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The Influence of Ethical
Reasoning on
Leader Effectiveness
An Empirical Study of
Nonprofit Executives
Carole L. Jurkiewicz,
Tom K. Massey Jr.
In making decisions about ethical issues for their organizations,
effective nonprofit executives differ substantially from ineffec-
tive nonprofit executives according to the study reported here.
The differences were so profound that an executive’s effective-
ness could be confidently predicted from his or her scores on a
test of ethical reasoning. The implications for enhancing non-
profit executive effectiveness, and also organizational mores, is
highlighted.
THE challenge of effective nonprofit leadership has never been
more acute than it is today. With a growth rate of 80 percent
since the early 1980s (Hodgkinson, Weitzman, and Associates,
1997, p. 47), the nonprofit organization competes for survival and
success in a tumultuous political milieu of multiple-level agendas,
constrained resources, and decreasing public confidence (Klingner,
1993; Bryson, 1988). The successful executive must use his or her
influence to secure the resources necessary for the organization’s pro-
liferation and at the same time maintain high standards of fiscal,
social, and personal trust. The nonprofit executive serves as a moral
symbol of the organization’s standards and values and must contend
with the not infrequent challenges to these standards. A recent sur-
vey (Menzel, 1997) reports that approximately 80 percent of nonprofit
executives have encountered ethical challenges on the job within the
past five years (p. 228). Can executive effectiveness be predicted, in
part, by the schema an executive uses in resolving ethical dilemmas?
This study takes an empirical approach to answering that question.
NONPROFIT MANAGEMENT & LEADERSHIP, vol. 9, no. 2, Winter 1998 © Jossey-Bass Publishers 173
External Challenges
Previous research has confirmed that nonprofit organizations are par-
ticularly vulnerable to external events (for example, changes in gov-
ernment funding) and that they are highly dependent on the ability
of their top executives to cultivate resources for the organization
(Heimovics, Herman, and Jurkiewicz, 1993). Over at least the last
two decades, the partnership between nonprofit organizations and
their financial benefactors has been buffeted by sharp changes in fed-
eral spending priorities, increasing societal distrust of how donor
money is being used, and periodic threats to nonprofit organizations’
tax-exempt status (Demery, 1994; Salamon, 1989; Smith, 1995).
Lombardo (1995) has observed that “the same economic forces that
are leading many [for-profit] companies to reduce their budgets for
donations are making not-for-profits more needful than ever before
of corporate support” (p. 299). As a result, many leaders of nonprofit
organizations have been forced to act as entrepreneurs (Boschee,
1995; Young, 1987) and compete against other nonprofit organiza-
tions for ever-shrinking resources (Wilson, 1989).
The importance of leadership to the success of nonprofits has
been well documented (for example, Luke, 1997; Heimovics, Her-
man, and Jurkiewicz, 1995; Drucker, 1990). The responsibility of
responding to the increasing complexity and volatility of govern-
ment-nonprofit interchanges is now seen as being beyond the scope
of the volunteer boards that traditionally performed these duties of
moderating the external environment (Herman and Heimovics,
1989). Today the top executive is expected to anticipate, influence,
and control events that determine the success or failure of the orga-
nization. Therefore the realization that some executives are more
effective than others has been the catalyst for much research in the
area of leadership, including the present effort.
Exacerbating the challenge of effective nonprofit leadership are
the dramatic changes that have occurred in the political and fund-
ing environments (Middleton, 1987; Nielsen, 1979; O’Neill, 1989;
Salamon, 1992; Van Til, 1988). Gronbjerg (1991), Jenkins (1987),
Kramer (1981), Kramer and Grossman (1987), Saidel (1991), Sala-
mon (1987, 1989), and Salamon and Abramson (1989) have exten-
sively chronicled the effects of government policy changes toward
funding and the changes necessitated in nonprofit leadership. The
dramatic increase in the number of public programs and services
administered and delivered through nonprofit organizations has been
mirrored by an equally dramatic decrease in government funding to
nonprofits (Pynes, 1997). Although private giving increased between
1980 and 1995, it was insufficient to replace the reductions in gov-
ernment spending. Thus the ability to raise funds is a key require-
ment in many nonprofit executives’ job descriptions today and is
considered to be one of the most visible measures of leader effec-
tiveness.
174 JURKIEWICZ, MASSEY
Today the top
executive is
expected to
anticipate,
influence, and
control events
that determine
the success or
failure of the
organization
A key factor in the ability of nonprofit executives to raise funds
is donors’ belief that an organization adheres to high ethical stan-
dards. Jeavons (1992) has argued that because nonprofit organiza-
tions “usually have come into being and exist primarily to give
expression to the social, philosophical, moral, or religious values
of their founders and supporters . . . society expects these organi-
zations to be guided by and promote higher values in their work”
(pp. 404, 407). Furthermore, he makes the critical point that the
failure of nonprofit executives to uphold societal expectations of
nonprofit organizations will threaten the very existence of the sec-
tor. Because they are entrusted with public funds, are scrutinized by
the media, and operate in an atmosphere of skepticism and doubt
about institutions’ ethical standards, nonprofit organizations and
their top executives need to appear trustworthy and ethical in order
to survive. The effective nonprofit executive, as the embodiment of
his or her organization, must project high levels of ethical reason-
ing as a prerequisite to being entrusted with scarce resources and
toward the end of not only achieving public good but also reflecting
back favorably on both the organization and the individuals who
provided the funding.
The Ethical Component of Leadership
Ethical behavior in organizations has been attributed most fre-
quently to the ethical standards of top executives and the culture to
which they substantially contribute (DeGeorge, 1986; Robin and
Reidenbach, 1989). As Morgan (1986) suggests, because executives
have the ability to reward or punish those who follow or ignore their
lead, they hold a position of power that controls development of
value systems and codes of behavior in their organizations. Jackall’s
examination (1988) of organizational life confirms that executive
ethics are important influences on both organizational climate and
individual success. O’Neill (1992) asserts that the leader of a non-
profit organization “is expected not only to adhere to but also to cre-
ate, shape, and articulate the organization’s values in a special way”
(p. 205). He and Balda (1994) go on to argue that given the nature
of nonprofit leadership, ethical issues here are of greater complex-
ity and substance than are those in other sectors.
Much theoretical and normative evidence supports the notion
that leaders are the primary influencers of ethical conduct within
their organizations (for example, Baumhart, 1961; Hitt, 1990; Jansen
and Von Glinow, 1985; Schmidt and Posner, 1983) and set the moral
tone and are responsible for the set of ethics or norms that governs
employees’ behavior on behalf of the organization (for example,
Cooper, 1990; Denhardt, 1988; Bennis and Nanus, 1985; Cyert, 1990;
O’Neill, 1992). Even when leaders take a position of organizational
amorality, their behavior nonetheless defines the ethical framework
of the organization via social influence processes (Bandura, 1962;
THE INFLUENCE OF ETHICAL REASONING ON LEADER EFFECTIVENESS 175
A key factor in
the ability of
nonprofit
executives to
raise funds is
donors’ belief
that an
organization
adheres to high
ethical standards
Kelman, 1961; Luthans and Kreitner, 1985; Nord, 1969; Skinner,
1948, 1971; Sims and Gioia, 1986; Weiss, 1977). Therefore a rela-
tionship between ethics and leadership is clearly indicated.
Even though no empirical connection between the approach to
ethical reasoning and executive effectiveness has been established
previously, many authors and scholars have speculated on the rela-
tionship between the two and have provided anecdotal support. For
example, Baumhart (1961, p. 10) and Brenner and Molander (1977,
p. 62) report that in surveys conducted of U.S. executives, the major-
ity (99 percent and 98 percent, respectively) believe that sound eth-
ical judgment is integral to effective leadership. Bok (1978)
categorically maintains that unethical behavior, whether in the form
of lying or any other overt or implicit manifestation, is counterintu-
itive for effective leadership. Andrews (1989) has built the case that
ethical concerns are synonymous with effective leadership and that
responsible moral judgment is a key component of effective decision
making. Similarly, Luke (1997) argues that executives, to be suc-
cessful, must employ a broader approach to ethical reasoning. Lewis
(1991) supports the notion that effective leadership and career suc-
cess are synonymous with a strong moral code to guide behavior. The
connection between individuals’ measured levels of ethical reason-
ing and their corresponding behavior in organizations has been well
established (Stewart, Sprinthall, and Siemienska, 1997; Blasi, 1980).
It seems reasonable to suggest, then, that to be effective, nonprofit
executives must possess, among other skills, an ability to engage in
complex ethical reasoning.
Collectively, this body of literature suggests that the nonprofit
executive is the pivotal character in an organizational-environmental
interface characterized by competition for scarce resources, political
volatility, and societal distrust. The need for higher-level ethical rea-
soning for executive success has been suggested, and the connection
between the complexity of ethical reasoning and behavior is clear.
Additionally, executives are seen as the key determiners of the ethi-
cal reasoning exercised by their subordinates, and an ethical orien-
tation is seen as important in establishing the donor relationships
crucial to the continuance of nonprofit organizations. It is the ethi-
cal dimension of leadership that is focused upon here, specifically,
the relationship between level of ethical reasoning and executive
effectiveness. This ethical focus contributes to the maturation of inte-
grative theories of leadership and provides a basis for further exam-
ination of the issue of executive effectiveness in the nonprofit sector.
Research Hypotheses
Because the literature has demonstrated that nonprofit organizations
are dependent upon external sources for funding, that executive suc-
cess is demonstrably connected to executives’ ability to secure exter-
nal funding for the organization, that the perceived level of executives’
176 JURKIEWICZ, MASSEY
It seems
reasonable to
suggest that to be
effective,
nonprofit
executives must
possess an ability
to engage in
complex ethical
reasoning
ethical reasoning reflects upon the nonprofit organization as a whole
and contributes to the reputation of those who fund it, and that vary-
ing levels of effectiveness exist among executives, two research
hypotheses were derived. The first tests the extent to which nonprofit
executives, to be successful, possess high levels of ethical reasoning.
Specifically, we propose that
HYPOTHESIS 1: The preference for principled moral reasoning of effective
executives will be significantly higher than will be the preference for
principled moral reasoning of less effective executives.
Furthermore, given an established criterion that differentiates
effective nonprofit executives from less effective ones, we propose that
HYPOTHESIS 2: The preference for principled moral reasoning is an effec-
tive predictor of executive effectiveness.
Assessing Principled Moral Reasoning
Empirical measures of ethical constructs with established reliability and
validity indices are few. Because our study approached the research ques-
tions from the perspective of an executive reasoning about ethical issues,
the widely accepted Developmental Theory and Moral Maturity Index
(DTMMI) (see Kohlberg 1969, 1976, 1981; Kohlberg, Colby, Gibbs, and
Speicher-Dubin, 1976, 1978) as operationalized by Rest (Rest, Narvaez,
Bekean, and Thoma, 1994) in the Defining Issues Test (DIT) was
selected. The six stages of ethical reasoning as conceptualized by
Kohlberg present a progression of moral decision making, from the sim-
plest level (Stage 1), in which an individual defines right as those actions
that do not result in punishment, to the most complex level (Stage 6),
in which right represents universal moral principles determined through
rational, informed personal reflection (Stage 6). The six stages are out-
lined in the following list (for the full text, see Kohlberg, 1981).
Stage 6: The Preeminence of Universal Ethical Principles
Principles of justice are self-determined.
One has respect for persons as ends, not means.
Principles supersede laws, social agreements.
Stage 5: Uphold Basic Rights, Values, Social Contracts
Rules are “relative” and compromise the social contract.
One is obligated only to obey laws and contracts freely chosen.
Good is based on rational calculation of overall utility.
Stage 4: Social System and Conscience Maintenance
Right is fulfillment of duties to society.
Laws are upheld except when in conflict with social duties.
One is concerned with “what if everyone else did it?”
THE INFLUENCE OF ETHICAL REASONING ON LEADER EFFECTIVENESS 177
The six stages of
ethical reasoning
as conceptualized
by Kohlberg
present a
progression of
moral decision
making
Stage 3: Mutual Expectations, Relationships, Conformity
One is concerned with others’ feelings, keeping trusts, living up to
expectations.
One obeys the Golden Rule.
Loyalty, respect, and gratitude affect what is right.
Stage 2: Individual Instrumental Purpose and Exchange
Right is acting to meet one’s own interests and needs.
One is aware that others’ interests may not match one’s own.
One has a sense of fairness, following through on the “deal.”
Stage 1: Punishment and Obedience
Right is avoiding breaking rules.
One is obedient to authority; authority always knows what is best.
One tries to avoid doing wrong in order to avoid punishment.
Cognitive identification and reconciliation of competing moral per-
spectives characterize the highest stages, whereas the lowest are rooted
in egocentrism. The DIT does not measure these stages directly, but
scores on the DIT correlate with Kohlberg’s scores on the DTMMI
measure of moral maturity and are much easier to compute, (twenty)
minutes versus (four) hours (Rest, Narvaez, Bekean, and Thoma,
1994).
The DIT has become the most widely used instrument of moral
judgment and the one best-documented for reliability and validity
(Rest, Narvaez, Bekean, and Thoma, 1994). Kohlberg (Rest, 1979) has
endorsed the test as a practical and useful assessment of moral devel-
opment that demonstrates a high degree of reliability and construct
validity (Davison and Robbins, 1978). The DIT is a self-administered
instrument that presents participants with six moral dilemmas, each
accompanied by twelve issue statements for consideration in resolv-
ing the dilemma. A standardized scoring procedure produces an inter-
val-scaled P-score of ethical reasoning for each subject. The P-score
indicates the relative importance (described as a percentage score) a
subject gives to principled moral considerations when resolving moral
dilemmas. The DIT measures an individual’s orientation as expressed
through a preference for particular statements concerning the dilem-
mas. Rest (Rest, Narvaez, Bekean, and Thoma, 1994) has compiled a
series of studies that have established a correlation between scores on
the DIT and scores on Kohlberg’s DTMMI. In effect the DIT attempts
to tap the basic conceptual framework an individual uses to analyze
a social-moral problem and to judge the proper course of action to
undertake. Offered as an assessment of conceptual adequacy of moral
thinking (Rest, 1979; Rest, Narvaez, Bekean, and Thoma, 1994) that
can be used to typify subjects, it was applied here to determine
whether the level of ethical reasoning varies between the effective and
less effective nonprofit executives.
178 JURKIEWICZ, MASSEY
Cognitive
identification and
reconciliation of
competing moral
perspectives
characterize the
highest stages,
whereas the
lowest are rooted
in egocentrism
Method
Thirty top executives of nonprofit organizations in a large metropol-
itan community who had been identified as effective and thirty who
had been identified as less effective were asked to participate. To
determine executive effectiveness, a panel of twelve individuals with
extensive knowledge of nonprofit organizations were asked to serve
as judges and to nominate those chief executives they regarded as
highly effective, using multiple criteria. They independently nomi-
nated ninety nonprofit CEOs as effective. Those executives who
received at least two separate nominations were asked to participate
in the original study of which this research is an extension
(Heimovics, Herman, and Jurkiewicz, 1993); of the thirty who were
asked, twenty-six agreed to participate. These same twenty-six exec-
utives were asked to participate in this study. The selection of a com-
parison group of less effective executives was made from lists
provided by a consortia of nonprofit organizations. Executives on this
list who had received one or more nominations from the panel of
judges were removed from consideration, as were those who had held
their positions for less than eighteen months (it was assumed they
would not have had a reasonable opportunity to demonstrate their
effectiveness); a random sample of twenty-four executives was
selected from those remaining. These same twenty-four executives
were asked to participate in this research.
For this study, each executive was mailed a packet containing a
letter requesting his or her participation, the ethical reasoning instru-
ment (DIT), a demographic data survey, and a postage-paid return
envelope. Participant confidentiality was assured, and subjects were
identified by a three-digit code printed on each page of the instru-
ment and the return envelope. Executives who had not returned their
instruments within three weeks of the initial mailing were contacted
by telephone and again asked for their participation. If necessary, an
additional packet was mailed.
Of the total number of executives asked to participate, 21 effective
and 21 less effective executives returned usable instruments. Subject
reliability checks were performed, and those who did not meet the
established levels were removed from the study (Rest, Narvaez, Bekean,
and Thoma, 1994). Completed instruments were coded by a paid assis-
tant trained in scoring the DIT yet unfamiliar with the purpose of the
study and unaware of the executives’ effectiveness ratings. P-scores
were computed for each of the respondents.
Findings
To assess the research Hypothesis 1, that the preference for princi-
pled moral reasoning among effective executives is significantly
higher than is the preference for principled moral reasoning among
less effective executives, the P-scores of the two groups were compared
THE INFLUENCE OF ETHICAL REASONING ON LEADER EFFECTIVENESS 179
(see Table 1). The difference in P-score means between the two
groups was conclusively in the direction anticipated, with effective
nonprofit executives scoring an average of 65.14 and less effective
executives scoring an average of 33.57. In other words, effective exec-
utives exhibited significantly higher preferences for principled ethi-
cal reasoning (at a confidence level of over 99 percent) than did their
less effective counterparts. This statistically significant outcome con-
firmed our theoretical expectations expressed in Hypothesis 1.
To test the second research hypothesis, that the preference for
principled moral reasoning is an effective predictor of nonprofit exec-
180 JURKIEWICZ, MASSEY
Table 1. Test of Difference in P-Scores for Effective and Less
Effective Executives
Effective Less Effective
Executives Executives t-ValueaSignificance b
P-scorec65.14 33.57 20.362 p < .001
(4.96) (5.08)
aThe likelihood of this t-value occurring by chance alone in this sample is less than one
in one thousand.
bThe assumption of equal variances between the two groups was supported (p= .843).
cP-scores on the DIT can range from 0 to 95, with a score of 35 being average (Rest,
Narvaez, Bekean, and Thoma, 1994); standard deviations are shown in parentheses.
Table 2. Predicting Effective and Less Effective Executives
by Level of Ethical Reasoning
Overall Significance of Group Difference
Wilks’ LambdaaSignificanceb
.08799 p <. 0001
Classification Resultsc
Number Predicted Group Membership
of Cases Effective Less Effective
Effective 21 21 0
(100%) (0%)
Less effective 21 0 21
(0%) (100%)
aThis test used a two-group discriminant analysis with Wilks’ lambda being the overall
measure of group difference.
bThe likelihood of the Wilks’ lambda value occurring by chance alone in this sample is
less than one in ten thousand.
cPercentage of cases correctly classified overall =100 percent.
utive effectiveness, each respondent was assigned to a group (effec-
tive or less effective) using only the respondent’s individual P-score
as the predictor. The results of the analysis, reported in Table 2, show
that an executive’s level of ethical reasoning was predictive of his or
her executive effectiveness. In fact, the P-score alone successfully pre-
dicted group membership for 100 percent of the effective executives
and also 100 percent of the less effective ones. This statistically sig-
nificant outcome demonstrates strong support for Hypothesis 2
because, all things being equal, one would have expected to correctly
classify only one-half of the executives by chance alone.
Discussion
These results provide compelling empirical evidence that executives
preferring principled ethical reasoning are more likely to be effective.
We have demonstrated that when confronted by ethical dilemmas,
effective executives engage in significantly more complex cognitive
reasoning about these issues than do the less effective executives.
They are more likely to look at an issue from the broadest possible
perspective, taking into account multiple stakeholders, principles,
circumstances, issues of rights and justice, and the consequences of
their decision for all affected by it.
This research suggests that effective nonprofit executives are
more likely to base evaluations of moral decisions on calculated
rights, values, or principles than on public opinion. Further, they are
more likely to make decisions about moral dilemmas that may be
unpopular with the majority yet are decisions they have reasoned to
be right, and they are willing to accept the ensuing conflicts that may
result from these decisions. Less effective executives, in contrast, rea-
son about the same moral dilemmas within a framework where doing
the right thing is construed as doing one’s duty in society, upholding
the social order, and displaying obedience to authority. Less effective
executives tend to concern themselves to a greater extent with how
their decisions about moral dilemmas will be viewed by others, both
within and outside the organization. These findings do not neces-
sarily suggest that effective executives are more ethical than those
deemed less effective. They speak, rather, to the different levels of
complexity different executives employ in deciding matters of moral
significance to their organizations.
These findings are consistent with research in the area of effec-
tive leadership. The proclivity to face conflict rather than avoid it
when one’s decisions are challenged by others is a characteristic in
many of the findings on effective leadership. Additionally, depen-
dence upon oneself to engage and communicate an organizational
vision rooted in firmly held principles is a hallmark of effective lead-
ership, and one supported by our research. Rather than being preoc-
cupied with trying to please others, effective leaders earn respect by
making tough decisions based upon principled criteria, taking
THE INFLUENCE OF ETHICAL REASONING ON LEADER EFFECTIVENESS 181
These findings do
not necessarily
suggest that
effective
executives are
more ethical than
those deemed
less effective
responsibility for those decisions, and proceeding on their chosen
path with conviction. That perspective on effective leadership is
echoed in our findings.
The validity of our findings is grounded on the premise that a
reputation for effectiveness is a valid measure of executive effective-
ness. Such strong group prediction is noteworthy in research of this
type and suggests directions for further study. Even though the study
of effectiveness is an increasingly problematical concept in the man-
agement literature, it has been reported elsewhere (Heimovics, Her-
man, and Jurkiewicz, 1993, 1995) that the findings of this body of
research are not methodological artifacts of the use of the reputational
approach. The indispensability of executive leadership to organiza-
tional success in the nonprofit sector has been well established.
Progress has been made in identifying those skills distinct to effec-
tive nonprofit executives and lacking in a comparison group. Repli-
cation of the present study in a variety of organizational settings
would enable the study hypotheses to be generalized to a broader
population, with an accepted effectiveness criterion as the pivotal
nexus. The empirical link demonstrated in this study between ethical
reasoning and effective leadership is an important first step in exam-
ining these issues more closely.
The unequivocal nature of our results is indeed surprising.
Although theoretical indications suggested predictive utility of the
DIT in determining executive effectiveness, we did not anticipate that
the instrument would do so with 100 percent accuracy. Was the exec-
utive sample unique in some way not measured here? Would a dif-
ferent method of effectiveness classification lead to different
predictive accuracy of the DIT? Would effective executives in the
public and private sectors score at the high levels indicated here?
Such questions naturally arise when reflecting upon these results.
These results are bolstered by findings on the effectiveness of
other professionals as it correlates to scores on the DIT (Rest, Nar-
vaez, Bekean, and Thoma, 1994). There is a need, nevertheless, for
further research on ethical decision making and executive effective-
ness in the nonprofit sector. Such research could establish a basis for
selection and promotion criteria and ethics training and determine
the influence of ethical reasoning on organizational performance. The
importance of ethics education and its relevance to executive per-
formance is brought to the forefront by these findings.
Deriving the hypotheses for this study primarily from theoreti-
cal evidence of the connection between ethical reasoning and exec-
utive effectiveness was a necessary and challenging first hurdle. The
significant findings, however, provide an empirical building block for
further study. Measures of ethics are, by nature of the construct, dif-
ficult to develop, substantiate, and implement. This circumstance has
constrained research in the area and has limited the generalizability of
those studies that have been conducted. The value of this research,
beyond its usefulness to those concerned with enhancing nonprofit
182 JURKIEWICZ, MASSEY
Measures of
ethics are, by
nature of the
construct,
difficult to
develop,
substantiate, and
implement
executive effectiveness, is in furthering systematic inquiry in a field
both important and labyrinthian.
CAROLE L. JURKIEWICZ is assistant professor of political science at the Uni-
versity of North Carolina at Charlotte. Her research focuses on leader-
ship efficacy and organizational design as it affects employee
performance and change management.
TOM K. MASSEY JR. is professor of business and health care administra-
tion at Pfeiffer University. His teaching and research interests include
employee motivation and job satisfaction and nonprofit marketing.
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