Consequences of Unethical Leadership Behaviors



Consequences of Unethical Leadership BehaviorsSimonette P. Elgert and Carolyn SucaetSiena Heights UniversityLDR 601- SJOctober 14, 2012Dr. John W. FickConsequences of Unethical Leadership Behaviors “Universal values such as love, compassion, justice, freedom, honesty, faithfulness, responsibility and the like are not really “optional” any more than gravity. We can choose to ignore them and not bow to them, but if we do, there are inevitably consequences (Cloud, 2006, p.245).” Such is the case of a few select high ranking business leaders who damaged or destroyed their reputations and careers as the result of unethical personal motives. This paper will present the profiles of four such CEOs and their fates as the result of their unethical professional choices. Additional consequences of unethical leadership behavior will also be presented. Bernie Ebbers built WorldCom, a small Mississippi long distance reseller, into a national corporation by swallowing ever-larger companies, eventually even MCI. In 2005, at the age of 63, Ebbers was accused and convicted of conspiracy, securities fraud, and false regulatory filings for his role in a massive accounting fraud that led to the downfall of the nation’s second largest telecommunications firm (Associated Press, 2005). Shares of WorldCom stock once worth more than $60 were reduced to mere pennies. “The fraud at WorldCom ultimately topped $11 billion and led to the country’s biggest bankruptcy filing. Nearly 17,000 employees lost their jobs as a result of the scheme to bury expenses and inflate revenue (Johnson, 2005).” Ebbers, weeping in court as he learned his fate, was sentenced to 25 years in prison. Even with possible time off for good behavior, Ebbers would remain imprisoned until the age of 85 (Associated Press, 2005). Dennis Kozlowski, ex-Tyco CEO, was sentenced to 8 1/3 to 25 years in prison in 2005, as he was convicted of grand larceny, conspiracy and fraud for charges he looted millions of dollars in bonuses, loans, and other payments from the global products and services company he once headed (McCoy, 2012). On April 5, 2012, Kozlowski was denied early release from prison by a New York state parole board (De La Merced, 2012). Kozlowski stated, “Back when I was running Tyco, I was living in a CEO-type bubble. I had a strong sense of entitlement at that time, and I had a sense of greed, and in doing so I stole money from Tyco. I’m very sorry I did that (McCoy, 2012).” He currently resides in a minimum security prison in New York City and because of his good behavior qualified for participation in a work-release program which began mid-February 2012 CITATION DeL12 \l 1033 (De La Merced, 2012). In 2006, Chung Mong-koo, chairman of Hyundai Motor Group, the largest carmaker in Korea, was charged with misappropriating 130 billion won ($136 million) to set up a slush fund that was used to buy political influence. Additionally, Mong-koo was charged with breach of trust, accused of causing more than 400 billion won ($429 million) in damages to companies in the Hyundai group (Fackler and Sang-Hun, 2006). Mong-koo was arrested and given a three-year suspended jail sentence after being found guilty of embezzlement and breach of duty in 2008. However, the South Korean President pardoned him in 2009 (Ruddick, 2010). Mong-koo has donated $462 million to charity, for scholarships for children from low income families, as part of a pledge he made in 2006 in order to earn leniency. According to The Economic Times, the chairman led the company in sales of 323,637 automobiles globally in 2011, up by 9.8 % compared to July 2010. Today, Hyundai Motors is the world’s fifth largest automaker along with KIA Motors and control more than 75% of the South Korean automobile market.In this case of “managerial misconduct”, Mong-koo backed an investment in order to protect his own position rather than the interests of the company. His actions were not representative of an authentic leader. Dubrin (2010) defined an authentic leader as someone who perceives their role to include having an ethical responsibility to all of their shareholders. This kind of leader takes the welfare of others first, then their own personal welfare second. Authentic leaders have a deep commitment to their personal growth as well as to the growth of other stakeholders (p. 171). In this case, the chairman focused on his own gains.Another business leader who made headlines is Frank Quattrone, a star technology banker, who in 2003 was charged by a federal court for obstruction of justice after blocking an investigation of Credit Suisse’s IPO (initial public offering) practices (Kimes, 2010). He was accused of handing out shares to friends and advised his staff to clear out the paper trail. He was convicted a year later. In 2006, an appeals court overturned his conviction and in 2007, all charges were dropped. Less than a year later, Quattrone was back into the banking world and announced the conception of his new firm, Qatalyst Group. According to the New York Times, Qatalyst presently ranks third in technology deals behind Goldman Sachs and Morgan Stanley. Quattrone, having been dubbed as the “undisputed deal making king” in the technology world, carried a lot of power. Together with Kozlowski, these examples of unethical business practices point to the leader’s sense of entitlement. They lose their sense of reality and feel entitled to whatever they can get away with or steal (Dubrin, 2010, p. 173).In addition to the harsh personal consequences of unethical leadership behavior seen in the cases of Ebbers and Kozlowski, the research of Zahra, Priem, and Rasheed (2005) identifies several serious consequences of management fraud affecting shareholders, employees, communities, and society at large. Shareholders are the first victims of management fraud as news of corporate fraud immediately reduces the stock market value of the company. The home communities of these companies experience unemployment, loss of endowments for arts and schools; depleted stock portfolios, loss of tax revenue, and decreased demand for secondary businesses such as restaurants and gas stations. Management fraud can result in employees’ loss of jobs, retirement savings, and their reputations. “Frequently the very fact that they worked for a fraudulent company taints their resume to the point that some employees find it difficult to find alternative employment (Zahra et al., 2005).”Chandler (2009) compared the unethical behavior of leaders to a “perfect storm”. “It occurs when a conflux of factors interact between leaders, followers, and the situational context catalyzed by a critical incident or trigger event that pulls everything into its center, similar to the vortex of a tornado.” People in a leadership role, often those with ultimate decision making power, resort to unethical activities due to a multitude of reasons only the person who committed the act could understand. When looking at the four examples of business leaders cited in this paper; greed, a sense of entitlement, and power all contributed to the unethical choices made by these leaders. Making the wrong choices can have an exceedingly high corresponding price to pay and ultimately may cost the unethical leader everything they have acquired including their personal freedom. ReferencesAssociated Press. (2005, July 13). Business on . Retrieved from , D. J. (2009). The perfect storm of leaders’ unethical behavior: A conceptual framework. International Journal of Leadership Studies, 5(1), 69-93.Cloud, H. (2006). Integrity. New York, NY: Harper.De La Merced, M. J. (2012, March 16). Dennis Kozlowski’s homecoming, of sorts. The New York Times. Retrieved from La Merced, M. J. (2012, April 5). Kozlowski is turned down for parole. The New York Times. Retrieved from , A. (2010). The nature and importance of leadership. Leadership: Research findings, practice and skills (pp. 255-282). Mason, OH: Cengage Learning.Fackler, M. & Sang-Hun, C. (2006, May 17). Chairman of Hyundai is charged with theft. The New York Times. Retrieved from BIBLIOGRAPHY \l 1033 Johnson, C. (2005, July 14). Ebbers gets 25-year sentence for role in worldcom fraud. The Washington Post. Retrieved from , M. (2010, October 25). The return of Frank Quattrone. CNN Money. Retrieved from , K. (2012, April 12). Ex-Tyco CEO Dennis Kozlowski begged parole board for mercy. USA Today. Retrieved from , S. A., Priem, R. L., & Rasheed, A. A. (2005). The antecedents and consequences of top management fraud. Journal of Management , 31 (6), 803-828. ................
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