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Financially insecure and less ethical: Understanding why and when financial insecurity inhibits ethical leadership

Journal: Human Relations

Date: 2023

Author: Yuanmei (Elly) Qu, Mayowa T Babalola, Chidiebere Ogbonnaya, Shuang Ren, Lu Chen, Mengxi Yang

Abstract:
With the recent COVID-19 pandemic, among other crises (e.g., Russia–Ukraine conflicts and recession projections) threatening organizations’ financial conditions across the globe, supervisors may not only encounter challenges such as job cuts that test their ethical leadership, but also experience financial insecurity themselves. However, our knowledge of why and when supervisors’ ethical leadership behaviors may be affected in such a situation remains quite limited. In this research, we draw on uncertainty management theory (UMT) to examine the potential influence of financial insecurity on ethical leadership. Specifically, we suggest that financial insecurity triggers anxiety in supervisors, which inhibits their demonstration of ethical leadership. We also propose organizational pay fairness as a boundary condition for this process, such that supervisors who perceive their pay as fair are less susceptible to the anxiety resulting from financial insecurity than those who perceive their pay as unfair. Results from two multi-source, multi-wave studies supported our hypothesized model. We conclude by discussing the theoretical and practical implications of our findings.

Link: Google Scholar

Background and Context

Research Problem

Financial insecurity among supervisors has increased due to global crises like COVID-19 and Russia-Ukraine conflicts, potentially compromising their ethical leadership behaviors.

Theoretical Framework

Uncertainty Management Theory (UMT) explains how people respond to uncertain situations through anxiety and how fairness-related information helps mitigate negative effects.

Methodology

Two multi-source, multi-wave studies were conducted with supervisor-subordinate dyads from various industries in China, collecting data at three time points.

Financial Insecurity Creates Pathway to Reduced Ethical Leadership

Financial Insecurity Supervisor Anxiety Reduced Ethical Leadership
  • Financial insecurity increases supervisors' anxiety about their economic situation and future financial well-being.
  • Anxious supervisors become preoccupied with their financial situation, drawing attention away from ethical standards.
  • This anxiety-driven focus on self-protection ultimately compromises supervisors' ability to demonstrate ethical leadership behaviors.

Anxiety Significantly Decreases Ethical Leadership Behaviors

  • Supervisors experiencing high anxiety scored significantly lower on ethical leadership measures in both studies.
  • Anxiety draws attention away from ethical standards toward self-protective behaviors to mitigate uncertainty.
  • This negative relationship remained significant even after controlling for other factors like moral identity.

Pay Fairness Buffers Against the Negative Effects of Financial Insecurity

  • When organizational pay fairness is high, financial insecurity has minimal impact on supervisor anxiety levels.
  • In conditions of low pay fairness, financial insecurity triggers much stronger anxiety responses in supervisors.
  • Pay fairness acts as a buffer by providing predictability and perceived control over financial circumstances.

Indirect Effect of Financial Insecurity on Ethical Leadership Through Anxiety

  • The indirect negative effect of financial insecurity on ethical leadership becomes insignificant when pay fairness is high.
  • Under low pay fairness conditions, financial insecurity significantly reduces ethical leadership via increased anxiety.
  • This moderated mediation pattern was consistent across both studies, demonstrating the robustness of the findings.

Financial Insecurity Has Stronger Effect Than Other Forms of Uncertainty

Comparing Types of Uncertainty and Their Effects Financial Insecurity Workplace Uncertainty Life Uncertainty Strength of Indirect Effect on Ethical Leadership
  • Financial insecurity showed the strongest indirect negative effect on ethical leadership compared to other forms of uncertainty.
  • While workplace uncertainty had a marginally significant effect, life uncertainty showed no significant relationship with ethical leadership.
  • This highlights the particular importance of financial security for maintaining supervisor ethical leadership behaviors.

Contribution and Implications

  • Identifies supervisor financial insecurity as a critical yet overlooked impediment to ethical leadership in organizations.
  • Reveals anxiety as the emotional mechanism that explains how financial insecurity undermines ethical leadership behaviors.
  • Demonstrates organizational pay fairness can mitigate the negative effects, highlighting the importance of fair compensation systems.
  • Expands financial insecurity research by showing its double impact: affecting both supervisor behavior and subordinate outcomes.
  • Offers practical guidance for maintaining ethical leadership during economic crises through pay fairness and anxiety management.

Data Sources

  • The theoretical model visualization is based on Figure 1 from the article showing the relationships between key variables.
  • The anxiety-ethical leadership relationship chart uses data from Table 1 and Table 3 showing significant negative correlations.
  • The moderation visualization reflects Figures 2 and 3 from the article showing interaction effects for high vs. low pay fairness.
  • The indirect effect chart is based on values from Table 3 and Table 6 showing the moderated mediation results.
  • The types of uncertainty comparison visualization uses indirect effect values from Table 6 of Study 2.