How Ethical Leadership Shapes Employees' Readiness to Change

Organizations must continuously adapt to compete in today's changing business environment. However, employees tend to resist change viewing it as a threat. When organizations need to change, employees need to be ready for it, a concept known as individual readiness. Employees are less resistant to change when they perceive their leaders are trustworthy and have "faith in their intentions. This resource points out how ethical leadership can aid employees when undertaking change initiatives. The research analyzes the mechanisms that ethical leaders can use.

Analysis and Results

Hypothesis Testing

Concerning the hypotheses, Table 3 shows empirical support for both H1 and H2. In support of H1, the findings confirm the predictions. Table 3 reveals that ethical leadership is positively and directly related to employees' readiness to change. Even when the mediator is included in the model, the direct effect between ethical leadership and employees' readiness to change is significant and positive (unstandardized beta = 0.47, standard error = 0.12, p < 0.001), thus leading us to accept H1.

TABLE 3

	Organizational culture of effectiveness (R² = 0.74)				Employee readiness to change (R² = 0.61)
Variable	B	SE	t		B	SE	t
Constant	−0.16	0.13	−1.24		−0.97 ^∗∗	0.33	−2.88
Organizational culture of effectivenes					0.71 ^∗∗∗	0.10	6.57
Ethical leadership	1.00 ^∗∗∗	0.03	28.15		0.47 ^∗∗∗	0.12	3.84

	Bootstrapping effect			SE	99% BCA CI (LL, UL)

Indirect effect of ethical leadership on employee readiness to change (via organizational culture of effectiveness)		0.72		0.15	0.38	1.20

Unstandardized regression coefficients; bootstrap sample size = 5,000; 99% BCA CI, bias-corrected and accelerated confidence interval; LL, lower limit; UL, upper limit; SE, standard error. ^∗∗ p < 0.01. ^∗∗∗ p < 0.001. -

Regarding the partial mediation hypothesis, an examination of Baron and Kenny's (1986) four conditions provides initial support for H2. First, the predictor, ethical leadership, is significantly associated with the mediator, organizational culture of effectiveness (unstandardized beta = 1.00, standard error = 0.03, p < 0.001; Table 3). Second, the predictor is associated positively and significantly with the dependent variable, employees' readiness to change (unstandardized beta = 1.15, standard error = 0.07, p < 0.001; Table 4). Third, the mediator is significantly associated with the dependent variable (unstandardized beta = 0.71, standard error = 0.10, p < 0.001; Table 3). Finally, the effect size of the predictor, ethical leadership, on the dependent measure, employees' readiness to change, is lower after controlling for the mediator, organizational culture of effectiveness, but remains significant in support of a partial mediation effect (unstandardized beta without the mediator = 1.15, standard error = 0.07, p < 0.001; unstandardized beta with the mediator = 0.47, standard error = 0.12, p < 0.001; Table 4). Thus, the fulfillment of all these conditions provides initial support for H2.

Table 3. Regression results with PROCESS (N = 270).

TABLE 4

	Variance explained			Mediation strength
	Direct model	Mediated model	Δ Variance explained	(f²) Effect size
Employee readiness to change	0.55	0.61	0.06	0.15 (moderate to large)

	- Unstandardized beta (SE)			Kappa squared

	Direct model	Mediated model		Indirect effect = 0.32 (large)
Employee readiness to change	1.15 ^∗∗∗ (0.07)	0.47 ^∗∗∗ (0.12)

f² = (R² included − R² excluded)/(1 − R² included). Effect sizes of f² between 0.15 and 0.35 are moderate to large in size. Kappa-squared effects higher than 0.25 are large. ^∗∗∗ p < 0.001. SE, standard error. -

Table 4. Ethical leadership and employee readiness to change: direct versus mediated effect model.

For mediation to exist, however, the indirect effect between these variables must be significant. The 99% bias-corrected and accelerated percentile bootstrap method with 5,000 repetitions revealed a significant indirect effect of ethical leadership on employees' readiness to change through organizational culture of effectiveness (indirect effect = 0.72, standard error = 0.15, 99% bias-corrected and accelerated confidence interval = 0.38, 1.20; Table 3); the Sobel test for this indirect effect confirmed the existence of mediation (indirect effect = 0.79, standard error = 0.11, z = 6.40, p < 0.001). Thus, the positive impact of ethical leadership on employees' readiness to change is partially mediated by organizational culture of effectiveness, in support of H2. With the mediator, the variance explained in employees' readiness to change increases from 0.55 to 0.61 (ΔR² = 0.06), thus implying a moderate to large mediating effect of organizational culture of effectiveness between ethical leadership and employees' readiness to change (f² = 0.15; Table 4). Preacher and Kelley's (2011) Kappa-squared test confirmed the importance of this mediation effect size. This test revealed an indirect effect which is about 32% of its possible maximum value, which, in accordance to recommended guidelines (R² effects of 0.01, 0.09, and 0.25 indicating small, medium, and large effects, respectively, is identified as large in size (indirect effect = 0.32, standard error = 0.05; 99% bias-corrected and accelerated confidence interval = 0.21, 0.43;).