In a world where employee disengagement is reaching alarming heights, the call for moral leadership in business has never been more urgent. The HOW Institute for Society’s 2025 State of Moral Leadership in Business report paints a stark picture: While 95% of employees see moral leadership as essential, only a small fraction of CEOs and managers (a paltry 10%) consistently embody these principles. This gap is more than just a statistic — it’s a crisis of trust that threatens the very fabric of organizational culture.

The path forward requires leaders who not only talk about values but live them, even when it’s uncomfortable. In this article, we’ll explore why moral leadership is vital, how its absence erodes morale and the actionable steps leaders can take to bridge the gap between corporate ideals and day-to-day realities.

Related: More Than Just A Moral Compass: The Power Of Ethical Business Practices

The growing demand for moral leadership

The modern workforce is weary. Political polarization and economic uncertainty have amplified demands for leaders who act with integrity. For younger employees, particularly Gen Z, the need is even more pronounced — they want to work for organizations that stand for something beyond profit. What younger people want is moral leadership. They’re looking for social purpose, for companies that demonstrate good values.

This shift reflects a broader reality: As faith in government and traditional institutions wanes, employees are looking to their workplaces as beacons of ethical guidance. The power dynamic has shifted. Talented individuals are no longer willing to tolerate leaders who dodge tough decisions or compromise values for convenience.

The business impact is real. Companies that prioritize moral leadership see improved employee retention, higher engagement and a more resilient culture. By contrast, those that don’t risk eroding trust to the point of no return.

The absence of moral leadership isn’t just a philosophical issue — it has real, measurable impacts on organizations. Here are four actionable steps leaders can take to address this challenge:

1. Align actions with core values — consistently

Many organizations have well-crafted values statements, but few live by them consistently. In my experience, employees can struggle to believe in their organization’s values because they don’t see leaders embodying them. To build credibility, leaders must align their actions with their words — especially during tough times.

During the pandemic, my company (HPWP Group) faced financial challenges that threatened jobs. Instead of resorting to sudden layoffs, we chose transparency. We held open meetings to explain the situation and sought input from the team. This approach not only saved jobs but also reinforced trust and commitment across the team.

So, leaders should conduct regular values check-ins with their teams to ensure that policies and actions reflect the company’s stated principles. Transparency about both good and bad news can significantly boost credibility and morale.

Related: How to Maintain Your Integrity While Keeping Up With a Rapidly Changing Environment

2. Make the hard calls with compassion and clarity

Moral leadership doesn’t avoid difficult decisions; it embraces them with integrity. According to the 2024 Edelman Trust Barometer Special Report, employees are 2.5 times less likely to trust their CEOs and other leaders to tell them the truth. That’s a sobering statistic. Without a doubt, people trust leaders who communicate decisions transparently, even if the news is bad. Handling layoffs or budget cuts with compassion can preserve morale and loyalty.

Let’s say you’re a clinical research company that’s facing a budget crisis after losing a major client. Instead of surprise layoffs, leaders should explain the situation openly, ask for ideas and seek input. This kind of transparency often leads to volunteers for early retirement, career changes, temporary time off (rolling right-sizing, as one of our previous clients called them) and exploring temporary pay cuts. Taking an honest approach can save jobs and improve morale simultaneously.

When tough decisions are necessary, leaders should communicate early and transparently, involve employees in the process and explore alternatives that reflect core values. How leaders handle adversity defines organizational culture far more than any values statement.

3. Foster open communication and feedback loops

Open communication is a cornerstone of moral leadership. A 2023 report by Qualtrics found that nearly 40% of employees did not feel sufficiently recognized in their work, and 38% admitted to feeling burnt out. Encouraging honest feedback and acting on it demonstrates that leadership values employee voices.

For example, Costco’s commitment to open dialogue and employee well-being has been instrumental in maintaining high morale and low turnover, even during economic downturns. By offering above-average pay and engaging employees in decision-making, Costco has built a loyal and resilient workforce.

Leaders should establish regular feedback sessions where employees can voice concerns without fear of retaliation. Acting on that feedback shows a commitment to continuous improvement and builds a culture of trust.

4. Lead by example to bridge the trust gap

The credibility of moral leadership hinges on leaders practicing what they preach. Leaders who model ethical behavior can increase employee trust significantly. This influence extends beyond immediate teams, shaping the broader organizational culture.

Patagonia’s unwavering commitment to environmental activism, even when it risks alienating certain customer segments, exemplifies leading by example. Their clear stance on social and environmental issues has earned them fierce loyalty from both employees and customers.

Leaders should publicly commit to specific, measurable actions that reflect core values — whether it’s sustainability, diversity, or transparency — and hold themselves accountable to those commitments. Doing so not only builds trust but also sets a clear standard for the entire organization to follow.

Related: No Backseat Driving: How Leading by Example Sets the Pace for Success in Your Business

Why moral leadership matters more than ever

As we look ahead, the demand for moral leadership will only intensify. Companies like Patagonia and Ben & Jerry’s, which have woven activism into their business models, continue to thrive — not in spite of their values, but because of them.

Meanwhile, organizations that ignore this shift do so at their peril. High-profile boycotts and backlash against brands seen as hypocritical serve as cautionary tales. In a world where consumers and employees alike vote with their wallets and careers, the message is clear: Live your values or risk losing your most valuable assets — your people and your reputation.

Leading with integrity is more than an ethical imperative; it’s a business strategy that pays dividends in loyalty, resilience and sustained success. For leaders willing to embrace this challenge, the path forward is clear. For those who aren’t, the cost of inaction is rising by the day.