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What leaders say is more important than what they pay?

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Posted September 8, 2014
Picture: One of the former U.S. Senate majority leaders. Source: senate.gov

Picture: One of the former U.S. Senate majority leaders. Source: senate.gov

Can executives make their employees bad? Researchers at the University of Zürich investigated whether managers affect ethical behavior of their workers. Results of their experiment not only convincingly demonstrate that they do, but also reveal surprising details about ways this influence is made. „Our data indicate that what leaders say is more important than what they pay,“ authors of this study conclude.

It is often argued that moral behavior of employees is strongly affected by actions and declarations of their employers. If this were true, vicious leaders could significantly help to create ethically rotten atmosphere at their firms. „However, despite the widespread belief that leaders play a critical role in producing unethical conduct in groups or firms that they lead, there is little direct evidence of such a relationship,“ scientists say.

This lack of knowledge is caused by the fact that most of the studies exploring this important issue are observational. In order to expand our understanding of executives impact on moral behavior, it is necessary to conduct laboratory experiments. Economists Giovanna d’Adda, Donja Darai and Roberto A. Weber have done this needed job.

Their experiment consists of two parts. In the first stage, participants of the study roll a die. „Specifically, we ask subjects to privately roll a die, but give them the opportunity to misreport the actual outcome, with no possibility that lies will be discovered,“ researchers explain. As often happens in real life cheating is beneficial for misbehaving individual, but detrimental for collectivity. In the second stage, players are assigned to teams which have bosses. While some leaders can only observe the behavior of employees, others are allowed to make statements, provide workers with financial rewards or do both actions.

„Importantly, we find that leaders’ statements and incentive use can be effectively employed to change follower behavior in both directions; that is, both to increase and to decrease worker misreporting,“ scholars write. Interestingly, statements of the leaders have stronger influence than financial rewards which they can offer. On the one hand, this finding should be taken very seriously, because it shows that managers can spread bad behavior at very low costs. On the other hand, it also demonstrates that encouragement of virtuous actions can be equally easy.

Article: Giovanna d’Adda, Donja Darai and Roberto A. Weber, 2014, Do Leaders Affect Ethical Conduct?, Working paper series / Department of Economics No. 167, source link.

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