Corporate culture and leadership

Introduction

Leadership culture is how leaders interact with one another and their team
members. It's the way leaders operate, communicate, and make decisions.
And it's about the everyday working environment: their behaviors,
interactions, beliefs, and values. Corporate culture refers to the beliefs and
behaviors that determine how a company's employees and management
interact. Corporate culture is also influenced by national cultures and
traditions, economic trends, international trade, company size, and products.

Because corporate culture has a strong influence on a company's economic

performance, it can have a polarizing effect. A strong corporate culture that
is compatible with the environment will drive better financial results
compared with a weaker corporate culture. Leaders also establish a culture
of leadership when they hire new people by hiring for character over
competence.

Good leadership requires vision and special personality traits such as

conviction or resoluteness to enhance the credibility of mission statements
and to effectively rally agents around them. Resoluteness allows leaders to
overcome a time-consistency problem that arises from the fact that leaders
learn about the best course of action for the organization over time.
However, resoluteness also inhibits bottom-up information flow from
followers. The optimal level of resoluteness depends on followers signal
quality and the corporate culture of the organization. There are two key
challenges facing leaders in large organizations: developing a successful
mission for the organization and building high-performance teams.
Facilitating coordination is challenging because coordination is an activity
that naturally has positive spill-overs. Thus, it typically benefits the
organization more than it benefits the follower privately. Leadership can be a
mechanism for resolving this incentive misalignment, if the leader can
credibly commit to a course of action. The leader desire to modify the
direction of the organization over time thus undermines his ability to
coordinate actions and build high- performance teams.

Literature Review

The management literature on leadership has emphasized several key

personality traits of good leaders. Among the most often mentioned are
good communication skills, team spirit, integrity, and resoluteness. The first
empirical study by economists that looks at the personal traits of leaders,
Kaplan et al. (2011), considers which characteristics determine the
professional success of CEO candidates involved in buyouts or venture capital
transactions. Interestingly the study finds that, contrary to received wisdom
that emphasizes the "team player" qualities of leaders, the traits that are the
strongest predictors of success are execution skills and resoluteness. A
general lesson from their study is that leaders should try to avoid changing
direction over time and therefore should not seek too much feedback from
others in the organization.

The "bottom-up" information flows by exploring how followers may convey

information by adapting their actions to the environment as they see it. If
they expect the leader to pay attention to the information conveyed through
their action choices then they will be induced to signal this information,
while if they expect the leader to rely mostly on his own information then
followers will give up on signaling through their actions and only worry about
coordinating their actions and only worry about coordinating their actions
with others. We suggest that the resulting multiple equilibrium can be
interpreted as different corporate cultures.

More specifically, the basic leadership problem in a simple setup involves

four stages. In the first stage, the leader observes a signal of the environment
the organization is likely to be in. based on that signal, the leader can define
a mission or overall strategy for the organization. In a second stage, the
other members of the organization, the followers, also observe signals about
the state of nature and decide how closely they want to follow the leader's
proposed strategy. They may not be inclined to blindly follow the leaders
proposed strategy, because they know that in a third stage the leader
receives a second signal and will only then commit to the organization's
strategy based on all the information he has available. Thus, based on the
signal they observe in the second stage, followers come up with different
forecasts of what the leader’s ultimate chosen direction for the organization
will be, and coordinate their actions around their forecasts. Since by the third
stage followers have already acted, the leader at this point is no longer
concerned about coordinating their actions. The leader’s only remaining goal
is to adopt a strategy for the organization that is best given all the
information he has. In the fourth and last stage, once the strategy has been
implemented, the organization’s payoff is realized. It will be higher the better
adapted the strategy is to the environment and the better coordinated all
the members’ actions are.

While it is more or less easy to study good leadership, which is obvious by

the success surrounding the company, it is less easy to turn up examples of
bad leadership, and bad leaders may turn the spotlight off their own long-
term corporate failings and put it on short-term bad middle rank
management, a bad market patch, or unreasonable shareholders. We might
learn more from studying bad leadership than good leadership. Only then
can the full picture of what makes a good leader steps down it falls upon the
successor either to continue the same path or to implement changes in
response to new circumstances. It is here that problems can arise. When
John Young took over as president and chief executive officer of Hewlett-
Packard, Bill Hewlett and Dave Packard nonetheless remained influential for
a considerable time as members of the board. Young wished to make some
changes to update HP's market strategy, but was unable to depart from the
existing company ethos because of resistance from not only the two
founders, but from management all down the line who were entrenched in
tradition and saw no reason to change anything. This was in spite of growing
indications that market performance was becoming affected in many spheres
of activity, and that there was need for change in strategy. In this case a
strong and initially beneficial culture had become something of a liability as
market forces changed.
It has been found that even the originator of a corporate culture may feel
constrained to wait for years before initiating a change which he had realized
almost from its day of implementation was not appropriate to the
corporation. It is acknowledged that corporate cultures can be highly
intransigent and that the stronger the culture the more difficult the change,
however necessary it may be. So we must be aware that a strong functional
culture can become a strong dysfunctional one which will continue to be
promoted by culture-orientated leaders who are still acting as strongly as
ever, but along the wrong path.

Of course, it is possible to change culture to fit new strategy, as numerous

management consultants who design cultural change programs claim. A
significant point is, of course, not so much whether a culture can be changed,
but how easily the change may be accomplished. It would seem that the
preferred policy is to implement the new culture in the same way the original
was implemented- by dedicated management at the top who can set
examples in their own right, thereby becoming leaders in the new direction.
Then it should follow that the corporation at large perceives the new
direction with the same ease and unity that they, or their predecessors, did.

With so many consultants on the corporate culture bandwagon, each

offering a different standpoint, it may be as well to expound some
definitions: one is that corporate culture " is reflected in the attitude and
values, management style, and the problem- solving behavior of its people ",
while another states that " Culture is not the overt behavior or visible
artifacts one might observe on a visit to the company. It is not even the
philosophy or value system that the founder may articulate…Rather it is the
assumptions that underlie the values and determine not only behavior
patterns, but also such visible artifacts as architecture, office layout, dress
codes, and so on".