Ethical Leadership Evaluations After Moral Transgression: Social Distance Makes the Difference Andranik Tumasjan Maria Strobel Isabell Welpe ABSTRACT. In light of continuing corporate scandals, the study of ethical leadership remains an important area of research which helps to understand the antecedents and consequences of ethical behavior in organizations. The present study investigates how social distance influences ethical leadership evaluations, and how in turn ethical leadership evaluations affect leader���member exchange (LMX) after a leader���s moral transgression. Based on con- strual level theory, we propose that higher social distance will lead to more severe evaluations of immoral behavior and therefore entail lower ethical leadership ratings. More- over, we hypothesize that ethical leadership will positively affect LMX. Participants read a scenario describing a moral situation in which a leader, who was presented in either high or low social distance, behaves unethically toward an employee. We tested our predictions using a structural equation modeling approach. As expected, participants in the high social distance condition judged leaders more harshly (i.e., they gave lower ethical leadership ratings) than in the low social distance condition. Thus, social distance moderated the extent to which leaders are perceived as ethical leaders after moral transgression. Moreover, in accordance with our proposition, ethical leadership ratings had a positive influence on LMX. KEY WORDS: ethical leadership, construal level the- ory, social distance, moral reasoning, leader���member exchange Introduction Ethical leadership, i.e., leadership comprising ������the demonstration of normatively appropriate conduct [���]������ (Brown et al., 2005, p. 120), has been an in- tensely investigated area of research in the past few years (Avolio et al., 2009 Brown and Trevino, �� 2006 Toor and Ofori, 2009). Ethical leadership has been shown to relate to a number of subordinate outcomes (see Brown et al., 2005) and has recently also been suggested to positively influence the relationship between leaders and their subordinates [e.g., leader��� member exchange (LMX) see Shacklock and Lewis, 2007]. However, a curious puzzle concerns the inconsistency of corporate leaders��� ethical conduct evaluations by subordinates. According to a recent national poll more than three quarters of Americans and the majority of business executives believe that the moral compass of US corporate organizations is pointing in the wrong direction. On the other hand, the vast majority of the same people that rate the ethics of corporate America negatively evaluate their own company���s ethical conduct positively (Marist Poll, 2009). In their seminal review on ethical lead- ership, Brown and Trevino �� (2006) raise the same question: Why do some surveys find that only a minority of respondents have confidence in corpo- rate leaders in general, whereas other surveys find that leaders of one���s own organization are rated much more favorably in terms of ethical conduct? Obvi- ously, there seems to be a relatively stable positive evaluation bias in favor of leaders of one���s own organization. However, despite this intriguing dis- crepancy between the ethical evaluation of relatively near and distant leaders (i.e., leaders of one���s own organization vs. corporate leaders in general), there is no empirical research investigating the reasons and underlying mechanisms of this phenomenon. We propose that social distance (i.e., the distance between the person evaluating the moral issue and the actors of the moral issue) explains the discrep- ancy between the ethical evaluation of leaders of one���s own organization and leaders of corporate organizations in general. Previous research based on construal level theory (CLT e.g., Eyal et al., 2008 Journal of Business Ethics (2011) 99:609���622 �� Springer 2010 DOI 10.1007/s10551-010-0671-2

see also Trope and Liberman, 2010), has shown that moral issues are judged more harshly in higher psychological distance. Building up on and extend- ing this research, we argue that leaders��� unethical decisions are evaluated more harshly in higher social distance, resulting in lower ethical leadership ratings and lower ratings of LMX. Moreover, we propose that lower social distance between the evaluator and the leader causes the evaluator to consider more the thoughts and motives of the leader and other cir- cumstantial information, which in turn affects the extent to which the leadership behavior is consid- ered ethical. The main objective of this study is thus to investigate how ethical leadership evaluations after a leader���s unethical behavior are influenced by social distance between the evaluator and the leader. Moreover, we examine whether this effect is med- iated by moral reasoning (MR i.e., detailed con- siderations regarding the moral transgressor). Finally, as an indicator of the importance of ethical leader- ship evaluations for subordinate outcomes, we investigate the consequences of ethical leader- ship evaluations for perceived LMX (Graen and Uhl-Bien, 1995 Liden and Maslyn, 1998). Our research contributes to the existing litera- ture in three ways. First, expanding the literature on ethical leadership, we identify social distance as a moderator of ethical leadership ratings after moral transgression and explore the effect of ethical lead- ership ratings on LMX. Second, adding to the liter- ature on CLT, we test its predictions in a leadership context. Third, we specify a reasoning mechanism which may be responsible for the social distance effects in a moral judgment context. In the following literature review, we will first introduce the concept of ethical leadership. After an overview of research on distance/proximity in the context of moral judgment, we will then derive our hypotheses regarding the effect of social distance on ethical leadership evalua- tion. Finally, we will discuss LMX as an aspect of the leader���follower relationship which is likely to be affected by ethical leadership evaluations. Ethical leadership Ethical behavior of leaders is part of different conceptualizations of leadership style such as, for example, charismatic leadership (Conger and Kanungo, 1987), transformational leadership (Bass and Steidlmeier, 1999 Burns, 1978), authentic leadership (Luthans and Avolio, 2003), and spiritual leadership (Fry, 2003). Whereas in all of these con- cepts, ethical conduct is just one among several as- pects of leadership style, more recent research has defined ethical leadership as a construct on its own in order to capture the characteristics of ethical lead- ership behavior and to investigate its antecedents and outcomes. Brown et al. (2005) define ethical leadership as ������the demonstration of normatively appropriate conduct through personal actions and interpersonal relationships, and the promotion of such conduct to followers through two-way com- munication, reinforcement, and decision-making������ (Brown et al., 2005, p. 120). Ethical leadership was shown to be correlated with ��� but empirically distinct from ��� ethics-relevant aspects of other leadership style conceptualizations, such as consid- eration behavior, honesty, and interactional fairness (Brown et al., 2005). Moreover, ethical leadership is related to a number of positive outcomes on the subordinate side, such as job satisfaction (Neubert et al., 2009), satisfaction with the leader (Brown et al., 2005 Toor and Ofori, 2009), perceived leader effectiveness (Brown et al., 2005 de Hoogh and den Hartog, 2008), employee willingness to put in extra effort (Toor and Ofori, 2009), and affective organi- zational commitment (Neubert et al., 2009). As antecedents of ethical leadership, Brown and Trevino�� (2006) propose situational circumstances (e.g., the ethical context in the organization) as well as indi- vidual characteristics of the leader (e.g., MR level). Ethical leadership is commonly assessed by others��� ��� typically subordinates��� ��� ratings (Brown and Trevino, �� 2006). Obviously, committing a moral transgression will negatively affect the ethical lead- ership ratings a leader receives by her subordinates or others. However, evaluations of ethical leadership may not entirely be determined by a leader���s actual behavior and characteristics, but also be contingent upon contextual conditions. For instance, Giessner and van Knippenberg (2008) found that leaders can have some ������license to fail������ under particular cir- cumstances. In their study, leaders who were more prototypical for their group (i.e., who were more representative of the common group identity) received more favorable effectiveness ratings after 610 Andranik Tumasjan et al.