Leadership and Ethical Behavior: Report on Royal Commission Findings

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This report provides an in-depth analysis of leadership and ethical behavior, focusing on the issues highlighted by the Australian Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry. It explores the crucial role of ethical leadership in business success and examines instances of misconduct and unethical practices within the insurance, superannuation, and banking sectors. The report delves into the concept of the toxic triangle, explaining how destructive leaders, a conducive environment, and susceptible followers contribute to poor leadership. It applies Barbara Kellerman's definition of bad leadership, distinguishing between unethical and ineffective leadership styles. Furthermore, the report investigates Rushworth Kidder's four ethical dilemmas, particularly the conflicts between individual and community interests, and short-term versus long-term considerations. It also outlines Kidder's ethical checkpoints, offering a framework for addressing ethical dilemmas. The report concludes by emphasizing the importance of trust in leadership and the consequences of its absence, drawing on the findings of the Royal Commission to illustrate real-world examples of ethical failures and their impact.
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Running Head: Leadership and Ethical Behavior
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Leadership and Ethical Behavior
Student’s Name
2/7/2020
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Leadership and Ethical Behavior 1
Contents
Introduction........................................................................................................................2
Analysis..............................................................................................................................2
Toxic triangle......................................................................................................................3
Kellerman’s approach........................................................................................................3
Kidder’s four ethical dilemmas...........................................................................................4
Kidder’s ethical checkpoints..............................................................................................5
Issue of trust......................................................................................................................7
Conclusion.........................................................................................................................7
References.........................................................................................................................9
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Leadership and Ethical Behavior 2
Introduction
Every business carries its activities based on the plans and policies, which are
developed by the leader hence; it can state that leadership plays a crucial role. If
leaders of a business are ethical and consider the interest of every stakeholder then
such business is more likely to attract customers and to be successful in the future in
comparison to others. "Australian Royal Commission into the Misconduct in the
Banking, Superannuation, and Financial Services Industry" has made an investigation in
the businesses of insurance, Superannuation, and banking sector. In many of the
businesses, misconduct and unethical practices have found to be there. As mentioned
above, leadership has a great role in shaping the future of every entity hence this report
will focus on the issues found in leadership and contribution of the same in misconduct
done by various organizations of above-said industries.
Analysis
A leader is a person who influences people to achieve their goals. People in an
organization adopt the practices, which are referred to and recommended by their
leaders. A good leader has some key attributes, which makes the same difference from
others. One such attribute is ethics. When leaders are ethical in their actions,
subordinates learn the same and it further creates a positive and ethical work culture.
Royal Commission in its investigation found that many organizations have charged a
fee for no service or failed to report the material financial transactions to regulatory
bodies and in some, the cases have adopted unethical and misleading sales tactics.
One of the significant causes behind the issue seems to be poor leadership where
management of these businesses has not paid appropriate actions to prevent such
behavior and in many of the cases, leaders themselves were involved. Another question
that blinks In mind here is to know the factors that motivate such poor leadership. Are
only personal values and behavior of leaders are the reason or whether some other
factors also there to contribute to destructive leadership. To find the answer to this
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Leadership and Ethical Behavior 3
query, one of the important concepts of leadership can be studied here which is named
as a toxic triangle.
Toxic triangle
According to the concept of the toxic triangle, there are three factors, which lead to
destructive leadership, which include destructive leaders, a conducive environment, and
susceptible followers (Landy and Conte, 2010). In other words to state that the toxic
triangle suggests that the whole mistake is not of destructive leaders but other
situational factors and organizational players also remain involved in the picture. Here
conducive environment refer to that organizational culture where there is a lack of check
and balance as well as of effectiveness and stability (Yapp, 2019). Further Susceptible
Followers are those who have low self-evaluation, low psychological maturity, and
unmet needs. In general, these are people who obey the authority without considering
ethics or unethical of their leader's action. In the findings of the royal commission, the
toxic triangle can easily apply. In many of the companies such as freedom insurance
and Commonwealth Bank of Australia, deceptive sales tactics have been used and
managers themselves have approved the policies such as a fee for no service
(Danckert, 2019). Further, the sakes executives were also involved in these practices.
Here it shows that executives behaved as susceptible followers who pursued their role
as per the instructions of leaders without considering the results of their actions. Lastly,
as per the toxic triangle, the environment of these organizations also seems to be
conducive where even under the internal audit, the misconducts have not been found.
People became aware of the issues where the royal commission has set an inquiry. In
this way, the application of a toxic triangle can be seen while considering poor
leadership issues in royal commission finding.
Kellerman’s approach
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Leadership and Ethical Behavior 4
Many other different definitions and concepts related to leadership have been provided
over time which helps to understand what a poor leadership is, what factors contribute
to the same, what are the attributes of various types of leaders. Barbara Kellerman has
provided one such definition. Her work is quite famous in the relevant area as she has
defined bad leadership. She has suggested that bad leadership can be divided into two
categories such as unethical and ineffective ones (Kakabadse, 2015). These two types
have also been defined further. Ineffective leadership is the one that lacks intentions
due to the measures adopted by the leaders or measures not adopted by the same.
Another kind of leadership i.e. unethical leadership is the one where leaders act in a
manner to gain some results but fail to decide what is correct and what is not. To apply
the definition and concepts provided by Kellerman in the scenario of royal commission
finding this is to state that leaders of the liable organizations have pursued unethical
leadership. Big institutions such as Westpac and CommInsure have adopted practices
such as misleading advertisements and not reporting the transactions under the anti-
money laundering act. Here leaders have achieved the financial targets and
performance but somewhere fails to choose an ethical path for the same. Since the
leadership is not only about the achievement or targets but also about the ethical way of
doing this, it is clear hereby that applying the Kellerman approach, a bad (unethical)
leadership existed there.
Kidder’s four ethical dilemmas
Moral reasoning is another important attribute of ethical leadership. Every leader has to
make choices and to take decisions for their teams as well as organizations. Some of
these choices are ethical and some of them are not. Whereas at times, some choices
seem helpful in achieving set targets whereas some of them are not. But the issue
exists when all the options seem equally ethical. The situation of selecting one out of
two possible moral imperatives is known as an ethical dilemma where none of them is
preferable in an unambiguous manner. Rushworth Kidder, one of the authors and
ethicist has identified four common types of ethical dilemmas that leaders face often.
These dilemmas exist between truth and loyalty, individual and community, short term
and long term and lastly between justice and mercy (McGoff, 2020). Out of these
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Leadership and Ethical Behavior 5
dilemmas, the second and third one seems to exist and applicable in the cases of
organizations that found guilty in the royal commission investigation.
As mentioned above, the second dilemmas exist between individual and community
choices. It is a situation where a leader needs to decide whether to consider personal
interest or to pursue the interest of the whole community. In other words to state that the
dilemma present as a situation where a leader needs to decide which stakeholder group
he/she needs to keep in consideration. Leaders of most of the organizations in royal
commission finding faced this dilemma. These leaders had to choose between self-
interest and the interest of the community. They have neglected the later one and
therefore the scandal has occurred. For instance in the case of Westpac, even after
finding ethical failure, the bank has provided high remuneration to its CEO who has
resigned from the post. It clearly shows that managers of the business have ignored the
interest of the community at large and placed them in danger.
The third dilemma reflects a situation where the leaders have to decide whether to
consider a short-term scenario or long term. It means they face difficulty in deciding the
period for their consideration. Where short term interest reflects the profit earning and
temporary benefits, on the different side long term interest reflects stable and
sustainable decisions. Leaders of the related organization had choices between short
term and long-term consideration. It clearly sees that most of these organization that
found guilty under royal commission investigation selected short term benefits where
they only focused to earn more profits and did not realize the consequences business
was likely to face in long term. For instance, the National Bank of Australia charged a
fee for no service from millions of its customers (Murdoch and Kaye, 2019). It shows
that in doing so the executives and managers of the business have only focused on the
profit earning by adopting misleading sales tactics and did not consider the fact that the
business may be held liable for penalties and may lose its goodwill. Similarly, in the
case of Freedom insurance, sales executives were likely to get a commission on sales
hence they forgot everything and adopted unethical practices to sell insurance products
to customers considering the short-term benefit (Chau, 2019).
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Leadership and Ethical Behavior 6
Kidder’s ethical checkpoints
Here this is to state that along with the identification of ethical dilemma, Kidder also
provided ethical checkpoint framework that helps leaders in addressing ethical
dilemmas (Wagner and Ostick, 2013). A total of 9 checkpoints are there which need to
follow by leaders in order to resolve their ethical dilemmas. These checkpoints are given
below:-
1. Recognition of problem:- The very first checkpoint states that a leader must
recognize that a moral issue exists there. Unless there is an issue, there would
be no point to go ahead with another checkpoint. Here at this stage, leaders
need to check what is the issue and what kind of dilemma is this? There may be
more than one issue that demands attention (Agsm.edu.au, 2020).
2. Determination of actor: - The other step is the identification and determination of
the actor. Here one needs to check the responsible person. Who has the liability
to act in the face of the ethical issue raised? In general, many people involved in
a moral issue but the leader needs to check which person may give responsibility
under a scenario.
3. Collection of relevant facts: - The third checkpoint demand the user to collect all
the necessary information related to the moral issue. While developing this point,
Kidder believed that a dilemma could only be treated when the same is
understood in an appropriate manner and therefore collection of related facts
such as what happened. How the same has happened? Who might have
information and others?
4. Test for Right v wrong:- At this step, the decision-maker has to check what
options are correct and what is not. The objective of this checkpoint is to sort
those options, which are not right, and to separate them. In order to do so, many
factors can be checked including legality and morality of different options
(dguth.journalism.ku.edu, 2020).
5. Test for right v right:- This checkpoint outlines those options which are right. In
other words, this can be stated that it is an important checkpoint as the same
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Leadership and Ethical Behavior 7
bring out four dilemmas identified earlier. It presents those options, which all are
ethical and moral and leaders have to select one of them.
6. Application of ethical perspective:- Different ethical models and theories are there
which provide different principles. Here the decision-maker needs to consider
options according to these theories and to determine how many theories support
or oppose those decisions.
7. Trilemma options:- This checkpoint demands decision-makers to consider a third
way to resolve an ethical dilemma. Many time, a compromise or a mid-way or
truly unforeseen course of action lead good decisions.
8. Make the decision:- This is the lead step for that all the previous points are
required to follow. At this step, the decision-maker has to determine the final
course of action. This action is based on the earlier mentioned checkpoints. It
often requires moral courage.
9. Revisit and reflect:- At this step, the decision-maker needs to rethink about the
decision made in the earlier step. It provides a chance to ensure that the
decision-maker has made the correct decision.
Issue of trust
Lack of trust in leadership is a situation where the followers, as well as stakeholders of
an organization, stop trusting leaders. The issue develops over a period and out of
small incidents. Lack of transparency and a high level of confidentiality in the operations
and decisions lead to this issue of trust. To check the implication of this issue in the
banking, insurance, and superannuation industry, this is to state that leadership pursued
by the business managers have increased the issue of lack of trust. To resolve this
issue now, they would need to share their policies and plans in a more transparent
manner. In addition to this, they would have to arrange more press releases and would
upgrade their public communication.
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Leadership and Ethical Behavior 8
Conclusion
In a conclusive manner, this is to state that the royal commission has found many
banking and insurance organizations where leaders failed to make ethical decisions.
However, only personal characteristics of leaders may not be held liable for it but the
conducive environment and susceptible followers contributed the same as an applied
toxic triangle. The report also discussed Kellerman’s approach and it was found that the
businesses investigated by the royal commission pursued unethical leadership in their
actions. Most of the organizations failed to take resolve dilemmas od short term and
long term consideration as well as dilemmas of individualism and collectivism.
Nevertheless, such a dilemma can be resolved through the following nine checkpoints
that have been provided by Kidder. Lastly, the issue of trust in leadership has been
discussed and it is now expected that the guilty organizations will be more transparent
and answerable to their stakeholders.
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Leadership and Ethical Behavior 9
References
Agsm.edu.au. (2020) Kidder’s Checkpoints for Ethical Decision-Making. [online]
Available from: http://www.agsm.edu.au/bobm/teaching/BE/lect03-3.pdf [Accessed on
07/02/2020]
Chau, D. (2019) Freedom Insurance to sell policy business for $5 million amid royal
commission fallout. [online] Available from:
https://www.abc.net.au/news/2019-04-15/freedom-insurance-sell-policy-business-
banking-royal-commission/11003044 [Accessed on 07/02/2020]
Danckert, S. (2019) 'Unreasonably delayed': Banks hit again over fees for no service.
[online] Available from:
https://www.smh.com.au/business/banking-and-finance/unreasonably-delayed-banks-
hit-again-over-fees-for-no-service-20190311-p513ap.html [Accessed on 07/02/2020]
dguth.journalism.ku.edu. (2020) Kidder’sNineCheckpoints. [online] Available from:
http://www.dguth.journalism.ku.edu/Kidder.pdf [Accessed on 07/02/2020]
Kakabadse, A. (2015) The Success Formula: How Smart Leaders Deliver Outstanding
Value. Germany: Bloomsbury Publishing
Landy, F., J. and Conte, J., M. (2010) Work in the 21st Century: An Introduction to
Industrial and Organizational Psychology. USA: John Wiley & Sons.
McGoff, C. (2020) How to Solve Ethical Dilemmas in a Way That Works for Everyone.
[online] Available from: https://www.inc.com/chris-mcgoff/make-tough-decisions-more-
easily-get-your-team-on-board-using-these-3-tips.html [Accessed on 07/02/2020]
Murdoch, S. and Kaye, B. (2019) UPDATE 2-Australia's NAB faces 'fees for no service'
lawsuit. [online] Available from:
https://www.reuters.com/article/nab-regulator-lawsuit/update-2-australias-nab-faces-
fees-for-no-service-lawsuit-idUSL4N28R1JL [Accessed on 07/02/2020]
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Leadership and Ethical Behavior 10
Wagner, W. and Ostick, D., T. (2013) Exploring Leadership: For College Students Who
Want to Make a Difference. John Wiley & Sons.
Yapp, R. (2019) The Toxic Triangle - the Environment and Followers of Toxic Leaders.
[online] Available from: https://www.leadershipforces.com/toxic-leadership-
environment-followers/ [Accessed on 07/02/2020]
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