Leadership with a Difference
Arfah Salleh
Professor of Human Governance
Dean of the Graduate School of Management
Universiti Putra Malaysia[1]
In contemporary wisdom, leadership has been defined as the art of delivering results for the organisation. Effective leadership should, therefore, ensure the continued success of the organisation and enlarge shareholders’ wealth. Such contemporary notions of leadership have imposed heavy pressures upon leaders to perform for the bottom line. Indeed, their own remuneration is dependent on how black the bottom line is!
Such has been - and still is - the pressure upon them that some leaders have succumbed to the lust of the lucre. They have sacrificed their values and ethics on the altar of Mammon. That compromise has taken its just toll. Not only has it taken these leaders to the nadir of notoriety and brink of bankruptcy, their compromise of ethics and values has also brought down with them the organisations they had helmed. Witness the shady practices of some Wall Street CEOs. These leaders, who knew no shame and blame, brought down not only themselves and the companies that they had built but also the global economy in the late 2000s. The world is still smarting from their misdeeds.
Witness too Kenneth Lay and Jeffry Skilling of Enron, Bernie Ebbers (Worldcom), John Rigas (Adelphia) and Dennis Kozlowski (Tyco). These CEOs were so obsessed with short-term monetary success that they all ended up in the heap of scandalous legacies. In contrast, Walt Disney, Lee Iacocca of Chrysler and Jack Welch of General Electric, for example, assiduously built their businesses on the solid foundation of universal values or human governance. That won them kudos the world over. It entrenched their leadership legacy in the hallway of fame.
Indeed, Jack Welch has dismissed the contention that the raison d’être of a leader is to maximise shareholders’ wealth. Rather, shareholders’ wealth is a consequence of taking action to meeting customer needs, producing quality goods and services and serving the community. Such an approach harks back to 1942 when General Johnson developed a credo for Johnson and Johnson. There, Johnson outlined that the company’s first priority was its customers, employees, society and the environment. Only then come shareholders. He contended that if the company took care of the former, shareholders’ wealth maximisation will automatically ensue.
Human governance is about leading from inside out. Such leadership is based on core religious or spiritual values that are immanent. Actions are matters of the heart – not the kind that are ruled by emotions! Rather, these are actions that emanate from a clean and clear conscience that is in sync with universal values of justice, integrity, transparency and accountability – to mention a few. The action can be an individual action or a collective action of a group of individuals in an organisation. Abiding by the law is a hallmark of human governance. Ethical accounting in accordance with standard accounting practices – not the ‘creative’ kind indulged by crooked CEOs – is a hallmark of human governance in an organisational context.
However, human governance should not be likened to corporate social responsibility. Companies can be charitable to the community in many ways to demonstrate their corporate social responsibility. However, they might still act in ways that do not conform to the standards of human governance.
Human governance postulates that when one carries out one’s responsibility true to one’s core values, the enhancement of community welfare will be the natural outcome. Community benefit from governing from the heart and soul can take many forms. One of the forms is the concept of ‘shared value’ that Michael Porter – the strategy guru – espouses. Porter considers that when organisations pursue activities that offer value to both shareholders and community, they promote economic growth while reclaiming societal respect for business. Such a pursuit of shared value can only be possible if it is founded on human governance.
Activities that offer shared value include the adoption of green technology in manufacturing. Green technology reduces the adverse impact of production on the environment through reduced carbon emission as, for example, from recycling and the use of renewable energy. Safeguarding the environment promotes the common good as it conduces to better health of the community. In turn, these eco-friendly companies will earn the goodwill of the community. The community would then be predisposed, given their increasing predilection to eco-products and services, to buying the goods and services produced by the eco-friendly firm. This increased demand for the company products will ensure its sustainability over the long haul.
Eastern leadership, as epitomised by the Japanese leadership model, also advances the proposition that leadership should promote the common good. The Japanese have been castigated for being diffident about increasing shareholder returns. They have been accused of being more socialistic than capitalistic as they have been rather lethargic in laying off workers to contain cost, lackadaisical about quarterly earnings and nonchalant about offering performance pay to senior management to induce them to boost returns on equity.
However, if we observe the best Japanese companies such as, Toyota, Honda, Mitsui and Canon, we can see that their concern is not so much maximising shareholders’ wealth as promoting the larger welfare of society. They take a teleological view of their existence. They believe that their moral purpose of their operations is to benefit society. It is community benefit that offers meaning and the raison d’être for their existence. Core values govern their operations. These values control executive behaviour than the pure considerations of profit and quarterly earnings that possess Western corporations.
We have much to learn from this exemplary behaviour of top Japanese firms. In living by core values, they showcase human governance. (Perhaps, it was prescient of the government to institute the Look-East policy in the early 1980s!)
So, while corporate governance promotes the selfish interests of a company in merely ramping up shareholder wealth, human governance brings about a convergence of the interests of self and society. It is in promoting the common good that we promote the self and enjoy the benefits from societal well-being. This is the reverse of what Adam Smith postulated: that, through their self-interest, human beings activate the ‘invisible hand’ and, thereby, bring about the advancement of the common good.
While in Adam Smith’s conception, the common good is a by-product of individualistic behaviour, human governance is systemic in approach. It believes that all elements in the universe are interconnected. Collectivism is all the stronger in human governance. Given this integration, people have a fundamental duty towards others, that is, to promote the common benefit of society. John Finnis, the Australian legal and political philosopher, also echoes a similar refrain: that right living comes from fostering the common good.
So, while Western society puts greater emphasis on individual rights and the pursuit of individual goals – and, in the context that we are discussing, corporate profits - Eastern society, grounded in human governance, focuses greatly on societal benefit from one’s actions.
Nothing that is said here should be construed as decrying the pursuit of individual goals. Rather, while celebrating individuality, human governance argues that individuality must be exercised for the larger good of society. It is through such a societal investment that individuals reap their benefit. Therefore, leaders should always have an eye for the consequences of their action upon society rather than being purely immersed in the issue how their actions can enrich both their coffers and that of their organisation.
Back to where we started, we need to ask this fundamental question: Did the Wall Street CEOs, and the other errant CEOs that we mentioned at the outset, act the way they did to enrich themselves or society?
15 August 2011
Graduate School of Management
Universiti Putra Malaysia
[1] Arfah Salleh is a professor of human governance and the Dean of the Graduate School of Management, Universiti Putra Malaysia. She can be contacted at: arfahsalleh@putra.upm.edu.my
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