• The new State of Moral Leadership Report suggests moral leadership is in high demand but short supply;
  • Moral authority as opposed to formal authority alone can improve employee and business performance;
  • Managers that demonstrate higher levels of moral leadership also have stronger connections with colleagues and tend to maintain moral behaviours during crises.

Human systems can’t function without formal authority, whether it’s the President of the US, a CEO or a school principal, but what makes organizations really work is when leaders occupying those formal positions have moral authority too. While formal authority can be seized, won, or bestowed; moral authority must be earned by who you are and how you lead.

In a reshaped world, formal authority is less potent. Only moral authority can build trust, inspire colleagues, create meaning and help people imagine a better future. But can moral authority be quantified and studied?

The new State of Moral Leadership Report, which includes data from 1,500 individuals working in business and highlights the critical role moral leadership can play within organizations. The report provides further evidence of the imperative for moral leadership. Leaders can no longer hope to scale shareholder value without scaling shared values. Mission and margin, profit and principle, success and significance are now inextricably linked.

Data from the report suggests the following:

  • Moral leadership is in high demand but short supply;
  • Managers that demonstrate higher levels of moral leadership have stronger connections with colleagues;
  • Moral leadership increases business performance;
  • Professional development opportunities are not doing enough to foster moral leadership.

The research signals a call to action: organizations can and must invest in fostering a culture of moral leadership.

The COVID-19 pandemic has only amplified and expedited this need. We are seeing an unprecedented health, humanitarian and economic crisis, played out, for the first time, on social media, where visceral fear, panic and misinformation spread instantly and widely. These global crises have combusted to create a moral crisis, confronting us with vexing issues, profound dilemmas and painful tradeoffs. In times of crisis, people naturally look to those in authority for answers, guidance, action and hope.

Moral authority and its twin, moral capitalism, are perfectly faithful to the original vision of capitalism expounded by the moral philosopher Adam Smith in The Wealth of Nations. In moral capitalism, you can’t create shared value without shared values; the focus is not on doing the next thing right, but rather doing the next right thing.

The COVID-19 pandemic is the first great test of moral capitalism in the business community and whether their actions will live up to leaders’ proclamations, such as the Davos Manifesto. What’s certain is that there’s going to be an accounting both during and after the crisis as to who took the right actions, who sacrificed and who truly put people ahead of profits.

An access-all-areas crisis

The data indicates that a moral crisis is permeating all aspects of our lives. Even our workplaces are not immune to this turbulence: 44% of our survey respondents say that the social and political divides in the US are affecting relationships in their workplace. For senior management, this figure increases to 72%, meaning that those best positioned to be role models for ethical standards and values-based decision-making are most in need of the moral equipment to contend with today’s social and political unrest.

In order for businesses to navigate increasingly complex workplace dynamics, businesses need to show moral vision. At the organizational level, 79% of respondents agree that their organizations would make better business decisions if they followed a golden rule: treat others as you would have them treat you. To achieve this, organizations need moral leaders at the helm. In a time of social and political uncertainty and upheaval, moral leadership offers the sense of mission and human connection that people of all industries and ranks desire.

The need for moral leadership in business
The need for moral leadership in business
Image: State of Moral Leadership Report

Moral leadership is good for business

Employees across both public and private sectors express a desire to work with moral leaders and 77% of respondents believe that people can be developed into a moral leader. But what constitutes a moral leader?

These leaders are not simply well-behaved, they stimulate action by anchoring their daily work – and the work of those around them – in a principled vision of what is good for the world. Moral leaders are advocates who see the humanity in everyone and take the time to build unique and deep relationships. They see people not as means, but as ends in themselves. They listen and learn from those they lead and are often more inclusive.

As an increasing number of leaders take strong moral stands on social and political issues, we believe this development signifies a blurring boundary between public and private spheres in an interconnected and interdependent world. It also reflects a recognition that customers, employees and other stakeholders expect corporations to stand for something beyond shareholder value.

The choice to ground business decisions in the principles of moral leadership should never be a calculation to maximize profit, but there are distinct performance benefits of moral leadership: 74% of respondents say their colleagues would do a better job if managers relied more on moral authority than on formal power.

Can moral authority improve performance?
Can moral authority improve performance?
Image: State of Moral Leadership Report

What accounts for this performance advantage? The 70% of respondents with managers in the top tier of moral leadership say their organizations are oriented to long-term rather than short-term performance metrics. The figure for respondents with managers in the bottom tier is only 11%.

Unfortunately, consistent moral leadership remains elusive. Nearly half of top organizational leaders do not consistently demonstrate any moral leadership behaviours, while only 8% consistently demonstrate them at a high level. On the management level, just 7% consistently demonstrate a high level of moral leadership behaviour. This is particularly startling as 46% of survey participants say they would take a pay cut to work for a moral leader.

How many managers consistently demonstrate moral behaviours?
How many managers consistently demonstrate moral behaviours?
Image: State of Moral Leadership Report

Defining moral leadership in a crisis

By placing leaders under extraordinary stress, crises are often a true test of moral fibre. The report suggests, even when facing a crisis, those managers performing at the highest level morally more frequently exhibit behaviours conducive to strong relationships with colleagues. Managers who consistently receive top ratings for general moral leadership are more likely to receive such ratings for moral behaviour during periods of crisis.

Moral behaviours at times of crisis
Moral behaviours at times of crisis
Image: State of Moral Leadership Report

The following three practices, when performed during crisis, are especially predictive of whether a manager is seen as effective during challenging times:

(1) cultivating a sense of hope for the future;

(2) explaining decisions in the context of the organization’s purpose;

(3) listening and learning from perspectives that challenge assumptions.

Leadership at all levels

It is natural to assume that moral leadership is about how people who hold the highest positions of formal authority behave. In reality, moral authority can and should be exercised by everyone in an organization. Imparting a cultural shift in moral leadership may start with role models at the top, but it must ultimately be designed into the systems and processes that govern how an organization operates.

We believe companies should incorporate moral leadership mindsets, skills and behaviours into formal development programmes and business practices. Due to dramatic social and business changes caused by the COVID-19 pandemic, we also call for more informal initiatives to create and bolster moral leadership.

coronavirus, health, COVID19, pandemic

What is the World Economic Forum doing to manage emerging risks from COVID-19?

The first global pandemic in more than 100 years, COVID-19 has spread throughout the world at an unprecedented speed. At the time of writing, 4.5 million cases have been confirmed and more than 300,000 people have died due to the virus.

As countries seek to recover, some of the more long-term economic, business, environmental, societal and technological challenges and opportunities are just beginning to become visible.

To help all stakeholders – communities, governments, businesses and individuals understand the emerging risks and follow-on effects generated by the impact of the coronavirus pandemic, the World Economic Forum, in collaboration with Marsh and McLennan and Zurich Insurance Group, has launched its COVID-19 Risks Outlook: A Preliminary Mapping and its Implications - a companion for decision-makers, building on the Forum’s annual Global Risks Report.

The report reveals that the economic impact of COVID-19 is dominating companies’ risks perceptions.

Companies are invited to join the Forum’s work to help manage the identified emerging risks of COVID-19 across industries to shape a better future. Read the full COVID-19 Risks Outlook: A Preliminary Mapping and its Implications report here, and our impact story with further information.

Moral leadership pursues truth and upholds ethical standards. Anyone in an organization must be able to challenge and hold leaders accountable when they fail to live up to the organization’s values, otherwise all the systems and processes that govern an organization cannot be evaluated.

The journey to moral leadership at the organizational level is the journey from blind obedience to informed acquiescence and finally to self-governance. The pandemic and its aftermath have made it critical to hasten this journey.