Professional Documents
Culture Documents
Ethical
How ethical leadership leadership
influences creativity and
organizational innovation
Examining the underlying mechanisms
Imran Shafique Received 21 December 2018
Revised 14 February 2019
COMSATS University Islamabad, Lahore, Pakistan, and Accepted 20 March 2019
Bashir Ahmad and Masood Nawaz Kalyar
Lyallpur Business School,
Government College University Faisalabad, Faisalabad, Pakistan
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Abstract
Purpose – The purpose of this paper is to answer two questions. What is the impact of ethical leadership on
followers’ creativity and organizational innovation? What are the mechanisms through which ethical
leadership influences creativity and organizational innovation?
Design/methodology/approach – Considering a market-oriented criterion to measure organizational
innovation, the data were collected from 322 small-sized information technology firms working in Pakistan.
Multilevel modeling and hierarchical regression analyses were used to explore the direct and indirect effects
of ethical leadership on creativity and innovation, respectively.
Findings – The results show that ethical leadership is an important predictor of both individual and
organizational creativity. For the individual level, the results of multilevel modeling indicate that there is a
positive link between ethical leadership and employee creativity. Furthermore, ethical leadership affects
employee creativity through knowledge sharing and psychological empowerment. At the organizational level,
the results reveal that ethical leadership is positively associated with organizational innovation directly.
Practical implications – The findings imply that ethical leadership is an important tool to
promote creativity and for the advancement of innovation for developing countries as well as for
newly developed industries.
Originality/value – This study is first to highlight the role of ethical leadership for organizational
innovation. The main contribution of the study is to explore creativity as potential mediator for ethical
leadership–organizational innovation nexus; where a market-oriented criterion is taken as proxy of
organizational innovation.
Keywords Creativity, Knowledge sharing, Organizational innovation, Psychological empowerment,
Ethical leadership
Paper type Research paper
1. Introduction
Innovation has long been acknowledged as one of the major factors for a firm success
(Elrehail et al., 2018; Woodman et al., 1993; Zacher and Rosing, 2015) and the economic
growth of a country (Capello and Lenzi, 2014; Drucker, 1985; Pradhan et al., 2018). Therefore,
scholars have always put increased emphasis on understanding the factors which facilitate
or impede innovation activities in the organizational settings. The recent era, characterized
by a highly dynamic business environment, globalizations, rapid technological changes and
reduced product life cycle, put firms under pressure to find new ways of doing things and
innovative offerings on a consistent basis to sustain competitive position in the market
( Jung et al., 2003; Zacher and Rosing, 2015). However, successful innovation depends on
various individual- (Scott and Bruce, 1994) and organization-level factors (Damanpour,
1991). For example, a range of scholarships (e.g. Elrehail et al., 2018; Hughes et al., 2018; European Journal of Innovation
Management
© Emerald Publishing Limited
1460-1060
JEL Classification — L86, M12, O30 DOI 10.1108/EJIM-12-2018-0269
EJIM Martins and Terblanche, 2003; Amabile et al., 1996; Perry-Smith and Mannucci, 2017;
West, 2002) have recognized creativity – the creation of valuable and new thoughts – as a
precondition for innovation – the successful application of creative thoughts – across the
firm (Amabile et al., 1996; Amabile, 1998). There are many other studies which have reported
the role of various styles of leadership in attaining increased innovation performance
(e.g. Hoch, 2013; Jiang and Chen, 2018; Zacher and Rosing, 2015). Despite the existence of
many studies on the relationship between different leadership styles, creativity and
organizational innovation, this stream of research is still underdeveloped.
Past research has recognized leadership as a major source of promoting creativity as well
as an influential determinant of firm-level innovation (Hughes et al., 2018). For example,
Gumusluoglu and Ilsev (2009) examined the patterns of linkages between transformational
style of leadership and organizational-level innovation via individual-level creativity.
By using multilevel model in another study, Černe et al. (2013) investigated the influence of
authentic leadership on team creativity via individual-level creativity. Using data from
154 teams, Yoshida et al. (2014) reported impact of servant leadership on creativity
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(individual) and innovation (team). Researchers have recently reported that ethical
leadership promotes individuals’ creativity (Chughtai, 2016; Dhar, 2016; Javed et al., 2018).
With the increasing concerns about organizational ethics, it is worthwhile
knowing how leaders can increase their employees’ creativity through ethical practices
(Tu et al., 2018) as well as the impact of ethical style of leadership on organizational
outcomes. Therefore, present research intends to explore how ethical leadership influences
employees’ creativity and organizational innovation.
Ethical leaders believe in ethical types of behaviors that are supposed to be normatively
appropriate and communicate these behaviors through their own actions. Such leaders
elevate the hopes of their employees and try to convert employees’ self-concepts and
personal standards to a superior stage of goals and needs (Brown et al., 2005). In this way,
ethical leaders significantly influence work attitudes (e.g. job satisfaction) and behaviors
such as voice behavior, moral identity and organizational citizenship behavior (Brown and
Treviño, 2006). Past research has generally linked ethical leadership to followers’ ethical and
unethical conduct (Yidong and Xinxin, 2013), and less attention has been paid on the causal
linkages between ethical leadership, employees’ creativity and organizational innovation.
Yet employees often face a range of challenges and ethical dilemmas while generating and
implementing new ideas, which highlight the role of ethical leaders who promote ethical
norms, autonomy and self-accountability at work which can be considered as potential
predictors of creative behaviors and innovative outcomes. Hence, the chief objective of
present research is to know the impact of ethical leadership on the creativity, and on
organizational innovation through promotion of such creativity.
First, this study draws upon the upper echelons theory which suggests that leaders’
characteristics shapes organizational members’ interpretation of their environment
(Hambrick and Mason, 1984; Ullah et al., 2017). Accordingly, we propose that one’s view
about the workplace environment is a major determinant of one’s creativity (Amabile et al.,
1996), because an apparent workplace environment affects one’s psychological sense and
fosters one’s inspiration to produce novel thoughts. Considering ethical leadership as a
workplace context, we propose that ethical leadership is likely to increase employee
knowledge sharing, intrinsic motivation and psychological empowerment, which in turn
promote employee creativity and foster innovation at the organizational level. Given that
ethical leaders are important elements who motivate and empower their employees
(Dust et al., 2018) to yield positive workplace outcomes (Zhu et al., 2004; Jung et al., 2003), we
submit that ethical leadership is expected to develop an innovative environment and
to encourage employees to engage in creative thinking. Although past studies investigated
employee empowerment as a mechanism of employee behaviors such as employee success
(Dust et al., 2018), and OCB ( Joo and Jo, 2017) from ethical leadership perspective, creativity Ethical
remained unaddressed. The current study suggests that employees’ psychological leadership
empowerment, along with intrinsic motivation and knowledge sharing, is the underlying
mechanism that explains the influence of ethical leadership on creativity.
Second, current literature on ethical leadership fails to provide concrete understanding of
its potential role in fostering organizational innovation. When comparing with other
leadership styles and firm outcomes linkages, the existing literature on ethical leadership
focuses on few aspects of firm-level outcomes such as firm reputation (Zhu et al., 2014), firm
performance (Wang et al., 2017), organizational change (Waheed et al., 2018), corporate
social responsibility (Pasricha et al., 2018; Wu et al., 2015) and organizational innovativeness
(Pučėtaitė, 2014). The perspective of organizational innovation is unaddressed with
exception of Pučėtaitė’s (2014) work, the only study as per our knowledge, that investigated
the role of ethical leadership on organizational innovativeness ( firm capacity to innovate) in
the Lithuanian context and found ethical leadership as an important predictor of
innovativeness. However, Pučėtaitė (2014) assessed only firm’s capacity and propensity for
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- Knowledge Sharing
- Intrinsic Motivation
- Psychological
Empowerment
mechanism is concerned with ensuring that the ethical leaders are respected by their followers
for their development and dignity which allows the employees to attain novel skills and
knowledge pertinent to work (Zhu et al., 2004). In response, it will escalate the efficacy of the
employees, thereby fostering the employees to perform their work creatively.
Moreover, ethical leaders are people oriented and are likely to promote human rights,
self-respect, talents and learning by providing the employees with opportunities to acquire
the necessary job-related abilities and knowledge, and placing them in the right position
(Ciulla, 2004; Zhu et al., 2004). They also motivate followers to channel their capabilities in
the right direction for greater work performance, and consequently the employees will
receive the knowledge, skills and ability to perform innovatively and in turn will be
expected to exercise an innovative attitude in the work setting which would enhance their
creativity. Furthermore, upper echelon perspective helps us to explain the relationship
between leader and follower (Waldman et al., 2004) in a sense that ethical leaders provide
followers with great liberty and control over workplace decision making, which ensures
autonomy, freedom and willpower regarding jobs, thus enabling them to make and
implement novel plans (Piccolo et al., 2010). Therefore, ethical leaders’ integrity, care and
concern for employees, and fair and ethical treatment motivate employees with a feeling of
self-worth which activates employee cognition at work and thus results in novel ideas.
Therefore, we postulated that:
H1. Ethical leadership has a positive association with employee creativity.
As discussed earlier, ethical leaders show integrity, support and fair treatment in relation to
their followers, thereby enhancing the autonomy and psychological empowerment of the
latter. When employees have a high level of psychological empowerment they willingly
engage in and focus on producing novel approaches toward solving problems, thus
promoting creativity (Spreitzer, 1995). Therefore, it is proposed that ethical leadership
affects employee creativity through psychological empowerment. Hence:
H4. Employees’ psychological empowerment mediates the association of ethical leadership
and employee creativity.
achieve organizational objectives. Since ethical leaders are deemed to show characteristics
like altruism, honesty, morality, integrity (Gardner et al., 2005) and commitment
(De Hoogh and Den Hartog, 2008), employees feel psychologically more secure when
sharing their new ideas. In contrast, when employees see their leaders as immoral person
going beyond ethical norms and values (such as getting involved with self-serving
behavior), they limit themselves in sharing morality, values and creative ideas because of
having contradiction with those of their leaders.
In addition, ethical leaders also differentiate themselves by encouraging two-way
communication in the groups, as they always listen honestly and whole-heartedly to their
followers. They also allow subordinates to share their concerns and views, which
consequently will inspire the employees to come up with new thoughts for improving work
processes, methods and procedures relevant to their work unit as well as to those of the
entire organization (Martins and Terblanche, 2003). Ethical leaders are also expected to
have a positive effect on the market success of organizational innovations. According to
Gumusluoglu and Ilsev (2009), leaders elucidating a strong vision on innovation, with
confidence and determination, will endeavor to ensure the success of that innovation.
Such leaders display behaviors beyond traditional leadership, and thus are effective in
encouraging their followers to ensure the market success of the organization’s innovations
( Jung et al., 2008). In the research and development (R&D) setting, the followers’
performance depends on quality-based metrics, as opposed to quantity-based ones;
therefore, a highly professional rather than traditional leadership style is pivotal in
optimizing quality-based performances. Moreover, besides playing internal roles, ethical
leaders may play external roles, for example, championing and boundary spanning
(Chen and Hou, 2016) in order to determine market needs and the successful marketing of
innovations (Gumusluoglu and Ilsev, 2009; Piccolo et al., 2010). Therefore, it is suggested
that ethical leadership is positively associated with innovation; that is, with a firm’s
propensity to innovate and the success of innovation. Hence:
H6. Ethical leadership promotes organizational innovation.
H7. Ethical leadership fosters organizational innovation through creativity.
3. Methodology
3.1 Study sample selection
The study tested hypothesized relationships by conducting a survey-based field study
using a sample of 322 employees and corresponding leaders from small-sized software
EJIM development information technology (IT) firms. Of the 83 IT firms involved, only 49 fulfilled
the two criteria required for selection as a sample firm in this research: minimum four years
of age and in-house software development. Out of these, 43 firms’ leaders indicated their
consent to take part in this research. The participants were owners/managers/direct
supervisors of the R&D personnel. For each company, the leader provided the list of R&D
staff involved in the identification of the problems, design and software development. Of
these participants, five did not submit their responses.
The firms in the sample are virtually identical in the context of firm size and the kind of
job performed. All the firms are small sized with 3–17 employees and all the employees take
part in the process of developing new and/improved products, as explained by Keller (1992)
in Development Work. There are two reasons for selecting such a sample. First, it is
appropriated to examine the creativity (individual level) and organizational innovation due
to the nature of business activities these firms perform. Although the software development
jobs these firms offer are associated with the need for creativity (Ullah et al., 2016), scholars
have paid little attention to the areas of creativity and innovation in this sector. Moreover,
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developed by Tierney et al. (1999). Employees mentioned the degree to which every
statement related to them in the form of their present jobs. The sample items are “I enjoy
coming up with novel thoughts or goods/services” and “I enjoy developing current goods/
services or procedures.” The value of Cronbach’s α (0.77) ensured reliability.
3.3.4 Psychological empowerment. To measure psychological empowerment construct, a
12-item scale developed by Spreitzer (1995) was adapted. The sample items are “I’ve
considerable effect on what occurs in my department” as well as “I’ve considerable
independence in deciding how I perform my work.” Cronbach’s α was 0.82.
3.3.5 Creativity. In this research, the followers’ creativity was a dependent variable. The
focus of this study is the creativity of R&D personnel as well as propensity to transform
creative thoughts into innovative goods/services. Therefore, both the production of the
thoughts and their application by these workers should be taken into account to calculate
creativity (Mumford et al., 2002). This study adapted a 13-item scale – which covers these two
ideas – from Zhou and George (2001) and Tierney et al. (1999). Leaders assessed the creativity
of their workers four weeks after the workers had rated the leadership. The sample items are
my employee “Promotes as well as champions thoughts to others” as well as “Provides as a
good example for creativity.” The reliability of the scale was 0.95.
3.3.6 Controls. Job tenure and education level of the followers were used as control
variables as these variables are connected to creativity. Amabile (1998) stated that creativity
results from learned skills, experience and formal education. Shalley and Gilson (2004)
reported that experience reflects the knowledge which might determine creative behavior.
Hence, we used job tenure as an anchor of experience.
3.4.3 Controls. Organization age was a control variable in this research, since previous
research studies refer to its positive association with firm innovation ( Jung et al., 2003).
Variable Mean SD 1 2 3 4 5 6 7
1. Education – – –
2. Experience 4.2 5.23 −0.06 –
3. EL 4.01 0.73 −0.09 −0.15 (0.91)
Table I. 4. PE 4.21 0.62 0.11 0.21** 0.39** (0.86)
Mean, standard 5. KS 4.13 0.69 0.18* 0.19* 0.56** 0.24** (0.93)
deviation and 6. IM 3.96 0.81 −0.08 0.04 0.31** 0.19** 0.11 (0.79)
correlation coefficients 7. CRT 4.10 0.78 0.14 0.07 0.27** 0.31** 0.13* 0.24** (0.92)
for individual-level Notes: EL, ethical leadership; PE, psychological empowerment; KS, knowledge sharing; IM, intrinsic
variables motivation; CRT, individual creativity. *p o0.05; **po 0.01
CRT PE KS IM
Ethical
leadership
Education 0.11
Experience −0.04
Ethical leadership 0.28**
Education 0.18**
Experience 0.07*
Ethical leadership 0.39**
Education 0.10
Experience 0.01
Ethical leadership 0.17
PE 0.29**
Education 0.13**
Experience 0.09**
Ethical leadership 0.48**
Education 0.12
Experience −0.01
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multilevel mediational modeling technique (Krull and MacKinnon, 2001) to check the
significance of the mediating effect. Job tenure and educational level of the employees are
considered control variables in all the hierarchical models.
Results presented in Table II provide empirical support for H1 which states that ethical
leadership predicts employee creativity (β ¼ 0.28, p o0.01). Furthermore, findings support
H2 and H4 stating that knowledge sharing and psychological empowerment serve as
mediating mechanism for “ethical leadership–employee creativity” nexus. Results show that
ethical leadership is positively linked with knowledge sharing (β ¼ 0.48, p o0.01), and
knowledge sharing is positively associated with creativity (β ¼ 0.31, p o0.01). Moreover,
when knowledge sharing was introduced along with ethical leadership, the relationship
between ethical leadership and creativity became insignificant (β ¼ 0.14, ns), indicating the
presence of full mediation. Similarly, ethical leadership is also linked with psychological
empowerment (β ¼ 0.39, p o0.01), and psychological empowerment is associated with
creativity (β ¼ 0.29, p o0.01). Moreover, when psychological empowerment was introduced
along with ethical leadership, the relationship between ethical leadership and creativity
became insignificant (β ¼ 0.17, ns), supporting the presence of full mediation. For H3,
findings failed to support the mediating role of intrinsic motivation because, despite
significant effect of ethical leadership on intrinsic motivation (β ¼ 0.29, p o0.01), the
relationship between intrinsic motivation and creativity was insignificant (β ¼ 0.16, ns).
Mean SD 1 2 3
Table III.
1. Firm age 4.18 4.21
Mean, standard
deviation and 2. Ethical leadership 4.01 0.58 −0.13
correlation coefficients 3. Creativity 4.10 0.67 0.07 0.46**
for organizational- 4. Organizational innovation 1.87 0.51 0.16 0.35** 0.21*
level variables Notes: *po 0.05; **p o0.01
creativity. The reason for this relationship is that psychological empowerment gives
feelings of autonomy to think creatively and innovatively. The relationship between
knowledge sharing and employee creativity is significant, it shows that employees are
motivated through knowledge sharing culture and feel their work is a source of honor to
serve humanity. For insignificant effect of intrinsic motivation, findings imply that
motivation is integral element and prerequisite of creativity, therefore, have no significant
effect separately.
Ethical leadership has a positive and significant relationship with organizational
innovation. These findings show that ethical leadership – when ethical leaders show their
concerns and consideration for the innovation of organization – has a direct impact not only
on employees but also on organizational innovation. They accept the creative ideas and
work on these so that their organizations have a competitive advantage over their
competitors and they also increase the motivation and empowerment of employees.
The proposed hypothesis between creativity and organizational innovation showed a
non-significant relationship (β ¼ 0.12, p ¼ 0.081). This relationship could be insignificant for
several reasons. It is possible that the ideas given by the employees in some organizations
are not treated as serious or useful, as they are in other organizations (Gumusluoglu and
Ilsev, 2009). Thus, such behavior by their organizations may restrain them from being
innovative. Another reason could be lack of communication, where innovative ideas are not
communicated in the right way, thus creating ambiguity in leaders’ minds, and/or leaders
find it difficult to understand the ideas correctly, which is essential for innovation
(Elkins and Keller, 2003; Perry-Smith and Shalley, 2003). Findings show that ethical
leadership directly affects employee creativity but this direct effect vanishes once mediators
are introduced. This implies that ethical leadership does not promote creativity directly
rather it uses several mechanisms through which it develops and fosters creativity. This
relationship could be due to the collectivist culture of Pakistan’s society (Hofstede, 1980) and
the implementation of creativity has to overcome many hurdles, so the creativity always
remains in the shadows.
The study presents important theoretical and managerial implications. First, compared
with past studies (e.g. Chen and Hou, 2016; Duan et al., 2018; Javed et al., 2018; Ma et al.,
2013), this study proposes and tests that ethical leadership is an important predictor of
creativity which in turn promotes organizational innovation. The findings answer “how”
ethical leadership influences creativity, thus explaining the underlying mechanisms
through which ethical leaders promote creativity. Second, the proposition of mediational
role of creativity for ethical leadership–organizational innovation linkage tries to
demystify potential mechanism to foster organizational innovation. Despite insignificant
EJIM relationship between creativity and innovation, the findings help researcher to infer that a
certain level of creativity is essential to promote innovation. If management fails to elevate
creativity up to that certain level, the investment in human resources and efforts to
develop human capital would be in vain and might become an expense. Furthermore, the
insignificant relation between creativity and innovation might be because of
methodological issue as respondent firms have an average age of 4.18. Thus, frequency
of innovation could be important aspect along with quality of innovation. Third, the study
also enriches the analytical methodology as it uses more objective-based market-oriented
measure of organizational innovation rather using subjective measure as was done
previously with other leadership styles (e.g. Al-Husseini and Elbeltagi, 2016; Matzler et al.,
2008; Paulsen et al., 2009; Sethibe, 2018). The recent studies examining other leadership
style–innovation nexus also affirm robustness of market-oriented measure in terms of its
objectivity and prefer it over perception-based measure (e.g. Jia et al., 2018; Mokhber et al.,
2018). This measure can also be used as proxy of innovation of entrepreneurial firms in
developed countries and across different sectors as well as in developing economies where
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other measures such as patents are inappropriate. This measure is different from other
tools as it captures both the tendency of innovation and resultant performance of that
innovation, thus an indicator of firm competitive advantage (Zhang and Li, 2010). Fourth,
the findings of study also present implications for managers. The mediating mechanisms
for creativity suggest that leaders should follow the principles of psychological
empowerment and norms of knowledge sharing to intervene for creativity. For
organizational innovation, managers should enhance creativity – in terms of both
frequency and novelty of ideas – up to such level where acceptability of these ideas by the
organization is high, thus increasing the likelihood of organizational innovation. Finally,
developing and enhancing ethical leadership capabilities will help management to
promote environment conducive to propensity of innovation.
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Corresponding author
Masood Nawaz Kalyar can be contacted at: masood.kalyar@yahoo.com
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