Leadership and corporate governance
The link between leadership and corporate governance is often ignored because entities usually adopt corporate governance principles as a response to a crisis.The nature of leadership being provided to corporates has a huge bearing on the corporate governance practices that are appreciated at that entity. It is useful to explore the relationship between leadership and corporate governance so that corporates can stand guided on these two tenants that are key to the success of any entity.
Corporate governance is self-regulatory and it requires leadership to make it effective. Henceforth the ZimCode takes the “apply or explain” approach which gives much liberty to entities and at the same time emphasises quality leadership that upholds moral duties.
The link between leadership and corporate governance is often ignored because entities usually adopt corporate governance principles as a response to a crisis.
The response is therefore driven by desperation and not commitment to better practice. In such scenarios the leaders find themselves lacking necessary response expertise when dealing with governance issues but it also reflects on their leadership styles which could be the main reason why their corporate governance is not effective.
Corporate governance according to Gabrielle O’Donovan is an internal system encompassing policies, processes and people which serves the needs of shareholders and other stakeholders, by directing and controlling management activities, with good business savvy, objectivity, accountability and integrity . . .
Corporate governance is only a means towards an end of enabling different parties to work together with confidence; the real proof of success is a business with sustainable growth. The ZimCode highlights that good corporate governance helps to engage stakeholders without losing sight of the company’s own vital interests.
Having established what corporate governance entails, it reflects a lot on the role that leadership has to play in developing systems through which an entity can be effectively governed. Leadership and corporate governance are at their best when they are in a symbiotic relationship; they have to depend on each other to achieve optimum benefits.
Leadership provides the motivation and impulsion to make corporate governance effective. Its key role is to create a culture in the corporate which uses effective governance to achieve its purpose. This culture encourages the behaviours needed to embed corporate governance in the entity.
A brief analysis of leadership styles practiced in corporates can be a good measure of how much leadership influences corporate governance in corporates.
Leadership styles can be said to be autocratic, bureaucratic, democratic or charismatic.
When viewing leadership from the perspective of the exchange of power and its utilisation to secure outcomes, leaders are situational, transactional or transformational.
The autocratic leader has charisma and can engage others to follow their mission. The outcome is usually impactful and at the extreme can be tragic. Their agenda is personal and often focused on self-aggrandisement because they have followers and not partners.
The autocratic leader’s style does not take into consideration the feelings of the follower and sees things only from his/her point of view. This usually has a negative effect on followers who eventually will be unwilling to cooperate with the leader. Such strong leaders often fail to establish the governance structure needed to ensure their legacy outlives them.
There is rarely an effective succession plan because autocratic leadership does not groom alternatives.
Its strategic vision depends on the judgement of one person so that there is no process of ‘reality checking’.
This leadership style does not tolerate challenge yet challenge is the essential counter balance of true leadership.
It is obvious that corporate governance issues under these circumstances can be totally ignored or can be a matter of ticking boxes.
This leadership style produces a culture of fear and resentment where creative and innovative minds cannot thrive.
Democratic leadership is by the group instead of one defined leader.
A lot of effort is put in consensus building. It values the input of team members and peers, but the responsibility of making the final decision rests with the leader.
It has the potential for poor decision-making and weak execution. This leadership style usually needs consensus for the simplest decision-making, and thus it is slow and cumbersome.
It follows that the adoption of corporate governance principles can take time being deliberated on in various committees which can delay or hamper their actual implementation.
On the bright side when corporates adopt principles that have a huge buy-in from its employees the execution is beyond ticking the box.
When employees make contributions to the decision-making process they feel valued and can contribute immensely towards the success of the corporate.
The Charismatic leadership is a style in which followers make attributions of heroic or extraordinary leadership qualities. Charismatic leaders have vision and the ability to persuade, motivate and inspire.
They are willing to take personal risk to achieve their vision and are sensitive to their follower’s needs. The charismatic leader enables creativity and his willingness to allow innovation is a positive aspect of this leadership trait.
It is possible for a corporate to have good corporate governance principles under this leadership because the culture allows individuals to strive for the enhancement of systems.
A huge disadvantage of a charismatic leader is the effect it has on the corporate when he leaves. Even though mentorship is encouraged, the candidate may find it hard to command the same respect that the previous leader had.
The corporate may lose direction. It may mean that the successes gained in corporate governance can be derailed. The replacement is usually not able to ‘fit into his boots’ which can affect the company morale and change the culture.
The transformational leadership is the most valuable form of leadership. It is strategic in nature.
Leaders focus on the big picture within an organisation and delegate smaller tasks to the team to accomplish goals. It inspires employees to transcend their own self-interests for the good of the corporate.
It pays attention to individual needs, promote intelligence, provide vision and a sense of mission, communicate high expectations and help employees to approach older issues with new ways.
It encourages followers to put extra effort into achieving group goals and to be more innovative and creative.
This leadership style is known to achieve the best outcome in benefiting all the players within the company.
This is because leaders motivate employees and enhance productivity and efficiency through communication and high visibility.
They realise that their success is underpinned on the greater good of the corporate, they win together. They do not see corporate governance principles as impediments but as vehicles towards the success of the corporate.
Does the leadership style in your entity enhance good corporate governance practices?
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