program
  • Ethical leadership
  • Firm performance
  • Organizational ethical culture