When organizations (particularly in the business world) focus on developing their future leaders, they often focus on growing the individuals’ ability to analyze complex situations, build relationships and drive change, and drive execution.
After all, it’s fairly easy to connect the dots between building leaders’ capabilities in these ways and organizational performance.
But, it’s harder to draw a straight line between the moral and ethical development of leaders and organizational performance. As a result, it’s often an overlooked piece of leadership development.
However, it’s still a critical part of leadership, and companies that slight character in their leadership development programs do so at their own peril.
Companies are Taken Down by Bad Behavior
Consider the following cautionary tales of organizations brought down by the bad behavior of leadership:
Arthur Andersen, the public accounting firm with nearly 30,000 employees and a 90-year history, closed its doors in 2002 as a result of their involvement in the Eron accounting scandal.
The firm was prosecuted for obstruction of justice for shredding documents related to Enron, and although the conviction against the firm was ultimately reversed by the Supreme Court for procedural reasons, the company did not survive the scandal.
Adelphia Communications Corp declared bankruptcy after founder John Rigas and his son Timothy Rigas were convicted of bank fraud, securities fraud and conspiracy for hiding over $2 billion of debt and spending company money on personal luxuries.
The coworking startup WeWork was a favorite with investors up until it started sharing information with potential investors in preparation for its 2019 IPO. Founder and CEO Adam Neumann was borrowing money from the company to purchase real estate, which he then rented back to the company.
In a similar vein, after trademarking the word “We,” Neumann charged the company over $5 million to change its name to “The We Company.” Among other questionable decisions made by Neumann and the company leadership, Neumann was pushed out and WeWork saw its valuation take a nosedive, dropping from $47 billion to only $8 billion.
In early April 2020, WeWork’s largest investor announced they were pulling out of the deal due to “multiple, new, and significant pending criminal and civil investigations”.
There is virtually nothing that can take a company down faster than unethical leadership. For organizations with a long-term horizon, it’s essential to focus on the moral and ethical development of leaders as well as their skills in areas such as strategy, communications, and execution that are more typically the focus of leadership development programs.
Also read: Employee Development Goals: How Mentoring Helps
Promoting Whistleblowing to Prevent Unethical Behavior
Fraud and other unethical behavior has a habit of spreading within an organization like wildfire. When an offense is committed such as fraud or other bad behavior, typically there are bystanders that look the other way.
The act of looking the other way reinforces a culture that accepts bad behavior, making it more likely that another person in the organization will commit another offense. Sooner or later, an organization is likely to become a hotbed of unethical behavior unless someone decides to stop looking the other way.
Encouraging whistleblowing is a way for organizations to detect fraud and other bad behavior quickly, and to stop it before it spreads.
Whistleblowing takes courage. In many ways, it’s easier for the individual to keep their mouth shut rather than report unethical behavior that they witness.
However, good leadership requires courage and the ability to speak up, even when it challenges the authority of others. The question is, how can organizations encourage employees to report when they witness wrongdoing?
A study conducted by researchers at North Carolina State University and the University of North Texas looked at factors that might lead individuals to disclose unethical behavior when they witness it, rather than look the other way (i.e. whistleblow).
They found three factors that correlated with an intent to disclose: an ethical corporate climate, an employee’s positive feelings about the organization, and trust in the organization.
Also read: Role of Mentoring and Goals in Development
Mentoring Helps Support Ethical Development
The study on whistleblowing also uncovered something interesting: all three of these factors associated with increased intent to disclose were driven by mentoring.
That is, mentoring is associated with a more ethical corporate climate, increasing the mentee’s positive feelings toward the organization, and increasing the mentee’s trust in the organization.
The quality of the mentoring relationship also mattered: the better the mentoring relationship was according to the mentee, the more it seemed to support the factors necessary to support whistleblowing in the organization.
This study was conducted at a CPA firm, in an industry that heavily leans on mentoring to develop its future leaders. Accounting and consulting firms typically operate using the model of early career professionals working alongside experienced partners to “learn the ropes” of the business.
Looking at the results of this study, it seems that organizations that mentor better than others are likely to experience higher levels of whistleblowing, and lower levels of fraud and other bad behavior as a result.
The benefits of mentoring are vast: it can help develop early career individuals, help retain talented employees, increase diversity among leadership, aid in succession planning, and more.
Beyond these benefits, organizational researchers are continuing to uncover further benefits. Mentoring can help prevent fraud by encouraging whistleblowing, by promoting a more ethical corporate climate, increasing the mentee’s positive feelings toward the organization, and increasing the mentee’s trust in the organization.