ENT 304 Leadership and Corporate Governance - 0
ENT 304 Leadership and Corporate Governance - 0
ENT 304 Leadership and Corporate Governance - 0
GUIDE
ENT 304
Babcock University
Babcock University
ORIGINAL%20LOGO
Headquarters
University Village
Jabi, Abuja.
Lagos Office
e-mail: [email protected]
URL: www.noun.edu.ng
Published by:
ISBN:
Printed: 2017
Introduction
Course Contents
Course Aims
Course Objectives
Course Materials
Study Units
Assignment File
Assessment
Tutor-Marked Assignment
Useful Advice
Summary
COURSE GUIDE
COURSE AIM
The general aim of this course is to provide intellectual and professional training
for would-be
entrepreneur administration in order to make them effective and efficient in their
day-to-day
practice. Literature reveals that most head of educational institutions do not
really understand the
nitty-gritty of school management. As a result, it makes it difficult for them to
achieve the goals
of the respective institution they manage. Some entrepreneur or principal
accidentally found
themselves in the leadership position without adequate pre-requisite, hence
experiencing what is
termed the =peter principles�. With this course therefore, potentials school heads
will be properly
equipped to handle the challenges of institutional management in this ever dynamic
society.
Course Objective At the end of this course you should be able to:
1. Explain clearly the differences between corporate governance and leadership.
4. Explain the major factors affecting leadership in both private and public
sectors.
Working through this Course In order to complete this course, you are required to
read each
module, read the reference books and other materials provided by NOUN. Each module
contains
tutor-marked assignments and or self-assessment exercise. At points in the course,
you are
required to submit assignment for evaluation purposes.
Course Materials
1. Course Guide
2. Study Modules
3. Assignment files
4. Relevant text books including the ones listed at the end of each unit.
Assessment this course will be assessed in two ways. The first is the Tutor-Marked
Assignments
while the second is the end of the semester written examination. You are expected
to use the
information and knowledge gained during the course of study to answer the
questions. There are
20 Tutor-Marked Assignments, your tutor will inform you of the one to submit. The
assignment
attracts 30% while the end of semester examination attracts 70%. A minimum of 75%
at the
tutorial and counseling session must be met. How to get the most from the Course
Since this is a
distance learning programme, face-to-face interaction with lecturers may not be
possible,
nonetheless, going through each module carefully can be of immense advantage. Your
progress
is determined by you, this flexibility enables you to work at your own pace, time
and place. Each
module has a common format. It starts with introduction, objectives, main content
and tutor-
marked assignments. The objectives and the questions at the end of the module
should help you
to get the most of the module and prepare you thoroughly for the assignment and
examinations.
Consider the following practical strategies for working through the course;
4. Start with module one and read the introduction and objectives for the modules
7. Do the assignment and convince yourself that you have mastered the modules
9. Do the same for other modules until you get to module nine.
Study Module There are three modules in this course, they are arranged in units in
the following
order:
The three of the module are:
Unit Two: Why Corporate Governance Matters and Corporate Governance Theories
Unit Five: Good Governance with Value Addition and Duel process
MAIN
CONTENT
MODULE ONE: CONCEPT OF LEADERSHIP
Unit Two: Why Corporate Governance Matters and Corporate Governance Theories
Unit Five: Good Governance with Value Addition and Duel process
MODULE 1:
Unit 1: Concept and Meaning of Leadership
CONTENTS
1.0 Introduction
2.0 Objectives
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
History of leadership can be traced far back to the time of creation, when God
created all
creatures including human, and ordered Adam to oversee and named other animals
(Gen.2:19-
20),thereby making Adam the first leader in existence. History of research into the
topic of
leadership and leadership style can be broadly categorized into a number of
important phases.
Early studies on leadership (frequently categorized as =trait� studies on
leadership) concentrated
on identifying the personality traits which characterized successful leaders
(Argyris, 1955;
Mahoney et al., 1960). Trait theories assume that successful leaders have certain
innate qualities
which distinguish them from non-leaders (Stodgill, 1948).
Similarly to trait theories, the major weakness of style and Behavioural theories
is that they
ignore the important role which situational factors play in determining the
effectiveness of
individual leaders (Mullins, 1999). It is this limitation that gives rise to the
=situational� and
=contingency� theories of leadership (for example, Fiedler, 1967; House, 1971;
Vroom and
Yetton, 1974) which shift the emphasis away from =the one best way to lead� to
context-sensitive
leadership. Although each study emphasizes the importance of different factors, the
general tenet
of the situational and contingency perspectives is that leadership effectiveness is
dependent on
the leader�s diagnosis and understanding of situational factors, followed by the
adoption of the
appropriate style to deal with each circumstance. However, in an apparent return to
the =one best
way of leadership�, recent studies on leadership have contrasted =transactional�
leadership with
=transformational� leadership. Transactional leaders are said to be =instrumental�
and frequently
focus on relationship with their subordinates (Bass and Avolio, 1993). In contrast,
transformational leaders are argued to be visionary and enthusiastic, with an
inherent ability to
motivate subordinates (Bycio et al., 1995; Howell and Avolio, 1993).
Empirical studies into the links between leadership and performance have been
lacking. One
notable exception is the detailed study of the impact of leadership on performance.
Thorlindsson
(1987) suggests that variations in the performance of different fishing ships,
under identical
conditions, can be accounted for by the leadership skills of captains. Over a
three-year period,
Thorlindsson (1987) revealed that the leadership qualities of the ship captains
accounted for 35
to 49 per cent of variation in the catch of different crews. Other studies which
examine the links
between leadership and performance coincide with the re-emergence of the =one best
way to
lead� debate. Of particular relevance is the resurgence of interest into
charismatic leadership,
which is frequently referred to as transformational leadership (Bass and Avolio,
1993). A
number of researchers theorize that transformational leadership is linked to
organizational
performance (see, for example, Bycio et al., 1995; Howell and Avolio, 1993).
2.0 OBJECTIVES
.Leadership is discovering the company's destiny and having the courage to follow
it.. Joe
(1996)
.Leadership is the ability to not only understand and utilize your innate talents,
but to also
effectively leverage the natural strengths of your team to accomplish the mission.
There is no
one-size fits all approach, answer key or formula to leadership. Leadership should
be the humble,
authentic expression of your unique personality in pursuit of bettering whatever
environment you
are in. � Katie Christy, founder, Activate Your Talent
.Leadership is about having a selfless heart and always being willing to reach out
and lend a
helping hand. � Bob Reina, CEO and founder, Talk Fusion
.Leadership is about playing to strengths and addressing weaknesses in the most
productive and
efficient way possible. It's about knowing your team and yourself, and doing your
best job to set
both up for success.� Sammy Cohen, co-founder, Neon Bandits
.Leadership is the ability to see a problem and be the solution. So many people are
willing to
talk about problems or can even empathize, but not many can see the problem or
challenge and
rise to it. It takes a leader to truly see a problem as a challenge and want to
drive toward it. That
is what causes people to want to follow, and a true leader has a following. �
Andrea Walker-
Leidy, owner, Walker Publicity Consulting
.Leadership is having the humility to put your employees first so that the company
can grow.
Leaders should invest time [in] employees and make sure that they feel comfortable
in the
workplace. This increases the functionality and efficiency of the company. �
Matthew Adams,
director of communications, Tru-Colour Bandages
.A leader is someone [who] leads by example and has the integrity to do the right
thing even
when it is not popular. A good leader has positive influence over others, inspiring
them to
become a better person and example for others to model their life against, as well.
� Mark Little,
founder and president, Diversified Funding
.Leadership is serving the people that work for you by giving them the tools they
need to
succeed. Your workers should be looking forward to the customer and not backwards,
over their
shoulders, at you. It also means genuine praise for what goes well and leading by
taking
responsibility early and immediately if things go bad. � Jordan French, president,
BNB Shield
.Leadership is the ability to unapologetically express and see out your business
vision.
Leadership is using your intuition to guide you, and inspiring your team to come
along for the
ride. Leadership is listening to that =inner voice�, even when it is risky, scary,
and challenging the
status quo. � Makenzie Marzluff, founder, Delighted By
.Leadership is the ability to help people achieve things they don't think are
possible. Leaders are
coaches with a passion for developing people, not players; they get satisfaction
from achieving
objectives through others. Leaders inspire people through a shared vision and
create an
environment where people feel valued and fulfilled. � Randy Stocklin, co-founder
and CEO
.Leadership is having a vision, sharing that vision and inspiring others to support
your vision
while creating their own. � Mindy Gibbins-Klein, founder, REAL Thought Leaders
.Effective leadership is providing the vision and motivation to a team so they work
together
toward the same goal, and then understanding the talents and temperaments of each
individual
and effectively motivating each person to contribute individually their best toward
achieving the
group goal. � Stan Kimer, president, Total Engagement Consulting by Kimer
.Leadership is the art of serving others by equipping them with training, tools and
people as well
as your time, energy and emotional intelligence so that they can realize their full
potential, both
personally and professionally. � Daphne Mallory
.Leadership is being bold enough to have vision and humble enough to recognize
achieving it
will take the efforts of many people � people who are most fulfilled when they
share their gifts
and talents, rather than just work. Leaders create that culture, serve that greater
good and let
others soar.. � Kathy Heasley, founder and president, Heasley & Partners
.My perspective of a leader is an individual who knows the ins and outs about the
business so
they can empathize with followers. In addition to being a positive influence on the
people they
are leading, leadership is about setting the tone, motivating, inspiring, thinking
big, and never
[giving] up when others feel like quitting. � Alexis Davis, founder and designer,
Hoo-Kong by
Alexis Davis
.A true leader is secure in creating a framework that encourages others to tap into
their own
skills and ideas and freely contribute to the whole of the project or company.. �
Judy Crockett,
owner, Interactive Marketing & Communication
.Leadership is knowing when to be in front to lead and guide a team during the
journey, and
when to step back and let others take the lead. Much like an athlete who knows
exactly what
position to move to on the field at any given time, a true business leader
understands the delicate
balance of how to help others become leaders, fuel career ambitions, then give them
the chance
to shine.. � Dan Schoenbaum, CEO, Redbooth
.Too many people view management as leadership. It's not. Leadership comes from
influence,
and influence can come from anyone at any level and in any role. Being open and
authentic,
helping to lift others up and working toward a common mission, build influence.
True leadership
comes when those around you are influenced by your life in a positive way. � Kurt
Uhlir, CEO
and co-founder, Sideqik
.Leadership is stepping out of your comfort zone and taking risk to create reward.
� Katie
Easley, founder, Kate Ryan Design
.A leader is someone who has the clarity to know the right things to do, the
confidence to know
when she's wrong and the courage to do the right things even when they're hard. �
Darcy
Eikenberg, founder, RedCapeRevolution.com
.Leadership is the behavior that brings the future to the present, by envisioning
the possible and
persuading others to help you make it a reality.. � Matt Barney, founder and CEO,
LeaderAmp
.Leadership is caring more about the cause and the people in your company than
about your own
personal pain and success. It is about having a greater vision of where your
company is trying to
go while leaving the path open for others to grow into leaders.. � Jarie Bolander,
COO and co-
founder, Lab Sensor Solutions
.A leader is a person who takes you where you will not go alone.. � Susan Ascher,
CEO,
founder and president, SusanAscher.com
.Leadership is not about finding ways to lead better or to motivate your team. It's
about being
there from the beginning as equals and becoming a mentor when they need you to be
one." �
Michael Womack, co-founder, hovelstay.com
"Leadership styles differ, but at the core, good leaders make the people they are
leading
accomplish more than they otherwise would. The most effective leaders do this not
through fear,
intimidation or title, but rather by building consensus around a common goal." �
Tom Madine,
CEO and president, Worldwide Express
"Leadership is inspiring others to pursue your vision within the parameters you
set, to the extent
that it becomes a shared effort, a shared vision and a shared success." � Steve
Zeitchik, CEO
of Focal Point Strategies
To help you be, known, and do; (U.S. army, 1983) follow these eleven principles of
leadership:
. Know yourself and seek self-improvement - In order to know yourself, you have to
understand your be, know, and do, attributes. Seeking self-improvement means
continually strengthening your attributes. This can be accomplished through self-
study, formal classes, reflection, and interacting with others.
. Be technically proficient - As a leader, you must know your job and have a solid
familiarity with your employees' tasks.
. Seek responsibility and take responsibility for your actions - Search for ways to
guide your organization to new heights. And when things go wrong, they always do
sooner or later -- do not blame others. Analyze the situation, take corrective
action,
and move on to the next challenge.
. Make sound and timely decisions - Use good problem solving, decision making,
and planning tools.
. Set the example - Be a good role model for your employees. They must not only
hear
what they are expected to do, but also see. We must become the change we want to
see - Mahatma Gandhi.
. Know your people and look out for their well-being - know human nature and the
importance of sincerely caring for your workers.
. Keep your workers informed - know how to communicate with not only them, but
also seniors and other key people.
. Develop a sense of responsibility in your workers - help to develop good
character
traits that will help them carry out their professional responsibilities.
. Ensure that tasks are understood, supervised, and accomplished - communication
is the key to this responsibility.
. Train as a team - Although many so called leaders call their organization,
department, section, etc. a team; they are not really teams...they are just a group
of
people doing their jobs.
According to Mullins L.J (1985) the following have been identified as notable six
types of
leaders. These include:
. Charismatic leader: This is a leader who gains influence mainly from strength of
personality. The difficulty with charismatic leadership is that few people
possessed the
exceptional qualities required to transform all around them into willing followers.
. Honesty: The number one quality identified by this researchers is honesty. The
respondents explain that a good leader must be honest to the oath of office that
saw him
to power and also to his numbers of followers. They added that a good leader must
be
morally upright, unpretentious, reasonable in situations and impartial.
. Forward Oriented: A good leader must be forward oriented. He must always see the
goal to be achieved and the challenges ahead. He must have the .Can Do. behaviour
within him. This quality is very close in comparison with the Conceptual skill of
leadership. This means seeing things before others and the ability to predict or
forecast
what tomorrow will bring.
. Competence: A good leader must be competent technically, human relation wisely.
He
must not be a specialist in a field but a generalist. He must be able to lead
others to the
very rightful part. He must have the ability to propel others to achieve results.
. Inspiring: A good leader must be able to inspire his followers to attain goal and
5.0 SUMMARY
Bass, B.M, ( 1985). Leadership beyond expectations. New York: Free Press.
Goffee, R and Jones, G (2001), Why should anyone be led by you? Harvard Business
Review,
January.
Goleman, D (1998). What makes a leader? Harvard Business Review; Nov�Dec, p.93.
CONTENTS
1.0 Introduction
2.0 Objectives
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
This unit is concern about the process of leadership. It explains how true leaders
emerge. In other
words, this unit provide student with comprehensive explanation on how true leaders
emerges.
2.0 OBJECTIVES
The road to great leadership (Kouzes & posner, 1987) that is common to successful
leaders:
(1) Challenge the process - first, find a process that you believe needs to be
improved the
most.
(2) Inspire a shared vision - Next, share your vision in words that can be
understood by
your followers.
(3) Enable others to act - Give them the tools and methods to solve the problem.
(4) Model the way - When the process gets tough, get your hands dirty. A boss tells
others
what to do; a leader shows that it can be done.
(5) Encourage the hearts - Share the glory with your followers' hearts, while
keeping the
pains within your own.
3.2 Leadership Aspect
Leadership has been defined as the ability to inspire other people to accomplish a
preset
objective. A leader has the ability to make people feel good about what they are
doing and
helps people feel like the work they are accomplishing is working towards the
larger goal of the
corporation. According to Kouzes J.M (2002) the following are the three leadership
aspects
identified:
(1) Challenge the process � A leader looks for easier, more efficient ways to
accomplish
goals, rather than settling for the age-old way of doing something. Leaders are
innovative and experimental to find new ways of doing things (Kouzes, 4).
(2) Inspiring � Leaders effectively communicate organizational goals to employees
so
people know what is expected of them. They give people a good reason to do their
jobs
by expressing how important their work is and how it helps the organization as a
whole.
They motivate and energize workers and give them confidence to do their job
(Kouzes,
2014).
(3) Modeling � An effective leader teaches by example. Leaders work with the
highest
standards and expect others to work to those standards as well. They put forth a
high
quality effort and expect a high quality effort from those around them (Kouzes, 5).
Power generally refers to the ability to commands people�s obedience. Many attempts
have been
made to identify the courses of power through which one individual may influence
another. One
of the most useful frameworks for understanding these bases of influences has been
developed
by French and Raven (1990).These authors have distinguished five sources of power,
which
include:
(1) Legitimate power: This is based on one�s hierarchical position the corporation
president has greater legitimate power than the vice-president of manufacturing to
speak on issues of corporate policy; by the same token, the vice-president of
manufacturing has more legitimate power than the first line supervisor to decide
on issues of capital expenditures, work floe, inventory levels etc.
(2) Reward power: This stems from the control of rewards valued by subordinates.
Subordinates who act as their supervisors tell them to do so in past because they
believe that their behavior will be rewarded.
(3) Coercive power: This is based on fear. If subordinates alter their behavior
because they believe that a failure in company with orders from a superior will
lead to punishment, they are responding to coercion.
(4) Reference power: This is based on the followers� identification with the
leader.
This identification may be based on personal admiration and usually includes a
desire by the followers to be like the leader.
(5) Expert power: This stems from the perceived and demonstrated competencies of
leaders to implement, analyze, evaluate and control the tasks assigned to their
group.
4.0 CONCLUSION
The unit concludes that while some powers are available to leaders based on the
position they
occupy in an organisation, some power are given based on competency and
intellectual
capabilities. However, irrespective of how power is come about, an individual
becomes
powerful only if he/she is able to use such privilege positively towards common
good or
betterment of others� life.
5.0 SUMMARY
This unit has been able to look at the various roadmaps to leadership, leadership
aspects and a
leader�s sources of power. Major identified process to leadership includes:
Challenge the
process, inspire a shared vision, enable others to act, model the way and encourage
the hearts
while major aspects of leadership are challenge the process, inspiring and
modeling.
Kotter, J. (1990), What Leaders Really Do, Harvard Business Review; May�June,
p.103.
Northhouse, P.G. (2010). Leadership: Theory and Practice (5th edn.). London:Sage.
CONTENTS
1.0 Introduction
2.0 Objectives
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
2.0 OBJECTIVES
At the end of this unit, student should be able to understand the conventional
theories of
leadership:
(1) The trait Theory
(2) The functional or group Approach
(3) The action-centered leadership
(4) The Behavioural Approach to leadership
(5) The Managerial Grid
(6) Likert�s leadership Theory
(7) Ohio State Leadership Studies
(8) The Situational Theory of Leadership
(9) The Contingency Approach
(10) The Path- Goal Theory of Leadership
(11) The Participatory Theory of Leadership
The first systematic effort by researchers to understand leadership was the attempt
to identify the
personal characteristics of leaders. It has been argued that there is a
predisposition to consider
leaders as naturally braver, more aggressive, more decisive and more articulate
than other
people, so that they stand out in terms of physical characteristics, personality
and intelligence.
One popular myth is that natural leaders are tall and stand above the crowd like
Charles De
Gaulle or Abraham Lincoln.
This approach neither focuses attention not on the personality of the leader nor on
the man in the
job per se but on the functions of leadership, is always present in any group
engaged in a task.
The functional approach views leadership in terms of how the leader�s behaviour
affects and is
affected by the group of followers. As such, it concentrates on the nature of the
group of
followers or subordinates. It thus focuses on the content of leadership.
The functional approach believes that the skills of leadership can be learnt,
developed and
perfected. Kotler (1990), successful companies seek out people with leadership
potential. With
careful selection, motivation and encouragement, a reasonable percentage of people
can play
important leadership roles in business organization.
The general theory on the functional approach is associated with the work of John
Adair (1984),
and his ideas on action-centered leadership. According to him the effectiveness of
the leader is
dependent upon meeting tree areas of need within the work group- the need to
achieve the
common task, the need for team maintenance and the individual needs of group
members. He
symbolizes these needs by three overlapping circles.
Figure 1: Interaction of Needs within the Group:
Leadership Style 6
. Task Functions:
. Achieving the objectives of the work group.
. Defining group task.
. Planning the work.
. Allocation of resources.
. Organization of duties.
. Controlling quality and checking performance.
. Reviewing progress.
. Individual Functions:
The action of the leader in any one area of need will affect one or both all other
areas of need.
The ideal position is where complete integration of the three areas of need is
achieved.
When it becomes evident that effective leaders did not apparently have any
distinguishing traits
or qualities, researchers tried to understand how successful and unsuccessful
managers behave
differently. Instead to find out what effective leaders were, researchers finds out
what effective
leaders did. The importance of arriving at this conclusion is that it meant to
correct actions and
behaviour could be learned and training could be provided for leadership.
Stodgill et. al., (1957) at Ohio State University during the 1940s concluded that
there were two
principal dimensions to leader behaviour. On the one hand there was a concern for
people, and
on the other a concern for production.
(1) A concern for people: This behaviour involves a manager�s concern for
developing
mutual trust with subordinates. This was seen as an employee-oriented approach
characterized by managers concern for their employees. The manager�s behaviour
encourages mutual trust and two �way communication.
(2) A concern for production: This behaviour involves managers concern for
directing
subordinates in order to achieve production targets. It is a task oriented
approach, where
managers tend to be highly directive and emphasize completing a task according to
plan.
The research discovered, as might be expected, that employee turnover rates were
lowest and
employee satisfaction highest under leaders who were rated high in consideration of
people.
Conversely, high grievance rates and high turnover were associated with leaders who
were rated
low consideration on people and high in task orientation. However, it was not, of
course , quite
as simple as this . The researchers found that subordinates ratings of their
leaders effectiveness
depended not so much on the particular styles of the leader as on the situation on
which the style
was used.
(1) Country Club Management: Scores high on concern for people and low on concern
for
production. This management style may be based on a belief that the most important
leadership activity is to secure the voluntary co-operation of group members in
order to
obtain high levels of productivity. Subordinates of these managers reports
generally high
level of satisfaction, but managers may be considered too easy going, soft mind and
Source: Yalowku,2010
Blake and Mouton (1964) also explain the positions on their managerial Grid. These
ranges
from position 9.1 to 9.9 as put below:
. 9.1- The attitude of the manager or the leader is autocratic. He or she could be
rightly
called the stern task master. Their concern is not for people but for production.
Such
managers would not care much if workers go to hell so long as production targets
are
achieved.
. 1.9- The attitude of the leader or manager is democratic. In this angle at the
left of the
grid, there is low concern for production but high interest in taking care of
workers.
Participative approach is employed here. Rigidity and control is avoided as far as
possible. Here communication is not a one-way traffic rather a two-way traffic.
. 1.1- The attitude here is laissez-faire or impoverished. There is both low
concern for
production and people. Here nobody is in charge because everybody is in charge.
Responsibilities are shifted. Managers and leaders here are not as such interested
in
taking decisions. They prefer to get minimum work done.
. 5.5-The leadership style here is the middle of the road or practical leadership
whereby
concern, support and recognition is given to both production or task and people.
Equal
recognition is given to both work and the people doing the work. In as much as work
is
important, the people doing the work are equally important.
. 9.9-Team management, team meaningful leadership style. The attitude here is a
high
concern for people with high concern for production. Managers involve people so
much
in the daily running of the organization. Delegation of authority and
responsibility is
carried as far as possible. Employees are recognized and they in turn give their
best to the
organization. Here interdependence is an opportunity as well as a challenge for
both
management and workers. His approach is recommendable.
Likert�s System of Management (1967): Rensis Likert, Director of the institute for
social
Research at the University of Michigan developed a universal theory of leadership.
Likert�s
theory consists of a Continuum of styles ranging from autocratic to participative.
Four basic
styles of Likert�s systems of management were identified and they are as follows:
(1) Explosive Autocratic: Managers make all decisions. They decide what is to be
done,
who will do it and how and when it is to be accomplished. Failure to complete work
as
assigned will result in threats or punishment. Under this system, management
exhibits
little confidence or trust in employees.
(2) Benevolent Autocratic: Managers still make the decision, but employees have
some
degree of freedom and flexibility in performing their jobs so long as they conform
to the
specified procedures.
(3) Consultative: Managers consult with employees prior to establishing the goals
and
making decisions about the work. Employees have a considerable degree of freedom in
The key concern of the Ohio state leadership studies was the leader�s behavior in
directing the
efforts of others toward group goals. After a considerable number of studies had
been completed,
two important dimensions of leader�s behavior were identified.
(1) Initiating Structure: The extent to which the leader establishes goals ,
defines and
structure their roles and the roles of subordinates towards the attainment of
goals.
(2) Consideration: The extent to which leaders have relationship with subordinates,
Research into the effects of these four types of leadership behaviour suggests that
some balance
is needed between consideration and structure in order to satisfy both individual
needs and
organizational goals.
High consideration
and low structure
Low consideration
& low structure
Low Initiating Structure High
Source: Yalowku,(2010)
Initiating structure and consideration were identified as separate a distinct
dimensions of
leadership behavior. As illustrated in the figure 3 above, there are four basic
leadership styles
representing different combinations of leadership behavior. A manager can be high
in both
consideration and initiating structure, low in both or high in one leadership
behavior, the one
effective combination that meets the model. Rather, there combination or
appropriate was
determined was determined by the demands of the situation.
Blanchard (1982) developed the view that leadership approaches depended very much
on the
=maturity� of their subordinates. He defined =maturity� as a desire for achievement
and
willingness to accept responsibility. He developed the theory that the relationship
between
leaders and followers moves through phases as subordinates =mature� , and that
managers need to
very their leadership style with each phase.
Leadership Style 2
Explaining Figure 4 above: the initial phase, when employees first join an
organization, a high
task orientation is most appropriate (A). New employees have to be instructed in
their task and in
the organization�s rules and procedures. At this stage a non-directive manager can
cause anxiety
in the new employee and confusion about what is to be done. As new employees become
Research carried out by Fiedler (1971) was based on the view that managers have
difficulty in
altering the style which has helped them to achieve success, and that in fact they
are not very
flexible. It follows from this that trying to change a manager�s style to fit the
situation may be
both useless and inefficient and, therefore, effective group performance could best
be achieved
by matching the manager to the situation or by changing the situation to match the
manager. For
example, an authoritarian manager can be selected to fill a post that enquires
directive leadership,
or the job could be changed to give an authoritarian manager more formal authority
over
employees.
Fieldler argued that successful and effective leadership depended on three factors:
(1) Leader- member relation: This is the most important factor in leader�s
effectiveness.
The degree to which leaders have the acceptance, confidence, support and loyalty of
(3) Leader�s position power: The extent of formal or informal power which a manager
is
able to exert may be conferred on them by the organization in which they work and
the
position they hold in it. The chief executives or managing directors of a company
will
have a great deal of authority because of their position in a commercial
organization.
People in these positions can exert an autocratic style of leadership. Managers
lower
down the hierarchy of a company may have to be more democratic or laissez faire.
The leadership style contrasted by Fieldler (1971) are similar to the employee-
centered and task-
oriented approaches ; Fielder�s model , however , uses a simple scale to measure
leadership style
to indicate the degree to which a man described favourably or unfavourable his
least preferred
co-worker. This was the employee with whom the person could work least well.
Fieldler�s
theory was that managers who had great concern for human relations. These are
described as
relationship-oriented leaders who relatively permissive and considerate of the
feelings of
employees.
Leadership Style 4
Research into trait and Behavioural approaches to effective leadership shows that
it depend on
many variables, in terms of individual personality, management style, corporate
culture and the
nature of the task to be performed. There is not one trait or approach which is
effective in all
situations. The contingency approach focuses on the situational factors which
influence
leadership. Robert Tannenbaum and Warner Schmidt (1973) were among first researcher
to
describe various factors which influenced a manager�s choice of leadership style.
They took into
account that managers need to consider practical considerations before deciding how
to manage.
They concluded that there were three main =forces� on a manager�s mind in deciding
a leadership
style.
(1) Personal Forces: the managers own background , experience ,confidence and
leadership
inclinations;
(2) The characteristics of subordinates: the managers need to consider subordinates
relative willingness or unwillingness to accept responsibility and take decisions;
(3) The Situation: The managers need to recognize the situation in which they find
themselves , in terms of corporate culture , their colleagues style of work the
nature of the
tasks to be performed and time pressures.
Figure 6: Tannenbaum and Schmidt�s (1973) combined these �Forces� into a leadership
continuum:
The above continuum suggests that a manager should consider a full range of options
before
deciding how to act, from a very autocratic leadership style to a very democratic
one. Some
problems, for example, which involve everybody, may be best dealt with through
laissez-faire
leadership. If all employees are accountable and influential in the decision
�making process, the
best role for the leader may be to follow a =hands-off� approach.
The point about leadership style is that shifts the focus from the individual
leader to the functions
that leaders perform within an organization. In order for any group to operate
effectively, both
tasks and problem �solving functions have to be performed and, at the same time,
group-
maintenance or =social� functions. It can be argued that any group of people needs
to have
leadership in both functions, so that, on the one hand, decisions are made, and on
the other hand,
the ideas and feeling of the whole group are considered. The social functions can
develop the
cohesion of the group and may be carried out by encouragement and support, by
recognizing the
importance of all members of the group to its smooth operation.
3.1.12 The Path- Goal Theory of Leadership
This theory was developed by Robert House (1971) and others as an approach to
understanding
and predicting leadership effectiveness in different situations. The Theory focuses
on the leader
as a source of rewards and attempts to predict how different types of rewards and
different
leadership styles affect the performance of subordinates, based on the view that an
individual�s
motivation depends both on the expectation and the attractiveness of the rewards
available. The
manager identifies the =goal� and rewards which are available and the =paths� to be
taken to reach
them.
The manager�s leadership style will influence the perception of the rewards
available and what
has to be achieved to earn them. An employee- centered manager will offer a wide
range of
rewards and also be sensitive to individual needs. The rewards may be in terms of
pay and
promotion, but will also include support, encouragement and recognition.
On the other hand, a task-oriented manager will offer a more limited set of rewards
which will be
less concerned with individual needs. However, people working for this type of
manager will
know precisely what they have to do in order to obtain the particular rewards
available. So the
path-goal theory suggests that the most effective leadership style will depend on
the personal
characteristics of employees and on the situation in the workplace.
This suggests that managers need to consider the characteristics of their employees
and the work
to be carried out, before deciding on their leadership style. Vroom and Jago (1988)
have
criticized the path-goal theory as incomplete because it fails to take into account
the
characteristics of the type of decision with which they are faced and the situation
in which the
decision is being made. This can be seen as a further theory of leadership based on
the level of
participation between managers and employees.
Once these questions have been answered, it is then possible to select a leadership
style, although
there may be further choices to be made. Vroom and Yetton defined five leadership
styles in
terms of the degree of participation by subordinates in the decision �making
process.
(1) Autocratic I (AI) - Managers solve the problem or make the decisions
themselves, using
available information.
(2) Autocratic II (AII) - Managers obtain information from subordinates before
making a
decision, and then decide on the solution to the problem themselves. The role of
subordinates is to provide information for decision making and they may or may not
have
been told what the information is for or what the problem is that needs to be
solved.
(3) Consultative I (CI) - Managers share the problem with the relevant subordinates
individually and obtain their ideas and information. Managers then make the
decision,
which may or may not be influenced by the subordinate�s opinion.
(4) Consultative II (CII)-Managers share the problem with the relevant subordinates
as a
group and obtain their ideas and information. These may or may not be used in
decision
making.
(5) Group Participation (G) - Managers� share a problem with subordinates as a
group. The
managers and subordinates together analyze the problem and consider alternative
solutions. Managers act as co-coordinators in order to enable the group to reaches
consensus, which is then accepted and implemented.
By working through the question A to G (in Figure 7 below): managers can arrive at
the
appropriate level at which to involve their subordinates in the decision under
consideration.
Figure 7 shows that, if managers are attempting to decide about buying a new piece
of equipment
they may answer =No� to question B, =Yes� to D , =No� to E and =No� to F. This
means that the
managers do not have sufficient information to make a high quality decision; the
acceptance of
the decisions by subordinates is important for effective implementation; if
managers make the
decision by themselves it would not necessarily be accepted to subordinates
(perhaps because
they have to operate the new equipment); and the subordinates do not necessarily
share the
organizational goals to be attained in solving the problem.
4.0 CONCLUSION
Based on the review several conventional theories of leadership in the unit, the
unit conclude that
there is no one best way of leading people. The act of leading is often based on
what the
environment and situation around provides. The unit reviewed:
5.0 SUMMARY
The unit looks at various conventional leadership theories such as; the trait
theory, the functional
or group approach, action �centered leadership, the behavioural approach to
leadership, the
managerial grid, Likert�s leadership theory, Ohio state leadership studies, the
situational theory
of leadership, the contingency approach, the path- goal theory of leadership, the
participatory
theory of leadership and concludes that there is no one best way of leading.
Instead, the style of
leading is dependent on the leader and the circumstances surrounding him/her in
making the
decision as its affects his/her subjects.
More so, the theories examined in this unit are traditional which may not be able
to answer the
leaders� need in the new ever dynamic world of business and politics. Hence, the
emerging
theories (core of next unit) become inevitable.
3. With your knowledge of conventional leadership theories, your uncle who owns a
marketing
firm asked for your advice on which leadership theory to use in order to grow
performance?
Bass, B.M. (1985b). Leadership and Performance Beyond Expectations. New York: The
Free
Press.
Bass, B. M. (1990). Bass & Stogdill�s Handbook of Leadership. New York: The Free
Press.
Crosby, P.B. (1996). The Absolutes of Leadership. San Francisco: Jossey-Bass. Daft,
R.L.
Fullan, M. (2001) The New Meaning of educational Change, 3rdedn. New York, Teachers
College Press.
Okenwa C.P and Ugbo I.F. (2001) Management Theory and Practice Federal, Polyphonic
Oko,
Polytechnic Press Ltd.
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Leader-Member Exchange Theory
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
Given the importance of leadership, it should not be surprising that new theories
for it and other
related issues continue to emerge. Three emerging theories are charismatic
leadership, leader-
member exchange, Transactional and transformational leadership (Bedian, 1993).
2.0 OBJECTIVES
At the end of this unit, student should be able to understand various emerging
theories of
leadership as applicable to modern organisations. The theories include:
Most leadership theories assume that a leader behaves in much the same way towards
all
followers. In contrast, leader-member exchange theory holds that leadership is a
one-on-one
exchange in which leaders behave differently with different group members rather
than the same
with each member. It further holds that followers based on the quality of their
interpersonal
relationships (Exchanges) with a leader, form different group (higher quality and
an out-group
(lower quality).Insiders and outsiders experience very different work outcomes.
Leader
interactions with insiders resemble social transactions, with leaders and followers
exchanging
resources and enjoying higher levels of trust and support.
Robert House (1980) identified three, namely; extremely high confidence, dominance
and strong
convictions in his or her belief. Warren Bennie (1978) after studying ninety of the
most effective
and successful leaders in the united states, found that they had four common
competencies: they
had a compelling vision or sense of purpose; they could communicate that vision in
clear terms
that their followers could readily identify with; they demonstrated consistency and
focus in the
pursuit of their vision; and they knew their own strengths and capitalizes on them.
Conger and
Kanugo (1988) at Mc Gill University however completed the most recent and
comprehensive
analysis. Among their conclusions, idealized goal that they want to achieve a
strong personal
commitment to their goal, are perceived as unconventional are self confident.
Finally, charismatic leadership may not always be needed to achieve high levels of
employee
performance. It may be the most appropriate when the follower�s task has an
ideological
component. This may explain why when charismatic leader surface, it is more likely
to be in
politics, religion, wartime or when a business firm is introducing a radically new
product or
facing a life-threatening crisis. Such conditions tend to involve ideological
concerns.
According to Robert House (1980) the following are the identified features of
charismatic
leaders:
(1) Self confidence: They have complete confidence in their judgment and ability.
(2) A vision: This is an idealized goal that proposes a future better than the
status quo. The
greater the display between this idealized goal and the status quo, the more likely
that
followers will attribute extraordinary vision to the leader.
(3) Ability to articulate the vision: They are able to classify and state the
vision in terms
that are understandable to others. This articulation demonstrates an understanding
of the
follower�s needs and hence acts as a motivating force.
(4) Strong conviction about the vision: Charismatic leaders are perceived as being
strongly
committed and willing to take on high personal risk, incur high costs and engage in
self-
sacrifice to achieve their visions.
(5) Behavior that is out of ordinary: Those with charisma engage in behavior that
is
perceived as being novel, unconventional and counter to norms. When successful,
these
behaviors evoke surprise and admiration in follower.
(6) Environment sensitivity: These leaders are able to make realistic assessments
of the
environmental constraints and resources needed to bring about change.
3.3 Transactional Leadership Theory
Most of the leadership theories presented like the Ohio State studies, Fiedler�s
model, path-goal
theory and the leader participation model have concerned transactional leader.
These kinds of
leaders guide or motivate their followers in the direction of established goals by
clarifying role
and task requirements. However, there is another type of leader who inspires
followers to
transcend their own self- interest for the good of the organization and who is
capable of having a
profound and extraordinary effect on his or her followers.
This has its belief that the challenges facing the world in the new millennium
require a new kind
of leadership. Advocates of this belief describe what has been dubbed
transformational
leadership as consisting of two complementary roles: the mover-and �shaker and the
gentle
persuader. In the first, the mover �and �shakers achieves a transformation in an
organization�s
fortunes and is, therefore, described as a transforming leader. In the second, as a
gentle
persuader, the transforming leader converts followers into leaders for the good of
the whole, to
consider long term rather than immediate needs, and to become more aware and
accepting of an
organization�s goal. Transformational leaders achieve performance beyond
expectations through
four leadership factors: charisma, inspiration, individualized consideration and
intellectual
stimulation. (Yalokwu, 2006).
(2) Inspiration: They use inspiration to excite their followers with the idea that
they can
achieve great things with extra effort.
(3) Individualized Consideration: They demonstrate individualized consideration.
That
is, they pay close attention to differences among followers, serve as mentors to
those
who need coaching and counseling, and treat each follower as an individual worthy
of
respect.
(4) Intellectual Stimulation: They provide followers with intellectual stimulation
by
promoting new ways of looking at old problems, viewing difficulties as challenges
to
be met, and emphasizing creative thinking and initiative.
4.0 CONCLUSION
This unit provides empirical and conceptual evidences on the subject of emerging
leadership
theories. The unit concludes that no matter the leadership theory in use, one thing
is sacrosanct,
leaders and followers should have unity of direction to foist unity of goal
attainment.
5.0 SUMMARY
3. With periscope example, your friend asked you to advise him on the best emerging
leadership theory to use in managing his father�s business, what will you advise
him and
why?
Antonakis, J., Avolio, B. J., & Sivasubramaniam, N. (2003). Context and leadership:
an
examination of the nine-factor full-range leadership theory using the Multifactor
Leadership Questionnaire. Leadership Quarterly, 14, 261.
Barling, J., Slater, F., & Kelloway, E. K. (2000). Transformational leadership and
emotional
intelligence: an exploratory study. Leadership & Organization Development, 157-161.
Bass, B. (1985). Leadership and performance beyond expectations. New York: Free
Press.
UNIT 5: LEADERSHIP STYLES
CONTENTS
1.0 Introduction
2.0 Objectives
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
There are as many leadership styles as there are leaders. Business people and
psychologists have
developed useful shorthand ways of describing the main leadership styles. Whatever
capacity
you find yourself, your leadership style is crucial to your success. Consciously or
subconsciously, everyone use some leadership styles features, at least some of the
time.
2.0 OBJECTIVES
At the end of this unit, students should be able to understand various leadership
styles. I.e
Basically, according to Bass (1985), there are three main types of leadership
styles used in an
organization and they are; Autocratic, Democratic, Laissez-faire leadership styles:
3.1 Autocratic Leadership Style: It is a leadership situation where there is one-
way
communication, denial or conflict, an absolute monarch with unlimited authority. It
is also a
situation where the enterprise is run in a very autocratic, directive manner and
the entire decision
making process center around the entrepreneur under authoritarian leadership, the
leader is the
sole determiner of what is done. Autocratic leadership style calls for high goals
and means
control.
In other words, it implies a job-centered style. This focuses on the issue of close
supervision,
legitimate and coercive power, meeting schedule and evaluating work performance.
This leader
is very much likely to rely on the power of his position, more punishment centered
and more
tasks oriented. He gets works done through fear. He however, gets short-run and
output gains,
that is, while he is around. Thus, again in fear subordinates under this style do
what they are told
to do, so as not to lose the means of satisfying their daily needs and wants. This
leader tells a
worker what to do and how to do it. He takes all decisions, issues, instructions
and expects
subordinates to follow sheepishly without questions.
However, the leader maintains the final authority in decision making. Using this
style is not a
sign of weakness; rather it is a sign of strength that employees will respect. It
is also a very open
style of running a team. Ideas move freely amongst the group and the style is
needed in dynamic
and rapidly changing environments where very little can be taken as a constant. The
democratic
leadership style means facilitating the conversation, encouraging people to share
their ideas and
then synthesizing all the available information into the best possible decision.
3.3 Laissez-faire Leadership Style: This is the type of leadership in which the
leader uses hi or
her power very little, if at all. It involves given subordinates a high degree of
independence in
their operations. Under this type of leadership, leaders depend largely on
subordinates to set their
own goals and the means of achieving them. Leaders perceive their role as one of
facilitating the
operations of followers by furnishing them information and acting primarily as a
contact with the
group�s external environment. It should be noted that there is no best form of
leadership as the
situation will determine the most appropriate form at a point in time.
Generally, the style of leadership adopted will depend on the forces operating in
the manager�s
personality including his or her value system, confidence in subordinates,
inclination toward
leadership style and feelings of security in uncertain situations. Forces in the
subordinates that
will affect the manager�s behavior and forces in the situation such as organization
values and
traditions, how effectively subordinates works as a unit, the nature of a problem
and whether
authority to handle it can be safely delegated and the pressure of time. In this
style, the dealer
allows the employees to make decisions.
However, the leader is still responsible for the decisions that are made. This is
used when
employees are able to analyze the situation and determine what needs to be done and
how to do
it. This is used when employees are able to analyze the situation and determine
what needs to be
done and how to do it. This is not a style to use so that you can blame others when
things go
wrong, rather this is a style to be used when you fully trust and have confidence
in the people
below you.
A laissez-faire leadership style works best when group members are highly skilled
and motivated
with a proven track record of excellence. This hands-off approach can allow these
capable
members to be productive and effective. The laissez-faire style is interpreted by
the members as
a sign of confidence and trust in their abilities and further empowers them to be
successful and
motivated.
The laissez-faire leader allows the group complete freedom for decision-making
without
participating himself. The leader type provides materials and offers to assist only
by request. The
laissez-faire leader does not participate in work discussions or group tasks. This
leader does not
offer commentary on members� performance unless asked directly and does not
participate or
intervene in activities. Also, it is the use of work-centered behavior coupled with
a protective
employee centered concern. This leadership style expects everyone to work hard and
the
employees will be guaranteed employment and given security benefits such as medical
and
retirement programs. Also represents problems with some boundaries and let
followers make
final decisions. Leader allows followers as much freedom as leader has to define
the problems
and make decisions. It involves non-interference policy, allows complete freedom to
all workers
and has no particular way of attaining goals.
Other types of leadership styles have emerged from these three main types among
which
included:
A leader who will find himself or herself switching instinctively between styles
according to the
people and work they are dealing with. This is often referred to as situational
leadership.
4.0 CONCLUSION
During the course of this unit, it has been discovered that there is no best way of
leading people
or subordinates and that there is no best leadership style that can be apply to all
situation in an
organization. Therefore, contingency approach to leadership should be more
appropriate.
5.0 SUMMARY
In the course of this unit, leadership styles have been mentioned and examined. The
major
leadership styles can be classified into three broad categories: autocratic
(authoritarian) style,
democratic style and genuine laissez-faire style. Other forms of leadership styles
include:
2. List and explain five leadership styles as discussed under =other types of
leadership styles� in
this unit?
3. Emeka and Tobi once argued that democratic leadership style is the best approach
to leading
than autocratic. Do you agree with this argument? Discuss
Argyris C., (1957). Personality and Organization. New York: Harper Publications.
Bass B. M., ( 1985). Leadership beyond expectations. New York: Free Press.
CONTENTS
1.0 Introduction
2.0 Objectives
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
The words servant and leader are usually thought of as being opposites. In
deliberately bringing
those words together in a meaningful way, Robert Greenleaf gave birth to the
paradoxical term
servant leadership.
2.0 OBJECTIVES
In the years since then, many of today�s most creative thinkers are writing and
speaking about
servant leadership as an emerging leadership paradigm for the 21st century. The
list is long and
includes: James Autry, Warren Bennis, Peter Block, John Carver, Stephen Covey, Max
DePree,
Joseph Jaworski, James Kouzes, Larraine Matusak, Parker Palmer, M. Scott Peck,
Peter Senge,
Peter Vaill, Margaret Wheatley, and Danah Zohar, to name but a few of today�s
cutting-edge
leadership authors and advocates of servant leadership. In her groundbreaking book
on quantum
sciences and leadership, Rewiring the Corporate Brain (1997), Zohar goes so far as
to state that,
.Servant-leadership is the essence of quantum thinking and quantum leadership. (p.
146).
2. Holistic Approach to Work: Servant-leadership holds that .The work exists for
the person
as much as the person exists for the work. (Greenleaf, 1996, p. 8). It challenges
organizations to rethink the relationships that exist between people, organizations
and
society as a whole. The theory promotes a view that individuals should be
encouraged to
be who they are, in their professional as well as personal lives. This more
personal,
integrated valuation of individuals, it is theorized, ultimately benefits the long-
term
interests and performance of the organization.
community, defined as groups of individuals that are jointly liable for each other
both
individually and as a unit, can perform this function. Only by establishing this
sense of
community among followers can an organization succeed in its objectives. Further,
the
theory posits that this sense of community can arise only from the actions of
individual
servant-leaders (Greenleaf, 1970, p. 30).
Listening
Leaders have traditionally been valued for their communication and decision-making
skills.
Although these are also important skills for the servant leader, they need to be
reinforced by a
deep commitment to listening intently to others. The servant leader seeks to
identify the will of a
group and helps to clarify that will. He or she listens receptively to what is
being said and unsaid.
Listening also encompasses hearing one�s own inner voice. Listening, coupled with
periods of
reflection, is essential to the growth and well-being of the servant leader.
Empathy
The servant leader strives to understand and empathize with others. People need to
be accepted
and recognized for their special and unique spirits. One assumes the good
intentions of co-
workers and colleagues and does not reject them as people, even when one may be
forced to
refuse to accept certain behaviors or performance. The most successful servant
leaders are those
who have become skilled empathetic listeners.
Healing
Awareness
Persuasion
Servant leaders seek to nurture their abilities to dream great dreams. The ability
to look at a
problem or an organization from a conceptualizing perspective means that one must
think
beyond day-to-day realities. For many leaders, this is a characteristic that
requires discipline and
practice. The traditional leader is consumed by the need to achieve short-term
operational goals.
The leader who wishes to also be a servant leader must stretch his or her thinking
to encompass
broader-based conceptual thinking. Within organizations, conceptualization is, by
its very nature,
a key role of boards of trustees or directors. Unfortunately, boards can sometimes
become
involved in the day-to-day operations - something that should be discouraged - and,
thus, fail to
provide the visionary concept for an institution. Trustees need to be mostly
conceptual in their
orientation, staffs need to be mostly operational in their perspective, and the
most effective
executive leaders probably need to develop both perspectives within themselves.
Servant leaders
are called to seek a delicate balance between conceptual thinking and a day-to-day
operational
approach.
Foresight
Stewardship
Building Community
The servant leader senses that much has been lost in recent human history as a
result of the shift
from local communities to large institutions as the primary shaper of human lives.
This
awareness causes the servant leader to seek to identify some means for building
community
among those who work within a given institution. Servant leadership suggests that
true
community can be created among those who work in businesses and other institutions.
4.0 CONCLUSION
Present unit looks at the overview and concept of servant leadership, and its
features.
�The servant-leader is servant first. It begins with the natural feeling that one
wants to serve.
Then conscious choice brings one to aspire to lead. The best test is: do those
served grow as
persons: do they, while being served, become healthier, wiser, freer, more
autonomous, more
likely themselves to become servants? And, what is the effect on the least
privileged in society;
will they benefit, or, at least, not be further deprived? (Greenleaf, 2002, p.
27).� The unit
concludes that servant leadership is not the same as leadership since the leader is
first a people-
servant before becoming people leader.
5.0 SUMMARY
Servant leadership is a dictum to connote a leader who was once a servant. That is,
a leader who
becomes a one through service. Unlike other forms of leadership, servant leaders
are service
oriented. They also attract leaders and followers who are particularly attracted to
opportunities
for personal growth, consensus building atmospheres and community service (Smith,
Montagno
& Kuzmenko, 2004). Such opportunities are at the heart of servant-leadership,
making it an
excellent framework for managing the information organization. In addition, major
features of
servant leadership includes: healing, building community, Commitment to the Growth
of People,
foresight, stewardship and Conceptualization.
Allen, N.J., & Meyer, J.P. (1996). .Affective Continuance and Normative Commitment
to the
Organization: An Examination of Construct Validity.. Journal of Vocational Behavior
49, 252-76.
Barna, George (2001). .The Power of Team Leadership.. Colorado Springs: Waterbrook
Press.
Barrick, M.R., & Mount, M.K. (1991). .The Big Five Personality Dimensions and Job
Performance: A Meta-Analysis.. Personnel Psychology (44), 1-26.
Baruch, Y. (1998). .The Rise and Fall of Organizational Commitment.. Human Systems
Management 17, (2), 135-44.
Bass, B.M. (1985b). Leadership and Performance Beyond Expectations. New York: The
Free
Press.
Bass, B. M. (1990). Bass & Stogdill�s Handbook of Leadership. New York: The Free
Press.
CONTENTS
1.0 Introduction
2.0 Objectives
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
In today�s dynamic world, leaders and managers have been saddled with the
responsibility of
managing change. Change remains the most constant of all the factors that affects
all sorts of
organisations (private or public). The way organisations and businesses manages
change are
largely dependent on the person at the top echelon of modern organisations. Going
through a
change process within a company, department or some core group is a truly advanced
step that
needs a great deal of planning before the implementation of it. However, whether
change
implementation plan is successful or not, the leader takes credit or blame for it.
For instance,
over 70% of change plans are unsuccessful due to lack of know-how on the parts of
the senior
officers saddled with the responsibility of implementing such change formulation
plan (Nickols,
2006). Interestingly, one should be able to understand the concept =change� before
attempting to
define how it can be managed.
2.0 OBJECTIVES
At the end of this unit, student should be able to understand the following:
Modern Leaders function as change agent, a reason why business organisations prefer
to recruit
leaders in the place of managers. This is possible since leaders possess soft
skills i.e emotional
intelligence, conceptual and human relations skills. To manage change means to
remain
competitive and attractive in the face of challenges (Zaccaro, 2007). However,
possessing skills
of managing change have been linked to organizational successes. More so, to
perfectly
implement change process without resistance, the change leader needs to develop
following
capabilities: superhuman determination to make the change happen; persistence;
stamina;
sufficient mandate that stems from personal change; and first-rate intelligence
(Ajayi, 2002).
Evidently, lack of understanding of change implementation techniques and the
inability to
modify one�s management style or organizational functions are cited as barriers to
success
(Bossidy & Charan, 2002; Gilley, 2005). However, leaders as agent of change must
exhibit the
following qualities:
(1) Coaching
Involving employees in change decision making is paramount if you are prepared for
such
change resistance. Employee involvement (EI) increases workers� input into
decisions that affect
their well-being and organizational performance (Glew, O�Leary- Kelly, Griffin, &
Van Fleet,
1995). Lawler, Mohrman, and Ledford�s (1982) long-term study of Fortune 1000 firms
revealed
positive trends in use of employee involvement programmes within these firms, along
with a
growing number of employee participation in EI programs. Specifically, successful
change
implementation requires a facilitative management style that ensures that
communication
(including coaching, information sharing, and appropriate feedback) mechanisms are
in place,
worker involvement flourishes, and social networks (teams and collaboration) are
supported
(Denning, 2005; Drucker, 1999; Williams, 2001).
(4) Motivation
(5) Rewarding
LeBoeuf (1985) suggested that leaders secure desired results through a compensation
and reward
philosophy that recognizes employees for the right performance. Rewarding change
efforts
demonstrates the importance of and need for change, along with leaders�
understanding that "the
things that get rewarded get done" (p. 9).Conversely, unsatisfactory outcomes are
the result of
rewarding recipients for doing ==what [organizations] don�t want them to do��
(Buford & Jelinek,
2006: 450). Recipients of change react positively to rewards for incremental
change, celebrations
of milestones and leaders who create win-win situations related to change (Lussier,
2006).
Reward programmes that help organizations achieve specific change goals such as
greater
creativity, innovative products, competitiveness, collaboration and teamwork,
employee
commitment and loyalty, long-termplans, and continual learning and application of
new skills are
positively related to organizational goal achievement (Ulrich, Zenger, & Smallwood,
1999).
The synergistic benefits of teamwork enable members working cooperatively with one
another to
achieve more than by working independently (Trent, 2004). Recent studies have
reported an
ever-increasing number of Firms using teams to accomplish organizational tasks in
response to
serious challenges posed by a dynamic global economy (Oh, Chung, & Labiance, 2004;
Towry,
2003). Effectively managing teams and structuring work groups in ways that support
collaboration are two leadership abilities necessary for achieving organizational
goals. Studies
suggest that work groups can be designed to enable members with diverse skills and
backgrounds to communicate and interact in ways that constructively challenge each
other�s
ideas (Williams, 2001). Furthermore, it has been evidenced that social networks
have important
effects on team performance and viability (Balkundi & Harrison, 2006).
4.0 CONCLUSION
In conclusion, not all leaders are change agents. Only leaders who exhibit the
aforementioned
qualities are refer to as change agent or agent of change. This is because what
differentiates an
agent of change from a leader who is not is the ability or inability to successful
implement
organisational changes that in turns brings about success for the organisation.
5.0 SUMMARY
2. What are the roles of leaders in change management and why is leaders agent of
change?
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CONTENTS
1.0 Introduction
2.0 Objectives
4.0 Conclusion
5.0 Summary
Close to sixty years of her independence, the most critical challenge confronting
the giant of
Africa � Nigeria, appears to be credible and accountable leadership. Many
researchers have find
it incredibly difficult to understand why Nigeria still struggles with the menace
of poor or bad
leadership since independence even with abundance of human and material resources,
which are
second to none in Africa. The Largest African economy as at 2015, surprisingly,
finds it difficult
to feeds her citizens as at November, 2016. Then, .why has the country not been
able to produce
a nationally accepted leadership (Esu, 2001: 111).. While, some have argued that
leadership
challenge of the country could be traced from the emergence of colonial era in
Nigeria, while
others dismissed such argument on the basis that corruption and lack of vision
among past and
present leaders of Nigeria culminate to hamper any meaningful effort in the quest
for good
governance in the country. Can we say size or the over 250 languages? Nonetheless,
argument
of size or over 250 languages can�t answer the question of why Nigeria still
battles with
leadership problem. Since countries like China and India have successfully moved
from the third
world nations to a developing one in the space of 6o years.
2.0 OBJECTIVES
At the end of this unit, student should be able to understand the following:
(1) Incompetency and Mediocrity: Since independence, Nigeria�s presidency has been
occupied by men who are grossly incompetent and lack political will to put things
straight and right. No one can give what he didn�t have. They are theoreticians
than
practitioners. They intentionally appoints mediocre to work with them just to loot
the
treasury without query. Repeatedly, many of Nigeria�s leaders picks mediocre as
successors just to have a clean track record after committing crimes that are above
the
laws. But this is grossly not sustainable, the Nigeria�s economic soul cries for
rescue. A
times, one begins to wonder how did we get here? How can it be so difficult for a
country
richly endowed like Nigeria with both human and material resources in plethora to
have a
true leadership of hope like what was experienced in Singapore under Sir Lee Kwan
Yew?
(2) Ethnicity and Tribalism: The three largest groups (Hausa-Fulani, Igbo, and
Yoruba)
have virtually nothing in common politically, socially, or historically. The
overwhelming
majority of Nigerians only speak their "home" language, and if they learn another,
it is
invariably English and not one of the other indigenous tongues. History of ethnic
bigotry
in Nigeria can be traced back to 1946, during the colonial era when Sir Arthur
Richard,
Nigeria then Governor General introduced a Regional Government. He divided Nigeria
into NEW. An acronym that stands for Northern, Eastern and Western Nigeria. With
each
region headed by a Premier. This was the origin of regional government (Oduguwa,
2012). Ever since, Nigerians have seen themselves in the light of these regional
nations
than as Nigerians. The major ethnic groups (Hausa/Fulani, Yoruba and Igbos)
continually
get hold of leadership, installing their kinsmen into delicate positions and
improving the
lives of their micro-nation (tribe) than the generality of the Nigerian people.
(3) Mono-economy: Since Oil was discovered on Sunday 15 January 1956 at Oloibiri
Oilfield by Shell Darcy, Nigeria has depended on it solely by neglecting her
previous
foreign exchange brands i.e Cocoa, wool, Coal, groundnut, fish etc. At the
discovery of
all, everyone jubilated that the era of want should soon be over. But the opposite
was the
case. Some has argued that Oil killed the giant in Nigeria. Since its discovery,
Nigeria has
been plunged into a number of leadership related problem i.e greed, egocentrism,
intolerance, fraud, misappropriation and diversion of national fund for personal
use, oil
theft and financial stealing etc. This mono dependent on Oil later creates a
negative
multiplier effects by increasing the rate of unemployment, insecurity as a result
of
idleness, prostitution, wants, and lackry.
(4) Greed and Financial Corruption: Cases of corruption, misappropriation and greed
has
been well established in Africa�s most populous nation-Nigeria. This has historical
antecedents from the colonial masters, the defunct regional government, then
military
regime and the republics. According to Igbokwe-Ibeto & Okoye (2014), since gaining
independence in 1960, most Nigerian leaders have not clearly demonstrated sense of
genuine national development. They went further to argue that most African leaders
plunder, defraud, embezzle and mismanage their countries human and natural
resources
with so much impunity. They are possessive, egoistic, selfish, individualistic,
callous,
greedy and secretive that transparency and accountability has no place in their
administration and management of common and collective wealth (Igbokwe-Ibeto &
Okoye, 2014). Similarly, Adebanjo (2008) gave an insight that an estimated $380
billion
of the country�s collective wealth was stolen by its post-independence leaders:
about two-
thirds of all economic aids given to Africa during this period. Also, the regime of
Ibrahim
Babangida was unable to account for $12.4 billion of missing oil revenues that were
part
of a windfall from the 1991 Gulf War (Apter, 2005). Corruption is an evil wind that
affects everyone and retard societal progress. That is what corruption is presently
doing
to Nigeria. See a country like Singapore, former third world nation becoming first
world
nation in few decades. Yet not as blessed and popular as Nigeria. Nigeria�s leaders
using
poverty as bait to win political elections. Although corruption and fraud are
universal
problems for all government and all countries, the magnitude seems to be at its
peak in
the giant of Africa � Nigeria. This social ill takes the form of kickbacks,
payoffs, bribery
scandal, etc which endangers progress of any society ( Ikejiani & Clark, 2001). It
is no
longer doubtful that leadership characterized by non adherence to the constitution,
interest is their pocket. Nigeria leaders often prefer everything to go bad and
wrong than
to arrest the anticipated issue before it gets out of hand. They are never sincere
since the
sufferings of Nigerians means nothing to them. For instance, during former
President
Obasanjo�s term in office, he established EFCC to fight corruption in the land.
Many of
the Nigeria�s citizens saw this as a good step in the right direction. Few years
after, it was
disappointing top realized that this EFCC was not created with genuine intention.
It was
only a tool to fight enemies of the president not enemies of the Nigerian state.
This is
hypocrisy! The EFCC repeatedly has been involved in cases of selective justice,
where
the most corrupt of all men lives freely in the public eye just because they are
Mr.
President�s friend. Successive governments after Obasanjo have followed suit.
Presently,
the Buhari regime has been grossly criticised for same selective justice. Fighting
enemies
and not friends, with hundreds of rogues in his cabinet. Those who must come to
equity
must come with clean hands. This worrisome situation demands urgent attention. The
quintessential question to then ask is, why do Nigerians still vote for this
recycled sets of
people?
(6) Lack of National Identity: Every government for itself. A Judas in the last
government
is a saint in the new government. No sense of nationhood but cabalism. Go to
America,
England, China and even Ghana, you will see true sense of nationhood. Where a
citizen
will tell you =I am a Ghanaian� American� British etc� This is not so in Nigeria.
Nigeria�s presidents are often identified with their tribal and religion identities
in
dressing, appointments and deeds. Most of Nigeria�s leaders are insensitive and or
carefree. To then worsen the case, they prefer to even be identified with their
political
party and even inner caucus within the micro-segment of the party. Leadership
anywhere
in the world cannot work in isolation of delegation of authority and
responsibility. This
division of labour must be handled by experts who must have been selected or
appointed
on merit. The reverse is the case. The Nigeria�s case is one that is so appalling
where
knowledge, experience, character, qualifications and definiteness of purpose
perishes
once you don�t find yourself in the caucus of the privileged few. Nigeria�s leaders
are
fools surrounded by idiots. They are so arrogant to stand meritocracy.
4.0 CONCLUSION
This unit discussed the dynamics of Nigeria�s leadership problem, some antecedents,
and brief
highlights for solution. From this unit, it can be concluded that major problem
facing Nigeria are
corruption, lack of national identity, poor or weak leadership, mono-dependent on
oil, tribalism
and nepotism, greed and incompetency. However, solutions to these problems hang on
both the
Nigerian leaders and followers.
5.0 SUMMARY
Leadership holds the key to unlocking the transformation question in Nigeria, but
to sustain this
drive, leaders must carry certain genes and attributes that are representative and
promotive of this
order. These include: existence of practical, purposeful, visionary and missionary
initiative by
the individual, reflecting the objectives of held ideas, values and aspirations;
existence in an
individual of a clear set of ideas, values, aspirations reflecting those of the
majority who are the
subject or followership, and ; existence of patriotic and nationalistic spirit,
transparency and
accountability, signs of concrete achievements involving the extent to which
intended effects are
produced by the leader. These are the core values of good governance (Anazodo &
Igbokwe-
Ibeto, 2015). Arguably, leader must put God first in order to achieve results.
Putting God first
means fearing God. When a man fears God, he loves everyone even his greatest enemy.
The fear
of God can also mean fairness to everyone irrespective of tribe, religion and
political difference.
Nigeria?
Achebe, C. (1983). The trouble with Nigeria. Enugu: Fourth Dimension Publishers.
Apter, A. (2005). The Pan-African nation: Oil and the spectacle of culture in
Nigeria. Chicago:
University of Chicago Press.
Esu, I. E. (2001). The making of Nigeria: Forty years after. In Duru, E. J. C.,
Ikejiani-Clark, M.
& Mbat, D. O. (Eds.) Contemporary issues in public administration. Calabar: BAAJ
International Company.
Fred, N. (2006), Change Management. NJ: Wiley.
Gans, K. (2011). Should you change your thinking about Change Management? Strategic
Nwagboso, C.I., and Duke, O. (2012). Nigeria and the Challenges of Leadership in
the 21st
Century: A Critique. International Journal of Humanities and Social Science, 2
(13);
230-237.
Ulrich, D., Zenger, J., and Smallwood, N. (1999). Results-based leadership: How
leaders build
the business and improve the bottom line. Boston: Harvard Business School Press.
Zohar, D. (1997). Rewiring the corporate brain. San Francisco, CA: Berrett-Koehler.
Unit Two: Why Corporate Governance Matters and Corporate Governance Theories
Unit Five: Good Governance with Value Addition and Duel process
Table of Contents
1.0 Introduction
2.0 Objectives
4.0 Conclusion
5.0. Summary
5.1 Self-Assessment Exercise
1.0 INTRODUCTION
2.0 OBJECTIVES
This definitional range underscores the reality that corporate managers, directors
and investors
all function within a larger business and legal environment that shapes behavior.
But no matter
what the definition, at its heart, corporate governance concerns the means by which
a corporation
assures investors that it has well-performing management in place and that
corporate assets
provided by investors are being put to appropriate and profitable use (Coopers,
2007). The
concept of corporate governance is gaining momentum because of various factors as
well as the
changing business environment. The EEC, GATT and WTO regulations have also
contributed to
the rising awareness and are compelling us to think in terms of adhering to the
good governance
practices. Corporate governance, by the very nature of the concept, cannot be
exactly defined.
However, there can be no two opinions that .effective accountability to all
shareholders is the
essence of corporate governance (Mengistae & Xu, 2004)..
company;
6. The Board effectively and regularly monitors the functioning of the management
team;
7. The Board remains in effective control of the affairs of the company at all
times.
The overall endeavor of the Board should be to take the organization forward,
maximize long-
term values and shareholders� wealth.
Corporate governance practices vary across nations and firms, and this variety
reflects not only
distinct societal values, but also different ownership structures, business
circumstances and
competitive conditions. It may also reflect differences in the strength and
enforceability of
contracts, the political standing of shareholders and debt holders, and the
development and
enforcement capacity of the legal system (Coopers, 2007).
Reform needs vary, but often include basic stock exchange development, the creation
of systems
for registering share ownership, the enactment of laws for basic minority
shareholder protection
from potential self-dealing by corporate insiders and controlling shareholders, the
education and
empowerment of a financial press, the improvement of audit and accounting
standards, and a
change in culture and laws against bribery and corruption as an accepted way of
doing business
(Mengistae & Xu, 2004).
Ultimately, corporate governance and the framework that supports it must have
relevance to a
nation�s own unique legal environment and cultural values. While common elements of
effective
governance can be identified to enable national systems to attract global capital
and heighten
investor confidence -- and some market driven convergence of systems may be
inevitable --
governance reform is largely a matter for each nation and the private sector within
each nation to
determine (Bryan, Nash & Patel, 2002).
Underlying the Millstein Report is the notion that corporate governance depends on
the private
sector for implementation. While government provides the structure for governance,
corporate
governance happens inside the corporation, and depends on investors, boards and
managements�.
4.0 CONCLUSION
In this unit, you have learnt the meaning, objectives and elements of effective
corporate
governance. This should therefore enable you to fully understand other management
related
concepts that will be discussed later.
More so, corporate governance can only be successful when practitioners are
focused, fair,
accountable, transparent and responsible. This is the hallmark of successful
private ventures
and the tin-line between successful and failing governmental organisations. Since
the goal of
every organisation is to achieve pre-set objective, the board must ensure that this
is
reasonably and timely done by infusing expertise into every actions and reactions
across
board.
5.0 SUMMARY
This unit is all about the meaning, objectives and elements of effective corporate
governance as
well as the major sources of power. Although these sources are interwoven and
interrelated, a
leader�s capability to influence others is dependent on the power he has. Major
objective of good
corporate governance system includes: The Board has an effective machinery to sub
serve the
concerns of stakeholders; the Board keeps the shareholders informed of relevant
developments
impacting the company, the Board effectively and regularly monitors the functioning
of the
management team; the Board remains in effective control of the affairs of the
company at all
times, a properly structured Board capable of taking independent and objective
decisions is in
place at the helm of affairs, the Board is balanced as regards the representation
of adequate
number of non-executive and independent directors who will take care of the
interests and well-
being of all the stakeholders.
Essentially, corporate governance will be efficient if actors are transparent,
fair, accountable and
responsible in their dealings. After all, the overall mission of the Board should
be to take the
organization forward, maximize long-term values and shareholders� wealth.
Allen F. J. Q. & Qian M., (2005). Law, Finance and Economic Growth in China,
Journal of Financial Economics, 77, 57-116.
Bryan S. H., Nash R. C. & Patel A., (2002). The Equity Mix in Executive
Compensation: An
Investigation of Cross-Country Differences, retrieved from
http://ssrn.com/abstract=311781
Che J. & Qian Y., (1998). Institutional Environment, Community Government, and
Corporate
Governance: Understanding China�s Township-Village Enterprises. Journal of Law,
Economics and Organization, 14 (1), 1-23.
Chen D. H., Fan J. P. H. & Wong T. J., (2002). Do politicians jeopardize
professionalism?
Decentralization and the Structure of Chinese corporate boards, Working Paper,
Shanghai
University of Finance and Economics, and Hong Kong University of Science and
Technology.
Mengistae T. & Xu L.C., (2004). Agency Theory and Executive Compensation: The Case
of
Chinese State-Owned Enterprises, Journal of Labor Economics, 22 (3), 615-637.
Naughton T. & Hovey M., (1999). Non-Bank Financial Institutions, Chapter 6, In East
Asia
Analytical Unit (Ed.), Asia�s Financial Markets: Capitalizing on Reform. EAAU,
Department of Foreign Affairs & Trade, Canberra, 139-157.
Qi D.Q., Wu W. & Zhang H., (2000). Shareholding structure and corporate performance
of
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Shareholder
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Table of Contents
1.0 Introduction
2.0 Objectives
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
As markets become more open and global, and business becomes more complex,
societies
around the world are placing greater reliance on the private sector as the engine
of economic
growth. In both developed and developing nations, a growing proportion of economic
activity
takes place in firms organized as corporations. Corporations are creatures of law;
societies allow
corporations to be created by law because they recognize that incorporation
provides an efficient
form of organization, and society benefits as a result (Anderson & Reeb, 2003).
2.0 OBJECTIVES
For the purpose of this paper various corporate governance theories have been
reviewed: agency,
stakeholders and resource dependency theory, stewardship theory, social contract
theory
legitimacy theory and political theory.
Much of the research into corporate governance derives from agency theory (see
Figure 1). Since
the early work of Berle and Means in 1932, corporate governance has focused upon
the
separation of ownership and pedals which results in principal-agent problems
arising from the
dispersed ownership in the modern corporation. They regarded corporate governance
as a
mechanism where a board of directors is a crucial monitoring device to minimize the
problems
brought about by the principal-agent relationship. In this context, agents are the
managers,
principals are the owners and the boards of directors act as the monitoring
mechanism (Mallin,
2004). Moreover, literature on corporate governance attributes two factors to
agency theory. The
first factor is that corporations are reduced to two participants, managers and
shareholders whose
interests are assumed to be both clear and consistent. A second notion is that
humans are self-
interested and disinclined to sacrifice their personal interests for the interests
of the others (Daily,
Dalton & Cannella, 2003).
The agency role of the directors refers to the governance function of the board of
directors in
serving the shareholders by ratifying the decisions made by the managers and
monitoring the
implementation of those decisions. This role has been examined in a large body of
literature
(Fama & Jensen, 1983; Baysinger & Butler, 1985; Lorsch & MacIver, 1989; Baysinger &
Hoskisson, 1990; Daily & Dalton, 1994). Much of this research has examined board
composition
due to the importance of the monitoring and governance function of the board
(Pearce & Zahra,
1992; Barnhart, Marr & Rosenstein, 1994; Daily & Dalton, 1994; Gales & Kesner,
1994; Bhagat
& Black, 1998; Kiel & Nicholson, 2003;), because according to the perspective of
agency theory
the primary responsibility of the board of directors is towards the shareholders to
ensure
maximization of shareholder value. The focus of agency theory of the principal and
agent
relationship (for example shareholders and corporate managers) has created
uncertainty due to
various information asymmetries (Deegan, 2004). The separation of ownership from
management can lead to managers of firms taking action that may not maximize
shareholder
wealth, due to their firm specific knowledge and expertise, which would benefit
them and not the
owners; hence a monitoring mechanism is designed to protect the shareholder
interest (Jensen &
Meckling, 1976). This emphasizes the role of accounting in reducing the agency cost
in an
organization, effectively through written contracts tied to the accounting systems
as a crucial
component of corporate governance structures, because if a manager is rewarded for
their
performance such as accounting profits, they will attempt to increase profits which
will lead to
an increase in bonus or remuneration through the selection of a particular
accounting method that
will increase profits.
Arising from the above is the agency problem on how to induce the agent to act in
the best
interests of the principal. This results in agency costs, for example monitoring
costs and
disciplining the agent to prevent abuse (Shleifer & Vishny, 1997). Jensen and
Meckling (1976)
define agency costs: the sum of monitoring expenditure by the principal to limit
the aberrant
activities of the agent; bonding expenditure by the agent which will guarantee that
certain actions
of the agent will not harm the principal or to ensure the principal is compensated
if such actions
occur; and the residual loss which is the dollar equivalent to the reduction of
welfare as a result
of the divergence between the agents decisions and those decisions that would
maximize the
welfare of the principal. However, the agency problem depends on the ownership
characteristics
of each country. In countries where ownership structures are dispersed, if the
investors disagree
with the management or are disappointed with the performance of the company, they
use the exit
options, which will be signaled through reduction in share prices. Whereas
countries with
concentrated ownership structures and large dominant shareholders, tend to control
the managers
and expropriate minority shareholders in order to gain private control benefits
(Spanos, 2005)
Source: Allen, Qian and Qian, (2007)
The agency model assumes that individuals have access to complete information and
investors
possess significant knowledge of whether or not governance activities conform to
their
preferences and the board has knowledge of investors� preferences (Smallman, 2004).
Therefore
according to the view of the agency theorists, an efficient market is considered a
solution to
mitigate the agency problem, which includes an efficient market for corporate
control,
management labour and corporate information (Clarke, 2004). According to Johanson
and
Ostergen (2010) even though agency theory provides a valuable insight into
corporate
governance, its� applies to countries in the Anglo-Saxon model of governance as in
Malaysia.
Various governance mechanisms have been discussed by agency theorists in relation
to
protecting the shareholder interests, minimizing agency costs and ensure alignment
of the agent-
principal relationship. Among the mechanisms that have received substantial
attention, and are
within the scope of this study, are the governance structures (Davis, Schoorman &
Donaldson,
1997).
Stakeholder theory has become more prominent because many researchers have
recognized that
the activities of a corporate entity impact on the external environment requiring
accountability of
the organization to a wider audience than simply its shareholders. For instance,
McDonald and
Puxty (1979) proposed that companies are no longer the instrument of shareholders
alone but
exist within society and, therefore, has responsibilities to that society. One must
however point
out that large recognition of this fact has rather been a recent phenomenon.
Indeed, it has been
realized that economic value is created by people who voluntarily come together and
cooperate
to improve everyone�s position (Freeman et. al., 2004). Jensen (2001) critiques the
Stakeholder
theory for assuming a single-valued objective (gains that accrue to a firm�s
constituency). The
argument of Jensen (2001) suggests that the performance of a firm is not and should
not be
measured only by gains to its stakeholders. Other key issues such as flow of
information from
senior management to lower ranks, interpersonal relations, working environment,
etc. are all
critical issues that should be considered. Some of these other issues provided a
platform for other
arguments. An extension of the theory called an enlightened stakeholder theory was
proposed.
However, problems relating to empirical testing of the extension have limited its
relevance
(Sanda et. al., 2005).
The basic proposition of resource dependence theory is the need for environmental
linkages
between the firm and outside resources. In this perspective, directors serve to
connect the firm
with external factors by co-opting the resources needed to survive (Pfeffer and
Salancik, 1978).
Thus, boards of directors are an important mechanism for absorbing critical
elements of
environmental uncertainty into the firm. Williamson (1985) held that environmental
linkages or
network governance could reduce transaction costs associated with environmental
interdependency. The organization�s need to require resources and these leads to
the
development of exchange relationships or network governance between organizations.
Further,
the uneven distribution of needed resources results in interdependence in
organizational
relationships. Several factors would appear to intensify the character of this
dependence, e.g. the
importance of the resource(s), the relative shortage of the resource(s) and the
extent to which the
resource(s) is concentrated in the environment (Donaldson and Davis, 1991).
Additionally, directors may serve to link the external resources with the firm to
overwhelm
uncertainty (Hillman, Cannella Jr & Paetzols, 2000), because managing effectively
with
uncertainty is crucial for the existence of the company. According to the resource
dependency
rule, the directors bring resources such as information, skills, key constituents
(suppliers, buyers,
public policy decision makers, social groups) and legitimacy that will reduce
uncertainty (Gales
& Kesner, 1994). Thus, Hillman et al. (2000) consider the potential results of
connecting the firm
with external environmental factors and reducing uncertainty is decrease the
transaction cost
associated with external association. This theory supports the appointment of
directors to
multiple boards because of their opportunities to gather information and network in
various
ways.
Stewardship theory sees a strong relationship between managers and the success of
the firm, and
therefore the stewards protect and maximize shareholder wealth through firm
performance. A
steward, who improves performance successfully, satisfies most stakeholder groups
in an
organization, when these groups have interests that are well served by increasing
organizational
wealth (Davis, Schoorman & Donaldson, 1997). When the position of the CEO and
Chairman is
held by a single person, the fate of the organization and the power to determine
strategy is the
responsibility of a single person. Thus the focus of stewardship theory is on
structures that
facilitate and empower rather than monitor and control (Davis, Schoorman &
Donaldson, 1997).
Therefore stewardship theory takes a more relaxed view of the separation of the
role of chairman
and CEO, and supports appointment of a single person for the position of chairman
and CEO and
a majority of specialist executive directors rather than non-executive directors
(Clarke 2004).
4.0 CONCLUSION
In this unit, you have learnt the reasons for corporate governance and theories of
corporate
government. However, corporate governance is important because it brings about the
efficiency
with which a corporation employs assets; its ability to attract low-cost capital;
its ability to meet
societal expectations; and its overall performance (Anderson & Reeb, 2003).
Also, various theories of corporate governance were adequately reviewed i.e agency
theory,
stakeholders and resource dependency theory, stewardship theory, social contract
theory
legitimacy theory and political theory. For instance, while these theories are
based on one aspect
of the organisation, some of them are simply a contradictory of the other. A case
in reference is
the Stewardship theory (a contrast of Agency Theory) presents a different model of
management,
where managers are considered good stewards who will act in the best interest of
the owners
(Donaldson & Davis, 1991). The fundamentals of stewardship theory are based on
social
psychology, which focuses on the behavior of executives.
5.0 SUMMARY
This unit is all about why corporate governance and theories that supported it.
Actually, these
sources are interwoven and interrelated, a leader�s capability to influence others
is dependent on
the power he has. Importance of corporate governance includes: it brings about the
efficiency
with which a corporation employs assets; its ability to attract low-cost capital;
its ability to meet
societal expectations; and its overall performance (Anderson & Reeb, 2003).
Also, various theories of corporate governance were adequately reviewed i.e agency
theory,
stakeholders and resource dependency theory, stewardship theory, social contract
theory
legitimacy theory and political theory. Hence, in order to ultilised corporate
governance
opportunities, these numerous corporate governance strategies and theories must be
harness and
properly channel as at when necessary bearing in mind the principle of unity of
purpose,
transparency, accountability, equity and responsibility from the parts of the board
of directors
and top managers in the top echelon of the organisation.
Allen F., Qian J. & Qian M., (2007). China�s Financial System: Past, Present, and
Future.
Available at SSRN: http://ssrn.com/abstract=978485.
Bhagat S. & Black B., (2002). The Non-Correlation Between Board Independence and
Long- Term Performance, Journal of Corporation Law, 27 (2), 231-243.
Rui O., Firth M. & Fung P., (2002). Corporate Governance and CEO Compensation in
China,
Available at SSRN: http://ssrn.com/abstract=337841.
Shanghai Stock Exchange (SSE), (2003), China Corporate Governance Report, Fudan
University
Press (in Chinese).
Yermack D., (1996). Higher Market Valuation of Companies with A Small Board of
Directors,
Journal of Financial Economics, 40 (2), 185-212.
Table of Contents
1.0 Introduction
2.0 Objectives
3.1 Responsibilities
3.2 Functions
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
The empirical evidence of a link between governance and performance is mixed due to
the
difficulty in factoring out governance from all the other influences on firm
performance (Adams,
Hermalin, Weisbach & Forthcoming, 2012; Allen,2015; Aggarwal, Erel, Stulz &
Williamson,
2008). Nonetheless, the connection between effective governance and firm
performance makes
considerable intuitive sense. Effective corporate governance is also closely
related to efforts to
reduce corruption in business dealings. Effective governance systems should make it
difficult for
corrupt practices to develop and take root in a company. Strong governance may not
prevent
corruption, but it should make it more likely that corrupt practices are
discovered.
2.0 OBJECTIVES
3.1 Responsibilities
Allen, (2015). Opined that the following are the major responsibility of board of
directors:
1. The board of directors should be in firm control of the affairs of the company
in a lawful,
efficient and effective manner, such that the organization may increasingly improve
on its
value creation; and
2. The board should, with due regard to the other stakeholders� interests, ensure
that the Value
created is shared among the interested parties such as the shareholders and
employees.
3. The board should ensure transparency, accountability, equity and fairness among
all
organisations� players.
3.2 Functions
3. The position of the chairman and chief executive officer should ideally be
separated and
held by different persons;
The board member remuneration policy should be supported by full and effective
disclosure, in
consonance with the spirit and intent of the Companies and Allied Matters Act (Cap.
C20, LFN.
2004) and Code of Corporate Governance in Nigeria, 2003.
A dynamic and forward looking organization should, at all times and more especially
during
economic downturn, .feed the opportunities and starve the problems as they unfold,
so as remain
comfortably in business (Bar-Gill, Barzuza, Bebchuk, 2013).. p45.
According to Beasley, (1996). The following are identified rights and privileges of
shareholders:
1. The company, through the directors, should ensure that shareholders� statutory
and general
rights are protected every time;
2. It should be the responsibility of the shareholders to elect directors and
approve the terms
and conditions of their directorship positions;
3. The venue of the annual general meeting should be carefully chosen such that the
Aggarwal, et al, (2008) argued that a good and effective audit committees� member
must possess
the following qualifications and experience:
In orderly societies, directors and members of top management are held personally
answerable
for exhibiting corporate behavior which runs counter to the laid down norms. A
board which is
in charge of its destiny has to set the tone and indices of moral behavior of the
corporate entity
and ensure adherence by the rank and file (Bainbridge, 2013).
4.0 CONCLUSION
In this unit, you have learnt the responsibilities, functions, composition of board
of directors, the
role of both shareholders and audit committee. Major responsibilities of board of
directors
include; to be in firm control of the affairs of the company in a lawful, efficient
and effective
manner, such that the organization may increasingly improve on its value creation;
with due
regard to the other stakeholders� interests, ensure that the value created is
shared among the
interested parties such as the shareholders and employees. And ensure transparency,
5.0 SUMMARY
The Shareholders (equity owners) have the following privileges and duties: notices
of AGM
should be dispatched at least 21 working days, with such details and annual
reports, audited
financial statements and other information that would enable the shareholders to
vote properly on
any issue; A separate resolution should be proposed by the board at the general
meeting on each
substantive issue in such a way that they could be voted for in an organized
manner; the board
has to ensure that decisions reached at the general meetings are implemented; and
there ought to
be at least one director on the board to represent minority shareholders
(Bainbridge, 2013).
4. Explain both the role of audit committee and shareholders with their
qualifications
Adams R., Hermalin B. E. & Weisbach M. S., Forthcoming, (2012). The Role of Boards
of
Directors in Corporate Governance: A Conceptual Framework & Survey. Journal of
Economic Literature, 2(3):234-256.
Aggarwal R., Erel I., Stulz R. M. & Williamson R., (2008). Differences in
Governance Practices
between U.S. and Foreign Firms: Measurement, Causes, and Consequences. Review of
Financial Studies, Advance Access published December 22, 2008, doi:
10.1093/rfs/hhn107.
Beasley M. S., (1996). An Empirical Analysis of the Relation between the Board of
Director
Composition and Financial Statement Fraud. Accounting Review, 71:443�55
Table of Contents
1.0 Introduction
2.0 Objectives
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
When the Business Sector Advisory Group issued its Report to OECD Ministers at the
height of
the Asian crisis, it recommended that the OECD promote and further articulate
the .core
standards. of corporate governance: fairness, transparency, accountability and
responsibility.
That proposal led the OECD to convene an Ad-Hoc
2.0 OBJECTIVES
Fairness: The OECD Principles expand on the concept of .fairness. with two separate
. This recognizes that investors and shareholders need information about the
performance of the
company -- its financial and operating results -- as well as information about
corporate objectives
and material foreseeable risk factors to monitor their investment. Financial
information prepared
in accordance with high-quality standards of accounting and audit should be subject
to an annual
audit by an independent auditor (Becht, et.al, 2008). This provides an important
check on the
quality of accounting and reporting. Of course, accounting standards continue to
vary widely
around the world. Internationally prescribed accounting standards that promote
uniform
disclosure would enable comparability, and assist investors and analysts in
comparing corporate
performance and making decisions based on the relative merits (Bertrand, et.al,
2002).
Information about the company�s governance, such as share ownership and voting
rights, identity
of board members and key executives and executive compensation, is also important
to potential
investors and shareholders and is a critical component of transparency (Allen,
2015).
This Principle also recognizes that the board is charged with monitoring the
professional
managers to whom the discretionary operational role has been delegated and holding
them
accountable in the use of firm assets (Becht, et.al, 2008). In this respect, the
board provides a
mechanism for reducing the agency problem -- described by Adam Smith in 1776 --
that is
inherent in the separation of ownership and control (Allen, 2015). If the board is
to serve as an
effective monitor of managerial conduct, however, it must be sufficiently distinct
from
management to be capable of objectively evaluating management (Bertrand, et.al,
2002). (A
board comprised wholly or primarily of management cannot be expected to effectively
minimize
agency problems.) This generally requires that some directors are neither members
of the
management team nor closely related to them through family or business affairs
(Becht, et.al,
2008).
Common stockholders have the right to elect their representatives on the board of
directors of a
corporation. Members of the board of directors assume the responsibility of
monitoring, directing
and appointing the firm�s managers. In this manner disperse shareholders are
potentially
empowered in setting direction, monitoring performance, and controlling
distribution of profits
of the corporation (Allen, 2015). In particular, this internal control mechanism is
purported to
integrate the interests of common stockholders and the executive managers of a
corporation by
rewarding good corporate performance (Becht, et.al, 2008).
The board of directors has the right and responsibility to remove poorly performing
managers.
Historically, dissatisfied shareholders have .walked away. from the corporation by
selling their
shares at depressed prices and thereby incurring losses (Allen, 2015).
Alternatively, major
shareholders either through hostile actions, .investor activism,. or a friendly
approach,
.relationship investing,. have pursued their objectives of monitoring corporate
managers.
Furthermore to the extent U.S. corporate laws permit, competing managers would
remove
incompetent ones and take over poorly performing firms (Becht, et.al, 2008). These
aforementioned actions collectively are purported to add value for the existing
shareholders. The
business judgment rule followed by the U.S. courts, has kept the courts out of
corporate
decisions. The U.S. Business Law rests on the belief that actions of corporate
managers are
evaluated and approved by members of the board of directors of the corporation
(Bertrand, et.al,
2002).
4.0 CONCLUSION
In this unit, you have learnt the principles of OECD and practices of corporate
governance. The
conclusion drawn was that OECD should be vast in the report and practices used
should be
consistence in the styles in order to match the style with the situation for the
organizational goals
to be achieved.
5.0 SUMMARY
This unit is all about principles of OECD and practices of corporate governance.
Major
principles of the OECD identified and examined include: The four principles of
corporate
governance are fairness, transparency, accountability, responsibility and expanded
into the five
OECD =principle of corporate governance. The five OECD principles explain that the
corporate
governance framework should protect shareholders� rights; the corporate governance
framework
should ensure that timely and accurate disclosure is made on all material matters
regarding the
corporation, including the financial situation, performance, ownership and
governance of the
company; the corporate governance framework should ensure the strategic guidance of
the
company, the effective monitoring of management by the board, and the board�s
accountability
to the company and the shareholders and the corporate governance framework should
recognize
the rights of stakeholders as established by law and encourage active co-operation
between
corporations and stakeholders in creating wealth, jobs, and the sustainability of
financially sound
enterprises (Allen,2015).
Bar-Gill O., Barzuza M. & Bebchuk L. A., (2013). The Market for Corporate Law.
Journal of
Institutional and Theoretical Economics 162:134�71.
Beasley M. S., (2013). An Empirical Analysis of the Relation between the Board of
Director
Composition and Financial Statement Fraud. Accounting Review 71:443�55
Bebchuk L. A., (2009). Investor Protection and Interest Group Politics. Review of
Financial
Studies (this issue).
Bertrand, M. & Mullainathan S., (2001). Are CEOs Rewarded for Luck? The Ones
Without
Principals Are. The Quarterly Journal of Economics 116:901�32.
Bertrand, M., P. Mehta & Mullainathan S. W., (2002). Ferreting out Tunneling: An
Application
to Indian Business Groups. The Quarterly Journal of Economics, 117:121�48
Table of Contents
1.0 Introduction
2.0 Objectives
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
2.0 OBJECTIVES
What benefits or value addition the corporate are likely to achieve through sound
and effective
corporate governance practices? The answer, as provided by Abor and Nicholas,
(2014) runs as
follows and the road map is factors which add greater value through good
governance, may be
summarized as follow:
It was the belief of the Securities and Exchange Board of India (.SEBI.) that
efforts to improve
corporate governance standards in India must continue. This is because these
standards
themselves were evolving in keeping with market dynamics (Adelman, Jenkins, &
Kemmis,
2012).
The other part of the analysis is concerned with company analysis which is
concerned with
evaluating the practices at individual companies. Standard and poor assigns scores
to a
company�s overall practices using a synthesis of the OECD�s and other international
codes and
guidelines of corporate governance practices (Conger, Finegold & Lawler, 2009). The
analysis
has four main components as identified by Doidge, Karoly, and Rene, (2004), these
four
components and sub categories are as follows:
The Anglo-Saxon system focuses primarily on the shareholder, while others, such as
the German
system, attempt to achieve a greater balance of interest between shareholders and
other external
stakeholders (creditors, employees, the community, the environment etc.). By
addressing the
interest of both creditors and shareholders, the scoring model recognizes the
importance of
stakeholder�s right beyond the rights of the shareholder (McConaughty, 1998).
Finally how can
corporate governance scores benefit different sections?
Investors can use the scores to identify and compare corporate governance standards
of different
companies in their portfolios or the risk characteristics associated with the
corporate governance
practices of potential investments. Corporate governance scores and the
accompanying analysis
also help investors understand how a company�s management treats the interest or
shareholders,
including minorities (Conger, et.al, 2009).
3.0 CONCLUSION
In this unit, you have learnt the good governance and corporate governance
rating/benchmarking
and due process. The conclusion drawn was that good governance has major advantages
in
corporate organization with the influence of leadership with the situation for the
organizational
goals to be achieved. A sophisticated and well articulated corporate governance
will bring about
stability and growth to the enterprise; good governance system, demonstrated by
adoption of
good corporate governance practices, builds confidence amongst stakeholders as well
as
prospective stakeholders; demonstrating excellence in skills has become the
ultimate tool in the
hands of board of directors to leverage competitive advantage and provides long-
term sustenance
and strengthens stakeholders� relationship.
5.0 SUMMARY
This unit is all about good governance and corporate governance rating/benchmarking
and due
process and its implication on organization. To ensure good corporate governance
rating,
organisations must primary focus on key variables i.e the shareholding structure,
governance
structure, management processes, board structure and processes, stakeholder
relationship,
transparency and disclosures and financial discipline (Berle, & Means, 2010).The
other part of
the analysis is concerned with company analysis which is concerned with evaluating
the
practices at individual companies.
The analysis has four main components as identified by Doidge, Karoly, and Rene,
(2004), these
four components and sub categories are as follows: Component 1 concerned with
ownership
structure, relates to transparency of ownership structure, concentration and
influence of
ownership; Component 2 concerned with financial stakeholder relations, has
subcategories such
as regularity of, access to, and information on shareholder meeting, voting and
shareholder
meeting procedures and ownership rights; Component 3 concerned with financial
transparency
and information disclosure comprises sub-categories like quality and content of
public
disclosure, timing of, and access to, public disclosure and independent and
standing of the
company�s auditor and Component 4 concerned with board structure and process is
related to
Board structure and composition, role and effectiveness of board, role and
independence of
outside directors and directors and executive�s compensation, evaluation and
succession policies.
Abor, J. & Nicholas B., (2014). .Corporate governance, ownership structure and
performance of
SMEs in Ghana: Implications for financing opportunities,. Corporate Governance,
Volume 7, Number. 3, pp. 288-300.
Adelman, C., Jenkins, D. & Kemmis,S., (2012), .Re-thinking case study: notes from
the second
Cambridge conference., Cambridge Journal of Education, 6, pp. 139-150.
Albaum, G. & Peterson R. A., (2012). .Ethical Attitudes of Future Business Leaders:
Do They
Vary by Gender and Religiosity,. Business & Society, Volume 45, Issue 3, pp. 300-
321.
Anderson, R.C. Mansi, S. & Reeb., D.M. (2012), .Founding family ownership and the
agency
costs of debt., Journal of Financial Economics, 68, pp. 263-285.
Berle, A. & Means, G., (2010), .The Modern Corporation and Private Property,.
MacMillan,
New York.
Cole R. & Mehran, H., (2010), .The Effect of Changes in Ownership Structure on
Performance:
Evidence from the Thrift Industry., Journal of Financial Economics, Volume 50,
Issue 3,
pp. 291-317
Conger J., Finegold D. & Lawler H., (2009). .Appraising Boardroom Performance.,
Harvard
Business Review Volume 76, pp. 136-148.
Doidge, C., Karoly, A & Rene, S., (2004), .Why are foreign firms listed in the US
worth more?.
Journal of Financial Economics, Volume 71, pp. 205-238.
Table of Contents
1.0 Introduction
2.0 Objectives
5.0 Summary
1.0 INTRODUCTION
2.0 OBJECTIVES
At the end of this unit, students should be able to:
In a highly dispersed shareholding system, such as is the case in the U.S., members
of the board
of directors are granted the responsibility of monitoring executives. Internal
corporate
governance systems in Germany and Japan, on the other hand, rest with large
shareholders. This
is because their business and legal systems allow concentrated and cross
shareholdings. The
actions of these large shareholders appear to be a combination of aggressively
controlling the
management as well as a friendly one (Bryan and Patel, 2002). Corporate financial
managers are
expected to act on behalf of shareholders, with the goal of obtaining a reasonable
return on their
investments. Once the board fails in its duty, share prices would fall and
institutional
shareholders with a large stake would assume the responsibility of the board of
directors. These
actions could either be supportive or unfriendly towards the incumbent management
team
(Bethel et al., 1998).
Shareholder activism involves the task of aggressive monitoring and controlling the
firm's
management for the purpose of enforcing changes in the firm's structure of internal
control and
increasing shareholders wealth. It is generally found that shareholder activism
tend to be
beneficial to all investors in terms of appreciation of their wealth. Bryan and
Patel, (2002),
studied the influence of TIAA-CREF corporate governance practices for firms in its
investment
portfolios during 1992-1996. It was found that at least 87 percent of the target
firms took actions
in line with the terms negotiated by TIAA-CREF. Bryan and Patel, (2002), further
concluded
that the benefits of activism tended to depend upon the type of issues involved.
The magnitude of
benefits though appears to be small or insignificant. Board diversity issue had
resulted in
negative abnormal return, whereas confidential voting resulted in positive abnormal
return.
Mengistae and Xu, (2004) reviewed the operating performance for 51 firms targeted
by
CALPERS during 1987-93. He found that shareholder wealth tend to increase for firms
that
adopt or settle, and decreases for firms that resist.
Mengistae and Xu, (2004) on the other hand, suggest that activism on the part of
public pension
funds does not appear to increase the market value of their holdings. The U.S.
capital markets
possess a high degree of operational efficiency. This flexible system facilitates
and allows
activist shareholders to pursue trading in large quantity of shares without
incurring a market
impact or undue transactions costs. It also resolves the .free rider. problem.
The .free rider.
problem may arise due to the fact that all shareholders would tend to benefit from
the actions
taken by a select group of activist shareholders, even though the cost is borne
solely by the
activists (Shanghai Stock Exchange, 2003).
Mengistae and Xu, (2004) found that a liquid stock market is beneficial because it
makes
investor activism a more effective tool for corporate internal governance and
control. This is
because a liquid stock market makes it less costly to hold larger amounts of the
outstanding
shares of a target firm. In particular, in most cases other large shareholders
cooperate in order to
influence the management of a company.
In Germany and Japan large percentages of shares of companies are held by banks,
individuals,
and other companies. Such a system is perceived as an effective way for monitoring
and
influencing the management, thus leading to better performance (Shanghai Stock
Exchange,
2003). This cross shareholding system is also believed to be a low cost and
efficient financing
alternative than the capital markets. Banks in Germany are allowed to own stocks in
the
companies they lend to. Their large voting rights would allow these banks to remain
informed
and maintain control over the management (Che & Qian,1998).
. In the Japanese system, the cross shareholding, known as the Keiretsu, provides a
mechanism
for stockholders to control management's actions. The Presidents' Council meets on
a regular
basis in which the lending banks, large shareholders, and other investing firms
interact with the
management. The German and Japanese systems of corporate governance resemble the
relationship investing (Mengistae & Xu, 2004).
Naughton and Hovey, (1999) explains that in Germany, the management board is
comprised of
the top managers. They include the chairman, who is the equivalent of the CEO. The
supervisory
board, which is the equivalent of an outside board, includes both shareholders and
labor
representatives. In Japan the board consists of all insiders (Peng, 2001). The
president is also the
CEO. A few top directors, including the president, are given special rights to
represent the
company. These are known as representative directors. Large shareholders have the
means and
the incentives to collect pertinent information regarding investment and financing
activities of
the firm. Yermack, (1996), state that it is feasible for large shareholders to
collect information
about the firm and to monitor the management.
However, while large shareholdings are not common in the U.S., majority ownerships
are
prevalent in Germany and Japan. Management and director turnovers are common in
Germany
and Japan in response to poor corporate performance. The Japanese large investors
appear to be
soft with the management and in Germany large investors have few incentives to
discipline
managers. Anderson & Reeb, (2003).conclude that firms in the U.S. rely on legal
protection of
investors, whereas in much of Europe and in Japan there is more reliance on large
investors to
exert effective internal corporate control. Bhagat and Black, (2002) observes that
the difference
between countries corporate governance system is as a result of differences in
their legal and
regulatory environments. Regulatory restrictions and limits placed on investors'
holdings in the
U.S. have led to dispersed holdings of stocks. Conversely, the absence of such
restrictions in
Japan and Germany has resulted in concentrated shareholdings.
In both Germany and Japan, unlike the U.S., banks have substantial influence in the
companies
they lend to. It is therefore, hypothesized that lack of a liquid financial market
in Germany and
Japan and the availability of low cost, long-term borrowing have contributed to the
development
of their respective corporate governance systems (Anderson & Reeb,2003).
On the other hand, it is believed that the ample liquidity and marketability in the
U.S. financial
system has created dispersed shareholdings, block trading, and facilitated
relationship investing
as feasible forms of corporate internal control in the U.S. Bhagat and Black,
(2002) finds that the
forced resignations of top managers are preceded by large and sufficient declines
in operating
performance and followed by large improvements in performance. However, forced
resignations
are rare and are due more often to external factors than to normal board
monitoring. Following
the management change, these firms significantly down size their operations and are
subject to a
high rate of corporate (Anderson & Reeb, 2003).
4.0 CONCLUSION
In this unit, you have learnt shareholder activism and shareholding systems. The
conclusion
drawn was that good governance has major advantages in corporate organization with
the
influence of leadership with the situation for the organizational goals to be
achieved. Also,
Shareholder activism involves the task of aggressive monitoring and controlling the
firm's
management for the purpose of enforcing changes in the firm's structure of internal
control and
increasing shareholders wealth. However, while large shareholdings are not common
in the U.S.,
majority ownerships are prevalent in Germany and Japan. Management and director
turnovers
are common in Germany and Japan in response to poor corporate performance. The
Japanese
large investors appear to be soft with the management and in Germany large
investors have few
incentives to discipline managers.
5.0 SUMMARY
This unit is all about shareholder activism and shareholding systems or corporate
designs around
the world. Shareholder activism involves the task of aggressive monitoring and
controlling the
firm's management for the purpose of enforcing changes in the firm's structure of
internal control
and increasing shareholders wealth. However, while large shareholdings are not
common in the
U.S., majority ownerships are prevalent in Germany and Japan.
More so, Germany and Japan large percentages of shares of companies are held by
banks,
individuals, and other companies. Such a system is perceived as an effective way
for monitoring
and influencing the management, thus leading to better performance (Shanghai Stock
Exchange,
2003). This cross shareholding system is also believed to be a low cost and
efficient financing
alternative than the capital markets. Banks in Germany are allowed to own stocks in
the
companies they lend to.
Allen F., Qian, I. & Qian, (2005). Law, Finance, and Economic Growth in China,
Journal of
Financial Economics, 77, 57-116.
Anderson R.C. & Reeb, R. M., (2003). Founding-family ownership and firm
performance:
evidence from the S&P 500, Journal of Finance, 58 (3), 1301- 1328.
Bhagat S. & Black B., (2002). The Non-Correlation Between Board Independence and
Long-Term Performance, Journal of Corporation Law, 27 (2), 231-243.
Bryan S.H. & Patel A., (2002). The Equity Mix in Executive Compensation: An
Investigation of
Cross-Country Differences, http://ssrn.com/abstract=311781.
Che J. & Qian Y., (1998) Institutional Environment, Community Government, and
Corporate
Governance: Understanding China�s Township-Village Enterprises. Journal of Law,
Economics, and Organization, 14 (1), 1-23.
Mengistae T. & Xu X.U., (2004). Agency Theory and Executive Compensation: The Case
of
Chinese State-Owned Enterprises, Journal of Labor Economics, 22 (3), 615-637.
Naughton T., & Hovey M., (1999). Non-Bank Financial Institutions, Chapter 6. In
East Asia
Analytical Unit (Ed.), Asia�s Financial Markets: Capitalising on Reform. EAAU,
Department of Foreign Affairs & Trade, Canberra, 139-157.
Rui O., Firth M. & Fung P., (2002). Corporate Governance and CEO Compensation in
China, Available at SSRN: http://ssrn.com/abstract=337841.
Yermack D., (1996). Higher Market Valuation of Companies with A Small Board of
Directors,
Journal of Financial Economics, 40 (2), 185-212.