Ethical Leader AICD Members

What does ethical leadership mean in today’s world?

This year, we’ve seen very public discussions about what ‘good’ leadership is. Often these discussions have turned on the question of whether a leader has acted in the public interest. Through commentary, we’ve seen a shift to the idea of ‘virtue ethics’, where character and courage matter more than achievements or hierarchy. The ethics of the individual are central, and leaders are not protected by their role or an institution.

For example, it’s not considered enough that a regulation wasn’t breached, or profits made if the way they were achieved fell short of society’s expectations.

Ethical leadership is essentially the same as it always has been. Ethical leaders have a ‘good’ or noble purpose, they demonstrate integrity between their words and actions, they are honest, good listeners, have courage - speaking up and defending positions - and importantly they show care. A range of qualities like these will be found in textbooks on ethical leadership. However, it is the means and mechanisms by which society can ‘judge’ leaders and leadership that has changed.

Trends from 2020 that are changing our idea of good leadership

1. Obligation to meet the Public Interest: Leaders are expected to understand and respond to higher order obligations to the public interest. Compliance with the law or rules is not enough. Rather than ask, can we? or, how do we? Leaders of today need to be asking, ‘Should we?’ and be prepared for the discussions that will follow from entering the grey world of ethics and expectations.

Those in the banking sector are already familiar with this lesson following Rowena Orr QC’s questioning in the Banking Royal Commission. This year we’ve seen similar questions asked of government ministers, CEOs of companies and leaders grappling with determining the ‘right’ balance between economics and health in the face of COVID-19. Directors must keep asking ‘Should we?’ before approving decisions and actions.

2. Fairness as a guiding principle: Australians are very familiar with the idea of fairness and the ‘fair go’. Fairness is invoked by both sides of politics from Menzies and Rudd, to Gillard and Turnbull. Throughout 2020, we’ve seen questions around fairness including: Is it fair for a company to distribute dividends when taking government support? Is it fair for government support to exclude certain sectors? Is the selection and tenure of board members fair? Fairness is a good principle to use to guide towards good decisions that meet the public interest. Along with the question of should we, directors would be wise to also ask, is this fair?

3. Expectation of transparency: Expectations of transparency around decisions and actions have only intensified. Many now associate the idea of transparency with trust. Whilst transparency is important to trust, it’s not enough alone to make someone trustworthy, although it does help and is increasingly demanded.

There are other important benefits to transparency. Public health experts have emphasised that disclosing the modelling around COVID-19 restrictions can lead to better compliance and commitment by the public.

Demands for transparency around decision-making mean that frameworks used to make decisions are also in the spotlight. Legal cases have put directors on warning that how decisions are made can be as important as the final decision, making ethical decision-making frameworks a must.

4. Push for accountability: In 2015, Christine Lagarde championed personal accountability as critical to encouraging ethical behaviour. The idea of accountability has taken hold in 2020.

However, calls for ‘heads to roll’ and boards to be ‘swept out’ risk moving us to a society that is intolerant of mistakes and can confuse the idea of accountability. Sometimes, holding someone to account will mean letting them stay in the job and addressing an issue, rather than forcing them out with no further role.

Whilst directors might be feeling the pressure to take swift action and stay out of the headlines, they will also need to consider how they can truly hold management, and themselves, accountable. 2020 has changed society’s expectations of their leaders including the director community. In light of this, 2021 presents the opportunity for directors and boards to prove they’ve listened and that they really do care.