Leadership Style and Stakeholders’ Interests, Research Proposal Example

Introduction

South African companies owned by the government are currently becoming more democratic, customer-focused, and have to face several regional and international challenges, related to regulation, price volatility, and change in customer requirements and human resources. The below essay is focusing on researching these types of organizations in order to reveal how leaders can consider stakeholders’ interests better, align the organization’s goals with the one of the public, customers, and the government. The structure of the essay will be as follows: first, the author would like to provide a historical review of state-owned enterprises in South Africa, and their main leadership challenges, followed by a generalized stakeholder analysis that can be applied to all organizations, and finally applying relevant theories to create frameworks for improving stakeholder engagement, and identifying the most successful leadership approaches that lead to better relationship with different market actors. The author would also like to review the latest leadership theories, and the main traits present in South African state owned enterprises, in order to support company managers in developing strategies and leadership approaches that help create a higher level of commitment from all stakeholders.

Historical Background

According to Nattras & Seekings (2010), the business world of modern South Africa is still greatly influenced by state-business relations. The newly emerging capitalist approach, combined with the still high level of government control, as well as the democratic movements within the society create a challenging environment for state owned enterprises. The companies have to face with increased regulation, as well as public criticism. It is important to review the main events within the history of South Africa that led to this unique business environment.

Nattras & Seekings (2010:37) state that “The fragmented nature of South African business has its roots in the dominance of key sectors”, as well as the division based on race and political orientation. Further, the article mentions that due to the increasingly liberalized business environment, the dependence of the state on businesses has increased, and vice versa. Companies that are owned by the state have strict regulations, only slowly moving towards a democratic leadership approach. Corruption is also mentioned in the article, in particular focus on funding and tender allocation to state-owned enterprises, or those that are close to the government. The case of the PetroSA (Nattras & Seekings, 2010:53) represents the main reason why companies close to the state are not trusted by South Africans. This leads us to one of the main leadership challenges of South African state-owned enterprises: building stakeholder trust.

Plessis & Smit (2005) reviewed the main patterns of economic growth in South Africa since 1994. The investments made by government organizations in the economy grew significantly between 1995 and 2004. The annual change  was 5.9 percent, compared with -5.5 percent between 1985 and 1994 (Plessis & Smith, 2005:17).

State owned enterprises in South Africa went through a phase of liberalization and privatization, as Mokwena (2012) confirms. Equity stakes and shares of public companies were sold after 1994, while the government became more involved in the management of public companies, such as Eskom and Transnet. As Mokwena (2012: 12) highlights the related government initiatives: “The Competitive Supplier Development Program and Skills Development Programs were established to start leveraging Public Enterprise investment”. Finally, international benchmarking of companies was also introduced in the new century, creating further challenges for both privately owned and government enterprises. Public enterprise restructuring and international competition/benchmarking are also identified as some of the major challenges state-owned companies face today in South Africa.

Stakeholder Analysis

Robbins et al. (2013) state that the main challenges today’s leaders face lies in the fact that they need to address changes as well as the different expectations of stakeholders. Several authors (Ghafoor et al., 2011; Atmojo, 2012) confirm that leaders have a great impact on the company’s culture, behavior, as well as the society. Considering that the topic of the current research is state-owned companies’ leadership, it is evident that the impact of the company on the society has a greater significance in this case than when looking at private corporations. Leadership approaches do not only influence the performance of the organization, but should also be adjusted to the economic, political, and social environment. The diverse pool of South African state owned companies’ stakeholders also has an impact on governance and leadership decisions. The main stakeholders of government-owned enterprises in South Africa can be identified as: government officials, customers, competitors (domestic and international), and the public.

However, the stakeholder structure of a company largely depends on the profile of the company, as well. Energy firms owned by the government, such as Eskom (De Wet) have a greater impact on the public than others, and have to face strict regulations, while environmental, social justice groups can put pressure on the management to alter leadership and management approaches. Instead of focusing on one particular company, the author of the current study, however, would like to provide a generalized stakeholder analysis that can be applied to all companies that are operating in South Africa, employ South African people, and are owned by the government.

According to a report created by the Hans Seidel Foundation (2012), there are several differences in the structure of state-owned enterprises (SOE-s) compared with private firms. They have a greater diversity of workforce, which makes engagement with this stakeholder group more challenging. Based on the Matrix of State-owned enterprises, the main influences of  culture, leadership, and stakeholder engagement are: board composition, accountability, remuneration, reporting requirements, social issue sensitivity, reputational  management, stakeholder relationships, and the environment. The authors of the study found that the interdependence previously identified as a main characteristic of SOE-s  has an impact on both leadership approaches and stakeholder engagement.

Stakeholder analysis of South African state-owned organizations:

Government:

Based on the ownership structure, the interdependent relationship with the government makes this stakeholder group one of the most important for South African SOE-s.

Customers:

The company that is owned by the government needs to adjust its leadership priorities according to the policy initiatives, and this has an influence on customer relations.

International organizations and watchdogs:

It has been mentioned that international organizations and watchdogs influence government decisions regarding state-owned enterprises, including work practices, customer service, ethics, and employment policies.

Public:

As a newly democratized country, South Africa’s population is slowly discovering the power of public pressure and influence.

Competitors:

Competitors can put pressure on the company’s leadership to improve effectiveness, engage in price competition, and review the structure of the leadership.

Theoretical Analysis

 Hofstede’s theory on leadership (Hofstede & Bond, 1984) states that collectivist cultures, like the South African are based on tight, interdependent relationships.

Bass & Avolio (1993) found a close relationship between transformational leadership and the strength of the organization’s culture. This means that through the clear definition of organizational goals and missions, the leader can gain more commitment from stakeholders to projects and initiatives. However, there is also a need for advanced collaboration, and democratic leadership approaches have to be applied.

Ansell & Gash  (2008) defines collaborative governance as “A governing arrangement where one or more public agencies directly engage non-state stakeholders in a collective decision-making process that is formal, consensus-oriented, and deliberative and that aims to make or implement public policy or manage public programs or assets“. The above definition is clearly relevant to the current study, as collaboration is likely to positively influence the level of engagement. Stakeholders, according to the authors (Ansell& Gash, 2008) are defined as groups and individuals that are affected by the activities of the organization. The proposed model of collaborative governance detailed by the article will be reviewed in detail in the next section of the study.

According to some authors researching the relationship between leadership approaches and stakeholder engagement (Ospina & Foldy, 2005;  Andersen et al., 2009), some of the most effective leadership approaches are transformational leadership and social change leadership. As transparency has an increased importance in developing countries (Mhethwa, 2012), it is important that the leadership aligns the organization’s goals and missions with the interest of stakeholders. This task, however, cannot be completed without fully understanding the preferences and priorities of all stakeholders. According to the author (Mhethwa, 2012: 112), there is a requirement “for leaders to become more transformational and less transactional if they were to remain effective”. One of the main challenges that transformational leadership can address, according to Irwin (2011) is social diversity. Companies in the public sector today have a greater workforce diversity than private corporations, and this indicates that they focus on engaging with the public as a stakeholder.

Leadership Theories Application

The main question regarding the above theoretical review is whether or not transformational leadership can be applied to South African state-owned organizations. According to Bolden and Kirk (2009), African type of leadership has some distinctive traits, such as the tendency for collaboration. The authors state that South Africa’s culture is collectivist, and this means that it is focusing on engaging with different groups through discourse.

Kuye (2012:61) states that leadership in South Africa is “neither collegiate nor collaborative”,  and this means that engagement with stakeholders is not one of the main strengths of South African companies. Further,  Mthetwa (2012) reviewed the leadership traits of SOE-s in South Africa, and found that one of the main development areas is to develop approaches focused on meeting the needs of the society (public, as a stakeholder). Denton (2003) states that South African companies do not have a tradition of ethical leadership and engagement with stakeholders. Kuada (2010) found that the unique traits of African people, the values and behavior patterns need to be understood before leadership approaches focusing on engaging with stakeholders can be implemented.

El Ansari (2012) studied South African community partnerships to assess the effectiveness of leadership approaches. The main leadership skills that were believed to contribute towards representing stakeholder interests were found to be communication, collaborative style, involvement competencies, and social and educational capability building abilities. This, in turn, according to the framework (El Ansari, 2012: 176) result in greater satisfaction, commitment, and a sense of ownership, as well as fewer concerns about the leadership.

It is now, however, time to examine all related leadership theories in order to understand how they support or disable stakeholder interest representation within organizations. Looking at the review created by Derure et al. (2011), it is evident that there is currently a debate between theorists who consider leadership as a trait, and those who look at it as a behavior. From the perspective of leadership effectiveness, it is evident that there is a need for an integrated model, and this needs to cover all areas of leadership, including stakeholder engagement. One of the hypotheses that the authors examine is that “Leader traits related to task competence will exhibit a stronger, positive relationship with task performance dimensions of leadership effectiveness than leaders’ demographics or interpersonal attributes” (DeRure et al., 2011: 15). This hypothesis is extremely relevant to the current study, as interpersonal skills are likely to have an impact on collaborative leadership approaches, which, in turn, result in greater stakeholder engagement and representation. The findings of the research study confirmed that leaders that focus on tasks are more effective in delivering projects. However, the lack of direct relationship between leadership effectiveness and stakeholder representation has not clearly been confirmed, therefore, further studies need to be reviewed to highlight the most important leadership traits that facilitate stakeholder engagement.

Kark, Shamir & Chen (2003) talks about the two-faced nature of transformational leadership. According to the authors, in this model, there is both a dependency and a facet of empowerment. Another important characteristic of transformational leadership is that it can increase commitment not only from the members of the organization, but also all stakeholder groups.

The answer to the principle question of the current study: “which leadership approaches and practices accommodate stakeholder interest representation the best” seems to be provided by Maak (2007). The author found that responsible leadership approaches can increase both stakeholder engagement and collaboration quality. The author (Maak, 2007) defines responsible leadership as: “the art and ability involved in building, cultivating and sustaining trustful relationships to different stakeholders, both inside and outside the organization, and in co-ordinating responsible action to achieve a meaningful, commonly shared business vision”. Therefore, the next part of the study will focus on the presence of this leadership trait within state-owned South African organizations.

Research of the Impact of Leadership Approaches on Stakeholder Engagement

The author would like to review some of the characteristics of responsible leadership within South African state-owned enterprises. Before the analysis can be completed, however, there is a need for defining the main characteristics if this leadership style. Burton-Jones (2014) reviewed responsible leadership in practice. According to the author, they are: emphasizing value creation, focusing on social and environmental responsibilities, engaging in responsible business practices, and having an alignment of the corporate strategies across stakeholder groups. While the impact of government policies on the practices of South African state-owned enterprises is evident, it is also important to examine how the interest of the public is represented within these companies’ practices.

April & Peters (2010) found that trust was one of the most important factors of South African companies’ reputation. However, Denton (2003) states that the collaborative culture of the country calls for a leadership approach that focuses on interaction and constant exchange of ideas.

According to Irwin (2011), while South Africa ranks 5^th among the least  corrupt countries in the Sub-Saharan region, the public considers private companies more corrupt than state-owned enterprises. This means that the public believes that their interests are better represented by public firms than private ones. The reason for this difference might lie in the government policies and initiatives that have been recently implemented within the public sector, and the close working relationship between policymakers and leaders of state-owned enterprises.

Some of the government initiatives that are focused on social justice and equal representation are clearly implemented in state-owned companies’ missions and policies. Some of the large scale initiatives of the government are: gender and race equality, higher level of access to basic services, improving the quality of life within disadvantaged communities, and reducing poverty. These policies all focus on the largest of state-owned companies’ stakeholder groups: the public.

Findings

In order to review the presence of the above identified leadership traits: collaborative leadership, transformational leadership, and transparency to build trust, the author would like to analyze the review created by Fourie (2001). From the review of different companies’ leadership approaches and policies, it is evident that the involvement of the government in the management of the companies is focused on improving stakeholder involvement. As the author (Fourie, 2001: 206) states: “the government’s vision is that they should have the means to contribute to an improvement in the standard of living of the population by creating sustainable economic and social benefits”. This, translated to stakeholder representation and engagement means that the government encourages state-owned enterprises to adjust their leadership approaches to the needs of its stakeholders, in particular the public, in order to create a shared benefit for various groups.

Eskom, one of the largest state-owned  companies in South Africa, responsible for the energy supply of millions of customers, and having known as one of the firms with the greatest environmental and social impact, it is important to review the leadership approaches of the enterprise. The policy document of the company (Eskom, n.d.) seems to be fully aligned with government initiatives, such as goals to stimulate economic development, and increasing access to basic services, such as affordable energy, resulting in better quality of life for millions of South African citizens.

Transnet is also a state-owned enterprise with a great stakeholder impact. The transport service provider is also aligning its strategies with government intitiatives, and the interest of the public, defined by state policies. As the White Paper on National Transport Policy (1996) states, the government is encouraging the company to take into consideration the interest of stakeholders, by adjusting the transport service in a manner that it will “meet the freight and passenger customers’ needs at improving levels of service and cost in a fashion which supports government strategies for economic and social development” (National Transport Policy, 1996, p. 3).

The impact of government initiatives, however, is less visible in the policies of Denel, the aerospace and defense company, however, it still follows  government guidelines and aligns its internal policies with larger long term goals.

Conclusion

 The above review of related literature and policies of state owned South African enterprises has revealed that these companies in the country have a greater than average influence from policymakers, one of the stakeholders. Further, it has been proven that policymakers – through collaborative approach – encourage leaders of public companies to align their strategies with the needs of all stakeholders, such as the government, NGO-s, and the public. This indicates that state ownership increases companies’ level of stakeholder representation. As it has been shown, for example, the government’s social equality initiatives are clearly shown in these companies’ employee statistics, which show a greater diversity, and a higher representation of Blacks than private sector companies’. It has also been found that the culture of South Africa, which can be defined as collectivist, also encourages discourse with the public and stakeholder, and accommodates stakeholder engagement. The recent restructuring of state-owned companies, therefore, resulted in a better stakeholder involvement and representation.

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