Ethical Leadership

                  

“Ethical Leadership is defined as “the demonstration of normatively appropriate conduct through personal actions and interpersonal relationships, and the promotion of such conduct to followers through two-way communication, reinforcement and decision-making”… [and] the evidence suggests that ethical leader behaviour can have important positive effects on both individual and organisational effectiveness” (Rubin et al 2010: 216-17).

Ethical leadership is knowing your fundamental values and daring to live them in all parts of your life to serve the common good (CEL n.d.).  This article aims to explain the two perspectives towards Ethical Leadership along with their pros and cons and by making use of the 4-V model, discusses how leaders can lead ethically. It further highlights the examples of good and bad ethical leadership in the Energy industry and concludes by making recommendations on how energy companies can improve on.

The term Ethical Leadership sounds really interesting but becoming an ethical leader is quite difficult. It sometimes contrasts with the primary duty of a leader i.e. to maximise profits for the shareholders for e.g. making donations to a charity means taking a chunk out of shareholders’ profit. Thus, Ethical Leadership is not only about leaders being honest and of upright character but also requires such values to be reflected in their actions, both on and off work, so that their followers also incorporate them in their lives.

There are two major theories to Ethical Leadership – Deontological and Teleological.

Deontology is based on stringent rules which are meant to be followed by individuals irrespective of the circumstances and the consequences (Kerns n.d.). It can be summarised as

It provides certainty to its believers – one must act if it is a right action and must not act if it is a wrong action. Every person is treated equally since rules are rules for everyone. But, it fails to cater the actions for which no previous rules are set and may reduce the overall good to people since it does not focus on consequences (BBC n.d.).

Teleology is based on the consequences of actions. If the results are likely to be favorable, the act is considered to be ethical and vice versa (Dr. Kerns n.d.).

It tends to be applied universally as decisions are made on the basis of one’s moral judgement and provides flexibility to its followers to choose actions which are morally right (Dontigney n.d.). But an individual can have limited knowledge about the consequences to make impeccable judgments about decision.

A 4-V model on ethical leadership was produced by Dr. Bill Grace and  connects the inner beliefs of a leader with his outer actions. The 4 Vs are described below:

(Parsons 2013).

According to this model, leaders who want to work for the common good should first commit to their core values and practice them regularly so that they are communicated to others as well and together – leader and sub-ordinates- strive towards the common good (CEL n.d.).

Ethics play a significant role in the progress of individuals as well as of organization. Time has revealed the consequences of unethical behaviors faced by huge organizations in various industries. Taking example of the Energy sector being ruled by the ‘Big Six’– E-on, British Gas, Scottish Power, SSE, Npower and EDF Energy- many of their loyal consumers have been exploited by being charged yearly rates £234 higher than those who switch suppliers because they were either too old, disabled or struggling financially that they did not prefer to switch (Farrell 2015).This act is equivalent to deceiving others as per the Deontological school of ethics and thus unethical

With these Big Six occupying the larger part of market share, when one changes the tariffs, the other one follows and thus charge high prices to consumers in UK resulting in lower trust by consumers in energy suppliers as discussed by Ofgem representative in the following video

(Today’s World News 2014)

Furthermore, E-on collaborated with the charity Age UK to provide cheaper rates to the elderly. But was later found out to be paying £6 million/year to Age UK for promoting E-on rates, which were £245 higher than the cheapest yearly rate E-on launched in 2015 (BBC News 2016). E-on was also fined by Ofgem £12 million for mis-selling. But the CEO, Dr. Tony Cocker, did not take any personal responsibility and only took one-fourth cut in his annual bonus (Campbell 2014).This irresponsible behaviour of CEO delivers negative message to his sub-ordinates, which as per the 4-V model communicates his vision of taking no responsibility for the harm caused to others.

Contrarily, the emerging smaller ones are following an ethical approach with their fair price policy and appreciable customer service. Ecotricity not only provides 100% green energy but also provides the best customer service as witnessed that the company contacted the customer itself via email and phone to find out the reason for unusual high amount of bill (Brignall 2014).Such a service is evidence of upright morals being practiced and communicated by the leaders and followed by their sub-ordinates.

Conclusively, deceiving customers by charging higher rates and showing care towards elderly but actually misleading them may bring revenue to the business but is against the ethical values. Even from teleological viewpoint, if higher rates do generate profits for the business and shareholders but more harm is done to a larger public, thus the act is totally wrong and unethical.

Managers should align the corporate goals with ethical values in a way that revenue generated is not at the cost of harming customers. Equal and fair prices should be charged all around UK so that customers are not misled.

References

BBC (n.d.) Ethics guide. [n.d.] available from <http://www.bbc.co.uk/ethics/introduction/duty_1.shtml#top> [20 July 2016]

BBC News (2016) ‘Age UK energy deals with E.On to be examined by regulators’ BBC News [online] 4 February. Available from <http://www.bbc.co.uk/news/business-35488204&gt; [22 July 2016]

Brignall, M. (2014) ‘Ecotricity deserves praise for great customer service’. The Guardian [online] 17 July. Available from < https://www.theguardian.com/money/2014/jul/17/ecotricity-praise-energy-supplier-customer-service > [21 July 2016].

Campbell, P. (2014) ‘E.ON boss keeps £500,000 bonus… desite £12m fine: Energy watchdog caught firm mis-selling to hundreds of thousands’ The Daily Mail [online] 16 May. Available from <http://www.dailymail.co.uk/news/article-2630193/E-ON-fined-persuading-thousands-households-switch-deals-cost-MORE-customers-35-each.html> [20 July 2016]

Dontigney, E. (n.d.) Pros and cons of ethical theories [n.d.] available from <http://www.ehow.co.uk/info_8404891_pros-cons-ethical-theories.html> [21 July 2016]

Farrell, S. (2015) ‘Big six energy firms overcharging customers by up to £234 a year’. The Guardian [online] 18 February. Available from <https://www.theguardian.com/uk-news/2015/feb/18/big-six-energy-firms-overcharging-customers-by-up-to-234-a-year> [21 July 2016].

Kerns, T. (n.d.) ‘A Brief Introduction to Formal Ethics’ [online] available from <http://www.bioethicscourse.info/lecsite/ethicsintro.html> [20 July 2016]

Ofgem (2016) Sottish Power to pay £18m for customer service failings [online]  available from <https://www.ofgem.gov.uk/publications-and-updates/scottishpower-pay-18m-customer-service-failings> [19 July 2016].

Parsons, M. (2013) The Importance of Ethical Leadership [6 March 2013] available from <http://www.theworkplacecoach.com/the-importance-of-ethical-leadership/>  [20 July 2016]

Today’s World News (2014) Ofgem: Consumer trust in energy suppliers is ‘low’. Available from <https://www.youtube.com/watch?v=9-RxcWw-j24 > [24 July 2016].

Williams, Z. (2014) ‘Good Energy: it’s not about technology anymore, it’s about people’. The Guardian [online] Available from <https://www.theguardian.com/lifeandstyle/2014/may/20/good-energy-eco-technology-people-electricity-gas-bills> [22 July 2016]