The Leaders Role in Effective Governance - Example

ASSESSMENT NUMBER: 1 ASSESSMENT TITLE: THE LEADER’S ROLE IN EFFECTIVE GOVERNANCE COURSE CODE: COURSE NAME: LEADERSHIP & GOVERNANCE STUDENT NAME: STUDENT NUMBER: ASSESSMENT DUE DATE: Executive Summary The current essay explores the roles played by organizational leaders in corporate governance. The paper will rely on peer-reviewed journals to examine the interaction among leadership, governance, and performance in organizations. In particular, the essay will discuss leadership in organizations, looking at how different leadership perspectives approach the term. It will also look at how leadership differs with management despite the two terms being used interchangeably by many individuals. The essay will also explore meaning of governance in the context of organizations. It will the roles played by different leaders, particularly board of directors and chief organizational officers and staff, in corporate governance. The paper will also discuss how leadership development and effective followership affects organizational performance. Lastly, the essay will conclude by illustrating why it is important for organizational leaders to ensure effective governance despite the process of establishing the governance structure and culture being a complicated phenomenon. Table of Contents Executive Summary 2 Table of Contents 3 1. Introduction 4 2. Leadership in Organizations 5 3. Governance in Organizations 7 4. How Leaders Affect Governance 8 5. Leadership Development and Organizational Outcomes 10 6. Effective Followership and Organizational Outcomes 11 6. Conclusion and Recommendations 12 8. References 14 1. Introduction Effective leadership remains one of the key drivers of success in today’s organizations, which operate under dynamic environment characterized by rapidly evolving information and communication technology as well as globalization and liberalization of markets. Although individuals use leadership and management interchangeably, the two concepts differ significantly. While leadership primarily refers to the process of setting strategic visions and objectives of an organization and influencing or empowering employees towards achievement of the goals, management is involved in planning, evaluation, control, organization, and directing of organizational resources (Plachy, 2009). As such, leaders stand in better position that managers to influence corporate governance, that is, organizational culture and mechanisms essential to align activities and operations of organizations with obligations established by society, moral standards, and legal frameworks. As leaders, chief executive officers and board of directors can use their influence and responsibilities given by shareholders to establish mechanisms that direct and control behavior of stakeholders in way that maximizes the value of investors and serves the individual interests of stakeholders effectively and fairly (Mayer, Aquino, Greenbaum, & Kuenzi, 2012). In turn, good governance ensures effective leadership development and followership, essential for good organizational outcomes. An effective development of leadership within organizations leads to creation of trustworthy relationships between followers and leaders as well as good organizational citizenship (DeRue & Ashford, 2010). Good followership serves as a prerequisite to good organizational performance, as stakeholders demonstrate willingness to exchange information for betterment of their interests and consequently, enhancement of interests of stockholders. Moreover, it ensures satisfaction of employees, motivating them to exemplify exceptional productivity towards achievement of strategic objectives established by their effective and moral leaders. The current essay explores the role of leaders in governance of corporations by examining leadership and governance in organizations as well as how leaders influence corporate governance, leadership development and effective followership vs organizational outcomes. 2. Leadership in Organizations Mayer et al. (2012) observe that leadership remains one of the major factors influencing ethical culture of organizations. However, the exact description of leadership remains elusive despite considerable studies having been done for decades to understand organizational leadership. Some organizational theorists describe leadership in terms of traits inherent in prominent leaders, while others use behavior of particular individuals and individual responses to different organizational situations to explain effective leadership (Zaccaro, 2007). Trait theorists seem to agree that leadership involves combination of innate traits within particular individuals that make them better leaders than others. Behaviorists describe effective organizational leaders as people with different behavioral traits that enable them to influence others towards certain objectives. Situational theorists believe that good leadership refers to the ability of a leader to identify and use the right combination of traits and behaviors to respond to different situations within the organizational environment. These different perspectives seem to agree that leadership represents a blend of personality traits or behavior characteristics within an individual that makes the person stand in a better position to influence others towards common objectives under different situations or contingencies. As Painter-Morland (2008) argues, any person within an organization can be a leader because leadership is a consequence of social construction, arising from the relationships between employees and workgroups. This implies that leadership is not restricted to only those in higher hierarchical positions in organizations, but other employees occupying lower organizational ranks can also exemplify leadership skills. As a result, leadership differs greatly to management in many aspects. Although there are various differences between the two organizational functions, Plachy (2009) argues that the major difference regards how leaders and managers carry out their primary duties and responsibilities. Managers execute their functions by creating plans and budgets, establishing objectives, identifying courses of action to achieve the goals, and assigning resources to ensure effective accomplishment of the goals. They also operate according to a clearly defined organizational structure with a clear chain of command. They control employees to ensure that they carry out their duties according to the established plans and standard operating procedures. Leaders on the other hand, execute their responsibilities by identifying the direction for organizations, establishing a vision of deliverables and ways to accomplish them, establishing organizational or group strategy in conjunction with followers, and selecting talent. Rather than controlling followers, leaders delegate responsibility or empower them to accomplish the established strategy. Additionally, they strive to create trust by leading their followers by examples, that is, doing things that they would want their followers to do. According to Hamm (2011), good leaders behave in ways that promote ethical culture characterized by honesty, integrity, and fairness within organizations, as they influence their followers to behave in similar ways. 3. Governance in Organizations According to Zerni, Kallunki, and Nilsson (2010), corporate governance includes a wide range of formal structures of direction, oversight, and regulation within any given organization, which are established to control the actions and decisions of management in order to make sure that they are consistent and attuned to the interests of stockholders and other stakeholders who play a role in the activities of the organization. The definition demonstrates that governance is more about stewardship and accountability within organizations. From the perspectives of agency and stewardship theorists, the prescribed structures of control are aimed at making management accountable to stakeholders and investors (Nicholson & Kiel, 2007). In this context, accountability implies that other stakeholders expect management (as stewards of the organization) to be in a position to take responsibility of their actions and decisions. Within an organization, responsibility runs from workers to supervisors to managers to the board of directors to investors and other external stakeholders. This implies that to ensure effective governance, managers must be aware of both internal and external environments to be able to identify and take into account changes when making corporate decisions. Although many countries and regions have established legislations to define duties and rights of all stakeholders, the framework provided by the Organisation for Economic Cooperation and Development (OECD) remains the widely used across the globe. According to Balgobin (2008), OECD principles underscore governance as running of organizations in a manner that maximizes the interests of investors. The principles classify various rights of investors and responsibilities of managers into five categories: rights of investors, fair treatment of all investors, role of other stakeholders in governance, duties of company’s board of directors, and disclosure and transparency. 4. How Leaders Affect Governance Leaders play a key role in influencing corporate governance because they have influence over their followers and develop and enforce corporate norms and policies. Within a formal organization, leaders may include board of directors, chief executive officers, managers, supervisors, and group leaders, among other stakeholders with significant influence over employees. Among these, board of directors, chief executive officers, and managers play the major leadership role in establishing a good governance framework in firms. Corporate boards lead and oversee organizations and therefore, their effectiveness remains a fundamental component of good governance of the organizations. Primarily, board of directors serves as the bridge between shareholders and management, which places it at a better position than other leaders to direct the company towards maximization of stockholder’s value (Nicholson & Kiel, 2007). Its principal role is to develop and enforce formal mechanisms to direct, oversee, and control operations of the overall organizations to ensure they conform to prescribed social, regulatory, and ethical responsibilities. To accomplish its role as a leader, board of directors identifies organizational objectives and strategies, establishes policies and plans to accomplish the objectives, monitors the progress of the organization in achieving those goals, and selects talented people to act as stewards or leaders. Therefore, they ensure governance by developing policies and setting strategies that serve equitably the interests of all stakeholders and shareholders. In monitoring managerial activities, they act as rubberstamps by considering the impacts of any decision on employees, investors, and other major stakeholders (Zerni et al., 2010). As leaders, the role of chief executive officers, managers, superviors, and workgroup leaders is to provide a blueprint of organizational culture that fosters governance. These stakeholders wield high levels of power to guide, direct, and motivate their followers towards accomplishment of organizational objectives and strategies. To a larger extent, these category of leaders influence behavior and attitudes of their followers, implying that they should behave in ways that promote social, moral, and legal responsibility of the organizations (Cohen, Krishnamoorthy, & Wright, 2010). They serve as role models to the followers, who strive to act in ways similar to their leaders. In comparison to leaders, chief executive officers and top managers also play a role in setting an ethical framework within the firms. As shareholders stewards, they are responsible for running of the organizations. They have responsibility to develop strategies and objectives of their units and departments as well as select and monitor the actions of their subordinates towards achievement of the goals. As such, they stand in a position to develop operational procedures and departmental plans that are consistent and compatible with the code of behavior and governance policies established by the board of directors (Braithwaite & Travaqlia, 2008). After developing the ethical structures, they then influence and motivate their subordinates to perform their activities in ways that serve the interests of other stakeholders. However, the ethical culture is more likely to be sustainable if the top managers allow subordinate employees as well as other internal and external stakeholders to participate in creating the culture. By nature, humans feel obliged and willing to uphold behaviors for which they have participated in putting in place. Moreover, their involvement provides the top managers with information, essential to establish an ethical culture responsive to changes in the social, legal, and moral business environments. 5. Leadership Development and Organizational Outcomes The development process of leadership directly or indirectly affects organizational outcomes. According to Painter-Morland (2008), leadership is developed through social constructions that involve intricate relationships between employees and organizational teams. These interactions give rise to individuals with different behaviors and traits, which influence some of them to become effective leaders and others effective followers. Leadership development produces organizational trust and citizenship if the interactions are founded on principles of procedural, distributional, and interactional justice (Harrison, Bosse, & Phillips, 2009). Distributive justice regards the feeling among individuals that roles and responsibilities, among others have been distributed fairly among all parties based on their performance. On the other hand, procedural impartiality refers to the perception that organizational processes have been applied fairly and sustainably across all individuals as well as in a manner that conforms to existing moral standards. Interactional justice refers to perceptions of integrity, accountability, respect, and dignity regarding the manner in which the processes have been carried out. Existence of these three forms of justice in the leader-follower interactions creates an affective climate characterized by trust. When followers believe that leaders have behaved impartially, a good organizational climate and citizenship behaviors are promoted (Menges, Walter, Vogel, & Bruch, 2011; Caldwell, Hayes, & Long, 2010). The followers will want to behave like their leaders, thereby creating organizational citizenship attitudes among the followers. The subordinates will also feel more safe and satisfied in presence of their leaders. As a result, it becomes possible to foster an ethical culture within the organization based on integrity, honesty, accountability, and fairness. Such a culture fosters effective followership, essential for ensuring and sustaining corporate governance as well as other organizational outcomes related to organizational competitive advantage. 6. Effective Followership and Organizational Outcomes Effective followership can be described as when followers have good relations with their leaders, willing to follow leaders’ ethical behaviors and actions to accomplish established goals. It represents a direct outcome of leadership development and serves as the link between leadership development and performance-related outcomes of organizations. It results when development process of leadership creates affective climate, trustworthy interactions, and citizenship culture within firms. Effective followership influences employee satisfaction, employee productivity, and organizational performance (Menges et al., 2011). An affective climate and trustworthy interactions between leaders and followers make employees feel satisfied with their work and organizations (Madlock, 2008). This is further enhanced when the interactions occur in an inclusive environment where employees have an opportunity to participate in major decision-making processes. They develop a sense of belonging to the organization, feeling that they form a significant part of the corporations. They also perceive that their contributions are respected, which makes them wish to continue working for the organizations. Effective followership also enhances employee productivity or task performance. If they perceive that their leaders are effective and ethical, they become willing to follow objectives, strategies, and policies established by the leaders (Menges et al., 2011). Every follower wants to follow guidelines of leaders in order to accomplish his or her task efficiently and effectively and in a way that conforms to social, ethical, and legal norms of the organization. Moreover, the performance is more likely to improve if followers believe that their leaders uphold the principle of distributive justice. In this case, they strive to meet the set performance targets in order to receive accompanying rewards or other performance-based incentives. Effective relations among the followers also characterize effective followership, which implies that employees are more likely to seek assistance of other workers to ensure that they accomplish their tasks effectively. Enhanced organizational performance presents another major outcome of effective followership. First, employees develop a sense of organizational commitment towards achieving performance standards established by leaders for the overall organization. Secondly, good citizenship behavior encourages them to share information among themselves and work collaboratively. In addition, internal and external followers are also more likely to exchange information about their utility operations, making the organizations stand in a better position to maximize resource allocation and create sustainable competitive advantages (Harrison et al., 2009). In this way, the organizations are able to improve their overall performance, which enables them to maximize value of shareholders and serve interests of stakeholders excellently. 6. Conclusion and Recommendations Within a formal organization, leaders may include board of directors, chief executive officers, managers, supervisors, and group leaders, among other stakeholders with significant influence over employees. As leaders, board of directors develop and enforce formal mechanisms to direct, oversee, and control operations of the overall organizations to ensure they conform to prescribed social, regulatory, and ethical responsibilities, while top managers provide a blueprint of organizational culture that fosters governance. Leadership development enhances trust, affective climate, and citizenship behaviors as well as employee performance, employee satisfaction, and organizational performance. Although corporate governance emerges as a complicated phenomenon that depends on many organizational stakeholders and processes, it represents an effective approach for organizations to develop to become corporate citizens. Rather exemplifying management behaviors, top managers and board of directors should behave as ethical leaders to promote governance in their organizations. Although a complex process, they should develop and implement governance structures, including code of ethics and strategic policies, objectives, and visions to guide and control behaviors and decisions of their followers towards achievement of organizations’ social, legal, and moral responsibilities to investors and interested parties. They need also to influence and inspire their followers to become good organizational citizens through acting in ethical ways. This remains the most effective approach to ensure their organizations create and sustain competitive advantages and at the same time, minimize scandals that may negatively public image of the companies to external stakeholders and investors. 8. References Balgobin, R.N. (2008). Global governance practice: The impact of measures taken to restore trust in corporate governance practice internationally. ICFAI Journal of Corporate Governance, 7 (1), 7-21. Braithwaite, J., & Travaqlia, J.F. (2008). An overview of clinical governance policies, practices, and initiatives. Australian Health Review, 32 (1), 10-22. Caldwell, C., Hayes, L., & Long, D. (2010). Leadership, trustworthiness, and ethical stewardship. Journal of Business Ethics, 96 (4), 497-512. Cohen, J., Krishnamoorthy, G., & Wright, A. (2010). Corporate governance in the post-Sarbanes-Oxley era: Auditor’s experiences. Contemporary Accounting Research, 27 (3), 751-786. DeRue, D.S., & Ashford, S.J. (2010). 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