Effective Leader Role in Good Governance
Employee management has become a vital resource within organizations. This importance is based on the theory that groups create better quality outcomes than employees working individually. As the use of group work has increased in firms, considerable investigations has focused on the role of leadership and governance in fostering group performance.
The general literature relating to leadership, governance and its development has arrived at broad and fragmented conclusion. The principal aim of this research is to present a concise view of the factors related to governance and leadership using a systematic literature review. This research will try to explain the relevance of the leader’s role in the effective governance of organisations and how it alter the organizational outcomes.
As a second aim, this essay will introduce the concepts “leadership” and “governance” outlining the similarities and differences of both concepts to distinguish between their role and development. For this reason, This research discusses these concepts to fully understand the significance of governance and leadership within companies. In addition, a third aim is to expose the differences between a manager and a leader as both concepts are interrelated but represent differences that require different qualities.
The roles of individuals involved in governance are essential to be successful in business but also to ensure the common good. Leadership systems and organizational structures are aligned affecting the culture of the organisation and this in turn can be the distinction between failure or success in accomplishing a specific goal (Bijlsma-Frankema & Koopman, 2004). Consequetly, the fourth aim of this research was to understand the organizational outcomes prompted by the interacition between leadership and governance; and its relation with stakeholders, firms and societies.
Generally Organization depends on trust, commitment, communication and behaviours to be able to respond to demands of change, being more creative, and creating long-term wealth. For this reason, the relationship between leaders and followers has to be personally and professionally linked to face the organizational challenges. Consequently, the last aim, is to illustrate the key concepts of leadership development and how effective followership influences directly the organisational outcomes.
2. Understanding organizational leadership.
From an individual perspective, “leadership is the ability of an individual to influence, motivate and enable others to contribute the effectiveness and success of the organisation” (House et al. 1999, p13). In short, a leader has the capacity of driving a group of people to achieve a common goal. These definitions refer to a particular ability and are not based on positional power and authority. Consequently, Leadership traits are assigned to individuals and leaders are born with some leadership traits that, during their experience and professional career, can be refined (McDermott et al, 2011).
To comprehend leadership, one have to understand its essential nature, that is, “the process of a leader and follower engaging in reciprocal influence to achieve a shared purpose” (Rosenbach & Taylor, 2006). The influencing process of leadership is between leader and follower in a two-way communication process affecting each other at the same level. This means, that good leaders influence followers and followers in turn influence them. This situation encourage an environment for leaders and followers is a context in which each can be free to trust each other enough and trust the purposes, actions and intent of others and further the purposes of the company (Fairholm & Fairholm, 1999).
Leaders during their performance must show certain traits and natural attitudes that define leadership behaviour such as, emotional intelligence and ethical integrity. According to Walumbwa et al (2012), emotions do not have to dictate their acts or directly influence their decisions and leaders have to know how to manage the emotions of the team. In fact, setting up strong emotional links within a group enables the members to trust each other and prompt the group to a common goal.
Regarding the ethical integry, “leaders should be the key source of ethical guidance for employees” (Schwart, 2013). This concept extends the function of the leader as a demonstration of the appropriate conduct through personal actions and personal relationships. It represents the promotion of such to followers through ethical decisions, reinforcement and the aforementioned two-way communication. “Perceptions among employees that their managers possess a set of core ethical values and act upon them has been shown to significantly impact the firm’s ethical corporate culture” (Hitt, 1990).
3.Leadership development and followership.
Based on leadership theories, the common interest relates to influencing leaders and followers to accomplish organizational goals through change (Lussier and Achua, 2004). In that case, it is important to understand that leadership is not focused just in achieving the goals of the marketplace, but also creating sustainable internal relationships of which individuals require as they work within an organization (Caldwell et al, 2008). Leadership is a changing process and the leader-followers relationship is reciprocal considered as a two way process. “That process consists in leaders and followers engaging in reciprocal influence to achieve a shared purpose”. (Rosenbach & Taylor, 2006).
Leaders protect the personal interest of followers by conveiving secure exchange relationships, but also use that resulting safety to unlock the potential of followers to modify the organization (Caldwell et al, 2008). Covey (2004) describe leadership as, “ Communicating to people their worth and potential clearly as so they begin to see it in themselves”. Leadership seeks to help each person to achieve their highest probable potential and is dedicated to the “welfare, growth, and wholeness” of others whom they serve (Covey, 2004; Caldwell et al, 2007).
Creating trust and building strong personal relationships is vital to develop leader credibility in the organization. “Leadership demands a heart to heart connection that honours the relations that exist between leader and follower and that established personal and organizational credibility” (Caldwell et al, 2007). That connection creates a trust atmosphere where followers are willing to personally commit their efforts and relinquish personal control in compliance with the roles requested of the leader (Solomon & Flores, 2001).
4. Understanding Governance.
As discuss by Meyer (2004), governance explores how to maximize effectiveness of one organisation by new broad strategies achieving improvement of its capacity. In short, “governance defines the value context of the organization and shapes the direction of its mission while setting the long-term business perspective for ethical conduct and effective public responsibility” (Watson, 2003). They key players in the corporate governance process are shareholders, the board of directors, and management (Cardelo, 2009).
Governance plays a relevant role in the method of guaranteeing that the shareholders, employees and customer’s satisfaction are at the same level. The power and the decision making authority is held in the CEO’s hands in a higher dominant position than the individual’s at a base level within the corporation. Despite representing a centralization of the decision-making authority in the COE, it has a decisive performance in the chain of command portraying the pursuit of the owner or investors in a company (Meyer, 2004; Watson, 2003). Corporate Governance impact on how objectives have to be set and achieved, how risk is monitored and assessed, and how performance is optimised. “Good governance structures encourage companies to create value and provide accountability and control systems commensurate with the risks involved” (Wilmshurt, 2005).
In conclusion, Governace provides a moral and ethical foundation of values, a framework for practicing all of the management disciplines, an approach for accurancy in delegation of authority, as well as a long-term focus on the purpose of the organization rather the operational actions of the organization (Watson, GH, 2003). Therefore, Governace is considered with “holding the balance between economic and social goals and between individuals and communal goals” (Cadbury, 2000). For this reason the main aim of the governance is to regulate as accurately as possible the interest of individuals, corporations and society. In fact, the conflict between agency and stakeholder theories of the firm has long been entrenched in organizational and management literature (Shankman, 1999).
5. How leadership affects Governance.
Leaders should provide the skills and the energy to connect strategic governance with organizational outcomes. In fact, Leaders are considered to be the agents that makes governance work. The main link between structure, process and outcomes is the information and leader providing an atmosphere of trust necessary to ensure a greater flow of information between agents within an organization (Thomsen, 2005; Shankman, 1999). “If trust is undermined, communication is undermined, information is undermined and governance is undermined, too” (Stewars 2004). For thsi reason, the key role of leader in governance is to develop, maintain trust and provide ethical leadership inside of the organization. Consequently, setting rules and procedures in an organizations does not mean that it will be ensured good governance.
The relationship between leadership and governance is reciprocal, the role of leaders ensures good governance of organizations and the role of good governance ensures good leadership. Taking a broad approach, it is possible to consider that those who display leadership abilities can achieve good governance through the organization’s conduct as a whole (Meyer, 2004; Stewars, 2004). “Good governance is directly associated with the quality of the leaders based on the behaviour taken to assert economical, effective, efficient and representative governance” . In conlusion, “the form of governance substantially impact both leader behaviours and organizational culture” (Thomsen, 2005).
According to Watson (2003), the role of governance in the management system is to set the guiding policy and strategic direction that the organization will execute in the future, while the role of business leaders and their team of operational management is to execute the firm’s strategic direction within the context of the board’s delegated authority” (Watson, 2003; McDermott et al, 2011; Stewars 2004). “Governance establishes the policy framework within which business leaders will make strategic decisions to fulfil the organizational purpose as well as the tactical actions that they take at the level of operational management to deploy and execute the organization´s guiding policy and strategic direction” (Watson, 2003).
6. A Comparison of Leaders and Executive managers
Managers have a formal authority to impose this authority and delegate work upon subordinates. While the definitions of leadership cover particular processes or abilities they do not refer to an individual in a specific position of authority in a company (Bernut, 2004). As we have known in the leadership definition, the essense of a leader is not hierarchical, top-down, or based on positional power authority. “Although effective managers must practice good leadership and effective leaders must possess managerial skills, leadership is not management or some part or principle of it” (Rosenbach & Taylor, 2006). In conclusion, Leaders are considered managers that have eluded the old autocratic management style and innovated a new participative leadership style of management.
Leaders and managers focus on different aspects in organizations. Leaders can help their companies to create long-term wealth and build organizational trust by governing as ethical stewards (Caldwell & Karri, 2005). On one hand, Leaders focus on the future, creating organizations that will be different and more effective in the long-term. On the other hand, managers face a daily production schedule and monitor the everyday performance of the company (Hosmer, 1996).
In fact, managers have the responsibility to control and monitor employees in a company but in environments, in which the knowledge is intensive, dynamic and complex, managers have to delegate. It is in this situation that the manager should be harnessing the skills of their employees, which demands effective communication and information sharing. This is the main step that differentiates the function of a manager and a leader. In conlusion, “Leaders are ethical stewards who generate high levels of commitment from followers” (Caldwell et al, 2007).
To conclude, managers take into account the development of mechanisms that create stimulus for achieving economic growth based on the short-term profits. In contrast, Leaders, integrate long-term wealth creation, a commitment to the transformational interest of stakeholders, and creating organizational systems that reinforce both instrumental and normative organizational goals (Caldwell et all, 2007). In fact, “Managers seeks the status quo through regular economic changes and leaders pursue group goals and organizational needs in addition to the individuals needs of individuals and provides a “compelling vision” of what people and organization can become” (Lussier & Achua, 2004).
7.Governance and organisational outcomes.
The organizational outcome involves the understanding of the organizations economic activity and its requirement of the sensibility in the independence of production and exchange relations. “It represents a particular integration between the governance structure, resources and transactions that demonstrates how the strategy of a company influences its choice” (Shankman, 1999).
It is not easy to understand that businesses motivated by economic self-interest have powerful incentives to promote the common good (Goizueta, 1996; Hood, 2003). Therefore, “quality governance are less likely to engage in inappropriate financial reporting behaviour and, as result, are more likely to be viable as long-term entities which benefits society” (Cardello, 2009). As a consequence, a range of initiatives exist of which organizations implement to bring out organisational outcomes. This report is focused on four main organisation outcomes: Company identity, Comparative advantage in cost-resources, corporate social responsibility and reputation.
Company identity consist of characteristics of which make a company unique in comparison to other companies, Also this relates to permanent characteristic that link the past and present to the future of the company (Cornelissen & Harris, 2001). Its elements are granted by strategy, philosophy, culture and structure of the company organization. Identity includes means, which a company want to present itself on the market or to pose a product on the market (Ljubojevic, 2008).
The production functions of a company are not merely a technical input-output transformation function. In governance, it becomes partially endogenous concept that plays a role in the organizational performance of the company (Hood, 1999; Thomsen, 2005). Even if two firms have access to similar inputs and technology, there could still be a difference in performance due to differences in organizing skills and abilities (Madock, 2002). The strategy of a particular company influence how its resources interact among the transactions and the decision to govern it.
For this reason, governance skills have become important in order to arrange cost and competence within the governance structure. Companies achieve competitive advantage when they succeed in implementing a resources, cost and production strategy which is not possessed by it competitors in the industry (Barney, 1991). The implementation of a sustainable competitive advantage is the reason for the realization of an adequate organizational performance.
Corporate social responsibility (CSR) is defined as the responsibility of companies for their impacts on society. That responsibility aims to encourage positive repercussion through business activities on consumers, stakeholders, environment and communities. In fact, the CSR theories focused on a few aspects: “Firstly, the challenge to find objectives that bring profits in the long-term; Secondly, the uses of business potential in a responsible way; thirdly, interact socially; And fourthly, Contributes to create a good society doing what is considered ethically correct” (Garriga & Domenec, 2004).
For this reason, the CSR is considered the combination of economic, politics, social and ethics interest for the common goal. In situations that the free market does not provide a optimum sitatuation in the sense of Pareto the political system should act to solve the externalities appeared in the ecnomy (Friedman, 1970; Thomsen, 2005). In conclusion, business contributes to the welfare of society through the market mechanism and in compliance with the law (Garriga & Domenec, 2004).
Corporative governance also design the function of better corporate reputation. It shows the necessity for integration of capacity methodology into business strategy to improve the opinion of consumers in reputation development (Cornelissen & Harris 2001). Positive reputation increases competitive advantage and influence corporate performance. According to Barnett, Jermier, and Lafferty (2006) corporate reputation includes basic components, such as the image and quality. It is very difficult for companies to make progress without a good reputation and good reputation is not possible to maintain without good governance (Barney, 1991).
Leadership as performance of governance creates long-term organizational wealth and increase employee commitment. In fact, that commitment is the reward of the organizational leader’s creation of an arranged system that promotes incentive and trust and ensure the welfare and wholeness of all stakeholders. In this paper it is possible to understand how leadership can create vital emotional and professional links between leaders and followers facilitating organizations to achieve instrumental goals. Understanding the implications of ethical stewardship and applying its principles provides business practitioners with the opportunity to build trust within their organizations, improve employee commitment, and create long-term wealth and sustainable competitive advantage (Caldwell et all, 2007).
In this research it can be deduced that the relationship between leaders and governance through the traditionally based agency and stakeholder theory in a new perspective creates sustainable competitive advantage in the current world economy. Good leader encouraged organizational processes will evoke employees to come up with the correct answers. Therefore, governance facilitates the opportunity to restructure the way that organizations coordinates and controls its resources. This method will direct energies toward positive, sustainable, ethical and strategic purpose. Using leadership management can also prompt business leaders to reassert the organizational moral responsibilities and venerate the obligations that they owe society as a corporate member of its community.