McCombs Knowledge To Go

1. McCombs Knowledge To Go June 14, 2011

2. Challenges of Ethical Leadership by Robert Prentice, The Ed & Molly Smith Centennial Professor of Business Law and Faculty Director of the McCombs Business Honors Program

3. Introduction A. Leadership Ethics is always a timely topic.

4. Introduction A. Leadership Ethics is always a timely topic. • 1980s: S&L Scandals • 1990s & 2000s: Enron-era Scandals • 2000s: Subprime Scandals

5. Recently:

6. B. The adverse effects of these scandals make one thing clear:

7. B. The adverse effects of these scandals make one thing clear: ethical behavior is essential to the effective functioning of American capitalism.

8. II. “Moral Leadership” is Critical. A. Moral Leadership has two aspects:

9. A. Moral Leadership has two aspects: • Managing: • Establishing ethical norms • Communicating them to employees • Punishing breaches • Rewarding compliance

10. Trevino: “[Leaders] must make their expectations of others’ ethical conduct explicit, and they must hold all of their followers accountable for ethical conduct every day through attention to ethics in the performance management systems.”

11. Moral Leadership has two aspects: 1. Managing: • Establishing ethical norms • Communicating them to employees • Punishing breaches • Rewarding compliance 2. “Walking the Walk”

12. B. Most adults do not have an adequate moral compass and therefore “look outside themselves for guidance in moral dilemma situations. “ (Cropanzano & Walumbwa) C.

13. B. Most adults do not have an adequate moral compass and therefore “look outside themselves for guidance in moral dilemma situations. “ C. In the workplace, they look to their leaders. D.

14. B. Most adults do not have an adequate moral compass and therefore “look outside themselves for guidance in moral dilemma situations. “ (Crapanzano) C. In the workplace, they look to their leaders. D. Empirical evidence establishes that few things impact a firm’s overall ethical climate more than the actions of its leaders.

15. So, I take it as a given that: 1. Ethical leadership is critical to shaping the ethical conduct of a firm; and 2. Ethical conduct by leaders is a critical component of ethical leadership.

16. And yet….. Jeff Skilling Ken Lay William Aramony Bernie Ebbers Richard Scrushy Al Dunlap Charles Keating Dennis Kozlowski

17. III. Poor Decision Making is a Major Cause of Unethical Actions.

18. III. Poor Decision Making is a Major Cause of Unethical Actions. A. Fundamental Attribution Error 1.

19. III. Poor Decision Making is a Major Cause of Unethical Actions. A. Fundamental Attribution Error 1. Dispositional vs. Situational 2.

20. A. Fundamental Attribution Error 1. Dispositional vs. Situational 2. Costa says: “There are truly sinister businesspeople with sinister intentions, but for the most part, ethical and legal lapses are the stuff of average people who know better.”

21. B. Examples of Poor Decision Making. 1. Obedience to Authority.

22. 1. Obedience to Authority • Milgram study

23. 1. Obedience to Authority. • Milgram Study • Stock analysts in the dot-com boom Henry Blodget

24. 1. Obedience to Authority. • Milgram Study • Stock analysts in the dot-com boom • Egil Krogh

25. 2. Conformity Bias • Forks

26. 2. Conformity Bias • Forks • Lines Solomon Asch

27. 2. Conformity Bias • Forks • Lines • Betty Vinson & “Moral Contagion”

28. IV. Leaders and Ethical Decision Making

29. IV. Leaders and Ethical Decision Making --Some decision making errors are particularly troublesome for leaders

30. A. Overconfidence

31. A. Overconfidence. • Driving/Auditing/Teaching

32. A. Overconfidence. • Driving/Auditing/Teaching • Morals, too • Are you more moral than your competitors, fellow employees, peers?

33. A. Overconfidence. • Driving/Auditing/Teaching • Morals, too • Are you more moral than your competitors, fellow employees, peers? • 92% of Americans are comfortable with their character

34. Driving/Auditing/Teaching • Morals, too • Are you more moral than your competitors, fellow employees, peers? • 92% of Americans are comfortable with their character • This leads to decisions lacking reflection; Ex: Enron

35. Driving/Auditing/Teaching • Morals, too • Are you more moral than your competitors, fellow employees, peers? • 92% of Americans are comfortable with their character • This leads to decisions lacking reflection; Ex: Enron • Leaders, having had much success, have even more confidence in themselves and their character.

36. Milliken found that “the combination of power, optimism, and abstract thinking makes powerful people even more certain [than the rest of us]. The more cut off they are from others, the more confident they are that they are right.”

37. Ken Lay • Minister’s Son • Enron Code of Ethics • Noted Philanthropist • Convicted Felon

38. B. Self-Serving Bias

39. B. Self-Serving Bias • Affects how we collect, process, and remember information

40. B. Self-Serving Bias • Affects how we collect, process, and remember information • Football game

41. B. Self-Serving Bias • Affects how we collect, process, and remember information • Football game • Causes people to conclude that what is best for them is ethically permissible

42. B. Self-Serving Bias • Affects how we collect, process, and remember information • Football game • Causes people to conclude that what is best for them is ethically permissible • Leaders are particularly vulnerable Ex: “instant entitlement bias”

43. Leaders are particularly vulnerable Ex: “instant entitlement bias” • $15,000 umbrella stand • $6,000 shower curtain • $2,000,000 birthday party Dennis Kozlowski Tyco

44. C. Moral License.

45. C. Moral License. • Most of us unconsciously engage in moral self-regulation. • Moral compensation • Moral licensing

46. C. Moral License. • Most of us unconsciously engage in moral self-regulation. • Experiments: • Self-Image • Chance to Volunteer • Racial Prejudice

47. C. Moral License. • Most of us unconsciously engage in moral self-regulation. • Experiments: • A particular problem for leaders.

48. When Ken Lay was found to have violated Enron’s Code of Ethics by investing in company that did more than 80% of its business with Enron, he called suggestions of impropriety “form over substance.” Rules, he said, “are important, but you should not be a slave to rules either.” [Bazerman & Tenbrunsel

49. D. Moral Rationalization

50. D. Moral Rationalization • While we think we are reasoning to an ethical conclusion, what we are often doing is: