EDO 820 Module 1 Leadership Ethics and Its Central Question Example

He Believed He Was Right: The Central Question of Leadership Ethics and a Chief Executive Who Broke the Rules to Make Payroll

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Doctor of Education Program, Aspen University

EDO 820: Ethical Issues in Leading Organizations

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Month Day, Year

He Believed He Was Right: The Central Question of Leadership Ethics and a Chief Executive Who Broke the Rules to Make Payroll

In the spring of 2024, the state of Ohio, in this invented case, delayed Medicaid payments to behavioral health providers for eleven weeks while it changed billing systems. Kinloch Family Services, a nonprofit with $58 million in revenue and 900 employees providing foster care, behavioral health and senior services, faced two payrolls it could not meet. Its chief executive, who had led Kinloch for fourteen years and grown it fivefold, moved $1.9 million from a foundation grant restricted to a youth housing program into the operating account. He informed the board chair a week later and the full board a month later, asked the finance director to record the transfer as an interfund loan and did not tell the foundation. The state paid in July, and the money was returned in August. An auditor's management letter in the fall raised the matter, the foundation learned of it and the board placed the chief executive on leave. Staff were divided: many credited him with saving their jobs. This paper uses the case to frame the central question of leadership ethics. Kinloch, its people and its figures are invented.

Mapping Leadership Ethics

Ciulla (1995) argued that ethics lies at the heart of leadership studies, and that research had concentrated on what makes leaders effective while neglecting what makes them good. She observed that definitions of leadership often concealed normative assumptions, and that the field needed to ask what a good leader is, in both senses: technically competent and morally good. Among the questions she mapped were the ethics of leaders' means and ends, the moral relationship between leaders and followers and whether leaders are held to different moral standards than others. She argued that the most difficult cases are those in which effectiveness and ethics seem to diverge.

The Kinloch case is one of those. By one measure, the chief executive was highly effective: no employee missed a paycheck and no child in foster care lost services. By another, he broke a promise to a funder, concealed it and asked a subordinate to describe it misleadingly.

The Central Question

The central question of leadership ethics asks whether the distinctive features of leadership justify leaders in breaking rules that others must follow. Leaders carry responsibility for others' welfare, face decisions with high stakes and have authority that others lack. Some argue that these features sometimes require exceptions: a leader who followed every rule while employees went unpaid would fail those who depend on him. Others argue that leadership's features create special obligations to follow rules, because leaders model behavior and hold power that others cannot easily check.

Believing Oneself Justified

Price (2000) examined why leaders behave unethically and argued that the usual explanation, volitional failure, in which leaders know what is right but lack the will to do it, misses an important case. Many ethical failures of leaders, he argued, are cognitive: leaders believe, sincerely, that the distinctive features of their role justify them in deviating from requirements that bind others. They may accept a moral rule in general yet think their situation is an exception, because of the importance of their goals or of their responsibilities. Such failures are especially dangerous because leaders who believe themselves justified feel no need to restrain themselves.

The chief executive's statements fit this account. He told the board that any responsible leader would have done the same, that funders' restrictions assume normal conditions and that his first duty was to his employees and clients. He did not deny knowing the rule; he believed his situation made it inapplicable. His request that the finance director call the transfer a loan suggests he also recognized that others might not share his judgment.

What Ethical Leadership Requires

Brown et al. (2005) developed a construct of ethical leadership from a social learning perspective. In their account, an ethical leader does two things: behaves rightly in his own dealings, and actively spreads that standard among the people he leads by talking about it, rewarding it and building it into his decisions. Because people learn much of what an organization expects by watching who gets ahead and how, leaders teach ethics whether they intend to or not. In the studies reported, followers who rated their leaders high on this measure also saw them as more honest and fair, were more satisfied with them and were readier to bring problems forward.

Measured against this standard, the chief executive's act sent followers a message: that rules can be set aside when a leader judges the cause important enough, and that the proper response is to describe the action in a way that avoids scrutiny. The finance director, asked to call the transfer a loan, learned exactly that.

Questions for the Course

The case raises questions that later modules will address. What in the chief executive's moral psychology led him to see an exception where others saw a rule? How did power and success shape that view? Why did no one inside Kinloch stop him, and what did his followers contribute? Was there a legitimate case for an exception, and if so, what process would have made it acceptable? How does a nonprofit's governance differ from a corporation's or a public agency's in preventing such acts? And what should Kinloch's board do now?

Conclusion

The Kinloch case presents the central question of leadership ethics in a hard form: a leader broke rules for others' benefit and believed he was right. Ciulla places the question at the center of leadership studies, Price explains why leaders who break rules often believe themselves justified and Brown, Treviño and Harrison describe the ethical leadership against which the chief executive's act falls short. The rest of the course examines why such beliefs form and how organizations can check them.

References

Brown, M. E., Treviño, L. K., & Harrison, D. A. (2005). Ethical leadership: A social learning perspective for construct development and testing. Organizational Behavior and Human Decision Processes, 97(2), 117-134. https://doi.org/10.1016/j.obhdp.2005.03.002

Ciulla, J. B. (1995). Leadership ethics: Mapping the territory. Business Ethics Quarterly, 5(1), 5-28. https://doi.org/10.2307/3857269

Price, T. L. (2000). Explaining ethical failures of leadership. Leadership & Organization Development Journal, 21(4), 177-184. https://doi.org/10.1108/01437730010335418