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Figure 3-7: The Big Five Personality Factors and Their Facets¹⁶

As already explained, the definition of a good leader is dependent on the expectations of the relevant team members concerning appropriate leadership behaviour. According to the Leader-Member-Exchange Approach (LMX) the practical leadership behaviour will be negotiated individually between leader and subordinate. As depicted also in Figure 3-6 the negotiation process requires an initial offer of the leader by delegating a major task to his/her subordinate in order to test his/her ability and trustworthiness. If the subordinate proves to be reliable and fulfils this task successfully the resulting trust and emotional bond will lead to a good leader-member-relationship and increased freedom for the subordinate. In case of a negative experience the leader will lead more directly and follow the subordinate’s moves more closely. This approach leads to the conclusion that a leader could use a trial-and-error technique to optimise the leadership approach on an individual basis if there is the willingness for a leap of faith on the leader’s part. It is important to note that a risk for this kind of behaviour lies in the distinction of an in-group (with team members who are trusted) and an out-group. This might result in tensions between the team members. Consequently, a central element of a successful leader-member-exchange is leadership feedback. Optimising leadership behaviour requires the leader to understand the effects of his behaviour on others. Using different ways and methods of feedback and including all main stakeholders into the process is therefore a major prerequisite for a successful and individualistic leadership approach.¹⁷

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3.1.2

Excellent Leaders: EFQM Criterion 1

The EFQM Excellence Model provides very tangible advice concerning the activities of successful leaders. As the questions posed in chapter 3.1.1 are more concerned with the personal aspects of good leaders, the EFQM Criterion 1 “Leadership” defines activities needed to ensure that the members of the (top) management team of an organisation fulfil their leadership roles successfully and provides guidance and direction for the organisation as a whole.

The first and most important task of any management team defined in criterion point 1a is the development of mission, vision, values and ethics, thus creating a purpose and reference point for the organisational development. This also includes that they act as role models for the defined ethics and values. Important subsequent activities are defined in the following criterion points, as depicted in Figure 3-8. This includes the definition, monitoring and improvement of the management system (1b), a systematic engagement with relevant external stakeholders (1c), the reinforcement of a culture of excellence together with all of the organisation’s people (1d) and the effective management of changes (1e).

Figure 3-8: EFQM Criterion 1 “Leadership” and Its Criterion Parts¹⁸

3.2	Developing the Mission, Vision, Values and Ethics

The EFQM Excellence Model uses guidance points to provide direction concerning good practices that allow excellent organisations to successfully address the postulated issues, as explained in chapter 1.3.3. The four guidance points that exemplify the statements described in criterion part 1a are depicted in Figure 3-9. These guidance points are addressed in detail in the following corresponding subchapters 3.2.1 to 3.2.4.

Figure 3-9: EFQM Criterion Part 1a and Its Guidance Points¹⁹

3.2.1

Defining and Communicating the Core Purpose of an Organisation

In the classical Anglo-American management theory, the purpose of the organisation is “shaped by vision, stakeholders and ethical issues and delivered by mission and objectives”.²⁰ The vision is understood as the overarching document. It paints a picture about a possible and desirable future and explains what the organisation wants to have created or achieved by then. The mission statement outlines broad directions for the organisation’s development and summarises the underlying reasoning and values.²¹

In Germany, for example, vision and mission statements are not a common part of the organisation’s documents. Some organisations issue a so called “Leitbild” or management philosophy which comprises elements of both vision and mission. The combination of the most important elements into one – usually the mission – statement is becoming increasingly popular in the recent strategy literature and is used for example by Wheelen and Hunger.²² The benefits of these statements are disputed among management experts. Some argue that often these statements constitute wishful thinking and do not mirror the reality of the organisation. The intuition and rhetoric talent needed for verbalising an engaging and powerful vision is also closely related to the concept of charismatic leadership personalities.²³ Many general visions and missions provided in the internet by different international companies make a compelling case against the significance of formulating them.

Nonetheless, it is indispensable for any kind of organisation to discuss, define, and follow a clear purpose. Otherwise, all choices and decisions could be called random at best.

According to Peter Drucker, one of the most renowned management experts, any assessment of an organisation and the path it follows should start with asking “what is our mission?” From this point of view, the mission defines the overriding purpose of the organisation and therefore answers the question what kind of business a company is in. It is closely related to the value proposition and the question of what would be lost for customers or other interested parties if this organisation would not exist. A mission statement says why an organisation does what it does (but not how to do it as this part belongs to the strategy). The mission’s definition might be general or timeless but it has to be able to inspire all members or stakeholders of the organisation. An effective mission statement can be so sharply focused that it fits on a T-Shirt. It is important to note that it serves as the overriding principle and should therefore never be subordinated, even not in order to gain more money.²⁴ In order to serve as a clear direction, a mission statement has to be combined with the purpose the organisation pursues in order to serve its (chosen, relevant) stakeholders and backed up by clearly defined objectives. Leaders should be aware that this statement strictly commits the organisation to pursue a certain direction and thus limits the available strategic choices. The formulated strategy (as discussed in chapter 4.4) and all related decisions are to be aligned with the defined purpose and serve to transmit it into practice.

Depending on the phrasing of its mission statement, Great Jeans (GJ) can have very different future development paths. A mission statement like “we are a producer of Jeans” limits its business to production, which excludes opportunities like the focus on brand development with outsourced production or a focus on design to attract more customers. According to this statement, any kind of Jeans production everywhere (also outsourcing to other parts of the world) would be acceptable. This statement does not help to distinguish GJ from other producers, as it does not state any purpose creating special value for its customers or other stakeholders. Small additions would already provide more directive power. For example “we are a European producer of Jeans”. In this case, outsourcing opportunities could only be used within Europe or within pre-defined limits. This is the point, were a mission statement provides guidance only if backed-up by clearly stated objectives. A management team is far more involved in sharing the same mission if they discuss the boundaries it presents. To be a “European producer” could mean to limit 100% of the production activities to countries that are part of the EU. Alternatively, a management team might decide that Europe includes more than the EU countries and that a maximum share of 20% of production in developing countries still fits in this category as long as the respective companies are 100% owned by European companies.

GJ would take a totally different development path with the following mission statement: “We deliver the world its basic all-day garment”. In this case, the statement is clearly customer focused. This claim would be backed up for example by defined sales targets for markets all over the world. It would also need a clear definition of “basic all-day garment” from a customer perspective. This could for example mean that in customer surveys people give high satisfaction ratings of 90% for the jeans being comfortable to wear and ratings of 80% for the jeans fitting for all kinds of circumstances. In order to appeal to all kinds of people, GJ would probably need to design different product lines or brands for different countries and different income groups in order to satisfy the majority of tastes. In this case, the focus would shift from production to sales and design. The management team might also decide that certain groups of customers only wear a certain type of jeans every day if they can trust its origin and its contents. Such reasoning would lead to objectives concerning 100% use of organic cotton, 100% environmentalfriendly dye, production without child labour and only in companies with acceptable work standards. On the other hand, a luxury line of designer jeans would not fit to this mission statement.

The possible interpretations of the mission statement and related choices of objectives should be guided additionally by the definition of values. Defined values facilitate decisions in cases where new opportunities arise and other statements do not provide suitable direction because they do not (explicitly) cover the affected aspects. An organisation usually chooses between three to five values and publishes them as part of its mission statement or as separate value document. These values are closely related to the company culture, so they might be derived from the actual culture or might be used to guide a change process. Their function as a beacon in stormy or changing times explains why the final choice has to be up to top management, although the development process itself is often accompanied by a value survey with a random sample of employees. Typical values that are used in corporate statements include accountability, commitment, diversity, flexibility, integrity, loyalty, openness, passion, profitability, quality, readiness to help others, reliability, success or sustainability. This non-exhaustive enumeration clearly illustrates the need to interpret and define the meaning of these values for the organisation.

The value statement of Great Jeans includes the values “courage, sustainability and cooperation”. Possible definitions could start like that: “We believe that courage of people and organisations is needed to change the world. All members of GJ are committed to speak up against organisational practices that are not in line with high ethical standards and openly share mistakes so improvements can be made. Sustainability is the key to delivering long-term value to society and customers. We strive to avoid all negative impacts of our production process on the environment and find justifiable ways to ensure our positions on our target markets. Only a close cooperation with our suppliers and customers will enable us to meet their high demands concerning fairness and quality.”

Staying true to their values would not allow them to accept extraordinary low pricing offers of cotton producers with disputable colouring practices and a bad reputation concerning work conditions. This might look very different in case of a value statement declaring the values “performance, success and competition”.

One intention of all above mentioned documents is to provide orientation for employees, customers and other stakeholders about the self-conception of the organisation. This should create trust and enthusiasm and gain commitment.²⁵ Distributing brochures or providing these statements on websites is not enough to achieve these goals. A successful communication of purpose includes at least verbal and observable enforcement from (top) management. According to the Global Workforce Study 2012, only 63% of all participants state that they understand the business goals and only 55% understand the steps the organisation takes to reach its goals. The relevance of providing this kind of orientation for an organisation can be derived from the fact that 88% of the highly engaged employees declare to understand the business goals but only 54% of the detached and 36% of the disengaged.²⁶

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3.2.2

Acting as Role Models for Ethical Behaviour

3.2.2.1

Corporate Ethics and Social Responsibility

Corporate Social Responsibility (CSR) is a term widely used for standards and codes of conduct an organisation sets itself to ensure that it provides sustainable value to all its stakeholders. There are numerous definitions of this subject highlighting different aspects. Recent definitions congruently centre on a voluntary stakeholder-based approach with special reference to environmental, social and economic aspects.²⁷ According to the EU commission CSR is “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.”²⁸ Thus, CSR encompasses voluntary corporate behaviour above legal requirements that is closely linked to the idea of sustainable development. It should be intrinsically motivated and defines a way in which an organisation is managed – in contrast to a separated programme adopted for publicity reasons. The underlying principles are also relevant for other kinds of organisations, not only for legal corporations. CSR could therefore be defined as the voluntary, continuous commitment of any kind of organisation to behave ethically and contribute to the development of its stakeholders, the environment and society at large by adopting corresponding operational targets and practices.

CSR programmes are manifold and comprise actions that range from the development of a code of ethics and the sponsorship of community events to business-related society development projects. Increasingly, these practices include adoption of the accounting concept of a triple bottom line (TBL) by adding a social and environmental bottom line to the standard economical one. All three bottom lines together are also referred to as the three pillars “Profit, People, Planet”.²⁹

The crucial role of leadership in CSR is generally recognised. Companies in Australia and New Zealand that were seen as frontrunners in CSR were, for example, mainly acknowledged for the integration of CSR with their core business activities and strategies. This encompassed making sustainability a part of the company’s business proposition and integrating it with its products or services. Furthermore their approaches combined the strong integration of sustainability practices in operational processes and convincingly living and promoting CSR values. This was seconded by communicating CSR performance. The act of promoting CSR values and activities as well as showing and calling for commitment on all levels of the organisation is a leadership task that cannot be delegated. It is therefore not astonishing that the main problem for successful implementation of CSR initiatives is consistently found to be a lack of organisational buy-in and commitment to CSR. The willingness and know-how to find logical links between CSR and the business strategy as well as creating a corresponding business case appeared to be far more important to success in CSR than just providing more time or money.³⁰ The positive long-term effects on the company itself were proven in different studies, for example by Collins & Porras. They found out that companies that survived major changes including the impact of various business cycles were companies found to pursue a long-term core mission where all corporate activities were based on. Interestingly, the most successful companies like for example Patagonia Inc. did not focus on profitability as their main goal but created a strong ethical culture.³¹

Exercise: CSR programmes (online)

3.2.2.2

Ethical Behaviour in International Business

Defining ethics in an international business context is not an easy task. The general field of ethics deals with morality, understood as activities and practices that are considered right or wrong based on certain values and governed by rules. In some definitions, this is deemed equivalent to ethics, in others ethics is a step further in so far as it is seen as a systematic attempt to give meaning to our moral experiences in order to define the rules that ought to govern human conduct. Business ethics, therefore, can be understood as the study and moral evaluation of any kind of business actions on a company and individual level.³² An important aspect in this context is the ethical quality of decision-making. An ethical evaluation of business decisions has to take four levels – the individual, the company, the national and the international level – into account. All of these levels provide their own set of values as a basis for evaluation, depending on the involved personalities, cultures and business frameworks governed by general norms as well as laws. Consequently, leaders of transnational corporations (TNCs) have to choose between different approaches of ethical behaviour. They can choose to conform to the norms of the host country (“foreign country type”) by following the old proverb “when in Rome, do as the Romans do”. In this case, there is no general rule for the company. The opposite “empire type” applies the norms of the TNC’s home country to all subsidiaries and parts of the organisation. Both include high reputation risks for the company as the actions taken will be evaluated by people of other cultures using their ethical frameworks as reference points. Many organisations therefore prefer a hybrid approach (“interconnection type”) where they pragmatically evaluate possible alternatives in a supranational view, taking for example norms of wider entities like the EU into account. This approach uses everything that might work for the TNC in a constant process of balancing universal moral limits (“hypernorms”) with individual considerations. The idea of a fourth approach – the “global type” - is highly theoretical as it means to interpret business ethics from a global citizen’s perspective. Unfortunately, a universal framework for business ethics is not (yet) available.³³ Nonetheless, universal norms for certain kinds of ethical behaviour relating to business were established over the last years by supranational organisations like for example the OECD, UN or G20. They form a rough guide to some of the most relevant issues in international business ethics, currently with a focus on preventing corrupt practices.

One of the most influential independent organisations working on establishing effective measures to tackle corruption in government, business and civil society is Transparency International (TI). Since 1993 they support the international fight against corruption with surveys, publications and guidance using their national chapters in more than 100 countries worldwide.³⁴ TI defines corruption as “the abuse of entrusted power for private gain”³⁵ and encompasses with this definition corrupt practices in the public as well as the private sector. Typical forms of corruption in the business sector to be addressed are according to TI the following: insider trading, corporate fraud, commercial bribery, collusion and cartels as well as regulatory and policy capture, as depicted in Figure 3-10.36

Figure 3-10: Corruption Risks Within Domains of Corporate Activities³⁷

With the “OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions”, signed 1997, a first international milestone in condemning bribery was achieved. Until the end of 2012 40 countries established legally binding standards to criminalise bribery of foreign public officials in international business transactions. The convention was amended 2009 with a Recommendation of the Council for Further Combating Bribery.³⁸

The UN Convention against Corruption of 2003 provided the first effective international legal instrument that defined a universal view on actions perceived as acts of corruption both in the public and the private sector. Until September 2013 the convention achieved global coverage with 140 signatories. It criminalises a wide range of corruption issues ranging from generally accepted basic forms such as bribery and the misuse of public funds to more elaborated forms like trading in influence, concealment and laundering, including money-laundering. The ratifying states were required to establish criminal offences or in some cases at least to consider doing so. The latter cases provided flexibility for those countries, where the cultural perspectives on the respective behaviour differ relevantly.³⁹ The convention was supported by the G20 Anti-Corruption Action Plan of 2010. This plan was set up to encourage the governing bodies of international organisations to operate with high standards of ethics and integrity while being transparent and using effective internal safeguards. The aim is a public-private partnership to develop initiatives that engage the business as essential stakeholder in the fight against corruption.⁴⁰ Since 2013 the related working group’s progress reports are available at the G20 website. They provide interesting information on the state of corruption combat and its most recent focus. In 2013 sectors that were seen as particularly vulnerable to corruption were discussed, for example construction, the extraction of natural resources or sectors organisation of sporting, cultural and other major international events.⁴¹ The B20 Task Force on Improving Transparency and Anticorruption recommended in 2012 amongst other things to set up reliable ethics and compliance programs and to develop mechanisms to assess and increase their effectiveness. They further suggested joint public-private actions as “integrity pacts”, whereby all bidders and government agencies agree to neither pay nor solicit bribes to public contracts or sectoral integrity initiatives aiming at defining precise rules of governance and behaviour.⁴² Transparency International recommends the establishment of a comprehensive corporate integrity system. From the company side this includes two spheres: the norms & culture sphere (covering ethical leadership, codes of conduct and corporate citizenship) and the governance mechanisms (covering the corporate compliance system, whistleblowing, corporate governance, accountants and auditors). In order to ensure a high level of integrity this has to be enhanced by rules, regulations and enforcement of governments which covers regulatory oversight, civil and criminal liabilities as well as law enforcement. The system is completed by broader checks and balances for further incentivising ethical behaviour. This covers investors, public reporting, civil society watchdogs, investigative journalism and consumer campaigns.⁴³ In 2013, the UN provided a practical guide for an “Anti-Corruption Ethics and Compliance Programme for Business”.⁴⁴ This guide addressed the visible support and active commitment from senior management towards zero-tolerance of corruption as the deciding prerequisite for the successful development and implementation of an anti-corruption programme.⁴⁵

In a multinational corporation the task of setting up an anti-corruption programme requires a sensitive approach to certain issues as the view on certain acts of corruption is influenced by cultural value systems. For example, gift giving is seen in Asian cultures as an important process in the establishment of trusting relationships and is usually an act of reciprocity. This could be misconstrued as bribery.⁴⁶ Consequently, the corporate definition has to draw a clear line between bribery and acceptable exchange of presents. This is usually achieved by defining the kind of present as well as the maximum cost for it that are deemed appropriate for establishing business relations. The success of the implementation of this ethical standard is highly dependent on the extensive communication of the underlying reasoning and top management role modelling.

Research also suggests that a propensity towards certain practices generally labelled as corrupt is correlated positively to high levels of Hofstede’s power distance, masculinity, and collectivism. Countries with a high power distance for instance are more likely to accept a lack of equality regarding power and authority, a basic prerequisite for acceptance of the misuse of personal power.⁴⁷

Only 58% of all participants of the 2012 Global Workforce Study judged their organisation to conduct business activities with honesty and integrity. This leaves considerable room for improvement.⁴⁸

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3.2.3

Communicating Direction and Uniting the Organisation’s People

Setting a clear direction and a consistent strategic focus is one of the most important tasks of leaders. The technicalities of defining and communicating a strategy are dealt with in the EFQM criterion 2 “strategy” and therefore explained in detail in chapter 4. The contribution of the leader goes far beyond the initiation of the strategy development process. According to the EFQM model, excellent leaders unite their people and thus enable them to share the organisation’s mission and goals and achieve their implementation. This is very relevant for the engagement of an organisation’s people. The 2012 Global Workforce Study revealed that 86% of highly engaged employees indicated to understand the business goals and how their own job contributes to them. In contrast, only 36% of the disengaged employees indicated the same understanding.⁴⁹

Uniting the organisation’s people is especially challenging when they come from different cultural backgrounds. According to Trompenaars and Hampden-Turner, a high performing international leader has to possess transcultural competence, which could be defined as the propensity to reconcile seemingly opposing values or “the capability to connect different points of view through the elicitation of dilemmas and their reconciliation”⁵⁰. In a very practical sense, international leaders spend a relevant amount of their time continually reconciling (cultural) dilemmas as defined in chapter 2.3.9.

3.2.5

Developing and Reviewing Leadership Culture

3.2.5.1

Developing and Supporting a Shared Leadership Culture

Behaviour in organisations circles around leadership behaviour. Employee commitment, their sense of being valued with their unique contributions to overall success as well as their willingness to contribute on a wide front is mainly influenced by their perceived relationship with their supervisors. A shared leadership culture is therefore paramount for ensuring a consistent approach to (goal) communication, performance evaluation and employee appreciation. Defining and supporting a leadership culture is more than creating job descriptions, determining responsibilities and developing rules for acceptable leadership behaviour like a “leadership code of conduct”. It requires a constant communication and discussion process in order to shape a uniform understanding of leadership roles and desirable leadership behaviour. Organisations with a strategic focus on innovation and development for example tend to foster employee freedom, team building and self-directed work-sharing. This requires a relationship-based leadership approach where the leader accepts an emphasis on being a motivator, coach and communicator. In an organisation concentrating on extremely structured production processes the leadership role model accentuates taking responsibility for continuously improving the work flow as well as inspiring people for challenging zerodefect-programmes and technological change.

Figure 3-11: Percentages Opting for Blaming an Individual⁵¹

In chapter 3.1.1 research revealed that the ability to show certain leadership behaviour has a personality component. In addition, the acceptance of certain leadership behaviour is also based on cultural perspectives. Trompenaars & Hampden-Turner investigated a leadership dilemma where a leader has to deal with a trainee worker that made a very serious error, causing considerable correction efforts and a relevant loss of time. Depending on the (culture-based) interpretation of the situation this could be seen as a mistake of a single person or alternatively as a failure of the whole team that was responsible for supervising, training and coaching the new member. Figure 3-11 provides an overview of the percentages of respondents of chosen countries opting for blaming an individual. Especially in Russia but also in China, France, Germany, UK and the USA it is quite probable that a leader will blame and punish the individual whereas leaders from Finland, India and Japan will more likely blame the team.

An important contribution to the question of a universal endorsement of specific leader actions or characteristics was made by the GLOBE study introduced in chapter 2.4. Differing ideas of effective leadership were researched by a multitude of attributes or behaviours. The leadership definition used is quite close to the leadership definition of the EFQM Excellence Model. According to the GLOBE study, leadership is “the ability of an individual to influence, motivate, and enable others to contribute toward the effectiveness and success of the organizations of which they are members.”⁵² Based on the so-called implicit leadership theory (ILT) the study extended the focus from differences on an individual level to a cultural-level theory (CLT). ILT states that each person holds a set of beliefs about behaviours, skills and characteristics that contribute to or obstruct effective leadership. These belief systems or mental models were assumed in the GLOBE project to be shared by members of a certain (societal or organisational) culture. The relevance of theses mental models stems from the idea that they influence the extent to which someone accepts and responds to other persons as leaders. The GLOBE project found out that there are statistically significant differences among cultural groups concerning leadership beliefs. Six global culturally endorsed implicit leadership dimensions (or global leader behaviours) were finally identified that are presented in Figure 3-12. They were derived from 21 CLT leadership subscales. Each global dimension consists of one or several of these subscales. The team oriented leadership style for example comprises the subscales collaborative team orientation, team integrator, diplomatic, malevolent (reverse scored) and administratively competent. Participants of the GLOBE project evaluated the six leadership dimensions based on a 7-point scale, where evaluations of 1 or 2 were seen as inhibiting outstanding leadership, an evaluation of 3 was perceived as neutral and evaluations from 4 to 7 were understood as contributing to outstanding leadership. As Figure 3-12 shows, only the first three of the six leadership dimensions – charismatic/value based, team oriented and participative leadership – were generally understood as contributing to outstanding leadership, receiving values in all 62 countries between 4.5 and 6.5. Humane oriented leadership was perceived as being neutral in some societies and moderately contributing in others. The view on autonomous leadership varies widely – from being seen as impeding to slightly facilitating outstanding leadership. The selfprotective leadership style was mainly reported as an impediment. Further research revealed that certain cultural values are linked to certain leadership dimensions. A positive view on charismatic/value based leadership is for example closely related to the cultural values performance orientation, in-group collectivism and gender egalitarianism as well as low scores on power distance. Self-protective leadership is seen as a positive approach by cultures with high values of power distance and uncertainty avoidance and low scores in gender egalitarianism.⁵³