The effects of authentic leadership, moral potency, and leadership virtues on ethical leadership among managers working in financial sector organisations

Abstract

The challenges unfolding in the business environment, such as the financial sector, demand the enforcement and practising of ethical leadership. The current study examines the effects of authentic leadership, moral potency, and leadership virtues on ethical leadership among managers in the financial sector. The study, which also investigates several mediating effects (in parallel and serial), draws on data gathered through a cross-sectional technique and analysed using a statistical modelling approach (stepwise multiple regression analysis and variance-based structural equation modelling). Four questionnaires (Ethical Leadership Scale, Authentic Leadership Questionnaire, Moral Potency Questionnaire, Leadership Virtues Questionnaire) were used to collect the data. All constructs had acceptable levels of reliability, as evident from the values obtained from Cronbach’s alpha. A convenient sampling method was used to recruit respondents for the study, and the sample comprised 310 managers from organisations in the financial sector. The study arrives at various findings and suggestions. The stepwise multiple regression analysis led to the finding that five sub-dimensions (self-awareness, moral ownership, justice, moral courage, and moral efficacy) explained 62% variance in ethical leadership. Of the three indirect paths that were investigated, the strongest indirect path reported in the model was from leadership virtues through moral potency (β = -0.558) to authentic leadership (β = 0.498). Therefore, moral potency mediates the relationship between leadership virtues and ethical leadership and can be used to better understand the relationship between these two variables. This thesis suggests several theoretical implications. The study expands our understanding of the combined effect of authentic leadership, moral potency, and leadership virtues on ethical leadership. In terms of managerial implications, the study addresses the importance of developing and promoting a culture of ethical leadership in the workplace to achieve positive organisational outcomes. Therefore, the interaction between the various constructs (authentic leadership, moral potency, and leadership virtues) experienced by managers will influence the extent to which they will engage in ethical leadership in the organisation. As a result, incorporating ethical leadership when exploring positive psychology principles will go a long way to provide solutions to the challenges faced by managers/employees in the financial sector. One of the limitations of the study is that there is not sufficient research done on ethical leadership in South Africa. Also, there have been no studies done on the combined effects of authentic leadership, moral potency, and leadership virtues on ethical leadership, thus, a challenge when testing the model as it was difficult to compare hypothesised directions for some of the proposed paths. One of the limitations of the current study was that it focused mostly on the financial sector and used a convenience sampling method. This implies that the findings can only be generalised in the financial industry. Therefore, to have a wider understanding of the interaction between the various variables, future research should consider adopting a multi-sample or use a probability sampling method that is more representative and can permit generalisation. In addition, considering that self-awareness was the highest contributor to ethical leadership, followed by moral ownership, then moral courage, justice and moral efficacy, future research should explore possible ways that organisations can use to intervene when boosting self-awareness, moral ownership, moral courage, justice and moral efficacy; therefore, continuously positively impacting ethical leadership levels.