The Journal of Business Ethics published an interesting research on how leaders influence (un)ethical behaviors within organizations. A laboratory experiment on reporting choices was conducted to examine whether and how leaders influence workers’ (un)ethical behavior through financial reporting choices.

The role of leaders or workers was randomly assigned to subjects, who could choose to report an outcome via automatic or self-reporting. Self-reporting allowed for profitable and undetectable earnings manipulation. The leaders’ ability varied to choose the reporting method and to punish workers.

Workers were shown to be more likely to choose automatic reporting when their leader voluntarily did so and could assign punishment. Even workers who picked self-reporting cheated less when their leader picked automatic reporting. Nonetheless, most leaders did not opt for automatic reporting in the first place. They often picked self-reporting and punished workers who rather picked automatic reporting.

Collectively, the results revealed a dual effect of leadership on ethical behaviors within organizations. Workers behaved more ethically if their leader made ethical choices. Often leaders do not make ethical choices in the first place. Hence, leading by example can backfire.

Read the full report. Source: Journal of Business Ethics, press release.