Why Is Ethical Leadership Important? Leading by Example

By Dr. Tonya Smith  |  06/17/2025

In our ever-changing business environment, ethical leadership continues to play a significant role in an organization's long-term success. When faced with ethical dilemmas, employees who have a positive workplace culture also have a strong sense of right and wrong. Ethical leadership principles are typically seen throughout the people in an organization. 

According to Management Training Specialists, “When leaders embody ethical principles, they set the tone for integrity and trust throughout the organization. This commitment to ethical standards not only creates a positive workplace but also drives long-term success.”

The Core Traits of Ethical Leaders 

Ethical leadership incorporates traits and competencies that can be developed through intentional practices. Ethical leaders exhibit empathy, courage, fairness, respect for others, integrity, and accountability. They recognize their own limitations and are open to feedback and growth.

Ethical business leaders act in alignment with their values, even when it’s difficult. They take responsibility for their actions and the results of their decisions. When they make a mistake, they own it. This courage is evident in their transparent communications. 

Ethical leadership commonly involves several factors:

• Emotional intelligence
• Ethical behavior
• Ethical decision-making
• Employee engagement
• Customer loyalty

Emotional Intelligence

Leadership requires a strong self-awareness of one’s management style and capabilities and the internal culture of an organization. Leaders must be aware of the ethical considerations and complications that exist in their business. By understanding that potential issues exist, leaders can take a proactive approach to leading their teams through them. 

Ethical Behavior 

Ethical leaders behave according to ethical principles that promote a fair business environment and organizational culture. Some of these ethical business practices include honesty, respect, effective communication, fairness, and accountability.

For me, compassion is a particularly important ethical principle for leaders to possess. As a former adult student, I understand the challenges that many of our students face. Very often, our students make the brave decision to go back to school while managing a full-time job and family obligations.

Now that I am an instructor at American Public University (APU), I practice compassion because I can empathize with our students. Having been in their position affords me the opportunity to support them and meet them where they are. I have found that having empathy for students can often make a difference in how they view the course. 

Ethical Decision-Making

Leaders must make difficult business decisions every day. Every leader has their own unique experiences and values that contribute to who they are and their values.

It is important to understand how these different leadership styles contribute to the ethical culture of the organization. Ethical leaders understand the moral implications of their decision-making processes and how these decisions impact others. 

When leaders practice ethical decision-making, their decisions align with their moral values. Even when faced with unexpected ethical challenges, senior leaders use their moral guidelines that they have established for themselves.

Oftentimes, their authenticity is evident, and the same values align with their personal life. Personal and organizational mission statements are valued and used as a guide.

Employee Engagement 

When employees follow ethical business practices, they report having a better sense of well-being. Employee job satisfaction scores are higher in individuals when they have a leader who leads by example when it comes to solving problems with ethical issues. Employees in ethically led companies are more likely to feel like they are being treated fairly and experience increased employee satisfaction. 

Employee engagement ratings are higher when they witness a leader who is exhibits ethical leadership principles. Having a leadership style that aligns a mission statement with words and actions resonates with their team members. These employees are committed to their organizations and practice social responsibility in their behavior. 

Customer Loyalty

Organizations who are led by ethical leaders also experience external benefits from their actions. Because ethical businesses promote productivity, they often see positive results and financial success. Ethical standards are established to protect the consumer and the organization. 

Effective leadership and business decisions can result in loyal customers who reward the organization with increases in financial performance, helping a company to benefit financially. On the other hand, ethical violations are often met with harsh reactions and negative impacts on the business. Consumers who value responsible business practices monitor organizations for alignment with their own values and desire for environmental sustainability. 

An Ethical Leadership Style Can Lead to Business Success 

The benefits of ethical leadership are multi-faceted and can be seen in both internal and external partners. Employees and loyal customers are positively impacted by organizations that have well-defined ethical leadership and practices.

These practices go well beyond legal and regulatory compliance, reaching all aspects of the business’s ethical conduct. Unethical behavior is not accepted and is addressed by regulatory bodies or leadership teams. 

Implementing Ethical Leadership

Senior leadership teams establish the foundation for ethical leadership in an organization. Vision and mission statements can help identify focus areas. Behavioral guidelines are most impactful when they are created to connect back to these focus areas.

Ethical leaders inspire and develop other ethical leaders. Although leaders act as positive role models in an organization, they also intentionally reinforce behaviors that align with their ethical leadership style. These business leaders acknowledge and talk through ethical leadership dilemmas with their teams as issues arise. 

Ethical leadership in an organization is a team effort. While the senior leadership team sets firm guidelines for ethical practices, every member can contribute to an ethical culture. Employee job satisfaction is higher when employees believe their work is connected to the larger organizational initiatives and they feel heard by ethical leaders.

Creating an Ethical Leadership Program 

Many organizations identify their top talent and assign them to leadership classes to develop them for the next-level position. Quite often, these highly skilled employees are very good at their jobs. However, there are some individuals who lack the leadership skills to progress naturally into a leadership position. 

According to Indeed, “Training employees to become leaders is one of the many ways you can improve your team’s culture and productivity.” Investing in team members sends a message that they are valuable to your organization. When employees move into leadership positions within the same company, other individuals recognize their own potential to do the same.

Leadership programs can include training on emotional intelligence, communication, decision making, team building, or other topics. According to digital marketing executive Vikas Nayak, “Leadership training is a structured approach to developing skills, aiming to equip leaders with the knowledge, abilities, and attributes required to lead effectively, adapt to change, and drive innovation.” Training provides an opportunity to teach and practice ethical leadership skills. 

Common Ethical Dilemmas Leaders Face

Ethical leaders face dilemmas in their organizations on a daily basis. These dilemmas can be linked to the operational functions of an organization, such as:

• Fairness in promotions and pay
• Use of company resources
• Vendor and supplier ethical alignment

Organizations can define policies and processes to provide guidelines for their employees. Business leaders also experience personal conflicts with their values and beliefs. These issues can present themselves as:

• Conflicts of interest
• Truth in communication
• Deciding on how to handle misconduct

Beyond that, individuals may face business ethics situations where whistleblowing and confidentiality push the limits of most business leaders. 

While most people think that ethical dilemmas are obvious and intriguing, most of them are more subtle. According to Leadership Review, “The majority of dilemmas are not related to corruption per se, but fall into one of three areas: competing interests, misaligned incentives, or clashing cultures.” Ethical leaders who understand these nuanced challenges can equip their teams with the tools to act responsibly and make informed decisions. 

The Influence of Ethical Business Leaders

Ethical leaders shape both the internal culture and external reputation of an organization. Ethical leadership influences employee behavior, fosters trust, and promotes a sense of fairness. The result of these actions is an increase in job satisfaction, loyalty, and long-term success.

Ethics can be taught and developed through intentional coaching and practice. Through leadership training programs, organizations can develop ethical behaviors in both current and future leaders. Emotional intelligence, self-awareness, and compassion are essential traits that can be nurtured to support ethical decision-making.

Ethical decision-making impacts every level of the organization. From setting the ethical tone, to navigating competing interests, leaders face complex ethical dilemmas regularly. A clear moral framework, supported by personal and organizational values, guides ethical leaders to act responsibly and transparently.

APU’s Master of Management Degree

For students who want to develop a knowledge of ethical leadership and business, APU offers an online Master of Arts in Management.

Taught by expert instructors, the courses in this program vary. Some course offerings include cross-cultural management, organizational behavior, and human resource management, as well as organizational management.

In addition, this academic program includes the option of choosing a concentration (such as the Organizational Leadership concentration, offering a course in ethics in leadership) to aid students in achieving their professional goals during their academic journey.

All of these programs have earned specialty accreditation from the Accreditation Council for Business Schools and Programs (ACBSP®). This type of specialty accreditation demonstrates that these degree programs have been rigorously checked by higher educational professions for high academic quality.

For more information on this degree, visit APU’s business and management degree program page.

ACBSP® is a registered trademark of the Accreditation Council for Business Schools and Programs.