EFFECT OF ETHICAL LEADERSHIP ON ORGANIZATIONAL PERFORMANCE OF MANUFACTURING FIRMS IN SOUTHEAST, NIGERIA
ABSTRACT
This study examined effect of ethical leadership on organizational performance of manufacturing firms in South East Nigeria. The objectives of the study included to:  determine the effect of ethical leadership on profitability of manufacturing firms in South East Nigeria, ascertain the effect of ethical leadership on cost of operation of manufacturing firms, examine the effect of ethical leadership on level of attraction of new employees and ascertain the nature of relationship between ethical leadership and sales turnover among manufacturing firms in South East Nigeria. The population of the study was 1623 while the sample size of 451 was determined by using the Taro Yamane’s formula. The sources of data were both primary and secondary sources. The hypotheses were tested by using the t-distribution statistical technique. The findings included that ethical leadership had positive effect on profitability of manufacturing firms in South East Nigeria F(439) = 3368.22 P=2.7858, ethical leadership has positive effect on cost of operation as F(439) = 7235.331  P = 2.7858,  ethical leadership has positive effect on attraction of new employees as F(439) =4861.999 P = 2.7858 and  there is positive effect of ethical leadership on sales turnover as F(439) = 686.72 P= 2.7858,    The study concluded that ethical leadership has a positive and significant effect on the performance of manufacturing of manufacturing firms in South East Nigeria. The study recommended that management of manufacturing firms should improve on their profit through ethical leadership, management of manufacturing firms should consider the cost of operation through ethical leadership, management of manufacturing firms should pay attention on the level of attraction of new employees through ethical leadership and management of manufacturing firms should equally increase their sales turnover through leadership.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
1.1     Background of the Study                            
1.2     Statement of the Problem                            
1.3     Objectives of the Study                             
1.4     Research Questions                                
1.5     Research Hypotheses                                 
1.6     Significance of the Study                            
1.7    Scope of the Study                                 
1.8    Limitations of the Study                            
1.9    Operational Definition of Terms                        
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1    Conceptual Review                                
2.1.1     Concept of Ethics                                
2.1.2    Concept of A Leader                                
2.1.3    Types of Leaders                                
2.1.4    Functions of a Leader                                
2.1.5    Concept of Leadership                            
2.1.6    Characteristics of Leadership Styles                        
2.1.7    Determinants of Leadership Style                        
2.1.8    Types of Leadership Style                             
2.1.9    The Concept of Ethical Leadership                        
2.1.10    Ethical Leadership and Good Governance                     
2.1.11    Characteristics of an Ethical Leader                        
2.1.12    Personal Integrity of Leader                            
2.1.13    Ethically Influencing Followers                        
2.1.14    Current Challenges and Solutions to Ethical Leadership            
2.1.15    Developing Ethical Leaders                            
2.1.16    Forms of Unethical Behaviour in Organizations                
2.1.17    Leader Follower Relationship and Unethical Behaviour            
2.1.18    Personality Characteristics of Ethical Leaders                
2.1.19    The Leader’s Role in Fostering Ethical Behaviour in Organizations        
2.1.20    Elements of an Ethical Organization                        
2.1.21    The Development of Ethical Leadership                    
2.1.22    The Core Functions of Ethical Leaders                    
2.1.23    Influence of Ethical Leaders                            
2.1.24    Advantages of Ethical Leadership in Manufacturing Sector            
2.1.25    The Challenges of Ethical Leadership in Manufacturing Sector        
2.1.26    The Role of Ethical Leadership in Raising Efficiency in
Manufacturing Sector                                
2.1.27    Organizational Performance (OP)                        
2.1.28    A Model of High Performance Organization                    
2.1.29    Ethical Leadership, Leadership Effectiveness and Organizational
Performance                                     
2.1.30    Concept of Profitability                            
2.1.31    Ethical Leadership and Profitability                        
2.1.32    Ethical Leadership and Law Cost of Operation                
2.1.33    Ethical Leadership and Attraction of New Employees            
2.1.34    Relationship between Ethical Leadership and Sales Turnover        
2.1.35    Moderating Role of Organizational Values on the Relation
between Ethical Leadership and Employees’ Performance             
2.1.36    Ethic-Based Contingent Reward                        
2.1.37    Profitability                                    
2.1.38    Sales Turnover                                 
2.1.39    Concept of Operating Cost                             
2.1.40    Categories of Business Operating Cost                    
2.1.41    Factors that Influence Attraction of Employees                 
2.1.42    Working Conditions                                
2.1.43    Human Resource Development                         
2.1.44    Recruitment Strategies                             
2.1.45    Internal Recruitment Sources                            
2.1.46    External Recruitment Sources                            
2.2    Theoretical Review                                
2.2.1    The Duty Ethic Theory                            
2.2.2    Consequentialists Theory                            
2.2.3    Social Learning Theory                            
2.2.4    Social Identity Theory                                
2.2.5    Leader Member Exchange Theory                        
2.3    Empirical Review                                
2.4    Summary of Empirical Review                         
CHAPTER THREE
METHODOLOGY
3.1    Introduction                                     
3.2    Research Design                                
3.3    Area of the Study                                
3.4    Sources of Data                                
3.4.1    Primary Sources of Data                            
3.4.2    Secondary Sources of Data                            
3.5    Population of the Study                            
3.6    Sample Size Determination                            
3.7    Sampling Techniques                                
3.9    Validity of the Instrument                            
3.10    Reliability of the Instrument                             
3.11    Methods of Data Analyses                            
3.12    Decision Rule                                    
CHAPTER FOUR
DATA PRESENTATION, ANALYSES AND INTERPRETATIONS
4.1    Data Presentation and Analyses                         
4.2    Bio-Data                                    
4.3    Data Relating to Research Questions                        
4.4    Discussion of Findings                             
4.4.1    Discussion Based on Objective One                         
4.4.2    Discussion Based on Objective Two                        
4.4.3    Discussion Based on Objective Three                     
4.4.4    Discussion Based on Objective Four                        
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1    Summary of Findings                                 
5.2    Conclusion                                    
5.3    Recommendations                                 
5.4    Contributions to Knowledge                            
5.5    Suggestions for Further Research                         
    References                                     
    Appendix                                     
    Questionnaire                                     

CHAPTER ONE
INTRODUCTION
1.1    Background of the Study
The first formulation of a code of ethics was adopted by the members of IIC American Group now (AIC) committee on professional standards and procedures formed at the second regular meeting in Detroit May 23 1961. In 1967, the ethics and standards committee was charged with updating documents to reflect changes in the business profession. Between 1984 and 1999, the ethics and standards committee responding to further growth and change in the profession and following on several years of AIC discussion on the issue of leadership ethics, made some pronouncements on how leaders of corporate organizations should carry out their businesses. The essence was to make sure that leaders of corporate organizations should abide by the laid down procedures in carrying out their business. Ethical leadership is being discussed because in the corporate world, we have heard of so many stories of corporate failures as a result of the actions or inactions of the leaders  
Leadership as a key component of every organization is considered a major factor that has an indisputable influence on the performance of the organization in every sector (Ogbonna & Harris, 2000). In the 21st century, concern has been given to various leadership styles being adopted in organizations. Arguments as to most reliable leadership style to be suitable in the contemporary business world continue to generate research from different scholars. Scholars have suggested a rethink in the business leadership pattern adopted in 21st century (Waldman, Ramirez, House  &  Puranam,  2001; Assaed, Azlan & Muhammad, 2016)  as the success of an organization is measured in both financial and reputation such organization build in its operating environment. In order to increase organizational financial performance, organizations go beyond their routine practices to engaging in behaviours such as fraudulent activities that are considered unethical (Assaed, Azlan & Muhammad, 2016).The devastating effect of these activities on corporate organizations has led to a global call on ethical leadership.
Ethics is a critical issue that is increasingly growing in importance among people in leadership positions particularly after the ethical corporate scandals of the 1970s, 1980s and 1990s. Ethics in business and leadership has become the focus of interest in recent times and as a result, academic researchers and practitioners are becoming conscious that rules and regulations as well as leadership may be the key determinant in ethical engagement. High profile ethical scandals engulfing every sphere of life and profession have gained prominence. For example, major business failures such as World Com, Enron, Tyco International, Health South, Parmalat, and Lehman Brothers are among business organizations where leaders failed ethically for a number of reasons (Nyukorong, 2014).
Ethical climate, collective moral emotion and collective ethical efficacy interact to create an environment more strongly related to ethical behaviour. Ethical behaviour is characterized by honesty, fairness and equity in interpersonal and professional relationship and it respects the dignity, diversity and the right to find individual and groups of people (Ebitu  & Beredugo,  2015).Ethical leaders are leaders that want to continually behave according to ethics by setting ethical standards in the organization, reward ethical conduct and punish unethical behaviours among the staff. They are usually leaders who lay down standards for managerial goals and organizational behaviour at most and subsequently establish systems that impact employee outcomes (Yukl, 2013).
The concern for “ethical consciousness” comes at the time when the concept of leadership legitimacy is questioned and when the public’s trusting corporate governance is extremely low (Fulmer, 2005). Both members of the public and various interest groups are yet to start asking questions on who were the corporate managers? Whether they are ethical? Until recently, that managers and researchers have turned their attention to ethics management (Trevino & Brown, 2005).  Nowadays, no single organisation is safe from corporate scandals, and we believe that one main issue in these ethical misconducts is the negligence of ethical corporate values and lack of ethical leadership. Despite the growing concern of researchers in the field of business ethics, cases of unethical practices have continued to manifest in corporate organizations (Bass, 2010).
Ethical leadership is a clarion call to the recent credit crisis, the worst global recession since the 1930s; and the various scandals in former leading corporate business organisations. The Enron, Arthur Andersen, WorldCom, Tyco, Parmalat and HealthSouth are among many businesses in the developed countries where leaders failed ethically for a variety of reasons, which may include pressures to achieve, perform and to "win at all costs" (Fulmer, 2012.). Top executives of corporate organisations contribute to the recent credit crisis by making fraudulent decisions that artificially inflate profits to increase compensation (Berenbeim, 2009). In a survey conducted in 2010 among U.K and some continental Europe companies; it was revealed that the most significant ethical issues to organisations are bribery, corruption and facilitation payments; whistle blowing/speaking up and discrimination, harassment or bullying (Harris, 2011). For instance, Texaco in 1996 made $176 million settlement for racial discrimination; Mitsubishi Motor Corporation settled $34 million in 1998 after a government investigation of pervasive sexual harassment and Louisana –Pacific Corporation paid a fine of $37 million in 1998 for customer and environmental fraud among other unethical practices.
Apart from cases of unethical practices in developed nations, evidence have also shown in developing countries. For instance, Nigeria, one of the developing countries in the Sub-Sahara Africa has witnessed increase in the rate of corporate failures. There were reported cases of corporate failure in Nigeria which were attributed to unethical practices of corporate leaders. The Nigerian banking sub-sector was at the halt of collapse in 1997, twenty-six commercial banks failed due to financial irregularities. In 2006, Cadbury Nigeria Plc, one of the leading Food and Beverages firms in Nigeria was affected by financial scandal. Cadbury Nigeria plc financial statement and accounts was falsified at the detriment of all stakeholders. Also in August 2011, three Nigerian banks namely, Afribank Plc, Spring Bank Plc and Bank PHB failed due to financial irregularities of their corporate managers. These banks were among the eight banks placed under Central Bank of Nigeria (CBN) management in August 2009 following the clean-up of the banking industry. Ethical behaviour includes key principles such as honesty, integrity, fairness, and concern for others. This is a situation whereby leaders engage in behaviour that benefits others and refrains from behaviour that can cause harm to others (Toor & Ofori, 2016).
Ethics must indeed begin at the top. Leaders cannot shrink from their obligations to set a moral example for their followers; formal ethical codes and ethic training have little chance of success unless the ethical actions and behaviour of top management are consistent with what they teach. Leaders are the key to determine the outcome of organisational goals and to set the tone for employee behaviour which may include promotion, appraisal and strategies (Brown & Mitchell, 2010). Organisational leaders should encourage employees by leading by examples; they have the responsibility to define organizational norms and values, live up to expectations and encourage their followers to adopt same. Negative examples of immoral behaviour by corporate executives are like a cancer on ethical behaviour within organisations (Fisher & Lovell, 2013). If leaders are perceived to be ruthless and inconsiderate in their business dealings with others, employees are likely to get the message too (Crane & Matten, 2004). Employees want to be associated with managers that are honest, credible, respectful, and fair (Collins, 2010).
Bello (2012), informs that the 2010 survey in the U.K and other continental European companies revealed that the most significant ethical issues to organizations are bribery, corruption and facilitation payments; whistle blowing/speaking up and discrimination, harassment or bullying (Webley, Basran, Hayward & Harris, 2011). In 1996, Texaco made $176 million settlement for racial discrimination; Mitsubishi Motor Corporation settled $34million in 1998 after a government investigation of pervasive sexual harassment and Louisana-Pacific Corporation paid a fine of $37million in 1998 for customer and environmental fraud among other unethical practices (Bello, 2012).
In Nigeria, there is no indigenous company that has a life span of over 50 years (Adebayo, 2010). The reason being that the country’s municipal laws operate within very weak institutions, which can hardly carry the capacity of reforms. When a nation is bereft of corporate governance culture, her tax regime will be weak; there will be high level corruption, corporate impunity, law enforcers turn to law breakers, reforms will be unworkable, inflation and unemployment will run amok and such nation’s tangentially miss out on industrialization (John, 2014). Several cases of corporate failures were attributed to unethical practices of corporate leaders, for example, in the Nigerian banking sector crisis of 1997 where twenty-six commercial banks failed due to financial irregularities. In 2006, Cadbury Nigeria Plc was affected by fraud. Cadbury Nigeria plc financial statement and accounts was falsified at the detriment of all stakeholders. Also in August 2011, three Nigerian banks namely, Afribank Plc, Spring Bank Plc and Bank PHB failed due to financial irregularities of their corporate leaders. These banks were among the eight banks placed under Central Bank of Nigeria (CBN) management in August 2009 following the clean-up of the banking industry (Bello, 2012).
Nowadays, there appears to be a thin line between ethical and unethical business practices, ethical traps are more common now than a generation ago, as it is easy to step over moral boundaries in order to entice prospective customers. Bribes are frequently given in exchange for assistance, product offerings are over exaggerated while most managers who possess aggressive dispositions towards businesses go beyond recruiting beautiful ladies to entice customers (Bello, 2012). Many organizations are guilty of these anomalies. They abate sexual harassment, dishonesty, bribery, lack of equity in interpersonal and professional relationship. To some managers however, unethical behavior has come to stay and hardly can a growing firm exist in perpetuity without any form of compromise in this volatile world (Bello, 2012).
The Enron, Arthur Andersen, WorldCom, Tyco, Parmalat and HealthSouth are among many businesses in the developed countries where leaders failed ethically for a variety of reasons, which may include pressures to achieve, perform and to "win at all costs" (Fulmer, 2012.). Top executives of corporate organisations contribute to the recent credit crisis by making fraudulent decisions that artificially inflate profits to increase compensation (Berenbeim, 2009). In a survey conducted in 2010 among U.K and some continental Europe companies; it was revealed that the most significant ethical issues to organisations are bribery, corruption and facilitation payments; whistle blowing/speaking up and discrimination, harassment or bullying (Harris, 2011). For instance, Texaco in 1996 made $176 million settlement for racial discrimination; Mitsubishi Motor Corporation settled $34 million in 1998 after a government investigation of pervasive sexual harassment and Louisana –Pacific Corporation paid a fine of $37 million in 1998 for customer and environmental fraud among other unethical practices.

Apart from cases of unethical practices in developed nations, evidence have also shown in developing countries. For instance, Nigeria, one of the developing countries in the Sub-Sahara Africa has witnessed increase in the rate of corporate failures. There were reported cases of corporate failure in Nigeria which were attributed to unethical practices of corporate leaders. The Nigerian banking sub-sector was at the halt of collapse in 1997, twenty-six commercial banks failed due to financial irregularities. In 2006, Cadbury Nigeria Plc, one of the leading Food and Beverages firms in Nigeria was affected by financial scandal. Cadbury Nigeria plc financial statement and accounts was falsified at the detriment of all stakeholders. It is against this backdrop that the study is set out to investigate effect ethical leadership on organizational performance of manufacturing firms in South East, Nigeria.
1.2    Statement of the Problem
Ideally, leaders of corporate organizations in Nigeria are supposed to give proper considerations to ethical leadership. Ethics must indeed begin at the top. Leaders cannot shrink from their obligations to set a moral example for their followers; formal ethical codes and ethic training have little chance of success unless the ethical actions and behaviour of top management are consistent with what they teach. Leaders are the key to determine the outcome of organisational goals and to set the tone for employee behavior.
Unfortunately, many companies in Nigeria have not given adequate attention to ethical leadership. This has culminated into failures of such corporate organization. Ethical leadership includes key principles such as honesty, integrity, fairness, and concern for others. This is a situation whereby leaders engage in behaviour that benefits others and refrains from behaviour that can cause harm to others. But this is not the case in many Nigerian manufacturing organizations. Corruption has gained currency in human activities in all fields of life, and attention of the world is now focused on actions and conduct of leaders in government, business, society and equally in religious associations. Despite the growing concern of researchers in the field of business ethics, cases of unethical practices have continue to manifest in corporate organizations. Corporate leaders engage in decisions that have resulted to lack of trust in the organizations leadership; and lack of commitment to organization’s goals. In South East Nigeria, there are a good number of manufacturing firms competing globally. There are also companies who, judging by their antecedents, are supposed to be among global players in the industry only to see them shutting down operations and retrenching staff. With the ever-increasing number of ethical scandals in the corporate world, the salient questions requiring answers are: what could be the effect of ethical leadership on profitability of firms, cost of operation, attraction of new employees and sales turnover of the manufacturing firms.
Ideally, leaders of corporate organization should consider their net profit, average cost of operation, level of attraction of new employees and sales turnover through ethical leadership.  Hence this study examined effect of ethical leadership on organizational performance, a study of manufacturing firms in South East, Nigeria.
1.3    Objectives of the Study
The broad objective of the study was to evaluate effect of ethical leadership on organizational performance in manufacturing firms in South East, Nigeria. The specific objectives were to:
I.    Determine the effect of ethical leadership on net profit of manufacturing firm in South East, Nigeria
II.    Ascertain the effect of ethical leadership on average cost of operation of manufacturing firms in South East, Nigeria
III.    Examine the effect of ethical leadership on level of attraction of new employees to manufacturing firms in South East, Nigeria
IV.    Ascertain the extent of effect of ethical leadership on sales turnover among manufacturing firms in South East, Nigeria
1.4    Research Questions
In order to achieve the above objectives, the following research questions will be asked.
I.    What is the effect of ethical leadership on net profit of manufacturing firm in South East, Nigeria?
II.    What is the effect of ethical leadership on cost of operation of manufacturing firms in South East Nigeria?
III.    What is the effect of ethical leadership on attraction of new employees to manufacturing firms in South East, Nigeria?
IV.    What is the extent of effect of ethical leadership on sales turnover among manufacturing firm in South East, Nigeria?
1.5    Research Hypotheses
The following hypotheses guided the study:
I.    Ethical leadership has positive effect on net profit of manufacturing firms in South East, Nigeria
II.    Ethical leadership has positive effect on average cost of operation of manufacturing firms in South East, Nigeria
III.    Ethical leadership has positive effect on level of  attraction of new employees in manufacturing firms in South East, Nigeria
IV.    There is to a large extent positive effect on  ethical leadership on sales turnover among manufacturing firms in South East, Nigeria
1.6 Significance of the Study
Leaders of corporate organizations will benefit from this study because it will give them a guideline on how to conduct their business. The government will benefit from the knowledge from the research work as it will help improve the economy due to decline in corporate failures. The general public will benefit from the study as it will lead to job creation. The researcher will benefit as it is a pre-requisite for graduation. The university will benefit as the research work increases its data bank. The research work will also serve as reference material for further research on this topic.    
1.7 Scope of the Study
The research study covered effect of ethical leadership on organizational performance. The organizations covered were Ibeto Group in Anambra State, Innoson Technical and Industrial Company Ltd in Enugu State, Vitafoam in Imo State, Allpro Industries Ltd in Abia State and Big Apple Movers in Ebonyi State all in South East Nigeria while the time scope was between 2012-2017.
1.8    Limitations of the Study
Uncooperative attitude of the Respondents: The respondents of the selected manufacturing firms in South-East Nigeria were economical with information.  
1.9    Operational Definition of Terms
The following are the definition concept used in this work
Ethics: This is the integration and amalgamation of morals and norms that are necessary for running the management of an organization.
Ethical Leadership: This can be defined as the demonstration of normatively appropriate conduct through personal actions and interpersonal relationships.