Reference no: EM133043108

The cascading effect of unethical leadership Joseph Crawford and Toby Newstead, University of Tasmania

TradeTraining is one of the 10 largest registered training organisations in Australia and is the primary provider of vocational education and training in its state. Offering more than 330 qualifications and courses ranging from pre-vocational programs to apprenticeships and advanced diplomas, TradeTraining has approximately 26 000 students, 12 campuses and over 1000 employees. As a state-owned enterprise, TradeTraining plays a vital role in its local economy.

TradeTraining operates under a traditional hierarchical structure. Its board of directors oversees a chief executive officer (CEO) who leads a senior management team which is responsible for a number of different divisions including corporate services, education, education support and people and culture. The CEO's strategic focus is on enabling TradeTraining's 1000 staff to offer quality training opportunities to students, and to provide employment-ready graduates to domestic businesses. The CEO is in a clear leadership position, with the power to allocate rewards and resources, and to greatly influence the general work environment.

In 2017, TradeTraining's annual report stated: 'All staff members, regardless of whether they are teachers, corporate or support staff, believe in the One TradeTraining/One Team philosophy, and are focused upon the student or customer.' However, a report issued by the state's Integrity Commission in May 2017 made public the fact that the leadership practices of TradeTraining's senior managers were in stark contrast to this philosophy.

The Integrity Commission's mandate is to ensure trust in government, and one of its key objectives is to enhance ethical conduct within government and its enterprises (such as TradeTraining). Following a complaint made in February 2016, the Commission launched a comprehensive investigation into two senior executive officers of TradeTraining.

The Commission uncovered evidence that then-CEO John and his second-in-command, Kathy, were far more concerned with their own reward and remuneration than with the best interests of the organisation, its students and its employees. The report evidenced unethical leadership practices stemming from the nepotism and favouritism that John showed to Kathy-and that Kathy in turn showed to her subordinates.

During his tenure as CEO of TradeTraining, John was also chair of the board of the peak industry body Training Australia, where Kathy was then CEO. It was while they were working together at Training Australia that Kathy let John know she was looking for a new job. John then used the power and influence of his CEO role at TradeTraining to provide Kathy with confidential details on upcoming employment opportunities, including forthcoming organisational restructures and the hiring committee's unpublished selection criteria. John also served as Kathy's referee when she eventually applied for a divisional manager role at TradeTraining.

Kathy was offered the job at TradeTraining, but she declined. Following that, John intervened, using his influence and power to incentivise the interstate move that Kathy would have to make if she reconsidered her decision. John personally customised a remuneration package that included bumping up the base salary by $12 000. In light of these incentives, Kathy accepted the role. The state government policies under which TradeTraining falls has clear policies for declaring conflicts of interest (such as when the CEO of an organisation intervenes in the recruitment process of one of his friends). But no declaration of John and Kathy's relationship was made.

After commencing her role at TradeTraining, Kathy benefited from a number of promotions and extremely generous working arrangements, all of which came at the behest of John, without due process. Within the first 12 months, Kathy's salary was increased by 45% (the equivalent of a $55 000 per annum raise). John also provided her with an incentive payment scheme consisting of $30 000 in benefits, including an unprecedented $6000 bonus on each anniversary of her appointment.

The cascading effect of John's nepotism, favouritism and unethical leadership was evidenced by Kathy adopting similar unethical practices. Shortly after her appointment, Kathy chose not to tender an $18 000 consulting contract, instead awarding the job to her friend, Michael. Michael was a referee on Kathy's initial application to TradeTraining and another colleague from Training Australia. In order to fulfil auditing requirements, John tried to cover up this breach of process by requesting a retrospective proposal from Michael. However, metadata on the proposal proved it was created after the contract had commenced.

Furthermore, Kathy, like John, provided confidential information relating to upcoming jobs within TradeTraining to her friends and former colleagues at Training Australia. She also regularly misused her government credit card for personal purchases, including paying for flights to a job interview with another organisation.

Media coverage of the Integrity Commission's report garnered extensive public interest: it was the funds of a public service that were being misused in these instances of unethical recruitment, reimbursement, incentivising and tendering.

John's unethical leadership clearly cascaded to Kathy, and the combined effect of their unethical practices had a profound and negative impact on TradeTraining's ethical climate and organisational culture.

Following the Integrity Commission's report, both John and Kathy resigned, and a new CEO from interstate was appointed.

Q1. Use the view of shared leadership to explain the unethical practises of John and Kathy.

Q2. Using the elements of LMX theory as a guide, what remifications would john's actions have had on his other employees and on the organisation as a whole?

Q3. Considering the 2 follower centric leadership theories, to what degree were the follower and subordinates responsible for John and Kathy's unethical leadership?

Q4. Which of the 8 competencies associated with effective leadership was most lacking in John's unethical leadership practices?

Q5. In appointing a new CEO, would TradeTraining prefer an authentic or ethical leader? Why?