Getting fired is never fun, but American executives often get massive severance packages that cushion the blow. For example, when Robert Nardelli left the CEO spot at Home Depot in 2007, he walked away with a separation package worth approximately $210 million.

Gerard J. Arpey, former chairman and CEO of AMR Corporation, the parent company of American Airlines, surprised a lot of people when he resigned last November without a parachute or severance package. Op-ed writers in the New York Times and across the blogosphere depicted Arpey as taking a valiant moral stand to defend the rights of employees and investors who opposed American Airlines’ decision to declare bankruptcy to renegotiate contracts.

Without knowing all the details of AMR’s financial predicament or Arpey’s actions at the helm, it would be reckless to cast blame or heap praise on either Arpey or AMR. Maybe bankruptcy really was AMR’s only option if it wanted to stay afloat. Nonetheless, the rare sight of an executive taking a public moral stand that ran contrary to his own financial interests clearly hit a nerve and drew some attention to the important issue of moral leadership.

At Hay Group, we think of moral leadership in terms of Mature Power versus Personalized Power. Leaders motivated by Personalized Power take action to elevate their own status. Executives motivated by Mature Power feel more enabled and powerful when they act morally and take action to help others.  Mature Power leaders see their authority as coming from a “higher place,” whether it’s a set of moral values, a company vision, or a deeply held sense of purpose. Personal Power leaders almost exclusively see the source of their power as emanating from themselves. In the political sphere, the unrestrained practice of Personalized Power manifests itself as a dictatorship. In the C-suite, excessive Personalized Power can lead to the creation of real-life Gordon Gekkos, who use their position as a way to satiate their own status and power needs, much like Bernard Madoff or Richard Fuld of Lehman Brothers.

Can we regulate or legislate morality?

How can we restrain the excess of Personalized Power in the corporate world? One answer is through regulation and legislation. Business leaders tend to abhor regulation, but more regulation may in fact be needed to rebalance the overdrive toward Personalized Power that we have seen building steadily over the last 25 years in Hay Group surveys.

Canadian bankers complained bitterly when the government blocked the prospective merger between Bank of Montreal and the Royal Bank in 2002, but in hindsight it seems that good government oversight and regulation enabled the Canadian banking industry to weather the financial crisis of 2008-09 much better than its counterparts in the United States and Europe. By blocking the creation of a too-big-to-fail megabank and disallowing some of the riskier types of home mortgages, Canadian regulators reined in the Personalized Power ambitions that were allowed to run rampant elsewhere. Global regulators signaled their recognition of Canada’s approach in 2011 by naming Bank of Canada governor Mark Carney to head the Swiss-based Financial Stability Board that was established to strengthen regulatory oversight of the global financial industry.

It turns out that moral leadership isn’t just the right choice; it is also often the smart choice from a long-term financial standpoint. Consider the example of Starbucks CEO Howard Schultz who has achieved remarkable loyalty and high motivation among Starbucks employees by maintaining a generous benefit package that includes healthcare benefits as well as equity grants for all 107,000 of the company’s full-time and part-time workers. The healthcare premiums alone cost Starbucks a quarter of billion dollars annually, but Starbucks has been growing, hiring, recording record revenue—more than $3 billion in its most recent quarter—and generally thriving despite strong economic headwinds.

Training moral leaders

How can we do a better job of cultivating leaders who wield Mature Power in a moral way?

Some of the burden falls on business schools. In his 2004 book Managers, Not MBAs, Henry Mintzberg pointed out that we reap the leaders we sow through management training and that we are not necessarily training leaders to make good moral decisions. We are training them to make analytical and deductive decisions based on financial, technological, and marketing inputs, but we are not training them to make the sort of moral decisions demanded by a global, flat, multicultural, extremely volatile, and unpredictable economy.

So, what steps can companies take to encourage moral leadership within their own ranks?

  1. Change the way that leaders think about themselves. Trying to change a leader’s behavior is futile without first encouraging the leader to change the way she sees herself within the context of the organization. Historically, many leaders have been motivated by a strong need for achievement and Personalized Power—setting aggressive goals, driving both themselves and others toward them, and leading by example to achieve them. In the future, leadership will require different core competencies grounded in Mature Power, such as collaborating and encouraging innovation in cross-cultural global matrixed organizations. Companies have the responsibility to help leaders develop new mental models of how they see themselves as leaders based on the exercise of Mature Power to generate sustainable business success.

  2. Change leadership behavior. All of us tend to rely on behaviors that led to success in the past, but leaders who depended on Personalized Power in the past will have to adopt new behaviors as Mature Power leaders. Companies should encourage and train their leaders to think about how to practice Mature Power behavior on a daily basis. For example, Mature Power might mean collaborating not just within a team on local goals, but across functions on global goals. In some cases, encouraging innovation might mean giving up a part of your own agenda and redirecting resources to colleagues so that they can achieve a greater success for the entire organization.

  3. Change leadership contexts and relationships. All the hard work to change a leader’s self-image and behavior may be undone if the leader slides back into old habits and ways of thinking. This type of regression is most likely if the leader continues to socialize and interact with his old peer group. Companies should help foster peer networks of Mature Power leaders who can reinforce the kinds of values and behaviors that the organization would like to see in its leadership ranks. Mentors and coaches with excellent Mature Power skills can help tutor and guide rising stars in the benefits and real-world application of moral leadership practices.

There are no guarantees that every moral CEO will be able to use his Mature Power to lead his company successfully through every downturn, but if we wish to restore some public faith in business, reboot the image of the self-serving CEO, strengthen brands, build goodwill among customers, and improve employee motivation, we could progress a long way toward those goals by prioritizing and rewarding moral leadership.