Definition and importance of corporate governance

Corporate governance may be defined as the system comprising rules and regulations and operational processes which direct and control a firm. The main role of corporate governance is to ensure that the interests of the organization’s stakeholders are balanced and taken care of (Stout & Blair, 2017). It is a well known fact that every organization would have its own set of business objectives and long term and short term goals which must be attained in due course of time. Effective corporate governance within an organization wouled help it achieve its objectives and goals (Claessens & Yurtoglu, 2013). As a matter of fact, corporate governance involves every minute aspect of organizational management, which would include internal controls, action plans and also measurements of firm performance. In the case study titled, “Corporate Governance and Leadership : First international forum. Paris. White paper”, the author discusses about the role of governance and its relationship with leadership. Corporate governance refers to the structure of an organization and the means through which its processes are carried out. As such, the leaders of an organization would be entrusted with the role of direction and management of the same and would be held accountable for all results and corporate performance (Charlety, 2013). In the following sections, the role of the CEO within an organization, along with other aspects of corporate governance, will be evaluated based on the case study.

It must be asserted that corporate governance in an organization is directly related to the people or the human resources. In the past few years, all standards and regulations that have been included as part of governance have to do with the human resources of an organization. Moreover, it has been deduced that the top management at a firm, comprising the board of directors would be responsible for the actions (positive and negative) of the organization. In other words, the corporate leaders (the Chief Executive Officer) would be held accountable. For instance, two CEOs went down in history with regards to bad behavior that reflected poorly on their companies. Bernie Ebbers of Wolrdcom and Kenneth Lay of Enron were synonymous with the scandals that ripped their companies of billions of shareholder money. Similarly, in 2010, an explosion of an oil rig in the Gulf of Mexico led to the death of eleven people and caused widespread destruction and devastation. The CEO of the company, Tony Hayward, handled the disaster in a proper manner in the beginning. He turned up at the scene of the disaster and seemed to empathize with the miserable condition there. However, in due course of time, he began to deflect blame and shirked all responsibility. This was an error on the CEO’s part (Charlety, 2013). However, the question arises if it is wise to hold one individual responsible for all events at an organization (Reina, Zhang & Peterson, 2014). However, as the chairman of ACCOR, Gilles Pelisson admitted, a CEO must accept responsibility. Accordingly, some recommendations have been presented for the Board of Directors at a firm, so as to bring out good behavior from CEOs.

• One of the most important aspects of effective leadership is the ability to pick up and learn from past experiences. It must be understood that CEOs too are human beings and therefore vulnerable to errors. However, the need of the hour is to recognize these mistakes and take necessary action to reduce collateral damage caused by these mistakes. Tony Hayward may have made a mistake, but he could have recuperated from it by taking proactive measures. It might so happen that a CEO falls short of efficient crisis management. However, he should be able to learn from his mistakes and implement the lessons into his future endeavors.
• The board of directors should focus on the communication skillsof the CEO. This is one of the most crucial aspects of corporate governance and leadership. A CEO should be able to effectively communicate with his subordinates and convey his viewpoint clearly to them (Men, 2014). In case of crisis or emergency, as in the case study, effective communication skills on part of the CEO can go a long way in reassuring the concerned stakeholders and shareholders. As such, transparency is also one of the most sought after attributes in a CEO. Ambiguity in communication can lead to confusion, chaos and conflicts. Additionally, a CEO should be a good listener (Tourish, 2014). For instance, in the case study, if the CEOs had managed to lend an ear to the people concerned and had actually taken their viewpoint into account, such scandals could have been avoided.
• CEOs should be adept in the art of managing people. This is closely related to the kind of leadership style he follows. A transformational or situational approachto leadership should be encouraged (Braun et al., 2013). The CEO must remember that although he is the leader of the organization, he cannot exert supremacy or autonomy in the organization. This is all the more poignant in case of risks and crisis. The CEO should be flexible and adapt his leadership and management style based on the situation.
• As a CEO, one can expect unforeseen situations and riskswhich may come unannounced. In such cases, the CEO should be able to act on instinct and intuition (Tao & Hutchinson, 2013). However, his approach should be ethical and reflect favorably on the organization he represents.

The role of CEO in corporate governance

Based on a careful reading of the case study, it can be said that the Chief Executive Officer is undoubtedly one of the most important aspects of corporate governance at a firm. He holds the firm together, and without effective leadership, the organization (and all that it entails) would fall apart. In corporate governance, the leadership style and the behavioral patterns of the CEO is of vital importance (Carmeli & Paulus, 2015). The case study claims that the CEO of an organization is the supreme authority, the decision maker whose perspective must be upheld by all members of the organization and all organizations. As shown in the case study, most CEOs tend to follow a bureaucratic or authoritative leadership style. Such a leadership style is based on normative rules. All the subordinates or followers of the CEO are expected to adhere to his line of style and follow his orders without questioning him. In such cases, the CEO has a stringent set of rules and regulations and business is conducted in the workplace according to such regimes. Since the rules of corporate governance place the power in the hands of the CEO, he feels it is his innate right to exert his positional power on those below him in the organizational hierarchy. In other words, the subordinates or the other employees of the office are expected to follow him by sheer force of authority.

However, it must be established that a CEO is the organizational leader and thus lead by means of example. Since he is the leader of the organization, his subordinates would follow his course of action and learn from them. Therefore, instead of a bureaucratic style of leadership, a transformational leadership or a situational leadership style may be followed (Van der Voet, 2014). According to the transformational leadership theory, the leader (the CEO, in this case) would be expected to work in accordance with his team and encourage the active participation of all team members. He would be responsible for creating a vision for the company and guide the other employees on this direction. He is supposed to be a visionary, a risk taker, an inspirational figure that the employees can look up to. Most importantly, in such a leadership practice, the CEO does not exert his superiority on his subordinates. He is a leader in the true sense of the term. He invites the participation and engagement of all team members and encourages them to voice their opinions and viewpoints. A situational leadership theory may also be adopted. According to this theory, the leader should be versatile and flexible and have the ability to adapt to changes or unforeseen situations (McCleskey, 2014). As the Chief Executive Officer, one may have to deal with a number of unpredictable situations. He would have to deal with media scrutiny as well (Liu & McConnell, 2013). In all these situations, a generalized theory of leadership would not suffice. He would have to adapt his leadership and managerial style according to the specifics of the situation itself. By setting an example for the rest of the organization, the CEO is expected to ensure that the firm is abiding to strategies that would cater to its long term success. He is also supposed to implemented management information systems and internal controls and take up effective risk management systems. It was a lack of proper risk and crisis management systems which led to the downfall of CEOs in the case study. In short, by exhibiting a transformational or situational leadership style, the CEO would act as the link of intermediary between the organization and the board, thus paving the way for strong corporate governance.

Leadership styles suited for CEO

As mentioned in the case study, the role of corporate governance within an organization is closely related to the human resources of the workforce employed by the company. While there is no doubt about the fact that the CEO is the supreme authority in the organization, it must also be admitted that the employees form the chief assets at any organization. In the section above, the report discusses the role of leadership in ensuring that a CEO would be able to guide and direct his subordinates. It has also been found that a CEO plays a crucial role in determining employee engagement. The relationship that a CEO shares with his employees would determine how the latter feel about their job. In the highly competitive business sector today, CEOs need to come up with ways of acquiring the loyalty of the employees (Luo, Kanuri & Andrews, 2014). Equipped with their loyalty, the CEO would be able to effectively carry out his duties and responsibilities. Without the backing or the support of the employees, the CEO would be unable to meet the requirements of the business. Similarly, in cases of crisis, the CEO would be unable to manage the risks and implement management strategies without the help of the employees. Employees who are loyal to their CEO and their company are twice as likely to pull in their weight and improve the overall performance of the organization. There are some measures that a CEO may take to increase the loyalty and employee engagement quotient at his firm. They are as follows:

• Organizational culture– This concept refers to the working environment within the organization which consists of all the employees and the various professional and personal relationships that are formed in the workplace (Azanza, Moriano & Molero, 2013). It is the responsibility of the CEO to ensure that a favorable corporate culture persists in the workplace, so as to promote high levels of employee engagement and productivity. One way of doing so would be by improving communication skills. The CEO should be accessible and should maintain open lines of communication with the employees. He should also be a good listener and take into consideration the viewpoints and opinions of the employees.
• Organizational climate and community– Organizational climate or corporate climate is closely associated with the field of organizational or corporate behavior. The climate of an organization would have an impact on the way employees behave in the workplace and also shape their attitudes and performance (Schneider, Ehrhart & Macey, 2013). It would also determine employee satisfaction rates. Since the CEO is the head of the organization, he is responsible for enhancing the organizational climate, by communication and strategic management of human resources.
• Organizational change– Change is the only constant in an organization. In a dynamic working environment, a CEO would have to implement strategic or managerial changes from time to time. As expected, such changes are usually met with resistance. As such, it is the responsibility of the CEO to convince the employees and guide them through the change management process (Carter et al., 2013). This is where a CEO’s situational leadership style would be most effective.
• Teamwork– Although a CEO is the head of the organization, he must recognize that he cannot function in isolation. He would require the support and help of his subordinates to make progress. In other words, an organization is based on the concept of teamwork. A CEO should be willing to incorporate the ideas and opinions of his team members and give them due importance instead of dismissing them as inferior. The CEO should also invite active participation from all employees, so that the organization can progress together as a group.
• Diversity and flexibility– The CEO should be flexible enough to accommodate changes if required. He should also be willing to adapt his leadership and management style based on the unique situation. He should also promote an environment of diversity and inclusiveness in the workplace.

Conclusion:

To conclude, it can be said that the role of the CEO is of supreme importance in the workplace. The case study highlights certain examples of bad behaviors or poor management styles on part of the CEOs, which could lead to the decline of the organization as a whole. However, certain recommendations have been made for the corporate governors, to incite good behavior from the CEOs. The report also studies the role and responsibilities of the CEO, with emphasis on the leadership practices that would be most suited to the role. It must also be admitted that no CEO can make progress without the support of loyal employees. Promoting a favorable organizational culture and climate, which supports inclusion and diversity, coupled with effective change management and leadership styles, would help a CEO attain the goals and objectives of his organization.

References:

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