Absence of moral leadership: SMEs need to be aware of the repercussions

 Absence of moral leadership: SMEs need to be aware of the repercussions

Every now and again, even excellent leaders fail to uphold moral principles. It is critical that SMEs' leaders understand how their activities affect their staff, other stakeholders, and the community at large.

The most recent instance of unethical behavior dragging down a billion-dollar company is the dramatic collapse of FTX and the demise of its founder, Sam Bankman-Fried.

An essential component of accountable and sustainable government is ethical leadership. It entails choosing courses of action and judgments that are both ethically and legally correct.  Absence of it will have far-reaching effects on the people involved as well as on organizations and society as a whole. Following up on the last several articles on leadership errors, this one examines an additional facet: How ethical leadership may be troublesome and how small- and medium-sized business (SMEs) leaders can overcome it.

Recall Satyam, one of India's most notorious examples of unethical leadership? The founder and chairman of Satyam Computer Services, Ramalinga Raju, acknowledged significant accounting fraud in 2009, involving over $1 billion. For years, Raju falsified the financial numbers to deceive customers, workers, and shareholders. The repercussions were severe: Raju was jailed for fraud, the firm had a crisis, and shareholder value declined. India's standing in the international business world was harmed by the controversy.

The Punjab National Bank (PNB) scandal perpetrated by Nirav Modi is a prime example of the unethical leadership in the Indian corporate community. The diamond merchant and his accomplices are accused of procuring fictitious letters of undertaking in order to defraud PNB of almost $1.8 billion. This case exposed the bank's weak internal controls, corruption, and lack of moral diligence. In addition to damaging PNB's brand, it also sparked questions about banking sector supervision.

Numerous instances from the corporate and political spheres abound. A lack of moral leadership has several, serious repercussions.

Financial fallout: As we've seen with Satyam, Enron, and Volkswagen, shareholder value often plummets.

Consequences for the law: Leaders who act unethically may be charged with crimes, imprisoned, and fined.

Reputational harm: Businesses and people engaged in unethical behavior will experience long-term harm to their credibility and reputation.

Loss of trust: Once lost, trust is hard to regain, and its decline may have an impact on stakeholders such as consumers, workers, investors, and others.

Economic effect: In instances such as the PNB scam, the economic impact may be felt across the financial system, leading to increased borrowing prices, a decline in trust in regulators, and an impact on the general public from loan write-offs.

Changes in regulations: Scandals may impede company operations and innovation by bringing about more regulation and monitoring in any nation (though not in India just yet, where frauds of this kind still happen).

Regrettably, a lot of excellent leaders do sometimes transgress moral obligations and encounter difficulties. How can leaders, particularly those in the SME sector, avoid making the mistake of acting unethically?  It is critical that SMEs' leaders understand how their activities affect their staff, other stakeholders, and the community at large. The following are some recommendations for SME leaders:

Give an exemplary example: Moral leadership begins at the top. The behavior that SMEs want from their teams must be modeled by them. One prominent example is Yvon Chouinard, the creator of Patagonia, who has continuously shown the outdoor apparel brand's dedication to moral and environmentally friendly business methods. This is in line with the company's goal and encourages other staff members to do the same. A few small business entrepreneurs that I know have never bribed any government agency for any kind of permission or tax-related matter.

Provide a clear code of conduct: Draft a code of conduct outlining the moral standards and guidelines that the organization expects. The code ought to address matters like openness, integrity, honesty, and respect. Few SMEs have a thorough code of ethics that instructs staff members and hosts on morally righteous behavior.

Make transparency a top priority. Honest and open communication is a must for moral leadership. Be open and honest about the choices you make and the thinking behind them. A lack of openness may breed mistrust and distrust. The social media management firm Buffer is a shining example of openness in leadership. They are transparent with the public about their company operations, staff compensation, and financials.

Encourage accountability: Inspire accountability among all members of the organization. Leaders should own up to their errors, learn from them, and make up for whatever damage they may have caused. Nestle's response to the Maggi quality problem that surfaced a few years ago serves as a compelling example. The business acted quickly and openly, prioritizing customer safety before shareholder profits.

Invest in moral education: Teach staff members how to make moral decisions. This gives people the knowledge and skills necessary to handle moral conundrums while also assisting them in understanding the company's ethical standards.

Make a policy to safeguard whistleblowers: Provide procedures that let staff members voice concerns regarding unethical behavior without worrying about facing consequences. This promotes an accountable culture. For instance, in the US, whistleblowers who disclose corporate wrongdoing are protected under the Sarbanes-Oxley Act.

Seek outside advice: SME executives may profit from outside counsel when confronted with difficult moral choices, such as buying off government officials at the highest levels of authority. This may include speaking with legal counsel, ethics specialists, or trade groups that have set ethical standards.

Ben & Jerry's is a great example of a business that demonstrates moral leadership. The producer of ice cream has been a steadfast supporter of environmental and social responsibility. It has continuously participated in moral behavior, including promoting social justice, fair trade, and sustainable sourcing programs. Its consumer base has responded favorably to its dedication to values, which has enhanced its reputation.