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When Good Leaders Create Bad Results Every decision affects employee satisfaction and performance.

By Manish Dudharejia

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Ethical leadership is crucial for the success of a business. Unethical leaders ultimately end up hurting the long term success of the business for their own personal gain or for shorter term results. But a recent study out of Baylor University demonstrates, counterintuitively, that when ethical leadership isn't handled properly, it can backfire and have surprisingly negative consequences too.

The results of the study have important implications for the future of ethical leadership and good management, demonstrating that having good ethics policies isn't enough if consideration for worker psychology isn't properly implemented.

Related: Who Will Lead the Leader?

The study.

The study was split into two parts, each with interesting implications on how managers should think about how ethical leadership influences employee satisfaction and performance.

Study 1

The first study was a field survey of 310 pairs of employees and their coworkers. They found that if an employee felt they were more ethical than their coworkers, that employee was more likely to harbor resentment and negative emotions towards them.

Those feelings were amplified if the employee also felt that, despite being more ethical, they were also a lower performer than their coworkers.

Additionally, employees who felt that they were a lower performer and a more ethical one also said that their coworkers were more likely to socially undermine them with insults, silent treatments, gossip, and hinder their performance by giving them inaccurate information or intentionally failing to provide them with resources to complete their work.

These employees likewise felt ostracized by being ignored, avoided, shut out of conversations, and so on.

Study 2

The second study was an experiment conducted on 121 subjects in which participants were told that they were either more or less ethical than the other participant, as well as that they were either a lower or higher performer than the other participant.

They found the same results as in the field study. "Employees" who were told that they were more ethical harbored negative feelings about their "coworker," and this was made worse if they were also told they were a lower performer.

The role of ethical leadership.

The study reveals that if ethical leadership is conducted in a way that rewards employees for or otherwise informs them that they are more ethical than their coworkers, the end result can be an employee who feels ostracized and socially undermined.

In a press release about the study, lead author Matthew Quade said that these employees will be "more likely to consider leaving their jobs or engage in workplace deviance -- things like arriving late to work, daydreaming, not following instructions or failing to be as productive as they could be."

What bad ethical leadership looks like.

The results of the study tell us what form a "perfect storm" of bad ethical leadership will take:

  • Management enforces ethical leadership by instituting inflexible rules.
  • Deviation from these inflexible rules, even when ethical, is labeled unethical.
  • If this deviation also results in increased performance, this is also called attention to.
  • Employees are given metrics that track their adherence to ethics as well as performance and encouraged to compete on both.

The end result of this setup is a scenario in which many employees are told by management that they are low performers because they are more ethical than their coworkers, creating a disenfranchised workforce that feels no support from management or their coworkers and little reason to adhere to ethical requirements.

Related: What Working at Enron Taught Me About Corporate Ethics

What good ethical leadership looks like.

The study offers the following recommendations for ethical leadership:

  • Employers need to provide employees with the resources that they need to meet the ethical standards so that workers feel supported in meeting those standards and can do so without hurting their job performance.
  • Eliminate ambiguity from ethical dilemmas, especially those that would stack performance against ethical standards.
  • Management must model ethical behavior so that employees do not feel that pressures are unfair or that they are more ethical than the leadership.
  • Effectively communicate how to meet performance standards efficiently while also meeting ethical standards.
  • Empower leadership to meet ethical standards without placing too much of a burden on employees.

Here is some advice on meeting these requirements.

1. Providing employee resources.

Keeping employee stress low while maintaining high ethical standards is all about making sure that ethical compliance is easy. This means that employees who adhere to ethical standards won't suffer in performance and end up resenting their coworkers or management.

For example, employees working with environmentally damaging materials should be given easy access to proper methods of disposal so that they are never incentivized to improperly dispose of the materials in order to increase production.

In this case, it would mean ensuring that the proximity and bandwidth of these disposal mechanisms are always adequate so that employees never face the option of choosing an improper disposal option to improve results.

In some cases, restricting access to resources is equally beneficial. For example, Wells Fargo managers were rewarded for the number of accounts they opened and managed, encouraging them to open accounts that customers had not approved. Restricting access to capabilities such as these and being more careful with incentives can reduce these kinds of dilemmas.

2. Combating ambiguity.

Enforcing ethics by insisting on adherence to strict rules often creates ambiguity instead of reducing it. This is because strict, rule-based ethics are built for adherence in a static environment rather than a dynamic one. They are not well suited for the unexpected.

Strict rule-based ethical enforcement also often leads to inherent conflicts, as preparing for all the ways in which adherence to one rule might make it impossible or difficult to adhere to another rule can be very difficult and involved.

For this reason, an easily accessible code of ethics that clearly states the company's primary values is extremely important. This way, any time a conflict between guidelines may arise, the primary code of ethics should make it clear which options are in compliance with the company's values, and which are not.

A hotline or department for employees to contact whenever an ethical dilemma arises is also strongly advised. Employees should be notified about how to contact them easily, and wait times should be extremely low. This way, there is no ambiguity about how to move forward when situations do arise.

3. Modeling.

Management must set a good example for employees, not only to model behavior so that employees know what ethical behavior looks like within the company, but also because employees who feel their own behavior is more ethical than that of management will feel ostracized and socially undermined, breeding resentment and low morale.

Here are several ways to ensure that management models ethics appropriately:

  • Hiring practices ensure that managers aren't selected entirely on performance, but also on their ethical history. Ratings and feedback from previous employees and coworkers on ethics should be taken into consideration when hiring management, and any ethical missteps should be thoroughly addressed.
  • Incentives for managers must be careful to avoid encouraging them to fudge metrics or meet them at the cost of complying with ethics.
  • Modeling extends beyond the behavior of management to include the behavior of the company as a whole, including how it treats its customers and how well its products meet customer expectations. Employees who feel the company is shortchanging customers will feel that management is unethical, even if their behavior is otherwise in line with a code of ethics or the letter of the law, internal and external.

Related: What I Learned About Leadership, as a CEO Who Became an Adoptive Parent

4. Efficiency and ethics.

Efficiency and ethics are often at odds with one another, and when both are encouraged and tracked, this inevitably leads to conflicts. In short, there is ultimately no way to avoid a trade off between efficiency and ethics in the short term.

The burden of making decisions surrounding this trade off should never be placed on the low level employee. Obstacles to efficiency should be addressed by management and communicated clearly to employees, and employees should not be rewarded for taking shortcuts that sacrifice ethics for productivity.

Ethical dilemmas tend to arrive most frequently when there are bottlenecks in the system that could be bypassed if unethical steps are taken. While bottlenecks are an inevitable consequence of finite resources, bottlenecks that create ethical dilemmas should take priority so that the burden is not placed on employees, where resentment can breed.

5. Training management.

While management is frequently trained and coached on the ethics and values of a company, leaders are much less frequently coached on how to enforce ethics, especially on how to do so without creating stress or conflicting incentives.

Training should address issues such as:

  • How to encourage ethical behavior without singling out employees and labeling them as ethical or unethical
  • How to incentivize productivity without compromising ethics
  • How to identify when employees are feeling ostracized or socially undermined for ethical compliance
  • How to spot when employees are cheating ethics for productivity gains, and to address it in a way that recognizes the systemic issues that created the problem, rather than placing the burden on employees
  • Assurance that managers who identify and correct ethical issues will be rewarded for doing so, not punished for reporting what other managers aren't


Ethical leadership is an undeniably positive trait that businesses must adhere to if they hope for long term success, but, when improperly enacted, it can also lead to stress and resentment in the workplace. True and effective ethical leadership doesn't place the burden of ethical dilemmas on the employee, and is very careful to avoid creating situations where employees feel ethically superior and productively inferior to their coworkers.

Manish Dudharejia

Founder and president of E2M Solutions Inc.

Manish Dudharejia is the founder and president of E2M Solutions, a full service digital agency specialized in website design and development, ecommerce, SEO and content marketing. Dudharejia is passionate about technology, marketing and startups.

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