The Impact of Ethical Leadership on Corporate Governance: A Cross-Industry Analysis

The Impact of Ethical Leadership on Corporate Governance: A Cross-Industry Analysis

Mweemba Hikaamuna

ZICA Licentiate and Lecturer: University of Africa

DOI: https://dx.doi.org/10.47772/IJRISS.2025.914MG00119

Received: 24 June 2025; Accepted: 28 June 2025; Published: 29 July 2025

INTRODUCTION

Ethical leadership is a leadership style characterized by guiding others through principles of fairness, integrity, honesty, and accountability. Ethical leaders not only make morally sound decisions themselves but also create an environment that encourages ethical behaviour among employees and stakeholders. As evidenced by early 21st-century corporate scandals-including Enron, WorldCom, Lehman Brothers, and Volkswagen-leadership plays a pivotal role in shaping both corporate ethics and governance outcomes. As stakeholders demand greater integrity and responsibility, ethical leadership is no longer an easy skill but a critical driver of governance quality. This article explores the influence of ethical leadership across industries and presents mechanisms through which it enhances corporate governance structures and practices.

BACKGROUND / CONTEXT

The Rise of Ethical Leadership in Business

Over the past two decades, the business world has encountered multiple corporate scandals that have profoundly shaken public trust in corporate governance and ethics. Prominent examples include Enron (2001), WorldCom (2002), Lehman Brothers (2008), and more recently, Volkswagen’s emissions fraud scandal (2015). These high-profile failures uncovered serious lapses in ethical conduct, transparency, and board oversight. As a result, a wide range of stakeholders-including regulators, investors, employees, and the public-have increasingly demanded corporate leaders who not only deliver financial performance but also demonstrate moral integrity and accountability.

The Evolution of Corporate Governance

Corporate governance originally focused on aligning the interests of managers and shareholders, particularly in publicly traded companies. Over time, its scope extended to include broader accountability to stakeholders, ethical conduct, transparency, board independence, and risk management. The 2002 Sarbanes-Oxley Act (U.S.), the UK Corporate Governance Code, and OECD principles have all played pivotal roles in reshaping governance frameworks globally.

Defining Ethical Leadership and Corporate Governance

Ethical leadership refers to the practice of leading by example through the consistent demonstration of integrity, fairness, transparency, and accountability in decision-making and behaviour even in the face of adversity. Ethical leaders are honest, principled, and fair, and they prioritize doing the right thing over achieving short-term gains. They model ethical behaviour and expect similar conduct from others throughout the organization. As Trevino, Brown, and Hartman (2003) explain, ethical leaders are perceived as “moral persons” and “moral managers,” meaning they not only act with integrity but also actively influence others to behave ethically by setting clear standards, communicating values, and holding people accountable.

This leadership style is grounded in values such as integrity, trust, transparency, and accountability, and plays a critical role in shaping ethical organizational cultures. As Yukl et al. (2013) note, “ethical leaders emphasize the importance of ethical standards and hold themselves and others accountable for upholding those standards” (p. 352).

According to Brown, Trevino, and Harrison (2005), ethical leadership involves “the demonstration of normatively appropriate conduct through personal actions and interpersonal relationships, and the promotion of such conduct to followers through two-way communication, reinforcement, and decision-making” (p. 120), highlighting the dual role of ethical leaders as both moral role models and active promoters of ethical standards within their organizations. This leadership style not only shapes employee behaviour and corporate culture but also has profound implications for the effectiveness of corporate governance.

Ethical  leadership  has  in recent times  become  a  highly  significant  issue  in  corporate  governance.  Not  only investors,  but  a diverse  range of  stakeholders  have  shown a  growing concentration  in  the ethical  behaviour of company  leaders.  For  effective  corporate  governance,  it  is  crucial  to  combine  ethical  leadership determinants  in  the  senior  management  of  a  firm.

Corporate governance, on the other hand, refers to the systems, principles, and processes by which a company is directed and controlled. It involves balancing the interests of a company’s stakeholders, including shareholders, management, customers, suppliers, financiers, government, and the community. The Organisation for Economic Co-operation and Development (OECD, 2015) defines corporate governance as “the system by which business corporations are directed and controlled,” emphasizing the responsibilities of boards of directors, accountability to stakeholders, and the importance of transparency. Solomon (2017) adds that corporate governance is “concerned with holding the balance between economic and social goals and between individual and communal goals,” highlighting its role in aligning corporate actions with broader societal expectations.

Both concepts are interconnected. Ethical leadership directly influences the effectiveness of corporate governance by shaping boardroom behaviour, promoting compliance with ethical and legal standards, and promoting a culture of accountability and integrity. The integration of ethical leadership into governance structures ensures that corporate decisions align with legal standards and societal expectations, thus reducing misconduct and improving resilience.

Stakeholder Capitalism and Environmental, Social, and Governance (ESG) Integration

In the contemporary business landscape, stakeholder capitalism has emerged as a guiding philosophy for responsible corporate governance. Unlike shareholder primacy models that prioritize profit maximization for investors, stakeholder capitalism emphasizes value creation for a broader range of stakeholders-including employees, customers, suppliers, communities, and the environment (Freeman, 1984; Schwab, 2020). This paradigm recognizes that long-term corporate success depends on maintaining trust and equitable relationships across all stakeholder groups.

Closely tied to this philosophy is the rise of Environmental, Social, and Governance (ESG) integration. ESG Integration: The incorporation of environmental, social, and governance factors into organizational strategy and risk management frameworks, aimed at long-term sustainability (Liao et al., 2022; OECD, 2020). ESG frameworks assess how companies manage their environmental footprint (e.g., carbon emissions, resource use), social responsibilities (e.g., labour rights, diversity, community engagement), and governance mechanisms (e.g., board independence, executive accountability, ethical leadership) (Liao, Liu, & Wang, 2022; OECD, 2020).

Ethical leadership is central to advancing both stakeholder capitalism and ESG integration. Leaders who act with integrity, transparency, and fairness not only shape ethical cultures but also drive performance on ESG indicators. For example, ethical leaders are more likely to promote fair labour practices, enforce anti-corruption policies, prioritize environmental sustainability, and ensure accountability in decision-making (Egbiki et al., 2024).

Recent global developments-such as the UN Sustainable Development Goals (SDGs), the EU Corporate Sustainability Reporting Directive (CSRD), and evolving investor expectations-have increased pressure on firms to demonstrate ESG commitment. Ethical leadership thus becomes both a normative imperative and a strategic enabler for meeting stakeholder and regulatory expectations in a dynamic global economy.

Industry Differences in Governance and Ethics

Different industries face different ethical dilemmas and governance challenges:

Each industry requires personalized approaches to ethical leadership and governance, making a cross-industry analysis essential for understanding best practices and universal principles.

Empirical Evidence across Industries

Recent empirical research reinforces the link between ethical leadership and governance across global contexts:

• Bangladesh (Environmental Sustainability): Liao et al. (2022) revealed that ethical leaders influenced pro-environmental behaviour and ethical climate in manufacturing firms.
• Kenya (Financial Sector): Bare & Nyamweya (2024) found that ethical HR practices in commercial banks led to improved internal controls and stakeholder transparency.
• Malaysia (SMEs): Mustapha et al. (2024) demonstrated that ethical leadership enhanced social innovation and ESG practices by integrating governance frameworks into small businesses.
• Zimbabwe (Healthcare): Munyokoveri (2020) showed ethical leadership in public health institutions mitigated corruption and enhanced procedural justice.

These findings underscore the global relevance of ethical leadership while highlighting context-specific applications across sectors.

Problem or Opportunity

Despite the increasing emphasis on corporate governance frameworks, many organizations continue to face ethical gaps, governance failures, and loss of stakeholder trust. While ethical leadership is widely recognized as an important component of good governance, there is limited empirical understanding of how ethical leadership practices influence governance outcomes across different industries. Furthermore, the variability in regulatory environments, cultural norms, and operational challenges raises questions about whether ethical leadership consistently impacts governance practices in the same way across sectors. This gap in knowledge hinders the development of personalized, ethics-driven governance models that can improve accountability, transparency, and long-term organizational performance. Addressing this gap requires a contextual understanding of how ethical leadership manifests across sectors and the strategic integration of ethics into governance models.

Solutions / Strategies

The challenges posed by ethical gaps in corporate governance call for practical solutions that foster ethical leadership at all organizational levels. The following strategies can help organizations strengthen ethical leadership and, consequently, improve governance outcomes:

• Foster Ethical Culture through Role Modelling and Communication

Leaders must embody the ethical standards they expect of others. Social learning theory suggests employees mimic observed behaviour, making leadership modelling a critical mechanism (Brown et al., 2005).

• Promote Transparent and Inclusive Governance Structures

Boards should support diversity, inclusivity, and open deliberation to avoid groupthink. Transparency fosters early identification of ethical concerns and strengthens accountability.

• Implement Ethical Leadership Development Programs

Organizations should invest in targeted training programs that cultivate ethical awareness, moral reasoning, and decision-making skills among leaders. As noted by Trevino et al. (2003), emerging leaders who understand the importance of ethical behaviour and are equipped to model it are critical for setting the tone at the top.

• Establish Clear Codes of Ethics and Conduct

Clear ethical codes provide a shared understanding of organizational values. When supported by ethical leadership, these codes become actionable tools for accountability (Kaptein, 2011).

• Integrate Ethics into Performance Evaluation and Incentives

Link leadership rewards to ethical behaviour, not just financial outcomes. This ensures that decision-making aligns with long-term sustainability (Mustapha et al., 2024). According to Captain (2011), aligning rewards with ethical standards reinforces the importance of moral conduct.

• Encourage Whistleblowing and Safe Reporting Mechanisms

Ethical leaders should champion safe channels for reporting misconduct. This reinforces transparency and psychological safety in organizational culture (Yun et al., 2024).

CONCLUSION

In an increasingly complex and interconnected global business environment, ethical leadership has emerged as a foundation of effective corporate governance. As demonstrated by numerous corporate scandals over the past two decades, the absence of ethical leadership can lead to governance failures, stakeholder mistrust, financial downfall, and reputational damage. This paper has explored how ethical leadership-rooted in principles such as integrity, transparency, accountability, and fairness-plays a transformative role in influencing ethical corporate cultures and governance practices.

Across industries, ethical leadership has a universally significant impact, regardless of governance structures. Ethical leaders act not only as moral exemplars but also as active engineers of organizational values and behaviour, reduce risks, support compliance, and align corporate actions with societal expectations and sustainability goals.

Despite growing recognition of its importance, many organizations still struggle to translate ethical ideals into consistent governance practices. This gap emphasizes the need for intentional strategies, including leadership development programs, robust ethical codes, performance-based accountability, and stakeholder engagement. When supported by systems that reinforce ethical behaviour at all levels, ethical leadership becomes not only a personal virtue but a structural asset.

Ultimately, integrating ethical leadership into the framework of corporate governance is not just a moral imperative-it is a strategic necessity. Companies that prioritize ethics are better placed to earn stakeholder trust, adapt to regulatory challenges, and achieve sustainable success across industries. The future of corporate governance depends not only on rules and oversight but on the character, courage, and ethical vision of those who lead.

RECOMMENDATIONS

Moving forward, organizations must invest in ethical leadership development, create supportive governance ecosystems, and align ethical values with strategic goals. The future of governance will depend less on compliance mechanisms alone and more on the ethical integrity and vision of those who lead.

REFERENCES

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AUTHOR BIO

Mweemba Hikaamuna is a ZICA Licentiate with an Advanced Diploma in Banking and Finance, a Bachelor of Business Administration (BBA) in Accounting, and a Master of Business Administration (MBA) candidate. With a strong academic foundation and practical insights into corporate ethics and finance, Mweemba specializes in corporate governance, ethical leadership, and organizational behaviour. He recently authored a research study under the International Journal for Research in Applied Sciences and Engineering Technology (IJRASET) titled “The Effects of Workplace Diversity on Organizational Culture: A Case of Five Selected Hotels in Livingstone District,” reflecting his commitment to exploring how people-centric values shape institutional performance. Mweemba continues to contribute to thought leadership in ESG integration, board accountability, and ethical business practices across sectors.