Why moral and ethical leadership is important to business in 2023

LRN has written widely about why ethical leadership is important and how good leadership helps foster ethical culture in organizations. According to new research from the HOW Institute for Society, ethical leadership is more important than ever. Their 2022 State of Moral Leadership in Business report reveals that workers in the US have a deep desire to work with—and for—moral leaders. Additionally, the data collected from 2,500 employees across sectors demonstrates that when managers and organizations lead with moral authority, their teams experience positive impacts to performance.

These findings echo LRN's own research, which has also uncovered the reality that when CEOs create more avenues of ethical leadership, they see better business outcomes. The LRN Benchmark of Ethical Culture found that the companies with the strongest ethical cultures outperform others across all measures of business performance by about 40%, including in critical areas such as customer satisfaction, employee loyalty, innovation, adaptability, and growth.

As executives consider how to be a better leader in 2023, the State of Moral Leadership in Business report offers key insights into what constitutes moral leadership, why it matters to employees, and how good ethical leadership helps improve performance. Let’s dig into the findings. 

The 4 pillars of moral leadership in business  

In a recent edition of Fortune's Leadership Next podcast, Novartis International CEO, Vasant Narasimhan, noted that one of the biggest challenges currently facing businesses across the world is "how do we keep our organizations as humans mentally fit and in cultures that they believe in?" The State of Moral Leadership in Business report notes that having a healthy and inspiring culture in an organization relies on the following four pillars of moral leadership. 

  • Let purpose lead: Leaders gain moral authority when they have a purpose that they believe is worthy, valuable, and noble, and when this purpose helps the organization progress, 
  • Inspire and elevate others: Moral leaders create an atmosphere where people feel trusted and are passionate and loyal to the organization's mission. 
  • Be animated by values: Moral leaders live their values and act on their principles even when it is uncomfortable to do so. This brings about virtuous character qualities such as patience, courage, and empathy. 
  • Build moral muscle: Being a moral leader involves constant questioning of right and wrong, fairness and justice. They build moral wisdom within the organization by inviting others to weigh in on these considerations and by taking responsibility for their behavior. 


Good ethical leadership is in high demand  

Trust in business environments extends both throughout the company hierarchy as well as within the relationship between the business and its customers. The report notes that 88% of employees believe moral leadership is more urgent today than ever before. The research also found that the demand for moral leadership holds true across sectors, with 92% of public sector employees and 87% of private sector employees seeing a current need for ethical leaders in their work organizations. 

Moreover, the demand for good leadership is steady across levels of organizational responsibility, with 90% of entry level employees stating moral leadership is important. This demand experienced nearly as high levels among workers at associate levels, in middle management, mid-senior level directors, senior level, and executive staff, the report noted.  

Examples of ethical leaders are in short supply  

While the number of top-tier moral managers in business has increased since 2020, the percentage of moral leaders found in other tiers has decreased slightly. In all tiers of business, the percentage of moral leaders remains disappointingly low, and work remains to be done. According to Norwich University, there are a number of educational options that those who wish to advance in moral leadership can take to develop key skills in advanced communication, decision-making, teamwork, flexibility, and resourcefulness in order to pave the way for a more ethical business environment.

It is interesting to note that the distribution of moral leadership isn't evenly experienced across levels of organizational responsibility. According to the report, executives are the most likely to experience consistent moral leadership (31%) from their managers, while middle management are the least likely (11%).  

Moral leaders inspire teams by high ethical standards, respect, learning, and trust  

The energy that moral leaders exude is truly contagious, working like the ripple of a wave on those around them. In fact, as noted in the report, employees with managers ranked as top-tier moral leaders are seven times more likely to agree that people on their team are held to the same behavioral expectations, when compared to those working for bottom-tier moral leaders. They are also:  

  • 8 times more likely to agree both that people on their team speak out when they see something unethical. 
  • 8 times more likely to agree that people on their team take full responsibility for their actions and do not hide their mistakes. 
  • 8 times more likely to believe that members of their team are respectful to each other, even in conflict and agreement. 
  • 9 times more likely to believe they have the freedom to cultivate new skills. 


Good moral leadership inspires exceptional organizational performance  

The impact of moral leadership is felt by more than just the employees. Employees with top-tier CEOs are anywhere from five to six times more likely to agree that the organization has satisfied customers and that the company is poised to improve its business results in the next year. These employees are also eight times more likely to believe that their organization adapts quickly to change, according to the report. In fact, 94% of employees with top-tier CEOs for moral leadership believe their manager is effective at achieving the goals of the business.

In the rapid-fire of concerning issues across the globe in recent years, business leaders appearing in Fortune's Leadership Next podcast stressed that the increasing difficulties those in entry-level jobs are experiencing a social fragility that includes food insecurity, housing insecurity, and a rising risk of falling victim to extremism. These issues compound the need for ethical culture even further. According to Anthony Tan, CEO of Grab—a worldwide ride-hailing and delivery service— the fragility of workers is a call to action for leaders. 

"So for Grab, we basically said, anyone who has a motorbike, we'll power you, you do business immediately," Tan explained. "Thirty minutes you're on. If you had an app, smartphone, we power you to do business from the sides of the street of Manila, Jakarta, or wherever it is. You start earning money. The best way to fight extremism is creating rice bowls, is creating economy, livelihood, is to create economy inclusion." 

The key takeaway  

Leaders who practice moral and ethical behavior can help their businesses yield positive outcomes—provided that they make the investment in creating more ethical cultures. Download the LRN Benchmark of Ethical Culture to learn how to create a strong and compelling case for your business to invest in building more rigor in the management of ethical culture.