Is Ethics important for Organisational Effectiveness?


We usually keep hearing about McGregor’s Theory X and Y management styles but there is a third style of management which is also significant (Mullins, 2013). Developed by Dr. Williams Ouchi, Theory Z of Ouchi suggests that apart from the monetary and physical benefits, the Theory Z organisation focuses on characteristics such as employee loyalty, decision making by consensus but individual responsibility, all-encompassing concern for subordinates and employees as a natural part of management, etc. (Mullins, 2013). These points suggest the importance of interpersonal relationships within the along with the monetary motivational methods. Since the commencement of industrialisation in the 18th century, organisations had become extremely focused on the profit motive, mass production and specialisation, without focusing on the effects on employees, morale and effectiveness of leadership (Nash & Patricia, 1983). But now there has been extensive research and work done on how to improve working conditions and employee satisfaction in the workplace as it has become apparent that humans in the workplace need to be treated like humans.

Importance of Managerial Effectiveness

Managerial ‘effectiveness’ stresses upon doing the ‘right things’ to get work done which differs from ‘efficiency’ because efficiency is related to productivity. If an organisation has an ethical leader, it is quite obvious that the mission, vision and values of that organisation will most probably be in line with their ethical beliefs. We have to realise the difference between ethics and morals. Ethics is a set of rules from and external source that are made available to an individual but morals are how an individual actually perceives right from wrong.

You will see that most of the companies’ mission statements now mostly revolve around ‘doing good business’ and that means that the importance of the environment and stakeholders are increasingly being made aware of to the population. A leader is considered to be ethical when the inward virtues of that leader reflects their decision making (Kar, 2005). The 4-V Model of Ethical Leadership suggests that the leader should follow the subsequent model:

  • Committing and understanding individual core values
  • Framing actions and creating a vision for stakeholders
  • Voicing the created vision
  • Understanding that we become what we practice


(Kar, 2005)

The profits of an ethical leader are enhanced public image of the organisation, rebuilding or improvement of investor confidence, avoidance and decrease of criminal penalties, enhanced employee retention, and better customer satisfaction. This all adds up the effectiveness of management in an organisation. Leadership based on ethical values means that the goal and objective setting in an organisation and strategic decisions would be oriented towards values of the leader (Eisenbeiss, 2012).

Are there any downsides to ethical leadership?

We have seen all the benefits that an organisation can gain from an ethical leader but let us see some things that may impact it negatively.

Ethical leadership means that all the processes within and outside the organisation would all have to go through the proper steps and procedures. In some countries that can really slow down the organisation due to the long bureaucratic procedures in almost everything. Ethical Leadership is only effective when there is trust created with stakeholders and thereby creating a follower attitude among the employees and representatives of the organisation and the leader needs to make sure that the stakeholders think that the leader acts while considering their well-being (Eisenbeiss, 2012). This can be a difficult task and creating and monitoring that culture in the organisation is a tremendous challenge.

Ethics – A Set of Rules

Almost every organisation has a code of conduct that they should follow. In some countries this is a strict business, but in others things such as bribery are a common doing. The top ten unethical companies according to an activist group states their unethical activities and their consequences that in turn affected their effectiveness. For example, Halliburton was charged with a fine of bribery to the Nigerian officials of $559mn which created bad publicity for the organisation and may have affected employees’ faith in the company (Action for our Planet, 2014). On the contrary, having ethical leadership like Accenture, Adobe Systems etc. proves that companies can gain competitive advantage when it comes to hiring staff and studies show that these ethical companies are able to recruit staff that is more loyal to them (Forbes, 2012).

Choice of Leadership?

The choice depends on what leaders set the vision and mission for their companies. If companies stress on the fact that they need to adopt the right code of conduct, then they will naturally want to employ staff that is loyal and honest. However companies that need to carry out dirty work, especially the oil and gas companies, will obviously want to employ someone who would get the job done. Ethical leadership is an objective concept and ethics may not be the same for everyone. Unethical companies may also have effectiveness, no doubt, but we should be able to sleep at night, right?


Action for our Planet, 2014. AFOP. [Online]
Available at:
[Accessed 23 June 2014].

Eisenbeiss, S. A., 2012. Re-thinking ethical leadership: An interdisciplinary integrative approach. The Leadership Quarterly, 23(5), pp. 791-808.

Forbes, 2012. Forbes. [Online]
Available at:
[Accessed 20 June 2014].

Kar, D. S., 2005. Ethical Leadership: Best Practice for Success. IOSR Journal of Business and Management, 1(14), pp. 112-116.

Mullins, L. J., 2013. Management and Organisational Behaviour. 10th ed. s.l.:Pearson.

Nash, J. & Patricia, M., 1983. Women, Men, and the International Division of Labor. s.l.:State University of New York Press.