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In this high-level look at corporate governance and ethical leadership, we explore some of the key concepts that all ACCA accountants must understand if they wish to exercise responsible risk management.
As we begin our discussion, let’s take a look at what it means to:
- Influence strategic business decisions
- Exercise that influence responsibly for the good of the organisation as a strategic business leader
Ethical Leadership In Action
What is strategic business leadership?
It is the process of influencing an organisation or groups within an organisation to follow your lead and work towards a common goal.
Let’s consider what influence is all about.
Firstly, it is not doing things - completing tasks. It is about being convincing with your arguments and facts so that others will see your vision and want to follow you to achieve it. Secondly, you need to be aware of a common goal.
It’s all good and well that you have a goal and understand the long term effect of it, but if you can’t get anyone else to buy into your vision and get excited enough about it to execute it, then you have wasted time, effort, and money. Thirdly, you have to inspire trust in the people you are trying to lead.
One way of inspiring trust is when the people you are trying to lead can see that you are able and willing to consider good ideas and execute those ideas for the good of the organisation and the people. Also, always operate with transparency and practice what you preach. These are the hallmarks of good leadership, no matter where you operate in the world.
So, who decides what qualifies as good leadership? We need to answer this question to understand the strategic business leader syllabus. This professional skills module relies heavily on leadership theories to engage with students about their skills and set the standard for effectively managing talent.
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Let’s explore some of the theories developed by industrial psychologists and thought leaders.
Trait Theory
This theory states that some people have natural qualities that make them effective leaders, and this tends to be something that you acquire or are born with. Let’s go back to your school days. There were certain people you went to school with, and you may have been one of them who performed in a leadership role easier than others.
So if you think back to captains of your school, sports teams or societies that you were in, there always seemed to be people who excelled at taking charge and driving others towards common goals and working as a unit. This theory concludes that the ability to lead is part of your innate traits.
Behavioral Theory
These theories state that people display a desirable set of qualities that people are attracted to and want to follow (emulate). This is a way of working and being developed over time and influenced by the people, environments and beliefs you have been exposed to.
Contextual Theory
This theory states that people use different skills as they are exposed to different contexts and that natural leaders are those that can be flexible enough to act as ‘chameleons.’
The Role of a Strategic Business Leader
Anyone who wants to fulfill a leadership role successfully must know what’s expected of them. How do you point yourself in the right direction and get prepared without understanding the functions you will be involved in, right?
Also, what should you be able to do after you complete the ACCA strategic business leader module? Here, we discuss some of the competencies you must demonstrate after this module.
Key skills needed to fulfill an SBL role
Let’s look at this section as a bit of a job description. Holding a senior position in finance will require you to achieve certain organisational objectives and knowing what these are while studying will help you mentally prepare for the role.
- Evaluate the effectiveness of the governance and agency system of an organisation and recognise the responsibility of stakeholders towards ethical business practices.
- Evaluate the strategic position of the organisation against the external environment and the availability of internal resources to identify feasible strategic options
- Evaluate management reporting and internal control and audit systems to ensure compliance
- Implement strategic options within a framework of robust IT security controls
- Initiate leading and organising projects while effectively managing talent and other business resources
- Select and apply appropriate information technologies and data analytics
- Analyse factors that affect the organisation’s value chain to identify strategic opportunities
Ok, now we’ve discussed what strategic business leadership is, the different theories around good leadership, and the key responsibilities held by someone in this kind of role. Now, let’s move along to a discussion about ethics in leadership.
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Ethics in Strategic Business Leadership
A simple definition of ethics is a moral code that guides a person's choices and behaviors. Ethics is important from a leadership perspective because leaders are seen as trusted people and therefore, they have a level of wider social responsibility.
However, it must be noted that commercial businesses need to make a profit. It exists because it needs to maximise the return to shareholders, which can cause some ethical dilemmas for leaders.
One example here could be manufacturing that is outsourced to a factory accused of exploiting workers' rights, and yet labour costs are cheaper.
From a profit point of view, manufacturing a product in the factory will be cheaper because of the labour costs. But from a social point of view, employees are being exploited. This can cause an ethical dilemma for leadership. Similarly, should we cut down thousands of trees to make space for the expansion of a manufacturing operation, given that it will harm the environment?
Furthermore, leaders are accountable to stakeholders for not only the performance of the organisation but also the social integrity and compliance with laws and regulations. This makes it even more important to be transparent and upfront about the motives that drive business decisions.
Let’s make the example a bit more personal with one. Imagine you participate in an anonymous staff survey. Everyone is assured that individual details will not be included in the feedback. A few weeks after the survey, your direct manager suddenly starts making comments about your work quality and tells you to leave if you’re not happy. From the comments, you conclude that the feedback was not confidential. How do you feel as an employee?
Upset, angry, and probably a bit disgruntled. You’ve been lied to. Not a good scenario. You can understand why ethical behavior is important in this scenario because of the fallout, but what about the bigger impact of unethical behavior when it comes to global business decisions?
For example, imagine the effect on a company’s reputation if it was discovered that the senior leadership allowed a product to go out that would ultimately be responsible for poisoning consumers. Many companies cannot recover from this reputational damage.
How can this all be regulated in an organisation, giving surety to stakeholders that there will not be a breach of ethical and social responsibilities?
Enter corporate governance.
Basically, the rules and principles that corporate companies comply with to ensure fair and ethical business practices.
Corporate Governance in Strategic Business Leadership
In the SBL module, there are two specific approaches to corporate governance: the rules-based approach and the principles-based approach.
Rules-based approach
This approach is quite strict in its interpretation. It has specific and detailed regulations and rules that you must adhere to. The rules are often prescriptive and don't leave room for interpretation or discretion.
Principles-based approach
A principles-based approach, however, is a framework of principles. So it's about following and promoting good corporate governance and having a guide, but then you can interpret the principles and apply that to your organisation.
These two approaches have to be applied across the laws, regulations and frameworks established in individual countries across the globe. Therefore, SBL aims at helping students to understand their ethical responsibilities and apply them across frameworks.
Let’s consider one example of corporate governance codes and how this interacts with concepts like good leadership and ethics.
Corporate governance codes
If we use the UK corporate governance code as an example of a principles-based approach, this applies to listed companies in the UK. When applied to a board of directors, it means that at least half of the board of directors must be independent non-executive directors. If you've got a board of 10 or directors, you need at least six non-executives on the board and they need to be independent. Also, the division of responsibilities needs to be clear between the role of the CEO and the chairperson.
These roles cannot be combined as it is believed that there is too much power and influence in one individual, and they could use that power and influence in a negative way and for personal interests. So it's better to split those roles.
This is just one example of how corporate governance principles ensure ethical and responsible business practices. Of course, many other examples make for great discussion around corporate governance but this point concludes our short article on this subject for now.
Our expert tutor for SBL has a wealth of knowledge and many more real-life examples to share in our ACCA SBL course.
If you would like further examples, online video lectures and downloadable course notes for SBL, then ENROL for ACCA SBL now.
