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RELATIONSHIP OF ETHICAL LEADERSHIP AND EMPLOYEE OUTCOME IN ORGANIZATIONS

RESEARCH REPORT
SUBMITTED TO: Dr. MAZHAR ZIADI SUBMITTED BY: SABA RIAZ(003) SHAHERBANO (019) MS(MS) SUBJECT: EMERGING ISSUES IN LEADERSHIP AND MOTI ATION SUBMISSION DATE: 10 DECEMBER !013

COMSATS INSTITUTE OF INFORMATION TECHNOLOGY "AH CANTT.

SUBMITTED TO: SUBMITTED B

MBA 3#B SUBJECT: RESEARCH METHODOLOGY SUBMISSION DATE:

Acknowledgment
Firstly, we are great full to almighty ALLAH at the completeness of this project who enables us to carry out the entire activities whole heartily and with devotion to learn something. We would like to express our profound and sincerest gratitude to our parents who always pray for our progress and good will, without any return. Without their blessings we would never be able to achieve our first practical achievement of our life. In the mean while we would like to pay our regards to our supervisor, respected teachers and colleagues for constant guidance during the work for this project. We also like to thanks our teacher and real coordinator Dr. of his tasks. a!har "aidi who served as a

milestone for our project and assist us in every step by devoting his precious time besides

Dedication

Dedicated to #ur $arents, %eachers and Friends who have all helped to fulfill our life & represent %he measures of happiness'

Abstract
%he study was aimed to examine the relationship of ethical leadership on employee outcomes in in various organi!ations in $akistan. Factors ethical of leadership, i.e. integrity, fairness and power sharing was considered for conducting research and it was found that high degree of fairness, integrity and power sharing with the employees induces high performance levels from the employees. %he research conducted in the organi!ations suggest that high degree of fairness prevails in these organi!ation, leaders are honest towards their profession and with the employees very much but no evidence of power sharing was found and most organi!ations are practicing autocratic style of decision making. %hese factors of ethical leadership provide a synergic effect and increase the overall employee performance. %he research suggests that more of ethical leadership should be practiced within the organi!ations to boost and upgrade the performance of employees and to encourage them to be more committed and dedicated towards their work as well as to the organi!ation.

(eywords) *thical leadership, fairness, integrity, power sharing, job satisfaction, employee commitment.

INTRODUCTION
%he topic is of study relationship of ethical leadership with employee outcome

in organizations. We basically wanted to see the relationship between ethical leadership and employee outcomes by measuring the ethical leadership through its various determinants. %he aim of the research study is to determine that what are the factors that make a leader ethical and in what way the employee performance or outcomes will be affected if such leaders are present in an organi!ation. %here are alarming statistics regarding the amount of unethical behavior that occurs within organi!ations. %hese unethical behaviors included lying to internal or external constituents, engaging in abusive behavior, misreporting hours worked, abusing the internet, violating safety standards, discriminating, stealing, and sexually harassing a colleague. +ut most of the times undoubtedly these behaviors may go unnoticed, or may not be reported because of a fear of retaliation or a desire to protect the culprits. ,urvey results have heightened awareness of the prevalence of wrongdoing in organi!ations. In an effort to reduce the amount of unethical behavior in organi!ations, interest of scholars in the role of leadership is increasing. -esearch on ethical leadership particularly has been valuable in understanding the role of leadership in relation to employee outcomes and behavior in organi!ations. *thical leadership is de.ned 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 making00 1+rown et al., 2334, p. 5236. %his concept of ethical leadership is new7 many scholars are interested in this research. 8lthough initial research on ethical leadership is promising, there is a lack of research examining the underlying mechanism to explain the relationship between ethical leadership and employee outcomes. ,uch research is important theoretically because it provides insight into what ethical leaders actually do to in9uence employee behavior. $ractically this has implications for designing organi!ations to reduce the level of unethical behavior.

:eadership which lacks ethical conduct can be dangerous, destructive, and even toxic. :eadership ought to be ethical in order to effective and successful over the long term. :eaders must demonstrate the highest moral standards and ethical conduct in their everyday talk, actions, decisions and behavior so that others in their organi!ation can follow them. $hilosophers, religious leaders and thinkers have emphasi!ed the importance of ethics for leaders, if they desire to attain effective governance. #rgani!ational values and beliefs influence employee decision making and behavior and manifest themselves as multiple climates existing within a single organi!ation. 8n ethical climate is the most important part of an organi!ation, incorporating normative values and beliefs involving moral issues shared by the employees of the organi!ation. *xecutive leadership is based upon two essential pillars) the executive;s visibility as a moral person 1based upon perceived traits, behaviors, and decision< making processes6 and visibility as a moral manager 1based upon role modeling, use of the reward system, and communication6. Developing a reputation for ethical leadership results in reduced legal problems and increased employee commitment, satisfaction, and employee ethical conduct.

LITERATURE REVIEW

Ethical leadership develop ent!


:eadership development is becoming an increasingly critical and strategic thing for organi!ations in the existing business environment. 1:eskiw & ,ingh, 233=6 proposed different strategies and programs for assessing leadership development. %he efficient and effective leadership can be a strong tool only if it is based on ethics. It is the responsibility of the leaders to express the moral and ethical behavior in their daily conversations, dealings, judgments, and meetings in order to become an inspiration for the followers. ,piritual people, scholars and the theorists from the past have been stressing upon the substantial effect of ethics for the followers and the leaders to control the supremacy in organi!ation. Development of ethical leadership is an effort that enhances the learner;s capacity to lead oneself, other individuals, groups and organi!ations. It refers to any activity that enhances the >uality of leadership within an individual or organi!ation. Development of an ethical leader focuses on the development of the leader, such as the personal attributes desired in a leader, desired ways of behaving, ways of thinking or feeling. In contrast, ethical leadership development focuses on the development of leadership as a process. +rown, %revino & ?arrison 12334)5236 has defined ethical leadership 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<makingA Deter inants o" ethical leadership! %here are three key factors for effective leadership that are 5 Fairness 2 Integrity B $ower sharing

*thical :eadership includes integrity, power sharing and fairness. %hese all elements have influence on employee outcomes. $rior research has shown that power sharing 18volio & Cardner, 23346, perceived of fairness 18ronson, 23356 and integrity virtuous character 18nderson et al., 233D6 have greater impact in encouraging participation in ethical decision making. $ower sharing allows for better check and balance to mitigate self<interest and manipulative of interest 18volio & Cardner, 23347 "hu et al., 233E6. Fairness balances the moral decision 18ronson, 23357 (alshoven & +oon, 23526. While integrity sets the boundaries of leaders0 character in upholding moral characters that developed ethically organi!ational culture 18nderson et al., 233D7 8rjoon, 233=6. Integrity Integrity is one of the basic elements of ethical leadership. %he leader with integrity inspires confidence of others and can easily build commitment of team members. :eaders with integrity can be trusted and modeling the way to ensure consistency and congruency 1De$ree, 5FF26. oreover, integrity often considered to be an important aspect of leadership in general 1+ass & ,teidlmeier, 5FFF6. 8nderson et al. 1233D6 commented that moral integrity is a relevant component in directors and leader0s performance. Power sharing $ower sharing is the most important behavioral component of ethical leadership. "hu 1233E6 implied that power sharing will enable subordinates to have authority and less dependent on their leaders. $ower sharing is important in influencing the >uality of followers0 decisions, especially when the leader is not physically present in given situations. $ower sharing gives followers the opportunity to develop skills and competency to align with organi!ation objectives. $rior research has shown that organi!ational commitment is greater for employees whose leaders encourage their participation in decision making 1Davis & -othstein, 233G7 (alshoven & +oon, 23527 #nes et al., 23346.

Fairness Fairness is also a very important part of ethical leadership. :eaders can only be labeled ethical when they make fair choices, are trustworthy and honest, do not practice favoritism and are responsible for their own actions. $alanski and Hammarino 1233=6 agreed that ethical leaders not only practice what they preach but they are proactive role models for ethical conduct.

Relationship o" ethical leadership #ith e plo$ee o%tco e!


+rown and %reviIo 1233Ga6 suggested that social exchange theory 1,*%7 +lau, 5FGE6 and social learning theory 1,:%7 +andura, 5F==, 5FDG6 provide theoretical explanations for the relationship between ethical leadership and follower behaviors. +rown and colleagues 123346 suggested that followers of ethical leaders are more likely to perceive themselves as being in a social exchange relationship with their leaders because of the ethical treatment they receive and because of the trust they feel. When employees perceive that their leaders have their best interests at heart and are caring, they are likely to reciprocate by improving task performance. ,imilarly, social learning perspective on ethical leadership proposes that ethical leaders are likely to influence followers0 self<efficacy because they are attractive and legitimate role models that seek to help employees reach their potential at work 1+andura, 5FDG, 5FF=6.8lthough social exchange and social learning theories are valuable, we argue that they are not enough to explain the complex relationship between ethical leadership and followers outcomes. ,ocial identity theory 1e.g., 8shforth & ael, 5FDF7 %ajfel,5FD56 is another intermediate theory that we believe might further help explain the relationship between ethical leadership and performance. ,ocial identity constitutes the perception of oneness with, or belongingness to, a specific social category where individuals are intrinsically motivated to contribute to the collective good 18shforth & ael, 5FDF7 De Jremer & (nippenberg, 233B7(nippenberg & ?ogg, 23357 (nippenberg., 233E6. %hus, social identity theory may complement both social exchange and social learning theories in explaining the link between ethical leadership and performance. We suggest that ethical leaders are likely to influence follower performance by enhancing greater identification with the group or organi!ation,

because such leaders represent the high ethical standards and values of the organi!ation 1(nippenberg., 233E6.

RE&EARCH 'ETHODOLO()

Research 'odel!
%his is our basic research model which is showing relationship between dependent variable and independent variable. It means our dependent variable which is employee outcomes is affected by or dependent on the independent variable i.e. ethical leadership and its determinants.

ETHICAL LEADER&HI+

E'+LO)EE OUTCO'E&

Theoretical "ra e#or*!


%heoretical framework shows a relationship between leadership development 1training and development, participation and empowerment6 and employee performance.

ETHICAL LEADER&HI+

Dependent variable

Independent variable

,AIRNE&&

E'+LO)EE OUTCO'E&

INTE(RIT)

KKKKKKKKKK

+OWER &HARIN(

Variables!
8 variable is anything that takes on different or varying value. Following are variables of this study. Dependent variable! *mployee outcomes Independent variable! Fairness Integrity $ower sharing T$pe o" investi-ation!
.%alitative &t%d$

It is a >ualitative study on the basis that we intended to ascertain and be able to describe the characteristics of the variable of interest in a situation which here is ethical leadership. We are examining the relationship of its constituents on the employee outcome. %he sample of our study and investigation is centered on following organi!ations. Whereby data is collected by means of conducting interviews with the employees of these organi!ations. %he sample of our study includes following organi!ations) L*% %axila W8? edical Jollege

c Dolnalds Islamabad $akistan #rdinance Factories

8ir Weapon Jomplex #rganon $#F ?ospital Wah J# ,8%, Institute of Information %echnology ,tepup arketing International

-ed Jrecent

DATA COLLECTION AND ANAL)&I&


Data collection! Data can be collected from primary or secondary sources. $rimary data refers to information obtained firsthand by the researcher. While secondary data refers to information gathered from already existing sources. We used primary data for our research. %he data was collected from all the organi!ations that are mentioned in the previous chapter .%he data is collected by means of conducting interviews from the organi!ations mentioned. Response rate! 8s the interviews are conducted by making personal visit in these organi!ations therefore the response rate was excellent.

Data Anal$sis
%he data analysis for the above mentioned organi!ations is as follows. %his chapter shows the response of the employees of different organi!ations who were interviewed. %hese responses for each determinant of ethical leadership are given as follows) ,airness! L*% %8MI:8) %he results of the survey shows that the employees are being treated fairly, biasness and favoritism is not being practiced and all employees are valued e>ually. W8? *DIJ8: J#::*C*)

-esults show that the level of fairness is low, biasness and favoritism are seen to be practiced. J D#N8:D, I,:8 8+8D) %he employees are satisfied with the treatment and they report that they are being e>ually and fairly treated. $#F W8? J8N%%) *mployees are highly satisfied with the treatment and are e>ually valued and respected without any prejudices and biasness. J# ,8%, *mployees report that they do not experience any sort of biasness and favoritism from their leaders #-C8N#N %he employees suffer from biasness and prejudice from their leaders 8I- W*8$#N J# $:*M *mployees are not treated fairly and are victims of biasness. $#F ?#,$I%8: *mployees are treated fairly but up to a certain extent . Inte-rit$! L*% %8MI:8) -esults have shown that integrity is being practiced, but often its seen limited to the position rather than employees. W8? *DIJ8: J#::*C*)

Integrity is rarely being practiced. J D#N8:D,) :eaders are honest to their organi!ations and to the employees. $#F W8? J8N%%) Integrity is practiced but to a limited extent. J# ,8%, :eaders are honest to their profession as well as with their subordinates #-C8N#N :eaders are honest to their profession but are not that much sincere with the employees. 8I- W*8$#N J# $:*M :eaders are dedicated towards their job and position but are not concerned about the well<being of the employees very much $#F ?#,$I%8: :eaders are only concerned and devoted to their own well<being and are honest with the employees at a moderate level. +o#er sharin-! L*% %8MI:8) $ower is not shared with the employees, decisions are directed through cascading. W8? *DIJ8: J#::*C*)

8utocratic style is being used, power is not being shared. J D#N8:D,)

ostly autocratic, delegation is used rare cases. $#F W8? J8N%%) 8utocratic decision making prevails J# ,8%, :eaders take into consideration the opinions of their employees very much #-C8N#N *ntire system for decision making is autocratic with no room for employee views. 8I- W*$#N J# $:*M *mployee ideas and suggestion are not taken into consideration by the leaders. $#F ?#,$I%8: *mployee suggestions are taken into account but up to a moderate level. From the above information we concluded that maximum number of respondents rated high on fairness as well as integrity of the leader appreciating its practice within the organi!ation and reporting its positive influence on the employees and their work environment. +ut the power sharing factor or empowerment is not practiced and is almost negligible in most of the above mentioned organi!ations.

CONCLU&IONAND RECO''ENDATION& Concl%sion!


#ur aim was to examine the relationship or impact of ethical leadership on employee outcome and the study supports strong positive relationship of all three factors of ethical leadership1fairness, integrity, power sharing6 with the employee outcome or performance.. From the supported material and results of the study it is concluded that organi!ations must focus on more empowerment so that their overall performance will increases. %he relation of all three factors is positive with employee outcome. +ut the organi!ations tested do depict positive influence of fairness and integrity but autocratic decision making prevails in almost all of these organi!ations. Where the literature does support the assumption that power sharing has a positive relation with the employee performance, it is yet to be tested in these organi!ations. *mployees report enhanced level of job satisfaction, motivation as well as organi!ational commitment when ethical leadership is practiced in the organi!ations.

Reco

endations!

Finally closing the whole research conducted in a paragraph we would say, we come to know that extremely valuable determinants of ethical leadership. %he organi!ations that are tested are doing fairly well where the factors of fairness and integrity are concerned but are woefully ignorant of the importance of power sharing or empowerment. %hey should empower the employees to engage them more fully into their work as well as to increase organi!ational recognition or organi!ational identity. *mployees can be empowered by asking for ideas, suggestions, and asking for their opinions in at least the decisions affecting them.

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