Journal of Sustainable Tourism

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Ethical leadership, work engagement, employees’

well-being, and performance: a cross-cultural
comparison

Huma Sarwar, Muhammad Ishtiaq Ishaq, Anam Amin & Roheel Ahmed

To cite this article: Huma Sarwar, Muhammad Ishtiaq Ishaq, Anam Amin & Roheel Ahmed
(2020) Ethical leadership, work engagement, employees’ well-being, and performance:
a cross-cultural comparison, Journal of Sustainable Tourism, 28:12, 2008-2026, DOI:
10.1080/09669582.2020.1788039

To link to this article: https://doi.org/10.1080/09669582.2020.1788039

Published online: 01 Jul 2020.

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JOURNAL OF SUSTAINABLE TOURISM
2020, VOL. 28, NO. 12, 2008–2026
https://doi.org/10.1080/09669582.2020.1788039

Ethical leadership, work engagement, employees’ well-being,

and performance: a cross-cultural comparison
Huma Sarwara, Muhammad Ishtiaq Ishaqb, Anam Aminb and Roheel Ahmeda
a
Department of Business & Law, University of Brescia, Brescia, Italy; bImperial College of Business Studies,
Lahore, Pakistan

ABSTRACT ARTICLE HISTORY

Unethical behaviours, such as blaming subordinates for their shortcomings, Received 27 August 2019
taking credit of others’ work, favouritism, and excessive publicising of ethical Accepted 22 June 2020
leadership failures are prominent among the leaders of the organisation.
KEYWORDS
Although research has been conducted on ethical culture, particularly on
Ethical leadership; ethical
the causes and effects of ethical-decision, few studies emphasised on the culture; employee well-
topics outside the business ethics research, such as employee well-being. being; work engagement;
Therefore, this study focused on the mediating effects of organisational eth- performance; cross-
ical culture on the relationship between ethical leadership, work engage- cultural study
ment, employees’ well-being, and performance. The data collection process
involved the distribution of highly structured questionnaires to 697 employ-
ees working in Italian and Pakistani hospitality industry. This was followed by
the analysis of cultural differences through measurement invariance tests
and mediation techniques. As a result, it was found that ethical leadership
and ethical culture have positive impact on employee wellbeing, work
engagement and financial performance where ethical culture has relatively
stronger influence on financial performance. The results also revealed that
ethical leadership had a relatively stronger impact on the well-being of the
Italian employees compared to Pakistani employees. However, the associ-
ation between ethical leadership and work engagement was stronger
among Pakistani employees. The study implications, limitations, and future
research directions were presented hereunder.

GRAPHICAL ABSTRACT

CONTACT Muhammad Ishtiaq Ishaq ishaq.muhammadishtiaq@gmail.com Imperial College of Business Studies, Near
Shahkam Industries Main Canal Road Lahore 53720 , Pakistan.
This article has been republished with minor changes. These changes do not impact the academic content of the article.
ß 2020 Informa UK Limited, trading as Taylor & Francis Group
 JOURNAL OF SUSTAINABLE TOURISM 2009

Introduction
Extensive reports were made regarding unethical corporate behaviours, which persisted regard-
less of the introduction of governance and legislation standards enacted to enforce business
integrity (Crane et al., 2019). Organisations including Tyco, WorldCom, and Enron were faced
with government prosecution and heavy media criticism for dishonest behaviours after being
acknowledged by successful companies and stakeholders (Liu, 2017). Recently, Wells Fargo, a
major organisation in the banking industry, faced a serious crisis as the employees were forced
to register for fake bank accounts to achieve sales goals (Cavico & Mujtaba, 2017). Furthermore,
the undisclosed collaboration of Facebook with Netflix, Yahoo, Microsoft, Amazon, and Spotify
also resulted in suspicions by the US Congress. In 2015, Valeant Pharmaceuticals, which ran its
business under Bausch Health Companies, illegally raised the prices of its two products to
acquire small pharma companies instead of investing in the R&D department. Moreover, a signifi-
cant fall occurred to the Kobe Steel Company after the Kobe Steel scandal after the quality of its
copper, steel, and aluminium products was revealed. According to the 2018 report of Kobe Steel
Company, the leadership of this organisation overemphasised on profitability and was associated
with inadequate corporate governance, which resulted in unethical practices.
In the current era, there has been an increase in the studies related to the concept of ethics in
various industries in the literature (Den Hartog, 2015). The term “ethics” in the organisation was con-
sidered as a written or unwritten ethical structure, which describes the culturally right or wrong fac-
tors (April et al., 2010). Specifically, Aronson (2009) was one of the earliest scholars who investigated
the relationship between leadership styles and ethical perspectives (Zhu et al., 2019) and found that
confidence and faith in the leaders should be prioritised in the public organisation to restore the
public’s shattered trust (Lu & Guy, 2014). In recent years, numerous studies have reported on the
positive relationship between ethical leadership and industrial outcomes (Chughtai et al., 2015), con-
tributing to an increased interest in ethical leadership over the last decades.
The hospitality industry was also faced with grave issues of unethical practices at various business
operations, which included the leakage of personal information of 500 million guests, namely pass-
port, addresses, and credit card details by Marriott International Hotel reservation system from 2014
to 2018. The properties included Design Hotels, Element, Le Meridien, Aloft, Four Points, Westin,
Sheraton, and W Hotels. Moreover, it was presented in the PwC’s Hotels Outlook Report from 2018
to 2022 that hotel industry was ranked second in data breach, while the top leadership of hotels
either did not take serious consideration on this matter or hid the issue from the customers. Crane
et al. (2019) argued that such ethical violations led to adverse impacts, including economic stability,
erosion of stakeholder’s confidence, investor relations, and employees’ well-being.
Most of the previous works of literature focused on the theoretical perspectives of business
ethics. A key component of the environmental and organisational aspects of business ethics is
leadership, which has been an essential management practice over the years. In this case, ethical
leadership was considered as one of the crucial components in the development and mainten-
ance of the culture of creativity and ethics in any organisations. Furthermore, employees were
faced with stress, conflict, and work-related problems, which could incur the high social cost and
harm the long-term effectiveness of an organisation (Farmer et al., 2007). However, the imple-
mentation of ethical leadership practices by culturally-distinctive countries and the individual
and organisational outcomes of it were not highlighted in previous literature.
Taking these caveats into consideration, this study investigated the mediating effects of eth-
ical culture on the relationship between ethical leadership and work engagement, EWB, and
employee performance in the hospitality industry in Italy and Pakistan. The major contributions
of this study include the new insights developed in the academic literature on the association of
organisational ethical culture association with EWB, work engagement, and organisational per-
formance. Structural equation modelling was used to investigate the mediating influence of
2010 H. SARWAR ET AL.

organisational ethical culture on ethical leadership, work engagement, employees’ well-being,

and performance in developed and developing countries. This was followed by the collection of
data from the hospitality industry, which provided insights on real-time practices and employees’
perceptions in two culturally and economically distinct nations. Due to the strong influence of
the organisational culture on employees’ perceptions daily, it was believed that differences and
similarities between the Italian and Pakistani culture were most likely present in this study.

Literature review and hypotheses development

Cross-cultural study context
In daily business operations, the managers of the organisation were faced with individuals of
diverse nationality and virtual/real borders, which led to the increasing importance of the
improvement and understanding of working conditions. Furthermore, researchers paid attention
to the influence of cultural values on various organisational structures and working behaviours,
especially during the last twenty years due to significant changes in the organisation social and
economic conditions, such as global competition, telecommunication, widespread business activ-
ities, and workforce diversity. However, the theoretical advancement in cross-cultural psychology
has yet to contribute to the research arena. In most cases, the studies were limited to the appli-
cation of US-based theories in different cultures. Comparative studies made a significant attempt
to determine the cultural and non-cultural factors of organisational practices and structure.
Taking these matters into consideration, the methods and the degree of cultural impacts on the
groups and individuals in an organisation are the actual issues to be discussed in the research.
Based on previous studies which applied the Hofstede’s framework to investigate the cultural
differences between two nations, significant differences were found. To illustrate, Cullen et al.
(2004) conducted a study on the data collected from 28 countries on ethical orientation based
on the institutional anomie theory. As a result, it was found that individualism had a negative
influence on the ethical behaviour of the sample, while materialism and universalism were posi-
tively associated with it. Furthermore, Jackson (2001) reported significant differences between
individualism and collectivism in terms of cultural values from 10 selected countries. In this case,
the nations with high collectivism rate were mainly focused on the internal stakeholders, while
the nations with high individualism rate placed a higher emphasis on the external stakeholders.
This cross-cultural difference was also found in the study of Pekerti and Thomas (2003) about
job satisfaction and job behaviour relationship, while Farooq et al. (2017) identified this differ-
ence between French and Pakistani samples in terms to corporate social responsibility and
organisational identification. Based on Hofstede’s cultural framework, notable differences were
found in the economic and cultural conditions between Italy and Pakistan. The individualism/col-
lectivism scale was used by 52% of previous studies, which investigated cross-cultural differences
(Engelen & Brettel, 2011). The score for Pakistan amounted to 14, while the score for Italy
amounted to 76 (Hofstede, 2013). Following that, it was assumed that there was a significant dif-
ference between the roles of ethical leadership and culture in terms of the structures and proc-
esses occurring in Italian and Pakistani organisations.

Institutional theory
The institutional theory defined as a theoretical framework that employed to elaborate why firms
embrace specific policies and practices due to institutional expectations, and social norms (Scott,
2008; DiMaggio & Powell, 1983), and has hegemony in organisational setting has grown over the
last decade (Munir, 2015). Moreover, it proposed that the firms within a social network should
avoid restricting any behaviours to a simple employer-employee/manager-subordinate relation-
ship. The institutional theory was used to exploit institutional work, entrepreneurship, legitimacy,
 JOURNAL OF SUSTAINABLE TOURISM 2011

logics and leadership, and has studied the behaviour of an individual employee to in-depth
understandings of organisational interrelationships and institutional orders. Anderson et al.
(1994) argued that these behaviours are backed by solid motivations which are based on internal
relationships within the firm or prevailed in socially oriented networks. For example, regulations
and culture are noneconomic motivations that impact institutional behaviours.
Scott (2008) claimed that institutional theory is also engaged with ethics as institutional legit-
imacy due to its moral dimension. It is also argued that the institutional enablers (i.e., resources,
organisational structure, and leadership) significantly influence the organisational members’ per-
ceptions (Choi & Chang, 2009). Due to the association of different organisational and leadership
theories with the leaders and their ethical behaviours, Eisenbeiss (2012) claimed that the aspect
of ethical principles, which should be followed and promoted by the leaders, was not clarified in
previous studies, leading to positive individual and organisational outcomes. To fill in the
research gaps related to ethical leadership and its consequences, institutional theory was used in
this study. Scott (2008) argued that institutional enablers, including the resources, structure, and
leadership, were shaped by the employees’ behaviour through adding a meaning to the job,
sense of responsibility and legitimisation of their behaviours.

Ethical leadership and work engagement

Ethical leadership was defined by Brown et al. (2005) as “the demonstration of normatively appro-
priate conduct through personal actions and interpersonal relationships, and the promotion of
such conduct to followers through two-way communication, reinforcement, and decision-making”.
The term “normatively appropriate conduct” indicates the moral element of ethical leaders, who
possess personality traits including responsibility, trustworthiness, honesty, and fairness in their
actions (Piccolo et al., 2010). Specifically, ethical leaders exhibit ethical styles, communicate the
implications of ethics, provide rewards for ethical behaviours, perform punishment for unethical
activities, and actively associate themselves in moral identity (Brown et al., 2005). The moral iden-
tity of the leaders indicates their receptiveness towards the expectation and interests of others as
performing the opposite actions may result in self-condemnation and dissonance. Additionally,
Brown and Trevin ~o (2006) proposed two aspects of ethical leadership, namely moral manager
aspect, which referred to the leader’s effort to influence their followers’ ethical behaviours, while
the moral person aspect was defined as the leaders’ traits, such as honesty and integrity.
The theories of leadership, particularly authentic leadership, transformation leadership, and
servant leadership address the ethical conducts and leader’s morality, which partially coincide
with ethical leadership. An example is the establishment of a leader-follower relationship by the
authentic leader based on honesty and sincerity (Brown & Trevino, 2006), the display of highly
ethical conducts by transformational leader (Bass & Avolio, 1994), and the emphasis on power-
sharing in servant leadership, where the followers are prioritised based on moral identity
(Sendjaya & Cooper, 2011). The leader is usually seen as portraying a key role in the process of
social influence through which the employees gather situational cues from their working envir-
onment that influence their attitude and behaviours towards the job. For instance, ethical leaders
are probably to trust their employees and motivate them by giving responsibility to increase the
importance of the job, to understand the individual’s developmental needs, and to motivate
them. In this way, the employees are likely to respond by exerting more efforts in their tasks,
greater job dedication, and actively engaging in the work (Brown et al., 2005).
Sharoni et al. (2015) defined work engagement as an employees’ emotional, cognitive, phys-
ical devotion, and energy dedicated at work, while Demirtas et al. (2017) defined it as a positive
mindset, higher level of vigour, liveliness, determination, self-fulfilment, and dedications indicated
by feelings of pride, inspiration, enthusiasm, and meaningfulness of the job. Notably, organisa-
tions with a higher level of work engagement have a higher possibility of generating higher
2012 H. SARWAR ET AL.

shareholder value, profitability, and return on assets (Eisenbeiss et al., 2015). Additionally, it is
related to commitment, citizenship behavioural job satisfaction, and contextual performance and
task performance (Kangas et al., 2017; Rich et al., 2010).
With ethical leadership as the basis, employees would expect to dedicate more emotional,
cognitive, and physical energy in their job roles (Saks & Gruman, 2014). The relationship between
ethical leadership style and work engagement was identified as a major factor which ensured
the success of an organisation (Chughtai et al., 2015). The significant impact of ethical leadership
style on work engagement was also indicated in various other studies (Brown et al., 2005; Den
Hartog & Belschak, 2012). A few studies also examined the association between leadership and
engagement (Den Hartog, 2015; Loi et al., 2015). The study of Ng and Feldman (2015) reported a
positive organisational performance as a result of a strong relationship between ethical leader-
ship and work engagement. Leadership at all levels was perceived as a significant factor contri-
buting to engagement and work connections (Demirtas et al., 2017).

Ethical leadership and EWB

EWB was defined as the employees’ senses and feelings of satisfaction about their working environ-
ment and surroundings (Kahneman et al., 1999). The explanation regarding this concept if performed
through several axes, such as depression-enthusiasm, anxiety-comfort, and displeasure-pleasure,
which involve multiple elements including attachment, satisfaction, depression, tension, and arousal
(Grebner et al., 2005). According to Brunetto et al. (2011), EWB is distinguished from other forms of
well-being, such as social well-being, physical well-being, subjective well-being, or psychological well-
being (Grant et al., 2007). Considering the challenging and competitive environment in today’s world,
leaders need to collaborate with organisational members of all levels for the best interest of their
employees and organisation. Notably, the prominence of a positive and significant relationship
employees’ well-being and leadership was reported in many studies (Bono & Ilies, 2006; Gilbreath &
Benson, 2004). Additionally, Fisher (2010) highlighted that work context and circumstances had a sig-
nificant impact on EWB.
Inceoglu et al. (2018) recommended that further works of research focus on the impact of
leadership behaviours on EWB at the workplace so that the findings could be applied for the
benefits of the employee-organisation relationship. Furthermore, there was insufficient evidence
on the roles played by ethical leaders in the context of employee well-being. However, this was
an important element to focus on as the ethical culture of an organisation indicated one of the
strategic components required to maintain valuable employees. Ethical leadership also provided
opportunities for the leaders who aspired to EWB (Kalshoven & Boon, 2012) in their organisa-
tions. Similarly, Gonos and Gallo (2013) stated that as high-quality leadership was associated
with the increased level of EWB, it was proposed that leaders practice a leadership style, which
enables employees to perform both their personal and working lives. Moreover, Abdelmotaleb
and Saha (2019) claimed that ethical culture increased employees’ affective experience, increas-
ing the EWB.

Ethical leadership and firm performance

In respect of the rapid environmental changes, multiple organisations are forced to identify new
ways of operating to achieve the desired goals, including the strategies to overcome new chal-
lenges in terms of management practices, organisational structures, and leadership. Furthermore,
Rai et al. (2006) defined organisational performance as “the degree to which a focal firm has
superior performance relative to its competitors”. It is now widely accepted that organisational
performance does not depend only on the utilisation of tangible resources, but also several
forms of unique leadership styles as leaders are frequently considered to be the most important
 JOURNAL OF SUSTAINABLE TOURISM 2013

asset of the organisation. Therefore, it is indicated that a good management style and efficient
leadership could assist in the improvement in organisational performance (Marques et al., 2018).
Most of the studies on ethical leadership addressed the development of organisational perform-
ance and the methods used by the organisation to achieve the desired objectives. It was also
widely known that strategic decisions based on the experiences, values, and personalities of the
leaders had a strong impact on organisational performance (Eisenbeiss et al., 2015).
It was found that with the display of ethical leadership behaviours, employees would display
a better job performance and invest extra effort towards the betterment of the organisation.
Besides higher satisfaction level among the employees, multiple studies also reported that ethical
leadership encouraged employees to develop a moral identity, which resulted in an improved
organisational performance (Neubert et al., 2013). Several empirical studies established a strong
association between ethical leadership and organisational outcomes, which included perform-
ance. Furthermore, Shin et al. (2015) collected multi-source data from 147 Korean companies and
concluded the strong relation between ethical leadership and organisational performance.
Meanwhile, previous studies on ethical leadership highlighted several other important factors of
ethical leadership, including leaders’ responsibility, temperament, fairness, integrity, and people/
human orientation (Eisenbeiss et al., 2015; Riggio et al., 2010). Additionally, the studies of Feng
et al. (2019) and Thapa (2019) confirmed the influence of ethical leadership on organisational
performance.

Mediating role of ethical culture

The relationship between ethical leadership, work engagement, EWB, and organisational performance
could be elaborated further by conducting a comprehensive examination of the mediating role of
ethical culture. Organisational culture consisted of the entire work environment, and it could be dir-
ectly or indirectly identified in working environment. Furthermore, this culture could also affect the
behaviours of the workers or serve as a motivational factor (Maamari & Majdalani, 2017). According
to Putter (2010), organisational culture refers to a set of shared procedures, systems, policies, and
practices in the organisation. The ethical culture in the organisation supports the EWB, commitment,
performance, and trust (Huhtala et al., 2011). To be specific, Huhtala et al. (2011) revealed that uneth-
ical culture led to the poor behaviours among the employees at the workplace. The term “ethical
organisational culture” has also been associated with other aspects of EWB, such as work engage-
ment, burnout, and ethical strain (Huhtala et al., 2011). Huhtala and Feldt (2016) also reported that
with the rise of unethical culture in the organisation, ethical dilemmas could occur, which subse-
quently led to the poorer well-being among the employees. Accordingly, ethical culture was per-
ceived to have a significant contribution to the improvement in EWB, as an organisation with
commendable ethical culture could equip the workers with clear ethical norms and identifiable val-
ues, which ultimately resulted in improved organisational performance.
Gorsira et al. (2018) found that employees were more susceptible to corruption in organisa-
tions which operated in an ethical and more egoistical climate. Due to certain method for the
ethical culture to translate into the EWB, organisational ethical culture is an effective factor of
the development of a higher level of commitment and improved work efficiency to help the
workers achieve their results. Therefore, the organisations should emphasise on the ethical norms
and values not only among the leaders but also within the structure of the organisation. Ethical
culture could also be an important mediator in the relationship between ethical leaders’ behav-
iours and work engagement. Moreover, a study of Eisenbeiss et al. (2015) highlighted that ethical
leadership perceived organisational ethical culture as the fundamental mediating instruments,
where ethical leadership affected organisational performance. The employees also experienced
an increased satisfaction due to ethical leadership, which ultimately resulted in the enhancement
of corporate performance (Babalola et al., 2019; Neubert et al., 2013).
2014 H. SARWAR ET AL.

Within an organisation, work engagement among the members is an important component

to motivate and connect all the organisational members, regardless of through the physical, cog-
nitive, or emotional means (Wellins & Concelman, 2005). Therefore, leaders should emphasise the
significance of work engagement as it would increase job satisfaction and enhance employees’
performance, subsequently improving the organisational performance and goal achievement
(Ibrahim & Al Falasi, 2014). In conclusion, work engagement represents an important element for
organisational leaders to pay critical attention to.
Ethical leaders may enhance work engagement among employees through becoming their
role models through a display of ethical awareness, integrity, a people orientation, and the assist-
ance provided to their followers in understanding their work environment. In this environment,
the leaders may still involve the employees in the initial process of understanding and interpret-
ing the organisational environment despite the absence of a direct response from the employ-
ees. Ethical leadership behaviour assists in the development and reinforcement of ethical
decision-making. Moreover, Schaubroeck et al. (2012) claimed that culture is a powerful force
which shapes the employees and managers’ behaviour daily, which is similar to how ethical lead-
ership at the top administration level could shape the employees’ experiences due to the ability
of these actions to create an environment which protects the personnel when they are fulfilling
their roles (Kahn, 1990). In this case, it is important to investigate the relationship between eth-
ical leadership and EWB, engagement, and organisational performance in the presence of ethical
culture as the mediating factor. Besides, Pavese-Kaplan (2013) found that ethical culture had a
significant impact on work engagement among a small sample within various working popula-
tions. In this context, organisational culture was perceived as the mediator of the relationship
between individual behaviours and organisations. Overall, the following hypotheses were formu-
lated based on the literature review above:

H1. Ethical leadership is positively correlated with work engagement.

H2. Ethical leadership is positively related to EWB.
H3. Ethical leadership has a direct impact on firm performance.
H4. Ethical culture is a mediator of the relationship between ethical leadership and EWB.
H5. Ethical culture is a mediator of the relationship between ethical leadership and work engagement.
H6. Ethical culture is a mediator of the relationship between ethical leadership and firm performance.

Research methods
Sample and procedure
Data collection was conducted through the distribution of highly structured questionnaires to
employees from the managerial rank in various hotels (three, four, and five stars) in Italy and
Pakistan. The contact information of the hotels was extracted from Pakistan Hotel Association
and the Federation of Italian Hotels and Tourism Association. Out of the total of 1650 employees
approached to participate in the study, 697 of the respondents, specifically 329 Pakistani
respondents from 31 different hotels and 368 Italian respondents from 67 hotels, provided their
responses. Precisely, the data was collected from the employees working in 9 hotels with five-
star ranking, 12 hotels with four-star, and 10 hotels with three-star ranking. The Italian hotels cat-
egorised in five-star (7 hotels), four-star (28 hotels) and three-star (14 hotels) ranking. With a
response rate of 42%, the number of responses to be used in SEM surpassed the minimum
amount of responses, which was 450 (Wolf et al., 2013). Furthermore, the participants were work-
ing in different units, including Sales and Marketing, Public Relations, Housekeeping, Restaurants,
Food and Beverages, Accounts, and Human Resources. In the case of the respondents, 53% of
the respondents were male, while 47% of the respondents were female. While 46% of the
respondents gained have three to five years of working experience, 31% of the respondents
 JOURNAL OF SUSTAINABLE TOURISM 2015

have worked for more than five years. In terms of educational background, 52% of the respond-
ents received tertiary lower-level education, while 38% received a tertiary higher level of educa-
tion. It was also indicated by 40% of the respondents that they have been working in the same
organisation since the last two years, 22% of the respondents have been working since the pre-
vious three years, while 19% of the respondents have been working in the same hotel for over
four years.
The data collection process consisted of two phases, which overall took eight months to
reduce the common method bias. During the first phase (T1: July 2018 – November 2018), the
responses on ethical leadership and EWB were collected from employees of the managerial rank.
Following that was the second phase (T2: January 2019 – May 2019), where the respondents
were required to provide information on ethical culture and work engagement, while the
General Managers or Managing Directors were asked to respond to the organisational perform-
ance of the hotel. Notably, the respondents’ anonymity and confidentiality of their responses
were ensured, and data analysis was performed after both phases of data collection ended.
To determine if the subject attrition generated any noticeable differences in the study sample,
a multivariate analysis of variances was conducted to compare the responses from the cross-
cultural sample and the two phases of data collection. As a result, it was found that both groups
were invariant regarding work engagement, EWB, ethical culture, and ethical leadership.
Provided that no attrition bias was present, all responses were considered in the final sample.

Measuring instruments
The measurement scale used in this study was adopted from published literature. A total of five
major constructs, namely ethical leadership, ethical culture, work engagement, EWB, and organ-
isational performance were incorporated in the proposed theoretical model. To illustrate, a total
of 10 ethical leadership items that Brown et al. (2005) developed, including the EWB scale devel-
oped by Zheng et al. (2015), which consisted of 18 items. Following that, the ethical culture was
measured with a 9-item scale developed by Key (1999). Furthermore, Peng et al. (2007) proposed
ten items to measure the subjective organisational performance using 5-point Likert scale, where
point one represented “far below the competitors” and point five represented “far above the
competitors”. Lastly, the work engagement scale derived from the Utrecht Work Engagement
Scale (UWES-9) that Schaufeli et al. (2006) proposed. Additionally, the items were categorised

Table 1. Descriptive and correlation results.

Mean S.D. EL EC EWB WE FP
Overall Sample
EL 4.17 0.44 1.00
EC 4.01 0.37 0.32

1.00
EWB 4.06 0.45 0.37

0.39

1.00
WE 4.17 0.41 0.35

0.32

0.32

1.00
FP 4.09 0.42 0.38

0.23

0.28

0.30

1.00
Pakistani Sample
EL 4.27 0.54 1.00
EC 4.16 0.36 0.34

1.00
EWB 4.12 0.51 0.40

0.39

1.00
WE 4.30 0.32 0.26

0.35

0.30

1.00
FP 4.02 0.44 0.43

0.19

0.26

0.31

1.00
Italian Sample
EL 4.06 0.32 1.00
EC 3.85 0.36 0.30

1.00
EWB 3.99 0.41 0.33

0.38

1.00
WE 4.04 0.48 0.42

0.29

0.33

1.00
FP 4.15 0.39 0.31

0.27

0.29

0.29

1.00

Significant at the 0.001 level.
EL ¼ Ethical Leadership, EC ¼ Ethical Culture, WE ¼ Work Engagement, EWB ¼ Employee Well-Being, FP ¼ Firm Performance.
2016 H. SARWAR ET AL.

into three sub-dimensions of work engagement, namely dedication, vigour, and absorption,
which were then measured on a 5-point Likert scale ranging from point one (never) to point
five (always).

Results
Descriptive statistics
The descriptive statistics, along with correlation results for both samples, were given in Table 1.
As indicated in results, the correlational value between each variable was less than 0.50, hence
showing the difference between them. All relationships were positively correlated and significant
at the 0.01 level.

Measurement model
The confirmatory factor analysis (CFA) using AMOS 22 was employed to determine the psycho-
metric properties and measurement model of variables used in this study. The results indicated
good model fitness for both samples, see Table 2. For Pakistani sample, the model fit indices
were v2/df ¼ 1455.7/680; p < 0.001, SRMR ¼ 0.07, RMSEA ¼ 0.038, CFI ¼ 0.946, NNFI ¼ 0.928,
NFI ¼ 0.941, whereas the indices for Italian sample were v2/df ¼ 1403.1/702; p < 0.001, SRMR ¼
0.08, RMSEA ¼ 0.040, CFI ¼ 0.927, NNFI ¼ 0.960, NFI ¼ 0.953. The average variance extracted for
each construct was greater than acceptable limit of 0.50 (Anderson & Gerbing, 1988), the values
of heterotrait-monotrait for both samples were less than the threshold value of 0.90, while the
Cronbach alpha and composite reliability also showing more than acceptable values (Henseler
et al., 2015). Moreover, the variance explained by common method factor and error was signifi-
cantly less than variance extracted by traits. Hence, these results were showing strong support
to reliabilities, convergent, and discriminant validities (Fornell & Larcker, 1981).

Measurement invariance tests

After checking model fitness for both samples, the next procedure was to determine measure-
ment invariances to have appropriate results in cross-cultural generalizations of theories. Without
determining the measurement invariances, the results may consider as imperfect with contradict-
ory findings. The key objective of investigating measurement invariances was to examine the
generalizability of a theory or concept across cultures, and if invariances sustained, then it
reflects that theory or concept has the same understanding in different culture. The multi-group
CFA is an unbiased and composite method for cultural differences (Vandenberg & Lance, 2000).
Cheung and Rensvold (2002) claimed that the measurement invariances is established when the
change in CFI and DCFI is 0.01 to 0.01.
The configural invariance is the first phase to determine invariances that can run without plac-
ing any constraints on question items. The results showed, as presented in Table 3, acceptable
model fitness (v2 (485) ¼ 844.82, p ¼ 0.000, GFI ¼ 0.94, RMSEA ¼ 0.032, NFI ¼ 0.93, IFI ¼ 0.95,
CFI ¼ 0.92), that indicated the validation of study model in two cultures. The next step was
ensuring metric invariance for a meaningful comparison of distinctive cultures. In this test, the
constraints were levied on the initial model (Model 1: Configural Invariance Model) in a way that
it is considered as equal across cultures (Schertzer et al., 2008). The results revealed that accept-
able model fitness (v2 (388) ¼ 712.04, p ¼ 0.000, GFI ¼ 0.93, RMSEA ¼ 0.030, NFI ¼ 0.94, IFI ¼
0.92, CFI ¼ 0.91). The values of DCFI and Dv2 between model 1 and model 2 were statistically
significant, which recommend full metric invariance and offered that the findings were equiva-
lent in both cultures.
Table 2. Measurement indices of Pakistani and Italian sample.
Ethical Work Firm
leadership Ethical culture EWB engagement performance
FL Range Overall 0.73  0.82 0.71  0.81 0.73  0.85 0.76  0.87 0.75  0.83
PAK 0.72  0.83 0.70  0.79 0.72  0.86 0.74  0.85 0.73  0.82
ITA 0.74  0.81 0.72  0.82 0.74  0.84 0.77  0.89 0.76  0.85
AVEa Overall 0.67 0.69 0.67 0.69 0.68
PAK 0.63 0.69 0.72 0.66 0.69
ITA 0.70 0.69 0.63 0.72 0.68
ab Overall 0.89 0.90 0.91 0.91 0.89
PAK 0.89 0.90 0.89 0.92 0.91
ITA 0.89 0.90 0.93 0.89 0.86
CRc Overall 0.92 0.92 0.82 0.90 0.91
PAK 0.90 0.91 0.83 0.89 0.90
ITA 0.94 0.92 0.8 0.91 0.92
Errord Overall 0.24 0.24 0.23 0.22 0.13
PAK 0.27 0.22 0.24 0.19 0.09
ITA 0.20 0.25 0.21 0.25 0.16
e
Trait Overall 0.79 0.80 0.73 0.80 0.79
PAK 0.73 0.78 0.75 0.84 0.80
ITA 0.85 0.81 0.71 0.76 0.77
Method Overall 0.04 0.05 0.04 0.02 0.02
PAK 0.01 0.08 0.00 0.03 0.02
ITA 0.06 0.02 0.07 0.00 0.01
Model Overall v2/df ¼ 1429.4/691; p < 0.001, SRMR ¼ 0.07, RMSEA ¼ 0.039, CFI ¼ 0.937, NNFI ¼ 0.944, NFI ¼ 0.947
Fitness PAK v2/df ¼ 1455.7/680; p < 0.001, SRMR ¼ 0.07, RMSEA ¼ 0.038, CFI ¼ 0.946, NNFI ¼ 0.928, NFI ¼ 0.941
ITA v2/df ¼ 1403.1/702; p < 0.001, SRMR ¼ 0.08, RMSEA ¼ 0.040, CFI ¼ 0.927, NNFI ¼ 0.960, NFI ¼ 0.953
a
Average variance extracted (AVE).
b
Cronbach’s alpha.
c
Composite reliability.
d
Percentage of variance explained by error.
e
Percentage of variance explained by constructs.
fPercentage of variance explained by common method factor.
JOURNAL OF SUSTAINABLE TOURISM
2017
2018 H. SARWAR ET AL.

Table 3. Measurement invariance tests.

Model v2 df v2/df CFI RMSEA Model Comparison Dv2 DCFI
M1: Configural 844.82 485 1.74 0.92 0.032 – – –
M2. Metric 712.04 388 1.83 0.91 0.030 M2 – M1 132.78

 0.01


Significance at the 0.001 level.

Direct effects
The structural equation modeling was used to examine the direct effects of independent and
dependent variables using likelihood method (Hair et al., 2014). The structural paths and meas-
urement models should assess concurrently if measurement errors were high in latent variables
(Jaccard et al., 1996). Although, this study used all validated and reliable scales that were used in
previous studies. In Table 4, the results showed that ethical leadership positively associated with
ethical culture (b ¼ 0.372, p ¼ 0.001), EWB (b ¼ 0.391, p ¼ 0.001), work engagement (b ¼ 0.389,
p ¼ 0.001), and firm performance (ITA: b ¼ 0.317, p ¼ 0.001). Hence, H1, H2, and H3
were accepted.

Multigroup analyses
As Byrne (2004) recommendations, multigroup SEM analyses were used to determine the degree
to which the theorized framework was equivalent across Italian and Pakistani samples. The first
step of testing structural invariance is to run a model for Italian and Pakistani sample simultan-
eously without imposing any constraints. The results, see Table 5 (Model 1), were indicated a
good model fitness. In next step, constraints were added on baseline model to test the structural
coefficients differences in both samples (if any). Since, the difference in chi-square statistics were
significant, indicating that the structural model significantly varied in both groups. Precisely, two
regression coefficients were different across Pakistani and Italian samples. The paths of ethical
leadership on employee wellbeing (b =, p ¼ 0.001), and ethical leadership on employee engage-
ment (b =, p ¼ 0.001) were significant in Pakistani sample whereas insignificant for Italian sample
(see Figure 1). Therefore, the multigroup analyses established that Italian and Pakistani sample
has structural differences.

Mediating role of ethical culture

The researchers utilized Hayes and Preacher (2013) proposed conditional process to measure
mediating mechanisms using PROCESS in SPSS. The researchers argued that this process produces
widely accepted and reasonable accurate findings as compared to Sobel test (Hair et al., 2014).
The indirect effects, see Table 6, were analyzed on 10,000 bootstrapping samples with 95% confi-
dence interval as Hayes (2012) suggested. The results indicated that indirect impact of ethical lead-
ership on EWB was significant (PAK: b ¼ 0.237, SE ¼ 0.041, 95% CI ¼ 0.3091  0.4453; ITA:
b ¼ 0.201, SE ¼ 0.036, 95% CI ¼ 0.2782  0.4691) for both samples. The relationship of ethical lead-
ership and work engagement was also mediated by ethical culture (PAK: b ¼ 0.301, SE ¼ 0.020,
95% CI 0.3256  0.4716; ITA: b ¼ 0.199, SE ¼ 0.067, 95% CI ¼ 0.2499  0.3415) for both Pakistani
and Italian sample. Moreover, ethical culture mediated the impact of ethical leadership on firm per-
formance (PAK: b ¼ 0.227, SE ¼ 0.019, 95% CI 0.2809  0.4265; ITA: b ¼ 0.271, SE ¼ 0.031, 95% CI
¼ 0.2840  0.4982). Hence, the H4, H5, and H6 were accepted.

Conclusions, discussion, and implications

An attempt to understanding various types of leaderships and cultures was made by separating
leadership qualities into two classifications, namely country-specific and universal (Dickson et al.,
 JOURNAL OF SUSTAINABLE TOURISM 2019

Table 4. Direct effects.

b S.E.
EL !EC 0.372

0.052
EL !EWB 0.391

0.058
EL !WE 0.389

0.032
EL !FP 0.317

0.042
EC !EWB 0.354

0.039
EC !WE 0.310

0.045
EC !FP 0.458

0.042


Significant at the 0.001 level.

Table 5. Multigroup SEM analyses for Italian and Pakistani sample.

v2 df v2/df Dv2 Ddf CFI TLI RMSEA (90% CI)
Model 1 1597.81 549 2.91 N/A N/A 0.951 0.942 0.035 (0.033 – 0.037)
Model 2 1632.47 582 2.80 34.66

33 0.947 0.940 0.034 (0.033 – 0.037)


Significant at the 0.001 level.

Ethical Culture

Work engagement
0.31 / 0.34
0.44 / 0.09 ns
Ethical Leadership
Employee Well-Being

0.42 / 0.49

Firm Performance
Figure 1. Multigroup analyses results. Standardized coefficients for Pakistani sample is presented in italic before the slash
while for Italian sample in bold after the slash. Insignificant paths are implied by n.s.

Table 6. Indirect results.

Path R2 F-Statistics Effect Boot SE LLCI – ULCI z-test Status
Pakistani Sample
EL ! EC ! EWB 0.43 427

0.237 0.041 0.3091 – 0.4453 8.761 Partial Mediation
EL ! EC ! WE 0.39 390

0.301 0.020 0.3256 – 0.4716 7.145
EL ! EC ! FP 0.46 369

0.227 0.019 0.2809 – 0.4265 9.136
Italian Sample
EL ! EC ! EWB 0.43 427

0.201 0.036 0.2782 – 0.4691 8.081 Partial Mediation
EL ! EC ! WE 0.39 390

0.199 0.067 0.2499 – 0.3415 6.194
EL ! EC ! FP 0.46 369

0.271 0.031 0.2840 – 0.4982 8.520


Significant at the 0.001 level.

2012; Hofstede, 2013). To ascertain culturally contingent and universal characteristics which influ-
ence multiple work-related outcomes, several constraints in this study should be considered in
the future. Therefore, this research aims to determine the role of ethical leadership in shaping
ethical culture, EWB, engagement, and organisational performance by collecting data from 697
employees from the managerial rank in the hospitality industry in Italy and Pakistan.
It was found that ethical leadership had a relatively stronger impact on the ethical culture in
Italian hospitality industry compared to the Pakistan hospitality industry. It was also argued by
Ingram et al. (2007) and Rubin et al. (2010) that ethical aspects and moral judgment were two
essential aspects to be applied in managerial leaderships. However, provided that the informa-
tion regarding the leadership role in ethical decision-making and moral judgment was usually
unclear, guidance was needed in decision-making. Furthermore, numerous studies found that
2020 H. SARWAR ET AL.

ethical issues, including institutional corruption, persisted in cultures in collectivistic societies

with high power distance (Resick et al., 2011). This finding was supported in this study, as Italian
culture is a culture with high individualism and low-power distance society, while the Pakistan
culture is collectivistic with high power distance society. The three major behaviours indicated
the lack of ethical behaviour across cultures in terms of (1) the lack of integrity/deceptiveness/
dishonesty; (2) poor treatment towards employees; and (3) the lack of accountability and self-
interest among leaders. This lacking ethical behaviour was due to the various aspects of ethical
culture in an organisation. For instance, Taiwanese respondents perceived that their organisa-
tional culture supported the hiring and promotion of younger employees compared to senior
employees, resulting in unethical leadership behaviour and culture.
The influence of ethical leadership on EWB and work engagement was relatively more signifi-
cant compared to its influence in the Pakistani hospitality industry. In the case of countries with
collectivistic society such as Pakistan, the social norm is one of the significant aspects of culture
which impacts the social relationships, behaviours, and attitudes of the society members.
Moreover, as Cheung and Leung (2007) also acknowledged that collectivistic societies were more
inclined towards EWB, the results of this study were in agreement with the theoretical underpin-
nings of different empirical studies. Additionally, Li et al. (2014) also argued that ethical leader-
ship was interlinked with EWB in highly collectivistic groups. Therefore, it was believed in this
study that with an improved social exchange between the employee and leader, the members
of the organisation would dedicate more efforts and be more obliged to deliver necessary job
outcomes to the leaders. The team members’ needs and interests are the concerns among eth-
ical leaders as they are attentive in the development and empowerment of the subordinates to
achieve ethical decision-making. Therefore, the subordinate would experience values, be
respected and supported by the leaders, and achieve higher EWB (Warr, 2012). It may be indi-
cated that a leader who is supportive to the followers would reinforce human values and rights,
which eventually enhance the feeling of adequacy and satisfaction among the followers
(Christian & Ellis, 2014). In conclusion, ethical leaders should uphold ethical norms and policies
to set a good example for their subordinates to act and behave ethically.
Ethical leadership has a significant influence on the firm performance in the Italian hospitality
industry compared to the Pakistani industry. To be specific, a high number of published literature
on ethical leadership led to further studies conducted on the effects of ethical leadership on the
performance of employees and organisations (Cheng et al., 2014; Schaubroeck et al., 2012). It could
be proven from the results that ethical culture positively affected the organisational performance
across the culture. This finding was also in line with the finding by Chughtai et al. (2015), who
reported that ethical leadership was vital for corporations due to its significant impact on employ-
ees’ behaviours and attitudes, their creativity, well-being, organisational citizenship behaviour, job
satisfaction, in-role performance, and deviance. Other studies also demonstrated the association of
organisational culture and national culture with performance and organisational effectiveness
(Nazarian et al., 2017). Furthermore, according to Chen and Hou (2016), numerous studies found
that the association of ethical culture and leadership with performance was positive. In the case of
the collectivism-individualism dimension of culture, employees who were working in individualistic
societies preferred to work on personal goals rather than the team, while the individuals in collect-
ivistic cultures displayed a higher degree of group behaviour, prioritised the team’s objectives, and
were conformity-oriented (Sivadas & Dwyer, 2000). As this study findings strongly supported the
association of leadership and culture with firm performance in the Italian industry, it could be seen
that these findings contradicted from the findings in the previous literature.
The mediating role of ethical culture on the relationship between ethical leadership and EWB,
work engagement, and firm performance was investigated in this study according to hypothesis
H4, H5, and H6. The crucial role of ethical culture allowed the organisation to compete in a glo-
bal dynamic market as it contributed to competitive advantage and a higher level of employee
engagement. Therefore, hypotheses H4, H5, and H6 were accepted. In a study by Hoch et al.
 JOURNAL OF SUSTAINABLE TOURISM 2021

(2018), a multi-construct concept of ethical leadership was recommended, in which leaders had
to introduce and implement ethical values and culture in their organisations to encourage better
results from the employees. It was also reported that managers who demonstrated ethical atti-
tudes and values were more concerned with the dignity of others and able to maintain an eth-
ical approach in their daily work. As a result, their relationships with the employees could be
strengthened and they could prepare the grounds for work engagement and promote the EWB.

Theoretical and practical implications

Several theoretical information has been developed in this study, which could be added to the
current literature on ethical leadership. This information also helps formulate a framework, which
focuses on the organisational ethical culture, ethical leadership, value of an employee, and
organisational performance. Based on the model proposed in this study, ethical leadership, which
upholds and embraces ethical culture, often has a high tendency to promote this culture.
Therefore, this leadership will be beneficial for employees and organisation alike. As a result,
employees would act in a more ethically and morally acceptable manner when dealing with the
stakeholders, which results in an excellent organisational performance (De Roeck & Farooq,
2018). It was also indicated from this study findings that ethical leadership has a major impact
on the behaviour and attitudes of employees as it encourages the employees to perform a
higher quality of work performance. Following the aforementioned findings, more organisations
would emphasise on ethical culture to achieve development and innovation in the workplace.
Ethical leadership is crucial for EWB and work engagement among employees. Due to the
increasing concern regarding harmful activities and anxiety among employees in the workplace,
such as counterproductive behaviours and suicide, ethical leaders should strive to create an ethical
and favourable work environment in the best interest of the employees’ well-being. Additionally,
provided that the employees’ organisational performance would improve with increased engage-
ment in work, all organisations should encourage the practice of ethical leadership. Lastly, it is rec-
ommended that ethical leaders place an emphasis on the improvement in employee’s well-being.
This could be achieved by including ethical culture constructs in their daily practices to improve
the personal capability of each employee and overall organisational performance.

Limitations and suggestions for future research

Provided that this study only included the samples from the hospitality industry, the results may
not be generalisable to other industries. Therefore, it is recommended for future research to
incorporate samples from other sectors, in which human capital is also a vital element to achieve
the competitiveness and growth of the organisation. Furthermore, as this study was conducted
in two countries with significant cultural differences, it is recommended that future studies
increase the sample size by conducting data collection in more diverse countries. In this study,
as the measurement of organisational performance was conducted solely in the aspect of non-
financial performance, future studies are recommended to focus on the aspect of financial per-
formance if the same measurement would be performed. Last but not least, it is also suggested
that additional mediating and moderating variables in future studies would be able to refine the
hypothesised model and develop more detailed findings.

Conclusion
This study has determined the mediating role of ethical culture on the relationship between eth-
ical leadership, EWB, work engagement, and performance in cross-cultural paradigm. Data ana-
lysis was conducted using measurement invariance tests and mediation analysis. As a result, the
2022 H. SARWAR ET AL.

importance of leadership in the hospitality industry, including various skills and abilities of a
leader across diverse cultures were emphasised. Furthermore, significant cultural differences were
demonstrated in both samples of this study, which could be seen from the significant association
between ethical leadership and the ethical culture within countries with high individualism and
low-power distance, such as Italy. Alternatively, ethical leadership exhibited a stronger impact on
EWB and work engagement within highly collectivistic countries, such as Pakistan. Notably, this
study also showed strong support to EWB and employees’ engagement in work within collectiv-
istic societies (Christian & Ellis, 2014; Li et al., 2014). Last but not least, the association of ethical
leadership with organisational performance was relatively stronger in Italian hospitality industry
compared to the Pakistani industry.

Notes on contributors
Huma Sarwar is currently enrolled in Ph.D. (Business and Law) in University of Brescia Italy. Her main area of inter-
ests is business ethics, corporate social responsibility, cross-cultural orientations, and sustainable performance.

Dr. Muhammad Ishtiaq Ishaq is working as Assistant Professor at Imperial College of Business Studies Lahore,
Pakistan. He completed his Ph.D. from University of Padova, Italy and worked as Research Scholar at Columbia
University New York. His area of interests are business ethics, sustainability, corporate social responsibility, sustain-
able consumption, ethical behavior, green marketing and cross-cultural studies.

Anam Amin is working as Lecturer in Imperial College of Business Studies. Her area of interests is leadership, organ-
izational development, and incivility in hospitality industry.

Roheel Ahmed is currently enrolled in Ph.D. (Business and Law) in University of Brescia Italy. Her area of interests is
business ethics, sustainable performance and work culture.

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