It sounds like your department head has no leadership abilities.
1) His department has problems. If he's a true leader he will step up and recognize it to the point of fixing it himself. Oh, but he has recognized the problem and has delegated that responsibility. Wrong!
2) Any fool can see moral problems. But he doen't know how to deal with them, so he passed the problem to someone else that does not know how to fix the problem. (proof: You're asking total strangers, that you have not qualified, for assistance, becuase you don't know what to do.)
You're asking for a Management MBA education to be passed to you in a discussion board. I can appreciate the other post that gives you a six step outline of where to go, but those are the strategies to the objective. You still don't have the tactics (skills) and experience to pull this off.
Two pieces of advice:
If it's not in your job discription to handle this issue, then politely excuse yourself and pass the mess back to him. Otherwise, you are ensuring yourself a failure and a black mark on your record. "Remember when Yeung botched that series of moral boosting meetings last quarter? What a waste of time that was!" It's called the Peter Principle. Look it up, understand it, and don't be victim of it.
Second,
What's the name of your company? I'd like to get a job there to straighten it out. I've been leading teams of IT groups for 12 years, making better decisions than your boss.
