The Importance of Ethical Leadership in Organizations

The assignment content discusses the importance of ethical leadership and decision making in organizations. It highlights that leaders who are ethical can enhance their integrity and credibility, which leads to trust among followers. The article also emphasizes the need for organizational leaders to integrate ethics into every activity, communicate standards of ethics to employees, and encourage them to make ethical decisions. Additionally, it stresses the importance of accountability, freedom, and fairness in decision making. Overall, the content suggests that effective ethical leadership is crucial for organizations to operate ethically and maintain a positive reputation.

Running head: ETHICS LEADERSHIP & DECISION MAKING
Management theory and practice
[Document subtitle]

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ETHICS LEADERSHIP & DECISION MAKING
Introduction
The ethical dilemma is a situation which requires a person to choose from two different options
both of which are correct morally but conflict each other. Ethical behavior is determined by
cultural or societal norms. It requires three necessary conditions to consider a situation as
ethically dilemmatic. Firstly an individual must decide a course of action that is best among all
others. Secondly, there should be various courses of action to choose from. Thirdly, there must
be some principle of ethics that is compromised as it is not possible for a perfect solution to
existing. The corporations face the ethical dilemma in their daily operations, and it is very
important for them to strategize their tasks so that their responsibility towards society remains
diligent. For a long time, scandals have been around in top companies like WorldCom, world
online and Enron is making decisions which may raise ethical questions. These scandals
contribute to Massive confidence loss and deterioration of trust in the integrity of businesses. In
today's era companies are seeking ways to increase their profits and values. The recent scandal of
Volkswagen has proved that the ethics in business is of much high importance and should be
addressed to maximize the profits and the responsibility of organizations towards society. In this
essay, we will be critically analyzing the ethical dilemma faced by Volkswagen Company by
applying theoretical concepts from managerial ethics. Furthermore, we will be evaluating the
relationship between decision making, leadership, and ethics and provide recommendations over
how leaders can ensure their morality and ethics in organizational decision making.
Volkswagen’s Ethical Dilemma
Volkswagen made its car appear less polluting than they are by cheating the emission tests. The
Agency of Environmental Protection in U.S. had discovered that half a million diesel cars of

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Volkswagen were emitting up to 40 times more fumes which were quite toxic than permitted
(Balbi, A. 2015). After the coming out of Volkswagen from the scandal, the company has
admitted that the cheat had affected almost 11 million vehicles across the globe. This scandal
was initially discovered by NGO who performed on-road emission tests. After discovering this,
the NGO contacted EPA which further investigated the matter. This scandal led to recall of cars
at a massive level and to resign of Volkswagen Group CEO, Martin Winterkorn. The disaster by
the Volkswagen's diesel emissions gave a treasured lesson to companies regarding the ethicality
of their operations. The German automaker installed and devised a functioning code as a "device
to defeat" to intellect when its vehicles were being tested for nitrogen oxide emissions. After the
test, the software was able to reduce NOx and torque emissions, and in normal conditions, the
car was guided by a program that may rise the fuel economy, torque and acceleration. The
episode meant that employees at positions of authority at Volkswagen had devised this scheme
which was allowed to get successful over seven years till the time it was detected. The engineers
had knowingly signed off code that showed yes and defeated the aim of regulations of Clean Air
Act and EPA (Zhou, A. 2016). This disrupted the image of the company as corrupt ethically
from roots, and yet, before this, no one could suspect that VW was more unethical than any other
large automotive company. However, the Company gave enough comments in defense against
the allegations charged over them. For example, they emphasized that their employees are
obeying the internal rules, regulations, and laws which apply to their environment of work and
they also act according to the values of groups and codes of conduct. Furthermore, they extended
their defense by adding that all the programs are audited by Auditing program approved by
Chairman of Board of Management. Also if anyone is not complying with the codes can face

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strict consequences which can extend up to termination of employment (Blackwelder, et al.,
2016).
The International Council for Clean Transportation, Nonprofit European organizations, and
Centre for Alternative Fuels and Engine Emissions at the University of West Virginia were all
shocked to see that Volkswagen was able to pass all the tests. After a deep analysis, it was found
that even all cars were passing the tests for U.S. emissions, the engines were non-compliant.
Volkswagen defended this argument by issuing a voluntarily recall suggesting that those issues
were just technical in nature which explained increased emissions. But EPA was not fooled with
this statement, and they declared Volkswagen that the models in 2016 were not certified as
compliant to the legal norms and they have to justify their answer. At last Volkswagen confessed
about their installing and designing of “defeat device” in over 4, 00,000 vehicles on U.S. roads.
The company had to face Penalties by EPA of up to $ 38000 for every single vehicle which was
not complying the rules and regulations. The stock of Volkswagen had dropped to 20%, and also
its CEO resigned from the post. The U.S. Department of Justice has begun the investigations
which may hold hearings on the issue. Volkswagen was caught because of their act being so
egregious. There would be many companies in various sectors who might be cheating the
agencies of regulations without knowing that. Many times the USDA and FDA have limited
resources which allow them to scan the plants of food only once or twice in a year.
Theoretical Concepts from Managerial Ethics
To evaluate the Volkswagen predicament and its actions, various ethical opinions are debated
and applied. Amongst are Utilitarianism Theory, Virtue based theory and The Shareholder theory
(the Friedman doctrine). Utilitarianism Theory assesses how ethical an action is on the

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consequences of that action. The virtue-based theory focuses on the accomplishment itself and
evaluates how ethical it is. By applying and evaluating those views, we come to the decision to
what degree the movements taken by Volkswagen are principled. Not only the actions of
Volkswagen but also the role of the CEO are debated in conclusion. After this examination,
some recommendations are offered from an ethical point of view to regaining the trust of the
(previous) customers of Volkswagen by more focusing on corporate social responsibility by
leaders of the organization.
Rule-Based or Utilitarian Ethical Theory
The theory of utilitarian was launched by Jeremy Bentham in the eighteenth century, and it was
later refined by Stuart Mill. This theory looks beyond the interest of self to impartially consider
the interests of everyone who gets affected by any action. This theory helps to highlight the
consequences of an action over its stakeholders who are considered as those parties getting
affected by that course of action. This theory helps to maximize the benefits and minimize the
harmful effects for all stakeholders. Utilitarian Ethical theory follows the ultimate rule of "Doing
greatest good to a large number of people." Utilitarianism theory can be applied to Volkswagen
dilemma as there are many stakeholders involved in the case like employees, CEO, Customers,
Environmental testing agency and indirect parties. The company stood blameworthy for its
actions as they knew that they had cheated many customers by installing that defeat device that
could create utility for the company but didn’t cause any greater good for all. In this case of
utilitarianism, the punishment is permissible and is obligatory for Volkswagen. The same applies
to other manufacturers of cars. In fact, Volkswagen is a victim of many punishments like a drop
in profits and stock price and also action lawsuits, losing their share in the market for diesel cars
(Kahane, et al., 2015).

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Virtue-Based Ethical Theory
According to Virtue theory, Judgment is exercised by virtues that enable us to make choices
which are made about what is good. Thus, Ethics which are based on virtues emphasizes certain
qualities that define the right action to be taken and appropriate behavior to be shown. Virtue
theory does not establish a set of criteria to evaluate potential decisions. Rather, it emphasizes
the individual's internal actions with whom we would prefer to establish a trust worthy
relationship. The ultimate goal is to perform the right task, in the right place, at the right time, in
a right way and by the right person. According to the Virtue based ethical theory, Volkswagen
may perform according to its principle set and goals which are already discussed in Introduction.
It should offer environmentally safe and sound and attractive vehicles which are suitable to
compete in tough market conditions and where it can set world standards. The cheat device
which they installed and designed did not have much effect on its safeness or attractiveness but
hugely impacted the environmental safety. It also misleads the agencies for environmental
testing. Therefore the car was able to be sold in many different markets as makers of law had
thought that those cars were missing low gasses and the customers were also experiencing much
taxes increase as the diesel cars of Volkswagen discard many high gasses than are allowed.
Moreover, the action of the cheating environmental test is morally wrong. Volkswagen acted
against the moral laws, I which case the company needs to be punished (Harvey, M. G. 2014).
Evaluation of Relationship between Ethics, Leadership and Decision Making
Ethics and Leadership
In every organization, the core values which are displayed in mission and vision statements are
integrity, respect and valuing employees. It is realized by great leaders that only by phrasing it

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within the documents won’t make any difference. The behavior of leaders make the real
differences like how they show up on a daily basis. Ethical influence is truly measured by the
behavior of leadership with his or her followers, or stakeholders. A leader who possesses the
ethical behavior can consider the negative and positive views and also the rights of everyone
involved, and he also ensures that all decisions are made in an ethical manner and every member
is accountable for all actions (Hannah, et al., 2014). The actions of an ethical leader can enhance
his/her integrity and credibility, which leads the followers to trust their leader. There are various
features and benefits that aim to regularize the operations and behaviors of people at work: With
whomsoever, we contact with, there is fairness to everyone and each other, and in every task we
do. Also to encourage, and allow other associates to rise high in skill, the scope of responsibility
and knowledge, there is freedom. Everyone can make commitments on one's own and keep them.
Furthermore, consulting with other associates before undertaking any action that can impact the
company's reputation. Leaders who are ethical are considered important in an organization
because they influence the employees as it is consistent with social learning perspective, and
because of that, they imitate their leaders' behaviors as they are credible and attractive who
model an appropriate behavior. Furthermore, ethical leaders can communicate the standards of
ethics that are crucial for holding employees answerable for their actions (Demirtas, et al., 2015).
Ethical Leadership and Decision Making by Organization
Ethical leaders may influence the conduct related to ethics such as counterproductive behaviors,
prosocial and employee decision making through processing and modeling vicarious learning.
Leaders who have ethical behavior influence the negative and positive behavior among
employees as they set a standard of ethics and communicate them to their employees or
followers. They also take those decisions that account for needs of stakeholders and are

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considered to be principled and fair. The opportunity to imitate their ethical leaders may
encourage, support and challenge their thinking and ethical decision making. Also, it has been a
proven research that the moral reasoning in ethical leaders is very high and it influences the work
group member's moral reasoning thus helpful to produce better ethical decisions. Furthermore,
the employees who are following their ethical leaders are aware of the fact that their leader is
going to hold them accountable for their actions and decisions and may use discipline and
rewards to do so. Thus, those employees focus more carefully on the implications and outcomes
of their decisions and make better result from ethical decisions (Cianci, et al., 2014).
Integration of Ethical Decision Making into Organization by Leaders
The areas which are ethically gray and complexities of work life needs to be acknowledged and
discussed openly by leaders. Everyone should be involved in ethical decision making. Leaders
should be talking about choices of ethics which are difficult to make and help others to be
responsibility for making decisions ethically (Shapiro, et al., 2016). Leaders must communicate
to their employees that ethics is not a training program or reference manual but “the way to
operate." The leader should incorporate ethics into every activity whether it is an important top
management strategy session, client meeting or a training program. Leaders must expect and
practice respect and make it a beam in the organizational culture. Cultivating an environment full
of trust and where people can speak about ethics and responsibility can be shared for living it is
very important apart from building trust, demanding open communications and sharing the
ownership of valuing organization. Leaders have to actively show stakeholders and customers
that they are taking actions and actively engaging in issues that involve ethics. They need to
make consumers realize how ethics is influencing their reason to purchase from them and
commitment needs to be demonstrated to move beyond complying with regulations and laws.

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Leaders have to prove their commitment to ethical issues, including social justice, human rights,
and sustainability. The leaders must not exempt anyone to meet the ethical standards that are
being adopted in the organization. They should depict the status of ethics in the organization as
"must do," absolute and total. A leader should not be biased towards high profile managers, and
senior leaders as none should be exempted in making accountable for their decisions. Leaders
who are ethical should be proactive who may show high ethical conduct and also emphasize and
influence prevention. Also, they should consider the integration of ethics into every
organizational activity. It should be considered as an ongoing journey to learn every day and
does not stop with the end of one particular activity. As the environment is dynamic and changes
continuously, the conduct that requires ethicality needs that everyone must remain observant
(Walumbwa, et al., 2017).
Conclusions
Managerial ethics is only about decisions regarding what is proper and right in connections with
other people. It does not involve only collusion, theft and bribery but about the relationship
between stakeholders, suppliers, and customers on one side and subordinates and managers of
the concerned organization on another side. Management ethics is a discipline of complexity,
and the importance of it is still growing. In many publications and research articles, the view of
the ethic's importance in leadership has been given a lot of stress. The effects of all efforts of
ethical decision making depend upon leaders and managers as it is only them who give an
example and demonstration to them. Thus it is very crucial to know that what standards of
ethicality they possess. Even if the opinions and situations of management ethics may change
with time, there will be problems and questions that will remain on this matter. People may
question whether profits are more preferable or supporting a social responsibility. But it will

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always be unclear that the ethicality has helped to bring or attract the customers towards the
organization. Ethics helps to set standards for defining what is good or bad in decision making or
conduct. It deals with values that are an internal part of corporate culture and helps to shape the
decisions which concern the responsibility towards a society on external environment. Thus
ethics can be understood as the center point between laws that are governed and laws that are
followed by free choice. A dilemma in ethics is said to arise when values are in conflict in a
situation that concerns right or wrong. Thus it can be opinionated to recognize and identify the
domain of ethics and to accept moral values as the strong tool for good that may regulate the
behaviors inside and outside the corporations.

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REFERENCES
Balbi, A. (2015). Update: Volkswagen scandal: one of the world's largest automakers has
admitted to unethical decision making and is working on clarifying the"
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Volkswagen Scandal.
Cianci, A. M., Hannah, S. T., Roberts, R. P., & Tsakumis, G. T. (2014). The effects of authentic
leadership on followers' ethical decision-making in the face of temptation: An experimental
study. The Leadership Quarterly, 25(3), 581-594.
Demirtas, O., & Akdogan, A. A. (2015). The effect of ethical leadership behavior on ethical
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Hannah, S. T., Avolio, B. J., & Walumbwa, F. O. (2014). Addendum to "Relationships between
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Harvey, M. G. (2014). A Normative Virtue-Based Trust Model. In Wireless Next Generation
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Kahane, G., Everett, J. A., Earp, B. D., Farias, M., & Savulescu, J. (2015). ‘Utilitarian’judgments
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