The double‐edged sword of ethical leadership: Investigating when and why ethical leadership promotes versus inhibits team performance

Abstract Although previous studies pointed towards a positive association of ethical leadership and team performance, we suggest that ethical leadership may have unintended, paradoxical effects on interpersonal dynamics within the team, and, ultimately, team performance. Drawing on social information processing theory, we propose that ethical leadership can be a mixed blessing, with paradoxical impacts on team performance via two distinct pathways—task and relationship conflicts, contingent upon the team's informal power disparity. Specifically, we propose that ethical leadership has a positive indirect effect on team performance via reducing relationship conflict but a negative indirect effect on team performance via suppressing task conflict. Those indirect effects are more pronounced when the team has a more egalitarian power structure among their members. Results from a three‐wave field study, in which we surveyed 90 work teams in China, provided support for our conceptual model. Our findings reveal the benefits and costs of ethical leadership and the importance of examining informal power disparity in this leadership process.