The Importance of Leadership as a Fundamental Management Activity

1. Chapter One
Leadership

2. The Importance of Leadership as a
Fundamental Management
Activity
 Whilst many people use the terms „managers‟ and „leaders‟
interchangeably, there is a distinction that must be made between
managers and leaders:
 Managers are appointed, and thus have „legitimate‟ power that
allows them to reward and to punish. Their influence over others
is based on formal authority inherent in their positions.
 Leaders may be appointed, or may emerge within groups; leaders
can influence others to perform beyond the actions dictated by
formal authority.
 Leadership can therefore be defined as influencing and
directing the behaviour of individuals and groups in order
that they work willingly to pursue the goals and objectives
of the organisation.

3. 1.2 Nature and Composition of
Leadership
 Leadership is the process of directing the behaviour of others
towards the accomplishment of the organisation‟s goals.
 It involves translating plans and reaching objectives.
 It is a difficult concept to define since it entails influencing
people, giving orders, motivating employees, managing conflict,
and communicating with subordinates.
 Leadership can be described as the activity that drives an
organisation and its resources.
 On a technical note, it involves formulating the organisation‟s
mission, objectives and plans, and explaining them to
employees.
 It also encompasses supervising work, disciplining, and dealing
with conflict. This is all completed within the sphere of higher
productivity, profits, and market share.

4. 1.3 Differences between
Managers and Leaders

5.  Leadership can be defined as bringing about
change, envisioning a new future for the
organisation, and impassioning people to commit
and dedicate themselves to new directions.
 Management can be defined as being more
directed toward maintaining the status quo and
availing the sustained effort needed to maintain
new directions.

6. 1.4 The Theoretical Foundations of
Leadership
 1) Leadership characteristics or traits
 If you ask any person what comes to mind when thinking of leadership, they
will say things like intelligence, charisma, decisiveness, integrity, self-
confidence, courage, physical stature, and appearance.
 After the many thousands of studies conducted to establish a list of leadership
traits that distinguished leaders from non-leaders, still no progress has been
made to construct a leadership model of traits.
 However, leadership traits do include qualities such as intelligence,
assertiveness, above-average height, a good vocabulary, attractiveness, self-
assurance, and an extrovert personality. Researchers did find that these traits
alone did not „make‟ a good or effective leader, since the interactions of leaders
and subordinates, and situational factors, were ignored.
 Raymond Cattell, (www.sba.gov/managing/leadership/traits) a pioneer in the
field of personality assessment, developed the Leadership Potential
Equation in 1954. This equation, which was based on a study of military
leaders, is used today to determine the traits that characterise an
effective leader. The traits of an effective leader include the following: :

7.  Emotional stability. Good leaders must be able to
tolerate frustration and stress. Overall, they must be
well adjusted and have the psychological maturity to
deal with anything they are required to face.
 Dominance. Leaders are often-times competitive
and decisive and usually enjoy overcoming obstacles.
Overall, they are assertive in their thinking style as
well as their attitude in dealing with others.
 Enthusiasm. Leaders are usually seen as active,
expressive, and energetic. They are often very
optimistic and open to change. Overall, they are
generally quick and alert and tend to be uninhibited.

8.  Conscientiousness. Leaders are often dominated by a sense of
duty and tend to be very exacting in character. They usually have
a very high standard of excellence and an inward desire to do
one's best. They also have a need for order and tend to be very
self-disciplined.
 Social boldness. Leaders tend to be spontaneous risk-takers.
They are usually socially aggressive and generally thick-skinned.
Overall, they are responsive to others and tend to be high in
emotional stamina.
 Social boldness. Leaders tend to be spontaneous risk-takers.
They are usually socially aggressive and generally thick-skinned.
Overall, they are responsive to others and tend to be high in
emotional stamina.

9.  Tough-mindedness. Good leaders are practical,
logical, and to-the-point. They tend to be low in
sentimental attachments and comfortable with
criticism. They are usually insensitive to hardship and
overall, are very poised.
 Self-assurance. Self-confidence and resiliency are
common traits among leaders. They tend to be free of
guilt and have little or no need for approval. They are
generally secure and free from guilt and are usually
unaffected by prior mistakes or failures.

10.  Compulsiveness. Leaders were found to be
controlled and very precise in their social
interactions. Overall, they were very protective of
their integrity and reputation and consequently
tended to be socially aware and careful, abundant
in foresight, and very careful when making
decisions or determining specific actions.
 Beyond these basic traits, leaders of today must also
possess traits that will help them motivate others and
lead them in new directions. Leaders of the future
must be able to envision the future and convince
others that their vision is worth following.

12.  To do this, they must have the following personality
traits:
 High energy. Long hours and some travel are
usually a prerequisite for leadership positions,
especially as your company grows. Remaining
alert and staying focused are two of the greatest
obstacles you will have to face as a leader.

13.  Intuitiveness. Rapid changes in the world today
combined with information overload result in an
inability to "know" everything. In other words,
reasoning and logic will not get you through all
situations. In fact, more and more leaders are
learning to the value of using their intuition and
trusting their "gut" when making decisions.

14.  Maturity. To be a good leader, personal power and
recognition must be secondary to the development of
your employees. In other words, maturity is based on
recognising that more can be accomplished by
empowering others than can be by ruling others.
 Team orientation. Business leaders today put a
strong emphasis on team work. Instead of promoting
an adult/child relationship with their employees,
leaders create an adult/adult relationship which
fosters team cohesiveness.
 Empathy. Being able to "put yourself in the other
person's shoes" is a key trait of leaders today. Without
empathy, you can't build trust. And
 without trust, you will never be able to get the best effort
from your employees.

15.  Charisma. People usually perceive leaders as
larger than life. Charisma plays a large part in this
perception. Leaders who have charisma are able
to arouse strong emotions in their employees by
defining a vision that unites and captivates them.
Using this vision, leaders motivate employees to
reach toward a future goal by tying the goal to
substantial personal rewards and values.

18. 2) The behavioural approach to
leadership
 Leadership research from the 1940s to the 1960s
concentrated on the behavioural styles demonstrated by
leaders, in other words, was there something unique about
what leaders did?
 The latest hypotheses suggest that the actions of successful
leaders differ from those of unsuccessful ones. Thus,
managers who are trained in the right behaviour can
become successful.
 Furthermore, it is also believed that leadership is not
necessarily effective in different situations.
 Studies define two types of leadership behaviour, namely
task-oriented leader behaviour and employee-oriented
leader behaviour.

19.  Task-oriented leadership revolves around the leader
ensuring that subordinates perform their allotted tasks
to the best of their ability. Getting the job done is a
higher priority than the feelings and welfare of
employees.
 This style implies emphasis on employees being tools
to complete tasks. Employee-oriented leadership
occurs when the leader applies less control and more
motivation to get the job done. This style focuses on
people and their needs and progress.
 Below is a summary of the major Leader Behaviour
Dimensions studies, and the conclusions of each:

20.  University of Iowa Studies
 This research explored three leadership styles:
 1.1) Autocratic – describes a leader who typically tends to
centralise authority, dictates work methods, makes
unilateral decisions, and limits employee participation.
 1.2) Democratic – describes a leader who tends to involve
employees in decision-making, delegates authority,
encourages participation in deciding work methods and
goals, and uses feedback as an opportunity to coach
employees.
 1.3) Laissez-faire – generally gives the group complete
freedom to make decisions and complete their work.
 Conclusion: The Democratic style was most effective,
although later studies showed mixed results.

21. Ohio State Studies
 These studies identified two important dimensions of
leadership behaviour:
 2.1) Consideration: The extent to which a leader had
job relationships characterised by mutual trust and
respect for followers‟ ideas and feelings.
 2.2) Initiating Structure: The extent to which a leader
was likely to define and structure roles of followers in
the search for goal attainment. Conclusion: A leader
high in Consideration and high in Initiating Structure
was likely to achieve higher subordinate performance
and satisfaction, but not in all situations.

22. University of Michigan Studies
 This research identified the behavioural characteristics of
leaders that were related to performance effectiveness. This
resulted in two dimensions of behaviour: Employee-oriented
and Production-oriented.
 1) Employee-oriented: These leaders emphasised interpersonal
relations and took a personal interest in the needs of employees,
while also accepting individual differences among group
members.
 2) Task or Production-oriented: These leaders emphasised the
technical or task aspects of the job, and were mainly concerned
with accomplishing the group‟s tasks, while regarding group
members as a means to this end.
 Conclusion: Researchers strongly favoured employee-oriented
leaders: these were associated with higher group productivity
and higher job satisfaction.

23. The contingency (situational)
approach to leadership
 This theory involves the identification of specific
factors in each situation that influence the
effectiveness of leadership. It was found that no single
trait or style is equally effective, so good leadership is
the result of additional variables.
 Leadership success can, therefore, be partly attributed
to certain traits and behavioural patterns and how
good these traits are in satisfying the needs of their
subordinates and the situation.
 Various models were developed to explain the
contingency approach as follows:

24. a) Fiedler’s contingency theory of
leadership
 This theory is based on the assumption that the leader‟s
effectiveness depends on how well his or her style fits in
with the situation.
 A manager can maintain the fit between style and situation
by:
 understanding their style of leadership (task or employee
oriented),
 analysing the situation to determine the level of
effectiveness of the style, and
 finally, matching the style and the situation so that the
latter is compatible with the style.

25. b) Hersey and Blanchard’s model
 This model presupposes that the most effective management style for a
particular situation is determined by the maturity of the subordinates.
 This so-called maturity is defined as the need for achievement,
willingness to accept responsibility, and task-related ability and
experience.
 This model presupposes four leadership styles:
 Telling: The leader defines roles and people what, when, where,
and how to do various tasks.
 Selling: The leader provides both directive and supportive
behaviour.
 Participating: The leader and follower share in decision-making.
The leader‟s main role is facilitating and communicating
 Delegating: The leader provides little direction and support.
 As followers reach higher levels of maturity, the leader responds by
reducing control over, and involvement with, the employees.

26. 4) Path-Goal Theory
 This is a contingency model of leadership that extracts
key elements from the Ohio State research, and the
Expectancy theory. The essence of this theory is that it
is the leader‟s job to assist followers in attaining goals,
and provide necessary support and direction to ensure
that their goals are compatible with the overall goals of
the group, or organisation.
 Effective leaders clarify the path to help followers
achieve their goals, and make the journey easier by
reducing pitfalls, hence the name path-goal theory.

27.  Four leadership behaviours identified are:
 1. Directive leader behaviour: This leader lets employees know
what is expected of them; gives specific guidance on how work is
to be completed.
 2. Supportive behaviour: This leader shows concern for the needs
of employees.
 3. Participative behaviour: This leader consults with employees;
uses their suggestions before making decisions.
 4. Achievement-oriented behaviour: This leader sets challenging
goals; expects employees to perform at their highest level.
 The trait, behavioural and situational approaches have contributed
much to the theory of leadership but all have their shortcomings. It is
because of these that research into leadership continues.

28. 5) Full Range Leadership
 In 1985, Bass created the Full Range Leadership model (FRL)
[http://www.findarticles.com/]. FRL fully accepts the trait, functional
and situational theories, but goes on to identify skills, attitudes and
behaviours that support different leadership needs within an
organisation. Different phases of an organisation's evolution require
different leadership skills. For example, a business in long-term sales
decline with no real vision will need Transformational Leadership to
address not just the immediate issue but to research and sell a longer-
term strategy.
 On the other hand, a business running smoothly with further organic
growth opportunity has a different need for its leaders. This business
needs to be more Transactional and grow the margins in the business
with effective control and targeted performance. FRL ago accepts that
strong leadership is required in roles where the task is more
management by exception where auditing or health and safety
requirements are the primary function of the role.

29.  FRL also recognises that some leaders are avoidant of
their responsibility, so as to provide a measurement for
ineffective leadership. It also provides a sensible
development structure recognising that leaders need
time to develop skills as they gain the appropriate
experience. In the earlier stages of a career these will
almost always be got at different levels within
culturally and mechanically different organisations--
all of whom may have very different leadership
development priorities and needs.

30. Four Features
 It seems therefore that the FRL model has four distinct features:
 Firstly, the model matches leadership types with appropriate
skills allowing chief executives to more clearly define the specific
needs for their individuals or teams and align the development
lessons to the business objectives.
 Secondly, this structure makes the measurement of leadership
development possible through the Multifactor Leadership
Questionnaire. It is a 360- degree tool that allows industry to
bridge the gap between development costs and perceived
returns.
 The model appears to provide the first all-inclusive glue for
leadership development. It can deal with the different needs of
the business cycle, all levels and parts of the organisation and be
a common platform for personal growth.

31.  FRL works best when organisations have a sustainable
human capital strategy that is aligned to the vision. It
therefore tends to promote and prove that well-defined
targeted investment in people creates significant returns.
 The FRL model possibly provides the best solution for
organisations to get best value from leadership
development. It allows Situational and Functional
leadership methods to thrive whilst providing the
framework for appropriate definition, measurement and
alignment activity.

32.  As always though, success in leadership or team
development does also rely on:
 A belief that human capital development is a corner
stone of sustainable organisational growth.
 Development objectives and togs that are easily
understood and aligned to the vision of the
organisation.
 Mature individuals who are ready to take on
responsibility.
 Simple, continual and measured activity.
 Transformational leadership in itself.

33. Leadership Components
 The components that emerge are:
 1) Power
 The types of power are:
 Legitimate power – The authority granted to a particular position.
Legitimate power is essentially the same as authority.
 The power of Reward – The power to give or withhold rewards, like a
salary increase, bonus, recognition, or interesting assignments.
 Coercive power – The power to force compliance through fear, either
psychological or physical, e.g. Fear of dismissal, or social exclusion.
 Referent power – An abstract concept. Subordinates follow their leader
because they like, or respect, or identify with, the leader. The leader has
a certain charisma.
 Expert power – The power based on possessing knowledge that others
need or want.

34.  A manager that possesses all 5 kinds of power is a strong
leader. However, not only managers have power,
subordinates do too e.g. managers depend on them for
information, to perform a specific task, or to have social
influence over someone whose co-operation is needed.
 Effective managers use their leadership or power in a way
that maintains a healthy balance between their own power
and that of their subordinates.
 2) Influence
 This is the ability to apply authority and power to ensure
that followers take specific action. Followers are often
influenced to make personal sacrifices for the organisation.

35.  3) Responsibility
 All leaders have a responsibility to perform a task
according to orders, and have a duty to account for
their specific actions, and the actions of their followers
or employees.
 4) Delegation
 This involves the subdividing of a task and passing
smaller parts of it on to a subordinate, together with
the necessary authority to execute and complete that
task.

36.  Strategic Leadership and Decision-making
 Strategic leadership refers to the ability to articulate a
strategic vision for the company, or a major part of a
company, and to motivate others to buy into that vision.
 Characteristics of Good Leadership:
 1) Vision, Eloquence, and Consistency
 One of the key tasks of leadership is to give the
organisation a sense of direction. Strong leaders seem to
have a vision of where an organisation should go. They are
also eloquent enough to communicate this vision to other
in the organisation in terms that can energise people, and
consistently articulate this vision until it becomes part of
the organisational culture, e.g. John F. Kennedy, and
Martin Luther King Jr.

37.  2) Commitment
 Strong leaders often demonstrate commitment to their
particular vision, often leading by example. An example is
the CEO who preaches reducing costs in the organisation,
and who then flies economy class, and does not enjoy other
expensive „luxuries‟ that may be costly and extravagant.
 3) Being well-informed
 Good leaders develop a network of formal and informal
sources of information that keep them well-informed
about what is going on within their organisations.
 Using informal ways of gathering information (e.g. seeing
sites first-hand) avoids gatekeepers and special interest
groups that occur in formal structures, who may hinder the
passage of information.

38.  4) Willingness to Delegate and Empower
 Good leaders are able to delegate to avoid becoming
over-loaded with responsibilities. They also realise that
empowering employees is a good motivational tool.
They will, however, not delegate those tasks that they
judge to be critical to the future of the organisation.
 5) Astute Use of Power
 Good leaders build consensus for their ideas, rather
than use their authority to push ideas through. They
act as democratic leaders rather than as dictators.
Rather than try to implement larger plans which may
encounter objections, good leaders tend to break them
down into smaller more achievable goals, and push
through the ideas a piece at a time.

39.  6) Emotional Intelligence
 This is the term used to describe a bundle of psychological
attributes that many strong leaders exhibit.
 These include:
 self-awareness (the ability to understand one‟s own
moods),
 self-regulation (the ability to control or redirect
disruptive impulses or mood),
 motivation (a passion and energy for work that goes
beyond money or status),
 empathy (understanding the feeling and viewpoints of
others), and
 social skills (friendliness with a purpose).

40.  7) Exerting Strategic Leadership
 A strategy manager has many different roles to play:
visionary, chief entrepreneur and strategist, chief
administrator and strategy implementer, culture
builder, resource acquirer, process integrator, coach,
crisis solver, task-master, spokesperson, negotiator,
motivator, arbitrator, consensus builder, policy maker,
policy enforcer, and mentor! Many change efforts have
to be vision driven and led from the top. Six leadership
roles dominate the strategy implementer‟s action
agenda:

41.  1. Staying abreast of what is happening and how well things are
progressing: the manager needs to develop a broad network of
contacts and sources of information within the organisation.
 2. Promoting a culture in which the organisation is energised to
accomplish strategy and perform at a higher level: the manager‟s
time is best spent personally leading the change efforts and
promoting cultural adjustments.
 3. Keeping the organisation responsive to changing conditions,
alert for new opportunities, generating new ideas, and ahead of
rivals in developing competencies and capabilities.
 4. Building consensus, containing „power struggles‟, and dealing
with the politics of creating and implementing strategy.
 5. Enforcing ethical standards
 6. Pushing corrective actions to improve strategy execution and
overall organisational performance.

42. Strategic Leadership and
Organisational Culture
 Every company has its own unique culture, made
distinctive by its business philosophy and principles, its
own way of approaching problems and making decisions,
its own embedded pattern of „how things are done around
here‟.
 The root of organisational culture lies in the organisation‟s
beliefs and philosophy about how its affairs should be
conducted – the reasons why it does things the way it does.
The culture is manifested in the values and principles that
management preaches and practises, in its ethical
standards and official policies, relationships with
stakeholders, traditions, supervisory practices, and
employees‟ attitudes.

43.  Once established, organisational cultures can be
perpetuated in many ways: continuity of leadership,
screening and selection of new group members
according to how well their values fit in, systematic
indoctrination of new members, the telling and
retelling of company legends, and regular ceremonies.

44. The Power of Culture
 A tight culture-strategy alignment acts in two ways to channel
behaviour and influence employees to do their jobs in a strategy-
supportive fashion:
 1) A work environment where the culture matches well with the
conditions for good strategy execution provides a system of
informal rules and peer pressure regarding how to conduct
business and do one‟s job effectively. These cultures shape the
mood, temperament, and motivation of the workforce, positively
affecting organisational energy, work habits, and operating
practices.
 2) A strong strategy-supportive culture nurtures and motivates
employees to do their jobs in ways conducive to effective strategy
execution; it provides structure, standards, and a value system in
which to operate, and it promotes strong employee identification
with the organisation‟s vision, targets, and strategy.

45. Creating a Fit between Strategy
and Culture
 The strategy-maker is responsible for selecting a
strategy that is compatible with the prevailing
organisational culture. The strategy-implementer is
responsible for changing whatever facet of the culture
is hindering the effective execution of the strategy.
 Managerial actions to tighten the strategy-culture fit
need to be both symbolic and substantive:
 Symbolic actions send signals about the behaviour and
performance that management wish to encourage. Top
management‟s actions are the most important, by
leading by example.

46.  Another type of symbolic action includes ceremonies
and events to honour employees whose actions and
performance exemplify what the culture requires.
 Substantive actions complement talk and plans: the
actions have to visible, credible, and an indication of
management‟s commitment to any new strategic
initiatives and cultural changes.
 The strongest signs that management is committed to
creating a new culture include:

47.  Replacing „old-culture‟ managers with „new breed‟
managers,
 Changing long-standing policies and operating
procedures that are dysfunctional and impede new
initiatives,
 Undertaking major re-organising moves that bring
strategy into better alignment with strategy,
 Tying compensation incentives directly to the new
measures of strategic performance, and
 Shifting substantial resources from „old-strategy‟
projects to „new-strategy‟ projects and programs. Also,
chief strategy-implementers must be careful to lead by
example.

48. Leadership
The following are some of the
more modern leadership models:
 a. Transactional leadership:
 Transactional leaders do what managers do: they
clarify roles, initiate structures, provide rewards, and
conform to organisational norms and values. Their
style is characterised by objectives and standards, and
evaluation and correction of performance, policies,
and procedures. Transactional leadership is
characteristic of stable, ongoing situations.

49.  b. Charismatic leadership
 Charismatic leaders have the capacity to motivate people to do
more than is expected of them, they create an atmosphere of
change, and have an emotional impact on subordinates, e.g. Bill
Gates from Microsoft.
 c. Transformational leadership
 Transformational leaders bring about innovation and change,
are able to make changes in vision and mission, goals and
strategies. This style is most appropriate in dynamic (ever-
changing) environments, such as South Africa. Examples of such
leaders are F.W. de Klerk and Nelson Mandela.
 d. Female leadership
 Women tend to be more interactive in their leadership style in
that they are open and inclusive, concerned with building
consensus, encourage participation, and are more caring than
their male counterparts.

50. e. Dynamic engagement
 Researchers tried to establish how these leaders were able to get
„extraordinary‟ things done.
 Five fundamental practices and ten behaviours have been identified:
 Challenging the process - search for opportunities
 - experiment and take risks : Inspiring a shared vision - envision the
future
 - enlist others : Enabling others to act - foster collaboration
 - strengthen others :Modelling the way - set the example
 - plan small wins : Encouraging the heart - recognise the individual
contribution
 - celebrate accomplishments

51. Is Leadership Always Important?
 Data from numerous studies demonstrate that, in many
situations, any behaviours that a leader exhibits are
irrelevant. Certain individual, job, and organisational
variables can act as "substitutes for leadership," negating
the influence of the leader.
 Characteristics of employees such as experience, training,
"professional" orientation, or need for independence, can
neutralise the effect of leadership. Jobs that are inherently
unambiguous and routine or that are intrinsically satisfying
may place fewer demands on the leadership variable.
 Organisational characteristics as explicit formalised goals,
rigid rules and procedures, or cohesive work groups can act
in the place of formal leadership.

52. Building Trust: The Essence of
Leadership
 Trust is a positive expectation that another will not act
opportunistically. The two most important elements in this definition
are familiarity and risk. Trust is a history-dependent process based on
relevant but limited samples of experience. It takes time to form,
building incrementally and accumulating. Trust involves making
oneself vulnerable. By its very nature, trust provides the opportunity
for disappointment. But trust is not taking risk per se; rather it is a
willingness to take risk.
 What are the key dimensions that underlie the concept of trust? Recent
evidence has identified five: integrity, competence, consistency, loyalty,
and openness.
 Integrity refers to honesty, conscientiousness, and truthfulness. This
one seems to be most critical when someone assesses another's
trustworthiness.
 Competence encompasses an individual's technical and interpersonal
knowledge and skills.

53.  Consistency relates to an individual's reliability,
predictability, and good judgement in handling
situations.
 Loyalty is the willingness to protect and save face for
another person. The final dimension of trust is
openness.
 Trust appears to be a primary attribute associated with
leadership. Part of the leader's task is to work with
people to find and solve problems, but whether leaders
gain access to the knowledge and creative thinking
they need to solve problems depends on how much
people trust them. When followers trust a leader, they
are willing to be vulnerable to the leader's actions.

54.  Honesty consistently ranks at the top of most people's
list of characteristics they admire in their leaders. Now,
more than ever, managerial and leadership
effectiveness depends on the ability to gain the trust of
followers. In times of change and instability, people
turn to personal relationships for guidance; and the
quality of these relationships is largely determined by
the level of trust.
 Moreover, contemporary management practices such
as empowerment and the use of work teams require
trust to be effective.

55. The Three Types of Trust
 Deterrence-based trust: The most fragile
relationships are contained in deterrence-based
trust. This is based on fear of reprisal if the trust
is violated. It works only to the degree that
punishment is possible, consequences are clear,
and the punishment is actually imposed if the
trust is violated. Most new relationships begin on
a base of deterrence. In a new manager-employee
relationship, the bond that creates this trust lies
in the authority held by the boss and the
punishment that the manager can impose.

56. Knowledge-based trust:
 Most organisational relationships are rooted in knowledge-
based trust. Trust is based on the behavioural predictability
that comes from a history of interaction. Knowledge of the
other party and predictability of his or her behaviour
replaces the contracts, penalties, and legal arrangements
more typical of deterrence-based trust.
 This knowledge develops over time, largely as a function of
experience. The more communication and regular
interaction you have with someone else, the more this form
of trust can be developed and depended upon. Most
manager-employee relationships are knowledge-based.

57. Identification-based trust:
 The highest level of trust is achieved when there is an
emotional connection between the parties. It allows one
party to act as an agent for the other and substitute for that
person. This mutual understanding is developed to the
point that each can effectively act for the other. The best
example of identification-based trust is a long-term,
happily married couple. You see identification-based trust
occasionally in organisations among people who have
worked together for long periods of time and have a depth
of experience that allows them to know each other inside
and out. This is also the type of trust that managers ideally
seek in teams.

58. Leadership and Business Ethics
 According to Kenneth Blanchard and Norman Vincent
Peale (authors of The Power of Ethical Management),
(www.sba.gov/managing/leadership/ethics.)
 there are three questions you should ask yourself whenever
you are faced with an ethical dilemma.
 Is it legal? In other words, will you be violating any
criminal laws, civil laws or company policies by
engaging in this activity?
 Is it balanced? Is it fair to all parties concerned both
in the short-term as well as the long-term? Is this a
win-win situation for those directly as well as
indirectly involved?

59.  Is it right? Most of us know the difference
between right and wrong, but when push comes to
shove, how does this decision make you feel about
yourself? Are you proud of yourself for making
this decision? Would you like others to know you
made the decision you did? Most of the time,
when dealing with "grey decisions", just one of
these questions is not enough. But by taking the
time to reflect on all three, you will often find
that the answer becomes very clear.

60. According to Blanchard and Peale,
you can base your policy on five
fundamental principles:
 Purpose: A purpose combines both your vision as well as
the values you would like to see upheld in your business. It
comes from the top and outlines specifically what is
considered acceptable as well as unacceptable in terms of
conduct in your business.
 Pride: Pride builds dignity and self-respect. If employees
are proud of where they work and what they are doing, they
are much more apt to act in an ethical manner.
 Patience: Since you must focus on long-term versus short-
term results, you must develop a certain degree of
patience. Without it, you will become too frustrated and
will be more tempted to choose unethical alternatives.

61.  Persistence. Persistence means standing by your
word. It means being committed. If you are not
committed to the ethics you have outlined, then they
become worthless. Stand by your word.
 Perspective. In a world where there is never enough
time to do everything we need or want to do, it is often
difficult to maintain perspective. However, stopping
and reflecting on where your business is headed, why
you are headed that way, and how you are going to get
there allows you to make the best decisions both in
the short-term as well as the long-term.
 A company policy is a reflection of the values deemed
important to the business. As you develop your ethics
policy, focus on what you would like the world to be like,
not on what others tell you it is.

62. Strategic Management and
Business Ethics
 For an organisation to display consistently high ethical
standards, the CEO and those in top management must be
openly and clearly committed to ethical and moral conduct. Top
management can communicate its commitment in a code of
ethics, in speeches and company publications, in policies
detailing the consequences of unethical behaviour, and in
management‟s deeds and actions.
 1) Management must set an excellent ethical example in its own
behaviour.
 2) Managers and employees must be educated about what is
ethical behaviour and what is not.
 3) Top management must regularly restate its clear support of
the company‟s code of ethics.
 4) Top management must take swift action against those who are
guilty of violations.

63.  A well-developed program to ensure compliance with
the ethical standards set by top management include:
 1) An oversight committee of the board of directors,
usually made up of external directors.
 2) A committee of senior managers to direct on-going
training, implementation, and compliance.
 3) An annual audit of each manager‟s efforts to uphold
ethical standards, and formal reports on the actions
taken by managers to correct bad conduct.
 4) Periodically requiring people to sign documents
certifying compliance with ethical standards.

64. Building Ethical Standards and
Values into the Culture
 A strong corporate culture founded on ethical business principles and
moral values is a vital force behind continued strategic success. Ethics
and values programs are undertaken to create an environment of
strongly held values and to make ethical conduct a „way of life‟.
 Implementing the values and code of ethics encompasses several
actions:
 Incorporating the statement of values and code of ethics into
employee training and educational programs.
 Explicit attention to values and ethics in recruitment to screen out
applicants who lack compatible character traits.
 Communication of the values and ethics code to all employees, and
explaining compliance procedures.
 Management involvement and oversight, at all levels.
 Strong endorsements from the CEO.
 Word-of-mouth indoctrination.

65.  Line managers at all levels must give serious and
continuous attention to the task of explaining how the
values and ethical code apply in their areas. In general,
instilling values and insisting on ethical conduct must
be looked on as a continuous culture-building, culture
nurturing exercise.

66. Creating a Spirit of High-
performance into the Culture
 One of the most valuable strategy-implementing skills is the ability to
instil strong individual commitment to strategic success and create an
atmosphere in which there is constructive pressure to perform.
Companies with a spirit of high performance are typically people-
oriented, and these companies reinforce their concern for individual
employees on every conceivable occasion.
 What makes a spirit of high performance come alive is a complex
network of practices, words, symbols, styles, values, and policies
pulling together that produces extraordinary results with ordinary
people. The drivers of the system are a belief in the worth of the
individual, strong organisational commitment to job security and
promotion from within, management practices that encourage
employees to exercise individual initiative and creativity in their jobs,
and pride in doing the „small‟ things right.

67. Contemporary Leadership Issues
 1) Team Leadership
 With the trend increasingly toward the use of teams, many
leaders are not equipped to handle this change, because
the command and control type things they were
encouraged to do no longer apply. Thus, they have to learn
the patience to share information, the ability to trust
others, and to give up authority. Also, they need to learn
when to intercede, and when to leave the team alone.
 Team leaders are liaisons with external constituencies:
These include upper management, other teams, customers,
and suppliers. The leaders are responsible for acquiring
resources, gathering information from the outside, sharing
information with team members, and representing the team
to the constituencies.

68.  Team leaders are also trouble-shooters: Team leaders
sit in on meetings and help to resolve problems. The
leader is most likely to contribute by asking penetrating
questions, helping the team talk through problems, and
acquiring resources from external constituencies.
 Team leaders are conflict managers: Team leaders help
to process the conflict: What is the source of conflict?
Who is involved? What are the issues?
 Team leaders are coaches: Team leaders clarify
expectations and roles, teach, and offer support.

69. 2) National Culture‟s Effect on
Leadership
 National culture affects leadership style because leaders cannot choose
their styles at will: they are constrained by the cultural conditions that
their followers have come to expect.
 Korean leaders are expected to be paternalistic toward employees.
 Arab leaders who show kindness or generosity without being asked to
do so are seen by other Arabs as weak.
 Japanese leaders are expected to be humble and speak infrequently.
 Scandinavian and Dutch leaders who single out individuals with public
praise are likely to embarrass those individuals rather than energise
them.
 Most leadership theories were developed in the United States, using
U.S. subjects. They emphasise follower responsibilities rather than
rights; assume hedonism rather than commitment to duty or altruistic
motivation; assume centrality of work and democratic value
orientation; and stress rationality rather than spirituality, religion, or
superstition.

70.  END OF CHAPTER ONE