Ethics, Leadership And Decision Making In Organizations

The Relationship between Ethical Principles, Leadership and Decision Making

Discuss about the Ethics Leadership and Decision Making.

Ethical principles are adopted by the organizations in order to broaden the priorities of an individual and the organization in enriching their shareholder and in gaining profit beyond the limits. The ethical principles influence the leaders in decision making and to protect the organization from unethical practice (Shapiro & Stefkovich, 2016). The decision making of the leaders depends on the ethical principles influencing the leadership styles employed in the organization. The practice of ethical behavior is a great reflection process that is based on the moral behavior and individual values of an individual. The ethical behavior drives the employees to work and feel aligned towards the values at an individual level and the organization as a whole. The practice of ethical behavior greatly increases the productivity and enhances spirit of oneness within the team. It helps to foster high level of dedication and acceptable behavior among the employees in a workplace. The leaders should inculcate the practice of ethical principles in the organization for effective decision making and acceptable behavior of the employees (Ford & Richardson, 2013). The ethical behavior of the leaders has a considerable impact on the ethical behavior of the employees and organization as a whole. The ethical and moral tone of the leaders has a great impact on the behavior of the employees in an organization. Therefore, unethical behavior greatly hampers the leadership style, decision making process in an organization.

The ethics and leadership goes hand in hand. The ethical practice is conducive to leadership and has a both cause and effect relationship. The decision making and leadership styles are greatly influenced by the ethical behavior in an organization. The ethical leadership is an important aspect in the working of the organization in terms of service, quality and management in the corporate world (Kuntz et al., 2013). The unethical behavior affects the organizational functioning and gives rise to many ethical issues. The ethical issues arise in finance, human resource management, sales and marketing and production. The leaders play the most vital role in the building of the ethical framework in an organization. The understanding of the ethical code of conduct serves as the model for making ethical decisions and in promoting it among the employees. A sustainable good leadership style is considered as a practical approach that helps in promoting the ethical behavior in an organization (Brown & Treviño, 2014). The personal behavior and ethics of the leaders helps to establish the morals among the employees and in the implementation of the moral sense leading to socialization. It helps to decipher the difference between the right and wrong. The ethical commitment helps to inculcate good values and it is enhanced under the quality of leadership.

The Importance of Ethical Behavior in Promoting Team Spirit and Productivity

An excellent example of the ethics and challenges of corporate social responsibilities is the Volkswagen scandal. The EBEN Research Conference held in September 2016 in Palermo, disclosed the ethical issue and behavior related to the Volkswagen case (Balbi, 2015). Volkswagen is the number one car provider worldwide and is ranking ahead of Toyota which is the former champion. In September, the US-American Environment Protection Agency (EPA) accused the company regarding cheating of emission tests in United States. The “defeat device” in the Volkswagen cars has a device installed that would change the performance accordingly for improving results (Siano et al., 2017). The engine would emit nitrogen oxide that would meet the outputs of the U.S.A. standards but in the real world driving, it would emit up to 40 times more nitrogen oxide. The “defeat device” was fitted in around 11 million cars worldwide including Europe. This scandal led to a fall in the stock price of the Volkswagen cars and a loss of € 2.5 billion. As a result of this scandal, the CEO Martin Winterkorn resigned and the developmental heads and researchers of Porsche and Audi were suspended. This scandal raised awareness about the high pollution levels emitted by the cars and it likely to exceed in the real driving world. The diesel vehicles were supposed to be better for the environment along with the support from the government. However, after the Volkswagen scandal, there was a limitation in the number of diesel cars in the major cities. Therefore, the sales of the diesel cars slowed down in the major cities (Goel, 2015).

The Volkswagen scandal is a case of violation of business ethics, leadership, business culture and corporate governance. The corporate social responsibility, environmental and economic responsibility are involved in this case (Barrett et al., 2015). The trust of the customers, public was broken; the regulators were manipulated imposing a social impact on the employees. The pollution harming the public health, sales and stock price was hampered. The Volkswagen was involved in the technology and engineering fraud and violated the ethical principles in the business world. A deep analysis of the Volkswagen case depicted the violation of business ethics in the organizational culture and policies. There was a deviant behavior and ineffectiveness of the business policies and ethics. They neglected and overlooked their professional responsibilities that ensure to provide environmental safety and safety within the organization. According to some experts, the “defeat device” adopted by the Volkswagen carmakers is a software that has the ability to adopt to special changes and hard to discover as compared to hardware changes (Elson, Ferrere & Goossen, 2015). Ethics is not a study material to be included in the curriculum rather it is an understanding of the ethical and professional responsibility of the engineers and the organization as a whole. The ethical values and norms integrated in the business world have a great impact on the productivity and sales of an organization. The engineers lacked ethics and gave importance to money saving rather than following the ethical principles. The ethical compromise led to the failure of the sales, profit and reputation of the company as a whole. The practice of ethical principles defines the credibility of an organization and without credibility an organization cannot survive.

The Volkswagen Scandal and Violation of Business Ethics

The Volkswagen case is not only a violation of the ethical principles; the “defeat device” hampered the lives of millions of people and put their lives in danger due to high levels of pollution. It also shows how the society is adopting ethics and the unethical practice by the engineers. The “defeat device” broke the law to cheat the regulators and the customers and in passing of the unacceptable high levels of nitrogen oxide levels. The device is unethical and poses a threat to the environment putting million of lives in danger. The ethical standards are compromised to meet the unrealistic objectives in the business world and that is posing a pressure on the engineers and employees (Hakim & Bradsher, 2015). The Volkswagen case is war between the ethics and profit. It has brought the business ethics into the limelight and into the public consideration. Around 11 million consumers were potentially harmed due to this defeat device and there was mass failure of business ethics in terms of reputation and profit loss. The environmental regulators were misled and worked in the favor of the company’s interests.

The corporate governance was also questioned after the scandal as the brand promises to provide quality, innovative and responsible mobility to the consumers’ worldwide (Rhodes, 2016). The reputation of the company was tattered and it cheated the trust of the millions of consumers. The emission scandal raises a direct question to the corporate governance and cultural failure. The loss of reputation is a part of marketing and driving of sales is a dream of the marketers. The case comprises of the environmental issues that has a great effect on the marketing. The consumers bought cars with an aim that it is environmental friendly, but however, they were cheated and the marketing strategies and consumers promises failed that led to the loss of reputation and mistrust for the brand (Elson, Ferrere & Goossen, 2015).

There is also risk management involved with the scandal. In the emerging scenario of digital world, the brands are under the scrutiny of the public so there is a requirement of the companies to think beyond the organizational finances and operational risks. The multinational companies have to think widely about the potential risks associated with the brand that has a great impact on the organization’s reputation. The environmental, social and ethical issues are the main concerns that need to be managed and quantified. These issues are generally difficult to identify as they are outside the areas of their expertise. The risk management issues are also a part of risk register that includes the reputational threats and it is the responsibility of the managers to include these potential risks into consideration. They generally bring into consideration the financial and operational risks that are associated with any product or service.

Corporate Governance, Cultural Failure, and Risk Management

The culture and governance are directly related. It beholds in the culture of the organization by the top managers, board members and executives. There is a major gap between the competencies of the board members around the corporate social responsibility in the understanding of the benefits and risks (Bottenberg, Tuschke & Flickinger, 2016). The understanding of the corporate social responsibility has a great impact on the trust and reputation of the organization. The corporate governance is relevant to the financial performance, risk management and marketing of the products and an essential role of the corporate board members (Milne, 2015). A positive governance culture is where the views of the different people are respected and that plays an important role in the organizational management.

The Volkswagen case displayed that business ethics holds the most important position and in order to maximize profits, ethical principles should be taken into consideration. The ethical dilemma lies in the fact that the Volkswagen actions are ethical or not and questions the leadership of the organization (Lindebaum, Geddes & Gabriel, 2016). The question lies in the fact that is it ethical to mislead the environmental tests in order to sell more cars. It also encompasses the potential of the leaders in effective decision making that would work for the interest of the organization. It is the role of a leader to educate the employees to work morally and inculcating in them the practice of ethical principles. The leaders must act and educate their employees to object an illegal and immoral action.  The leadership style is an important aspect that determines the practice of ethical principles in an organization. It is their duty to act and stand by the rule of the unethical practice. The leaders hold the responsibility to inculcate the qualities of courage, character and moral conviction to stand for the right thing and object for the wrong thing (Geddes, Lindebaum & Gabriel, 2016).

The growing ethics and corporate social responsibility are the main concerns for the managers. The scandal like the Volkswagen case depicts that the corporations need to adopt the ethical code of conduct, strengthen the legal safeguards and develops policies that are socially responsible (Tse et al., 2017).  The managers need to pay for the ethical practice among the employees that they are able to live up to the standard corporate values. The managers are considered the ethical decision makers and in setting of ethical standards for the organization. The managerial ethics are set of principles that are set to guide what is right and wrong in an organization.  It deals with the internal values that shapes and forms the corporate culture concerning the corporate social responsibility and the external environment. The managerial ethics also holds the ability to effective decision making. The ability to distinguish between the right and wrong in connections with the employees also consists of the managerial ethics. It establishes a relationship between the suppliers, customers and stockholders and subordinates of the organization (Skakoon, 2016). The effective decision making process influences the lives of the employees and affects the organization as a whole.

From the managerial ethics perspective, the Volkswagen case is analyzed in terms of utilitarian and deontology. Utilitarianism is defined as the actions that would result in something good and aimed to provide overall good to the people (Iovi?u & Florina, 2015). It is about providing pleasure to the people and chooses option that increases the pleasure for the maximum people. The utilitarianism is also aimed at promoting happiness and making choices that ad pleasure to the lives of the people. The utilitarianism can be applied to the Volkswagen case. It includes the parties like the CEO, Managers, Volkswagen, its employees, customers, environmental testing agency and indirect party involving the consumers who used the diesel cars sold by Volkswagen. The action of the Volkswagen was not acceptable from the point of utilitarianism as their actions did not aim to maximize good to the people. They cheated the consumers and no one was happy with the company’s actions. Volkswagen was blamed for cheating and their actions were of no good to the people as they have developed the “defeat device” to cheat the environmental testing agency (Nordbjærg et al., 2016). They might have created such software that would promote happiness among the people and promoted utility for the company. However, their actions did not create utility and overall greater good for the organization. Therefore, Volkswagen did not aim for goodness and cheated the regulators and consumers in increasing their car sales.

Deontology can also be applied to the Volkswagen case. It is concerned with the moral action of an individual or an organization as a whole. According to Kant, one should act ethically and obey the ethical principles (Baum, 2016). However, Volkswagen did not work according to the ethical principles and should have offered safe, attractive and environmentally friendly vehicles that would compete in the global market and set standards in the business world. When the emission scandal of Volkswagen is taking into consideration, it shows that it acted unethically. The “defeat device” did not affect the physical attractiveness or safeness, so it could be assumed that it greatly hampered the environment. The nitrogen oxide emission by the diesel cars posed a threat to the public health and polluted the environment by misleading the environmental testing agency of United States. From a deontological point of view, the question arises that could Volkswagen be able to sell their cars by cheating the environmental testing agency (Eagle, 2015). The question also arises that if every company cheats and sells their products in this way, would there be any good world. It is a highly impermissible action on the part of the Volkswagen cheating the environmental test and increasing sales. The cheating of the environmental tests is highly wrong and morally incorrect. The actions are against the moral code of conduct. Therefore, Volkswagen actions were morally wrong and highly unethical.

The Volkswagen case also depicts lacks in the leadership style of the managers. The leadership style greatly encourages the cooperation and interpersonal relationships. The employees are given opportunities and empowerment for constructive participation that shows good corporate governance (Tomé, 2017). The good leadership style also depicts effective decision making and ethical values and norms. The managers are also responsible for encouraging moral development among the employees and others. They draw the attention of the entire organization towards the ethical values and create an environment that guides, encourages and supports the practice of ethical behavior among the employees (Jung & Park, 2017). The ethical values are very important and woven in the culture of an organization. The ethical leaders should constantly practice ethical values that would make the employees realize the importance of ethics in an organization.

The ethical leadership is the pillar to efficient decision making that would help the organization to increase its productivity and reputation. The ethical leadership also influences the good corporate governance (Yukl et al., 2013). The organizational benefits are also enhanced by good corporate governance.  The ethical leadership and good corporate governance derive advantage and minimizes the potential risks. Good leadership has the strength to adopt the way of ethical practice in their organization. The same leadership and corporate governance needs to be applied in the case of Volkswagen. There was a lack in the leadership style of the Volkswagen was unethical. They lack the moral behavior that posed a threat to the organizational reputation and hampered the trust and integrity of the company. The scandal led to the loss of trust and honesty in the organization. Therefore, the new leader needs to incorporate ethical leadership to regain the trust of the consumers, government regulators, honesty, transparency and reputation of the company. The new leadership style of the Volkswagen is to establish an ethical organizational culture that supports and fosters moral behavior, effective decision making by the leaders that would help to regain the reputation of the organization (Kanabar et al., 2016). The new CEO of Volkswagen, Matthias Muller has several challenges and need to change the immoral behavior to a culture of trust, honesty, integrity and adherence.  

The leaders have to ensure that the decisions taken in the organization are taken ethically. The leaders play an important role in the application of ethical behavior among the employees and in the organization. The ethical decisions taken by the leaders should influence on taking the right decisions that are aimed at ensuring and promoting greater good for the employees and the organization as a whole (Friedman, 2016). The leaders should employ a behavioral approach that is associated with the ethical behavior and exhibit moral attitude in the organization. The morally understanding leaders are the key to ethical behavior in an organization. They have a tremendous impact on the behavior of the organization and in accomplishment of the organizational goals and objectives. The facing of complexity while making ethical decisions, ethics in business, trust in interpersonal behaviors and meeting of ethical expectations would help the leaders to incorporate ethical behavior in the organization. The creation of the environment where people can speak for ethics, engagement of ethics in the actions and making of the ethical behavior a learning journey for the people in the organization would employ ethical conduct in the organizations (Wilburn & Wilburn, 2016).

Volkswagen Company disregarded the ethical code of conduct by cheating the environmental testing agency and the consumers and dealers. The stakeholders betrayed the consumers by adopting the fraudulent practices and manipulating the emission levels of nitrogen oxide. The company’s reputation was greatly hampered and there was unethical code of conduct in the organization. There was a loss of trust in the company’s brand and severely damaged the reputation of the company. Moreover, from the managerial ethics perspective, it was a violation of the business ethics, utilitarianism, deontology and ethical code of conduct. It also lacked the good leadership qualities and effective decision making. Therefore, to get back the reputation, the new leader has to incorporate moral code of conduct and assure corporate governance in the organization. It would also promise to sell cars that are equipped with exhaust systems that meet the legal requirements. It should also ensure to provide sustainable ethical practice in the organization and word hard go gain the consumers and dealers trust. Therefore, ethical leadership would help the Volkswagen Company to build the previous reputation and trust.

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” inconsistencies.”. Strategic Finance, 97(6), 9-10.

Barrett, S. R., Speth, R. L., Eastham, S. D., Dedoussi, I. C., Ashok, A., Malina, R., & Keith, D. W. (2015). Impact of the Volkswagen emissions control defeat device on US public health. Environmental Research Letters, 10(11), 114005.

Baum, K. (2016, October). What the Hack Is Wrong with Software Doping?. In International Symposium on Leveraging Applications of Formal Methods (pp. 633-647). Springer International Publishing.

Bottenberg, K., Tuschke, A., & Flickinger, M. (2016). Corporate Governance Between Shareholder and Stakeholder Orientation Lessons From Germany. Journal of Management Inquiry, 1056492616672942.

Brown, M. E., & Treviño, L. K. (2014). Do role models matter? An investigation of role modeling as an antecedent of perceived ethical leadership. Journal of Business Ethics, 122(4), 587-598.

Eagle, L. (2015). Introduction to Marketing Ethics. Marketing Ethics & Society, 1.

Elson, C. M., Ferrere, C. K., & Goossen, N. J. (2015). The bug at Volkswagen: Lessons in co?determination, ownership, and board structure. Journal of Applied Corporate Finance, 27(4), 36-43.