From pursuing opportunities and prioritizing initiatives to allocating budget and setting your team’s direction, your leadership decisions can profoundly impact not just the people you manage but your business. If you’re an organizational leader or aspire to be one, strong decision-making skills are critical.
Business decisions are often anything but straightforward. Because they impact multiple parties, you must weigh often-conflicting priorities and demands and determine the most favorable outcome.
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DOWNLOAD NOW“Many of the decisions you face will not have a single right answer,” says Harvard Business School Professor Nien-hê Hsieh in the online course Leadership, Ethics, and Corporate Accountability. “Sometimes, the most viable answer may come with negative effects. In such cases, the decision is not black and white. As a result, many call them ‘gray-area decisions.’”
When facing gray-area decisions, aim to make choices that are both beneficial and ethical. To do so, Hsieh recommends using the reflective leadership model.
Here’s an overview of the reflective leadership model and how to use it to understand your social and ethical responsibilities as a leader.
What Is the Reflective Leadership Model?
In Leadership, Ethics, and Corporate Accountability, Hsieh introduces the reflective leadership model as a framework to conceptualize your responsibilities and build ethical leadership skills.
The reflective leadership model has four components:
- Awareness: Recognize your legal, economic, and ethical responsibilities to key stakeholders.
- Judgment: Consider arguments, biases, logic, and shared concepts that shape your mindset and perception.
- Action: Put your decisions into practice in a way that’s accountable and consistent with your responsibilities.
- Reflection: Reflect on your responsibilities, judgments, and actions to learn from previous decisions and avoid stagnation. This component spans the other three and happens throughout the process.
The reflective leadership model’s first stage—awareness—breaks down into three types of responsibilities: legal, economic, and ethical.
Whereas your legal and economic responsibilities may be clearly defined and measurable, your ethical responsibilities can be more difficult to identify and understand.
To get started on the model’s first step, here’s a deeper dive into your ethical responsibilities to each stakeholder group.
Related: 8 Steps in the Decision-Making Process
What Are Your Social and Ethical Responsibilities as a Leader?
1. Responsibilities to Customers
Your customers are your product or service’s users. Whether selling them a computer or providing health care in a hospital setting, you’re in a mutually beneficial relationship in which they use your offering to fulfill a need, and your business uses their money to sustain itself.
Ethical responsibility comes into play with customers because of an information imbalance, or information asymmetry: You know more about your product than they do.
Imagine you own a restaurant. If a customer eats one of your meals and becomes sick, is it your fault or is it theirs for not asking how fresh your ingredients are and what temperature you store them at?
In such cases, your business is typically responsible. Because the customer doesn’t readily have access to the details needed to make a more informed decision, they can only assume you’ll serve them fresh food.
As the world becomes increasingly digital and more companies have access to customer information, data privacy is an ever-present concern. Customers can't control what you do with their data or have the technical knowledge to understand how to avoid data collection, so it’s your business’s responsibility to protect it. This is an example of capability asymmetry, in which your business can do more than the user.
When facing challenging customer situations, consider the following ethical responsibility categories:
- Well-being: What’s ultimately good for the person (for example, serving them fresh food)
- Rights: Entitlement to receive certain treatment (for example, the customer’s right to data privacy)
- Duties: A moral obligation to behave in a specific way (for example, your business’s duty to respect customer feedback, even when it’s negative)
- Best practices: Aspirational standards not required by law or cultural norms (for example, providing a gift card to a customer inconvenienced by your product)
2. Responsibilities to Employees
Whether the company's CEO or a new manager, you have ethical responsibilities to your employees. That responsibility is borne from a third type of asymmetry: power asymmetry. If you’re a high-level executive, your decisions especially impact your employees’ ability to build skills, advance their careers, and financially support themselves and their families. This imbalance brings ethical considerations to the forefront.
Your employees also have responsibilities to their managers and the company—for instance, working their agreed-upon weekly hours, completing high-quality work by deadlines, and being respectful of co-workers.
The categories of responsibility from the previous section also apply:
- Well-being: Provide a safe, clean work environment that isn’t detrimental to employees’ health.
- Rights: Defend the right to not be harassed at work.
- Duties: Grant generous parental leave, regardless of whether it’s required legally.
- Best practices: Foster an inclusive environment by offering fun, company-sponsored events.
While well-being, rights, duties, and best practices help conceptualize your responsibilities to employees, a fifth category arises due to power asymmetry: fairness.
In Leadership, Ethics, and Corporate Accountability, Hsieh outlines three types of fairness:
- Legitimate expectations: Employees reasonably expect certain practices or behaviors to continue based on experiences with the organization and explicit promises.
- Procedural fairness: Managers must resolve issues impartially and consistently.
- Distributive fairness: Your company equitably allocates opportunities, benefits, and burdens.
Brainstorm ways to maintain fairness for your employees and opportunities to improve.
Related: How to Navigate Difficult Conversations with Employees
3. Responsibilities to Investors
The relationship between your company and its investors can be mutually beneficial and work best when you explicitly agree on expectations and responsibilities. Your company and investors’ legal and economic responsibilities are typically decided on and bound by a signed contract.
Ethical responsibilities to investors are known as fiduciary duties and encompass how you’re required to honor investors’ trust in your company.
The four types of fiduciary duties are:
- Duty of obedience: Adhere to corporate bylaws, superiors’ instructions, and the law.
- Duty of information: Disclose necessary information and remain truthful about performance and operations. Refuse to disclose certain information to nonessential parties.
- Duty of loyalty: Act in the most favorable way for shareholders and avoid conflicts of interest.
- Duty of care: Evaluate decisions’ potential outcomes before acting.
While fiduciary duties typically fall to business owners and those who interact with investors, mid- and lower-level managers must also commit to obeying the law, correctly handling information, being loyal, and avoiding negligence and fraud at every organizational level.
4. Responsibilities to Society
In addition to those you work with and serve, you’re ethically responsible to society at large. This concept is referred to as corporate social responsibility (CSR) and encompasses your business’s impact on the environment and social issues.
One framework to flesh out your business’s responsibilities to society is the triple bottom line. A play on the phrase “bottom line,” which refers to a company’s financial success, the triple bottom line expands corporate responsibility to the environment and society using the three P’s:
- Profit: Your business’s responsibility to make a profit.
- People: Your business’s responsibility to positively impact society by creating jobs, supporting charities, or promoting well-being initiatives.
- The planet: Your business’s responsibility to positively impact the natural environment, or at least not cause damage.
Check out our video on the triple bottom line below, and subscribe to our YouTube channel for more explainer content!
According to Leadership, Ethics, and Corporate Accountability, purposefully pursuing social responsibility in addition to financial success is known as conscious capitalism. Even if your business isn’t legally required to have a positive impact, it still has an ethical responsibility.
For example, imagine you run a clothing company and learn that your fabric supplier employs questionable maintenance practices that put workers in danger. If you determine the situation is technically legal, you’re still morally required under conscious capitalism to address it or find a new supplier.
Upholding responsibilities to society can also provide positive marketing and public relations opportunities, and many companies produce annual CSR reports that share how their efforts have impacted the environment and society.
Reflecting On and Honing Your Ethical Leadership Skills
Remember: Awareness is just the first step in the reflective leadership model. Judgment and action require their own considerations and skills. Additionally, Hsieh cautions against forgetting the model’s titular, overarching step: reflection.
“Reflective leadership requires the continuous practice of reflection over time,” Hsieh says in Leadership, Ethics, and Corporate Accountability. “This allows you to regularly examine and re-evaluate your decisions and responsibilities in order to practice, broaden, and deepen your skills and understanding, and to apply this knowledge when analyzing present situations.”
One way to practice ethical decision-making is by learning from real-world business leaders and the gray-area situations they’ve faced. In Leadership, Ethics, and Corporate Accountability, Hsieh introduces scenarios from companies including Google, Theranos, and Facebook and prompts you to consider how you’d respond.
Afterward, you learn how the professionals involved handled each scenario and glean advice to apply to your leadership decisions.
Are you interested in learning to navigate difficult leadership scenarios? Explore Leadership, Ethics, and Corporate Accountability—one of our online leadership and management courses—and download our free e-book on how to become a more effective leader.
