Ethical Leadership Case Studies

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Business leaders talking in a boardroom

Profits and margins indicate the short-term health of a business, but ethical leadership is a much better indicator of long-term success. Companies that exhibit ethical leadership practices generate goodwill with consumers, protect their assets, and increase value for shareholders, while unethical leaders can put the entire organization at risk for short-term or personal gains. The challenge is helping decision-makers see beyond the next P&L report to understand how their actions impact the company five or 10 years in the future.

In recent history, four companies faced ethical dilemmas, and each responded in radically different ways that offer important lessons for businesses and their leadership.

British Petroleum—Deepwater Horizon Disaster

The Situation

British Petroleum (BP) operated the Deepwater Horizon oil well in April 2010, when an explosion rocked the rig and caused its collapse. The accident caused an oil gusher that spilled an estimated 4.9 million barrels of oil in the Gulf of Mexico. The spill continued for 87 days and affected hundreds of miles of coastline.

The Ethical Decisions

In 2011, the United States government found BP guilty of several ethical violations that contributed to the size and severity of the spill. The chief complaint from the government was that, in an effort to maximize profits, BP chose to use low-grade construction supplies for the rig, while cutting corners on safety procedures. The Department of Justice fined BP more than $4.5 billion and convicted the company of 11 counts of manslaughter and lying to Congress.

The Lesson

Earning a return for shareholders is a primary responsibility of businesses, but profits cannot come at the expense of the health and safety of the public. Cutting corners and trying to evade responsibility for unethical actions may bring stiff financial penalties from local, state, and federal authorities.

Starbucks—An Environmental Problem

The Situation

Critics of Starbucks blamed the company for adding to environmental problems all over the United States in 2007 and 2008. The complaints centered on two issues. First, Starbucks used an inordinate amount of water to make drinks for customers. At a time when much of the country was experiencing severe droughts, the overuse of water was a legitimate concern. Additionally, Starbucks’ cups generated tons of landfill waste that increased the operating costs of city landfills.

The Ethical Decisions

Starbucks was quick to address both concerns. The company designed new low-flow machines for drip stations that radically reduced water usage. Then, Starbucks began an incentive program for customers who brought reusable cups to the store. Since instituting the changes, Starbucks has seen explosive growth in profits and shareholder returns.

The Lesson

Consumers are attracted to brands that have a strong commitment to the environment and exhibit ethical leadership. The programs cost Starbucks money in the short-term but built a solid foundation for growth.

Volkswagen—Evading Oversight

The Situation

The EPA issued new guidelines for auto manufacturers that were designed to reduce emissions in the early 2010s. Many companies complained about the increased costs but eventually met the new standards. In April 2016, the EPA discovered Volkswagen (VW) cheated the testing system and failed to meet the new standards.

The Ethical Decisions

VW engineers were instructed to trick the system by only activating emissions-saving features when the car was running in test conditions. When the company was charged with unethical behavior, VW acted quickly to right the wrongs. VW offered to buy back almost 500,000 cars and offered parts to upgrade systems in other models. Several high-ranking executives lost their jobs as a result of the scandal.

The Lesson

Leaders in a company at times make poor decisions, but the overall leadership of the company is responsible for the organization’s long-term health. By acting swiftly to solve the problem and firing unethical leaders, VW established itself as a company that will not stand for unethical practices. Sometimes, a clear break with unethical leaders is the only way for a company to regain lost public trust.

3M—A Culture of Ethical Practices

The Situation

For more than a century, 3M has been a profitable and well-respected company in the United States, and one of the keys to its success has been its commitment to ethics. 3M has been named one of the most ethical companies in the world for more than a decade, winning the award for the most ethical company three years in a row.

The Ethical Decisions

Long ago, 3M recognized that companies need a culture of ethics and personal responsibility if they expect their leaders to be ethical. The company created a code of conduct and leadership behaviors that every employee, from the lowest-paid hourly worker to the C-suite level, must adhere to and discuss during annual performance evaluations.

The Lesson

3M shows that ethical leadership is easiest when ethical behavior is ingrained in the company’s culture. Decision-makers are not tempted to make unethical choices, because they have a deep understanding of why the ethical choice is better for the company’s long-term health.

Companies that want ethical leadership must make a commitment to ethics across every tier of the business, and hold themselves accountable for making poor choices. Short-term gains from unethical decisions may seem good for the bottom line, but when the fallout occurs, all of those gains evaporate, and the company is left to pay a harsh penalty for its decisions.

Learn More

At Ohio University, we understand how important an MBA can be to advancing your career. We also know that your MBA should be affordable, engaging, and academically-rigorous. That’s why we have designed an online MBA that is comprehensive and challenging, yet flexible to fit your lifestyle. When you earn your MBA online from Ohio University you are making a conscious decision to improve your professional value and position yourself for current and future business opportunities.

Additional Reading

The Benefits of Happy Employees

Sources

Business News Daily, “4 Things You Should Do to Be an Ethical Leader”
Wikipedia, “Deepwater Horizon oil spill”
National Oceanic and Atmospheric Administration, “Deepwater Horizon Oil Spill”
USA Today, “3 Reasons It’s Hard to Hate Starbuck’s”
The New York Times, “Volkswagen Diesel Emissions Scandal”