Embedding Ethical Leadership Within and Across Organization Levels

Academy of Manogement Journal
2012. Vol. 55. No. 5. 1053-1078.

http://dx.doi.org/10.5465/ainj.2011.0064
EMBEDDING ETHICAL LEADERSHIP WITHIN AND ACROSS

ORGANIZATION LEVELS
JOHN M. SCHAUBROECK
Michigan State University
SEAN T. HANNAH
Wake Forest University
BRUCE J. AVOLIO
University of Washington
STEVE W. J. KOZLOWSKI
ROBERT G. LORD
Akron University
LINDA K. TREVIO
Pennsylvania State University
NIKOLAOS DIMOTAKIS
Georgia State University
ANN C. PENG
We develop and test a model linking ethical leadership with unit ethical culture, both
across and within organizational levels, examining how both leadership and culture
relate to ethical cognitions and behaviors of lower-level followers. The data were
collected from 2,572 U.S. Army soldiers representing three organizational levels deployed in combat. Findings provide limited support for simple trickle-dovm mechanisms of ethical leadership but broader support for a multilevel model that takes into
account how leaders embed shared understandings through their influence on the
ethical culture of units at various levels, which in turn influence followers' ethical
cognitions and behavior. The influences of ethical leadership occur not only directly,
among immediate followers within a unit, but also indirectly, across hierarchical
levels, through the cascading of ethical culture and senior leaders' influences on
subordinate leader behavior. We discuss scholarly and practical implications for
understanding how leaders transmit ethical influence both down and across large
organizations.
(e.g.. Brown, Harrison, & Trevio, 2005), aspects of
organizational context, such as low levels of "ethical culture" ("bad barrels" [e.g., Trevio & Youngblood, 1990]), and the interaction of individual predispositions and context (e.g., Trevio, 1986). In
this study, we extend previous research and theory
to examine how ethical cognitions and behaviors of
organization members reflect tbeir responses to a
web of direct and indirect influences of ethical leadership and unit-level norms, standards, and sanctions
pertaining to ethical behavior transmitted across multiple levels of an organizational hierarchy.
Unethical organizational behaviors have been attributed to the effects of individual "had apples"
(e.g., Hannah, Avolio, & May, 2011), their leaders
The authors acknowledge the United States Army soldiers who, despite serving their nation in an active combat zone, volunteered to participate in this research. We
also thank the Army chaplains who traveled between
combat outposts to collect this data, the leadership of
Multinational Force Iraq, and the U.S. Army's Center for
the Army Profession and Ethic (CAPE), which sponsored
this research. We also want to express our appreciation to
Megan Huth for her assistance with the data.
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Academy of Management Journal
Scholars have called for taking a multilevel approach to more fully understand how leadership at
higher levels of organizations influences lower-level
followers (e.g., Waldman & Yammarino, 1999]. Yet
prior empirical work on leadership has primarily focused on direct relationships between leader behaviors or traits and the responses of their immediate
followers (Yammarino & Dansereau, 2008]. Researchers have not comprehensively tested the various loci
through which upper-level leaders influence the cognitions and behavior of lower-level followers. Thus,
currently little is known about how leadership and
contextual factors at higher organization levels influence outcomes at lower levels. From a metatheoretical perspecfive, how a coherent system of social influence is transmitted across multiple levels of an
organization is fundamental to understanding organizafional behavior (Kozlowski & Klein, 2000; Simon, 1973].
We develop a multilevel model in which ethical
leadership, which is seen as a leader's use of social
influence to promote ethical conduct (Brown et al.,
2005], exhibited at various levels of an organizational hierarchy, not only directly influences immediate followers' ethical conduct, but also indirectly influences the ethical beliefs and conduct of
followers at lower levels owing to (a] the replication of ethical leader behaviors among subordinate
leaders and (b] the embedding of shared understandings that represent observable elements of
work unit ethical culture. Our proposed model is
tied to a foundational framework of organizational
culture developed by Schein (1985, 2010], who
posited mechanisms through which leaders embed
their assumptions into the "thinking, behavior, and
feelings" of groups (1985: 223]. We draw from
Schein's "embedding mecbanisms" (1985: 224] and
"sbared cultiural elements" (1985: 169] and extend
his theoretical framework by developing and testing a multilevel model linking leadership, shared
cultural elements, and their direct and indirect effects on follower ethical cognitions and behaviors.
This approach provides a starting framework for
understanding how different leaders influence ethical outcomes within a complex multilevel system.
THEORETICAL FRAMEWORK
Our research model draws from Schein (1985,

2010] to explain how senior leaders influence the
ethical conduct of followers at lower levels by embedding their expectations and assumptions into
the observable manifestations of ethical culture.
Schein defined culture as a system of shared assumptions that can have a strong influence in directing followers' behaviors and beliefs. Organiza-
October
tional culture is represented as varying in layers,

with the deepest layer being a broad system of
assumptions and deeply held shared meanings,
and the surface layer representing more tangible,
observable factors that reflect those assumptions.
Schein (1985, 2010] argued that leaders at all levels
can influence the surface layer of an organization's
culture, including visible artifacts such as behavioral norms, policies, and standards, particularly as
these relate to specific domains of influence that
Schein described as shared cultural elements. By
influencing these surface elements, leaders can
help others interpret their unit and organization's
culture in terms of how it relates to their roles and
expectations.
Unit Ethical Culture
Shared understandings concerning ethical conduct can be seen as a shared cultural subelement, or
a "microcosm" of an overall organizational culture
(Trevio, 1986, 1990]. This aspect is the part of the
culture that distinguishes what is "heroic" from
what is "sinful" (Schein, 1985: 79] and is composed
of patterns of shared understandings related to unethical and ethical conduct reflecting the norms,
standards, sanctions, and rewards applied to behaviors deemed desirable and undesirable in an
organization. This focus is consistent with how
Trevio (1986, 1990] and Trevio, Butterfield, and
McCabe (1998] defined ethical culture. Specifically, in their view ethical culture is "a subset of
organizational culture, representing a multidimensional interplay among various 'formal' and 'informal' systems of behavioral control that are capable
of promoting either ethical or unethical behavior"
(Trevio et al., 1998: 451-452]. This use of the term
"culture" should not be equated with broader definitions of culture that relate to the shared assumptions that combine to form deep organizational culture. Rather, in the current study, ethical culture
refers to surface-level cultural artifacts that are observable and were called shared cultural elements
by Schein (1985]. This conceptualization is similar
to descriptions of climate in other research (e.g.,
Zohar & Luria, 2005]. However, there exists a longestablished construct and measure of ethical climate (Victor & Cullen, 1988] in the organizational
ethics literature that refers to criteria used in ethical judgment processes and the level of analysis
used by parties in making ethical judgments. This
construct has spawned a significant amount of research over the last 20 years (Arnaud & Schminke,
in press]. Thus, we use the label "ethical culture"
rather than "ethical climate" to be consistent with
Schein (1985, 2010], noting that we are focusing on
Schaubroeck et al.
2012
the surface level of ethical culture, following

Trevio (1990; Trevio et al. 1998), and to avoid
confusion with the established ethical climate construct and its different meaning.
"Formal" ethical culture systems include policies
(e.g., codes of ethics that are enforced), authority
structures, reward systems, and ethics training programs. "Informal" systems include peer behavior, use
of ethical language, myths, stories, and ethical norms.
When the members of an organization or a unit in an
organization have strong shared understandings
about such matters, they are expected to be more
cognizant of ethical issues, to avoid unethical conduct personally, and to discourage unethical conduct
in others (Trevio, 1986). Such units penalize imethical behavior, reward virtuous behavior, and maintain strong ethical norms. This conceptualization
contains both global properties pertaining to organizational codes and shared social properdes within
the imit concerning agreed-upon norms and prescribed patterns of behavior. Following Schein, we
refer to such domains in general as "shared cultural
elements" and refer to Trevio and colleagues' (1998)
construct as it applies to the domain of ethics at
various hierarchical levels as "ethical culture."
Whereas one may also use the term "ethical culture"
to refer to an organization as a whole, we expect that
ethical culture varies across different units and levels
of an organization despite common global influences,
such as organizational codes of ethics and other
norms, rules, and regulations at the organizafion or
societal level. In addition, as Schein noted, "'shared'
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understanding means that vmit members recognize a

particular feeling, experience or activity as common"
(1985: 168; emphasis in original). From a multilevel
theory perspective, such constructs are compositional in form and exhibit restricted within-imit variation (Kozlowski & Klein, 2000).
Overview of Research Model
In this study, we develop a multilevel model for
understanding how leadership and culture influence ethics-related cognitions and behaviors, and
we test it using survey data collected from a large
sample of deployed soldiers at different hierarchical levels. Specifically, we examined leadership by
assessing four separate potential mechanisms for
leadership effects across organizational levels, as
displayed in Figure 1. First, a senior leader's style
may be mirrored by that leader's followers (Bandura, 1971). To the extent that subordinate leaders'
behavior mirrors that oftheir senior leaders, a positive downward relationship exists between the
styles of leaders at adjacent levels. Second, indirect
effects of higher-level leaders that involve multiple
downward linkages are possible; these effects may
occur, for example, when subordinate leaders mirror senior leaders' styles and those subordinate
leaders' styles in turn influence how their followers
think and behave. The passage of direct and indirect effects down a hierarchy of authority has been
variously labeled "the cascade of leadership," "the
trickle-down model," and "the falling dominoes
FIGURE 1
Direct and Indirect Efects of Ethical Leadership and Ethical Culture across Hierarchical Levels^
Level 3
Ethical Leadership
(L3)
Ethical
Culture
(G3)
Level 2
Ethical Leadership
(L2)
Ethical
Gulture
(G2)
Level 1 Ethical Leadership

(LI)
Ethical
Gulture
(GI)
Ethical and
Unethical
Gognitions and
Behaviors
(01)
Dashed lines denote unexplained direct effects that have been conventionally labeled as "bypass" effects.
1056
effect" (Bass, Waldman, Avolio, & Bebb, 1987;

Mayer, Kuenzi, Greenbaum, Bardes, & Salvador,
2009; Waldman & Yammarino, 1999). Third, an
indirect leadership effect may occur through the
horizontal and lateral linkages shown in Figure 1;
for instance, a more senior leader may foster an
ethical culture that then spreads to influence culture and behavior in lower organizational units.
This effect of leaders on unit cultures is a more
diffuse and complex process involving multiple
coactors. It may be reflected in multiple effects
showing mediation at different levels, such as
through subordinate leader and follower behaviors
and through leaders' effects on unit culture at lower
levels (Bass & Bass, 2008). Finally, senior leaders'
influence can skip levels and directly affect lowerlevel followers' behavior as a result of their direct
interactions (Detert & Trevio, 2010). This creates a
fourth potential mechanism of leader influence referred to as a bypass processing model (Yammarino, 1994).
Outcomes of Ethical Leadership and

Ethical Culture
Prior research on ethical leadership has assessed
a limited set of criteria. A recent review of the
ethical leadership literature by Brown and Mitchell
(2010) noted that besides research on organizational citizenship behavior (OCB), surprisingly little empirical research has examined how ethical
leadership relates to follower ethical or unethical
behavior. Theory and research suggest that the normative and informational influences of a unit with
strong ethical leadership should support ethical
conduct and cuih organization members' serious
ethical transgressions. Collective understandings
about ethical conduct that become embedded in
shared cultural elements should also encourage
stronger beliefs among individual members about
their moral agency, including (a) moral efficacy and
(b) intentions to report others' ethical violations.
Hannah et al. defined moral efficacy as "an individual's belief in his or her capabilities to organize
and mobilize the motivation, cognitive resources,
means, and courses of action needed to attain moral
performance within a given moral domain, while
persisting in the face of moral adversity" (2011: 24).
With higher moral efficacy, individuals are more
likely to convert moral judgments and intentions
into ethical actions. Hannah and Avolio (2010) proposed that moral efficacy would be bolstered when
followers are immersed in a context that provides
the "means" (e.g., leader support and policies supportive of ethical actions) to act ethically.
October
Individuals' intentions to report the ethical violations of others are also related to moral agency. If
unethical behavior is to be addressed in organizations, authority figiures must know about it and
therefore must set conditions to promote follower
reporting. Followers tend to keep their knowledge
of ethical problems to themselves for a number of
reasons, including fear of retaliation, a sense that
nothing will be done, or habituation to silence in
authority situations (Detert & Edmondson, 2011;
Kish-Gephart, Detert, Trevio, & Edmondson,
2010). Ethical leadership and a strong ethical culture can be expected to enhance followers' willingness to speak up because they are more likely to feel
protected from retaliation and to believe that positive
acons will be taken to address their concern. In past
research, ethical leadership has been posifively related to "voice" and the likelihood that followers will
report problems to authorities (Brown et al., 2005;
Walvunbwa & Schaubroeck, 2009).
Beyond being seen as promoting followers' moral
efficacy and enabling them to report violations and
to refrain from ethical transgressions, ethical leaders are also seen as moral role models who encourage followers to strive toward moral ideals and
engage in ethical behavior that exceeds expectations (Brown & Trevio, 2006). We draw from
scholarly work on virtuous ethical behavior (e.g..
Walker & Henning, 2004) in defining exemplary
behavior as undertaking imusual personal risk or
sacrifice to achieve a desirable collective purpose.
It is important to note that these outcomesmoral
efficacy, intentions to report violations, transgressions, and exemplary behaviorare conceptualized
as "compilation constructs" (Kozlowski & Klein,
2000). Rather than regarding them as constructs that
are emergent and shared at the unit level, as are
ethical leadership and ethical culture, we conceptualize them as configurations of individual belief
states, intentions, and rates that capture the descriptive averages among individuals in a unit.
Transmission of Ethical Leadership through
Ethical Culture
Direct effects. The notion that there is a relationship between what leaders do and the norms and
codes of their unitssuch as the direct effects of
ethical leadership on ethical culture shown as L3
^ C3, L2 - C2, and Ll -^ Cl in Figure 1, which
summarizes our modelis quite well accepted
among organizational scholars (Schein, 2010; Yukl,
2002). Leaders establish priorities for their units
and expectations for what will be rewarded, punished, and tolerated. In addition to employing these
more transactional means, leaders can also serve as
2012
Schaubroeck et al.
moral exemplars for followers to help them understand what is right and wrong and to be attracted to
developing a more ethically centered self-image
(Walker & Herming, 2004).
However, previous leadership studies have not
explicitly integrated unit shared cultural elements
(Schein, 1985, 2010) into either their theoretical
framing or their analyses of how these elements
may mediate the relationships between leader behavior and follower outcomes occurring within or
between organizational levels. Such cultural elements are likely to be important because, in addition to directly impacting followers' beliefs and
behaviors, leaders create shared understandings
that affect these outcomes (Depret & Fiske, 1993;
Dragoni, 2005). With regard to ethics-related outcomes, follower cognitions and bebavior should
tend to align with these shared normative understandings, which are represented as ethical culture.
Thus, in our study, ethical leadership is expected
to be associated with ethical culture, which in tvirn
promotes more positive beliefs among members
about their personal capacity to act as moral agents,
as well as reduced ethical transgressions and increased exemplary ethical behavior.
Ethical leadership transmitted through embedding mechanisms. To influence shared cultural elements at a particular unit level and then transmit
this influence to lower levels, Schein argued, leaders strive to embed their beliefs, values, and assumptions into members' shared understandings.
Leaders do this by using a range of primary and
secondary "embedding mechanisms" through
which they influence the visible artifacts of shared
cultural elements (Schein, 1985: 223). The primary
mechanisms are seen as having the most direct and
strongest effects on the beliefs, values, and assumptions of followers. Among these primary mechanisms, Schein described "what leaders pay attention to, measure, and control" as being the most
powerful (2010: 237; cf. Feldman, 1984). Other primary embedding mechanisms include "deliberate
role modeling, teaching, and coaching" and "allocating rewards and status" (Schein, 2010: 236). Followers' perceptions of a leader's ethical leadership
relate directly to these primary embedding mechanisms. Specifically, Brown and colleagues defined
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 communication, reinforcement, and decision making" (2005: 120). Ethical leadership includes what has been labeled a "moral manager"
aspect and a "moral person" aspect (Brown &
Trevio, 2006: 597). As a moral manager, a leader
1057
specifies conduct that is proper and improper, explains the rewards and sanctions associated with
behaving ethically and unethically, appropriately
disciplines infractions, and rewards virtuous behavior. As a moral person, the leader models exemplary behavior and leads in a principled, just, and
caring manner. Ethical leadership as conceptualized by Brown et al. (2005) incorporates elements
of Schein's (1985, 2010) primary embedding mechanisms, including paying attention to, measuring,
and controlling followers' behavior, as well as the
primary mechanisms of role modeling and coaching followers to exhibit exemplary ethical behavior
and to avoid unethical behavior.
Other embedding mechanisms may also be represented in ethical leadership. Schein described
how a leader's approach to handling "critical incidents" (cf. Feldman, 1984), allocating resources,
and "selecting, promoting, and excommunicating"
(Schein, 1985: 235) followers are additional primary embedding mechanisms. When a member's
ethical infraction comes to a leader's attention, this
event can be seen as a critical incident. How the
leader responds is diagnostic and will influence
followers' perceptions of the leader as a moral manager. Failing to discipline the follower and use this
critical incident as a lesson to others may undermine her/his authority in ethical matters and persuade followers that ethical standards are not enforced in the unit. Alternatively, a significant loss
of status or dismissal ("excommunication") of a
follower for an ethical infraction may reinforce perceptions of ethical leadership and, in turn, increase
confidence that sanctions are used to enforce ethical standards. One can also imagine that leaders
who allocate resources to teaching proper ethical
conduct, such as through ethical training, would
more likely be seen as moral managers or ethical
leaders.
Ethical culture may also involve secondary embedding mechanisms in which leaders engage.
Schein (1985, 2010) described these as being less
powerful and potentially more ambiguous than the
primary embedding mechanisms. These secondary
mechanisms refer to such artifacts as stories, workflow designs, and other organization structures,
procedures, and formal statements of leaders. For
example, ethical leaders may tell stories of how an
individual's exemplary ethical behavior was rewarded, and/or stories of how past organization
members' unethical conduct was disciplined. Such
stories may be very salient in members' memories,
and they may pass them along to others to whom
the story will serve as an incentive or as a deterrent.
These secondary mechanisms are also consistent
with ethical leadership, as stories and formal state-
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ments with implications for ethical conduct are a

potential tool for managers seeking to lead ethically. Together, the primary and secondary embedding mechanisms are expected to shape the formation of shared, unit-level perceptions of ethical
leadership as a compositional construct (Kozlowski
& Klein, 2000). Ethical leadership in turn becomes
embedded into shared understandings about ethical norms, standards, and sanctions in a luiitthat
is, ethical culturewhich is also compositional.
Studies by Browm and colleagues (2005) and
other recent work collectively indicate that when
individuals perceive their leader as a proponent
and exemplar of ethical behavior, they report individual and work unit psychological states that are
conducive to more ethical conduct (Walumbwa,
Mayer, Wang, Wang, Workman, & Christensen,
2011; Walumbwa & Schaubroeck, 2009). When
they perceive stronger ethical leadership, followers
are more likely to engage in prosocial behaviors
and less likely to engage in deviant or counterproductive bebaviors (Mayer et al., 2009; Neubert,
Carlson, Kacmar, Roberts, & Chonko, 2009). However, we are not aware of any research that has
examined the linkage between ethical leadership
and ethical culture, much less research concerning
how ethical culture may aid in the transmission of
ethical leadership in a manner that influences important ethics-related cognitions and behaviors of
followers within and between organizational
levels.
Hypothesis 1. Ethical leadership is positively
related to ethical culture
within a
hierarchical level.
Hypothesis 2. Through ethical culture, ethical
leadership is indirectly and positively related
to unit members' moral agency (their belief in
their capacity to act effectively as moral agents
and their intentions to report unethical behavior) and exemplary ethical behavior and negatively related to their ethical transgressions.
Hypotheses 1 and 2 recognize that differences
likely exist in leadership and ethical culture among
units at a particular organizational level. In the next
section, we discuss how our theoretical framework
is operationalized at different hierarchical levels
and how higher-level ethical leadership and ethical
culture are associated with outcomes at the lowest level.
Cascading Effects of Ethical Culture and
Ethical Leadership
Unit-level differences in ethical culture may be
determined in part by variation in unit ethical lead-
October
ership as described above. Importantly, however,

these unit differences in ethical culture may also
reflect the impact of higher-level leaders who can
influence the ethical culture of lower-level units,
either directly through their personal contact with
members, or indirectly through their influence on
the thoughts and behaviors of lower-level leaders.
Below, we discuss these direct and indirect processes further in the context of leader behavior
cascades and bypass processes.
Differentiation and cascading of ethical culture. To date, the limited research on ethical culture has focused chiefly on followers' perceptions
of ethical culture in their overall organization (e.g.,
Trevio et al., 1998). Given that culture has both
global and local emergent properties, however, ethical culture may differ among organizational units
(Glisson & James, 2002). For example, differences
may emerge between units, both within and across
management levels, in the extent to which norms
for conduct are made clear to members, ethical
standards are enforced, and norms emerge for tolerating behaviors that conflict with established
codes.
Factors other than leader behavior may also influence ethical culture at lower levels of an organization. These include a superordinate ethical culture of the organization that conveys standards of
conduct, sanctions for their violation, norms for
ethical conduct, and more for the entire organizational community (Schein, 1985). A mechanism
that Schein does not explicitly examine is how
cultural elements in a particular unit in an organization tend to mimic content from cultural elements established in higher-level units. Ethical cultures of lower-level units are nested within broader
organizational units and thus may be affected by
the cultural elements operating at higher levels.
These effects may be somewhat independent of the
proximal, within-level influences of leadership.
For example, shared cultural elements can be explained in part by the past actions of higher-level
leaders, through the creation of designs and structures, systems and procedures, creeds and codes,
stories, rituals, and rites (Schein, 1985, 2010).
Ethical cultures at one level, however, are not
necessarily fully replicated at lower levels. In this
regard, Schein (1985, 2010) described how cultural
elements of different groups in an organization can
differ, conflict, or align with one another. As Brown
and Trevio (2006) explained, organizational leaders and groups develop tools and practices for reasoning and acting upon ethical matters that can
become embedded over time. Unit ethical cultures
that are operating at higher organizational levels
that are seen as effective by lower-level leaders
2012
Schaubroeck et al.
would be expected to result in those lower-level

leaders' embedding them into their own units. This
is especially likely when lower-level leaders perceive that they will be rewarded for reinforcing
these cultural elements in their own units.
Another potential lever helping ethical culture to
have cascading influences at lower levels derives
from leader contact and peer-to-peer contact across
units. Such interactions can reinforce key aspects
of the culture of the higher-level unit to which they
all belong and are nested through normative and
informational influences (Cialdini & Trost, 1998].
For example, leaders and members at a particular
level collaborate and socialize with peers and leaders in the context of meetings held at a higher
organizational level. In this way, workers develop a
common point of reference for embedding ethical
culture into their respective units. Thus, we expect
that higher-level-unit ethical culture will be associated with ethical culture at adjacent levels, as
illustrated by the vertical lines linking C3, C2, and
Cl in Figure 1.
Hypothesis 3. Ethical culture at higher hierarchical levels is positively related to ethical culture at lower hierarchical levels.
Influences of ethical leadership on ethical culture at lovi^er levels. The literature further suggests
that ethical leadership at higher levels may be associated with ethical culture at lower levels. In
some cases, these effects may be direct influences
of bigher-level leaders on lower-level ethical culture through direct interactions with lower-level
followers. Such direct effects have been called
"bypass effects" because they bypass the effects
of lower-level leaders (Yammarino, 1994] or lower-level cultural elements (L3 -^ C2 or L2 -^ Cl].
Detert and Trevio (2010] reported qualitative
evidence of such bypass effects of senior leader
behavior on voice-related practices of lower-level
followers. There is also some evidence of bypass
effects from quantitative field studies (Dvir,
Eden, Avolio, & Shamir, 2002; Yang, Zhang, &
Tsui, 2010]. According to Yammarino, this may
occur because leaders often interact directly with
members at lower levels. Schein (1985, 2010]
observed that senior leaders' expectations are
also conveyed by other means to the broader organization, through secondary embedding mecbanisms such as formal communications, policies,
and stories. Such mechanisms may reinforce the
leaders' reputation and expectations among
members, thereby influencing their cognitions
and actions in a way that is distinct from the
influence of their immediate leader. Any examination of such processes nevertheless presup-
1059
poses a relationship between higher-level ethical

leadership and lower-level ethical culture. Thus,
we propose the following:
Hypothesis 4. Ethical leadership is positively
related to ethical culture at lower hierarchical
levels.
However, what appears to be a bypass effect may
actually be a product of embedding processes that
are omitted from an analysis. Below, we consider
two different indirect pathways through which senior leaders may embed their ethical influence at
lower levels. Studies presenting evidence of bypass
effects have not examined the extent to which higher-level leaders have embedded their assumptions
and expectations in shared cultural elements at
their own (higher] level. Given that ethical leadership is expected to be positively related to ethical
culture within each organization level (Hypothesis
1] and these shared culture elements are in tiirn
expected to cascade to lower levels (Hypothesis 3],
one indirect way that higher-level leaders can influence ethical conduct at a lower level is by influencing the ethical culture at their own level, which
then cascades to lower levels (i.e., L3 ^ C3 -> C2 or
L2 - C2 -* Cl paths].
Hypothesis 5. Higher-level ethical leadership
indirectly influences ethical culture at lower
hierarchical levels through ethical culture at
the same (higher) hierarchical levels.
Another indirect path linking ethical leadership
to ethical culture at lower levels is the conventional
leader behavior cascade. Leaders at higher levels
indirectly affect the beliefs and behaviors of lowerlevel followers through their subordinate leaders'
emulation of their bebavior (as shown by the vertical lines connecting L3, L2, and Ll in Figure 1].
Drawing on social learning theory (Bandura, 1971],
Mayer and colleagues (2009] examined the indirect
effects of ethical leadership on members' behavior
transmitted through common ethical leadership
practices across two organization levels. They
asked followers in multiple organizations to each
rate both their immediate supervisor's ethical leadership and the ethical leadership of "top management." These ratings were positively correlated,
and the ethical leadership of both top management
and immediate supervisor were positively related
to OCB and negatively related to levels of deviant
behavior followers observed in their units. Moreover, the ethical leadership of the immediate supervisor mediated the effects of top management ethical leadership on group deviance and group OCB.
Additional research has examined how other
leadership constructs, such as transformational
1060
leadership, correlate across levels (Bass et al., 1987;

Chun, Yammarino, Dionne, Sosik, & Moon, 2009;
Yang, Zhang, & Tsui, 2010). For example, to explain how the effects of leader behavior cascade
across managerial levels, Bass and colleagues (Bass
et al., 1987) concluded that junior supervisors
mimic the behavior of their senior supervisors, as
described by social learning theory (cf. Weiss,
1977), and then become models for their own followers. Chun et al. (2009) found that subordinate
leaders' personal identiflcation with their leaders
and internalization of their values explained indirect effects of the latter's charismatic and transformational leadership on follower outcomes of satisfaction, helping behavior, and job performance.
Normative and informational influences provide
another potential avenue for explaining the cascading replication of leaders' behaviors. People tend to
conform their behavior to the expectations of others, either to be liked or respected (normative influence) or to be accurate or correct (informational
influence) (Cialdini & Trost, 1989). Ethical leaders
make it clear that they will not condone unethical
behavior while also presenting persuasive arguments as to the beneflts of ethical practices to subordinate leaders (Brown & Trevio, 2006). Whether
through behavior modeling, informational influence, or compliance with authority figures, ethical
leadership is expected to be positively correlated
across hierarchical levels. Civen the positive relationship we have already proposed between ethical
leadership and ethical culture at the same level
(Hypothesis 1), this cascading effect of ethical leadership provides an additional mechanism through
which higher-level leaders may indirectly influence the ethical culture in lower-level units (see,
e.g., paths L3 ^ L2 ^ C2 and L2 ^ Ll ^ Cl in
Figure 1).
Hypothesis 6. Ethical leadership at higher organizational levels is indirectly related to ethical culture at lower hierarchical levels
through ethical leadership at lower levels.
Higher-Level Facilitation of Ethical Leadership
To the extent that leader behavior can influence
shared understandings about ethical conduct at
lower levels, as we have argued above, influence
from a higher-level leader may potentially reinforce
or countervail the influence that the lower-level
leader has on his or her unit. When the higher-level
leader is not a proponent of ethical conduct, members of lower-level units may be less likely to develop strong norms and standards for their own
ethical behavior (i.e., strong ethical culture), even
October
though their immediate supervisor exhibits a high

level of ethical leadership (Detert & Edmondson,
2011). When the leader of a lower-level unit seeks
to develop a more ethical culture in her unit, her
own leader may facilitate that by reinforcing the
importance of such behaviors to her subordinates.
A higher-level leader's influence in facilitating the
behavior of the leader at the next lower level is a
leadership enhancer (Howell, Dorfman, & Kerr,
1986), which suggests a cross-level interaction predicting ethical culture at the lower level (e.g., L2 X
Ll -^ Cl in Figure 1).
Hypothesis 7. Ethical leadership at higher hierarchical levels moderates the influence of
subordinate ethical leadership: A high level of
ethical leadership at a higher organization
level is associated with a stronger influence of
subordinate leaders' ethical leadership on ethical culture in their units.
METHODS
Sample and Procedures
This study was commissioned by the U.S. Army,
which asked us to evaluate the ethical conduct,
cognitions, attitudes, and well-being of soldiers
during their combat deployment in Iraq in May
2009. The surveys were designed by the authors
and were administered through the Inspector General (IG; the Army's official investigative office) and
chaplains. The aim was to maintain a "chain of
custody" with a trusted agent to reassure soldiers
that their leaders would not have access to their
survey responses. To achieve broad representation,
the IG randomly selected two brigades from each of
the four Army divisions conducting combat operations in Iraq. Two battalions were randomly selected from each of those two brigades. Three companies were randomly selected from each of those
battalions, as were three platoons from those companies and three squads from each platoon. We
studied leaders and followers from the lowest three
managerial levels in the U.S. Army: the typically
nine-person squad (lowest level), the three- to foursquad platoon (middle level), and the three- to fourplatoon company (highest level). Each level had its
own leader who reported to the leader at the next
higher level.
The questionnaires were administered to members of the randomly selected units in person in
small assemblies by Army chaplains who traveled
between combat outposts in regions with active
combat operations. The chaplains received a standardized training course that covered the purpose
of the research, protocol, and the survey items. The
Schaubroeck et al.
2012
chaplains returned the completed surveys to the IG,

who delivered them to the research team. All respondents provided informed consent, and soldiers
understood they were free to decline to participate
in this study.
The sampling frame included approximately 4
percent of the soldiers in the theater of operations
at that time, or about 6,000 servicemen and servicewomen. A total of 2,572 surveys were returned, for
an estimated 43 percent response rate. For squadand platoon-level aggregate variables, to ensure adequate representation at each nested organizational
level, we designated that platoons must have at
least 2 squads reporting, and each squad in turn
must have a minimum of 4 members reporting. Of
the 322 squads sampled, 280 (90%) met this criterion. Of 130 platoons sampled, 96 (78%) met this
criterion. These platoons represented 42 companies. Those units meeting our criteria for the analyses required for this study totaled 2,048 soldiers.
Missing data on certain variables (and combinations of variables across levels) limited our final
analysis sample sizes to 172 squads, 78 platoons,
and 39 companies for cross-level analyses, and 243
squads, 85 platoons, and 40 companies for withinlevel analyses. Mean unit sizes for the latter were
6.09 (s.d. = 2.24) for squads, 3.61 (s.d. = 1.50) for
platoons, and 4.57 (s.d. = 1.45) for companies.
Most respondents were male (88%), and their
average age was 27.5 years. About half (54%) were
married, and 48 percent reported having children.
All had high school degrees or the equivalent, and
14 percent had college degrees. These statistics approximately mirror the demographic profile of the
overall U.S. Army contingent in Iraq (MHAT-IV,
2006). Nearly 68 percent of the respondents were
1061
active duty U.S. Army soldiers. The remainder

were activated members of the U.S. Army National
Guard or the U.S. Army Reserve. Eight percent
were commissioned officers.
Measures
All outcome variables were reported by squad
members and aggregated to the squad level. Predictors and mediators were reported by multiple and
separate rating sources at each of the squad, platoon, and company levels, and we aggregated ratings at each level. Squad-, platoon-, and companylevel variables were reported by squad members,
squad leaders, and platoon leaders and sergeants,
respectively. As shown on the diagonal in Table 1,
coefficient alpha reliabilities for the measures were
all above .70. We examined the outcomes only at
the squad level. These frontline units had the greatest opportunities and risks for serious ethical misconduct arising from contact with combatants, noncombatants, and other operational events. In
addition, our research questions concerned only
the effects of higher-level leader behavior and ethical culture on outcomes at the lowest organizational level.
Outcome variables. Ethical transgressions of
different degrees of severity were measured with a
set of items used in a previous study of the ethical
behavior of U.S. soldiers during previous years of
the Iraq war (MHAT IV, 2006). These items seek
personal observations of unethical behavior exhibited by members of a respondent's squad. They
were adapted for use in this study. The target behaviors presented after the stem "rate the number
of times you are aware that members of your
TABLE 1
Variance Gomponents"
Variance Components''
Variables
Level 1: Squad
Platoon level
Ethical culture
Ethical leadership
Squad level
Ethical culture
Ethical leadership
Moral efficacy
Peer exemplary behavior
Transgressions vs. the Army
Transgressions vs. noncombatants
Report intentions
56.74%
99.82
78.78
60.69
87.12
87.01
72.54
Level 2: Platoon
Level 3: Company
67.85%
87.85
32.15%
12.15
25.52
0.08
21.18
0.03
12.80
2.65
0.01
17.74
0.10
0.04
39.28
0.08
10.35
27.44
" n = 243 for the squad level, n = 85 for the platoon level, and n = 40 for company level.
^ Percentage of variance between groups at different hierarchical levels.
1062
squad . . . " represented two categories of transgressions, which in this context refer to a total of seven
significant and formally punishable organizational
actions of two types: transgressions against noncombatants (i.e., "mistreated non-combatants,"
"unnecessarily damaged non-combatant's property," "killed or injured a non-combatant when it
was not necessary") and transgressions against the
Army (i.e., "defied the ROE [Rules of Engagement,
i.e., the policies given by commanders as to tbe
proper use of force in combat] to accomplish the
mission," "lied or falsified reports," "stole," "defied legal orders").
Peer exemplary behavior was measured using
items developed specifically for this study. They
involve observations of peers undertaking personal
risks and engaging in self-sacrifice in ways that are
conventionally regarded in the military as virtuous
and necessary to accomplish collective goals. Respondents were asked to "rate the number of times
they had seen fellow squad members "put themselves in physical danger to protect a fellow Soldier/Marine," "put themselves in physical danger
to protect a non-combatant," and "challenge leaders' orders in order to protect a non-combatant."
Transgressions and exemplary behavior frequencies were reported on a 0-5 scale ("never" to "five
times or more").
Moral efficacy is the belief that one is capable of
acting effectively as a moral agent. It was measured
with five items developed by Hannah and Avolio
(2010) and rated on a scale ranging from 0, "not at
all confident," to 10, "totally confident." The items
specified an individual perception. Sample items
include "I am confident that I can confront others
who behave unethically to resolve the issue" and "I
am confident that I can determine what needs to be
done when I face a moral/ethical decision." We
used five items to assess report intentions, which
measure an individual's intention to report unethical conduct of other soldiers when it is observed.
The items were tailored to the unique context of
war in an environment with close proximity to a
nonconjbatant population. As with moral efficacy,
the items specified an individual perception. A
sample item is "I would report a unit member if I
saw him or her violating ROEs [rules of engagement]." The other items referred to "injuring or
killing an innocent non-combatant," "unnecessarily destroying private property," "mistreating a
non-combatant," and "stealing from a noncombatant." Report intentions, together with ethical leadership and ethical culture (see below), were rated
from 1 ("strongly disagree") to 5 ("strongly agree").
Ethical leadership and ethical culture. We measured ethical culture as a reference shift composition
October
construct (i.e., items targeted the tmit level [Chan,

1998]) using the ten-item ethical culture scale developed by Trevio et al. (1998). Sample items include
"Penalties for unethical behavior are stricfly enforced
in this unit" and "The expressed ethical standards
serve as "window dressing" only in this unit" (reverse-coded). Ethical leadership was also measured
as a reference shift composition consfruct, via the
ten-item scale developed by Bro-wn et al. (2005). Sample items include "My leader discusses ethics or values with unit members" and "My leader sets an example of how to do things the right way in terms of
ethics." One item ("disciplines unit members who
violate ethical standards") was omitted from the scale
in the analyses because it too closely overlapped with
content in the ethical culture scale. Ethical culture
and ethical leadership were rated independently at
each level. Squad members rated squad ethical leadership and ethical culture; squad and section leaders
rated platoon ethical leadership and ethical cultiu'e;
and platoon leaders and platoon sergeants rated company ethical leadership and ethical culture.
Combat exposure. All hypothesis tests controlled for combat exposure, which we measured
using items adapted from an instrument developed
for combat research by Hoge, Castro, Messer,
McCurk, Cotting, and Kofftnan (2004). Respondents were asked to rate the number of times they
had the following experiences (0, "never," to 5,
"five times or more"): "an improvised explosive
device/booby trap has exploded near you," "received direct fire," "received indirect fire," "have
been in a threatening situation where you were
unable to respond due to ROE," "other members of
your unit were killed or seriously wounded in theater," and "you have personally seen individuals
killed or seriously wounded in theater." For control
purposes we used the mean of these items for individuals' reports within each unit, at the lowest
(squad) level of analysis. We controlled for combat
exposure to reduce the likelihood that effects of
ethical leadership on our dependent variables
could be explained by psychological distress resulting from combat exposure.
Analysis Procedure
We used hierarchical linear modeling (HLM;
Bryk & Raudenbush, 1992) to test the hypothesized
relationships among our study variables. Several
analyses required simultaneous estimation of regression models at three distinct levels of analysis
(company, platoon, and squad) to predict the study
outcomes at the first level of analysis. Because our
hypotheses concern comparisons among groups
both within and between hierarchical levels, we
Schaubroeck et al.
2012
grand-mean-centered the independent variables at

each level. For indexes of variance explained, we
present a pseudo-^ [~R^) statistic (Snijders &
Bosker, 1999). This statistic indicates the proportional reduction in the total variance of each variable across levels of analysis that is derived from
introducing independent variables at higher levels.
1063
ership and ethical culture. The fit with the data was
quite strong (x^[8] = 11.45, p = .18, SRMR = .05,
CFI = .99, NNFI = .97). The AVEs for the two latent
factors of ethical leadership and ethical culture are
.85 and .64, which is substantially higher than the
squared correlation between them (.42).
Data Aggregation
RESULTS
Measurement Models
A number of confirmatory factor analyses (CFAs)
were conducted to test the distinctiveness of the
constructs in the study. Given our focus on squadlevel ethical cognitions and behaviors, we used the
mean of squad members' ratings to conduct the first
set of CFAs. Because of the relatively small sample
sizes, we reduced the total number of indicators in
each CFA model by using item parcels as indicators
of the latent variables (Landis, Beal, & Tesluk,
2000). We formed item parcels by randomly combining two or three items into one parcel. This
yielded a total of 24 indicators for the eight latent
variables, which is suitable for a sample of 243
squads. The congeneric measurement model,
which specifies that indicators load only onto their
corresponding latent variables, fit the data well
(A^[224] = 393.86, CFI = .97, NNFI = .97, SRMR =
.05). The average variance extracted (AVE) for each
latent factor ranges from .56 (transgressions against
the Army) to .91 (ethical leadership) with a mean of
.74. The AVE for each construct exceeds the conventional criterion of .50 and is larger than the
square of any correlation between the constructs,
thus supporting the convergent and discriminant
validity of the construct measures (Fornell &
Larcker, 1981). In addition, we tested alternative
models by specifying the indicators of two or more
of the constructs as loading onto the same latent
variable. None of the possible alternative models fit
the data as well as the hypothesized, congeneric model.
We then tested a CFA at the platoon level [n =
96) that specified a congeneric model of ethical
leadership and ethical culture only, as these are the
only factors at the platoon level. The results indicate a good fit for this model (/[8] = 10.43, CFI =
.99, NNFI = .99, SRMR = .04). The AVEs for the
ethical leadership and ethical culture latent variables are .74 and .91, which is larger than the
squared correlation between them (.31). The small
sample of companies (n = 42) provides less confidence in the robustness of CFA findings. We nevertheless specified the CFA model at the company
level using the same item parcels for ethical lead-
We conceptualized ethical leadership and ethical

culture as composition constructs, assessing the
extent to which members of a unit share perceptions of these constructs. Thus it was necessary to
examine evidence for restricted within-unit variance as a justification for aggregating measures of
these constructs to the relevant unit level (James,
1982; Kozlowski & Hattrup, 1992). Two indexes
assess restricted within-unit variance: (a) r^^gi, an
index of within-group consensus or agreement
(James, Demaree, & Wolfe, 1984) and (b) the intraclass correlation coefficient, ICCl, an index of
within-group consistency, or interrater reliability
(Bliese, 2000). The r^g^ index is known to be biased downwards when unit sizes are small (e.g., n
= 5) (Kozlowski & Hattrup, 1992). Because our
units were relatively small, we followed other leadership research (Den Hartog, House, Hanges, &
Ruiz-Quintanilla, 1999) and used the maximum observed variance as the "expected value" (Lindell &
Brandt, 1997) in the computation of r^g^j^ for each
construct within each unit of interest. Kozlowski
and Klein characterized this method of justifying
aggregation as a "construct-by-group approach"
(2000: 35). Median agreement for squad-level composition constructs was .89 for ethical leadership
and .84 for ethical culture; platoon-level median
agreement was .82 for ethical leadership and .81 for
ethical culture; and company-level median agreement was .90 for ethical leadership and .78 for
ethical culture. Thus, unit consensus exceeded
conventional standards for data aggregation
(Bliese, 2000).
ICCl indexes the effect size of unit membership,
and ICC2 indexes the reliability of an aggregated
unit-level variable (Bliese, 2000). Kozlowski and
Klein (2000) characterized this theoretical approach to aggregation as a "construct-by-sample approach" (2000: 35), as the indexes are based on the
ratio of between-unit and total overall variance,
rather than being unit specific. In the case of our
sampling plan, however, we have assessments of
three different target levels by different raters; thus,
the "sample" is different at each level. The ICCl
and ICC2 values for ethical leadership and ethical
cultural elements were .12 and .36 (ethical leadership), and .14 and .41 (ethical culture) for the squad
1064
level; 09 and .19 (ethical leadership] and .32 and

.52 (ethical culture] for the platoon level; and .17
and .29 (ethical leadership] and .22 and .36 (ethical
culture] for the company level. The range of these
ICC values is comparable to those reported in the
literature and indicates that these data are suitable
for aggregation (Bliese, 2000].
Whereas ethical leadership and ethical cultural
elements were conceptualized as composition constructs that necessitated empirical justification for
aggregation, we conceptualized the outcome constructs as compilation variables that are descriptive
of individual-level beliefs, intentions, and rates of
observations in a given unit. These constructs are
not necessarily shared phenomena and thus an examination of restricted within-unit variance is not
needed or proper to meaningfully aggregate them to
the squad level (Bliese, 2000; Kozlowski &
Klein, 2000].
October
levels of analysis, as did squad-level ethical culture. Almost all squad-level variance in ethical
leadership, however, was at the level of the squad.
We nevertheless proceeded in testing Hypothesis
6, which pertains to platoon ethical leadership effects on squad ethical leadership, because there is
substantial variance in the outcomes and predictors
of squad ethical leadership, and thus multilevel
analyses are required to correctly test the appropriate models (see LaHuis & Ferguson, 2007].
Hypothesis Testing
Table 2 shows the means, reliabilities, standard
deviations, and correlations of the variables. Hypothesis 1 posits direct effects of leaders that are
such that ethical leadership will be positively related to ethical culture within each hierarchical
level. As Table 3 shows, ethical leadership was
associated with ethical culture at the company, platoon, and squad levels [y = .69, p < .01, y = .56,
p < .01, and y = .45, p < .01, respectively). Hypothesis 1 is therefore supported.
Hypothesis 2 proposes that ethical leadership
will be related to outcomes indirectly through ethical culture at the lowest level (e.g., Ll - Cl ^ 01].
Table 4 shows the results of our tests of Hypothesis
2. We foimd that squad ethical culture provided an
indirect path from squad ethical leadership to
squad ethical outcomes in terms of report intentions (7 = .06, p < .05], moral efficacy (7 = .09,
p < .05], transgressions against the Army (7
= -.06, p < .05], and peer exemplary behavior (7
= .11, p < .01]. There was no significant indirect
effect on transgressions against noncombatants (7
Variance Components
In a final preliminary step, we conducted a variance components analysis to examine whether
variance at the lower hierarchical levels was adequate to justify multilevel analyses predicting outcomes at these levels. We examined two nested
models: platoons nested in companies, and squads
nested in platoons and companies (see Table 1]. For
the platoons nested in companies model, both variables included at this level (ethical leadership and
ethical cultinre] showed adequate variance at the
platoon level (67.9 and 87.9 percent, respectively].
Similarly, all squad-level ethical outcomes displayed adequate variance at the higher and lower
TABLE 2
Means, Standard Deviations, and Correlations among Study Variables"
Variable
1. Squad ethical leadership
2. Squad ethical culture
3. Moral efficacy
4. Peer exemplary behavior
5. Transgressions vs. the Army
6. Transgressions vs. noncombatants
7. Report intentions
8. Combat exposure
9. Platoon ethical leadership
10. Platoon ethical culture
11. Company ethical leadership
12. Company ethical culture
Mean s.d.
3.22
2.96
6.53
0.46
0.41
0.26
3.60
0.90
3.40
3.03
3.61
3.32
.96
0.58
0.36
.50*
1.26
.19**
0.41 -.01
0.38 -.28**
0.34 -.17**
0.61
.27**
0.62 -.18**
0.67
.17*
.11
0.47
.13
0.62
0.49
.15**
10
11
12
.74
.23**
.10
-.30**
-.13
.15*
-.08
.36**
.20*
.26**
.35**
.95
.01
-.11
-.20**
.37**
-.07
.10
.06
.05
-.04
.72
.32**
.39**
-.08
.64**
.22**
.11
.12
.00
.07
-.17**
-.11
-.12
.82
.69**
.35**
.01
.80
-.37**
.39**
.96
.42**
.03
.08
-.13
-.06
-.05
-.09
-.06
.01
.88
.16* .95
-.01
.57** .87
-.06
.14
.09
.05
.53** .21*
.94
.69
.88
" Rows 1-8 represent within-squad correlations. Rows 9-10 represent correlations between platoon leadership and culture variables and
squad variables aggregated to the platoon level. Rows 11-12 represent correlations between company leadership and culture variables and
squad and platoon variables aggregated to the company level.
Values on the diagonal in italic are alpha reliability esmates. For the company-level correlations, n = 39; for the platoon-level
correlations, n = 78; and for the squad-level correlations, n = 172.
* p < .05
**p < .01
2012
Schaubroeck et al.
TABLE 3
Relationships between Ethical Leadership and Ethical
Gulture within Hierarchical Levels (Hjqpothesis 1)"
Dependent Variable: Ethical Culture''
Variables
Company-level model
Ethical leadership
~R^
Platoon-level model
Ethical leadership
-R^
Squad-level model
Ethical leadership
.69**
5.74
.47
.56**
4.18
.24
.45**
6.29
.31
" All effects are standardized. In all the analyses, combat

exposure was entered as a control variahle (not included in this
table). For the squad level, n = 243; for the platoon level, n = 85;
and for the company level, 7 = 40.
^ Ethical culture refers to the culture at the same level as the
independent variable; e.g., for the company-level model, the
dependent variable is company ethical culture.
**p < .01
= - . 0 1 , p < .20). Hypothesis 2 was therefore supported for all outcomes except one. In addition to
these indirect effects, ethical leadership also had
significant direct effects on report intentions (7
= .14, p < .05) and transgressions against the Army
(7 = -.26, p < .05).
Hypothesis 3 predicts a positive relationship between higher- and lower-level ethical culture (C3
-^ C2 and C2 > Cl). To more rigorously test the
1065
cascading relationships of ethical culture as represented in Hypothesis 3 and also to test subsequent
hypotheses involving multilevel effects, we simultaneously estimated the effects of the higher-level
variables (platoon and company ethical culture) on
corresponding variables measured at the lower levels. This relationship was significant for ethical
culture in all three hierarchical paths: company to
platoon (7 = .26, p < .05), company to squad (7
= .37, p < .01), and platoon to squad (7 = .23, p <
.01). Hypothesis 3, pertaining to the cascading effects of ethical culture, is therefore supported. Table 5 presents a simimary of these analyses.
Hypothesis 4 predicts a positive relationship between higher-level ethical leadership and lowerlevel ethical culture (L3 -^ C2 or L2 -^ Cl). Table 6
displays the results of a series of models testing this
hypothesis. Higher-level ethical leadership was related to ethical culture at lower levels (7 = .21, p <
.10, for the company to platoon model; 7 = .22, p <
.05, for the company to squad model; and 7 = .41,
p < .01, for the platoon to squad model). These
findings together support Hypothesis 4.
Hypotheses 5 and 6 elaborate Hypothesis 4 by
specifying indirect relationships between ethical
leadership and lower-level ethical culture transmitted through ethical culture at the same (higher)
level (H5; L3 ^ C3 - C2 or L2 ^ C2 -^ Cl) and
through lower-level ethical leadership (H6; L3 -^
L2 -^ C2 or L2 ^ Ll ^ Cl). In tests of Hypothesis
5, only one out of the three possible indirect rela-
TABLE 4
Ethical Leadership Effects on Squad Member Outcomes through Squad Ethical Culture (Hypothesis 2)
Report
Intentions
Variables
Squad-level main effects
Ethical leadership
~R^
Ethical culture
~R^
Mediated model
Ethical leadership
Ethical culture
~R^
Decomposition of ethical
leadership effects
Total
Direct
Indirect
EfiBcacy
.20**
3.23
.06
.14
.22**
3.06
0.75
.17**
2.24
1.90
.20
.14
1.84
-.05
.20*
-.14*
*
-2.02
.17
2.29
.01
.15
.06*
.00
.14
.14*
.14*
Transgressions
vs.
Noncombatants
Moral
-.10
-.12
-.03
-.32**
-4.33
.22
-1.52
.16
-0.50
2.02
Transgressions
vs.
the Army
-.28**
-.26*
-.13*
.07
-4.25
.22**
-2.56
-1.78
.17
.24**
.17
.24
.26
.04
-.13
-.12
-.01
-.32
-.26
-.06*
.28
.17
1.95
0.43
1.73
.11**
All coefficients are standardized. Combat exposure was included as a control variable (not shown in this table), n = 243.
* p < .05
**p < .01
0.90
3.08
.26
.01
-.05
.09*
.22
.19
-1.38
-0.43
Peer Exemplary
Behavior
-0.38
3.21
2.88
October
1066
TABLE 5
Standardized Relationships between Higher- and
Lower-Level Ethical Culture (H5rpothesis 3)"
Dependent Variable:
Lower-Level Ethical Culture"*
TABLE 6
Standardized Effects of Higher-Level Ethical
Leadership on Lower-Level Ethical Culture
(Hypotheses 4 and 5)"
Dependent'Variable:
Lower-Level
Ethical Culture""
Variables
Company to platoon model
Company ethical culture
Company to squad model
Platoon to squad model
Platoon ethical culture
Variables
.26*
.04
2.31
.37*
.18
5.30
.23*
.10
3.12
" All coefficients are standardized. Combat exposure is included as a control variable (not shown in this table), n = 7 for
the platoon level and JI = 39 for the company level.
^ Lower-level ethical culture refers to the lower level of the
model tested; e.g., for the company to squad model, the dependent variable is squad-level ethical culture.
* p < .05
** p < .01
tionships was significant. Specifically, company

ethical leadership was indirectly related to squadlevel ethical culture through company ethical culture. There was no significant indirect effect of
higher-level ethical leadership on lower-level ethical culture for the company to platoon or the platoon to squad models. Thus, Hypothesis 5 is only
partially supported. Regarding Hypothesis 6, the
indirect path from company-level ethical leadership to platoon-level ethical culture through platoon-level ethical leadership was significant (7
= .11, p < .05). The indirect path from platoonlevel ethical leadership to squad-level ethical culture through squad ethical leadership was also significant [y = .08, p < .01). Table 7 presents these
findings, which overall support Hypothesis 6.
In supplementary analyses, we examined
whether ethical leadership has any direct influence
on lower-level ethical culture after the indirect effects specified in Hypotheses 5 and 6 have been
accounted for. Accounting for the cascading influence of company and platoon ethical culture (Hypothesis 5) fully explained the direct effect of company ethical leadership on squad ethical culture.
However, the direct influence of platoon ethical
leadership on squad ethical culture remained, even
after we further accounted for the indirect effect
through squad ethical leadership (Hypothesis 6).
Insofar as neither lower-level ethical leadership nor
same-level ethical culture explain this platoon to
squad relationship, it can legitimately be labeled a
"bypass effect."
Company to platoon modelMain effects

Company ethical leadership
~R^
Company to squad modelMain effects
~R^
Platoon to squad modelMain effects
Platoon ethical leadership
~R^
Company to platoon modelIndirect
effects
~R^
Decomposition of company ethical
leadership effects
Total
Direct
Indirect
Company to squad modelIndirect
effects
.21^
1.78
.01
.22*
2.55
.07
.41**
5.26
.18
-.03
.25
.01
-0.09
1.18
.21
-.03
.15
-.03
.41**
1.17
-0.46
3.88
.18
Decomposition of company ethical

leadership effects
Total
Direct
Indirect
Platoon to squad effectsIndirect
effects
Platoon ethical culture
~R^
Decomposition of platoon ethical
leadership effects
Total
Direct
Indirect
.22
-.03
.28**
.35**
.10
.19
.41
.35
.05
3.24
3.72
1.13
1.12
" Combat exposure was entered as a control variable (not

shown in this table), n = 172 for the squad level, n = 78 for the
platoon level, and n = 39 for the company level.
model tested; e.g., for the company to squad model, the dependent variable is squad-level ethical culture,
^p < .10
* p < .05
** p < .01
Hypothesis 7 proposes that ethical leadership at

higher hierarchical levels will moderate the relationship between lower-level ethical leadership
and lower-level ethical culture. As shown in Table
2012
Schaubroeck et al.
1067
TABLE 7
Standardized Higher-Level Ethical Leadership Effects on Lower-Level Ethical Culture through
Lower-Level Ethical Leadership (Hypothesis 6)"
Dependent Variable: Lower-Level Ethical Culture""
Variables
Company to platoon modelMain effects
-R^
Company to squad modelMain effects
~R^
Platoon to squad modelMain effects
Platoon etbical leadership
1.69
.02
1.78
.01
.15
.03
1.39
22"
07
2.55
.22*
.05
2.99
41**
18
5.26
08
54**
33
0.78
4.10
Company to platoon modelIndirect effects

Decomposition of ethical leadership effects
Total
Direct
Indirect
Company to squad modelIndirect effects
Squad ethical leadership
~R^
Total
Direct
Indirect
Platoon to squad modelIndirect effects
~R^
Total
Direct
Indirect
20
08
11*
19**
45**
18
45
45
03
32**
42**
20
41
32
08**
1.58
2.80
6.31
1.37
4.60
5.99
2.71
" Combat exposure was entered as a control variable (not shown in this table), n = 172 for the squad level, n = 76 for the platoon level,
and /I = 39 for the company level.
^ Lower-level ethical culture refers to the lower level of the model tested; e.g., for the company to squad model, the dependent variable
is squad-level ethical culture,
^ p < .10
* p < .05
**p < .01
8, a significant moderating effect was found for

both the company to platoon and the platoon to
squad model (interaction y = .22, p < .05, and y
.08, p < .05, respectively). Specifically, although
the effects of lower-level ethical leadership are positive and significant in each case, the slopes are
significantly stronger when higher-level ethical
leadership is high rather than low, thus supporting
Hypothesis 7. Figures 2 and 3 illustrate these
relationships.
To follow up on our analyses of Hypothesis 7, we
conducted two supplementary analyses. First, we
examined whether higher-level ethical culture
moderates the relationship between lower-level
ethical leadership and ethical culture at the lower

level (similar to the hypothesized moderating role
of higher-level ethical leadership). Second, we assessed whether the moderating effects of higherlevel ethical leadership discussed in Hypothesis 7
are mediated through higher-level ethical culture.
Higher-level ethical culture was found to moderate
the effects of lower-level ethical leadership in a
way that was similar to the moderating effect of
higher-level ethical leadership. Platoon-level ethical leadership and squad-level ethical leadership
exhibit a stronger relationship to platoon and squad
ethical culture when company and platoon ethical
culture levels are both high (interaction y = .34, p
October
1068
TABLE 8
Interactions of Higher- and Lower-Level Ethical
Leadership Predicting Lower-Level Ethical Culture
(Hypothesis 7)"
Dependent Variable:
Lower-Level Ethical Culture""
Variables
Company to platoon model

Cross-level interaction term
.05
.39**
.22*
~R^
.56
Company to squad model

.11**
.27**
0.54
5.29
2.01
ical culture than for low ethical culture (p < .05);

Figures 4 and 5 illustrate. Findings from this set of
mediated moderation analyses indicate higherlevel ethical culture mediates the moderating effects of higher-level ethical leadership. This suggests that higher-level ethical culture, as a more
proximal moderator of lower-level ethical leadership effects, is a mechanism that may more fully
explain the effects of ethical leadership that were
specified in Hypothesis 7.
DISCUSSION
~R^
.04
.34
Platoon to squad model

.17**
.26**
.08*
~R^
.37
2.74
5.57
0.68
4.77
6.69
2.06
" Combat exposure was entered as a control variable (not

shown in this table), n = 172 for the squad level, n = 78 for the
platoon level, and n = 39 for the company level.
model tested; e.g., for the company to squad model, tbe dependent variable is squad-level ethical culture.
* p < .05
** p < .01
< .05, platoon, and y = .16, p < .05, squad, respectively). The simple slopes, although significant in
each case, were significantly stronger for high eth-
Ethical leadership represents a domain of leader

behavior that accords with what Schein (1985,
2010) described as primary mechanisms through
which leaders embed their expectations and assumptions into the fabric of an organization.
Schein's model, however, does not precisely specify how these embedded understandings and expectations of leaders become suffused tbrough multiple organizational levels and influence follower
outcomes. Our study builds on Schein's theoretical
framework in a way that begins to lay out the specific modes of transmission through which ethical
leadership at different hierarchical levels may permeate an organization. In our model, the role of
ethical culture is essential to understanding these
relationships.
We described and tested three basic categories of
ethical influence transmission down and across
an organizational hierarchy. First, we found that
FIGURE 2
Interaction of Company-Level Ethical Leadership and Platoon-Level Ethical Leadership Predicting
Platoon-Level Ethical Culture"
3.5
3.3
Platoon
Ethical
Culture
3.1
2.9
2.7
2.5
Low Platoon Ethical Leadership High Platoon Ethical Leadership

Low company ethical leadership
High company ethical leadership
" For low company ethical leadership, simple slope = .26, f = 2.54, p < .05. For high company ethical leadership, simple slope = .53,
= 4.29, p < .01.
2012
Schaubroeck et al.
1069
FIGURE 3
Interaction of Platoon-Level Ethical Leadership and Squad-Level Ethical Leadership Predicting
Squad-Level Ethical Culture*
3.5
3.3
3.1
Squad
Ethical
Culture
2.9
2.7
2.5
Low Squad Ethical Leadership

Low platoon ethical leadership
High Squad Ethical Leadership

High platoon ethical leadership
" For low platoon ethical leadership, simple slope = .20, t = 3.81, p < .01. For high platoon ethical leadership, simple slope = .31.
t = 8.07, p < .01.
FIGURE 4
Interaction of Company-Level Ethical Culture and Platoon-Level Ethical Leadership Predicting
Platoon-Level Ethical Culture"
3.5
3.3
Platoon
Ethical
Culture
3.1
2.9
2.7
2.5
Low Platoon Ethical Leadership
High Platoon Ethical Leadership
Low company ethical culture #t High company ethical culture

For low company ethical culture, simple slope = .21, = 2.12, p < .05. For high company ethical culture, simple slope = .56, = 4.12,
p < .01.
1070
October
FIGURE 5
Interaction of Platoon-Level Ethical Culture and Squad-Level Ethical Culture Predicting
Squad-Level Ethical Culture"
3.5
3.3
3.1
Squad
Ethical
Culture
2.9
2.7
2.5
Low Squad Ethical Leadership

Low platoon ethical culture
High Squad Ethical Leadership

High platoon ethical cultiu-e
" For low platoon ethical cultiire, simple slope = .06, f = 1.02, p > .20. For high platoon ethical culture, simple slope = .23, f = 3.90,
p < .01.
ethical leaders embed their expectations into the

ethical culture that is shared and understood by
members of their own units (Hypothesis 1).
Through this mechanism, ethical leaders indirectly
infiuence their immediate followers' cognifions (e.g.,
moral efficacy) and behaviors (e.g., transgressions)
through unit ethical culture (Hypothesis 2). Thus,
ethical leadership appears to infiuence ethical culture within each hierarchical level, and much of
the infiuence of leaders at each level is indirect,
transmitted through ethical cultvu'e at the same hierarchical level. Second, ethical culture cascades
across hierarchical levels to a substantial extent
(Hypothesis 3), thus enabling a new and previously
unstudied pathway for leadership influence to
transmit across levels. Further, we predicted (Hypothesis 4) and found that ethical leadership is
positively related to ethical culture at lower levels.
Direct influences of leader behavior on the behavior of followers at lower levels have been examined
previously (e.g., Dvir et al., 2002). Of greater interest in this study was to determine whether ethical
leadership's influence is embedded through effects
of ethical culture at the same level (Hypothesis 5)
and/or through effects of lower-level ethical leadership (Hypothesis 6) in ways that explain these
overall cross-level effects of ethical leadership on
the lower-level ethical culture. Both hypotheses

were partially supported, and of three overall crosslevel direct effects stated in Hypothesis 4, only
onethe connection between platoon ethical leadership and squad ethical culturewas not explained by indirect processes transmitted through
lower-level leadership or higher-level ethical
cu.lture.
Third, we found that leaders who exhibit a high
level of ethical leadership may facilitate the influence of subordinate leaders' ethical leadership on
their followers (Hypothesis 7). Post hoc analyses
showed that ethical culture at the higher level mediated the facilitating effect of higher-level ethical
leadership. This highlights the importance of congruence in ethical leadership across multiple levels
and how ethical leaders depend on support from
their principals. Such cross-level interactions are
thought to be critical for understanding complex
systems (Page, 2007), but they have rarely been
examined generally, nor specifically with respect
to ethical leadership and culture. These interactions and the direct and indirect effects of ethical
leadership transmitted through ethical culture indicate that a more holistic view of both proximal
and distal leadership processes that impact follower behavior is required to more fully appreciate
2012
Schaubroeck et al.
the locus and transmission of leadership influence

in complex organizations.
Table 9 summarizes all the findings concerning
the hypotheses. The most interesting of our findings was that local leadership, higher-level ethical
culture, and higher-level ethical leadership influence local luiderstandings of ethical culture. These
findings suggest that much more attention should
be paid to the role of shared understandings about
ethical conduct (ethical culture) at each hierarchical level in an organization.
A Multilevel Systems Perspective on Ethical
Leadership and Ethical Culture
From a meta-theoretical perspective, the notion
of organizations as social entities of interacting and
coacting elements operating at multiple levels of a
system is one with a long history in the organizational sciences, one going back at least to Roethlisberger and Dickson (1939) and apparent in the writings of the many systems theorists of the 1950s and
1960s (e.g., Likert, 1961; Katz & Kahn, 1966). A
persistent theme in the writings of these and other
scholars is the central role of leaders in the enactment of a system of human relations across levels of
1071
organizations. Likert's concept of leaders as linking

pins who transmit values and shape cultural integration goes to the core of "classic" organizational
systems theory. Although leadership is widely
viewed as central for linking organizational systems together, for the most part it has not been
researched from a multilevel theory and integrated
systems perspective (Yammarino & Dansereau,
2008). Such research is critical to evaluating system
cohesion as a fundamental assumption of organizational behavior (Kozlowski & Klein, 2000).
Owe model included three levels of leadership in
a complex organization which, combined with a
large sample size, allowed us to establish how ethical leadership becomes embedded in a multilevel,
multiperson system with both direct effects of leaders on their immediate followers and indirect,
cross-level effects on lower-level organization
members. Research and scholarship about leadership has thus far examined the processes through
which leaders suffuse their influence in an organization primarily by referencing the trickle-down
relationships between leaders' behavior at different
levels (Bass et al., 1987; Mayer et al., 2009) and/or
direct effects of behavior across levels (e.g., Dvir et
al., 2002). By integrating horizontal (within-level)
TABLE 9
Summary of Hypothesis Test Results"
Hypothesis
Figure 1 Relationships
HI. Ethical leadership is positively related to ethical culture within each

hierarchical level.
H2. Through ethical culture, ethical leadership is indirectly and positively
related to unit members' moral agency (moral efficacy and report
intentions) and exemplary ethical behavior and negatively related to
their ethical transgressions.
H3. Ethical culture at higher hierarchical levels is positively related to
ethical culture at lower hierarchical levels.
S
S
Ll^Cl
Ll -^ Cl ^ 01 (moral efficacy)
Ll > Cl ^ 01 (report intentions)
Ll > Cl > 0 1 (transgressions vs. Army)
Ll - Cl - 0 1 (transgressions v. NC)
Ll > Cl - 0 1 (exemplary behavior)
C3 ^ C 2
C3 ^ C l
H4. Ethical leadership is positively related to ethical culture at lower

hierarchical levels.
H5. Higher-level ethical leadership indirectly influences ethical culture at
lower hierarchical levels through ethical culture at the same (higher)
hierarchical levels.
H6. Ethical leadership at higher organizational levels is indirectly related
to ethical culture at lower hierarchical levels through ethical
leadership at lower levels.
H7. Ethical leadership at higher hierarchical levels moderates the
influence of subordinate ethical leadership in such a way that high
ethical leadership at a higher organization level is associated with a
stronger influence of subordinate leaders' ethical leadership on ethical
culture in their units.
Results
S
S
N
S
S
S
S
S
s
s
s
L2->C1
L3 ^ C3 -> C2
L3 ^ C3 -^ Cl
L2 ^ C2 -^ Cl
L3 ^ L2 -* C2
L2 - Ll ^ Cl
N
S
N
S
S
L3 X L2 C2
L2 X Ll Cl
S
S
" See Figure 1 for path diagram. Abbreviations: C = "ethical culture"; L = "ethical leadership"; N = "not supported"; NC =
"noncombatants"; O = "outcomes"; S = "supported." Numbers after abbreviations denote hierarchical level; e.g., L3 denotes ethical
leadership at company (3rd) level.
1072
influence processes with vertical and diagonal

cross-level linkages, we are proposing ways not
only to study ethical leadership in organizations,
but also to highlight the different transmission
mechanisms for leadership constructs more
generally.
Horizontal (within-level) effects. We found sfrong
horizontal, within-level effects of ethical leadership
on ethical culture at each of the three levels. Such
results are consistent with the widely held assimiption that the ethical leadership of an individual's
immediate supervisor affects the proximal ethical
culture of the individual's unit. Further, at the lowest
level, squad-level ethical culture was significanfly
related to fovir out of five of the outcome measures,
including report intentions, moral efficacy, transgressions against the Army, and exemplary ethical behavior. These simple horizontal effects indicate the value
of selecting and developing ethical leaders at lower
levels who proactively maintain favorable ethical
norms and uphold high standards for ethical conduct
in their own units.
Vertical direct and indirect effects of embedded ethical culture and leadership. Our model
specifying the indirect transmission of leadership
influence has two core elements: First, leader behaviors at higher levels tend to be similar to leader
behaviors at adjacent lower levels. Second, we observed that more senior leaders influence lowerlevel leaders' and followers' behaviors and cognitions via indirect pathways. One of these indirect
pathways observed in the cvu"rent study was
through the ethical culture at adjacent lower levels.
Ethical culture at the highest hierarchical level
(company, in this study) was positively related to
ethical culture at both lower levels, as per Hypothesis 3. This served as a foundation for subsequent
hypotheses concerning indirect effects of ethical
leadership on lower-level outcomes.
Cross-level indirect effects. In addition to the
vertical and horizontal effects proposed in ovir
model, the diagonal dashed lines in Figure 1 represent direct effects of higher-level ethical leadership on lower-level ethical culture. Company-level
ethical leadership exhibited significant diagonal effects on ethical culture at both the platoon and the
squad levels, and platoon-level ethical leadership
also directly influenced squad ethical culture (Hypothesis 4). This relationship would conventionally be interpreted as a bypass of the lower-level
leaders, but we suggest that is a rather liberal interpretation unless one also accounts for mechanisms
that may explain such direct cross-level effects,
such as mediation through lower-level leaders' behavior or through the cascading influence of shared
culture. We found that the indirect relationship of
October
company ethical leadership through platoon ethical leadership fully accounted for the relationship
between the former and platoon ethical culture. In
addition, accounting for the cascading influences
of ethical culture explained the aforementioned
direct effect of company ethical leadership on
squad ethical culture. The authors of one previous study observed bypass effects of leader behavior after accounting first for cascading leadership to the next level (Yang et al., 2010), but no
previous study has simultaneously accounted for
indirect pathways through shared cultural elements in which leaders embed their influence.
This suggests the possibility that bypass effects of
leader influence across levels may be at best a
weak phenomenon once all embedding processes
(indirect relationships through lower-level leaders and same-level culture elements) are taken
fully into consideration.
One direct cross-level relationship, that between
platoon ethical leadership and squad ethical culture, persisted after we accounted for the other
hypothesized influences on squad ethical culture
(i.e., the simultaneous effects of L2 ^ Ll > Cl and
L2 > C2 Cl). Even using our more conservative
definition and test, this qualifies as a leadership
bypass. This finding is similar to the results presented by Dvir et al. (2002) in that the platoon
leaders' transformational leadership in their study
had a significant effect on their indirect followers'
behavior, but not on the behavior of their immediate followers (squad leaders). Explaining direct effects of this nature remains an interesting question
for future research. One interpretation may be that
senior leaders serve as more powerful role models
when they are similar to and represent a potential
possible self for subordinate leaders (Bandura,
1971). In the current study, the leaders at level 1
(squad leaders) were all noncommissioned officers
(NCOs), whereas the formal leaders at level 2 (platoon leaders) were commissioned officers. The
most salient role models to the squad leaders may
have instead been the informal leaders who were
the more senior NCOs in the organization (i.e., platoon sergeants and first [company] sergeants). This
alternative senior leadership referent may have attenuated squad leaders' emulation of their platoon
leaders, which in turn enabled platoon leaders to
influence squad ethical culture in distinct ways. As
we noted above under the heading "Variance components," although platoon ethical leadership explained a significant portion of the between-squad
variance at tbe platoon level, the total variance of
squad ethical leadership at the platoon level was
very small.
Outcomes of ethical leadership and ethical cul-
2012
Schaubroeck et al.
ture. Our study examined the extent to which ethical leadership at different levels, both directly and
through ethical culture, is associated with ethical
transgressions, exemplary behaviors, and the moral
agency cognitions of moral efficacy and reporting
intentions. In measuring transgressions and peer
exemplary behavior, we aggregated individuals' reports about frequencies of certain bebaviors occvirring among members of their squads. We expected
this approach to enhance reliability of reporting
and encourage more honest reporting than might be
expected if soldiers were reporting about themselves or specific peers. Transgressions included
mistreatment of noncombatants as well as the more
general rule breaking that typifies behavior in many
other organizations, such as thievery, misreporting
performance, and defying directives. Peer exemplary behavior and moral efficacy showed the
strongest positive relationships with squad ethical
culture, and transgressions against the organization
(e.g., stealing) were negatively related to squadlevel ethical culture.
Moral efficacy and report intentions are manifestations of moral agency, reflecting orientations to
respond in purposeful ways to opportunities to
confront unethical behavior (Hannah et al., 2011).
Ethical context may influence these dispositions,
as we observed significant, positive effects of both
squad- and platoon-level ethical culture on squad
mean levels of moral efficacy and report intentions.
To ovu" knowledge, this is the first empirical study
linking ethical leadership to such constructs of
moral agency. To better test causality, future research might profitably examine baseline levels of
moral efficacy and report intentions before followers are exposed to particular levels of ethical leadership and ethical culture that may encoiuage them
to be more (or less) effective moral agents.
Importance of Context: Ethical Culture

and Multilevel Leadership
In keeping with the embedding of leadership as
described by Schein (1985, 2010), much of the influence of ethical leadership on ethical outcomes
that was observed in this study was mediated by
unit-level ethical culture. Consequently, models of
leadership and ethical behavior that omit the effects of ethical culture at different hierarchical levels may be underspecified. For example, one migbt
conclude that senior leaders have a direct influence
on outcomes at a lower level that results from direct
interactions between these leaders and lower-level
followers (Yammarino, 1994), whereas the influence of these leaders may in fact be indirect, trans-
1073
mitted through their influence on culture at their

own levels, which then cascades to lower levels.
This study also begins to address calls for examining leadership in context (e.g., Avolio, 2007); in
this instance, shared cultural elements (Schein,
1985) relating to ethical conduct represents context. Importantly, the effects of lower-level ethical
leadership on ethical culture at the same level were
contingent on ethical leadership at the higher level.
Ethical leadership at a lower level had a stronger
positive influence on ethical culture at that level
when the leader at the next higher level was reported to exhibit a high level of ethical leadership.
Additional analyses indicated that this facilitating
effect of higher-level ethical leadership may occur
through the mediating role of ethical culture. Specifically, ethical leadership at higher levels promotes ethical culture at those levels, which in turn
facilitates a more favorable impact of etbical leadership on ethical culture at the next lower level.
Thus, when studying ethical leadership in the conventional way, focusing chiefly on the influences of
the immediate leader, one can potentially be misled into drawing inferences about the magnitude of
these effects, when in fact they may be to some
extent contingent on qualities of ethical leadership
at higher levels. This moderating effect of higherlevel ethical leadership suggests that senior leaders
play a significant role in cultivating shared ethical
understandings at lower levels, working not only
through direct effects and indirect influences
through ethical culture, but also by constraining or
facilitating the influence of ethical leadership at
lower levels.
Practical Implications
Leaders should be encouraged to embed tbeir
assumptions and expectations concerning ethical
conduct among organizational members by engaging in ethical leadership and by seeking to create
strong ethical cultures in their units. Through the
mechanisms examined in the current study, this
leadership strategy may influence ethical culture at
lower levels. As conceptualized by Brown and colleagues (2005), ethical leadership involves many of
the primary and secondary mechanisms that
Schein (1985, 2010) noted are critical for a leader to
embed influence. Specifically, ethical leaders pay
attention to providing contingent consequences for
desired eind undesired bebavior. Tbey serve as
models and coaches to followers in ways that encourage them to exhibit exemplary ethical behavior
and to avoid unethical behavior. Critical incidents
concerning ethical conduct, such as severe employee infractions, can be bighlighted as a key
1074
means to teach followers about ethical standards

and sanctions and to reinforce the message that
they can be effective moral managers and agents.
Ethical leaders can also allocate resources to improve followers' ethical understandings, while also
using levers such as selection, promotion, training,
and performance appraisals in ways that reinforce
these actions. An ethical leader can further reinforce such understandings by utilizing Schein's
secondary mechanisms, such as telling engaging
stories about ethics that are likely to be repeated by
others, or using formal means, such as speeches
and policies, to communicate expectations.
Using the concept of ethical culture was helpful
to our understanding and ability to explain the
infiuences of ethical leaders within and across levels. Organizational leaders might pay more attention to the role that ethical culture plays in establishing the standards and boundaries for ethical
conduct in their organizations. These shared elements can be tracked by surveying organization
members to determine whether leaders are creating
unit ethical cultures that support ethical behavior
or whether they are creating obstacles to it that
might reduce followers' moral agency and increase
the frequency and severity of unethical conduct.
Another important practical implication of this
study is that to understand the infiuence of a direct
leader, it may be necessary to look up one or more
levels in an organization to obtain a more complete
picture of the locus ofthat leader's style and effects.
Our results suggest that building the full leadership
capacity of an organization requires viewing leadership more as an integrated system of relationships that operate across hierarchical levels, driven
substantially by both leader behaviors and ethical
culture that are present within and across levels.
It is also important for leaders to understand how
their inuence on their direct reports who are leaders themselves can be used to transmit and reinforce their indirect leadership to followers at lower
levels of their organization. Such leadership may
focus on aligning performance and ethical expectations or emphasize the importance of a particular
"guiding" message that the more senior leader
wants all lower-level leaders and organization
members to embrace. To lead, therefore, requires
that an individual think about both direct and indirect impacts as represented through his or her
subordinate leaders and the assumptions and expectations the individual is embedding in the ethical culture. Furthermore, knowing how senior
leaders can facilitate the effects of subordinate
leaders' ethical leadership by exhibiting strong ethical leadership themselves reinforces how important it is for organizations to ensure senior leaders
October
are selected and developed to exhibit high levels of

ethical leadership.
Study Strengths and Limitations
A number of distinct empirical strengths are associated with this study. First, unlike most prior
studies of leadership transmission across levels
(e.g., Chun et al., 2009; Mayer et al., 2009], we used
independent ratings of leader behavior at each organizational level. This may at least partially explain why the leader bebavior cascade effects in
our study are somewhat weaker than those found in
previous studies. We also encourage researchers to
obtain independent measures of ethical culture at
different levels, as we did. Relying upon the same
lower-level participants to evaluate shared understandings about cultural elements (e.g., Zohar &
Luria, 2005] or the behavior of leaders (e.g., Mayer
et al., 2009] at multiple higher levels potentially
inflates levels of agreement. This inflation of observed relationsbips may occur because of samesource bias but also because participants at lower
levels may lack adequate information with which
to gauge the behavior of leaders and the cultures of
units at higher levels.
By measuring ethical culture using distinct
sources, we were also able to identify very satisfactory levels of discriminant validity of etbical
culture at different levels. Whereas a general organizational culture may explain a portion of the
variance in ethical culture shared across levels,
these cross-level relationships were low to moderate in magnitude, indicating that global organizational culture could not explain the homogeneity within units. We also examined whether
variance in company (platoon] ethical leadership
and in ethical culture ratings was related to variance in platoon (squad] ethical leadership or platoon (squad] ethical culture ratings. The highest
correlation, which concerned the relationship between tbe variances of squad and platoon ethical
culture ratings, was quite low (r = .15]. Second,
unlike earlier multilevel leadership studies, our
analyses related to ethical leadership also accounted for the effects of subunit ethical culture.
Not only did the influences of ethical culture
from higher levels explain additional variance in
outcomes, but also, after controlling for these
elements, we no longer observed some direct (bypass] effects of higher-level leadership on outcomes that have been the subject of previous
research and theory (Yammarino, 1994; Yang et
al., 2010]. Third, although the effects of ethical
leadership transmitting through lower-level leaders' behavior explained only a small portion of
2012
Schaubroeck et al.
the variance in outcomes among lower-level

members, when also considering indirect ethical
leadership effects that were transmitted through
ethical culture at different levels, we found that
higher-level ethical leadership was broadly related to squad members' ethical cognitions and
behavior.
A fourth advantage of our study involved our
examination of the various links in the chain of
influence from company-level leader behavior to
squad-level beliefs and behavior. We took a conservative approach toward examining these paths, by
taking only two-segment paths (e.g., variable A to
variable B and variable B to variable C) that were
found to represent statistically significant indirect
effects when we calculated total indirect effects.
We pursued this strategy because sampling variation around the indirect effects is too substantial in
a multilevel study of this scope to cumulate indirect effects that were expanded across multiple bivariate relationships.
As with any field research project, however, a
number of limitations could impact the interpretation of our findings. One issue is the potential
to generalize the findings to other organizational
contexts. Over 89 million people serve in militaries worldwide (International Institute for Strategic Studies, 2010). Police officers and firefighters, who constitute a large segment of the global
workforce, in some ways share the often extreme
context of military work (Hannah, Uhl-Bien, Avolio, & Cavarretta, 2009). Nevertheless, the U.S.
military, like other militaries around the world,
is a unique organization. Additional research
will need to be conducted in other types of organizations before one can be confident as to the
generalizability of our findings. For example,
militaries have hierarchical structures, and thus
it would be useful to study more organically
structured organizations to determine if the
means by which higher-level ethical leadership is
conveyed to lower-level followers is different in
such organizations. Another example of how organizational context may influence the generalizability of our findings concerns leader selection. Yammarino (1994) noted that to the extent
that leaders play a role in selecting their subordinate leaders, they may be inclined to choose
individuals who are more likely to behave in a
manner similar to how they themselves would
behave. Subordinate leaders may also tend to
have a closer relationship with leaders who have
selected them, and this close interaction may
promote behavioral similarity. In the U.S. Army,
however, at lower levels of leadership the assignments of leaders are normally made at higher
1075
levels. Future studies examining samples in

which such selection processes are more prevalent may be able to determine if leaders' selection
of their immediate junior leaders enhances the
cascading of leader behavior.
A number of unmeasured variables may help to
explain the pattern of results we reported. For
example, it would be useful in future research to
incorporate other potential influences on unit
ethical culture, such as the presence or absence
of formal ethical codes at each level. In addition,
other potential mechanisms could be assessed in
future research, such as leaders' influencing the
identities of followers at lower levels (Chun et al.,
2009). Future studies may also examine whether
disagreement among members about cultural elements, as reflected in within-unit variance on
such measures (Zohar & Luria, 2005), is itself a
moderator variable that influences the strength of
cascades of such elements or relationships between leader behavior and the mean levels of
cultural elements of a given unit or lowerlevel units.
Given that our data collection was based on a
cross-sectional design, we cannot make definitive
inferences about causal processes. To address alternative models, we conducted supplementary analyses in which the order of ethical leadership and
ethical culture was varied at each level. These analyses determined that the direct effects of ethical
culture on squad-level ethical outcomes were
stronger than the effects of ethical leadership. Nevertheless, we cannot rule out alternative causal orders and mechanisms. In addition, the dependent
variables examined in this study were obtained
from self-reported data provided by squad members. Although there was reasonable agreement
among members of a squad as to the frequency with
which their members engaged in transgressions or
exemplary behaviors, we cannot be certain as to the
validity of their reports, and it is likely that some
transgressions were not reported accurately or were
underreported. Aggregating to the squad level,
however, made it less likely that individuals' idiosyncratic attributions about the same observed behaviors would bias the study findings.
Conclusions
We developed a multilevel model to guide a

study of the effects of ethical leadership and shared
understandings about ethical conduct (ethical culture) on lower-level followers' ethical cognitions
and behavior. Otir findings indicate that ethical
cognitions and conduct reflect multiple normative
and informational influences, including not only
1076
ethical leadership and ethical culture inherent in

an immediate unit, but also reflecting the influence
of leaders and ethical cultiu-e at higher levels. The
understandings concerning norms, standards, and
sanctions for ethical behavior (that is, ethical culture), which reflected the expectations and desires
of leaders at various levels, were found to be the
most potent and proximal influence on follower
cognitions and behavior.
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Academy of Manogement Journal

2012. Vol. 55. No. 5. 1053-1078.

EMBEDDING ETHICAL LEADERSHIP WITHIN AND ACROSS

Academy of Management Journal

Our research model draws from Schein (1985,

tional culture is represented as varying in layers,

the surface level of ethical culture, following

understanding means that vmit members recognize a

Level 1 Ethical Leadership

Academy of Management Journal

effect" (Bass, Waldman, Avolio, & Bebb, 1987;

Outcomes of Ethical Leadership and

Academy of Management Journal

ments with implications for ethical conduct are a

ership as described above. Importantly, however,

would be expected to result in those lower-level

poses a relationship between higher-level ethical

Academy of Management Journal

leadership, correlate across levels (Bass et al., 1987;

though their immediate supervisor exhibits a high

chaplains returned the completed surveys to the IG,

active duty U.S. Army soldiers. The remainder

Academy of Management Journal

construct (i.e., items targeted the tmit level [Chan,

grand-mean-centered the independent variables at

We conceptualized ethical leadership and ethical

Academy of Management Journal

level; 09 and .19 (ethical leadership] and .32 and

" All effects are standardized. In all the analyses, combat

Academy of Management Journal

tionships was significant. Specifically, company

Company to platoon modelMain effects

Decomposition of company ethical

" Combat exposure was entered as a control variable (not

Hypothesis 7 proposes that ethical leadership at

Company to platoon modelIndirect effects

8, a significant moderating effect was found for

ethical leadership and ethical culture at the lower

Academy of Management Journal

Company to platoon model

Company to squad model

ical culture than for low ethical culture (p < .05);

Platoon to squad model

" Combat exposure was entered as a control variable (not

Ethical leadership represents a domain of leader

Low Platoon Ethical Leadership High Platoon Ethical Leadership

High company ethical leadership

Low Squad Ethical Leadership

High Squad Ethical Leadership

Low Platoon Ethical Leadership

High Platoon Ethical Leadership

Low company ethical culture #t High company ethical culture

Academy of Management Journal

Low Squad Ethical Leadership

High Squad Ethical Leadership

ethical leaders embed their expectations into the

the lower-level ethical culture. Both hypotheses

the locus and transmission of leadership influence

organizations. Likert's concept of leaders as linking

HI. Ethical leadership is positively related to ethical culture within each

H4. Ethical leadership is positively related to ethical culture at lower

Academy of Management Journal

influence processes with vertical and diagonal

Importance of Context: Ethical Culture