Business and Management INK

Rethinking Organizational Crisis Management: How Financial Insecurity Inhibits Ethical Leadership

By Mayowa T Babalola, Yuanmei Qu, and Lu Chen

January 17, 2023

Wooden boardwalk runs into foggy distance — (Photo: Nidan/Pixabay)

Recently, a research paper entitled “Financially secure and less ethical: Understanding why and when financial security inhibits ethical leadership,” written by Yuanmei (Elly) Qu (Rowan University), Mayowa T Babalola (Royal Melbourne Polytechnic University), Chidiebere Ogbonnaya (Kent University), Shuang Ren (Queen’s University Belfast), Lu Chen (University of Electronic Science and Technology of China), and Mengxi Yang ( University of Chinese Academy of Sciences), was published online in the journal Human Relations. Today, on behalf of the research team, Mayowa T Babalola, Yuanmei Qu, and Lu Chen, answer some questions about their paper. Their answers appear just below the paper’s 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.

What motivated us to pursue the research?

Times are getting more challenging nowadays. Many workers across the globe are experiencing financial insecurity (i.e., a situation whereby individuals perceive themselves to have insufficient financial resources to achieve their goals) amidst recession fears, interest rate hikes, mortgage crises, and increasing cost of living. People who occupy leadership positions (e.g., front-line supervisors) are included. Ethical leadership can effectively improve subordinate well-being and performance by demonstrating and promoting normatively appropriate conduct through personal and interpersonal relationships. Thus, organizations call for ethical leadership in a crisis. This leads to a question, does financial insecurity promote or inhibit ethical leadership?

In what way is your research innovative, and how do you think it will impact the field?

Our new research paper shows that being financially insecure creates anxiety in leaders, ultimately inhibiting ethical leadership behaviors. Fortunately, we found that leaders who perceive their pay as fair were less susceptible to the anxiety resulting from financial insecurity. In other words, organizational pay fairness helped mitigate the negative impact of financial insecurity. We advise organizations to reinforce their commitment to pay fairness this year and beyond, as doing so can help forestall potential damage financial/economic insecurity may cause in their organizations.

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Mayowa T Babalola, Yuanmei Qu, and Lu Chen

Mayowa T Babalola is a professor of management at Royal Melbourne Polytechnic University. Yuanmei Qu is an assistant professor of management and entrepreneurship at Rowan University. Lu Chen is a professor of management in the School of Economics and Management at the Research Center for West Africa at the University of Electronics Science and Technology of China.

View all posts by Mayowa T Babalola, Yuanmei Qu, and Lu Chen

Published

January 17, 2023