A METRIC FOR LEADERSHIP

Ethical leadership has a soft underbelly. We may well know that ethical leadership is crucial but in the absence of a metric, discussions about it can become fuzzy and amorphous. To address this problem, the Gordon Institute of Business Science (GIBS) established the Ethics Barometer for South African business. It builds on a research tool developed by Harvard Business School academics, adapted and applied to the SA context. The Barometer measures employee perceptions about organisational behaviours and offers data-based insights about how it can be improved. Data was collected from over 8 000 employees working for 15 leading SA companies.

HERE ARE THREE KEY INSIGHTS, DRAWING ON THE ETHICS BAROMETER’S FINDINGS, ABOUT HOW ETHICAL LEADERSHIP IS VITAL FOR ORGANISATIONAL SUCCESS.

THE FIRST HAS TO DO WITH EMPLOYEES SPEAKING OUT. A crucial way for leaders to prevent ethical scandals and corporate governance failures in their organisations is to cultivate what the distinguished lawyer Michal Katz calls a “culture of dissent”. This is needed so as to challenge, check and counter the misuse and abuse of power.

Just as leadership is active and demanding, so too is followership. Ethical and effective leadership is dependent on having critical followership. Managers can help facilitate this through being willing to genuinely listen to their employees, however uncomfortable the conversations might be. As Winston Churchill said: “Courage is what it takes to stand up and speak. Courage is also what it takes to sit down and listen.”

The Ethics Barometer found that 45% of employees said they had observed some type of misconduct over the past 24 months. The most widely observed types of misconduct were discrimination (both race and gender), tolerating bullying and intimidation, and the stealing and misuse of company property. However, only 30% of those who had seen misconduct said they had reported it. The two most common reasons for not reporting were clearly related to a lack of trust: “I fear I’ll be victimised” (43%) and “The company won’t take action; nothing will happen” (34%). Asked whether they agreed that employees “feel free to speak out against wrongdoing without fear of retaliation”, a score of only 52/100 was recorded - with between 75 and 100 representing the broad range of agreement.

Clearly, companies need to work on cultivating a “cultureof dissent” - building trust and giving employees the psychological and institutional safety to speak out.

THE SECOND INSIGHT IS RELATED TO THE HUMAN PROPENSITY TO RECIPROCATE. Most people are what Wharton professor Adam Grant calls “matchers” – which means that they strive “to preserve an equal balance of giving and taking”. To be a matcher is to look for quid pro quo. It’s related to our innate sense of fairness and justice. When matchers are treated well, they respond in kind. But when they feel they are being mistreated, they seek justice and revenge.

The “ultimatum game”, a study carried out by the Nobel Prize winning economist Daniel Kahneman, demonstrates our tendency to “match”. Two strangers sit opposite each other. One is given $10 and asked to present a proposal to the other about how to divide the money. Either the proposal can be accepted and the money split as proposed, or it can be rejected, in which case both participants will get nothing. The results were remarkable: the vast majority of people rejected lopsided proposals even though, in economic terms, this was completely irrational. If, for instance, the divider offered to give $3 and keep $7, it may be unfair but $3 is better than nothing. Yet most people would rather walk away with nothing to stop the divider from earning $7. Most of us are willing to punish another person’s unfairness even when it is to our own financial detriment.

This has major practical implications for a myriad of stakeholder relationships – including with employees, customers, suppliers, regulators and general society. If they are treated with honesty, respect, responsibility, fairness and care, they will likely reciprocate. If they are treated badly, it may well boomerang. On this subject, the Barometer revealed that employees have problematic perceptions about how they are treated by their organisations. This includes perceptions about whether:

  • everyone is treated with respect
  • there are no double standards for different groups of employees
  • disciplinary procedures are fairly applied
  • promises to employees are kept
  • employee concerns are taken seriously and companies do their best to address them
  • opinions of employees are valued
  • managers tell the truth to employees.

It was found that employees of colour, and in particular those who are African, had significantly less favourable views about how their companies treat employees compared to their white counterparts. It was also found that women had significantly less favourable views of how employees are treated. Furthermore, 20% of employees said that they had observed racial discrimination over the last 24 months. 13% said that they had witnessed gender discrimination during this period.

These perceptions should be taken seriously, regardless of whether leaders feel they reflect the ‘objective’ ethical reality of their organisations. To the extent that perceptions are ‘accurate’, they help organisations identify how they need to improve their ethical realities. But even if they aren’t ‘accurate’, they still represent the subjective reality of employees. At the very least, this calls for more effective communication and engagement with employees. Addressing these perceptions is an ethical as well as a pragmatic imperative – harnessing the power of reciprocity to ensure employees are more motivated and committed and that companies achieve a higher performance culture.

THE THIRD INSIGHT RELATES TO HOW COMPANIES ENGAGE WITH BROADER SOCIETY. On the whole, employees had positive perceptions about whether their organisations:

  • support the aims of regulatory authorities
  • pay taxes responsibly
  • seek to comply with the law and regulations
  • make impactful contributions to needy causes
  • are active in the development of South African society
  • avoid activities which would negatively impact future generations
  • are actively involved in protecting our natural environment
  • are sensitive and respectful to diverse cultural groups in society
  • don’t only care about making money, but also about making a positive impact
  • consider the needs and views of community stakeholders
  • do their best to create employment
  • correct historical wrongs since they are genuinely committed to transformation.

However, the Barometer also engaged with representatives from societal stakeholders (media, NGOs, churches, trade unions, and students/youth), seeking to understand their perceptions of business. These groups had a much less positive view, fuelled by the assumption that business does not serve as a force for societal good and reflecting a profoundly dangerous trust deficit in SA. This trust deficit is exploited by populist politicians with reckless promises and destructive agendas. In a recent survey of 23 countries conducted by the UK Guardian newspaper and the data analytics firm YouGov, SA was found to have the second highest levels of populism: 39% of respondents said that they strongly agreed with populist statements like “My country is divided between ordinary people and the corrupt elites who exploit them”.

Business Leadership SA aims to position business as a “national asset” – a critically important objective. For this to happen, business needs to engage more vigorously with societal stakeholders – defining its purpose beyond profits and articulating its social impact while understanding their perspectives and, where possible, addressing their concerns.

AUTHOR

GIDEON POGRUND
DIRECTOR, GORDON INSTITUTE OF BUSINESS SCIENCE (GIBS) ETHICS AND GOVERNANCE THINK TANK

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