insight magazine

Leadership Matters | Summer 2024

Become an Ethical Leader to Drive Crucial Business Results

Building a sound ethical foundation will not only keep your leadership from running aground, it’ll also be good for business.
Jon Lokhorst, CPA, CSP, PCC Leadership Coach, Your Best Leadership LLC


How does one devolve from being a proponent of effective altruism to having a 25-year prison sentence for one of the most notorious fraud crimes of our time? It’s a great question to understand the downfall of Samuel Bankman-Fried, the founder and central figure in the collapse of the giant digital currency exchange platform, FTX.

Bankman-Fried once said his belief in effective altruism propelled him to pursue high earnings and substantial wealth, which he would use to support charitable causes and do good in the world. However, in November 2022, his net worth (estimated $10.5 billion) was wiped out when FTX declared bankruptcy under allegations of massive fraud. By December 2022, he was arrested and eventually convicted after standing trial in the United States.

Was Bankman-Fried well-meaning, with a bent toward altruism that unraveled when sloppiness, shortcuts, and seemingly minor improprieties mushroomed out of control? (Perhaps he should’ve recognized that he was on a collision course between conflicting values and an unstable ethical foundation.) Or was he just another greedy, self-important charlatan whose name will be forever associated with financial crime, like Charles Ponzi and Bernie Madoff? In either case, Bankman-Fried’s downfall serves as a pointed reminder to build a sound ethical foundation that’ll keep your leadership from running aground.

Beyond protecting your personal and professional reputation, being an ethical leader is also just good business. According to the “LRN Benchmark of Ethical Culture” report, companies with the strongest ethical cultures outperform their peers by 40% in customer satisfaction, innovation, adaptability, and growth. Additionally, an analysis by Zenger Folkman found that employee engagement averages 77% for workers whose leaders score in the top 10% for honesty and integrity, compared to only 26% for workers whose leaders score in the bottom 10%.

HOW TO BUILD A STRONG ETHICAL FOUNDATION

So, what principles, beliefs, and values serve as your foundation for ethical decision-making? This is a crucial question to consider if you want to understand the foundation on which your ethical perspectives are built. According to author Louie V. Larimer’s assessment-based monograph, “The Ethical Type Indicator,” there are six underlying philosophies that drive responses to moral and ethical dilemmas:

  1. Egoism: Acting in the best interest of the decision-maker (i.e., maximizing the greatest good for themselves).
  2. Utilitarianism: Acting in the collective interest of the greatest number of people (i.e., benefiting the many rather than the few or the one).
  3. Existentialism: Acting in accordance with the inner voice and notions of right and wrong, regardless of the consequences or results.
  4. Divine Command: Following the principles of one’s personal deity or higher spiritual power, in accordance with their religion.
  5. Deontology: Following prescribed duties or obligations stipulated by one’s profession, business, or similar group (i.e., adhering to a code of ethics).
  6. Conformism: Looking to the norms and expectations of family, friends, colleagues, or peers.

While each of these philosophies is useful in navigating ethical dilemmas, they each have pitfalls. For instance, egoism and existentialism favor expediency, as the decision rests with the individual. However, whenever an individual acts alone, there’s an increased risk of manipulation or self-interest that invites temptation for unethical behavior.

The other philosophies go beyond an individual acting alone, including others in determining standards for ethical behavior or including them in the decision-making process. Utilitarianism, for example, removes self-interest and focuses on benefits to a much larger group of people. Unfortunately, utilitarianism can lead to unintended consequences where an “in-group” benefits while others are left out, causing certain members or groups within society to become disenfranchised. Incidentally, Bankman-Fried has also been described as a utilitarian.

Philosophies like divine command and deontology rely on standards derived from religious or professional leaders, training, creeds, and codes. These standards aren’t left up to individuals alone; they’re typically developed through due process within a defined group. However, these standards don’t cover every possible scenario, and members of the group might interpret them differently or find loopholes that create risk of questionable behavior.

Conformism also has its pros and cons. For example, parents of teenagers know all too well how much their kids’ peer groups influence their behavior. Perhaps one of your parents asked a similar question like mine did when I wanted to do something with friends that increased the risk of poor choices: “If all of your friends jumped off the High Street bridge, would you do it too?” (The answer might well have been yes.) Yet, we frequently rely on the influence and stickiness of positive relationships and role models who promote positive behavior, along with wise moral and ethical choices.

By performing a quick scan of Larimer’s six philosophies, you’ll be able to see the strengths and pitfalls of the ones most prevalent in your foundation for ethical decision-making. Better yet, take the assessment in his publication, not just as an individual but as a leadership team, and discuss the insights you gained and the implications for creating a positive, ethical climate within your team or organization. Additionally, make sure to identify potential pitfalls that create a risk for unethical behavior and develop safeguards to prevent it.

ARE YOU STRONG ENOUGH TO BE THE ‘VOICE OF ONE’?

Another beneficial resource to add to your ethics toolbox comes from the book, “Triple Crown Leadership: Building Excellent, Ethical, and Enduring Organizations.” In it, authors Bob and Gregg Vanourek ask an imperative question for any leader to consider: “Are you strong enough to be a ‘voice of one?’” Meaning, are you someone who calls out the danger of a situation when everyone else is going along with a questionable course of action? Are you willing to stand up for what’s right? Are you ready to “see something, say something,” as the caution signs at the airport suggest?

These questions offer an exceptional gut check as you apply what you’ve learned from exploring and articulating your ethical foundation. They underlie the strength of character needed to prevent ethical lapses or to call them out when they occur. After all, if individuals within FTX’s inner circle had been willing to be a voice of one, perhaps Bankman-Fried’s actions would’ve been prevented, and he would’ve been spared the consequences of his crime.

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