Organizational Behavior and Human Decision Processes

This research investigated the link between ethical leadership and performance using data from the People’s Republic of China. Consistent with social exchange, social learning, and social identity theories, we examined leader–member exchange (LMX), self-efficacy, and organizational identification as mediators of the ethical leadership to performance relationship. Results from 72 supervisors and 201 immediate direct reports revealed that ethical leadership was positively and significantly related to employee performance as rated by their immediate supervisors and that this relationship was fully mediated by LMX, self-efficacy, and organizational identification, controlling for procedural fairness. We discuss implications of our findings for theory and practice. 2010 Elsevier Inc. All rights reserved. Introduction significance, autonomy, and effort in the relationship between ethiEthical leadership is defined as ‘‘the demonstration of normatively appropriate conduct through personal actions and interpersonal relationships, and the promotion of such conduct to followers through two-way communication, reinforcement, and decision-making’’ (Brown, Treviño, &Harrison, 2005, p. 120). In proposing the theory of ethical leadership, Brown et al. (2005) suggested that ethical leadership behavior plays an important role in promoting enhanced employee attitudes and behaviors. In support, prior work has linked ethical leadership to prosocial and negatively deviant behaviors (e.g., Avey, Palanski, & Walumbwa, 2010; Brown et al., 2005; Mayer, Aquino, Greenbaum, & Kuenzi, in press; Mayer, Kuenzi, Greenbaum, Bardes, & Salvador, 2009; Walumbwa & Schaubroeck, 2009). However, relatively few studies have tested howandwhy ethical leadership relates to task performance, and if so, the mechanisms through which ethical leadership relates to task performance. An important exception is recent research by Piccolo, Greenbaum, Den Hartog, and Folger (2010) that examined the roles of task ll rights reserved. O. Walumbwa), dmmayer@ g), [email protected] [email protected] cal leadership and task performance. Piccolo et al. (2010) found that ethical leadership increases task significance, which, in turn, results in improved performance. Accordingly, the primary goal of the present research is to extend this early and more recent research by examining the role of leader–member exchange (LMX) as a social exchangeprocess, self-efficacy as a social learningprocess, andorganizational identification as a social identity process in the ethical leadership–performance relationship. Leader–member exchange is defined as the quality of exchange between a supervisor and an employee (Graen & Scandura, 1987). These exchanges are posited to fall along a continuum. For example, leaders may form high-quality social exchanges that are based on trust, open communication, information sharing, and liking of followers, whereas with others, they may form lowerquality, economic exchanges that do not extend beyond the employment contract (Erdogan, Liden, & Kraimer, 2006; Sparrowe & Liden, 1997). Self-efficacy is defined as individuals’ perceptions of their ability to execute a specific task and is a major component of social learning theory (Bandura, 1977, 1986, 1997). Organizational identification refers to a feeling of oneness or belongingness to a particular group or institution (Smidts, Pruyn, & van Riel, 2001; van Knippenberg, van Knippenberg, De Cremer, & Hogg, 2004; van Knippenberg, van Knippenberg, Monden, & de Lima, 2002; van Knippenberg & van Schie, 2000), and is derived primarily from social identity theory (Tajfel, 1981). Together, we argue that the F.O. Walumbwa et al. / Organizational Behavior and Human Decision Processes 115 (2011) 204–213 205 reason why ethical leadership predicts performance is that ethical leadership behavior enhances high-quality LMX, employees’ self-efficacy, and identification with the organization. In turn, high-quality LMX, self-efficacy, and organizational identification improve employee performance. Our contribution is to further increase understanding of the complex relationship between ethical leadership and employee performance by drawing on three major traditions in testing mediation in leadership research. We view identification and self-efficacy as representing two major themes in self and identity (i.e., self-construal and self-evaluation) perspectives as mediators. Additionally, LMX represents both the social exchange and trust perspectives as psychological states that mediate the ethical leadership effect on follower performance. Until now, the ethical leadership literature focused solely on social learning and social exchange explanations for the effects of ethical leadership. Thus, we contribute to the ethical leadership literature by integrating social identity theory and including organizational identification in our theoretical model. However, some research regarding social exchange and social identity suggests that LMX and identification may not be independent influences. For example, Sluss, Klimchak, and Holmes (2008) argued that LMX and perceived organizational support are precursors to identification, suggesting that identification mediates the influence of LMX. Similarly, van Knippenberg, van Dick, and Tavares (2007; see also Hogg et al., 2005) argued that identification and LMX may interact in predicting performance. Specifically, van Knippenberg et al. (2007) found that supervisor and organizational support interact with identification such that social exchange becomes less important with higher identification. However, to our knowledge, we are aware of no prior research that has simultaneously tested these perspectives to explain the influence of leadership on employee performance. Building on and extending the above research, we believe it is worthwhile to draw from the distinct advantages of each perspective to provide a more comprehensive understanding of the underlying mechanisms that link ethical leadership to follower performance. Attention to the mediating mechanisms in the ethical leadership–follower performance relationship also highlights important practical benefits. For example, if research can specify the proximal processes through which ethical leadership works to increase performance, it could provide organizations with a framework to enhance performance through ethical leadership training. Finally, research on ethical leadership has not been conducted in China. Considering its rapid industrialization and the increased diversity in values held by Chinese people (Xie, Schaubroeck, & Lam, 2008), China provides an ideal setting for extending ethical leadership research and its practical utility. Theoretical background and hypotheses Brown and Treviño (2006a) suggested that social exchange theory (SET; Blau, 1964) and social learning theory (SLT; Bandura, 1977, 1986) provide theoretical explanations for the relationship between ethical leadership and follower behaviors. Brown and colleagues (2005) suggested that followers of ethical leaders are more likely to perceive themselves as being in a social exchange relationship with their leaders because of the ethical treatment they receive and because of the trust they feel. When employees perceive that their leaders have their best interests at heart and are caring, they are likely to reciprocate by improving task performance. Similarly, a social learning perspective on ethical leadership proposes that ethical leaders are likely to influence followers’ self-efficacy because they are attractive and legitimate role models that seek to help employees reach their potential at work (Bandura, 1986, 1997). Although social exchange and social learning theories are valuable, we argue that they are not enough to explain the complex relationship between ethical leadership and followers’ performance. Social identity theory (e.g., Ashforth & Mael, 1989; Tajfel, 1981) is another intermediate theory that we believe might further help explain the relationship between ethical leadership and performance. Social identity constitutes the perception of oneness with, or belongingness to, a specific social category where individuals are intrinsically motivated to contribute to the collective good (Ashforth & Mael, 1989; De Cremer & van Knippenberg, 2003; van Knippenberg & Hogg, 2001; van Knippenberg et al., 2004). Thus, social identity theory may complement both social exchange and social learning theories in explaining the link between ethical leadership and performance. We suggest that ethical leaders are likely to influence follower performance by enhancing greater identification with the group or organization, because such leaders represent the high ethical standards and values of the organization (van Knippenberg et al., 2004). Below, we develop hypotheses for the mediating roles of LMX, self-efficacy, and organizational identification in the ethical leadership–employee performance relationship. Ethical leadership and leader–member exchange Leader–member exchange (LMX) theory has received considerable attention in the organizational sciences (Nahrgang, Morgeson, & Ilies, 2009; Walumbwa, Cropanzano, & Goldman, in press). Leader–member exchange is based on the degree of emotional support and exchange of valued resources (Liden, Sparrowe, & Wayne, 1997; Sparrowe & Liden, 1997) between a supervisor and his or her direct report. Thus, LMX is a social exchange relationship between an employee and his or her immediate manager or supervisor (Masterson, Lewis, Goldman, & Taylor, 2000). According to social exchange theory, employees tend to develop high-quality relationships based upon whom they interact with, how they interact with them, and their experiences with them (Blau, 1964; Coyle-Shapiro & Conway, 2004; Cropanzano &Mitchell, 2005). In other words, the more frequently employees interact with their immediate supervisors, the more likely the relationship will be stronger (Dienesch & Liden, 1986). This makes leadership an important currency in social exchanges (Cropanzano & Mitchell, 2005; Erdogan et al., 2006; Wayne, Shore, Bommer, & Tetrick, 2002). Therefore, we argue that because LMX relationships are developed through a series of interactions or exchanges between leaders and followers, immediate supervisors are critical in enhancing the LMX relationship because of their proximity to employees. There are a number of ways ethical leaders can enhance highquality LMX with their followers. First, ethical leaders are viewed as moral persons who are honest and trustworthy; they are also seen as principled decision makers who care more about the greater good of employees, the organization, and society (Brown & Treviño, 2006a; Brown et al., 2005; Treviño, Brown, & Hartman, 2003). When employees perceive that leaders act in their best interests and are caring, employees infer that leaders are committed to them. The result is enhanced high-quality LMX because of high levels of loyalty, emotional connections, and mutual support (Erdogan et al., 2006; Wayne et al., 2002). In particular, Treviño, Weaver, and Reynolds (2006) argued that, ‘‘Because ethical leaders are caring. . .relationships with ethical leaders are built upon social exchange and norms of reciprocity’’ (p. 967). Ethical leaders inform their followers of the benefits of ethical behavior and the cost of inappropriate behavior and then use balanced punishment to hold followers accountable (Brown et al., 2005). Such leaders are also more concerned with establishing trusting relationships with followers through solicitation of employees’ ideas without any form of self-censorship (Brown & 206 F.O. Walumbwa et al. / Organizational Behavior and Human Decision Processes 115 (2011) 204–213 Treviño, 2006a; Brown et al., 2005). As a result, ethical leaders are able to develop meaningful interpersonal relationships that go beyond specified economic exchange agreements by encouraging employees’ opinions (Brown & Treviño, 2006a; Walumbwa & Schaubroeck, 2009), thereby facilitating high-quality LMX. Thus, we expect a positive relationship between ethical leadership and LMX. Hypothesis 1. Ethical leadership is positively related to leader– member exchange. Ethical leadership and self-efficacy Bandura (1977, 1986) listed four techniques for enhancing selfefficacy, that is, vicarious experience or modeling, verbal persuasion, affective or physiological arousal, and enactive mastery or personal attainments; each can be influenced by ethical leadership through social learning. According to social learning theory (Bandura, 1977), individuals learn standards of behavior vicariously (i.e., by watching others) and through direct modeling and verbal persuasion, helping employees to become more confident in their abilities and strengthening their behavioral and motivational patterns. De Hoogh and Den Hartog (2008) argued that ethical leaders not only stress moral values in their decision making, but they also clarify to followers how their tasks and efforts will contribute to the achievement of important work unit goals. In addition, because ethical leaders ask ‘‘What is the right thing to do?’’ when making decisions, employees learn to think strategically about the decisions they make and this process enhances employee self-efficacy. By helping employees think through the decisions they make, ethical leaders help foster an important skill that employees can utilize when making decisions on their own—and this increased autonomy improves their self-efficacy beliefs. Similarly, Zhu, May, and Avolio (2004) argued that ethical leaders’ benevolent behavior and consideration of employees’ developmental needs should cause such leaders to place employees in situations that facilitate growth and confidence in their job-related skills, thereby enhancing their levels of self-efficacy through observational or vicarious learning and persuasion. Bandura makes similar arguments. Specifically, drawing from social cognitive theory of agentic and self-regulation perspectives, Bandura (1991, 1999) has argued that social factors such as leadership, more so when such leaders are credible and demonstrate moral conduct, play a critical role in developing and strengthening efficacy beliefs. There is some empirical support for these arguments. For example, Eden and associates (e.g., Eden & Aviram, 1993; Eden & Kinnar, 1991) demonstrated that credible sources of feedback, as we would expect with ethical leaders (Brown et al., 2005), can indeed raise self-efficacy. In addition, several ethical leadership researchers (e.g., Detert & Treviño, 2010; Detert, Treviño, Burris, & Andiappan, 2007; Mayer et al., 2009; Walumbwa & Schaubroeck, 2009) have argued that ethical leadership exerts its effects in large measure through modeling, which is seen as an educational tool. In other words, employees learn how to best perform their jobs by watching their managers (Mitchell & Palmer, 2010), thereby enhancing general perceptions of self-efficacy. Ethical leaders can also enhance followers’ self-efficacy through affective arousal and enactive mastery. Ethical leaders care about more than outcomes—the process matters, too. Such leaders help employees to focuson theprocesses indoing theirwork,whichhelps to reduce some of the anxiety and stress of the ultimate outcome, thereby enhancing one’s self-efficacy. Regarding personal attainments, ethical leaders aredescribedasmore caring about employees’ best interests and thus want to see them perform well and reach their potential (Brown et al., 2005). Such leader behavior is more likely to create a psychologically safe environment for employees to get direct feedback regarding their enactivemastery (Walumbwa & Schaubroeck, 2009). The result is feeling more confident in one’s ability, leading to increased self-efficacy. Based on the above arguments and empirical evidence, we expect a positive relationship between ethical leadership and general perceptions of self-efficacy. Hypothesis 2. Ethical leadership is positively related to follower perceptions of self-efficacy. Ethical leadership and organizational identification At the conceptual level, leader behaviors that are seen as more trusting should promote and raise identification with the workgroup or organization, because such interpersonal treatment conveys to individuals that they are valued and respected (Tyler, 1997). Specifically, because ethical leaders are proactive, we expect such leaders to increase cooperation (De Cremer & van Knippenberg, 2002, 2003; Dukerich, Golden, & Shortell, 2002) which, in turn, should promote organizational identification. Mael and Ashforth (1992) found that identification is more likely to occur in the absence of competition within the organization. Furthermore, scholars (e.g., De Cremer & van Knippenberg, 2002; Tyler & Blader, 2000; van Knippenberg et al., 2004) suggest that people identify more with social institutions (i.e., organizations) when trust is present, satisfying individuals’ need for psychological safety. Empirical research provides support for this notion. For example, several studies, including experimental work, have shown that characteristics of ethical leaders such as openness and trustworthiness, among others, are positively related to organizational identification (see De Cremer, Brebels, & Sedikides, 2008; McAllister, 1995; Sluss & Ashforth, 2008; Smith, Thomas, & Tyler, 2006). Drawing on this literature, we expect a positive ethical leadership–organizational identification relationship. Hypothesis 3. Ethical leadership is positively related to organizational identification. Leader–member exchange, self-efficacy, and organizational identification as mediators Leader–member exchange Social exchange theory suggests that employees who are in a high-quality LMX relationship tend to be more effective workers (Sparrowe & Liden, 1997). This process can be explained by a core principle of social exchange theory called the ‘norm of reciprocity,’ which suggests that individuals who are treated favorably by others feel a sense of obligation to respond positively or return favorable treatment in somemanner (Blau, 1964; Gouldner, 1960). Once high-quality LMX is in place, subordinates tend to reciprocate by exerting effort on behalf of the leader (Wayne & Green, 1993). As a result, high-quality LMX can boost individual motivation for high job performance (Chen & Kanfer, 2006). Supporting these arguments, several prior individual and meta-analytic studies reported significant positive relationships between LMX and job performance (Bauer, Erdogan, Liden, & Wayne, 2006; Gerstner & Day, 1997; Walumbwa, Cropanzano, & Hartnell, 2009; Walumbwa et al., in press; Wang, Law, Hackett, Wang, & Chen, 2005). These findings are important because they suggest that LMX is a proximal cause of functional workplace behavior (Gerstner & Day, 1997; Sparrowe & Liden, 1997; Wayne et al., 2002). For example, Chen and Klimoski (2003) found in a longitudinal study that newcomers who developed a better relationship with their supervisor subsequently performed better. Therefore, we argue that LMX acts as an important mechanism through which ethical leadership F.O. Walumbwa et al. / Organizational Behavior and Human Decision Processes 115 (2011) 204–213 207 influences performance. However, because there may be other processes separate from a social exchange process, such as social learning (e.g., Brown et al., 2005) and social identity, that may also mediate the effect of ethical leadership on performance, we propose partial rather than full mediation. Hypothesis 4. Employee perceptions of leader–member exchange partially mediate the relationship between ethical leadership and employee performance.