Finding Collective Leadership Success

People join boards for various reasons and bring their personalised interpretation of leadership styles based on compounding individualised influences and knowledge of organisational governance on specific operational and strategic components that accumulate followers from either fear, admiration, or financial goals.

Research findings have proven continuously through analytical assessments that many organisations need to incorporate the findings of historical board failures and academic research into their board’s selection tools and guides when developing and building their boards, committees, and advisory groups.

The International Journal of Business Governance and Ethics published in 2020 that board characteristics and leadership styles directly influenced the balance of power on the board and within the organisation¹. The composition of boards is a topic discussed previously throughout conferences, but the theme of failed boards due to their membership cohort continue to be repeated scandalously. In May 2022, the Corporate Governance Institute published a guide on what could be learned from three significant board failures². Each of the identified boards’; Sports Direct, Enron, and Blockbuster, failures had a significant breach in transactional leadership, management, and guidance, and each board also failed to demonstrate and inspire a solid transformational culture due to a lack of a successful amalgamation of reactive and proactive leadership culture³.

In 2004, the Financial Analysis Journal published a Board Composition and Corporate Fraud article that analysed board failures between 1978 and 2001. The findings identified that a primary contributor was the lack of central representation of a board and specialist committees, the composition and selection of board members, and lack of director’s independence, and the engagement of the board with the operational executives and shareholder⁴.

Recently published research, in 2020, on board composition has demonstrated that there is no significant correlation between board size and financial performance⁵; however, a positive correlation between non-executive directors and financial performance is connected to their gender diversity, expertise, networks, cultural beliefs, leadership style, and what they bring to the organisation is critical to growth and performance outcomes^{6 7}.

Research undertaken by Nahum and Carmeli into strategic decision-making by boards and their directors revealed that an individual’s leadership style not only influences a board’s composition but impacts the work environment and how it drives a board to shape the context and dynamics of their respective organisation⁸.

Research published by the Australian Institute of Company Directors⁹, Governance Institute of Australia¹⁰, and KPMG¹¹ all provide practical and educational tools that aid in the assessment of board compositions, knowledge and skills required by a director, and what current and foreseeable attributes one must possess to fulfill the statutory role while adhering to their stakeholder’s implementation of Environmental, Social, and Governance (ESG) framework. ESG framework is the collection of material risk factors that a board must identify, mitigate, and incorporate into the strategic decision-making to address societal and cultural expectations while generating value for the organisation’s stakeholders.

However, each checklist and guide fails to incorporate the topic and subsequent questions around an individual’s leadership style and how to assess a board’s composition of the ‘soft’ skill. The research findings on leadership style and board composition have demonstrated a positive correlation between the success of the board and future organisational success¹².

The Society of Human Resource Management has published numerous articles on leadership and how to develop leaders. Their articles identify ‘hard’ and ‘soft’ skills required that are essential for organisational leaders and members of boards. Syed Mohiuddin published, in 2017, that ethical leadership is the basis of how leaders perceive and conceptualise the situations around them and influences how they interact and comprehend issues¹³. The research demonstrated that an individual’s leadership style affects their capacities involving critical analysis of data, decision-making in critical situations, and how they perform within cultural and financial boundaries.

The research presented in these articles have revealed that leadership styles have been categorised into specialist subsets under two core themes: transactional and transformational. Some terms within the transactional leadership category include authoritarian, affiliative, coaching, pacesetting, and commanding. While the terms democratic, visionary, and laissez-faire tend to be bundled into the category of transformational leadership.

Neither approach is superior to the other; however, there are apparent differences between these two styles. The transactional leadership style is seen as reactive in nature. It focuses on extrinsic motivation for the performance of job tasks and is based on processes and control, a strict management structure, and uses rewards and punishments for motivation. In contrast, the transformational leadership style is proactive in nature. It creates a vision based on an inspiring fellowship to strive beyond statutorial expectations and increase coordination, communication, and cooperation through charisma and enthusiasm for motivation.

Each leadership style is not mutually exclusive, but a board’s composition needs to successfully amalgamate each individual’s style to achieve transformation into the board of the future and fulfil each director’s requirements of ‘due diligence’ and ‘best interest duty’. Each leadership style fails when employed unilaterally and without conscious effort of all board members to incorporate the traits of the above specialised leadership subsets.

Research and recent board failures demonstrate that future checklists and guides should not only concentrate on an individual’s ‘hard’ skills of technical proficiency and industry knowledge but to place the same importance on an individual’s ‘soft’ skills associated with their leadership style.

An individual’s leadership style will dictate how they inspire and motivate others, demonstrate integrity and honesty, solve problems and analysis issues, what they will consider achieving results, and how they will communicate among their fellow directors, the organisation’s management team and staff, and stakeholders.

I submit two questions to you; does your organisation evaluate each director’s leadership style and the collective leadership culture of the board and if not, why not?

This article was originally published in the Better Boards Conference Magazine 2023