Leadership in Organizations during Post-Recession Period - Essay Example

Leadership in organisations during post-recession period Introduction Two years after the global economic crisis, after showing intermittent signs ofirregular and weak recovery, the world economy is facing the possibility of another major economic downturn (UN, 2011). Observations revealed that in 2011 output growth had significantly decreased, especially in developed nations, while experts have predicted a continued weak and irregular growth, during 2012- 2013. The three major impacts of the 2008-09 economic crises are: The creation of a severe credit crunch: various financial organisations, like banks are facing severe liquidity issues, hence turning averse to taking risks (Lowth, Prowle, and Zhang, 2010); Owing to economic globalisation, financial recession in one country showed widespread impacts on the economies of other countries (Lowth, Prowle, and Zhang, 2010); The public finance deficit also created issues for the corporations, where rising corporate taxes have produced negative results on businesses, and individual taxation has decreased consumer demands for products and services (Lowth, Prowle, and Zhang, 2010). Under such conditions, excellence in organisational leadership and negotiation skills are necessary for developing business strategies that would achieve sustainable success. Currently new trends in leadership roles are emerging, where there is a distinctive move away from authoritative leadership to collaborative leadership and the current trend is to relate leadership development with organizational goals and mission. Global recession is a major challenge facing organisations A few years back when large companies faced the prospect of losing their stronghold within the arena of domestic markets, they simply searched for fast developing economies in order to make higher profits. Currently, owing to widespread economic globalisation and the looming financial downturn, there is a significant slowdown in economic growth, rise in stiff competition, increase in operational and management complexities and a significant shortage of skilled/specialised workers within key markets, which is turning into a major challenge for various business organisations. Many of the experts have predicted a fresh economic downturn by the end of 2012 primarily initiated by debt defaults in Eurozone (Ernst & Young, 2011). Furthermore, there are predictions that in the next 5 years the rapid economic growth of China would suffer a major setback, while some expect India and Brazil to face similar economic slowdown at the same time. Increased globalisation in finances and trade has led to increased integration, which in turn has acerbated specific economic conditions globally, creating greater challenges for business firms. The main challenges for organisations arising from the current economic crisis are: Achieving success in developing economies is not as easy as before and making profits from fast growing markets is increasingly turning more difficult as costs are increasing, there is greater competition, and even the fast developing economies are now slowing down owing to global recession (Ernst & Young, 2011); Divergent markets: Owing to globalisation, as the organisations enter markets having different business culture and environment and varying prospects they tend to face various challenges associated with increasing functional and management complexities (Ernst & Young, 2011); More importance are being attached to dynamic policies, which are largely unpredictable, shows a sign increasing protectionism is creating serious challenges for the organisations. Business firms are also expressing increasing concerns over sharp increase in taxes as governments try to acquire greater revenues to make up for the public fund deficit (Ernst & Young, 2011); Talented people and specialised workers are becoming increasingly difficult to find. Organisations all over the world are finding it increasingly difficult to locate the right candidates and there is scarcity of good leaders and specialised workers (Ernst & Young, 2011). The challenges faced by the organisations during recession makes it necessary for one to take into consideration the various leadership and negotiation skills that are necessary to steer business firms through the difficult period and prepare them for an economic upturn. In this context, some experts have contended that favourable economic conditions create a management and operational environment that is lax in nature, which is tightened up during economic recessions (Martin, Currie and Finn, 2009). Implications for the kind of leadership and negotiation capabilities that organisations need to develop During the 2007-09 financial crisis various deep-rooted weaknesses were found within the existing economic system related to regulations, governance, business models, and the most important flaw was found to be in the lack of effective leadership. The leadership teams in charge, were not managing the risks were mainly concentrating personal aspects like receiving bonuses or attending meetings in corporate jets (Rawlinson, 2009). After the global recessions in 2001 and again in 2007-2008, there was a shift from where the individualistic leadership model to the participative model, primarily owing to the unworthy conduct of some the leaders following the individualistic model within corporate world, such as, in Tyco, WorldCom, Enron and Parmalat. The most famous case of this time was that of Jack Welch, CEO of GE, who enjoyed huge perks, pension benefits, and various other privileges (Rawlinson, 2009). The entire period starting with Enron’s breakdown in 2001 to the bankruptcy of the Lehman’s in 2008 was replete with archetypal examples of confused and erroneous corporate leadership and the slow erosion of important business ethics and values (Costa, 2009). Amongst the 10 largest banks in the US, only three CEO’s managed to retain their position after the economic crisis; while in Europe leaders behind the disasters at UBS, Fortis, and Royal Bank of Scotland (RBS), were removed, even though Sir Fred Goodwin (head of RBS) was widely admired for introducing various innovative techniques, related to people management. In the context of finding good leadership values that would help an organisation function effectively during current economic recession, the search tends to expose the friction that exists between whether the emphasis is on individual or/and on interplay of individuals within socio-political contexts and followers. Contemporary leadership theory starts with the development of industrial societies and capitalist business ventures. Initially leadership was characterised by authoritarian rule amidst stringent hierarchical relationships, which aimed at complete power and control (Coase, 1937). However, while exercising this authority there were debates on whether leaders brought success for organisations as a matter of behaviour or a ‘trait.’ According to trait theory, leadership values were seen as constitutional and leadership development was a simply a matter of distinguishing and scaling the qualities. Kurt Lewin, in his theory contended that there are four primary ‘leadership styles:’ autocratic, dictator, laissez faire and participative (Lewin, Lippitt, and White, 1939). In Autocratic and dictator type of leadership style, the leader assumes supreme control over their team/employees and the latter are not allowed to voice their opinions, or criticize the leader’s way of working. Participative leadership is based on allowing equal participation of all team members, inclusiveness and democracy within the team. As per the action-centred leadership model framed by John Adair, leaders must necessarily provide directions on how to handle the task, support his followers, while nurturing and coordinating the entire team (Adair, 1973). James MacGregor Burns differentiated between transformational and transactional leadership, where the former leaders aimed at changing goals, values, and motives of followers (as for example Steve Jobs, who though used dictatorial leadership style, successfully developed Apple using transformation leadership) while the transactional leaders appealed to the rational interests of his/her followers (Burns, 1978). However, unlike Steve Jobs, Jack Welch of GE, while endorsing transformational leadership, personally followed the individualistic leadership model, which led to his downfall. Modern leadership values in order to be effective must be a mix of the various leadership theories; adopt various values from action, transformational and transactional leadership theories (according to organisational type and work culture); and be participative in nature instead of following an individualistic model. The modern leader must have the ability to see future market trends and patterns and change their perspectives when required. He must follow the participative style, where he is able to make employees, stakeholders, investors, consumers, and supply chain associates take part in a firm’s decision-making processes. This was evident when Carlos Ghosn followed participative leadership and successfully turned Nissan around from bankruptcy, in 2000. Various researches have revealed that organisational leadership is important because it tends to affect corporate performance and behaviour (Bertrand and Schoar, 2003). Taking into consideration that leaders act as motivators for their followers, various researches have shown that leadership values are expressed through staff involvement and effort. In a review that examined data from 800 stores, belonging to the US based Sears’s retail house that reviewed employee attitudes, business information, and customer information. The main factors found were employee attitudes towards their employer and job and associated with customer attitudes, predicted business results; while line manager was viewed as the main connection within a ‘value chain’. From these findings, it is clear that there exists a link between good leadership and effective organisational management, and leadership values can be realised through a logical array of employee management practices, a good employee relations atmosphere that support autonomy while also generating confidence and trust. Besides, good leadership skills, negotiation skills have gradually become more important especially in the context of current economic downturn, where the basic principle is centred on cost reduction, and the current competitive culture has turned negotiation skills into an important factor for achieving success.  As per a survey conducted by Aon Hewitt on employees from different parts of the world, post- recession leadership must show greater creativity and innovation in their way of functioning. Other leadership capabilities include, focusing on talent of the team members and pay for performance, increase participation of all employees, develop a middle management level, and create leadership resiliency. The current economic crisis, considered as one of the most severe downturn after Great Depression, has tested the capabilities of all global leaders, both in the arena of political or corporate world, while all business firms have faced various challenges and uncertainties. Under such circumstances, it is essential to have effective organisational leaders who would take care of cost cutting, while preparing the company for a later growth and at the same time keeping employees motivated. References Adair, J., 1973. Action Centred Leadership. London: McGraw Hill. Bertrand, M., and Schoar, A., 2003. Managing With Style: The Effect of Managers on Firm Policies. The Quarterly Journal of Economics, 118(4), 1169-208. Burns, J., 1978. Leadership. London: Harper and Row. Coase, R., 1937. The Nature of the Firm. Economica 4 (16), 386-405. Costa, K., 3 November 2009. Tame the markets to make capitalism ethical. Financial Times, retrieved from, http://www.godatwork.org.uk/2009/11/09/ken-costa-article-financial-times [Accessed 25th November 2012] Ernst & Young, 2011. The world is bumpy: Globalization and new strategies for growth. 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