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

TLDR

Recent crises such as COVID‑19, the Russia–Ukraine conflict, and recession projections threaten organizational finances, exposing supervisors to financial insecurity that may undermine their ethical leadership, yet the mechanisms remain poorly understood. The study tests whether financial insecurity induces supervisor anxiety that suppresses ethical leadership, guided by uncertainty management theory. Using UMT, the authors model that financial insecurity generates anxiety, which reduces ethical leadership, and that perceived pay fairness buffers this effect. Two multi‑source, multi‑wave studies confirmed that financial insecurity lowers ethical leadership through anxiety, and that pay fairness mitigates this effect, underscoring important theoretical and practical implications.

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.