THE POSITIVE INFLUENCE OF TRANSFORMATIONAL LEADERSHIP IN GOOD CORPORATE
Transcript of THE POSITIVE INFLUENCE OF TRANSFORMATIONAL LEADERSHIP IN GOOD CORPORATE
THE POSITIVE INFLUENCE OF TRANSFORMATIONAL LEADERSHIP
IN GOOD CORPORATE GOVERNANCE
Leveric T. Ng
Master In Business Administration
Oklahoma City University, 1991
B.S.C. in Marketing, De La Salle University 1980
A Dissertation
Submitted in Fulfillment
of the Requirements for the
Degree Doctor of Business Administration
Management and Organization Department
Ramon V. del Rosario College of Business
De La Salle University
August 2014
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Acknowledgment
I dedicate my research to my parents, Mr. and Mrs. William Ng whose
unconditional love made me the person that I am today.
This doctoral journey has changed my life for the better as far as my professional
leadership and practice of good governance is concerned. I hope that what I have learned
and contributed to the literature of transformational leadership and corporate governance
will spur additional research into these two important facets of managing corporations,
and improve the way we think and live as Christians in our society.
I would like to thank the following people who have helped me towards the
completion of my doctoral degree:
1. Dr. Ben Teehankee, for his invaluable guidance and inspiration;
2. Dr. Mike Cortez, for his encouragement and instrumental support;
3. Ms. Reby Gaw, for her indefatigable efforts as my research assistant and
partner;
4. Dr. Daffy Morales, for his consistent moral support and for being there
during the vicissitudes of my doctoral journey; and
5. God, with whom all things are made possible!
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Abstract
Transformational leadership and corporate governance are rarely studied together, and
this applies to the Philippine context as well. The Philippine private corporate structure,
based largely on corporate ownership, provides this research a unique and fertile ground
on which to study how transformational leadership impacts good corporate governance.
This study seeks to provide empirical evidence establishing the link between
transformational leadership and good corporate governance, and how CEO pressure on
directors on firm profitability affects this relationship. The research methodology
employed is a mixed methods procedure of a concurrent triangulation strategy. Thirty
corporate directors (executive directors) were given questionnaires to complete, and
afterwards underwent personal interviews to provide the qualitative data required for this
study. Statistical results from regression analysis show that transformational leadership
positively influences good corporate governance and CEO pressure on directors on firm
profitability has no effect on the relationship between transformational leadership and
good corporate governance. Director perception of good corporate governance is not
influenced by the presence or absence of pressure on firm profitability. Furthermore, the
qualitative findings corroborate the statistical inferences from the quantitative analysis.
There were several unanticipated results such as CEO duality as a moderating variable
and religion as a conceptual definition by respondents for both transformational
leadership and good corporate governance, which may provide abundant input for
further research on leadership and corporate governance.
Keywords: transformational leadership, corporate governance, profitability, corporate board, executive directors, independent directors, CEO pressure on directors on firm profitability
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Table of Contents
Acknowledgment………………………………………………………………………….2
Abstract……………………………………………………………………………………3
Chapter 1: Problem
Background of the Problem ……………………………………………………………..12
Statement of the Problem ………………………………………………………………..19
Objectives of the Study…………………………………………………………………..19
Theoretical Perspectives…………………………………………………………………20
Conceptual Framework…………………………………………………………………..23
Operational Framework………………………………………………………………….27
Research Hypotheses…………………………………………………………………….28
Significance of the Study………………………………………………………………...33
Scope and Limitations…………………………………………………………………....37
Definition of Terms……………………………………………………………………....39
Assumptions……………………………………………………………………………...41
Chapter 2: Review of Related Literature
Overview………………………………………………………………………………...42
Transformational Leadership……………………………………………………………42
Transformational Leadership and Corporate
Governance Nexus……………………………………………………………….55
Corporate Governance…………………………………………………………………...58
CEO Duality……………………………………………………………………………..61
Board Composition………………………………………………………………………63
Roles of the Board……………………………………………………………………….64
Good Corporate Governance…………………………………………………………….68
Firm Profitability………………………………………………………………………...69
CEO Pressure on Directors on Firm Profitability…………………………...…………...70
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Philippine Corporate Governance Context……………………………………………....75
Need for Present Study…………………………………………………………………..79
Chapter 3: Methodology
Research Design.....………………………………………………………………………82
Population and Respondents……………………………………………………………..85
Sampling Design…………………………………………………………………………85
Measurement and Instrumentation……………………………………………………….89
Validity and Reliability………………………………………………………………......96
Research Procedures…………………………………………………………………......99
Data Analysis…………………………………………………………………………...101
Methodological Assumptions of the Study……………………………………………..104
Methodological Limitations………………………………………………………….....104
Chapter 4: Results
Overview………………………………………………………………………………..106
Transformational Leadership…………………………………………………………...107
Outliers………………………………………………………………………………….111
Good Corporate Governance…………………………………………………………...116
CEO Pressure on Firm Profitability…………………………………………………….120
CEO Pressure as a Moderating Influence on Transformational Leadership
and Good Corporate Governance……………………………………………….120
Chapter 5: Discussion
Overview……...………………………………………………………………………...125
Transformational and Transactional Leadership Continuum…………………………..126
Four Dimensions of Transformational Leadership……………………………………..128
Other Leadership Styles………………………………………………………………...130
Good Corporate Governance…………………………………………………………...131
Roles of Boards…………………………………………………………………….…...132
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CEO Duality…………………….………………………………………….…………. .138
Transformational Leadership and Good Corporate Governance Nexus………………..140
Shared Governance……………………………………………………………………..143
Ethics as Foundation………………………………………………………………........142
CEO Pressure on Profitability
Profit Maximization and Stress…………………………………………………….…...145
Chapter 6: Summary, Conclusions and Recommendations
Summary………………………………………………………………………………..149
Conclusion.……………………………………………………………………………. 151
Executive Directors’ Views on CEO Transformational Leadership……………….......152
Transformational Leadership and Good Corporate Governance Nexus…………….....152
CEO Pressure on Profitability………………………………………………………….153
Ethical Stewardship…………………………………………………………………….155
Limitations of the Study………………………………………………………………..156
Recommendations………………………………………………………………………157
References………………………………………………………………………………163
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Appendices
Appendix A
Questionnaire…………………………………………………………………………...174
Appendix B
Survey Matrix……………………………………………………………………….….179
Appendix C
Pretest Results………………………………………………...………………………...187
Appendix D
Final Questionnaire Form………………………………………………….………...…194
Appendix E
Policy on Use of Professional Help for Dissertation…………………………………...199
Appendix F
Interview Protocol…………………………………………………………………...…200
Appendix G
Interviewer Training Guide………..………………………………………………..….202
Appendix H
Interview Timeline…………………………………………………………….………..204
Appendix I
Correlation Coefficient of Independent and Dependent Variables…………..…………205
Appendix J
Data Analysis Matrix...........……………………………………………………………207
Appendix K
Descriptive Statistics…………………………………………………………………. .209
Appendix L
Regression Assumptions……………………………………………………………….214
Appendix M
Other Possible Regression Models…………………………………………………….222
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Appendix N
Qualitative Coding………..……………………………………………………………232
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List of Tables
Table 1. Differences Between Agency Theory and Stewardship
Theory in View of Situational Factors…………………………………………...21
Table 2. Taxonomy of Transformational Leadership……………………………………47
Table 3. Taxonomy of Corporate Governance…………………………………………..66
Table 4. Transformational Leadership Scale
and Item Statistics………………………………………………………………..90
Table 5. Good Corporate Governance Scale
and Item Statistics……………………………………………………………......92
Table 6. CEO Pressure on Directors on Firm Profitability Scale
and Item Statistics………………………………………………………………..94
Table 7. Regression Equation Coefficients (Model 1)...………………………………..107
Table 8. ANOVA (Model 1)……………………………………………………………109
Table 9. Regression Equation Coefficients (Model 2)……...…………………………..109
Table 10. ANOVA (Model 2)…………………………………………………………..106
Table 11. Outlier Residual Statistics……………………………………………………112
Table 12. Coding for Transformational Leadership……………………………………115
Table 13. CEO Transformational Leadership and
Influence on Good Corporate Governance…………………………..................116
Table 14. Coding for Good Corporate Governance…………………………………….117
Table 15. Regression Equation Coefficients (Model 3)……………………...………....118
Table 16. ANOVA (Model 3)………………………………………………………......118
Table 17. Regression Equation Coefficients (Model 4)...………………………………119
Table 18. ANOVA (Model 4)…………………………………………………………..120
Table 19. Regression Equation Coefficients (Model 5)...………………………………122
Table 20. ANOVA (Model 5)………………………………………………………......122
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Table 21. Cross Tabulation of Moderating Influence,
CEO Pressure, and CEO Duality……………………………………………….124
Table 22. Relationship of Transformational Leadership
and Good Corporate Governance………………………………………………142
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List of Figures
Figure 1. The conceptual framework…………………………………………………….26
Figure 2. The operational framework……………………………………………………27
Figure 3. H1 – The relationship of transformational leadership
and good corporate governance………………………………………………….29
Figure 4. H2 – Interaction effect of CEO pressure on directors
on firm profitability on good corporate governance……………………………..32
Figure 5. The literature map……………………………………………………………..73
Figure 6. Visual model of concurrent triangulation design……………………………...83
Figure 7. Linear relationship between transformational leadership
and good corporate governance………………………………………………...111
Figure 8. Non-linear relationship between CEO pressure on directors
on firm profitability and good corporate governance…………………………..123
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Chapter I
Background of the Problem
For as long as there are organized groups, the discussion and study of leadership
are both inevitable and critical. In the realm of business, leadership has been defined as
“a social influence process that can occur at the individual, dyadic, group or strategic
level, where it can be shared within a management team” (Avolio, Sosik, Jung, & Berson,
2003). This definition focuses on the construct of leadership, without neglecting the other
side of it, which is followership, both constructs of which have to be acknowledged for
leadership to occur.
The study on leadership has earlier centered on traits, which was a controversial
assertion (Kirkpatrick, Locke, & Edwin, 1991). Based on the model of “great man”
(Slater &Bennis, 1990, as cited in Kirkpatrick et al., 1991, p. 48), leadership traits are
possessed by a special breed of people, as if saying that leaders are born and not made.
This is contested by Stogdill (1948, as cited in Avolio et al., 2003; Kirkpatrick et al.,
1991) who proposed that effective leadership has nothing to do with traits because
contexts can likewise play a significant role. He cited that leaders in different fields do
not necessarily have the same traits but can be equally effective.
While trait has been debunked as key to effective leadership, Kirkpatrick et al.
(1991) asserted that leaders do possess special traits, in contrast to non-leaders, and they
have the right disposition not equally present in all people. These traits are drive, desire
to lead, honesty and integrity, self-confidence, cognitive ability, and knowledge of the
business.
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Following the research focus on traits, leadership studies took on a turn towards
behavior and style (Avolio et al, 2003; Kirkpatrick et al., 1991; Yukl, Gordon, & Taber,
2001) and leadership that is influenced by the situation. Situational leadership, formerly
life-cycle leadership, was initially conceptualized by Hersey and Blanchard in 1969 and
was inspired by leadership styles parents practice as their children go through the
development stages of infancy, adolescence and adulthood (Hersey, 1996). According to
the two proponents, there could be best attitudes for managers, but not leadership styles.
This leadership style is based on the maturity of the follower, or development level of
follower and the task to be performed for which the manager decides whether to perform
directive or supportive behavior (Irgens, 1995). Directive behavior is characterized by a
leader giving detailed instructions and making sure that the task is done. Supportive
behavior, on the other hand, is characterized by a leader constantly listening and
communicating, recognizing and encouraging his followers.
In Irgens’ (1995) model of situational leadership, the choice of leadership style
will not depend on the follower’s maturity alone. The directive behavior of a leader is
determined by the follower’s ability to direct his/her own work; and supportive behavior,
the follower’s ability to function without support. Irgens (1995) instead used the
variables of “can” or ability to self-direct a task, and “will” or ability to do task without
support from the leader. Increasing “can” will minimize the leader’s directive behavior,
and increasing “will” will minimize supportive behavior. Also, followers are not the only
determinant of leadership behavior, the leader’s personality and the situation requiring
leadership also matter.
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Situational leadership pioneers Hersey and Blanchard worked on the model until
1973 but worked separately later on. While they have earlier justified their use of the
term maturity, and researched about distinctions on psychological maturity and job
maturity; or studied and added variables such as willingness and readiness into the
concept, both authors agreed that situational leadership isn’t as much as about leadership
as it is about meeting followers’ (employees’) needs (Hersey, 1996).
Burns (1978) introduced the concept of transforming and transactional leadership
later developed by Bass (1985) who posited that these are independent but
complementary constructs. Transactional leadership focuses on an exchange of
productivity for reward, that is, productivity can be achieved by giving rewards and no
productivity can mean withdrawal of rewards or benefits. Meanwhile, transformational
leadership is concerned about achieving extra-ordinary outcomes and in the process
allows employees to develop their own leadership capacities (Avolio, Waldman, &
Einstein, 1988; Bass & Riggio, 2006; Bass, Waldman, Avolio, & Bebb, 1987).
Consequently, transformational leadership occurs when leaders and followers raise one
another to a higher level of motivation (Bennis&Nanus, as cited in Pawar& Eastman,
1997).
Transformational leadership will continue to be an explored area of leadership as
studies owing to many unexplored areas such as linking transformational leadership and
performance (Goodwin, Whittington, Murray, & Nichols, 2011; Valdiserri & Wilson,
2010), cascading to different levels of transformational leadership (Bass et al, 1987;
Bruch & Walter, 2007), as well as other facets like development of transformational
leadership, new predictors and contingencies, training authentic transformational leaders,
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the inner workings of transformational leaders, the dark side of transformational
leadership, and many other perspectives (Bass & Riggio, 2006).
Placed alongside this leadership perspective is the international focus on business
crises (1997 Asian financial crisis) and corporate scandals (Fortune 500 companies
Worldcom, Bear Stearns, Lehman Brothers, AIG, to name a few) spanning the decades of
1980s up to the first decade of the 21st century, which put leadership and governance
critically at the forefront. Corporate governance, or the bad practice of it, has been
blamed as the culprit for the Enron, World Tyco, and other business debacles (Elson,
2004; Lawal, 2012; Naciri, 2010). Since then, focus has been turned to governance, first
termed by the World Bank as the way in which power is exercised in the management of
social and economic resources of a country for development (Naciri, 2010). At the
corporate level, it has taken on several meanings such as all the principles, mechanism,
and processes that used to govern organizations ethically (Naciri, 2010); the process by
which companies are directed and controlled (Cadbury Report 1992; OECD, 2001, as
cited in Tricker, 2009); and the exercise of power over corporate entities (Tricker, 2009).
Variations in definitions highlighted different perspectives by authors and focus-
activities of the shareholders, the board, and management; the context in which corporate
governance is practiced; the widest focus is one which involves all and every element that
can affect the exercise of power over corporations (Clarke, 2004, as cited in Tricker,
2009; Tricker, 2009).
Directors are the central characters of corporate governance and considered the
guardians of corporations. In the OECD Principles of Corporate Governance (2008), it is
stated, “The corporate governance framework should ensure the strategic guidance of the
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company, the effective monitoring of management by the board, and the board’s
accountability to the company and shareholders.” The early conception of corporate
governance was based on agency theory which assumes that humans have individualistic
motivations, and even its psychological explanation points to humans as rooted in
economic rationality (Davis, Schoorman, & Donaldson, 1997). This gives rise to the
principal (shareholder) and agent (manager) divergence. Tricker (2009) noted that the
conceptual underpinning of corporate codes all over the world is rooted in this agency
dilemma.
The agency theory is challenged with the debate currently hailed as Simon-
Argyris debate (Davis et al., 1997). Accordingly, Argyris debunked Simon’s articulation
of man as rooted in economic rationality, but instead revered man as self-actualizing,
claiming that there’s a need for man to transcend his current state and reach higher levels
of achievement. The self-actualizing man is distinguished by factors of motivation,
identification, and use of power, which in contrast fulfills higher goals. Drawing from
this analogy, stewardship theory sees man’s behavior as collective because he seeks to
attain the objectives of the organization over and above that of one’s self (Davis et al.,
1997).
Central to the study of corporate governance in this study is the chief executive
officer (CEO). The CEO is regarded as the agent, the person regarded as having
individualistic utility motivations (Davis et al., 1997) whom the board has to monitor as
stated in the corporate governance code of OECD (2008). However, CEOs are likewise
chosen as stewards who “balances the interests of stakeholders, such as firm profitability,
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market value, product quality, and the development and stability of employment,
community, and markets” (Bass, 2007, p.34).
The relationship between CEO and board of directors as a result of the agency
dilemma can be regarded as an “uneasy but more coequal alliance” (Useem, 1996 as cited
in Chen, 2007, p. 59). Most research on the CEO and board dynamics centers around
power, control, involvement, and vigilance among others (Boyd, Hyanes, & Zona, 2011).
Under stewardship theory, this relationship is predicted to enhance performance if the
positions of Chairman and CEO are combined as one. Hailed as CEO duality, or when
the CEO also serves as Chairman of the Board (Desai, Kroll, & Wright, 2003; Faleye,
2007; Finkelstein & D’Aveni, 1994; Tuggle, Sirmon, Reutzel, & Bierman, 2010). CEO
duality “removes the role ambiguities and conflicts which might arise with the sharing of
power (Boyd et al., 2011, p. 1895), and “establishes unity of command” (Finkelstein &
D’Aveni, 1994, p. 1080). The tenets of stewardship theory suggest support for CEO
duality since this kind of structure “facilitates and empowers rather than those that
monitor and control (Davis et al., p. 26).
In this study, I will explore the relationship between transformational leadership
and good corporate governance drawing from theoretical perspectives offered by agency
theory and stewardship theory (Davis et al., 2004; Tricker, 2009). Previous studies have
linked transformational leadership with positive firm performance (Avolio et al., 1988;
Humphreys & Einstein, 2003; Jung &Avolio, 1999; Sashkin & Sashkin, 2003; Valdiserri
& Wilson, 2010; Waldman, Ramirez, House, & Puranam, 2001), some of these outcomes
measured in terms of profitability. After all, even if stewardship theory supporters
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acknowledge stakeholder interest, they believe that the directors’ responsibility is to the
shareholders (OECD, 2008; Tricker, 2009).
I will also look into the extent of moderating effect of CEO pressure on directors
on firm profitability to good corporate governance. Occupational stress (Ongori &
Angolia, 2008) and other stresses brought about by uncertain conditions (Waldman et al.,
2001) can push for performance at one end, but may also result in dissatisfaction on the
other. From the perspective of leadership, stress can also have an ill effect. “Instead of
careful analysis and calculation or the effective use of the intuition of the expert based on
learning and experience, stressed decision makers fall back on nonproductive intuitive
reactions that satisfy their immediate personal emotional needs rather than the objective
requirements of the situation” (Bass, 2008).
Another lens by which to look at this variable is the structural context by which
stress is exacted. CEO duality, as earlier mentioned, vests the power and position of CEO
and Chairman on one person. Researchers have studied that excessive power can
entrench the CEO-Chairman on top of the organization, barring the board’s ability “to
effectively monitor and discipline” (Mallette & Fowler, 1992, as cited in Finkelstein &
D’Aveni, 1994, p. 1079), or can increase bargaining control with the board (Hermalin &
Weisbach, 1998, as cited in Faleye, 2007).
Many studies on transformational leadership still do not point to the direct link of
transformational leadership to corporate governance, and even to firm performance.
Moreover, no study has tackled the effect of CEO pressure on directors on profitability
on good corporate governance, especially if the CEO is also the Chairman of the board.
Many pressures, or unstable conditions (Bass & Riggio, 2006; Waldman et al., 2001) do
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not necessarily contribute to diminishing performance, but using transformational
leadership style has even brought success to organizations (Valdiserri& Wilson, 2010).
These are the research gaps we strive to fill in this attempt.
Statement of the Problem
This study aims to answer three research questions:
1. How do executive directors perceive their CEO leadership style to be and
what leadership characteristics do these CEOs possess?
2. What is the relationship of executive directors’ view of CEO leadership style
and their view of good corporate governance?
3. What is the extent of the moderating influence of CEO pressure on directors
on firm profitability to good corporate governance?
Objectives of the Study
Drawing from existing literature and the results of a survey and face-to-face
interviews, the objectives of this study are:
1. To establish the views of executive directors on CEO transformational
leadership style.
2. To establish the relationship between transformational leadership and good
corporate governance.
3. To ascertain how CEO pressure on directors on profitability moderates this
relationship.
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Theoretical Perspectives
The foundations of this research are based on Stewardship Theory, the
components of Transformational Leadership, Economic Value/Profit Maximization
Perspective, and the Principles of Corporate Governance. These theoretical frameworks
are explanations about the phenomenon under study and provide us the lens with which
to draw the conceptual framework.
Stewardship Theory. The first conception of corporate governance is based on
agency theory, which regards man as having individualistic utility motivations (Davis et
al., 1997). It is focused on the principal-agent relationship between owners (principal)
and managers (agent) of large, public corporations (Eisendhardt, 2004). The crux of the
agency theory is the goal conflict at the organizational level. However, researchers found
agency theory to be narrow in perspective because it fails to consider other organizational
dynamics and looks at man as having only personal interest. This, researchers believe, is
not always the case (Davis et al., 1997; Tricker, 2009).
The stewardship theory is a product of the Simon-Argyris debate which claims
that humans are self-actualizing and need to grow beyond their current state and reach
higher levels of achievement. Psychology distinguishes the steward from the agent using
three situational factors: (a) motivation; (b) culture, and (c) power distance. The table
illustrates the difference.
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Table 1
Differences Between Agency Theory and Stewardship Theory in View
of Situational Factors
Factors Agency Theory
Stewardship Theory
Management
philosophy
Economic model: man drives the development of
management philosophies and systems which produces behavior in the organization
Normative model: highly participative and consisting of open communication, empowerment of workers, and the establishment of trust. (Walton, 1980, 1985, as cited in Davis, 2004)
Culture Individualism: emphasis on personal goals
Collective: Subordinate personal goals with that of the collective
Power distance High: support and legitimize the inherent inequality between principal and agent
Low: place greater value on essential equality between principal and agent
Source: Davis et al., 2004
In contrast to an agent, a steward’s goal is aligned with that of the principals’.
Because of this, the behavior of the steward is collective and will work towards the
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attainment of organizational goal instead of one’s own (Davis et al., 1997). Specifically,
this study looks at Proposition No. 9 by Davis et al. (1997) where the situational
mechanisms of principal and agent are antecedents of their choice between an agency and
stewardship relationship. The authors posited that if a mutual stewardship relationship
exists between principal and agent, then the potential performance of the firm is
optimized.
Directors who are regarded as the stewards are expected to protect the interest of
shareholders, and principals trust that directors will “act altruistically, independently, and
with integrity” (Tricker, 2009, p. 224). In stewardship theory, managers are viewed as
trustworthy, and motivated by “desire for accomplishment, acknowledgment, self-
actualization, self-fulfillment, power, and affiliation” (Lawal, 2012, p.23).
Principles of Corporate Governance. Principle VI of the OECD Principles of
Corporate Governance (2008) states the Responsibilities of the Board. Overall, it
provides the framework to ensure “the strategic guidance of the company, the effective
monitoring of management by the board, and the board’s accountability to the company
and the shareholders” (p.150).
Economic value/profit maximization perspective. CEO’s overemphasis on
economic values or maximizing profit can lead subordinates to believe that the CEO
exercises autocratic leadership (Luque , Washburn, Waldman, & House, 2008).
Autocratic leaders would usually be perceived negatively by subordinates because of its
myopic view and focus on short-term financial gains. In contrast, visionary leaders are
perceived positively and they are viewed as offering visions high in content (inspirational
concern) and quality (consideration of broader and longer-term effects). In Luque et al.’s
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(2008) study, it was shown that visionary leaders have subordinates who exert extra effort
which lead to firm performance. However, the opposite wasn’t seen for autocratic
leaders. The study was not able to establish the relationship between autocratic leadership
and subordinates’ extra effort.
Conceptual Framework
This paper acknowledges Stewardship Theory, the dimensions of
Transformational Leadership, Economic Value/Profit Maximization Perspective, and
Principles of Corporate Governance as theoretical bases. Transformational leadership is
acknowledged to lead to good corporate performance as measured by financial
performance metrics such as market share, stock price, earnings per share, return on
assets, and debt-to-equity ratio (Avolio et al., 1988; Huang, 2010; Kabigting, 2011).
While there are many aspects of performance that can be measured, no study has
currently been able to show variables of performance other than vague descriptors like
change and organizational success (Pawar & Eastman, 1997; Valdiserri & Wilson, 2010).
According to Bass and Riggio (2006), transformational leadership is about
improving performance of followers and developing these followers to their fullest
potential. Transformational leaders provide their followers with the following four (4)
dimensions:
1. Individualized consideration – the degree to which a leader pays attention to
the developmental needs of its followers by effectively listening to the
follower’s concerns and needs through mentoring. The leader supports these
needs and communication lines are constantly kept open between the leader
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and follower. Acceptance of individual differences and encouragement of
individual contribution are shown by the leader in order to achieve
organizational goals and develop followers to their fullest potential.
2. Intellectual stimulation – the degree to which the leader solicits
contributions from followers that stimulate resourcefulness, creativity,
nurture and develop followers to think independently and take responsibility
for their actions. Learning is highly valued and uncertainty is considered a
challenge, which then allows followers to think and perform activities
differently and are not criticized because their ideas are different from that
of the leader.
3. Inspirational motivation – the degree to which the leader motivates and
inspires followers by providing meaning to work performed by followers.
The leader involves followers in envisioning a collective desired state
through an articulated vision. A strong sense of purpose is needed for
followers to be motivated to achieve organizational vision. Vision must be
communicated, understood, and accepted by followers.
4. Idealized influence – the degree to which a leader serves as a role model for
high standards of moral and ethical behavior. Leaders are respected and
trusted by their followers. The leader is greatly admired and followers are
drawn to identify with the leader and emulate them.
Stewardship theory advanced that humans are motivated by intrinsic values
motivated by a desire for “accomplishment, acknowledgment, self-actualization, self-
fulfillment, power, and affiliation” (Lawal, 2012). The human person is posited, under
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stewardship theory, as “self-actualizing” (Davis et al., 1997, p. 32). Directors whose
actions are guided by this type of thinking will put higher regard on the interest of the
shareholder rather than on one’s own, so shareholders believe that directors can act
“altruistically, independently, and with integrity” (Tricker, 2009).
The stewardship theory also promotes CEO duality as well as insider directors to
enhance firm performance (Boyd et al., 2011). Several factors contribute to adopting
CEO duality as a rational, as opposed to a haphazard decision. These factors include
organizational complexity, CEO reputation, and governance structure (Faleye, 2007).
CEO duality is also a factor which dictates the attention given by the board to monitoring
(Tuggle et al., 2008). The board may give little attention to monitoring in case of CEO
duality when the CEO-Chairman wields power in controlling the board agenda, and when
CEO legitimizes his/her power by creating norms that prevent the board from challenging
him/her. In this second case, researchers (Finkelstein & D’Aveni, 199; Tuggle et al.,
2008) showed how CEO-Chairman can abuse power and even lord over the board.
Good corporate governance is indicated in this study by performing the roles of
the board, using the Principles of Corporate Governance, particularly the Principle on the
Responsibilities of the Board (OECD, 2008). The four roles of the board are: control
(Eckhart, 2006; Nicholson & Newton, 2010; Tricker, 2009), service (Carver & Oliver,
2002; Macey, 2008; Tricker 2009), strategy (Eckhart, 2006; Ingley & Van de Walt, as
cited in Nicolson & Newton, 2010; Tricker, 2009), and accountability (Tricker, 2009).
The diagram (Figure 1) is a model of the effect of transformational leadership of
the CEO as perceived by executive directors, and how the CEO’s push for profits
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moderates the director’s perception of this relationship. The framework and the
succeeding hypothesis were conceived based on:
1. The relationship of transformational leadership and corporate governance
2. The extent of influence of CEO pressure on directors on profitability to
corporate governance.
Figure 1. The conceptual framework.
Transformational leadership
• Four components (Bass & Riggio, 2006)
Good corporate governance
• Stewardship theory (Davis et al., 2004)
• Principles of Corporate Governance, Responsibilities of the Board (OECD, 2008)
CEO pressure on director on profitability
• Occupational/leadership stress studies (Bass, 2008; Ongori & Agolia, 2008)
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Operational Framework
The operational framework identifies the independent (Transformational
leadership), dependent (Good corporate governance), and moderating (CEO pressure on
directors on profitability) variables.
Figure 2. The operational framework.
Independent variable Transformational Leadership
Idealized influence
Individualized consideration
Intellectual stimulation
Inspirational motivation
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Independent (Moderating) variable
CEO Pressure on Directors on Profitability
Stress and firm profitability
CEO pressure on directors
CEO pressure on director leadership
Dependent variable Good Corporate Governance
CG Framework Risk Management Practices Executive Selection Nomination Conflict of Interest Independent Directors Shareholder interest Compensation Objectivity Full commitment Information Guiding corporate
strategy Equitable Ethics Audit Independence Disclosure
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A questionnaire was specifically designed for this study. Perceptions of directors
will be used to measure the constructs. The instrumentation and measurement of the
items under each of the variables are discussed in detail on Chapter 3. The means of the
scores (of the three scales) from the quantitative analysis will be used to compare with
the thematic analysis of the qualitative findings.
Research Hypotheses
The hypotheses were developed based on the review of literature cognizant of the
variables to be studied.
There is no direct link between transformational leadership and good corporate
governance or at least the financial performance (Avolio et al., 1988), although most
researchers agree that transformational leadership results in better organizational and
financial outcomes. Although a number of studies have claimed that transformational
leadership does contribute to better performance, these were vaguely described as
profitability, organizational success, or financial performance without getting into
detailed variables (Petra, 2005; Valdiserri & Wilson, 2010; Waldman et al., 2001). These
can actually be derivatives of good corporate governance as described in a working paper
(McGee, 2009). Another study recommended the use of subjective and objective
strategies for measuring organizational performance, where subjective will be perceptions
of subordinates, and objective will be unit performance, productivity, goal attainment,
sales figures, or unit financial performance (Bass & Riggio, 2006).
The positive relationship between transformational leadership and good corporate
governance is shown in the succeeding figure.
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Figure 3. H1 - The relationship of transformational leadership and good corporate governance.
H1: Transformational leadership positively influences good corporate
governance.
Stress can be a deterrent to good performance and a cause for job dissatisfaction
(Ongori & Agolia, 2008). From a leadership stance, stress can cause faulty decision
making (Bass, 2008). However, in studies of transformational leadership, unstable
conditions, or stress even contributed to performance. Charisma or idealized influence
(Bass & Riggio, 2006; Waldman et al., 2001) influenced positive firm performance.
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“Members identify with a leader’s vision and with the experience a heightened sense of
self-efficacy as a result of their cohesion is developed” (Podsakoff, MacKenzie,
Moorman, & Fetter, as cited in Waldman et al., 2001). Moreover, following the
argument on charisma as an attribute of transformational leadership, a study by Tichy and
Devanna (1996, as cited in Hinkin & Tracey, 1999) claimed that “a crisis may be a
necessary condition for a charismatic leader to emerge” (p. 110). To understand better
this conflict, we put forward the following hypothesis.
A CEO’s overemphasis on economic values or maximizing profit can lead
subordinates to believe that the CEO exercises autocratic leadership (Luque et al., 2008).
This perspective runs counter to visionary leadership, which in the authors’ study, states
that autocratic leaders tend to focus on short-term financial gains and can be perceived by
subordinates as “failing to provide a compelling vision of the future” (p. 633). In contrast,
visionary leaders who hold stakeholder values have the propensity to articulate future-
oriented visions benefitting multiple constituencies can be viewed as offering visions
high in content (inspirational concern) and quality (consideration of broader and longer-
term effects). In Luque et al.’s (2008) study, it was shown that visionary leaders have
subordinates who exert extra effort which lead to firm performance. However, the
opposite wasn’t seen for autocratic leaders. The study was not able to establish the
relationship between autocratic leadership and subordinates’ extra effort.
The shareholder-wealth-maximizing paradigm (Tourigny, Dougan, Washburn, &
Clements, 2003) espouses the idea that the be-all and end-all of corporate organizations is
profitability. This pushes executives to render questionable behavior and decisions to
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enhance the bottom line. An example cited was tampering with the books, in an effort to
show short-term financial gains and satisfying powerful shareholders.
Stress may also be viewed from the structure in which it occurs. In companies
which have adopted CEO duality, the CEO also acts as Chairman of the Board, and
therefore has power at the top echelon of the organization, which bars the board from its
function to monitor and discipline (Finkelstein & D’Aveni, 1994). Moreover, with the
highest positions vested on one person, the CEO-Chairman can easily undermine the
monitoring powers of the board (Tuggle et al., 2008). Aside from CEO duality, CEOs
derive power from tenure and ownership (Combs, Kretchen, Perryman, & Donahue,
2007). Long-tenured CEOs can influence their pay structure or be protected by “golden
parachute” (p. 1307), while CEOs with ownership can cling to their power even to the
point of underperformance because they cannot be easily unseated by insiders.
In the second hypothesis, the moderating variable changes the relationship
between transformational leadership and good corporate governance depending on the
CEO pressure on directors on firm profitability. According to Hair, Black, Babin, and
Anderson (2010), this moderator or interaction effect complements the explanation for
the relationship between the independent and dependent variables, or in this case the
relationship between transformational leadership and good corporate governance. This
interaction is illustrated graphically in the succeeding figure.
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Y-Value 1: If the CEO pressure on directors on firm profitability is low, the relationship between transformational leadership good corporate governance is positive.
Y-Value 2: If the CEO pressure on directors on firm profitability is high, transformational leadership and perception of good corporate governance is negative.
Figure 4. H2 - Interaction effect of CEO pressure on directors on firm profitability on good corporate governance.
H2: CEO pressure on directors on firm profitability is a moderating influence on
good corporate governance.
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This framework highlights the consequences of transformational leadership to
good corporate governance and how CEO pressure on directors on profitability
moderates this relationship. Directors should be constantly aware of their roles as
stewards of companies and exercise vigilance to ensure proper governance.
Significance of the Study
The usual assumption of pressures on firm profitability is from the board of
directors to the CEO to deliver bottom line objectives of the company, and this is based
on the existing legal framework whereby the CEO reports to the board of directors. But
because of the nature of privately held corporations, in particular family-owned
corporations, the CEO can be in control of the board (De Ocampo, 2000; Ferrer &
Banderlipe, 2012; Khan, 1999). More often than not, these directors are placed on board
by the CEO or are the largest shareholders (De Ocampo, 2000; Latham, 1999, as cited in
Petra, 2005). Because of this, directors become beholden to the CEO (Daily et al, 2003).
Transformational leadership, on the other hand, has lofty goals of accomplishing
the corporate vision by elevating employees to sharing the vision with leadership, and in
turn raise them up to become leaders themselves, and to even make of them “moral
agents” (Avolio et al., 1988; Burns, 1978, as cited in Gardiner, 2006; Sarros & Santora,
2001; Springett, 2004) . The kind of leadership practice demanded of board of directors is
beyond that which protects the interest of shareholders, but seeks to develop leaders with
moral ascendancy.
Corporate codes around the world are all responses to the agency dilemma
(Tricker, 2009), which sees the agent (management) as someone who has “individualistic
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utility motivations” who will “rationally maximize their own utility at the expense of the
principal” (Davis et al., 1997, p. 22). This study, though, looks at the CEO as “self-
actualizing” (Davis et al., 1997), and maximizing profits for the company can be among
the “self-actualizing” drivers of CEO action.
The literature showed how these variables were studied separately, with a few of
these demonstrating a convergence of transformational leadership and corporate
governance. This study is a necessary step to establish a positive link between
transformational leadership and corporate governance, and also to ascertain whether CEO
pressure on directors on profitability has a moderating effect on corporate governance.
Using a survey and face-to-face interviews, this study should provide rich insights into
directors’ conceptions of leadership and corporate governance, and their views about how
the stress on profitability can affect their opinions on the two variables. The study will
also show how these variables operate given the peculiar and unique corporate set up in
the country. This research should be able to provide abundant input for future research on
leadership and corporate governance in the Philippines.
Addressing a substantive gap. A pioneering research effort, this study will
provide new information and insight into how transformational leadership influences
good corporate governance. Does CEO pressure on directors on firm profitability
moderate this relationship? Extant literature does not present any direct link between the
two concepts nor does it explain how CEO pressure on directors on firm profitability
affects corporate governance. Literature reviews were mainly focused on
transformational leadership and performance (Desai et al., 2003; Huang 2010; Petra,
2005; Valdiserri & Wilson, 2010; Waldman et al., 2001). Corporate governance must not
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be seen as a mere compliance of set structures. The far-reaching effects of corporate
governance, as a result of director behavior, on individuals and society only reinforce the
need for more research of this complex concept.
In this study, how leadership influences corporate governance and how CEO
pressure on directors on firm profitability affects this relationship will be examined. A
deeper understanding of director behavior needs to be studied in-depth if corporate
governance is to be truly carried out effectively. Directors may use these insights in
assessing the leadership behavior of CEOs and how this can guide them in performing the
service role of boards.
The results of this study may also be used to push for more efforts from the
Philippine government and corporate governance institutions on how to improve
corporate governance practice in private corporations, not just mere compliance through
set structures but rather beyond compliance through behavioral and ethical foundations.
Addressing a theoretical gap. The hegemony of the agency theory in the study
of corporate governance is addressed (Desai et al., 2003). CEO pressure on directors on
firm profitability can be a reason why agency theory is widely accepted as a theoretical
basis. However, this study will also contribute to explaining why the study of corporate
governance through the lens of stewardship theory, and the influence of transformational
leadership in carrying out good corporate governance may be able to explain the
dynamics between the two concepts.
Further, by exploring the moderating factor of CEO pressure on directors on firm
profitability, it may make us understand why manifestations of transformational
leadership behavior of CEOs, who themselves are either executive directors or Chairs of
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boards, may temper the level of good corporate governance. This is an unexplored area in
corporate governance research, and findings of this study will contribute to the body of
work on the wealth maximization perspective of corporations.
Addressing an empirical gap. Research on corporate governance is primarily
conducted on independent directors as respondents; very few studies, if any, are done
with executive directors (O’Toole, 2006). These studies only show how corporate
governance are complied with by independent directors and how this process improves
organization performance. When executive directors are the subject of a study, where
will the difference in opinions about CEO pressure on profitability lie? This study will
look at how executive directors in a board respond to CEO pressure on directors on firm
profitability affect their concept of good corporate governance.
When stress brought upon by work pressure leads to positive or negative
organizational performance, the conflicting findings have not been sufficiently explained
from previous studies. Also, where does the stress come from? Is it solely directly
coming from the CEO whose prime objective is to produce company profits or is it from
some other factor?
Further, pressure coming from CEO on directors on firm profitability in carrying
out good governance has not been researched on since the usual assumption of pressure
on firm profitability comes from the board of directors to the CEO. But when the
pressure on the directors comes from the CEO, does transformational leadership still
positively influence good corporate governance?
This study will contribute to the current body of knowledge in corporate
governance by our attempt to provide new insights on director views of CEO leadership
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style and if this influences their concept of good corporate governance when the directors
feel the pressure from the CEO to produce company profits. This will be of help to
researchers of corporate governance, who intend to look at economic as well as
behavioral perspectives of the topic.
Addressing a contextual gap. Corporate governance despite universally-
accepted codes, have different meanings and implications on the country of origin and its
culture (Iu & Batten, 2001). This study attempts to explain the phenomena by
demonstrating the perceptions of Philippine executive board directors on transformational
leadership and corporate governance and how pressures on them on firm profitability
affect the relationship of the two constructs. It is particularly significant as the Philippines
presents a cultural context which manifests in a unique private corporate setup. The
findings of this study will add to the literature on corporate governance in Asia.
Scope and Limitations
The study covers the transformational leadership views of company directors on
the leadership style of CEOs from various private corporations from different industries
in the Philippines, and how it influences their concepts of good corporate governance.
This relationship is further analyzed with the factor of pressure from CEO on firm
profitability. Participation selection will depend on respondent’s willingness to share
personal experiences that are relevant to this study.
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Transformational leadership. Inputs for the transformational leadership
behavior will be derived from responses to a questionnaire based on the four dimensions
of transformational leadership (Bass & Riggio, 2006).
Corporate governance. Corporate governance will be studied based on the
OECD Principles of corporate governance (2008), specifically Principle Number 6:
Responsibilities of the board, and not actual indicators of good corporate governance
such as reduction of risk, stimulation of performance, improved access to capital markets,
enhancement of marketability of goods and services, improved leadership, and
demonstration of transparency and accountability, (CPE, 2002, as cited in McGee, 2009).
CEO pressure on directors of firm profitability. Of the different stress factors,
only firm profitability will be investigated in this study. This moderating factor will be
culled from answers to the survey and personal interviews.
Sampling Design. Thirty directors from 30 private corporations based in Metro
Manila will participate in this study. Perceptions of the three variables under study are
measured using Philippine-owned private companies. The results of this study will not
affect international private companies. Sample size is based on the following constraints:
financial, time and precision.
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Definition of Terms
Leadership. Leadership is defined as a “social influence process that can occur at
the individual, dyadic, group, or strategic level, where it can be shared within a top
management team” (Avolio et al., 2003). The definition points to the importance of both
leader and follower to create a leadership situation.
Also, the study focuses on behavioral manifestations of leadership. Yukl et al.
(2001) for instance, divided leadership behaviors into task behaviors, relations behavior,
and change behavior.
Transformational leadership. Burns (1978) proposed that transformational
leadership concerns achieving extraordinary outcomes whereby, in the process leaders
also develop their own leadership capacities. Incorporating the four dimensions of
transformational leadership involves “inspiring followers to commit to a shared vision
and goals for an organization or unit, challenging them to be innovative problem solvers,
and developing followers’ leader capacity via coaching, mentoring, and provision of both
challenge and support” (Bass & Riggio, 2006, p.4).
Independent director. An independent director is a member of the board who
doesn’t have an economic or material tie to management or the company itself (Ayuso &
Argandona, as cited in Lawal, 2012; Eckhart, 2006; Elson, 2004; Shivdasani & Zenner,
as cited in Lawal, 2012). The composition of a board with independent directors is
provided in most codes of corporate governance to allow effective monitoring (Eckhart,
2006; Elson, 2004), and also to represent interests of shareholders (Petra, 2005).
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Executive director. Also referred to as management director (Petra, 2005) or
inside director (O’Toole, 2006), an executive director who sits on the board but has direct
involvement with the day-to-day operations of the company (Petra, 2005).
Corporate governance. Corporate governance is the relationship among various
participants in determining the direction and performance of corporations. The primary
participants are the shareholders, the management and the board of directors (Monks &
Minow, as cited in Tricker, 2009). It also refers to the private and public institutions,
including laws, regulations and public institutions, which together govern the
relationship, in a market economy, between corporate managers and entrepreneurs, on the
one hand, and those who invest resources in corporations on the other (OECD, 2001, as
cited in Tricker, 2009).
Good corporate governance. The measure of good corporate governance in this
study will be the performance of board roles, as defined by Principles of Responsibilities
of the Board (OECD, 2008).
Firm profitability. This will be described in terms of financial performance using
the metrics of company income statement: net profit. A study by Kabigting (2011) cited
metrics for measuring corporate performance. One is using accounting measures
including return on assets, return on equity, and earnings per share.
CEO pressure on directors on firm profitability. The closest definition based
on literature is the shareholder-wealth maximization model in which the focus is on the
“single, super-ordinate goal of profitability as the ultimate moral end of corporate
organization” (Tourigny, Dougan, Washbush, & Clements, 2003).
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Assumptions
This research assumes the following:
1. Published theories on transformational leadership and corporate governance
are valid and used as a logical basis for furthering research.
2. There is conceptual coherence between the relationships of director
responsibilities in good corporate governance.
4. The principles of corporate governance as espoused and promulgated by the
OECD are deemed to have an acceptable level of validity and veracity.
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Chapter 2
Review of Related Literature
Overview
The review of related studies will focus on the variables to be studied in this
paper. A general description of the general topics on Transformational Leadership,
Corporate Governance, and Firm Profitability will be posited, and to be pursued with
subtopics.
Transformational Leadership
Leadership is a complex subject, at times ambiguous and paradoxical in nature
(Hughes, Ginnett, & Curphy, 2007). This is mainly because the definition of leadership is
wide open for interpretation and is contingent on contextualization. But one thing is
certain, and that is, leadership is an important factor in bringing about change and
betterment of organizations (Collins, 2001; Gilley, Callahan, & Bierema, 2003). Very
few studies have been undertaken that supported the notion that leadership has very little
or no effect on company performance(Meindl, Ehrlich, & Dukerich, 1985; Pfeffer, 1977).
These findings were refuted as majority of the studies made has emphasized and
supported the importance of leadership in effecting change and improving company
performance. And even with the glut of leadership studies made from the early 1900s to
the present day, what scholars have studied for the most part of the 20th century
concentrated on supervision and management, defining a job goal clearly, making sure it
gets done, and fulfilling the job required (Sashkin & Sashkin, 2003), inferring that
leadership has mostly been transactional.
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This would mean that there is a need for more studies made on transformational
leadership, the most ideal, though not proven, style of leadership which majority of
scholars and researchers are currently supporting. Burns (1978) pioneered the concept of
transformational leadership (see Table 2 for Taxonomy of Transformational Leadership),
or transforming leadership as he originally termed it, which occurs when “leaders and
followers raise one another to higher levels of motivation and morality” (p.20).
Transforming leadership, according to Burns (1978), converts followers into leaders and
leaders into moral agents. Moral leadership is the end-goal of transformational
leadership, according to Burns (Springett, 2004).
Bass et al. (1987) studied the falling dominoes effect of transformational
leadership. In their study, the result showed that transformational leadership cascades
down to subordinates for the next two levels. It means that managers model any kind of
active leadership behavior, with middle managers emulating top-level managers. With
charismatic leadership central to the concept of transformational leadership, followers put
trust and confidence and vision of leaders, and aspire to be like them.
According to Bass and Riggio (2006), transformational leadership is about
improving performance of followers and developing these followers to their fullest
potential. Transformational leadership has four (4) dimensions which serve as guide for
determining behavior (Bass & Riggio, 2006; Brown & Reilly, 2008), and these are:
1. Individualized consideration: Gives personal attention to others, making
each individual feel uniquely valued;
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2. Intellectual stimulation: Actively encourages a new look at old methods,
stimulates creativity, and encourages others to look at problems and issues
in a new way;
3. Inspirational motivation: Increases optimism and enthusiasm, communicates
high expectations, points out possibilities not previously considered;
4. Idealized influence: Provides vision and a sense of purpose. Elicits respect,
trust, and confidence from followers.
Transformational leadership is thought to be more effective than transactional
leadership in bringing about better performance (Jung & Avolio, 1999; Sashkin &
Sashkin, 2003). However, transformational leaders must be able to manifest
transactional leadership qualities to put effective leadership in its proper context
(Goodwin, Wofford, & Whittington, 2001). Bass and Riggio (2006) further supported
this by arguing that transformational leadership cannot be studied in a vacuum since
transformational leadership is the highest level of the leadership continuum, which
include manifestations of transactional leadership qualities. Several studies have also
supported the influence of transformational leadership in company performance
(Humphreys & Einstein, 2003; Jung & Avolio, 1999; Valdiserri & Wilson, 2010).
According to Bass and Riggio (2006), even with the hegemony of the Multifactor
Leadership Questionnaire (MLQ) as a measure of transformational leadership,
researchers should develop other methods of assessing the influence of transformational
leadership, such as observational methods to objectively code leadership behaviors and
other non-quantitative methods of inquiry.
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Leaders must be able to manage conflict and the stress that comes with it.
Transformational leaders find ways to resolve conflict from agreement and cooperation.
Transactional elements may be used to reinforce trust of the parties to keep an agreement
(Bass &Riggio, 2006).
The emphasis on employees’ needs as cornerstone of situational leadership suits
the individualized consideration component of transformational leadership. Under this
concept, leaders accept individual differences (Bass & Riggio, 2006) and apply
appropriate approach to develop their employees or followers (Bass & Riggio, 2006;
Irgens, 1995). The difference perhaps lies in the rationale for the attention to employees.
Situational leadership as conceptualized by Irgens (1995) develops followers to wean
them from directional or supportive behavior and to increase their competence and
minimize the need for support. The end-goal is performance of the task. Transformational
leadership, on the other hand, stretched this further by elevating the needs of the follower
with the goals and objectives the leader, on whom the follower puts his/her trust and
confidence. In transformational leadership, the task is just the tool; the goal is to motivate
the follower to share the leader’s vision and work towards the same direction in
accomplishing it. Transformational leadership fosters a relationship in which the follower
emulates the leader (Bass et al., 1987).
Transformational leadership, however, has its share of criticisms and these are
well founded and relevant. Northouse (2007) in his book on leadership, cited the
following works of authors who criticized the transformational leadership model: Tracey
and Hinkin (1998) showed the overlapping of the four factors suggesting that they are not
delimited and transformational leadership often overlap similar constructs of leadership;
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Carless (1998) and Tejeda, Scandura, and Pillai (2001) questioned the validity of the
MLQ as a measurement because they view the factors as highly correlated and not
distinctly different from one another; Bryman (1992) suggested that transformational
leadership treats leadership as a personality trait or predisposition rather than as a
behavior which can be learned; Yukl (1999) questioned the focus on the leader because
the model failed to consider reciprocal influence, meaning followers have equal ability to
influence leaders.
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Table 2
Taxonomy of Transformational Leadership
Focus Author(s) Variables Conclusion(s)
Philosophical underpinnings
Burns, 1978 N/A Transforming leadership elevates followers into leaders and leaders into moral agents. It is a moral process by which leader and follower raise both each other’s conduct and ethical aspiration, thus has a transforming effect on both parties.
Bass, 1985 N/A Transformational leadership explored how this leadership style commands performance beyond what is required and involved commitment. The author expanded Burns’ transforming leadership and identified four dimensions: individualized consideration, intellectual stimulation, inspirational motivation, and idealized influence.
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Focus Author(s) Variables Conclusion(s)
Bass & Riggio, 2006
N/A Transformational leadership advances improving performance of followers and developing these followers to their fullest potential. The authors asserted that leadership should address followers’ self-worth in order to involve them and allow them to fully commit to a vision. This is the most ideal leadership style in the leadership spectrum (Transformational, transactional and laissez faire).
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Focus Author(s) Variables Conclusion(s)
Measurement of Transformational Leadership
Hinkin & Tracey, 1999
Independent – Transformational leadership dimensions (4Is)
Dependent – Item questions per leadership dimension
The research aimed to ascertain if the transformational leader items specified in the MLQ adequately described each of the four dimensions. Idealized influence, or charisma, has been singled out in literature as lacking empirical support. The study found that there were questions on theoretical adequacy of items included in the MLQ, as only 23 of the 39 items were classified correctly by respondents. Moreover, idealized influence could not be differentiated as a distinct construct. This could be attributed to the condition of the organization as stable. The early underpinnings of charismatic leadership would show its emergence in time or crisis, as in political or religious upheavals. Expecting this dimension to emerge in a business setting and in a period of stability seems unrealistic as conjectured by the authors.
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Focus Author(s) Variables Conclusion
Brown & Reilly, 2008
Independent – Personality traits
Dependent – Transformational leadership
Using MBTI (Myers Briggs Type Indicator) to measure elements of personality (extraversion-introversion, sensing-intuition, thinking-feeling, and judgment-perception) and MLQ to assess the transformational leadership (4Is) of managers, the study was not able to establish a link between any of the MBTI identified personality and transformational leadership. However, the study was able to support existing literature about establishing a link between transformational leadership and organizational desirable outcomes. It was also found that managers regarded themselves as more transformational than their subordinates’ perception of their leadership style.
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Focus Author(s) Variables Conclusion
Transformational leadership and performance
Avolio, Waldman, & Einstein, 1988
Independent – Leadership style (Transformational and transactional)
Dependent – Team performance
The study used a management simulation game in which 27 teams represented the management of a mock-up manufacturing organization. It aimed to show the link between transformational leadership (charisma, individualized consideration, and intellectual stimulation) and active transactional leadership (contingent reward) and organizational performance. A moderately strong relationship was found between transformational and active transactional leadership of team leaders and financial performance. Passive transactional leadership (management-by-exception) was not correlated with the effectiveness of teams. Moreover, results showed that transformational leadership accounted for the largest percentage of unique variance in the financial performance of teams, thus supporting Bass’ (1985) claim that transformational leadership would be more predictive of individual and group performance, compared to transactional leadership.
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Focus Author(s) Variables Conclusion
Valdiserri & Wilson, 2010
Independent – Leadership style
Dependent – Organizational success
Organizational profitability
The study sought to establish if a relationship existed between leadership style (transformational, transactional, and laissez-faire), and organizational success (employee satisfaction) and organizational profitability (employee effectiveness) in the small construction business industry. It found that there was a positive and stronger relationship between transformational and transactional leadership styles and success and profitability, than laissez-faire leadership and the dependent variables. The study showed no gap in the existing literature that failure of small businesses can be attributed to leadership.
Goodwin, Whittington, Murray, & Nichols, 2011
Independent – Transformational leadership
Dependent –
Organizational citizenship
Affective commitment
Performance
The study explored trust and its role in the transformational leadership and outcomes relationship. It concluded that trust is a mediator between transformational leadership and the depended variables. Moreover, this study also showed that trust is an outcome of transformational leadership, therefore, brings about the follower outcomes studied.
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Focus Author(s) Variables Conclusion
Commitment, Loyalty, Satisfaction of Followers of Transformational Leaders
Bass, Waldman, Avolio, & Bebb, 1987
Independent – Second-level manager transformational leadership
Dependent – First-level supervisor transformational leadership
The study showed the positive falling dominoes effect of transformational leadership from second-level manager to first-level supervisor. Using MLQ to test how much transformational leadership dimensions were expected of and observed in managers and supervisors, the study also found that first-level charismatic supervisors expected less charisma from their second-level manager, debunking what was stated in literature that followers want to emulate charismatic leaders and would develop intense feelings towards their leaders.
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Focus Author(s) Variables Conclusion
Bruch & Walter, 2007
Independent – Transformational leadership four dimensions (4Is)
Dependent – Job satisfaction
The study found that hierarchy provides context for the occurrence of transformational leadership. While subordinates of upper managers and middle managers rated their direct leaders above the mean score on all dimensions, idealized influence (II) and inspirational motivation (IM) were found to occur more frequently among upper managers than middle managers. Individualized consideration and intellectual stimulation (IS) showed no difference in occurrence among upper and middle managers. Moreover, II, IM, and IS were shown to be of greater influence in contributing to job satisfaction when exhibited by upper managers to middle managers than by middle managers to first-line supervisors.
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Transformational Leadership and Corporate Governance Nexus
Research on the link between transformational leadership and corporate
governance is quite limited and both concepts are mostly studied independent of each
other.
Stewardship theory (Davis et al., 1997) suggested that not all managers are
motivated by financial gains but are motivated by a need to achieve and gain the respect
of their peers and superiors. This perspective has an implicit and indirect reference to
transformational leadership theory and blends with the transformational leadership model
of Bass (1985) where non-financial motives for managerial behavior are supported.
Successful leadership implies that leaders influence the attitudes, abilities, and behaviors
of their followers. Transformational leadership at the top is expected to manifest at the
lower levels (Bass et al., 1987; Bruch & Walter, 2007).
While conformance and compliance are control mechanisms that ensure good
corporate governance and make leaders accountable for their actions (Jamali, Safieddine,
& Rabbath, 2008), transformational leadership research suggested the ethical foundation
by which good governance may be carried out effectively. An organization that does not
exact high moral and ethical standards from its leaders will weaken its governance
structure and eventually lead to its corruption and unsustainable growth (Huang & Snell,
2003).
The concept of ethics must be ingrained in all levels of an organization. By
embedding corporate responsibility through organizational transformation, firms should
be able to reap financial and social rewards. Ethics is an antecedent to consequential good
corporate governance (Bartlett, 2009; Minkes, Small, & Chatterjee, 1999). Ethics may
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also assist in deterring corporate crime. Transformational leadership is one of the key
concepts (the others are national culture, moral courage, and organizational transparency)
for corporate crime prevention (Dion, 2008).
In view of recent corporate scandals, there is a need for boards to transform
themselves into effective working groups where trust is essential for them to re-establish
governance authority. Boards must spend more time in leadership development, which is
an area of great risk if not properly pursued (Steingraber & Kane, 2010). Leadership by
corporate governance does not only entail management and accountability but includes
the concepts of encouragement, consideration, and service to others with an objective of
achieving organizational goals through ethically correct or morally accepted work
(Llopis, Gonzales, & Gasco, 2007), the concepts of which are reflected in the four
dimensions of transformational leadership. True transformational leadership must be
grounded in ethical foundations and must transcend the leader, follower, or group. It
must create a path that will blend the corresponding values and stakeholder interests
(Bass &Steidlmeier, 1999).
One of the major mechanisms that ensure good corporate governance involves the
audit process. The effectiveness of accounting and audit practices is influenced by the
leadership style of its leaders. In order for firms to be successful, leaders are encouraged
to study and emulate characteristics of transformational leadership. Transformational
leadership has substantial impact on accounting and audit practices (Friedman, Langbert,
& Giladi, 2000; Spangler & Briaotta, 1990). This supports the earlier findings of Burns
(1978) that transformational leadership involves leaders who influence and move their
followers to higher standards of moral and ethical behavior. Also, this could be similar to
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what Bass et al. (1987) proposed that the transformational leader should motivate
followers to work for “transcendental” goals. Perhaps this is similar to Burns’ (1978)
moral leader, and transcendent leader (coined by Diane Larkin as cited in Gardiner, 2006)
who transcended the self into being and action.
Transformational leadership is suggested to be relevant during times of significant
organizational changes (Humphreys, 2005). During the Asian financial crisis of 1997-
1998, there were strong indicators that transparency through higher disclosure can impact
firm performance. This was manifested through better stock prices of firms involved
(Mitton, 2002).
Culture plays an important part in the effective implementation of corporate
governance. The interacting cultural characteristics suggest the extent to which
governance mechanisms are complied with (Haniffa & Cooke, 2002; Licht, 2001;
Velayutham & Perera, 2004). Organizational governance culture and systems facilitate
transformational leadership of the board (Orlikoff, 2010).
Convergence between two concepts is based on similar core concepts (Jones &
Coviello, 2005). Ethics as previously discussed, and strategy, are major components of
corporate governance and transformational leadership.
Extant literature has also argued the importance of leadership of the board in
strategy formulation and implementation, which is another crucial component of
corporate governance. Current studies suggest a strong connection between leadership
and corporate governance such as the study by Gardiner (2006) on shared governance
which may be used to link the two concepts. However, more studies are needed to further
strengthen the link between the two concepts.
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Corporate Governance
According to Monks and Minow (2011, as cited in Tricker, 2009), “corporate
governance is the relationship among various participants in determining the direction
and performance of corporations. The primary participants are the shareholders, the
management and the board of directors” (p.39). Years of corporate governance research
(see Table 3 for Taxonomy of Corporate Governance) have produced a relatively
sufficient amount of literature but there are certain areas in which researchers can
contribute new knowledge to organizational improvement. Previous research has been
focused on the assumption of the agency theory to a point where empirical dogmatism
prevailed. The agency theory also dominates corporate practice, such as shareholder
activism, configuration of more independent directors, executive compensation,
institutional shareholders, and so forth (Daily et al., 2003). Most research view
governance mechanisms as deterrents to agent self-interest.
For example, Tricker (2009) asserted that the conceptual underpinning of
corporate governance codes around the world is to respond to the agency dilemma.
Macey (2008) stated that there is an assumption that directors add value to the company
by serving shareholders as independent monitors of managers. However, this is widely
challenged because directors elected through “traditional board process serve managers
by supporting them” (p.51).
But in recent years, this perspective has been challenged by numerous studies
using different perspectives that veer away from the agency theory such as works from
Davis et al. (1997) on stewardship theory and van Ees, Gabrielsson, and Huse (2009) on a
behavioral perspective of boards and corporate governance.
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Corporate governance should not be viewed as mere compliance and conformance
functions (Jamali et al., 2008; van Ees et al, 2009). Understanding corporate governance
through focus on the control perspective is a simplistic view that will stunt the growth
and development of this critical corporate concept. Corporate governance is and should
be currently viewed as a system whereby the organization’s growth and value creation
are contingent on how the processes and activities of an organization are being carried
out (Jamali et al, 2008; Steger & Amann, 2008). Being a multi-faceted topic, various
perspectives and contextual conceptualization can bring additional insights into the
subject matter.
Among the internal mechanisms of corporate governance is the appointment of
independent directors to the board. Independence can be defined as the “absence of any
economic ties to management or the company itself (Elson, 2004) or “without a current
or recent material relationship with the company” (Eckhart, 2006). It provides for
effective monitoring because directors do not grow too comfortable with the managers,
thus giving them more objectivity in conducting reviews (Elson, 2004). If the corporate
board has more independent directors, the focus is on monitoring; if less, concentration is
on strategic planning and other managerial functions (Macey, 2008).
Intuitively, the additional cost of effective corporate governance should be
covered by its added value and therefore should increase firm performance. However,
studies on corporate governance failed to support its impact on performance. These have
not been able to directly and conclusively establish the link between firm performance
and good corporate governance. Results also do not necessarily show a negative impact.
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Furthermore, results of these studies depend on the research question, indicators, and
methodology and are opened for discourse (Steger &Amann, 2008).
According to Porter (1996), the development and establishment of an effective
strategy is dependent on an organization’s leadership. A leader’s role is much more than
just orchestrating an entire operations and the responsibility for its bottom line.
Leadership’s core is its strategy (Porter, 1996). Strategy, in relation to corporate
governance, plays an important role in firm performance since board members are tasked
and directly responsible for the formulation of organizational strategy (Hendry & Kiel,
2004; Spanos & Lioukas, 2001; Supangco, 2006). While there is no evidence of a causal
relationship between corporate governance and firm performance, extant literature
provides strong correlation between strategy setting and firm performance (Hahn &
Powers, 2010; Robinson & Pearce, 1989).
The discussion on corporate governance also concerns external mechanisms.
External governance mechanisms such as government and machinations from third
parties provide additional insights into the corporate governance literature. The legal
system provides for the protection of shareholders and assures the enforcement of
accepted rules and regulations, and takeovers ensue as a result of internal failure (Dennis
& McConnell, 2003). Other external governance controls may include media pressure
and competition.
The Organization for Economic Cooperation and Development (OECD, 2008)
provides the guidelines in detail on how organizations may practice good governance.
However, no matter how sound the principles, Iu and Batten (2001) argued that there’s no
single model of corporate governance that can be applicable to all countries. The OECD
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Principles, a Western concoction, may not necessarily be most fitting for the Asia-Pacific
context given the different cultural contexts. The authors further asserted, “Finding which
model is superior is not important, as long as it works for the circumstance” (p. 58).
Issues such as transparency, remuneration, number of independent directors, and
so on have spurred many studies on how these attributes individually and collectively,
affect corporate governance and firm performance. This paper shall focus on the aspect
of leadership in corporate governance.
CEO Duality
A study by Desai et al. (2003) studied CEO duality or CEO who also sits as chair
of the board, board monitoring, and acquisition performance from the lens of both agency
and stewardship theories. They found that CEO duality may negatively impact
profitability of acquisition of firms. However, even if dichotomizing the position of CEO
and Chairman benefits acquisitions in general, variables such as ratio of independent
boards and their stock ownership, also contribute to acquisition performance.
The choice whether to adopt CEO duality or nonduality is contingent upon three
factors—organization complexity, CEO reputation, and governance structures. This is not
an arbitrary choice or a response to shareholder activists’ call for greater independence.
Faleye (2007) presented three conditions for adopting CEO duality. First, the more
complex the organization, the wiser it is to have CEO duality for flexibility, for faster
formulation and implementation of strategies, and instituting change. For CEO
reputation, the study noted that the more reputable the CEO, the more value it creates for
shareholders because these CEOs will less likely engage in endeavors advancing their
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self-interest, thus reducing agency cost. Meanwhile, governance structure points to the
ownership of equity by CEO-Chairman. The more significant the ownership of equity,
the more aligned the interests of owners and CEO, which again reduces agency cost.
These three conditions provide a more rationalized reason for choosing CEO duality over
non-duality.
Two studies show how power can be abused when the positions of CEO and
Chairman of the board are vested on one person. Finkelstein and D’Aveni (1994) stated
that CEO duality can promote entrenchment, and at the same time promote unity of
command at the other spectrum. The challenge, therefore, is to strike a balance between
these two seeming opposite results. The study showed that board vigilance is negatively
associated with CEO duality when informal power and firm performance are high. This
means that when the CEO has extensive resources such as contacts and loyalty of
stakeholders in the organization; or when the company is performing well, there’s less
need for board vigilance. Note that a vigilant board has “the motivation and incentive to
effectively monitor and discipline CEOs (Finkelstein & D’Aveni, 1994, p. 1080), but its
vigilance is minimized if the conditions mentioned previously are met.
This study also showed that CEO duality can encourage unity of command
(Finkelstein & D’Aveni, 1994), which to the stakeholders shows strong leadership. It
removes ambiguity and facilitates decision-making.
In Tuggle et al.’s (2008) study, the focus was the attention to monitoring accorded
by board members to organizational performance and CEO duality. CEO duality can
lessen the attention to monitoring because of the power that the CEO-Chairman wields,
such that the CEO-Chairman can control the agenda of board meetings, and can create
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the norms that inhibit the board from challenging the CEO-Chairman, even if the
company is not performing.
Board Composition
Codes of principles or governance codes around the world specify the inclusion of
independent directors on the board to monitor management and to put in place prudent
and effective controls (Eckhart, 2006). Studies on independent directors are many
compared to studies on executive (insider or managerial) directors (Petra, 2005).
Independent directors are seen to strengthen the corporate boards (Petra, 2005), for they
can monitor management, and work in the best interest of the stockholders (Eckhart,
2006; Elson, 2004; Petra, 2005; Wong, 2011). In another study conducted in Taiwan
where the interrelationship of corporate governance, corporate social responsibility, and
financial performance were explored, it was found that independent directors had the
greatest impact on most social performance of its workers, customers, suppliers, and
community. Also, having independent directors on the board is positively related to both
corporate social responsibility and financial performance (Huang, 2010).
However, independent directors, too, can deviate from their sworn in commitment
to monitor management. When independent directors are CEO themselves and deal with
other directors from their own boards, independence cannot be maximized. When they sit
simultaneously in boards, they may no longer challenge each other’s espoused beliefs.
Also, boards do not welcome directors who play devil’s advocate (Sonnenfield, 2002, as
cited in Tourigny et al., 2003). This “old boys network” thinking have directors “ignore
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important warnings, hold negative stereotypical views of stakeholder groups who oppose
their action” (Tourigny et al., 2003, p. 1038).
A notable study by O’Toole (2006) is a research about executive directors. The
professional role and responsibility represented by the executive directors in this study
are human resources or marketing. O’Toole (2006) upheld the Human Resource (HR)
executive as the steward of corporate or organizational culture, and the marketing
executive as the steward of brand equity. Moreover, these directors represent the stake of
employees in the case of HR, and consumers in the case of marketing, both important
company stakeholders. However, they are not able to represent their professional roles,
but sit in like independent directors focused on corporate matters. The focus of the board
then remains for the interest of the shareholders, even as it neglects other stakeholders.
Roles of the Board
Whether the structure of the board is majority executive or non-executive, the
mandate remains the same, to protect the shareholder (OECD, 2008; Tricker, 2009).
Nicholson and Newton (2010) summarized the role of the board as follows:
1. Control – The role is not clear cut because it can mean a lot of things. Others
claim this could mean the hiring and firing of senior management, the
adoption of control-related activities including monitoring CEO and strategy
implementation, and implementing strategic and financial control
(Nicholson & Newton, 2010). Control might also be used to assess and
manage risks (Eckhart, 2006).
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Tricker (2009) also described control as a means to supervising management
activities. A management control system has measures to gauge
profitability, growth in market share and revenues, customer satisfaction,
among other things.
2. Service – This can be considered an inward-focused role (advising) or
outward which is about enhancing reputation and establishing contacts with
the external environment. Other researchers also alluded to this service role
as offering expert advice including skills, knowledge and experience in
management (Carver & Oliver, 2002; Macey, 2008). The other service
function on linking with the external environment is akin to resource-
dependency function by which directors link the company to the resource
the company would need whether financial or other forms of capital that will
help company accomplish its goal (Tricker, 2009). Carver and Oliver (2002)
also referred to useful connections for “finance, public relations, and
potential customers”, while Hung (as cited Nicholson & Newton, 2010) used
the terms “linking, coordinating, and legitimizing”.
3. Strategy – This refers to the extremes of approving, monitoring and
reviewing strategy and establishing the goals, values, and directions
(Ingley& Van de Walt, as cited in Nicholson & Newton, 2010). Other
authors classified this service as strategy formulation (as opposed to the
functions mentioned earlier), and policy formulation (Eckhart, 2006;
Tricker, 2009).
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4. Accountability — This step is the culmination of the first three functions.
After these have been fulfilled, the board makes it accountable to the
shareholders and communicates this accountability to both internal and
external stakeholders (Tricker, 2009).
Table 3
Taxonomy of Corporate Governance
Focus Author Insights
Agency theory Tricker, 2009 The conceptual underpinning of corporate codes around the world is a response to the agency dilemma.
Macey, 2008 Board of directors act as independent monitors on behalf of the shareholders. Unfortunately, some directors serve managers instead.
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Focus Author Insights
Stewardship theory Davis et al., 1997 The steward seeks to attain the goals of the organization such as growth and profits, and protects and maximizes shareholder wealth through firm performance.
Internal mechanism (board structure- independent directors)
Elson, 2004 Independence provides for effective monitoring and objective review.
�
Macey, 2008 The focus of independent directors is monitoring.
Petra, 2005 Independent directors strengthen corporate boards
External mechanism (laws/regulations)
Iu & Batten, 2001 The OECD Principles promotes guidelines for good governance. However, there’s no one single model that can capture various cultural and corporate contexts. The OECD being conceived in the West may not be totally applicable to Asia Pacific cultures.
Structure (CEO duality) Desai, Krall, & Wright, 2003
CEO duality negatively impacts acquisition performance of firms.
Faleye, 2007 Choosing to adopt CEO duality in a firm should take into consideration the characteristic of the firm. Three factors should be considered before deciding on CEO duality: complexity of the firm, CEO reputation, and governance structure.
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Focus Author Insights
Finkelstein & D’Aveni, 1994
CEO can promote entrenchment, and at the same time unity of command. The challenge is to strike a balance between the two.
�
Tuggle et al., 2008 CEO duality can lessen the attention given by boards to monitoring. The CEO-Chairman can control the agenda, and also legitimize his/her power by creating norms that bar the board from questioning him/her.
Good Corporate Governance
A landmark study established the link between good corporate governance and
share price levels. This survey conducted by the Association of British Insurer confirmed
this causal relationship, and has claimed that good corporate governance shields the
company during times of crisis, and its effect is long-term (Tricker, 2009). McGee (2009)
concurred in his study and stated that good corporate governance helps increase share
price and makes it easier to obtain capital because international investors are hesitant to
lend money or buy shares from companies which do not adhere to corporate governance
principles. In his working paper, he cited the Center for Private Enterprise (CPE, 2002,
as cited in McGee, 2009) which listed the main attributes of corporate governance. These
include reduction of risk, stimulation of performance, improved access to capital markets,
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enhancement of marketability of goods and services, improved leadership, and
demonstration of transparency and accountability (p.2).
In a study by Huang (2010), it was suggested that independent outside directors,
foreign and domestic financial institutional stockholders were shown to improve financial
performance. All these components are dimensions of corporate governance, with
independent directors representing board control, and foreign and domestic financial
institutional stockholders representing board ownership. The study reviewed the
interrelationship of corporate governance, corporate social responsibility, and corporate
performance using a sample of electronic companies in Taiwan. Taking on the criteria
set by the CPE, corporate governance based on this study yielded stimulation of
performance, and enhancement of marketability of goods and services.
Firm Profitability
Firm profitability is one area that is the responsibility of executives and this is a
source of stress on these executives. Other drivers of stress are seen in terms of firm size,
location of ownership and control, state of business, and roles of individuals within
organizations (Worrall & Cooper, 1995). Heads of corporations or CEOs put pressures
on their followers on firm profitability and CEO profitability values are related to how
followers subsequently act (Luque et al., 2008).
Shane (2003) also discussed the role of opportunities by enterprising individuals,
in this case, the CEO, who believes that an entrepreneurial opportunity can yield profits.
However this belief may also turn out to be unprofitable when assumptions turn out to be
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wrong. He believed that it is an individual and not groups or a company that discover
entrepreneurial opportunity.
CEO Pressure on Directors on Firm Profitability
As established earlier, the board’s primary duty is to protect shareholder interest,
this in spite of an acknowledgment of other stakeholders (Tricker, 2009). While the
board’s primary duty is to the shareholders, it should also in fact, be the body pressuring
the CEO to perform his/her job to make the company profitable, as a result of performing
its duties of control (Nicholson & Newton, 2010; Tricker, 2009), service (Carver &
Oliver, 2002; Macey, 2008), strategy (Eckart, 2006; Tricker, 2009), and accountability
(Nicholson & Newton, 2010; Tricker, 2009). Even with the plethora of studies and
articles elevating the status of corporate boards, however, the truth of the matter is the
CEO has “seized the control of the boardroom”, which makes boards the tools of
management, rather that it being the instrument for control of management by
shareholders” (Petra, 2005).
What I will discuss in this section is to focus on the effects of this stress factor.
An article published in Chief Executive (Bennett, 2002) drew attention to the unyielding
pressure to keep earnings and revenues growing at a rapid rate. Because of this,
executives are under a lot of pressure and neglect their corporate social responsibility
practice.
Another perspective to this variable is the shareholder-wealth-maximizing
paradigm which focuses on profitability as the utmost goal of corporations. Like the
situation mentioned in the previous article, this paradigm also sets aside corporate social
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responsibility and puts other stakeholders on the sideline. A study by Classens, Djankov,
and Lang (2002, as cited in Khan, 1999) noted that the East Asian model on corporate
governance typifies a non-separation of ownership and control which is true in most
Philippine companies, the focus of which is the accumulation of wealth (Ferrer &
Banderlipe, 2012).
Without pre-empting the discussion on Philippine corporate governance context,
the feature of non-separation of ownership and control present in the Philippine context is
not only an issue of CEO duality, but also of keeping the wealth within the family due to
family-ownership structure (Echanis, 2006; Iu & Batten, 2001; Kabigting, 2011; Saldaña,
1999). In Desai et al.’s (2003) research, the authors studied the relationship between CEO
duality and acquisition performance using both the agency and stewardship theory lenses.
They found that, among other conclusions, the percentage of outside board members is
negatively associated with firm acquisition in the absence of CEO duality, and positively
related in the presence of duality. This is true when viewed under the auspices of agency
theory. Overall, the study also debunked the arguments of stewardship theory because it
found that having an independent chair leads to “gains in shareholder wealth” (p. 150).
A paper presentation by de Ocampo (2000) described the typical Philippine board
as being composed of seven to eleven members representing the largest shareholders of
the company. The Corporation Code, according to him, does not specify protecting
minority shareholders, and outside directors are not common nor mandatory. Outside
directors, if present are brought in by controlling shareholdings. Having an “independent
director is not acceptable for most companies because family members and close
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associates prefer to discuss business issues of highly confidential nature within the
family” (p. 6).
The Philippine set up can be classified under the family-based governance system
proposed by Khan (1999) in which the ownership of debt and equity is concentrated, and
the investor orientation is control-oriented for family groups. It is highly possible that
Philippine corporations practice CEO duality, for which reason the CEO who also acts as
chairman of the board, can push for the profitability agenda.
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Philippine Corporate Governance Context
Corporate governance in the Philippines shares similar qualities with its East
Asian counterparts, most observed of which is the family-ownership structure (Echanis,
2006; Iu & Batten, 2001; Kabigting, 2011; Saldaña, 1999). This quality has been referred
to as among the weakest attribute of corporate governance in the country, if to be gauged
against the codes on control (monitoring function) and transparency (reporting) are
concerned.
Iu and Batten (2001) cited two key features of corporate ownership among East
Asian countries: concentration and composition. The concentration dilemma happens in
two forms—low concentration (high dispersion) and high concentration (low dispersion).
The former occurs when majority of ownership is held by a number of majority and
minority shareholders, and the latter, when majority of ownership is held by a small
number of major stockholders. In low concentration, conflict arises between shareholders
and managers, while in high concentration, between majority and minority shareholders.
The problem on concentration is manifested in an Asian Development Bank study
(2000, as cited in Iu & Batten, 2001) study, in which it was reported that 46% of
corporations in the Philippines were under family control. Because of this, it “bred a
culture of cross shareholdings, absence of independent directors, related party-lending,
and evasion of single borrower limits” (Arceo-Dumlao, 2000a, as cited in Iu & Batten,
2001). Moreover, Saldaña (1999) claimed that most publicly-listed Philippine companies
allocate only a minimum number of shares to be classified as a public corporation. Some
of these corporations, therefore, are missing a wider shareholder base to sustain broader
� 23
discussions on major management actions and on their judgment of company
performance.
Meanwhile, composition refers to the owners or shareholders. These can be in the
form of “individuals, a family or family group, a holding company, a bank, an
institutional investor, or non-financial corporation” (ADB, 2000, as cited in Iu & Batten,
2001). The dilemma on composition in the Philippine context is pronounced in the
ownership of banks by corporate groups. In the study of Saldaña (1999), forming
corporate groups are a means by which large shareholders controlled their investments
through allocation in various businesses, and banks are usually included in this
arrangement. This condition contributes to weak corporate governance because it
“diminishes the capacity of banks to be effective external control agents” because these
are in the best position to gauge “the efficiency of the corporate group’s investment and
financing activities” (p. 18).Iu and Batten (2001) added that the inclusion of banks
equates “easier financing, not more stringent monitoring” (p. 56).
The problem on composition can also be gleaned in the study of factors
contributing to bank failures. Echanis (2006) mentioned the non-separation of decision
management and decision control when owners and directors “effectively centralized and
combined these functions at the board level” (p.33). In her example, she cited the case of
Wincorp which closed in 2000 when the owners were also the biggest borrowers,
including Sta. Lucia Realty (20% ownership and procured P943M in loans), and Unioil
Resources and Holdings Company Inc (major stockholder and borrower in over 50% of
the pooled investment accounts).
� 22
Another weakness of corporate governance as a result of family ownership can be
found in transparency. Iu and Batten (2001) claimed that the need for transparency and
disclosure is not crucial in a relationship-based transaction environment where insiders
exercise control over the degree of information disclosure or what the authors would call
“information asymmetry” (p. 57). The OECD Principle (2008) stated that disclosure
influences behavior of companies and protects investors. Thus, information symmetry
lends to withholding information on impropriety and management practices, making it
difficult to make monitoring of misdeeds difficult, let alone making the culprits
accountable for their misbehavior.
With the chronicling of OECD Principles (2008) and other codes as stated in the
Philippines’regulatory structures such as those of the Securities and Exchange
Commission (SEC), BangkoSentralngPilipinas (BSP), and the Philippine Stock
Exchange, transparency has been exercised however not to a level that could have
prevented, for example, the closure of some Philippine banks. Despite audits by the BSP,
Wincorp got away with violations of the “19 lender rule” of the Revised Securities Act
which stipulates that nonbanks (e.g., investors of Wincorp) cannot collect deposits or
investments from more than 19 clients. Wincorp collected investments from its 2,200
lenders collapsed into less than 20 accounts. Monte de Piedad Savings Bank, which
closed after 115 years of operation in 1997, hid anomalous loans and transactions in their
audited report. The said bank incurred bank loans through a conduit lending investment
firm. The BSP likewise audited the reports but did not discover these discrepancies
(Echanis, 2006).
� 24
Compounding the problem of transparency is legislature as stated in the cases
previously mentioned. Disclosure clauses of both the SEC and the auditing firms were
found to be weak and too generic. The purpose of disclosure is to provide stockholders
with accurate and timely information to protect their interest. Shareholder protection is
among the cornerstones of the Principles of Corporate Governance (OECD, 2008).
Ownership structure lends itself to digressions of transparency so regular monitoring
should be conducted more often (Echanis, 2006), and perhaps demanded from these
regulators to be more stringent.
Deeply entrenched in the family ownership structure is perhaps the Asian cultural
imprint which makes transparency a difficult practice. “Asia does not have a tradition of
strong disclosure” (Iu & Batten, 2001, p. 57). The authors noted that insiders have more
control over systems, and firm factions are settled within by limiting the type and depth
of information to be released.
In the World Bank Report on the Observance of Standards and Codes of corporate
governance based on the OECD (2008) categories, the Philippines scored 74/115
maximum points. Five categories, namely rights of shareholders, equitable treatment of
shareholders, role of stakeholders in corporate governance, disclosure and transparency,
and responsibilities of the board, were rated on a five-point Likert scale from 1=Not
Observed (1 point) to 5=Observed (5 points) (McGee, 2009). Jordan (1999, as cited in Iu
& Batten, 2001) cautioned the dangers in using OECD Principles in Asia, that it might
not effect change both in the short and mid-term. Using the Principles, which is Western-
influenced, is similar to a legal transplant where a law developed in one country is
transferred to another. Iu and Batten (2001) contended that legal transplants are
� 25
unattainable since the development of law should be evolutionary (OECD, 2008), and
asserted that OECD Principles could serve as benchmarks but a country must be
measured against country-specific metrics.
The Philippines’ own Code of Corporate Governance is stated in SEC
Memorandum Circular No 2, Series of 2002, complementing the Corporation Code of the
Philippines (Paras & Ramos-Anonuevo, 2002). The said code was revised as stated in
SEC Memorandum Circular No. 6, Series of 2009). Among other things, the Revised
Code of Corporate Governance (2009) specified that the Board of Directors is mainly
responsible for governance and should be comprised of at least two independent
directors, or 20% of the total number of directors, whichever is less but not less than two;
board committees are formed to aid in complying with good corporate governance; and
that management is accountable to the board, and the board is accountable to the
stockholders. Saldaña (1999) maintained that both the Corporation Code of the
Philippines and requirements of SEC were based or inspired from counterparts in the US.
The family-ownership structure is unique to East Asia, including the Philippines,
and other countries such as Japan and Germany. This issue should be addressed in the
country’s corporate governance code, for it is not which model that is superior that
should be regarded, but which one works for the circumstance (Iu & Batten, 2001).
Need for Present Study
Leadership is a fertile ground of study in the field of business. Focusing on the
concept of transformational leadership, this study has significance for both theory and
practice. The conceptualization of transformational leadership using the 4I’s as viewed by
� 46
directors will be a further step in understanding the connection and relevance between the
two constructs. First, the traditional role of compliance-conformance through monitoring
and assessment of boards still confine the practice to transactional leadership where
performance is exchanged for reward (Bass & Riggio, 2006). The current practice
dictates that boards are beholden to the CEOs instead of the other way around as stated in
most corporate governance codes worldwide (Petra, 2005). Shifting the focus on
transformational leadership may redefine the director-CEO relationship and allow the
CEO to benefit from the institution of boards in the first place.
Second, the variable stress has both significance for both theory and practice.
Stress is generally regarded as having negative effects, but in the context of
transformational leadership has found positive yields (Lawal, 2012; Walderman et al.,
2001). In theory, this study can help ascertain positive influences of stress so leaders or
members of an organization experiencing such conditions can still perform well. On the
practical side, determining stress factors can help in designing stress interventions
(Ongori & Agolla, 2008).
Likewise, stress can also be viewed from a power perspective as who is the source
of the stress. In this case, the CEO exerts the pressure, and has the mandate to do so,
especially if the CEO is also the Chairman of the board. The origin of a CEO’s power is
also his/her tenure and ownership, aside from duality (Combs et al., 2007).
This study is an attempt to explain the influence of transformational leadership on
corporate governance and how the CEO pressure on directors on profitability affects this
relationship. Transformational leadership and corporate governance, as asserted earlier,
are rarely studied together, and this applies to the Philippine context as well. The
� 47
Philippine corporate structure based largely on corporate ownership provides this
research a unique and fertile ground on which to study how this leadership style impacts
on good corporate governance. The corporate governance dilemmas surrounding this
kind of structure include weak monitoring due to board composition and concentration,
and absence or lack of transparency in reporting, despite legislation enshrined in
governance codes (Echanis, 2006; Iu & Batten, 2001; Saldaña, 1999).
� 48
Chapter 3
Methodology
Research Design
The purpose of this research is explanatory in nature as I wanted to establish a
causal relationship between transformational leadership and good corporate governance.
For this study, I have implemented survey as a research strategy.
Method. My research took the form of anempirical investigation which probed
the influence of transformational leadership on good corporate governance and if CEO
pressure on directors on firm profitability would have a moderating effect on this
relationship. My inquiry was supported by reference to theories and concepts as
discussed in the previous sections. The primary data used to answer the research
questions were sourced from questionnaires and interviews (Cozby, 2005) given to
executive board members from different private corporations and from various industries.
Board members are leaders who ensure proper governance of their respective
organizations and they were deemed most appropriate respondents for this study
(Nicholson & Newton, 2010).
The survey that was administered to company directors helped in explaining the
positive relationship between transformational leadership and good corporate
governance, and in showing the moderated influence of CEO pressure on directors on
firm profitability. Saunders et al. (2010) stated that apart from providing quantitative
data for analysis, the survey could also be used to provide possible reasons for particular
relationships between variables.
� 49
The semi-structured interviews with the same respondents on the other hand
provided us with qualitative inputs that could corroborate the quantitative findings. Will
transformational leadership influence carrying out good corporate governance? What
factors or dimensions of transformational leadership can aid in this process? Results of
the interview provided fresh insights to the questions this research attempted to answer
and/or to provide direction for future research.
Saunders et al. (2010) in his discussion on the use of mixed methods research,
cited the works of Tashakkori and Teddlie (2003) who posited that multiple methods are
advantageous if they create better opportunities for the researcher to answer the questions
and allow evaluation of the extent of validity of findings; and Bryman (2006) for the
wealth of information that researchers could derive from the data, even unanticipated
ones.
I employed mixed methods approach for data collection and analysis. According
to Creswell (2009), there are several mixed methods models and for the purposes of this
research, I used the triangulation approach. Quantitative and qualitative data were
collected concurrently in one or two interview sessions depending on the availability of
the Directors.
Upon completion of the data set, analysis of data were done separately since the
methodology for each is different. The results from both were compared to determine if
there is convergence, difference, or some combination. Triangulation was also used to
corroborate research findings.
Bass and Riggio (2006) cited the work ofBerson (1999) in the use of the mixed
methods approach and triangulation of qualitative and quantitative methods in assessing
4:
transformational leadership. Creswell (2009) suggested the use of planned procedures
and a visual model in a mixed methodsapproach (Figure 2). This was the model I
employed for this particular study.
Quantitative Qualitative
Figure 6.Visual model of concurrent triangulation design.
Majority of studies done on transformational leadership and corporate governance
has either been done quantitatively or qualitatively. I combined these two methods to
better explain the causal relationship of the two variables and in this process, and if CEO
pressure on directors on firm profitability moderates this relationship.
The mixed methods approach is less known than the quantitative and qualitative
approaches but is growing in popularity and has a distinct advantage of addressing better
the complexities of behavioral science researches (Creswell, 2009). Bryman (2007) also
discussed the factors that influence researchers to use the mixed method strategy:
commitment to particular method, audience expectation and method with which
researcher is comfortable with.
Data Collection (Interview)
Data Collection (Survey)
�
Compared Data Analysis (Text)
Data Analysis (Statistical)
� 4;
More importantly, and in order to claim that a mixed methods research took place,
I ensured that research procedures are integrated. In carrying out the research question
for instance, the qualitative method (interviews) to address the process questions (How
does transformational leadership behavior lead to good corporate governance and why
does CEO pressure on executive directors on firm profitability affect this relationship, if
at all?) and the quantitative method (survey) to address the outcome questions (Does
transformational leadership influence good corporate governance?) should occur as a
single study. Yin (2006) suggested that integration is needed in carrying out the five
procedures in this type of research: research questions, units of analysis, samples for
study, instrumentation, and data collection methods and analytic strategies.
Population and Respondents
The sample for the study consisted of 30 executive directors from 30 Philippine
private corporations and from various industries located in Metro Manila. Demographic
profile was also solicited.
Sampling Design
A purposive sampling of 30 directors was used to gather data for analysis.
Purposive sampling is a non-probability sampling technique that is used to select
individuals who meet a set of criteria for an intended study that is looking into
relationships between variables rather than accurately estimating populationvalues
(Babbie, 1992; Cozby, 2005; Saunders et al., 2010).
The criteria for executive directors are:
� 43
1. Who have been in the company for at least three years. To be able to know
the inner workings of corporate governance in their organization,
respondents must be with the company for the specified minimum number
of years.
2. Who are currently working in a private corporation setting as an executive
director. Publicly listed companies, government corporations and non-profit
organizations are not included in this study as corporate governance practice
in these types of institutions may vary.
3. Who may have sat on any board as an independent director but must
currently not hold an independent board seat. An executive director who
also sits as an independent director in another company is not included in the
required respondent profile because views on corporate governance may
vary and may affect the results of the study.
4. Who is male or female.
5. Who are at least college graduates.
Criteria for firm selection is not limited to a any particular industry or firm size
and age, as these firm characteristics are not the basis of the variables and focus of my
research.
Babbie (1992) stated that in some instances, a researcher may wish to study a
small subset of a population in which respondents from this subset are easily identified
but identifying all of them would be impossible. Saunders et al. (2010) further argued
that within business research, it may sometimes not be possible (no sampling frame) or
appropriate in answering the research question.
� 42
The logical relationship between sample selection and the purpose of our research
is critical, and generalization is made to theory rather than about the population. I
employed a purposive sample strategy (homogeneous sampling), focused on one
particular subgroup (Executive Directors of private corporations in Metro Manila) in
which the samples were similar. Saunders et al. (2010) stated that there are no distinct
and defined rules in non-probability sampling.
In determining the number of respondents, 30 for this study, Hair et al. (2010)
stated that small samples are usually characterized as having fewer than 30 observations
and are appropriate only for simple regression analysis. Roscoe (1975) suggested, as a
rule of thumb, that statistical analyses with samples less than 10 are not recommended,
and samples of 30 or more are recommended. He stated that samples larger than 30
ensure the researcher the benefits of central limit theorem. He further argued that in
multivariate research, sample size should be at least ten times larger than the number of
variables being studied. This research looked into an independent-dependent variable
relationship that is moderated by another independent variable, which changes the form
of the relationship, thus three variables times ten meet the minimum sample size of 30.
With 30 as the sample size for this research with two independent variables, a minimum
R Square (coefficient of determination) was required to support this sample size that will
detect as statistically significant at the specified alpha level of at least .05 with a power
level of .80 (Hair et al., 2010).
The choice of sample size was as much a function of budgetary considerations as
it was statistical. When economically feasible, larger samples are of course usually
preferred over smaller samples (Roscoe, 1975). I engaged the services of Contact Asia
� 44
Services, Inc. (CASI) for an amount of one hundred thousand pesos (P100,000.00) to
conduct the survey on 30 respondents, in consideration of the following constraints:
1. Financial. In as much as I would like to increase sample size, the cost of
adding more respondents is beyond my budget.
2. Time. Due to the full time work demanded by my profession and the
pressures that come with it, the minimum sample size was set at 30.
3. Precision. I would like to increase precision of data gathered and its
encoding by hiring an experienced research company.
The “what” were drawn from a survey to assess the influence of transformational
leadership in corporate governance as experienced by executive board members and CEO
pressure on the directors on firm profitability, as a moderating factor in this relationship.
The “how’s” and “why’s” of CEO pressure on firm profitability on good governance
through transformational leadership behavior were drawn from the answers of the
respondents personal accounts through interviews with executive board directors.
I used a consent procedure to inform voluntary respondents of the study.
Respondents were informed about the purpose of this research and their involvement.
This information were addressed in a cover letter to all respondents.
Respondents in my study have a right to privacy and can expect that information
gathered will be kept strictly confidential. This basic right were disclosed to the
participants and they were advised that there will be no chance of being identified by
name at any given time since no personal identifying information were gathered. They
were likewise assured that they can withdraw from the study at any given time without
prejudicing existing relations.
� 45
Measurement and Instrumentation
A survey/questionnaire was specifically designed for this study. Perceptions of
directors were used to measure the constructs. The use of perception in conducting
scientific research has produced a sizeable amount of literature. I cite the work of Heider
(1944) who argued for the relationship between social perception and phenomenal
causality, stated that an environmental change derives its context from the source to
which it is attributed. According to Jussim (1991), much of social psychological
theorizing and research was based on the belief that social perception is a major force in
creating social reality. In a study by Boyd, Dess, and Rasheed (1993), it identified two
factors, namely level of analysis and mediating filters in explaining both causes and
consequences of divergence between archival and perceptual measures of the
environment.
One of the more contentious issues of perceptual studies is bias. Miller and Ross
(1975) argued that the literature provides support that individuals engage in self-
enhancing attributions under conditions of success and only little evidence was suggested
that individuals engage in self-protective attributions under the conditions of failure.
Another dimension of bias is the possible inflation of correlations between
measures assessed, an acknowledged problem on the use of Common Methods Variance
(CMV) involving self-report measures. Spector (1987) concluded that CMV is trivial in
nature, Crampton and Wagner (1994) argued that CMV effects are not trivial but small,
and Doty and Glick (1998) concluded that CMV poses a significant threat to validity (as
cited by Meade et al., 2007). While there are conflicting views on the influence of the
� 56
Common Methods Variance (CMV), I acknowledge my study’s limitation on accurate
sample responses due to CMV.
In anticipation and addressing of bias for my study, the detailed processes of the
interview must be handled with care to recognize and avoid interviewer and interviewee
biases. According to Saunders et al. (2010), participating in an interview is an intrusive
process, therefore preparation for the interview process must be given thoughtful
consideration to strengthen its validity and reliability.
The survey questions on the independent variable were based on Bass and
Riggio’s (2006) four dimensions of transformational leadership behavior. The statements
attempt to assess the directors’ perception of their CEO transformational leadership
behavior.
Table 4
Transformatinal Leadership Scale and Item Statements
Transformational Leadership Scale
Item Statement
Sub-scale
Individualized Consideration
1. Individual contributions to achieve organizational goals are encouraged by my CEO.
2. Communication lines are constantly kept open between my CEO and the people in the organization.
3. My CEO takes time to develop employees to reach their fullest potential as leaders.
4. Listening to employee concerns and guiding them through the process is a particular strength of my CEO.
�
� 57
Transformational Leadership Scale
Item Statement
Intellectual Stimulation
1. Uncertainty is considered a challenge and my CEO and expects his employees to think independently.
2. I have observed that my CEO actively solicits contributions from employees to manage situations.
3. Developmental learning is highly valued by my CEO and this enables employees to think and act independently.
4. My CEO encourages employees to be resourceful and creative when dealing with problems.
�
Inspirational Motivation 1. Employees are motivated and inspired by my CEO to perform to the best of their abilities.
2. The direction of my organization is clearly communicated by my CEO.
3. My CEO provides the organization with a strong sense of mission.
4. It is my CEO’s belief that leadership is a process of changing the conditions of people’s lives.
Sub-scale
Idealized Influence
1. My CEO conducts himself with the highest level of ethical consideration.
2. I have great admiration and respect for my CEO.
3. Unethical behavior by any employee at any level in my company is not tolerated by the CEO.
4. The actions of my CEO provide the employees with moral courage to do what is right and for the best interest of the organization.
� 58
The survey questions on the dependent variable were adapted from the principles
of Corporate Governance of the Organization for Economic Cooperation and
Development (OECD) with particular emphasis on Principle No. 6: Responsibilities of
the board (OECD, 2008).
Table 5
Good Corporate Governance Scale and Item Statements
Good Corporate Governance Scale
Item Statement
Strategic guidance, monitoring of management, and the board’s accountability
Our corporate governance framework ensures the strategic guidance of the company, board monitoring of management and accountability to the company and shareholders.
Acting in the interests of the company and the shareholders
As a board member, it has been my experience to act in good faith on a fully informed basis in the best interest of the company and our shareholders.
Interest of stakeholders My decisions are based on outcomes that will be equitable for all shareholders, irrespective of shareholdings and differing shareholder interests.
Ethical standards As a director, high ethical standards are expected of me by the board, management and shareholders.
Corporate strategy and performance objectives
I see to it that I participate in reviewing and guiding corporate strategy.
Risk policy As a director, risk management is an area that I regularly take up in the boardroom
Monitoring governance practices
I monitor the effectiveness of the company’s governance practices and discuss these changes with the board if needed to improve such practices.
Selecting key executives and overseeing succession planning
I am active in the selection of key executives in the company.
� 59
�
Good Corporate Governance Scale
Item Statement
Executive and board remuneration
Compensation of the board and key executives are issues that I make sure are aligned with shareholder interests.
Board nomination and election Directors nominated to the board have to go through a formal nomination and election process that have always been transparent.
Conflicts of interest and related party transactions
In my organization, potential conflicts of interest by any party are monitored and managed by us during board meetings.
Integrity of accounting and financial reporting
I have to make sure that independent audit is performed to ensure its integrity.
�
Disclosure and communications
We directors in the board clearly establish proper disclosure and communicate this clearly to shareholders.
Independent and objective judgment
It has been my practice that my decisions on corporate affairs are based on objectivity.
Board committees My company ensures that there is a sufficient number of independent directors to sit on board committees.
Time commitment, agenda, training and evaluation
I am fully committed to my responsibilities as a board member in terms of my time.
Director’s access to information
My decision making as a board member is fully supported by access to accurate, relevant and timely information.
�
�
Statements on CEO pressure on directors on firm profitability as a moderating
variable were developed by the researcher based on various discussions with directors
prior to questionnaire development to measure the strength of the relationship of the
dependent and independent variable.
� 5:
Table 6
CEO Pressure on Directors on Firm Profitability Scale and Item Statements
CEO pressure on executive directors on firm profitability Scale
Item Statement
Sub-scale
Pressure and firm profitability
1. Producing company profit puts a lot of stress/pressure on my job.
2. I am particularly conscious about the bottom line of my company to the point that it affects my mental and physical well being.
3. Failure to meet company profitability can destabilize my job security.
�
Sub-scale
CEO pressure on directors
1. When I have meetings with our CEO, he/she is highly concerned about the economic outcome of our operations.
2. I feel my decision making is compromised because of the pressure from the CEO to produce acceptable profits for the company.
3. It is a mandate from my CEO to aid him in making money for the company.
Sub-scale
CEO pressure on director leadership
1. The pressure that I feel from my CEO on
profitability causes my leadership to weaken and thus result in poorer corporate governance.
2. My leadership ability in practicing good governance is affected by my CEOs economic perspective on firm profitability.
3. CEO pressure infirm profitability forces me at times, to cut corners or omit some process on some aspects of my job and therefore affects how I lead my people.
� 5;
The use of a summated rating scale for the survey was chosen with the objective
of increasing response precision. According to Spector (1992), single items as compared
to a scale, do not produce responses that are consistent over time and thus can be
unreliable. Multiple items can also improve reliability by allowing random errors of
measurement to average out.
In developing item stems, there were several guidelines used to ensure clear and
concise statements. I wrote items that are unambiguous and avoided double-barreled
questions so as not to confuse respondents in their interpretation of statements; both
positively and negatively worded items were used to increase consistency and reduce
bias; negatives (no or not statements) were not used to increase reliability (Converse &
Presser, 1986; Spector, 1992).
The use of negatives to reverse wording of an item should be avoided for the
reason that these items are very easy for participants to miss or misread. A missed or
misread negative will lead to an answer that is at the wrong end of the scale. Further, a
possible result of the issue on bias is the possibility of producing acquiescence on the part
of respondent in using positively and negatively worded items or when statements are not
reversed. It should be noted though however, that acquiescence has not always been
shown to be a problem with summated rating scales (Spector, 1992).
See Appendix A for the questionnaire.
See Appendix B for the survey matrix.
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Validity and Reliability
In using the mixed methods procedures, I needed to consider the types of validity
associated with the quantitative and qualitative components and also to the strategy
deployed for the mixed methods approach. Creswell (2009) recommended the
identification of potential threats to the issue of validity and showing how these threats
are to be addressed and resolved.
With the quantitative component, a potential threat to validity may arise from the
selection of respondents who may be predisposed to have certain outcomes such as
directors who are highly focused and committed to amassing profits for their company at
any cost. I therefore selected participants in a random manner.
Saunders et al. (2010) discussed internal validity of questionnaires as the ability
of the instrument to measure what it intends to measure, and reliability of the
questionnaire during the design stage. This internal consistency can be calculated
through the use of Cronbach’s alpha. The purpose of the pretest was to ensure
respondents will have no difficulty in answering the questions and there will be no
problems in data recording.
According to Presser and Converse (1986), the number of samples for pre-testing
is as many as one can get but suggests that 25 to 75 samples as a valuable pretest range
and 30 as the average number. The authors further argued that the number of pretest
trials is often limited to one, and for studies where the researcher brings no previous
hands-on experience, a minimum of two pretests is critical.
An initial pretest was conducted with six participants with alpha results were
mixed and inconclusive at best. Overall alpha was at 0.713 which demonstrates internal
� 52
consistency. However, alpha scores for the individual scales were low particularly in the
good corporate governance and transformational leadership scales. A second pretest was
conducted with 30 participants in an attempt to increase reliability. The ensuing result
was quite satisfactory with overall alpha at 0.914, way abovethe minimum level of 0.70.
This result was due to adjustment in item numbers, increase in pretest sample size, and
item statement reconstruction particularly on the transformational leadership scale. The
final survey with adjusted item statement number from 42 to 40 was used for research
testing.
The qualitative pretest was conducted twice, separately with two different
respondents to ensure questions were understood clearly, and answers to the questions
were consistent. The first pretest resulted in some unanswered questions because
respondent was a compliance officer who did not feel the CEO pressure on firm
profitability. The second pretest resulted in substantial and consistent responses because
the questions were rephrased and rearranged in better sequencing to improve flow of
answers from the respondent. Moreover, the respondent was an executive director.
Qualitative validity refers to the accuracy of the results by using certain
procedures while qualitative reliability refers to the approach that is consistent across
different researchers (Gibbs, 2007 as cited in Creswell, 2009). Saldaña (2010) referred
procedures to analytic memos, comparable to journal entries, where codes are used to
prompt written reflections on the meanings it elicits. Yin (2006) also recommended the
importance of documenting procedures in a detailed manner to strengthen validity.
Transcripts and codes must be checked thoroughly to prevent mistakes and
misinterpretations.
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Validation of findings should happen throughout the research process. This
research conducted the following reliability procedures:
1. Surveys must be thoroughly checked to ensure data is correct during
transcription.
2. Definition of codes must be solid and unchanging in its meaning.
3. Since data gathering is outsourced to CASI, the researcher should closely
monitor the quality of descriptions.
4. Interviews must be audio-recorded, with permission of the interviewee and
properly documented after the interview.
Saunders et al. (2010) argued that an attempt to ensure that qualitative research
can be replicated by other researchers would not be realistic. He cited the work of
Marshall and Rossman (1999) that non-standardized research methods are not always
intended to be repeatable since they reflect reality at the time of a particular interview,
and in a situation that may be subject to change.
To strengthen the validity of this study, I had to:
1. Ensure strict confidentiality when interviewing respondents to be able to
come up with truthful answers and mitigate response bias.
2. Check different data sources (quantitative and qualitative) of
information to build justification of chosen themes.
3. Clarify bias on how interpretation of findings is influenced by my own
background and experience.
4. Present conflicting information that runs counter to our hypothesized
codes as contrary information can add credence to findings.
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5. Aside from the guidance of the research adviser, seeking a peer to
review and question about the study adds validity.
In qualitative research, the intent of this form of inquiry is not generalizing
findings but to provide particular description and themes developed in context,
particularity rather than generalizability which is a hallmark of qualitative research
(Creswell, 2009).
See Appendix C for Cronbach’s alpha results of pretest.
See Appendix D for the final questionnaire form.
Research Procedures
A total of 30 questionnaires were administered to executive director respondents
through the internet and face-to-face interviews. Due to time limitations of the researcher,
I hired a research company, CASI Research, to do the survey/interviews which I closely
monitored. Protocols for outsourcing this function were strictly adhered to as dictated by
the De La Salle University’s DBA policy statement on the use of professional help for
this dissertation.
Research company. The role of CASI is to primarily work on the data collection
phase of the dissertation research. This means reproduction and distribution of
questionnaires, interviewing, data entry, and tabulation. Specifications for tabulation
came from me. Professional help was allowed only in the form of advice and counsel.
Help in the form of actually doing the work for the researcher is strictly prohibited.
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I declare that the content of all the primary investigative work are mine and these
are as follows: literature review and analysis, formulation of research questions and
hypotheses, design of data collection method and instrument, sampling design, analysis
of pretest results, finalization of data collection instrument and procedures, analysis of
data, and formulation of conclusions.
I identified respondents through my personal network and recommendations from
colleagues. CASI also assisted in sourcing and identifying respondents with my prior
approval, through letters of request by fax and email and through telephone calls.
The interviews were carefully planned to show interviewer credibility and get the
confidence of the interviewees. Since the interviews were outsourced, I had to meet with
the assigned interviewer prior to actual interview with the respondents to set up the
following protocol:
1. Their level of knowledge about the research topic and interviewing
competence.
2. Their professional appearance and behavior during interviews.
3. How they will create an impact on the interviewee at the beginning of the
interview and encourage them further to talk freely and openly about the
topic.
4. Their approach to questioning should reduce bias during the interview by
phrasing clearly the questions and ideally in a neutral tone of voice.
5. Their listening skills that will lead to explore and probe explanations from
the interviewees.
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Training of the interviewer by the researcher were conducted in CASI office
before interviews with respondents are formally carried out.
See Appendix E for DLSU DBA policy statement on use of professional help.
See Appendix F for interview protocol.
See Appendix G for interview training guide.
See Appendix H for interview timeline.
Data Analysis
The type of research strategy, in this case, a concurrent triangulation design
(Creswell, 2009) was used for data analysis.
For statistical data analysis, I used multiple regression to analyze the relationship
between the variables. In this study, the objective of multiple regression analysis is to
use the independent variables of transformational leadership and CEO pressure on
directors on firm profitability to predict the single dependent variable of good corporate
governance. It also can provide possible explanations to the phenomena. Hair et al.
(2010) stated that this dependence technique can provide both prediction and explanation
to a researcher; and to optimize predictions, the issue of multicollinearity has to be
addressed. Multicollinearity happens because two or more variables measure the same
thing.
The independent variables (transformational leadership and CEO pressure on
directors on firm profitability) should ideally be highly correlated with the dependent
variable (good corporate governance) but with little correlation among themselves. An
examination of the correlation matrix between the two independent variables helped us in
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identifying multicollinearity. Multicollinearity can be assessed by examining tolerance
and the variance inflation factor (VIF). Because of shared variances between the
variables, multicollinearity decreases the ability to predict the dependent variable and
ascertain the significance of the independent variables.
Correlation of the independent variable transformational leadership was also
examined to find out the correlation among the four dimensions to measure the
transformational leadership construct. Statistics show correlation among the four
dimensions to be at an acceptable level.
The regression equation proposed for this study is as follows:
Y=𝑏� + 𝑏�𝑥� + 𝑏�𝑥� + 𝑏�𝑥�𝑥�
where:
𝑏� = intercept
𝑏�𝑥� = linear effect of 𝑥�
𝑏�𝑥� = linear effect of 𝑥�
𝑏�𝑥�𝑥� = moderator effect of 𝑥� on 𝑥�
Y = dependent variable (good corporate governance)
𝑥� = independent variable (transformational leadership)
𝑥�= independent variable (CEO pressure on directors on firm profitability)
According to Saldaña (2010), proper and meaningful coding of qualitative data is
key to good research, and a large part of the study rests on this process. The method used
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for coding the data in this study was hypothesis coding. Responses gathered from the
interviews with the directors were content-analyzed through a predetermined list of codes
developed from a theory about what were found in the data. For instance, leadership
codes used were listens to suggestions, nurtures and develops employees, setting good
example; and good corporate governance codes to be used are achieving the same
organizational goals, ensuring policy implementation, stakeholder protection. The
subsequent categorization and thematic contexts were compared with the statistical
results from the quantitative part of this study to corroborate findings.
Findings that result in significant themes served to deepen the relationships of the
variables. Saldaña (2010) argued that hypothesis coding is appropriate for hypothesis
testing and content analysis of the data set. In my study, the search for causes and
explanations warranted the use of this particular coding method.
The statistical analysis from the quantitative data was used to compare with the
thematic text analysis from the qualitative data. Creswell (2009) suggested analysis to
occur both within the quantitative (descriptive and inferential analysis) and qualitative
(description and thematic text analysis) approach. This method is advantageous and best
suited my research efforts because data collection can be accomplished in a shorter
period of time and results can be validated and substantiated.
In resolving any discrepancy that arose when comparing the results, I reviewed
the data set. Creswell and Plano Clark (2007) suggested ways to resolve these
discrepancies that are emerging from the literature, such as collecting additional data,
revisiting the original data, gaining new insights from data disparity, or pointing the
findings to another area of research in the future.
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See Appendix I for correlation coefficient table of IV and MV
See Appendix I for correlation coefficient of the transformational leadership
dimensions.
See Appendix J for statistical tools to be used.
Methodological Assumptions of the Study
The proposed research methods assume the following:
1. Responses from the instrument (survey/questionnaire) used to measure
transformational leadership and corporate governance behaviors are accurate
and reliable in explaining how transformational leadership positively
influences good corporate governance, and how CEO pressure on directors
on firm profitability may affect this process.
2. CEO pressure on directors on firm profitability is a generally accepted
phenomenon manifested by CEOs who need to satisfy stakeholders,
particularly financial investors who look to the CEO for dividend payouts.
3. Internal and external environmental factors (such as hostile takeovers or
death/replacement of a CEO) may influence respondent perception and
behavior.
Methodological Limitations
The findings of this study limited itself to the use of a single instrument.
Thesurvey, after going through developmental stages and testing, measured perceptions
and behaviors relating to the leadership style, corporate governance, and CEO pressure
� 76;
on directors on firm profitability. Another limitation of this study were the possibility of
intervening variables such as middle or lower management perceptions and views on
good corporate governance. This study examined the effects of executive directors
within the context of private corporations. The extent to which the results could be
generalized to public and non-profit organizations is not known.
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Chapter 4
Results
Overview
Results from this mixed methods research provided answers to my research
questions and allowed for the evaluation and validity of my findings. Both quantitative
and qualitative findings showed that transformational leadership positively influences
good corporate governance, and that CEO pressure on directors on firm profitability has
no moderating effect on the relationship between transformational leadership and good
corporate governance. There were unanticipated information from both the qualitative
and quantitative results which will be discussed in Chapter 6 of this paper.
For the qualitative part, I manually encoded key statements based on the research
questions, from the interview transcripts because CAQDAS (Computer aided qualitative
data analysis software) will not be able to recognize majority of responses which is in
“Taglish,” a combination of Tagalog and English words. The initial coding of the
interviews started as I receive the interview transcripts from CASI.
The method used for coding the data in this study is hypothesis coding. The
responses gathered from the director interviews were content-analyzed through a pre-
determined list of codes developed from a theory about what will be found in the data.
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Transformational Leadership
The coefficient x1 (transformational leadership): For every increase of one level
in transformational leadership, there is a corresponding increase of 0.64 in the good
corporate governance scores (p = 0.000). This implies that the more transformational the
CEO is with his leadership style, the practice of good corporate governance is enhanced.
Quantitative results show that the multiple linear regression model is fit,
R2 = 0.45, F (3,26) = 7.07, p = .001, 95% CI (0.15,1.05). All the assumptions appear to
have been met. However, based on the regression model and its coefficients, only
transformational leadership (independent variable) predicts good corporate governance
(dependent variable). CEO pressure on directors on firm profitability (moderating
variable) has no effect on good corporate governance nor does it influence therelationship
between the independent and dependent variables.
�
Table 7
Regression Equation Coefficients (Model 1) � �
Model B SE t p VIF Intercept -1.16 4.28 -0.27 .788 x1 Transformational Leadership 1.19 0.92 1.30 .207
x2 CEO pressure on directors on firm profitability
0.72 1.17 0.62 .541 1.06
x1x2 Moderating effect -0.15 0.25 -0.58 .566 1.07 R2 = .45 SE = .30
� �
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Table 8
ANOVAa (Model 1)
Model Sum of Squares df Mean
Square F p Regression 1.97 3 0.66 7.07 .001b Residual 2.41 26 0.09 Total 4.38 29 a. Dependent Variable: Y
b. Predictors: Intercept, x1x2, x1, x2
The proposed regression model for this study is:
𝑌���������𝑥�����𝑥����� 𝑥� (1)
where:
�1.16 = intercept
����𝑥� = linear effect of 𝑥�
����𝑥�= linear effect of 𝑥�
���� 𝑥�𝑥� = moderator effect of 𝑥�on 𝑥�
𝑌�dependent variable (good corporate governance)
𝑥� = independent variable (transformational leadership)
𝑥��independent variable (CEO pressure on directors on firm profitability)
In order to ascertain the direct relationship between transformational leadership
and good corporate governance, I used a simple linear regression model (2) with one
independent variable, x1 = transformational leadership and Y = good corporate
governance. The resulting regression model is:
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𝑌<7(;8=6(3:x7 (2)
where:
1.52 = intercept
���𝑥� = linear effect of 𝑥�
𝑌� dependent variable (good corporate governance)
𝑥� = independent variable (transformational leadership)
Table 9
Regression Equation Coefficients (Model 2) �
Model B SE t p Intercept 1.52 0.61 2.47 .020 x1 Transformational Leadership 0.64 0.14 4.66 .000 R2 = .44 SE = .30
�
Table 10
ANOVAa (Model 2)
Model Sum of Squares df
Mean Square F p
Regression 1.92 1 1.92 21.721 .000 Residual 2.47 28 0.09 Total 4.38 29 a. Dependent Variable: Y
b. Predictor: Intercept, x1
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In this model (2), It can be inferred that transformational leadership positively
influences good corporate governance, R2 = .44, F (1,28) = 21.72, p = .000, 95% CI
(0.14,1.02) as theory would dictate. Specifically, from the model I can say that 44% of
the total variation in good corporate governance is due to transformational leadership.
The coefficient of determination for this simple regression model has decreased to .44
(from the previous multiple regression model (1) where R2 = .45 but the decrease is very
small.
The scatterplot that follows shows the linear relationship between
transformational leadership and good corporate governance:
777
Figure 7. Linear relationship between transformational leadership and good corporate governance.
Outliers
It appears from the scatter plot that outliers are present, therefore the regression
model changes as the slope moves, to cover these data points. To ensure that the
regression model is a good fit of my sample data, I need to check the residuals of the
cases. The standardized residual (.00) and Studentized residual (.02) are low and this
indicates the model is an acceptable representation of the data.
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In assessing influential cases, the deleted residual (0.02) which is used to assess
the influence of a case on the ability of the model to predict that case is very small. And
using Cook’s distance to measure the overall influence of a case on the model, the value
is less than one (0.08). Overall, the residuals statistics show that the outliers pose no
threat to the stability of the model.
Table 11
Residuals Statisticsa
Minimum Maximum Mean Std. Deviation n Predicted Value 3.70 4.76 4.36 0.26 30 Std. Predicted Value -2.56 1.51 0.00 1.00 30 Standard Error of Predicted Value
0.06 0.26 0.10 0.04 30
Adjusted Predicted Value 3.14 5.00 4.35 0.33 30 Residual -0.48 0.67 0.00 0.29 30 Std. Residual -1.57 2.20 0.00 0.95 30 Stud. Residual -1.70 2.36 0.02 1.04 30 Deleted Residual -0.65 0.81 0.02 0.36 30 Stud. Deleted Residual -1.75 2.60 0.02 1.08 30 Mahal. Distance 0.10 19.28 2.90 3.94 30 Cook's Distance 0.00 1.22 0.08 0.23 30 Centered Leverage Value 0.00 0.67 0.10 0.14 30
a. Dependent Variable: Y
The high coefficient of determination (0.45) may possibly be explained by the
existence of the outliers. Upon investigation, two outliers wered identified (ED10 and
ED20) but deletion of these two cases did not produce significant changes in the residuals
therefore it is not necessary to take them out of the data set. Furthermore, the intercept
regression slope did not vary much, showing the model as robust. These two cases are
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worth noting as valid but exceptional observations that may be explained by a specific
situation.
ED10 was the only respondent (1/30) who stated that his CEO’s leadership is
dysfunctional. While respondent views his CEO leadership style in a negative light, the
CEO behavior does not significantly influence his perception of good corporate
governance in a negative way. He stated that despite this circumstance, he does not allow
his integrity as a Director get in the way of good corporate governance. This may
explain low transformational leadership behavior with a corresponding moderate good
corporate governance perception.
ED20 on the other hand views his CEO to be manifesting transformational
leadership behavior and his perception of good corporate governance is not affected at all
by CEO pressure on firm profitability. This can be gathered from respondent’s statement
that pressure on firm profitability rests on his CEO’s shoulder, and that the pressure he
gets is from the work that he does, thus a very high transformational leadership and good
corporate governance relationship data point.
From the interviews, an outlier was identified (ED23) as the only respondent
(1/30) who stated that CEO pressure on firm profitability affected her perception on good
corporate governance, despite the fact of her CEO’s transformational leadership behavior.
This may explain the conflicting result of high transformational leadership but yet CEO
pressure on firm profitability moderated the relationship between transformational
leadership and good corporate governance. Further, the one instance that she mentioned
happened in the early stages of company operations. This begs the question as to whether
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start-up companies would have an effect on the relationship of the variables since all of
the companies are undergoing a period of growth.
Qualitative results show that ninety seven percent (29/30) of respondents perceive
their CEO leadership style to be transformational. CEO leadership style was described
by the respondents through their description of their CEO leadership behavior in various
situations. The codes were categorized intothe four dimensions which were contextually
themed as transformational leadership, as theorized by Bass (1985).
CEO transactional behavior was reflected in two of the cases and one particular
outlier case reflected a dysfunctional type of leadership as narrated by the respondent.
This particular case where CEO leadership behavior is considered by the respondent
astyrannical may be a basis for future research.
� 77;
Table 12
Coding for Transformational Leadership
Code Category Theme
Open communications Listens to suggestions Caring attitude Attends to employee needs Situational leadership Open door policy
Encourages creativity Delegates the work Nurtures and develops employees Demands employees to do more Implementing necessary changes
Motivates employees Source of inspiration Sets objectives clearly Charismatic attribute Knowledge of the business
Setting good example Leadership from the top Doing the right thing Emulates the leader Plays fair Religious Serving others
�����������������������������������������������������
���� �����������������
���������������������������
������������������������
�
�������������������������������������������������
�������������������������������������������������
��������������������������������������������������
�������������������������������������
��������������������
Individualized Consideration
Intellectual Stimulation
Inspirational Motivation
Idealized Influence
Following rules Centralized decision making
Reward for efforts and/or from productivity
Transformational leadership
Transactional leadership
Dysfunctional leadership
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One hundred percent (30/30) of respondents affirm that their CEO
transformational leadership style influences their perception of good corporate
governance. The qualitative result corroborates the quantitative findings for H1, that
transformational leadership positively influences good corporate governance.
Table 13
CEO Transformational Leadership and Influence on Good Corporate Governance
Transformational Positive influence on good n=30 leadership style corporate governance % % Yes 29 97 30 100 No 1 3 30 0 Total 30 100 30 100
Good Corporate Governance
Good corporate governance was described the respondents from their actual
practice of governance and how they think good corporate governance is implemented in
their respective organizations. The ensuing codes were categorized into the board roles
as presented by Nicholson and Newton (2010), which was then the basis for the
thematized good corporate governance. These roles of the board reflect the
responsibilities of the board by the OECD (2008) and which is part of my conceptual
framework.
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Table 14
Coding for Corporate Governance
Code Category Theme
Following the rules Ensuring policy implementation Producing profit for the company Achieving same organizational goals
Managing business well Sustainability Fear of punishment Strict compliance
Transparency Inculcating proper values Stakeholder protection Welfare of employees Good leadership Integrity Religious conviction
Strategy formulation
Wealth of experience
Control
Accountability
Strategy
Service
Good corporate governance
In the course of the quantitative analysis, I wanted to find out which dimension of
transformational leadership influences good corporate governance the most. To answer
this question a regression model was made with the four subscales of transformational
leadership as the four independent variables. The regression model is:
𝑌����������𝑥������𝑥��� ��𝑥�����𝑥� (3)
where:
1.399 = Intercept
����𝑥����������������𝑥�
�������������������𝑥����������������𝑥�
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���������������� ��𝑥����������������𝑥�
������������������𝑥����������������𝑥�
��������������<�����������������������������������
��������������7<������������������������� ��������������
��������������8<����������������!����������������������"
��������������9<����������������!�����������������������"
��������������:<����������������!����� ���������)
Table 15 Regression Equation Coefficients (Model 3)
Model b SE t P VIF Intercept 1.339 .594 2.252 .033 Individualized consideration .060 .172 0.349 .730 2.279 Intellectual stimulation .094 .115 .821 .420 1.451 Inspirational motivation .517 .172 3.012 .006 2.222 Idealized influence 0.016 0.114 0.141 0.889 1.507 Dependent variable: Good corporate governance
R2 = 0.542 SE = .2834
Table 16 ANOVAa (Model 3)
Model Sum of Squares df
Mean Square F P
Regression 2.376 4.000 0.594 7.395 0.000 Residual 2.008 25.000 0.080 Total 4.383 29.000 a. Dependent variable: Good corporate governance
b. Independent variables: (Intercept), Individualized consideration, intellectual
stimulation, inspirational motivation, idealized influence
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It appears that inspirational motivation is the transformational leadership
dimension that influences good corporate governance the most. Its coefficient (0.517) is
statistically significantly different from zero (p = 0.006). This implies that for every one
level increase in inspirational motivation, good corporate governance is increased by
0.517. The overall R2 for this model is 0.542 – meaning, approximately 54.2% of the
total variation in Y (good corporate governance) is explained by the linear correlation of
the four dimensions of transformational leadership. Also, the above model is assessed to
be fit (ANOVA P < 0.001).
However, I ran another simple regression model, this time with only one
independent variable – inspirational motivation and check if R2 will significantly
decrease. The simple linear regression model with only inspirational motivation as the
independent variable is shown below:
𝑌��������𝑥� (4)
where:
1.667 = Intercept
����𝑥����������������𝑥�
����������������<�����������������������������������
����������������7<���������������������������������������
Table 17 Regression Equation Coefficients (Model 4)
Model b SE t P Intercept 1.667 .495 3.371 .002 Inspirational motivation .612 .112 5.483 .000 R2 = 0.518 SE = .2748
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Table 18
ANOVAa (Model 4)
Model Sum of Squares df
Mean Square F P
Regression 2.270 1 2.270 30.067 0.000 Residual 2.114 28 0.075 Total 4.383 29 a. Dependent variable: Good corporate governance
b. Independent variable: (Intercept), Inspirational motivation
The above model shows an R2 of 0.518. There is a decrease of 0.024 from the
previous model. However, the decrease is not really high. This simply indicates that
inspirational motivation as a stand-alone predictor for good corporate governance
influences good corporate governance approximately half (51.8%) of the time.
CEO Pressure on Firm Profitability
A total of 57% (17/30) of respondents stated that they feel direct pressure from
their CEO on firm profitability while 43% (13/30) of respondents stated that they do not
receive pressure from their CEO on firm profitability.
CEO Pressure as a Moderating Influence on Transformational Leadership and
Good Corporate Governance
Results showed that with the presence or absence of CEO pressure on directors
on firm profitability, directors are not affected or influenced by CEO pressure on firm
profitability in their practice of good corporate governance. Therefore we reject H2 and
accept the null statement, i.e., CEO pressure on directors on firm profitability is not a
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moderating factor on the relationship between transformational leadership and good
corporate governance.
Since the p-values for x1x2 (moderating effect of CEO pressure on directors on
firm profitability) and x2 (CEO pressure on directors on firm profitability) are both
greater than 0.05, their coefficients are not statistically significant from zero, meaning
they both do not influence good corporate governance. This implies that the CEO
pressure on the directors on firm profitability does not influence their perception and
practice of good corporate governance.
In the multiple regression model (1), R2 is .45. This means that approximately
45% of the total variation in Y (good corporate governance) is explained by the linear
correlation between x1 (transformational leadership), x2 (CEO pressure) and x1x2 (the
moderating effect of CEO pressure on transformational leadership).
In order to answer shed light on this question, a simple regression model (5) is
shown below to ascertain if CEO pressure on firm profitability influences good corporate
governance:
𝑌���������𝑥� (5)
where:
4.64 = Intercept
�����𝑥����������������𝑥�
𝑌<�����������������������������������
𝑥�<����������������#$%�����������������������������������������
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Table 19
Regression Equation Coefficients (Model 5)
Model B SE t p Intercept 4.64 0.35 13.08 .000 CEO pressure on directors on firm profitability -0.08 0.11 -0.78 .443
R2 = .02 SE = .39
Table 20
ANOVAb (Model 5)
Model Sum of Squares df
Mean Square F p
Regression 0.09 1 0.09 0.61 0.443a Residual 4.29 28 0.15 Total 4.38 29 a. Dependent variable: Good corporate governance
b. Independent variable: (Intercept), CEO pressure on directors on firm
profitability
�
The previous model (5) shows a very low R2 (.02) as well as a poor fit for
linearity (p = 0.443). This implies that good corporate governance is not directly
influenced by CEO pressure on directors on firm profitability.
The following scatterplot shows the relationship between good corporate
governanceand CEO pressure on directors on firm profitability is non-linear. CEO
pressure on directors on firm profitability may be high or low and the corresponding
practice of good corporate governance is likewise either high or low. This therefore
means that there is norelationship between the two variables.
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Figure 8. No relationship between CEO pressure on directors on profitability and good
corporate governance.
Qualitative responses from this question were direct answers from the participants
if the pressure they receive from their CEO on firm profitability affects their practice of
good governance. As with the quantitative findings, CEO pressure on directors on firm
profitability does not influence good corporate governance.
A total of 97% (29/30) of respondents stated that regardless of whether they
receive CEO pressure on firm profitability or not, CEO pressure on directors on firm
profitability has no effect on their perception of good corporate governance. This
corroborates the quantitative findings that CEO pressure on directors on firm profitability
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does not influence their perception and practice of good corporate governance. However,
this single case (representing 3% (1/30)) from the data corpus from the qualitative results
contradicted majority of the findings. This is anarea worth looking into for future
research.
There was only one respondent who stated in confidence, without going
intospecific details on that particular instance where her practice of good governance
wascompromised due to a financial problem she was faced at that time.
Table 21
Cross Tabulation on Ceo Pressure on Firm Profitability, CEO Duality and Moderating
Effect on Good Corporate Governance
���������CEO pressure on firm CEO duality Moderating effect on n=30 profitability good corporate governance � ��
� � � ����������>��������������������������������������>�������������������������������������������������>�
��� � 72������������������;2� ��������87�����������26����������������������� ����85��������������52�
�
��� � 79� ���������:9������������������������5�����������96��������������������������������7�����������������9�
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&����� � 96� �������766����������������������96��������766���� ���������������������96�����������766�
See Appendix K for descriptive statistics (respondent and industry profiles).
See Appendix L for regression assumptions.
See Appendix M for other possible regression models.
See Appendix N for coding cycle.
� 78;
Chapter 5
Discussion
Overview
Organizational theorist Stephen Barley posited that in order to gain additional
insights into and a deeper understanding of organizational behavior, such may be viewed
through an occupational lens rather than the predominant organizational lens. According
to Barley and Maanen (1982), detailed descriptions of phenomenological boundaries or
world views by the players inside an organization provide specific context to their work
and interpretation of these rich accounts through their experiences add on to the extension
and expansion of conceptually driven research. The interviews from my research
specifically addressed this issue as reflected in my findings. One such manifestation is
the identified outliers from my data which offered new insights that may be used for
further research.
In this paper, I chronicled a profile of the views of executive directors (ED) of the
leadership style of their chief executive officers (CEO). The interviews conducted with
the EDs revealed that they perceived their CEOs to be generally employing a
transformational leadership style, except for a singular case in which the ED described
the CEO’s style to be dysfunctional. Their responses revealed the leadership qualities
displayed by their CEOs, which is consistent with this paper’s first objective—to
determine the views of EDs on their CEOs leadership style.
I also presented support for establishing a significant relationship between
transformational leadership and good corporate governance. Based on the survey and
interviews with EDs, the relationship was deemed positive in the quantitative analysis,
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and insights from the EDs fortified this hypothesis. However, my hypothesized argument
that the pressure exerted by the chief executive officer (CEO) on EDs on firm
profitability moderates the relationship showed no significance. As already mentioned in
the Results chapter, CEO pressure on directors on firm profitability has no effect on good
corporate governance, as a result of which nullified it as moderator for the relationship
between the independent and dependent variables.
The succeeding sections elucidate the findings further and relate these to existing
literature.
Transformational and Transactional Leadership Continuum
Transformational leadership was pioneered by Burns (1978) which he described
in his seminal work Leadership as the type in which “leaders and followers raise one
another to higher levels of motivation and morality” (p. 20). Transforming leadership, as
he first termed it, converts followers into leaders and leaders into moral agents. He
distinguished two types of leadership-- transactional and transformational, in which
transactional leadership focuses on an exchange of productivity for a reward, that is
productivity can be achieved by giving rewards, and no productivity can mean
withdrawal of rewards or benefits (Bass & Riggio, 2006).
Similar to the comparison between agency and stewardship theories, transactional
and transformational leadership also exist on the same continuum (Bass, 2008), where
transformational leadership is at the highest level of the leadership continuum (Bass &
Riggio, 2006) and that qualities of transactional leadership must be manifested to provide
the proper context for effective leadership (Goodwin et al., 2001). An instance in our
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sample reflected this. According to ED5, “We all work harder because we all know that
at the end of the day, it helps us; our organization grows. It also helps to grow our
dividends and patronage funds.” This statement showed the merging of extrinsic
motivation (grow our dividends and patronage funds), which is characteristic of
transactional leadership, and intrinsic motivation (our organization grows), which is akin
to transformational leadership. The results of this study validates the study made by
Goodwin et al. (2001) that linked transformational leadership with contingent rewards
which is a key dimension of transactional leadership.
Leadership occurs when both leadership and followership are present and
recognized, and could be in dyadic, group, or strategic level (Avolio et al., 2003). While
the spotlight was focused on the effectivity of transformational leadership in bringing
about performance (Avolio et al., 1988; Bass, 1985; Bass & Riggio, 2006; Goodwin et
al., 2011), organizational commitment and success (Goodwin et al., 2011; Valdiserri &
Wilson, 2010), job satisfaction (Bass et al., 1987), and profitability (Waldman et al.,
2001; Valdiserri & Wilson, 2010). However, for transformational leadership to be
effective, Pawar and Eastman (1997) proposed that leaders should confront, reshape, or
harness organizational contexts, in order to increase organizational receptivity, or
members’ reception to the transformational leader’s vision and attempts to align them to
the vision. The transformational leader has to retool internal organizational contexts such
as organizational orientation, organizational task system, organizational structure, and
mode of governance for the leadership to gain followership. This could perhaps account
for why transformational leadership would work or fail in different circumstances.
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Four Dimensions of Transformational Leadership
In the transformational leadership literature, there were four dimensions identified
which characterize transformational leadership behavior. These are: idealized influence,
which provides vision and a sense of purpose, and elicits respect, trust, and confidence
from followers; inspirational motivation, increases optimism and enthusiasm,
communicates high expectations, points out possibilities not previously considered;
intellectual stimulation, actively encourages a new look at old methods, stimulates
creativity, and encourages others to look at problems and issues in a new way; and
individualized consideration, gives personal attention to others, making each individual
feel uniquely valued (Bass & Riggio, 2006; Bass & Steidlmeier, 1999; Brown & Reilly,
2008; Bruch & Walter, 2007; Hinkin & Tracey, 1999; Kark, Gilad, & Shamir, 2003;
Nielsen & Munir, 2009; Sarros & Santora, 2001).
Of the four dimensions, idealized influence or charisma seemed to receive much
attention in literature. Bruch and Walter (2007) found that idealized influence and
inspirational motivation were the most identified transformational leadership behaviors
present among upper managers than middle managers they studied, with job satisfaction
as the dependent variable.
Hinkin and Tracey (1999) propounded the thesis that charismatic leadership
emerges at a time of crisis, as was true during political or religious upheavals. The study
of Waldman et al. (2001) also showed that the connection between top managers and firm
outcomes would depend on the managers’ charismatic leadership, but only during a
period of crisis.
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Expecting idealized influence to come up in a business setting and in a period of
stability seemed unrealistic. Charisma, for example, was found to be irrelevant during
times of organizational stability (Hinkin & Tracey, 1999). Majority of the EDs
interviewed belong to companies which are seeing a period of growth and stability. This
perhaps accounted for the “lower” turnout of inspirational motivation and idealized
influence (dimensions more coherent with charismatic leadership) among the
respondents. Respondents identified individualized consideration as the most apparent
transformational leadership behavior in the qualitative interviews. The result of my study
was not consistent with what the literature would commonly identify as the dominant
transformational leadership dimension. This may be due to the Filipino’s concept of
kapwa, which Virgilio Enriquez (1986), father of Filipino Psychology, identified as the
core concept underlying Filipino interpersonal behaviors. Kapwa is like a shared identity
with others (Church & Katigbak, 2002). This may have accounted for individualized
consideration as primary transformational leadership behavior, rooted in the Filipino’s
notion of kapwa, which “embraces both the categories of ‘outsider’ (ibang tao) and ‘one
of us’ (hindi ibang tao)” (Enriquez, 1986, p. 16) and sparks genuine concern.
Researchers have consistently acknowledged the significance of contextual
factors in the study of transformational leadership and the limited research on this area
warrants further studies. The result of my study on the dimension of individualized
consideration in a cultural context may be used to outline a framework of organizational
change and focus on this dimension may help explain its contextual role on the
transformational leadership construct.
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My study is extending the literature on transformational leadership, specifically
on the transformational and transactional leadership continuum and the dimensional
aspect of transformational leadership in a cultural context.
Other Leadership Styles
The interviews with EDs generated responses which also reflect other leadership
styles of their CEOs. Transactional and dysfunctional (or toxic) leadership styles were
also revealed in the interviews, but only in a very few cases. Transactional leadership
focuses on an exchange of productivity for reward (Bass & Riggio, 2006). It promotes
compliance by appealing to the needs and wants of individuals (Sarros & Santora, 2001),
or lower-order needs as specified by Burns (1978).
It consists of two factors: contingent reward (providing tangible, material reward
for efforts) and management by exception (according trust to finish the job to a
satisfactory standard without rocking the boat (Sarros & Santora, 2001). By this
definition, transactional leaders do not elevate their followers to perform beyond the
minimal standard. The interviews yielded two instances in which EDs saw their CEOs to
be transactional. ED5 stated, “We all work harder because we all know that at the end of
the day, it helps us; our organization grows. It also helps to grow our dividends and
patronage refund.” Another instance was when ED18 mentioned, “Minor problems are no
longer coursed through him. I’ve set up a process wherein all major decisions should be
approved by our boss.” This suggests that the transformational leader, in order to gain
organizational receptivity as espoused by Pawar and Eastman (1997) should be able to
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confront, reshape, or harness organizational contexts, in this case organizational task
system and organizational structure.
Meanwhile, one ED regarded his CEO as “uncaring”, “instilling fear with staff”
and “showing no concern for employees.” The following characteristics can be closely
described as toxic leadership in which behaviors are classified as tyrannical, destructive,
abusive, bullying, unethical or bad and toxic (Mehta & Maheshwari, 2013). ED10
moreover, had this to say about his CEO, “His style is fear management. If you don’t hit
your target, he would really lambast you… he has this sort of power tripping…
Everytime they see him, they become paranoid. They can’t move; they would rather just
vanish.”
This type of leadership, according to the authors, has a negative impact on
employee job satisfaction and the affective commitment of employees to the
organization.
Good Corporate Governance
Based on interviews with EDs, performance of their roles in the areas of control
and accountability still dominated their conception of good corporate governance.
Control was coded using, among other things, the following descriptions, “following the
rules, producing profits, and ensuring policy implementation.” For example, a response
coded as ensuring policy implementation, ED25 described corporate governance as such,
“…is how the company polices itself. It’s like a method of governing the company,
instilling the customs, policies, practice defining the culture.” ED18, whose response was
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coded as following the rules, said, “In good governance, I need to put in good policies
right for the company and stick to controls.”
Directors’ first responsibility is to shareholders, even if the stewardship view of
corporate governance mandates it to look after the interest of stakeholders as well
(Tricker, 2009). This accountability to shareholders is also stipulated in the roles of the
board as stated in the OECD Principles, that the corporate governance framework should
ensure “the board’s accountability to the company and to the shareholders” (OECD,
2008, p. 116). As such, producing profit was also among the most mentioned description
of good corporate governance. For example, ED22 said, “for this company, basically the
indicators (of good corporate governance) are financial for now. It’s a pro-profit
organization, so the main indicators will be, if the company meets its financial targets and
returns promised to the shareholders.” ED8 even put forward that strategy could be linked
to profitability when he said, “If the company does not profit, then there’s something
wrong with the governance; that everyone is not in the same direction. There’s a
misalignment within the organization.” ED24 also considered profitability as paramount,
but not at the expense of morality. She said, “Yes, you’d consider profit is important, but
you should be able to conform to what is morally good.”
Roles of Boards
Strategy. The Organization for Economic Cooperation and Development (OECD,
2008) provides the guidelines on how organizations may practice good governance. In
this paper, I have defined good corporate governance as the performance of the
responsibilities of the board. The OECD in Principle 6, responsibilities of the board,
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outlined those duties which can be summed up in three major themes—strategy, control
and accountability (Eckhart, 2006; Macey, 2008; Nicholson & Newton, 2010; OECD,
2008; Tricker, 2009). The other role of service (Carver & Oliver, 2002; Nicholson &
Newton, 2010; Tricker, 2009) was derived from other literature.
Of these roles, the board’s participation in strategy formulation and
implementation is among those most discussed in literature. A review conducted by
Pugliese, Bezemer, Zattoni, Huse, Van den Bosch, and Volberda (2009) identified the
dominant themes on the contribution of boards to strategy per period. Period 1 (1972-
1989) featured conceptual and empirical papers defining the extent of board participation
in strategy. Period 2 (1990-2000) focused on empirical articles exploring the
determinants and consequences of board strategic involvement. Period 3 (2001-2007)
showcased empirical articles centered on boards’ participation in strategic decision-
making, while still dominated by the input-output studies of Period 2.
My research was consistent with the dominant theme of Period 3, while little
frequencies were noted, the directors made contributions to strategy whenever these were
mentioned. The study of Hendry and Kiel (2004) was also in line with the theme of
Period 3. Also characteristic of Period 3 was the use of multi-theoretical approach, which
in their study combined organizational control and agency theories. Their study
advocated for an active school of thought for strategy making which states that boards are
independent thinkers who shape strategies in their organization. They posited strategy as
control mechanism beyond reducing divergence of interests, but also as a means of
shaping mission and vision, regulating capacity for innovation and entrepreneurship, and
initiating change when necessary.
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Strategy was rarely mentioned by the EDs in their practice of good corporate
governance. The EDs who mentioned about strategy talked about their involvement as
initiators of corporate planning and review of implementation of programs whether these
are still aligned with strategy. The strategy role can be setting the goals, values, and
direction on one end, to approving, monitoring, and reviewing on the other (Nicholson &
Gavin, 2010). ED11 mentioned initiating a “business continuity plan taking note of all
possible negative occurrence that we can encounter and for each of these, we list
company mitigating actions.” This description is consistent with the active school of
thought in strategy making, where boards actively participate in drawing up strategies.
However, as the active school acknowledges this level of involvement, research also
showed that this could pose a dilemma between setting and monitoring strategic direction
and executing strategies on an operational level (Hendry & Kiel, 2004). This could be the
case if directors are insiders, as was the situation of the interview participants.
The literature provided little attention to executive directors (O’Toole, 2006).
However, some authors did point out the advantages of executive directors on board. A
study by Masulis and Mobbs (2011) proposed that firm-specific knowledge offered by
inside directors is critical for board monitoring and decision-making. In their study, the
authors found that inside directors who also hold outside directorship in unaffiliated firms
were associated with higher firm performance, as well as better board decision making.
Thus, these inside directors with outside directorships were concluded to elevate board
monitoring and help prevent CEO entrenchment.
Meanwhile, Nicholson and Kiel (2007) also made the same claim about the
advantage of inside directors as knowing the company intimately and having superior
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access to information. This asset helps in informed decision-making. The study was
ascertaining the relationship between directors and performance, using three theoretical
lenses. Under stewardship theory, the assumption was that majority of the board members
are insiders and they will “naturally work to maximize profits for shareholders” (p.588),
which consequently leads to superior corporate performance. However, this assertion was
not supported in their study. In my own research, however, inside or executive directors
are beneficial to superior corporate performance as illustrated in the statement of ED11,
“Good governance means good management, so good management, good governance can
only contribute positively.”
Accountability. Literature on Asian or Philippine corporate governance focused
on control, transparency and accountability, or the lack of these facets, owing to the
structure of ownership, which is family-based (Echanis, 2006; Iu & Batten, 2001;
Kabigting, 2011; Saldaña, 1999). Transparency, a key feature of accountability in
corporate governance literature (Eckart, 2006; Macey, 2008; Nicholson & Newton, 2010;
OECD, 2008; Tricker, 2009) and as these were projected negatively in literature
(Echanis, 2006; Iu & Batten, 2001; Saldaña, 1999) but gained positive light in my study.
A weakness of corporate governance in family-owned structure can be found in
transparency because disclosure is not a feature of relationship-based transaction
environment (Iu & Batten, 2001).
In the study, I had two respondents who were part of family corporations, in
which one was moving away from the traditional family corporation mold. Case in point,
ED18 described this transition, as “we’re now professional”. These two corporations did
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not fit the description by (Iu & Batten, 2001) and debunked their position because my
respondents from family corporations exercised a high level of transparency. ED18 said,
“We’re professionals already and we’re in accordance now with the policy which makes
it easier for good governance. If we don’t follow the policies, then we’re not leading in
good governance.” ED24 further supported this when she said, “Process is process…It’s
so easy to cut corners if it’s a family business, so all the more [good governance] is
needed.”
All executive directors in the sample belong to the private corporations in Metro
Manila, but are not publicly-listed. Transparency was regarded as cornerstone of
accountability to the company and to other stakeholders. For example, ED28 said,
“Transparency is number one. You have to deliver your responsibilities in a way that you
should be practicing honesty. Responsibility is very important… towards the
stockholders, the stakeholders, and of course to the people, the staff, your peers, and the
officers.”
Perhaps one of the reasons for this change in transparency views from directors of
family corporations may due to the increased exposure to social awareness and activism
of the younger generation of entrepreneurs. Plus the fact that the study made by Iu and
Batten (2001) was done almost fifteen years ago and would thus require a second look
into this phenomenon.
Jamali et al. (2008) regarded corporate governance as concerned with honesty and
transparency which are expected of companies to gain investor confidence and market
efficiency, as well as earn employee trust and commitment. As a matter of fact, their
article also propounded that companies are slowly inching towards performance
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evaluation including not only financial terms but also long-term social, environmental
and economic impacts. They stressed the link between corporate governance as an
internal process and corporate social responsibility as the outward counterpart. “CG was
generally conceived as establishing a basic framework of stewardship and trusteeship,
CSR was conceived as the outward expression or manifestation of internal CG policies
and principles” (p. 457). In other words, based on Jamali and colleagues’ (2008) study, a
solid CG mechanism should be in place for CSR to genuinely work for the company.
While my study did not touch on CSR, it should be noted that the directors
interviewed were conscious of good CG practices to contribute to performance that will
benefit their stakeholders. Under stewardship theory, directors behave in a way that
serves the collective, using corporate performance such that they also gain or serve their
own interest without having to take advantage of the principal or other stakeholders
(Davis et al., 1997). From our results, ED5 shared, “The organization’s mission is to help
improve the quality of life of the contractual workers… is simply effectivity,
accountability, transparency, and most of all genuine concern for our members.” ED21
emphasized, “Governance is basically doing what is right, not sacrificing the quality…
you don’t shortchange your investors. You pay the right taxes, you have responsibility
over the people, over your investors, over your customers.”
Other indicators of good governance were also found in the performance of duties
expected of board members such as diligently attending board and committee meetings.
The EDs interviewed shared some of their thoughts, such as this one shared by ED4, “We
have this budget meetings every year, to be clear with our managers of our objectives…
And then we review every quarter.” ED2 mentioned how good corporate governance
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contributes to organizational success. “If everyone works with exactly the kind of
guideance that the board sets and the board expects them to administer these
appropriately, then periodically they were able to measure the kind of success that they
are able to achieve based on the basic goals they set for them.”
CEO Duality
CEO duality is a board structure in which the CEO and the Board Chairman
position are vested on one person (Daily & Dalton, 1997; Desai et al., 2003; Faleye,
2007; Finkelstein & D’Aveni, 1994). Davis et al. (1997) stated that pro-organizational
actions are best facilitated when the governance structure allows the CEO high authority
and discretion, and that the structure most suited for this situation is CEO duality. Under
the stewardship perspective, structures that facilitate and empower are favored more than
those that monitor and control. CEO duality is such structure because CEO-chairman is
unimpeded in determining strategy. Moreover, CEO duality’s unity of command and
strong leadership features (Finkelstein & D’Aveni, 1994) are also found to be more
consistent with the stewardship view of governance by considering the CEO as self-
actualizing (Davis et al., 1997), and that maximizing profits for the company can be
among the self-actualizing drivers of CEO actions. Faleye (2007) stated that the CEO’s
reputation adds value to shareholder, and also acts as a deterrent for a CEO to advance
self-interest.
Majority (70%) of EDs interviewed belong to board structures which adopt CEO
duality based on demographic profile. The literature would point to CEO duality as a
signal for greater board vigilance, CEO entrenchment (Finkelstein & D’Aveni, 1994), or
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simply inherently undesirable (Boyd et al., 2001). Quantitative results showed that CEO
duality moderates good corporate governance. Although this result was not part of this
study’s inquiry, it proved significant as it showed structurally an antecedent for good
corporate governance.
Adopting CEO duality is not an arbitrary choice or a response to shareholder
activists’ call for greater independence (Faleye, 2007). Some factors mentioned include
complexity of the organization, CEO reputation (Faleye, 2007), and the firm’s
performance (Finkelstein & D’Aveni, 1994; Krause & Semadeni, 2013). If a firm is
performing well, there’s less need for board vigilance (Finkelstein & D’Aveni, 1994),
and separating the positions will only be detrimental to the organization (Krause &
Semadeni, 2013). Separating the roles at the time of poor performance lead to higher
future performance of stock return and analyst ratings, and doing so at a time of good
performance lead to lower performance in the same measures, the study of Krause and
Semadeni (2013) found.
Since this finding was not part of my formal inquiry, it wasn’t very clear how
CEO duality could lead to good corporate governance. However, based on the premise
provided by literature about CEO duality and performance, I could conjecture that the
companies in our sample were in a period of growth or stability. Tricker (2009) shared
the results of a survey conducted by the Association of British Insurer (ABI) which
confirmed that good corporate governance leads to increase in share price levels and that
it shields companies in times of crisis. Perhaps the companies in my sample were
performing relatively well, and if at a time of crisis, could have weathered it on account
of good corporate governance practices as purported by ABI. Because if such were not
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the case, the literature would suggest that these companies would have been ripe to adopt
nonduality.
A counter view was presented by Daily and Dalton (1997) who found no
significant difference between CEO duality and nonduality in six dimensions of chair
independence: inside/outside succession, organizational structure, tenure as CEO, equity
holdings in the firm, extent of familial relationships, and board composition. However,
they maintained that the joint CEO and board structure was the most efficient path to
superior firm performance because it shows that the firm has strong leadership, based on
organization theory. If no significant differences were found, I would agree with
suggestions in literature which stated that the option should be rational in which the
choice for structure would be consistent with firm characteristic (Faleye, 2007) and
circumstance (Boyd et al., 2010) and would enhance performance (Faleye, 2007). After
all, CEO duality can have both positive and negative effects depending on its market
setting (Boyd et al., 2010).
Transformational Leadership and Corporate Governance Nexus
Certain parallelisms exist between the study of transformational leadership and
corporate governance but both are conceptually distinctive from each other. While the
subject of transactional and transformational leadership is based on behavioral aspects of
leadership, the study of corporate governance is based on the assumption of the
principal/agent relationship. Transformational leadership behavior, therefore, may
influence good corporate governance through the principal/agent perspective of
stewardship. For example, if the CEO is transformational and inspires the EDs to act in a
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similar manner, then it behooves both parties to align their objectives that which supports
proposition no. 9 by Davis et al (1997) whereby potential performance of the firm is
maximized if a mutual stewardship relationship exists.
Shared Governance
It is useful to relate our findings on the positive relationship of transformational
leadership and good corporate governance on the study by Gardiner (2006). He identified
six characteristics of shared governance, to wit: (1) a climate of trust (integrity,
consistency between words and deeds); (2) information sharing (disclosure of data
necessary for decision making; (3) meaningful participation (broad involvement in all
aspects of decision making and planning; (4) collective decision making (moving toward
group consent); (5) protecting divergent views (valuing, nurturing alternative
perspectives; and (6) redefining roles (all members are leaders) (p. 66).
Using these characteristics, I related the four dimensions of transformational
leadership, and the conception of good corporate governance through the performance of
board roles.
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Table 22
Relationship of Transformational Leadership and Good Corporate Governance
Shared Governance Dimensions of Transformational Leadership
Good Corporate Governance
A climate of trust Idealized influence Inspirational motivation
Accountability
Information sharing Individualized consideration Accountability Meaningful participation Inspirational motivation Control Collective decision making Inspirational motivation Control Protecting divergent views Intellectual stimulation Control Redefining roles Inspirational motivation Accountability
Inspirational motivation appeared to be dimension most reflective of shared
governance. In a regression of the individual dimensions, my results showed that
inspirational motivation appear to be the most influential to good corporate governance.
Statements made by executive directors demonstrate this point. ED6 said, “My CEO, I
consider him as my mentor. I like the way he treats his people. He has a plan for
everyone, not just for the company, not just for himself, but for his employees. My boss
is really my inspiration to do my very best.” Another example came from an interview of
ED3 in which she mentioned, “He (CEO) always emphasizes on honest dealings. He’s
honest and straightforward with his people. He doesn’t believe in keeping things from his
people. So very, very transparent and very encouraging.” It is logical then that good
corporate governance is borne out of a leader’s capacity to ethically inspire, motivate and
lead by example.
Pawar and Eastman (1997) studied the organizational contexts in which
transformational leadership would gain greater organizational receptivity, or acceptance
from followers of a transformational leader’s vision and prompting for alignment to the
same vision. One of the organizational contexts was mode of governance. Of the three
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modes, namely market, bureaucratic, and clan, the clan mode of governance would be
more receptive to transformational leadership. The study recognized that organization
members are likely to pursue self-interest, but under clan mode, would be more inclined
to see an alignment between their own and the organization’s. “In this mode, individuals
are still self-interested, but they believe they can attain their goals by working toward the
collective interests” (p. 97). This assertion is consistent with assumptions of stewardship
perspective where the attainment of organizational goal in effect meets one’s own.
The authors have a word of caution though. While this finding may show the
context by which transformational leadership may enjoy receptivity, it will still depend
on the leader on how to “retool, reshape, or harness” this context. So even when literature
has supported the positive effects of transformational leadership, which is at the highest
of the leadership continuum, it doesn’t mean that it will work all the time. Based on their
study, it will take more than just exercise of the four dimensions, the contexts should also
be considered to ensure higher receptivity. And to ensure this, a leader’s context must be
grounded in a deontological perspective.
Ethics as Foundation
In the existing literature, transformational leadership was often linked with
performance (Avolio et al., 1988; Bass, 1985; Bass & Riggio, 2006; Goodwin et al.,
2011), organizational commitment and success (Goodwin et al., 2011; Valdiserri &
Wilson, 2010), job satisfaction (Bass et al., 1987), and profitability (Valdiserri & Wilson,
2010). This study has proposed the positive relationship between transformational
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leadership and good corporate governance, and has established this link. This is my
contribution to the literature on transformational leadership and corporate governance.
The positive relationship between the independent variable transformational
leadership and independent variable good corporate governance can be rationalized by
moral or ethical underpinnings. The ethics or morality link binds the two variables.
Burns (1978) asserted that “the result of a transforming leadership is a relationship of
mutual stimulation and elevation that converts followers into leaders and may convert
leaders into moral agents” (p.4). He identified three principles of moral leadership: (1)
the moral leader engages followers in a meaningful shared purpose; (2) this purpose is
morally elevating; and (3) the moral leader is successful in delivering this elevating
common purpose in practice (Springett, 2004, p. 299). Bass and Steidlmeier (1999),
meanwhile, stressed the distinction between authentic transformational and pseudo-
transformational leadership lies in the presence or absence of a “moral foundation of the
leader as a moral agent” (p. 178).
Kanugo (2001) categorized transformational leadership as ethical in motive,
value, and assumptions. Based on a deontological perspective which judges a leader’s
action to have intrinsic moral values, a transformational leader’s motivation is
characterized by genuine or moral altruism (a leader’s helping concern for other
prompted by a sense of duty towards others without regard for self-interest), values akin
to the norm of social responsibility (an internalized belief of a moral obligation to help
others without expecting any personal benefit, assumptions or self-concept typify an
allocentric self-concept (socio-centric and mainly concerned with protecting the interest
of the group knowing that the personal and group interests are one).
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Jamali et al. (2008) viewed corporate governance as an internal process of
keeping with laws and tenets of ethics, fairness, and transparency. Huang and Snell
(2003), meanwhile, stated that an organization should demand high moral and ethical
standards from its leaders so as not to weaken its governance structure and eventually
result in its corruption and unstable growth.
The OECD Principles of Corporate Governance (2008), in its Responsibilities of
the Board, stated that the board should apply “high ethical standards” (p.116). The
qualitative results of my study strongly supported the role of ethics as foundation that is
necessary for good corporate governance. As a practical implication, ethics provides the
ground for transformational leadership and good corporate governance to flourish.
Therefore it is crucial that leaders should be able to demonstrate ethical behavior for
followers to emulate. This was apparent in most of the EDs responses where they
described their CEOs as setting good examples for them and as a source of inspiration.
Also, to help ensure better corporate governance, director appointments may
need to be based not only on the candidate’s experience as a board member but also the
ability to understand the behavioral complexity of corporate governace and its effective
implementation. Further, appointments must also be based on his or her ethical beliefs.
CEO Pressure on Profitability
Profit Maximization and Stress
Tricker (2009) stated that a board’s first responsibility is to its shareholders.
Economic theory pushes profit maximization as the highest goal of an executive (Luque
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et al., 2008). Under profit maximization scheme or shareholder-wealth-maximizing
model, profit is the most important and ultimate criterion for decision making and is the
super ordinate goal of an organization (Luque et al., 2008; Tourigny et al., 2003). Bennett
(2002) viewed this perspective as the unyielding pressure to keep earning and revenues
growing at a rapid rate.
For any corporation, it is but natural to seek profits as no one seeks to go into
business to lose money. More than half (57%) of the respondents feel the pressure from
the CEO on firm profitability. Even if 43% of EDs revealed that they do not feel the
CEO pressure on profitability, they gave various reasons where the pressure is coming
from, such as paying for business expenses, taking care of the welfare of employees, and
ensuring the viability of the company.
Literature on profit maximization discussed the pressure on profitability as
making decisions in favor of pragmatic and utilitarian concerns over principled decisions
benefitting all stakeholders, and inducing questionable decision making and behavior
(Tourigny et al., 2003). In the words of Bennett (2002), the effect of this pressure is
neglecting corporate social responsibility practices. It can be recalled that Jamali et al.
(2008) discussed corporate social responsibility as being based on a solid internal
governance mechanism founded on ethics, fairness, and transparency. By logical
conclusion, neglecting one’s corporate social responsibility would be tantamount to
having a weak governance structure lacking any or all of those three ideals.
While the pressure experienced by EDs seemed to be classified as regular
occupational stress or the perception of a discrepancy between environmental demands
and the individual capacities to meet them (Ongori & Agolla, 2008), the pressure goes
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deeper as it questions the morality of the person. The stress of the EDs were related to
ends that were considered for the good of others, which in the deontological perspective
of ethics, entailed actions which are allocentric or where the self is linked to a collectivity
such as an organization. “The allocentric ‘we’ self orientation of the leader is mainly
concerned with protecting the interests of the group, knowing that his/her own interests
and the group interests are inseparable” (Kanugo, 2001). The pressure felt by the EDS,
however not related to compromising one’s integrity to conduct themselves unethically
for profit, was actually a question of ethics.
The study also found that the pressure was not a moderator for the relationship
between transformational leadership and corporate governance. For occupational stress,
the answer could be as easy as adopting optimism through higher leader engagement
(Courtright, Colbert, and Choi, 2014) or reframing stressful work conditions as
meaningful and offering opportunities for growth as in the case of high hardy leaders
(Bartone, 2006). Perhaps confidence or experience would also help in coping, as when
one gains high self-efficacy to handle difficulties on the job (Jex & Gudanowski, 1992).
The answer, I believe, why the CEO pressure on profitability had no effect on the
relationship between transformational leadership and good corporate governance is the
character of the EDs as authentic transformational leaders, or leaders grounded on strong
moral foundations. Recall that the subject of this study was the transformational
leadership style of CEOs as rated by the executive directors and the effect of this
perception on their practice of good governance. So we could only allude to the EDs’
transformational leadership through their own perceptions of it. Jussim (1991) stated that
much of the psychological theorizing and research is based on the premise that social
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perception is a major force in creating social reality. It is also possible that the executive
directors were influenced by their CEOs who they regard as transformational. An
example is a statement from ED23, “That is what I learned from my boss, to be generous
with your staff, learn to work with others, be good to your employees and at the same
time to your co members of the board.” Another example is a statement from ED29, “We
tend to copy him. If you see he’s dedicated and headstrong to the things that he wants to
achieve, somehow you tend to follow because the good habits also influence people.”
These responses from my research clearly questions the propositions made by
Bennett (2002) and Tourigny et al (2003) on pressure on firm profitability. From a
practical perspective, this study made a strong case for the argument that when EDs are
faced with CEO pressure on firm profitability, an ethical option exists for them to follow
the right path.
Bass and Steidlmeier (1999) described the authentic transformational leader as
one who calls for universal brotherhood, whose inspiration is characterized by inward
and outward concern about the good for the group, organization or society, helps
followers generate more creative solutions to problems, and concerned about developing
their followers into leaders. The pressure dilemma, in this study, was a question of ethics
and answered by the same ethical foundation lived by the transformational leader.
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Chapter 6
Summary, Conclusion and Recommendation
Summary
The study of leadership has gone through various phases—exploring traits,
behavior, style, and situation. Leadership has been defined as “a social influence process
that can occur at the individual, dyadic, group or strategic level, where it can be shared
within a management team” (Avolio et al., p. 277). Leadership studies initially focused
on traits which asserted that certain individuals have been gifted to pursue leadership
positions (Kirkpatrick et al., 1991). This assertion was debunked for its limited view of
endowing trait characteristics to individuals born to be leaders, without consideration of
potential development or other contextual factors (Avolio et al., 2003; Kirkpatrick et al.,
1991).
The study on leadership then evolved towards behavior and style (Avolio et al.,
2003; Kirkpatrick et al., 1991; Yukl et al., 2001), and to situational contexts (Hersey,
1996). Situational leadership, pioneered by Hersey and Blanchard in 1969, proposed that
the appropriate leadership style should consider the maturity of the follower or
development level of follower, for which the manager decides they type of support to
deliver (Irgens, 1995).
Burns (1978) pioneered the concept of transactional and transforming leadership
and later developed by Bass (1985) who posited that these are multidimensional,
independent but complementary constructs. Transactional leadership focuses on an
exchange of productivity for rewards, while transformational leadership concerns with
achieving extraordinary outcomes and in the process allows employees to develop their
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own leadership capacities (Avolio et al., 1988; Bass & Riggio, 2006; Bass et al., 1987).
The lofty goal of transformational leadership is to elevate the follower to a status of a
leader who at the same time is a moral agent (Burns, 1978).
I took an interest on the study of transformational leadership due to a quandary on
the corporate scandals from the 1980s to the 21stcentury which saw a failure of corporate
governance. With the collapse of Enron, Worldcom, Tyco, and other businesses,
corporate governance took back, front, and center stage (Elson, 2004; Lawal, 2012;
Naciri, 2010). Corporate governance, according to Tricker (2009) is the relationship
among various participants in determining the direction and performance of corporations,
in which shareholders, management, and board of directors play key roles. It can be
viewed from two theoretical lenses—agency theory and stewardship theory.
Agency theory assumes that humans have individualistic motivations, and that
they are rooted in economic rationality (David et al., 2004). This view polarized the
relationship between principal (shareholder) and the agent (manager). Agency theory
assumes that managers are self-interested, and work in a context in which they do not
bear the full wealth effects of their decisions (Daily et al., 2003). In contrast, stewardship
theory views humans as self-actualizing and has a hunger to reach higher levels of
achievement. “Stewardship defines situations in which managers are not motivated by
individual goals, but rather are stewards whose motives are aligned with the objectives of
the principals” (Davis et al., 2004, p. 21).
In researching the link between transformational leadership and good corporate
governance, my paper presented support on the positive influence of transformational
leadership in good corporate governance. This will add on to the literature on
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transformational leadership and how its principles influence good corporate governance.
Furthermore, this research sheds additional light on the so called “black box” in corporate
boardrooms through the confidential interviews conducted with the EDs on how CEO
pressure on firm profitability affects the relationship between their CEO leadership style
and their perception and subsequent practice of good corporate governance.
Conclusion
This paper seeks to meet the following objectives: (1) to determine the views of
executive directors on CEO transformational leadership style; (2) To establish the
relationship between transformational leadership and good corporate governance; and (3)
to illustrate how CEO pressure on profitability moderates this relationship.
Quantitative and qualitative data gathered from 30 executive directors of private
companies in Metro Manila were employed for this study. The participants accomplished
a questionnaire (through the use of Likert scale) which had statements that reflected their
perceptions on CEO transformational leadership, good corporate governance, and CEO
pressure on them on firm profitability. The second part of the questionnaire (through the
use of semi-structured interview questions) was used to gather insights from the
executive directors on the aforementioned topics to corroborate the results.
The findings are discussed in order of stated objectives. Based on the results, the
following conclusions can be safely drawn.
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Executive Directors’ Views on CEO Transformational Leadership
First, executive directors generally found their CEOs to be practicing
transformational leadership based on the statistical results from the Likert scale. This
finding is corroborated in the context analysis of the qualitative interviews. Based on
interviews, CEOs seemed to be espousing intellectual stimulation and individualized
consideration more than dimensions of inspirational motivation and idealized influence,
which is more closely linked to charismatic leadership.
Transformational Leadership and Good Corporate Governance Nexus
Second, transformational leadership is positively linked to transformational
leadership. Statistical inference confirmed this relationship, and responses from
interviews also affirmed that the transformational leadership of their CEOs affects their
own practice of good corporate governance. The bond that links that these two variables
are the moral/ethical foundation required in the practice of both. Transformational
leadership, according to Burns (1978), is a relationship of mutual stimulation which
elevates followers to become leaders and eventually makes them moral agents. On the
other hand, the practice of good corporate governance as prescribed in the OECD (2008)
Principles Responsibilities of the Boards also requires high ethical standards in the
performance of their functions. In this study, the role of accountability, which has the
component of transparency, highlighted the ethical basis for good corporate governance.
The shared governance process espoused by Gardiner (2006) explained how
transformational leadership and good corporate governance could be linked. The six
characteristics he mentioned are: a climate of trust, information sharing, meaningful
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participation, collective decision making, protecting divergent views, and redefining roles
(p.66). It is a model which shows how ethics drew the concepts of transformational
leadership (through the four dimensions) and good corporate governance (through roles
of control and accountability).
CEO duality. The sample in my study mostly belonged to companies which
adopted the CEO duality board structure where CEO also acts as chair of the board
(Daily & Dalton, 1997; Desai et al., 2003; Faleye, 2007; Finkelstein & D’Aveni, 1994).
Based on quantitative study, this structure moderated good corporate governance.
Literature suggests that CEO duality promotes unity of command and also projects strong
leadership in the organization (Finkelstein & D’Aveni, 1994). This is consistent also with
the suggestion of stewardship theory that CEO duality ensures pro-organizational action
because the CEO is allowed high authority and discretion, therefore, becomes unimpeded
in determining strategy (Davis et al., 1997). Although this dilemma wasn’t part of my
inquiry, the finding was significant as it supported CEO duality as contributory to good
corporate governance. This could be a subject of future study.
CEO Pressure on Profitability
Finally, CEO pressure on profitability does not moderate the relationship between
transformational leadership and good corporate governance. Quantitative analysis
showed that CEO pressure is not linked to good corporate governance, therefore nullified
it as moderator of the relationship between independent and dependent variables. The
qualitative data showed that firm profitability could be a source of stress, and that the
CEO is the party pressuring the executive director.
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Two factors could account for the positive coping behavior of our EDs when the
pressure on profitability is viewed from the perspective of occupational stress. These are
level of optimism and confidence and experience (Bass, 2008). Level of optimism
included engagement (positive work-related affective motivational state characterized by
vigor, dedication, and absorption; Courtright, 2014), and hardiness (a characteristic sense
that life is meaningful, that life presents choices, and change is interesting and valuable;
Bartone, 2006). The confidence and experience covered self-efficacy or the one’s belief
about one’s ability and capacity to do a task and cope with environmental demands
(Nielsen & Munir, 2009). All these positive coping mechanism include transformational
leadership in their conception.
The other factor on CEO pressure on profitability is viewing it from an ethical
perspective. The pressure to profit, as narrated by our EDs, is linked to the consequences
of loss, such as not being able to pay up for operational costs, and failure to take care of
employees. Some EDs even viewed the pressure as linked to not being able to keep up
with the promised returns to investors. While some of our EDs felt the pressure, results
showed that it didn’t meet the cut to be a moderator for the link between transformational
leadership and good corporate governance. An explanation is offered by Caldwell, Dixon,
Floyd, Chaudoin, Post and Cheokas (2012) when they proposed the leadership model of
transformative leadership. They said, “transformative leadership rises to the level of
ethical stewardship when leaders create integrated organizational systems that add value,
enhance lives, benefit society, and honor duties owed to stakeholders by optimizing long-
term wealth creation” (pp. 176-177). Their explanation of transformative leadership
includes the ethical components of transformational leadership in that transformational
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leadership incorporates commitments to the organization, the community, and the
individuals within the organization. This component, steeped in the ethics, must have
aided our EDs overcome this pressure, even though in this study, the transformational
leadership style of the EDs can only be alluded to based on their concept of their own
CEOs.
Ethical Stewardship
In this study, I have established the positive link between transformational
leadership and good corporate governance. Previous research has only established the
relationship between transformational leadership and performance (Avolio et al., 1988;
Bass, 1985; Bass & Riggio, 2006; Goodwin et al., 2011), organizational commitment and
success (Goodwin et al., 2011; Valdiserri & Wilson, 2010), job satisfaction (Bass et al.,
1987), and profitability (Waldman et al., 2001; Valdiserri & Wilson, 2010). This study
showed that CEO pressure on EDs on firm profitability does not affect the relationship
between transformational leadership and good corporate governance and only fortified
the importance of the consequences of authentic transformational leadership in
organizational behavior.
I viewed the study variables from the point of view of stewardship theory. With
the emergence of ethics as link for both transformational leadership and good corporate
governance, I suggest integrating this concept as well to stewardship, and affirm the
thesis of Caldwell, Hayes, Karrie, and Bernal (2008) on ethical stewardship. “Ethical
stewardship integrates long-term wealth creation, a commitment to the transformational
interests of stakeholders and creating organizational systems that reinforce both
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instrumental and normative organizational goals” (p. 154). This definition shows good
corporate governance through board roles specifically control (long-term wealth
creation), strategy (organizational systems reinforcing instrumental and normative goals),
and accountability (commitment to the transformational interests of stakeholders).
Transformational leadership, on the other hand, is the ethical hand by which good
corporate governance could be ingrained into the organization. According to Carlson and
Perrewe (1995), “transformational leadership is viewed as the best approach for instilling
ethical behavior in organizations” (p. 269), through the ethical transformation of the
organization beginning with the ethics of leadership and corporate policies, exhibiting
ethical characteristics and behaviors resulting in transformational outcomes, and
institution of organizational ethics.
Limitations of the Study
In as much as this paper provided fresh insights on transformational leadership
and good corporate governance, this research has a number of limitations. The results of
this study come from a small sample (30 private companies) and did not include other
types of corporations. While the results cannot be generalized, the richness of the
qualitative data provided context as to how EDs interpret the reality that they are in. My
study adds on to the growing number of research challenging the hegemony of agency
theory as the leading model in corporate governance and expands on the stewardship
perspective in further understanding corporate governance through transformational
leadership. Studying corporate governance under the lens of stewardship should be
encouraged further, not as a competing theory but as a complement to agency theory,
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specifically when leadership of the board is to be scrutinized I am also extending
transformational leadership literature to consider good corporate governance as a relevant
outcome. This is the most significant contribution of this paper to business research and
to academe.
The results of my study brought up more questions than answers, and it is my
hope that future researchers will use my findings to extend and expand the literature on
the two major constructs of my paper.
Recommendations
Whereas most western research showed idealized influence and inspirational
motivation as the most mentioned dimensions of transformational leadership, my
research showed individualized consideration as the behavior that is identified most with
transformational leadership. As discussed in the previous chapter, this may have
accounted for it being the primary dimension that is rooted in the Filipino notion of
“Kapwa”, by one which shows genuine concern. This dimension of individualized
consideration in a cultural context may be used to outline a framework of organizational
change and focus on this dimension for future research may help explain its contextual
role in the transformational leadership construct.
The upside of transformational leadership is that it steers the company into the
right direction when leaders motivate their subordinates, encourage their creativity and
align their vision with that of the company. However, transformational leadership has its
dark side, too. The Madisonian model (named after James Madison, among the framers
of the US Constitution) runs in contrast to transformational leadership (Keeley, 2004). It
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acknowledges that people have differences and varied wants. The Madisonian model
noted that transformational leadership’s ideal of having followers give in to the higher
ideals of the organization at the expense of their own is something difficult to accomplish
in real life. The common goal, general interest, public good can be deemed as theoretical
concepts. In reality, these mean differently to different groups. He begged the question,
will the common interest or that of the majority not be harmful to the interest of the
minority. Truth is, unless a common goal is unanimously desired, there will always be a
contest between what the majority and the minority pursue. In contrast to
transformational leadership in which followers are elevated to pursue common
organizational goals, he proposed that legislation, rules, contracts be put in place to
govern different groups and put in check their pursuit of self-interests. How will the
Filipino concept of “Kapwa” then be viewed from this perspective?
On how transformational leadership influences good corporate governance, my
research showed that inspirational motivation as the most identified behavior that
influences good corporate governance more than 50% of the time. This implies that for
good corporate governance to be implemented effectively, Filipino CEOs must be able to
inspire and motivate his followers through communicating high expectations, and
increasing optimism and enthusiasm. Additional studies on this particular dimension
may help elucidate further how inspirational motivation in a cultural context can improve
the process of good corporate governance.
The role most identified by the EDs focused on control and accountability. A
reason was offered by a study by O’Shannassy (2010), in which he said that the modern
role of the board of directors in strategy making is limited and that the strategy comes
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from the CEO and top management. In his study based on interviews with a chairman,
executive chairman, company directors and CEOs, top managers, and internal and
external consultants, the board is expected to question and criticize the strategy proposals
and should change management if the members are not satisfied with strategy developed
by management.
Future studies could perhaps elucidate the role of the board in strategy-making
and implementation. Are these roles limited to an agency view by which the board takes
passive involvement in strategy making by serving as rubber stamps or approving body
of strategies in the organization or monitors the alignment of management decisions to
strategy (Brauer & Schmidt, 2007). What role would the board undertake in strategy
under the stewardship view of governance?
One of the major functions of an ED is management of a certain department or
area within the organization and their focus is on strategizing their area of responsibility.
This somehow lessens their focus on the company’s overall strategic planning and
because of their dual role as an executive manager and as a board member, extenuates it.
The unanticipated results from both the qualitative and quantitative results
provide a fertile ground for future research on both transformational leadership and good
corporate governance.
1. CEO Duality, from the quantitative findings shows significance as a
moderating factor between the relationship of transformational leadership
and good corporate governance. How this actually occurs in the boardroom
may be researched upon to explicate this phenomenon.
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What are the implications of CEO duality in the perception and practice of
EDs in good corporate governance? What will the implications be if the
subject of the survey and interviews are done with EDs of publicly-listed
corporations?
2. The subject of religion (in this research referring to the Catholic faith) was
extracted from the qualitative interviews, as a conceptual definition for both
concepts of transformational leadership (ED13 and 29 described their CEO
having strong religious convictions) and good corporate governance (ED11
stated following the ten commandments as an integral part of good
governance and ED12 mentioned fear of God as an indicator in carrying out
good governance). How does one's religious faith promote and espouse
these concepts? What role does religion really have on an individual in the
exercise of transformational leadership and good corporate governance?
What are the theoretical underpinnings of religion as an antecedent of good
corporate governance and how does this translate into better leadership
abilities and better corporate governance?
3. Another theoretical challenge is the concept of transcendental leadership.
Cardona (2000) first posited this leadership concept as a contribution based
exchange relationship. While Cardona's view of transcendental leadership is
based on intrinsic motivation, Sanders, Hopkins, and Geroy (2003) views it
from a perspective of spiritual development, linking transactional,
transformational and transcendental leadership into an integrated theory of
transcendental leadership. This begs the question as to how transcendental
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influences good corporate governance. Further, will religion be a mediating
factor between transcendental leadership and good corporate governance?
Leadership is an integral component in carrying out good corporate governance as
presented in this research. I encourage further studies on role of leadership in good
corporate governance which can shed more light and understanding to the behavioral
complexities of corporate governance. Hernandez (2012) suggested the psychological
dynamics on how transformational leadership can be improved and consequently drive
stewardship behavior. Enhancing corporate governance through transformational
leadership is an area that will benefit all sectors of society who look to corporations as
receptacles for improving human lives.
As a practical implication, I suggest the following actions to be taken by
governance practicioners:
1. Leaders must continuously be trained in ethical leadership so that they may
be able to demonstrate ethical behavior for followers to emulate.
2. Director appointments must be based on his or her ethical beliefs.
3. Director appointments may need to be based not only on the candidate’s
experience as a board member but also the ability to understand the
behavioral complexity of corporate governace and its effective
implementation.
4. It is also recommended that the Philippine educational system be able to
include corporate governance as a basic subject in the business curriculum.
The future generation of entrepreneurs should be able to understand the
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concept of corporate governance and its consequences to the betterment of
society in which they live.
On a personal note, this journey has affected my own perception and practice of
good corporate governance. As an ED in the past, I was passive in my role as a board
member. This research has taught me to be more active and vocal in my current role as a
shareholding board member, to ensure that the various stakeholders of the corporation
that we are leading are protected and that firm profitability is achievable without
sacrificing good corporate governance.
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Appendix A
Questionnaire
DATE:___________________________
A SURVEY ON LEADERSHIP AND CORPORATE GOVERNANCE
Good day! My name is Mr. Leveric T. Ng, a doctoral student at the De La Salle University. I am conducting a survey on leadership and corporate governance, and have chosen you as one of thirty (30) subjects for my dissertation.
The survey is about the relationship between transformational leadership and good corporate governance, and how CEO pressure on executive directors on firm profitability affects this relationship.
Rest assured the information that will be generated from this survey will be treated with the strictest confidence. In no way can the result be used for or against your directorship by the company, as this research is undertaken for academic purposes only.
Thank you very much for your invaluable assistance.
_____________________________________________________________________
Gender:______ (Male/Female)
Age: _____
Educational level: _________________
CEO duality (CEO and Chairman of the Board position is held by one person):
Yes________ No________
Following are forty two (42) statements. Please tell me how much you agree or disagree with the statements. Let us use the following 5 point scale where a rating of SD means strongly disagree…………...SA means strongly agree. Please encircle the number in the column that represents your response, using the following column key:
SD = strongly disagree
D = disagree
N = neutral, neither agree nor disagree
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A = agree
SA = strongly agree
1. Individual contributions to achieve organizational goals are encouraged by my CEO. SD D N A SA
2. Communication lines are constantly kept open between my CEO and the people in the organization. SD D N A SA
3. My CEO takes time to develop employees to reach their fullest potential as leaders. SD D N A SA
4. Listening to employee concerns and guiding them through the process is a particular strength of my CEO. SD D N A SA
5. Uncertainty is considered a challenge and my CEO and expects his employees to think independently. SD D N A SA
6. I have observed that my CEO actively solicits contributions from employees to manage situations. SD D N A SA
7. Developmental learning is highly valued by my CEO and this enables employees to think and act independently. SD D N A SA
8. My CEO encourages employees to be resourceful and creative when dealing with problems. SD D N A SA
9. Employees are motivated and inspired by my CEO to perform to the best of their abilities. SD D N A SA
10. The direction of my organization is clearly communicated by my CEO. SD D N A SA
11. My CEO provides the organization with a strong sense of mission. SD D N A SA
12. It is my CEO’s belief that leadership is a process of changing the conditions of people’s lives. SD D N A SA
13. My CEO conducts himself with the highest level of ethical consideration. SD D N A SA
14. I have great admiration and respect for my CEO. SD D N A SA
15. Unethical behavior by any employee at any level in my company is not tolerated by the CEO. SD D N A SA
16. The actions of my CEO provide the employees with moral courage to do what is right and for the best interest of the organization. SD D N A SA
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17. Our corporate governance framework ensures the strategic guidance of the company, board monitoring of management and accountability to the company and shareholders. SD D N A SA
18. As a Board Member, it has been my experience to act in good faith on a fully informed basis in the best interest of the company and our shareholders. SD D N A SA
19. My decisions are based on outcomes that will be equitable for all shareholders, irrespective of shareholdings and differing shareholder interests. SD D N A SA
20.As a Director, high ethical standards are expected of me by the board, management and shareholders SD D N A SA
21. I see to it that I participate in reviewing and guiding corporate strategy. SD D N A SA
22. As a director, risk management is an area that I regularly take up in the boardroom. SD D N A SA
23. I monitor the effectiveness of the company’sgovernance practices and discuss these changes with the board if needed to improve such practices. SD D N A SA
24. I am active in the selection of key executives in the company. SD D N A SA 25. Compensation of the board and key executives are issues that I make sure are aligned with shareholder interests. SD D N A SA
26. Directors nominated to the board have to go through a formal nomination and election process that have always been transparent. SD D N A SA
27. In my organization, potential conflicts of interest by any party are monitored and managed by us during board meetings. SD D N A SA
28. I have to make sure that independent audit is performed to ensure integrity of reports. SD D N A SA
29. We Directors in the Board establish proper disclosure and communicate this clearly to shareholders. SD D N A SA
30. It has been my practice that my decisions on corporate affairs are based on objectivity SD D N A SA
31. My company ensures that there is a sufficient number of independent directors to sit on board committees. SD D N A SA
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32. I am fully committed to my responsibilities as a board member in terms of my time. SD D N A SA
33. My decision making as a Board Member is fully supported by access to accurate, relevant and timely information. SD D N A SA
34. Producing company profit puts a lot of stress on my job. SD D N A SA
35. I am particularly conscious about the bottom line of my company to the point that it affects my mental and physical well being. SD D N A SA 36.Failure to meet company profitability can destabilize my job security. SD D N A SA
37. When I have meetings with our CEO, he/she is highly concerned about the economic outcome of our operations. SD D N A SA
38. I feel my decision making is sometimes compromised because my CEO expects me to produce acceptable profits for the company. SD D N A SA
39. It is a mandate from my CEO to aid him in making money for the company. SD D N A SA
40. The pressure I feel from my CEO on firm profitability causes my leadership to weaken and thus result in poorer corporate governance. SD D N A SA
41. My leadership ability in practicing good governance is affected by how my CEO’seconomic perspective on firm profitability. SD D N A SA
42. CEO pressure on firm profitability forces me at times, to omit some process on some aspects of my job and therefore affects how I lead my people. SD D N A SA
INTERVIEW
43. Does leadership influence good corporate governance? If yes why do you think leadership plays such an important role in influencing good corporate governance?
In what ways do leadership reinforce good governance through ethics, strategy and performance?
Does your leadership style influence your perception of good governance?
Are there other leadership areas that can contribute to good governance?
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If no, why not?
What other factor(s) other than leadership do you think influences good governance? Why and how so?
44. What are your perceptions of good corporate governance?
Is mere compliance a sign of good corporate governance? What makes for good corporate governance? What do Directors have to perform in order to promote good governance? Why do you believe this or these will promote good governance?
45. Do you think firm profitability is a source of stress?
If yes, do you experience stress on firm profitability? Where do you think this comes from? How and why? (Is this compounded by CEO pressure on profitability?)
If no,why not?
Does CEO pressure on you on firm profitability affect your perceptions of goodcorporate governance?
If yes, how does this pressure on you affect your leadership views (on ethics, strategy and performance) and its influence on corporate governance? In what manner and why?
Does this pressure on firm profitability from the CEO affect the manner in which you comply with good governance?
If no, what do you think may influence or affect your leadership views on corporate governance? In what manner and why?
END OF SURVEY
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Appendix B
Survey Matrix
Research objective: To establish CEO transformational leadership behavior as perceived by Executive Board Directors and its influence on good corporate governance; and if this influence is moderated by CEO pressure on Executive Directors on firm profitability.
Type of research: Primarily explanatory but also attempts to find out what is happening and seeks new insights on the phenomena.
Question Variable/ Construct
Detail in which data measured
Source
1. Individual contributions to achieve organizational goals are encouraged by my CEO.
Transformational leadership Dimension: Individual Consideration
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
Question 1-16 Transformational leadership dimensions.(Bass & Riggio, 2006)
2. Communication lines are constantly kept open between my CEO and the people in the organization.
Transformational leadership Dimension: Individual Consideration
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
3. My CEO takes time to develop employees to reach their fullest potential as leaders.
Transformational leadership Dimension: Individual Consideration
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
4. Listening to employee concerns and guiding them through the process is a particular strength of my CEO.
Transformational leadership Dimension: Individual Consideration
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
5. Uncertainty is considered a challenge and my CEO and expects his employees to thinkindependently.
Transformational leadership Dimension: Intellectual Stimulation
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
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Question Variable/
Construct
Detail in which data measured
Source
6. I have observed that my CEO actively solicits contributions from employees to manage situations.
Transformational leadership Dimension: Intellectual Stimulation
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
7. Developmental learning is highly valued by my CEO and this enables employees to think and act independently.
Transformational leadership Dimension: Intellectual Stimulation
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
8. My CEO encourages employees to be resourceful and creative when dealing with problems.
Transformational leadership Dimension: Intellectual Stimulation
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
9. Employees are motivated and inspired by my CEO to perform to the best of their abilities.
Transformational leadership Dimension: Inspirational Motivation
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
10. The direction of my organization is clearly communicated by my CEO.
Transformational leadership Dimension: Inspirational Motivation
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
11. My CEO provides the organization with a strong sense of mission.
Transformational leadership Dimension: Inspirational Motivation
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
12. It is my CEO’s belief that leadership is a process of changing the conditions of people’s lives.
Transformational leadership Dimension: Inspirational Motivation
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
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Question Variable/
Construct
Detail in which data measured
Source
13. My CEO conducts himself with the highest level of ethical consideration.
Transformational leadership Dimension: Idealized Influence
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
14. I have great admiration and respect for my CEO.
Transformational leadership Dimension: Idealized Influence
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
15. Unethical behavior by any employee at any level in my company is not tolerated by the CEO.
Transformational leadership Dimension: Idealized Influence
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
16. The actions of my CEO provide the employees with moral courage to do what is right and for the best interest of the organization.
Transformational leadership Dimension: Idealized Influence
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
17. Our corporate governance framework ensures the strategic guidance of the company, board monitoring of management and accountability to the company and shareholders.
Good corporate governance
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
Questions 11-27 Principles of CG, (OECD, 2008), Using Principles of CG: A boardroom perspective (OECD, 2008)
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Question Variable/ Construct
Detail in which data measured
Source
18. As a Board Member, it has been my experience to act in good faith on a fully informed basis in the best interest of the company and our shareholders.
Good corporate governance
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
19. My decisions are based on outcomes that will be equitable for all shareholders, irrespective of shareholdings and differing shareholder interests.
Good corporate governance
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
20. As a Director, high ethical standards are expected of me by the board, management and shareholders.
Good corporate governance
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
21. I see to it that I participate in reviewing and guiding corporate strategy.
Good corporate governance
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
22. As a director, risk management is an area that I regularly take up in the boardroom.
Good corporate governance
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
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Question Variable/ Construct
Detail in which data measured
Source
23. I monitor the effectiveness of the company’s governance practices and discuss these changes with the board if needed to improve such practices.
Good corporate governance
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
24. I am active in the selection of key executives in the company.
Good corporate governance
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
25. Compensation of the board and key executives are issues that I make sure are aligned with shareholder interests.
Good corporate governance
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
26. Directors nominated to the board have to go through a formal nomination and election process that have always been transparent.
Good corporate governance
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
27. In my organization, potential conflicts of interest by any party are monitored and managed by us during board meetings.
Good corporate governance
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
28. I have to make sure that independent audit is performed to ensure its integrity.
Good corporate governance
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
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�
Question Variable/ Construct
Detail in which data measured
Source
29. We Directors in the Board clearly establish proper disclosure and communicate this clearly to shareholders.
Good corporate governance
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
30. It has been my practice that my decisions on corporate affairs are based on objectivity.
Good corporate governance
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
31. My company ensures that there is a sufficient number of independent Directors to sit on board committees.
Good corporate governance
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
32. I am fully committed to my responsibilities as a Board Member in terms of my time.
Good corporate governance
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
33. My decision making as a Board Member is fully supported by access to accurate, relevant and timely information.
Good corporate governance
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
34. Producing company profit puts a lot of stress/pressure on my job.
Stress and firm profitability
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
Questions 34-36 (Worral & Cooper, 1995; Ongori & Agolia, 2008)
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Question Variable/ Construct
Detail in which data measured
Source
35. I am particularly conscious about the bottom line of my company to the point that it affects my mental and physical well being.
Stress and firm profitability
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
36. Failure to meet company profitability can destabilize my job security.
Stress and firm profitability
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
�
37. When I have meetings with our CEO, he/she is highly concerned about the economic outcome of our operations.
CEO pressure on directors on firm profitability
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
Questions 37-42 (Luque et al., 2008)
38. I feel my decision making is compromised because of the pressure from the CEO to produce acceptable profits for the company.
CEO pressure on directors on firm profitability
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
39. It is a mandate from my CEO to aid him in making money for the company.
CEO pressure on directors on firm profitability
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
40. The pressure I feel from my CEO on profitability causes my leadership to weaken and thus result in poorer corporate governance.
CEO pressure effect on transformational leadership influence in good corporate governance
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
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�
Question Variable/ Construct
Detail in which data measured
Source
41. My leadership ability in practicing good governance is affected by my CEO’seconomic perspective on firm profitability.
CEO pressure effect on transformational leadership influence in good corporate governance
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
42. CEO pressure on firm profitability forces me at times, to cut corners or omit some process on some aspects of my job and therefore affects how I lead my people.
CEO pressure effect on transformational leadership influence in good corporate governance
Strongly agree, Agree, Neutral, Disagree, Strongly disagree
Questions andsub questions from 43-45 are open ended (semi-structured interview) item.
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�
Appendix C
Pretest Results�
Pre-test 1
Table C.1
Reliability Statistics
Cronbach's Alpha
Cronbach's Alpha Based on
Standardized Items n
.71 .71 36
�
The first pretest conducted yielded a satisfactory alpha of 0.71. However upon
closer investigation of the transactional leadership and corporate governance scales, the
resulting alphas were at 0.08 and 0.55, respectively. The problem with this initial pretest
is with the low number of pretest respondents and particularly, item statements six to 10
of the transactional leadership scale.
Pre-test 2
The second pretest resulted in a much higher alpha of 0.20 primarily due to the
increase of respondents and the increase in items from 10 to 16 statements in the
transformational leadership scale and discarding the transactional leadership scale since
the study focuses the transformational leadership qualities of CEOs as perceived by
directors.
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Table C.2 Reliability Statistics
Cronbach's Alpha
Cronbach's Alpha Based on
Standardized Items
n .92 .92 42
The good corporate governance and CEO pressure on director on firm
profitability scales has a minimum alpha of 0.80 which is quite satisfactory. However,
under the transformational leadership scale, the subscale of individual consideration
yields an alpha of only 0.686.
Table C.3
Reliability Statistics
Cronbach's Alpha
Cronbach's Alpha Based on
Standardized Items
n .69 .69 4
I took out statement 1 of that subscale to yield a higher alpha of 0.783.
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Table C.4 Reliability Statistics
Cronbach's Alpha
Cronbach's Alpha Based on
Standardized Items
n .78 .79 3
�
Table C.5
Table C.6
Item-Total Statistics
Scale Mean if
Item Deleted
Scale Variance if
Item Deleted
Corrected Item-Total Correlation
Squared Multiple
Correlation
Cronbach’s Alpha if Item Deleted
TL-Individualized Consideration 11.30 6.83 .18 .05 .78
TL-Individualized Consideration 11.43 5.29 .61 .44 .54
TL-Individualized Consdieration 11.80 4.72 .63 .44 .51
TL-Individualized Consdieration 11.87 4.88 .52 .35 .59
Item-Total Statistics
Scale Mean if
Item Deleted
Scale Variance if
Item Deleted
Corrected Item-Total Correlation
Squared Multiple
Correlation
Cronbach's Alpha if
Item Deleted
TLCONS2 7.27 3.65 .66 .44 .68 TLCONS3 7.63 3.28 .63 .42 .69 TLCONS4 7.70 3.18 .59 .35 .75
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Similarly, in the subscale of intellectual stimulation that yields an alpha of .85, we
delete statement 4 to yield a much higher alpha of .92.
Table C.7
Reliability Statistics
Cronbach's Alpha
Cronbach's Alpha Based on
Standardized Items
n .85 .84 4
Table C.8 Reliability Statistics
Cronbach's Alpha
Cronbach's Alpha Based on
Standardized Items
n .92 .92 3
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Table C.9 ���������������������
The total number of items for the questionnaire is then decreased from 42 to 40
statements. But by reducing the number of item statements, the alpha results to a lower
number of .91 from .92.
Table C.10
Item-Total Statistics
Scale Mean if
Item Deleted
Scale Variance if
Item Deleted
Corrected Item-Total Correlation
Squared Multiple
Correlation
Cronbach’s Alpha if
Item Deleted
TLSTIM1 7.60 4.32 .83 .69 .89 TLSTIM2 7.60 4.11 .86 .73 .87 TLSTIM3 7.60 4.46 .82 .68 .89
Scale Mean if
Item Deleted
Scale Variance if
Item Deleted
Corrected Item-Total Correlation
Squared Multiple
Correlation
Cronbach's Alpha if Item Deleted
TL-Intellectual Stimulation
11.93 5.65 .83 .70 .75
TL-Intellectual Stimulation
11.93 5.58 .81 .73 .76
TL-Intellectual Stimulation
11.93 5.86 .81 .69 .76
TL-Intellectual Stimulation
11.40 9.28 .36 .16 .92
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Table C.11
Reliability Statistics
Cronbach's Alpha
Cronbach's Alpha Based on
Standardized Items
n .91 .92 40
Upon closer look of the survey items, apart from the increase in alphas of the two
subscales (intellectual stimulation and individualized consideration),the alpha for the
transformational leadership scale has likewise increased from .94 to .95 as a result of
deleting two statements from the scale.
Table C.12 Reliability Statistics
Cronbach's Alpha
Cronbach's Alpha Based on
Standardized Items
n .94 .94 16
Table C.13 Reliability Statistics
Cronbach's Alpha
Cronbach's Alpha Based on
Standardized Items
n .95 .95 14
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With only an insignificant decrease in overall alpha for the survey, we decided to
reduce the number of item statements in consideration for higher alpha increases in the
transformational leadership subscales of individual consideration and intellectual
stimulation.
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Appendix D
Final Questionnaire Form
DATE:___________________________
A SURVEY ON LEADERSHIP AND CORPORATE GOVERNANCE
Good day! My name is Mr. Leveric T. Ng, a doctoral student at the De La Salle chosen you as one of thirty (30) subjects for my dissertation.
The survey is about the relationship between transformational leadership and good corporate governance, and how CEO pressure on executive directors on firm profitability affects this relationship.
Rest assured the information that will be generated from this survey will be treated with the strictest confidence. In no way can the result be used for or against your directorship by the company, as this research is undertaken for academic purposes only.
Thank you very much for your invaluable assistance.
_____________________________________________________________________
Gender:______ (Male/Female)
Age: _____
Educational level: _________________
CEO duality (CEO and Chairman of the Board position is held by one person):
Yes________ No________
Following are forty two (42) statements. Please tell me how much you agree or disagree with the statements. Let us use the following five-point scale where a rating of SD means strongly disagree and SA means strongly agree. Please encircle the number in the column that represents your response, using the following column key:
SD = strongly disagree
D = disagree
N = neutral, neither agree nor disagree
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A = agree
SA = strongly agree
1. Communication lines are constantly kept open between my CEO and the people in the organization. SD D N A SA
2. My CEO takes time to develop employees to reach their fullest potential as leaders. SD D N A SA
3. Listening to employee concerns and guiding them through the process is a particular strength of my CEO. SD D N A SA
4. Uncertainty is considered a challenge and my CEO and expects his employees to think independently. SD D N A SA
5. I have observed that my CEO actively solicits contributions from employees to manage situations. SD D N A SA
6. Developmental learning is highly valued by my CEO and this enables employees to think and act independently. SD D N A SA
7. Employees are motivated and inspired by my CEO to perform to the best of their abilities. SD D N A SA
8. The direction of my organization is clearly communicated by my CEO. SD D N A SA
9. My CEO provides the organization with a strong sense of mission. SD D N A SA
10. It is my CEO’s belief that leadership is a process of changing the conditions of people’s lives. SD D N A SA
11. My CEO conducts himself with the highest level of ethical consideration. SD D N A SA
12. I have great admiration and respect for my CEO. SD D N A SA
13. Unethical behavior by any employee at any level in my company is not tolerated by the CEO. SD D N A SA
14. The actions of my CEO provide the employees with moral courage to do what is right and for the best interest of the organization. SD D N A SA
15. Our corporate governance framework ensures the strategic guidance of the company, board monitoring of
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management and accountability to the company and shareholders. SD D N A SA
16. As a Board Member, it has been my experience to act in good faith on a fully informed basis in the best interest of the company and our shareholders. SD D N A SA
17. My decisions are based on outcomes that will be equitable for all shareholders, irrespective of shareholdings and differing shareholder interests. SD D N A SA
18. As a Director, high ethical standards are expected of me by the board, management and shareholders. SD D N A SA
19. I see to it that I participate in reviewing and guiding corporate strategy. SD D N A SA
20. As a director, risk management is an area that I regularly take up in the boardroom. SD D N A SA
21. I monitor the effectiveness of the company’sgovernance practices and discuss these changes with the board if needed to improve such practices. SD D N A SA
22. I am active in the selection of key executives in the company. SD D N A SA 23. Compensation of the board and key executives are issues that I make sure are aligned with shareholder interests. SD D N A SA
24. Directors nominated to the board have to go through a formal nomination and election process that have always been transparent. SD D N A SA
25. In my organization, potential conflicts of interest by any party are monitored and managed by us during board meetings. SD D N A SA
26. I have to make sure that independent audit is performed to ensure integrity of reports. SD D N A SA
27. We Directors in the Board establish proper disclosure and communicate this clearly to shareholders. SD D N A SA
28. It has been my practice that my decisions on corporate affairs are based on objectivity SD D N A SA
29. My company ensures that there is a sufficient number of independent directors to sit on board committees. SD D N A SA
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30. I am fully committed to my responsibilities as a board member in terms of my time. SD D N A SA
31. My decision making as a Board Member is fully supported by access to accurate, relevant and timely information. SD D N A SA
32. Producing company profit puts a lot of stress on my job. SD D N A SA
33. I am particularly conscious about the bottom line of my company to the point that it affects my mental and physical well being. SD D N A SA
34. Failure to meet company profitability can destabilize my job security. SD D N A SA
35. When I have meetings with our CEO, he/she is highly concerned about the economic outcome of our operations. SD D N A SA 36. I feel my decision making is sometimes compromised because my CEO expects me to produce acceptable profits for the company. SD D N A SA
37. It is a mandate from my CEO to aid him in making money for the company. SD D N A SA
38. The pressure I feel from my CEO on firm profitability causes my leadership to weaken and thus result in poorer corporate governance. SD D N A SA
39. My leadership ability in practicing good governance is affected by how my CEO’seconomic perspective on firm profitability. SD D N A SA
40. CEO pressure on firm profitability forces me at times, to omit some process on some aspects of my job and therefore affects how I lead my people. SD D N A SA
INTERVIEW
41. What is good corporate governance to you?
What are your responsibilities as a board member?
Do you think good corporate governance contributes to organizational success? Why and how so?
What do you think are the indicators of good corporate governance? Are these indicators or measures being implemented in your organization?
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42. How would you describe the leadership style of your CEO? Pls. expound.
Does the leadership style of your CEO influence your practice of good corporate governance in your organization?
If yes, why do you think leadership plays an important role in good corporate governance? How does leadership influence good corporate governance?
If no, are there other areas other than leadership that can influence good corporate governance? Why and how?
43. Do you think firm profitability is a source of pressure?
Do you experience pressure from the CEO on firm profitability?
If yes, how does this pressure affect good corporate governance. Apart from firm profitability, are there other areas of pressure from the CEO that you experience?
If no, where do you feel or think the pressure comes from? How and why?
END OF SURVEY
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Appendix E
Policy on Use of Professional Help for Dissertation
Students may engage professional survey companies or other paid service-providers in the conduct of their dissertation research so long as the following criteria are met:
The intellectual content of all the primary investigative work must be the sole work product of the student. That includes the following steps: literature review and analysis, formulation of research questions and hypotheses, design of data collection method and instrument, sampling design, analysis of pretest results, finalization of data collection instrument and procedures, analysis of data, testing of hypotheses (if any), and formulation of conclusions.
Professional help is permitted at each of the above steps if it takes the form of advice and counsel. It is not permitted when the help pertains to actually doing the work for the student. For example, a student may receive advice from a survey research professional on the formatting and wording of a questionnaire, so long as the content and the framework of the questionnaire is done by the student. Giving a set of hypotheses to a survey professional and asking for a draft questionnaire would be prohibited.
The step where hired professionals may actually do the work is in the data collection phase of the dissertation research. This would include reproduction and distribution of questionnaires, interviewing, data entry, and tabulation. However, the specifications for the tabulation must come from the student, again possibly with advice.
Conforme:
________________________________ ________________________________ Mr. Leveric Ng Mr. Kenn Velasco DBA Student 10897720 Managing Director CASI Research
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Appendix F
Interviewer Protocol
A. The interviewer should always be equipped with the following when conducting interviews:
1. Official CASI identification card.
2. Signed copy of letter from CASI/researcher and copy of researcher university identification card.
3. Contact details of CASI and researcher in case respondent would like to verify
interviewer authenticity.
4. Presentable writing notebook and other materials.
5. Proper business attire as initial appearance and demeanor is crucial.
B. In conducting the actual interview, the interviewer should follow the succeeding procedure:
1. Confirmation. Interviewer calls respondent to confirm appointment a day prior to interview.
2. Introduction. Interviewer appears at least fifteen minutes before appointed time. After the introductions, interviewer thanks respondent for his/her time. Respondent is then briefed by the interviewer on what the survey is all about in a short and concise manner.
3. Asking questions. Interviewer follows the order of the questions in the survey
and asks only what is in the instrument. Interviewer should be patient with respondents in eliciting answers.
4. Obtaining responses. Respondents should be encouraged to elaborate on their
statements to probe deeper into their thoughts. These may be done through ‘why’ and ‘how’ questions. Interaction is key to getting the desired responses. It is also ideal to clarify statements made by respondents.
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5. Recording responses. It is imperative that responses must be captured through audio recording supported by written notes by the interviewer.
6. Ending interview. At the end of the interview, respondent must be thanked
again. Interviewer then informs respondent that they will be given copy of the survey results after research completion. Interviewer should also ideally write down immediately after leaving the interview, observations or comments about the interview in red to distinguish from respondent answers.
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Appendix G
Interviewer Training Guide
The interviewer assigned to my study by CASI is an experienced research
assistant. However, it is imperative that I conduct my own training to ensure the integrity
of the research process. I will need to spend two half day sessions with the interviewer
prior to actual interviews and will need to monitor interviewer output.
1. Explain the study.
I need to explain the background and rationale for my research before the actual
interviews are commenced. The interviewer must be made aware of the importance
of this study, briefly oriented on what previous work has been done of this area of
research for him/her to be able to probe respondent thoughts.
The expected timelines will also have to be made clear with interviewer and
CASI.
2. Review on survey research
I have to be confident with the ability of the interviewer on research methods. I
will need to guide interviewer through the research protocol before and during the
interviews.
An explanation on the survey method has to be communicated by me to the
interviewer to ensure clarity and understanding.
3. Explain sampling rationale
It is best that interviewer understands the logic of the research sampling, in that
this sampling will be the basis of my conclusions.
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4. Discuss interviewer bias
I have to ensure that interviewer is constantly aware of personal biases when
questioning respondents. I will need to rehearse the interview questioning with the
interviewer. Answers to the questions must come completely from the respondent.
5. Discuss protocol
It is also crucial that the interview protocol be adhered to strictly. I will discuss
with interviewer to follow the protocol set for this study to add further credence.
6. Interview rehearsal Two rehearsals will be done with the interviewer to strengthen competency. If
unsatisfied, I will need to request CASI for a suitable interviewer and repeat the
training process
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Appendix H
Interview Timeline
Table H.1
Interview/Transcription Timeline
Method Number of Visit
Process Schedule
Survey One May be done via email prior to actual interview or before actual interview.
Telephone calls may be done after survey completion if an item or some items on the instrument are not answered.
Contact with respondents will start during the month of June to September, 2013.
Interviews were scheduled from September, 2013 and completed 30 respondents by early February 2014.
In-depth interviews
Transcription
One to two
An average of two to three interviews per week will be conducted depending on respondent availability. Follow up questions or clarifications may be done after completing all interview sessions.
Length of interviews will average of one to two hours per interview.
SPSS and Interviews
The survey and in-depth interviews were completed in four months time, (from September 2013 to February 2014).
Data input and transcription started mid September 2013 and completed in mid February 2014.
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Appendix I Table I.1 Correlation Coefficient of Independent and Moderating Variables
TLCONS2 TLCONS3 TLCONS4 TLSTIM1 TLSTIM2 TLSTIM3 TLMOTI1 PROFSTRESS1 0.196 0.103 0.064 0.100 0.162 -0.034 0.101 PROFSTRESS2 -0.096 0.116 0.157 0.179 0.147 -0.046 0.176 PROFSTRESS3 -0.317 -0.110 -0.098 -0.117 -0.114 -0.367 -0.032 CEOPRESS1 -0.212 0.048 -0.115 0.028 -0.041 -0.223 -0.104 CEOPRESS2 -0.293 -0.056 -0.179 -0.038 -0.117 -0.292 -0.309 CEOPRESS3 -0.066 0.000 -0.006 0.368 0.127 -0.049 0.096 CGMOD1 -0.275 -0.236 -0.224 -0.131 -0.158 -0.232 -0.167 CGMOD2 -0.224 -0.087 -0.119 -0.089 -0.087 -0.207 -0.159 CGMOD3 -0.222 -0.030 -0.091 -0.018 -0.017 0.012 -0.084
TLMOTI2 TLMOTI3 TLMOTI4 TLINFLU1 TLINFLU2 TLINFLU3 TLINFLU4 PROFSTRESS1 0.160 -0.325 -0.191 -0.092 0.036 0.281 0.144 PROFSTRESS2 0.062 -0.225 -0.061 -0.213 -0.075 0.230 -0.056 PROFSTRESS3 -0.059 -0.364 -0.003 -0.496 -0.328 -0.026 -0.329 CEOPRESS1 0.133 -0.322 0.048 -0.323 -0.175 -0.087 -0.141 CEOPRESS2 -0.271 -0.492 -0.160 -0.509 -0.424 -0.092 -0.376 CEOPRESS3 -0.134 -0.077 0.208 -0.308 -0.175 0.172 -0.017 CGMOD1 -0.444 -0.344 -0.172 -0.231 -0.246 0.048 -0.216 CGMOD2 -0.361 -0.298 -0.154 -0.464 -0.360 -0.013 -0.233 CGMOD3 -0.204 -0.269 -0.115 -0.122 -0.063 0.028 0.025
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Table I.2
Correlation Coefficient of Transformational Leadership Dimensions
TLCONS2 TLCONS3 TLCONS4 TLSTIM1 TLSTIM2 TLSTIM3 TLSTIM4 TLCONS2 1.000 .607 .538 .617 .765 .636 .206 TLCONS3 .607 1.000 .516 .712 .808 .764 .213 TLCONS4 .538 .516 1.000 .600 .584 .647 .461 TLSTIM1 .617 .712 .600 1.000 .805 .764 .381 TLSTIM2 .765 .808 .584 .805 1.000 .800 .278 TLSTIM3 .636 .764 .647 .764 .800 1.000 .343 TLSTIM4 .206 .213 .461 .381 .278 .343 1.000 TLMOTI1 .594 .732 .727 .711 .691 .672 .515 TLMOTI2 .335 .534 .488 .377 .475 .531 .291 TLMOTI3 .300 .569 .435 .568 .431 .553 .224 TLMOTI4 .480 .512 .460 .701 .489 .586 .219 TLINFLU1 .368 .356 .269 .239 .348 .533 .286 TLINFLU2 .577 .626 .597 .556 .600 .763 .477 TLINFLU3 .276 .382 .477 .298 .391 .415 .422 TLINFLU4 .576 .640 .576 .587 .571 .775 .548
TLMOTI1 TLMOTI2 TLMOTI3 TLMOTI4 TLINFLU1 TLINFLU2 TLINFLU3 TLINFLU4
TLCONS2 .594 .335 .300 .480 .368 .577 .276 .576 TLCONS3 .732 .534 .569 .512 .356 .626 .382 .640 TLCONS4 .727 .488 .435 .460 .269 .597 .477 .576 TLSTIM1 .711 .377 .568 .701 .239 .556 .298 .587 TLSTIM2 .691 .475 .431 .489 .348 .600 .391 .571 TLSTIM3 .672 .531 .553 .586 .533 .763 .415 .775 TLSTIM4 .515 .291 .224 .219 .286 .477 .422 .548 TLMOTI1 1.000 .622 .663 .623 .417 .730 .532 .738 TLMOTI2 .622 1.000 .484 .380 .467 .571 .431 .615 TLMOTI3 .663 .484 1.000 .568 .547 .626 .380 .575 TLMOTI4 .623 .380 .568 1.000 .252 .479 .216 .466 TLINFLU1 .417 .467 .547 .252 1.000 .733 .464 .630 TLINFLU2 .730 .571 .626 .479 .733 1.000 .584 .844 TLINFLU3 .532 .431 .380 .216 .464 .584 1.000 .619 TLINFLU4 .738 .615 .575 .466 .630 .844 .619 1.000
Appendix J
Table J.1
Data Analysis Matrix
�������� �� ���� �� ���� �������
H1: Transformational leadership positively influences good corporate governance.
�
Transformational Leadership style will be measured using 14 items developed for this study (on the basis of face and content validity) and a 5-point scale ranging from Strongly agree to strongly disagree. Questions were based on the 4 dimensions of transformational leadership to measure Executive Director perception on CEO leadership style.
Director belief and behavior on good corporate governance as promulgated by OECD principles of Corporate Governance with particular emphasis on Principle No. 6: Responsibilities of the Board (OECD, 2008) are measured by 17 items specifically developed for this study (on the basis of face and content validity*) and a five-point scale ranging from Strongly agree to strongly disagree
�
Regression Analysis (Hair et al., 2010) one dependent variable and one independent variable
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H2:Transformational leadership positively influences good corporate governance if directors are not pressured by the CEO on firm profitability.
H3: CEO pressure on directors on firm profitability has a moderating influence on good corporate governance.
Executive director belief and behavior on good corporate governance as influenced by CEO pressure on firm profitability are measured by nine items specifically developed for this study (on the basis of face and content validity) and a five-point scale ranging from Strongly agree to strongly disagree.
Multiple Regression Analysis (Hair et al, 2010) one dependent variable and two independent variable
* Content validity refers to the extent to which the questionnaire will provide adequate coverage of the research questions. This can be done through a careful definition of the research through review of the literature and discussions with individuals to assess if questions are essential, useful or not necessary. It also refers to the degree to which the measure covers the range of meanings included in a concept (Babbie, 1992; Saunders, Lewis, &Thornhill, 2010).
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Appendix K
Descriptive Statistics
Table K.1
Profile of Participants by Sex, Age and Highest Educational Attainment
Variable Category f % �Sex Male 20 66.70 � Female 10 33.30 � Total 30 100.00 �
Age 21-29 5 16.70 � 30-39 7 23.30 � 40-49 7 23.30 � 50-59 6 20.00 � 60-69 4 13.30 � 70-79 1 3.30 � Total 30 100.00 � Mean age 44.73 � Median age 40.00 � Std dev. 13.32 � Minimum 25 � Maximum 73 � Highest educational attainment AB/BS 19 63.30 � MBA/MBM 9 30.00 � DBA (candidate) 1 3.30 � PhD 1 3.30 � Total 30 100.00 �
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Table K.2
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Table K.3
Transformational Leadership
Subscale Minimum Maximum Mean Std.
Deviation ITEM1 3.00 5.00 4.70 0.53 ITEM2 3.00 5.00 4.37 0.61 ITEM3 4.00 5.00 4.47 0.51 Individualized consideration 3.33 5.00 4.51 0.46 ITEM4 3.00 5.00 4.40 0.56 ITEM5 1.00 5.00 4.07 1.01 ITEM6 4.00 5.00 4.40 0.50 Intellectual stimulation 3.33 5.00 4.29 0.55 ITEM7 3.00 5.00 4.53 0.57 ITEM8 3.00 5.00 4.40 0.56 ITEM9 3.00 5.00 4.43 0.63 ITEM10 3.00 5.00 4.27 0.74 Inspirational motivation 3.25 5.00 4.41 0.46 ITEM11 3.00 5.00 4.50 0.63 ITEM12 3.00 5.00 4.63 0.61 ITEM13 2.00 5.00 4.47 0.78 ITEM14 2.00 5.00 4.43 0.82 Idealized influence 2.75 5.00 4.51 0.57 Overall Mean 3.21 5.00 4.43 0.40
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Table K.4
Good corporate governance
Subscales Minimum Maximum Mean Std. Deviation
ITEM15 3.00 5.00 4.33 0.66 ITEM16 4.00 5.00 4.63 0.49 ITEM17 3.00 5.00 4.50 0.57 ITEM18 3.00 5.00 4.70 0.53 ITEM19 3.00 5.00 4.70 0.53 ITEM20 3.00 5.00 4.27 0.74 ITEM21 3.00 5.00 4.20 0.61 ITEM22 2.00 5.00 4.17 0.83 ITEM23 2.00 5.00 4.20 0.89 ITEM24 2.00 5.00 3.90 0.66 ITEM25 3.00 5.00 4.30 0.65 ITEM26 2.00 5.00 4.37 0.72 ITEM27 4.00 5.00 4.53 0.51 ITEM28 3.00 5.00 4.47 0.63 ITEM29 2.00 5.00 3.87 0.90 ITEM30 3.00 5.00 4.53 0.57 ITEM31 4.00 5.00 4.53 0.51 Overall mean 3.59 5.00 4.36 0.39
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Table K.5
CEO Pressure
Subscale Minimum Maximum Mean Std. Deviation
ITEM32 2.00 5.00 4.03 1.00 ITEM33 1.00 5.00 3.43 1.22 ITEM34 1.00 5.00 3.40 0.93 Pressure on firm profitability 1.67 5.00 3.62 0.79 ITEM35 2.00 5.00 4.17 0.79 ITEM36 1.00 5.00 3.10 1.24 ITEM37 1.00 5.00 3.97 1.22 ITEM38 1.00 5.00 2.60 1.07 ITEM39 1.00 5.00 2.87 1.17 ITEM40 1.00 5.00 2.57 1.14 CEO pressure on directors on firm profitability 1.67 5.00 3.21 0.67 Overall mean 2.11 4.89 3.35 0.64
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Appendix L
Regression Assumptions
There are four major assumptions that must be satisfied in linear regression
modeling. These are linearity of the dependent variable and each of the independent
variables, normality and homoscedasticity of the residuals (or errors of the model), and
absence of multicollinearity among the independent variables (for multiple linear
regression).
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Linearity
Figure L.1. The scatter plot shows that the relationship between transformational
leadership and good corporate governance is linear. Specifically, when transformational
leadership is high and so is good corporate governance and conversely, if the former is
low, the latter is also low. Because of this, regression model (2) is linearly fit.
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Figure L.2. The above scatter plot shows that the relationship between CEO pressure on
directors on firm profitability and good corporate governance is not linear. From the
scatterplot, if the CEO pressure is high, good corporate governance is either low or high.
Conversely, if CEO pressure is low, good corporate governance may be low or high as
well. This is the main reason that in the first model, as well as in the rest of the models,
CEO pressure did not load significantly in all the regression models.
The assumption in linear regression is that the dependent variable is linearly
related with the independent variable. In this study, only transformational leadership is
linearly related with good corporate governance.
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Multicollinearity
Table L.1 Correlations
Transformational
leadership
Good corporate
governance
CEO pressure on firm
profitability Pearson Correlation
1 .66** -.24
Sig. (2-tailed) .00 .20 Transformational leadership
N 30 30 30 Pearson Correlation
.66** 1 -.09
Sig. (2-tailed) .00 .64 Good corporate governance
N 30 30 30 Pearson Correlation
-.24 -.09 1
Sig. (2-tailed) .20 .64 CEO pressure on firm profitability
N 30 30 30 **. Correlation is significant at the 0.01 level (2-tailed).
The correlation coefficient between the two independent variables
(transformational leadership and CEO pressure on firm profitability) is -.24 (p = 0.202),
meaning, they are not linearly correlated. Another way of checking multicollinearity is to
look at the variance inflation factor (VIF) values of the independent variables in the
regression model. Several authors are divided as to the cut-off values for VIF. However,
the model showed low values of VIF among the independent variables, meaning,
multicollinearity does not exist between the independent variables. Linear regression
model assumes that the independent variables are not significantly collinear with each
other. Hence, this assumption is complied with.
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&����,-8�
From Regression Model 1: Regression Equation Coefficients
Model B SE t p VIF Intercept -1.16 4.28 1.30 .788 x1 1.19 0.92 4.66 .207
x2 0.72 1.17 0.62 .541 1.06
x1x2 -.015 0.25 -0.58 .566 1.07
R2 = .45 SE = .30
Normality
Linear regression model assumes that the distribution of the residuals is
approximately normal. There are two ways to check this. One is to look at the
histogram of the residuals and the other one is to look at the Normal P-P plot.
Figure L.3. Histogram for regression model 1. It indicates that the distribution of the
residuals is approximately normal, i.e., it is not skewed.
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Figure L.4. Normal probability plot for regression model 1. The residuals scattered
around the line, therefore the distribution does not deviate much from normality.
Homoscedasticity
Homoscedasticity requires that the variance of the residuals of the model is
constant. Specifically, we check this by looking at the scatter plot of the standardized
residuals (y) and the standardized predicted residuals (x). If there is no pattern (or trend)
in the scatter, then this suggests that the variance of the residuals is constant.
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Figure L.5. The residuals plot for regression model 1.
All the other models may be tested for homoscedasticity. All their residual plots
show that their variances are not far from being constant. However, in all the models for
this study, the very determining factor whether the model is linearly fit is the linear
relationship between the dependent variable and independent variable.
In summary:
1. Regression model 1 complies the four assumptions of multiple linear
regression. However, of the two independent variables, transformational
leadership and CEO pressure on directors on firm profitability, only the
former aptly predicts the dependent variable, good corporate governance. In
other words, CEO pressure on directors on firm profitability is not a
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predictor of good corporate governance nor is it a moderating variable for
the independent and dependent variable.
2. Regression model 2 is a simple linear regression model and it is found to be
linearly fit. It complies with the three assumptions of linearity between their
respective dependent and independent variables, homoscedasticity and
normality of residuals.
3. Regression model 5 violated the assumption of linearity between the
dependent variable and independent variable. Therefore the null hypothesis
that they are not linearly fit cannot be rejected.
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Appendix M
Other Possible Regression Models: CEO Duality
Results on CEO duality appear to have a moderating effect on the relationship
between transformational leadership and good corporate governance,
R2 = .58, F (3,26) = 11.87, p = .000, 95% CI (0.06,0.57).
Table M.1
Coefficientsa
Unstandardized Coefficients
Standardized Coefficients
Model B Std. Error Beta
t
Sig. (Constant) 5.45 1.69 3.28 .003 Transformational Leadership
-.30 0.38 -0.31 -.80 .431
Duality -3.03 1.24 -3.63 -2.43 .022 1 Moderator effect of duality on transformational leadership
0.71 0.28 4.08 2.57 .016
a. Dependent Variable: Good corporate governance
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Table M.2 ANOVAa
Model
Sum of Squares
df
Mean Square
F
Sig.
Regression 2.53 3 .85 11.87 .000b Residual 1.85 26 .07 1 Total 4.38 29
a. Dependent Variable: Good corporate governance
b. Predictors: (Constant), Moderator effect of duality on transformational leadership,
Transformational Leadership, Duality
Table M.3 Model Summaryb
Model
R
R Square
Adjusted R Square
Std. Error of the Estimate
1 .76a .58 .53 .27 a. Predictors: (Constant), Moderator effect of duality on
transformational leadership, Transformational Leadership,
Duality
b. Dependent Variable: Good corporate governance
To determine where this moderating effect takes place, I ran a simple linear
regression model for each duality (i.e., dual role, no dual role).
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Table M.4 For Duality = Yes Coefficientsa,b
Unstandardized Coefficients
Standardized Coefficients
Model B Std. Error Beta
t
Sig. (Constant) 2.51 0.74 3.39 .003
1 Transformational Leadership
0.41 0.17 0.49 2.43 .025
a. Duality = Yes
b. Dependent Variable: Good corporate governance
Table M.5
For Duality = Yes ANOVAa,b
Model
Sum of Squares
df
Mean Square
F
Sig.
Regression 0.53 1 .530 5.91 .025c Residual 1.71 19 .090 1 Total 2.24 20
a. Duality = Yes
b. Dependent Variable: Good corporate governance
c. Predictors: (Constant), Transformational Leadership
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Table M.6
For Duality = Yes Model Summarya,c
Model
R
R Square
Adjusted R Square
Std. Error of the Estimate
1 .49b .24 .20 0.30 a. Duality = Yes
b. Predictors: (Constant), Transformational Leadership
c. Dependent Variable: Good corporate governance
Table M.7
For Duality = No Coefficientsa,b
Unstandardized Coefficients
Standardized Coefficients
Model B Std. Error Beta
t
Sig. (Constant) -0.50 .56 -0.89 .401
1 Transformational Leadership
1.11 .12 .96 8.96 .000
a. Duality = No
b. Dependent Variable: Good corporate governance
Table M.8
For Duality = No ANOVAa,b
Model
Sum of Squares
df
Mean Square
F
Sig.
Regression 1.66 1 1.66 80.30 .000c Residual 0.14 7 0.02 1 Total 1.80 8
a. Duality = No
b. Dependent Variable: Good corporate governance
c. Predictors: (Constant), Transformational Leadership
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Table M.9
Model Summarya,c
Model
R
R Square
Adjusted R Square
Std. Error of the Estimate
1 .96b .92 .91 .14 a. Duality = No
b. Predictors: (Constant), Transformational Leadership
c. Dependent Variable: Good corporate governance
The difference in R2 of the two models is very high. For Duality = Yes,
R2 = .24, F (1,19) = 5.91, p = .025, 95% CI (-0.35,0.82) and For Duality = No,
R2 = .92, F (1,7) = 80.30, p = .000, 95% CI (0.64,1.20). It may then be inferred that
CEOs who do not have dual roles (i.e., CEOs are not holding position of Chairman of the
board concurrently), director perception of good corporate governance is positively
influenced by transformational leadership 92% of the time, while for Directors whose
CEO have dual roles, only 24% of the time. In fact, if we compare the scatterplot for
each scenario, Directors whose CEOs do not hold a concurrent position as Chairman of
the board seem to be more “well-behaved”, i.e., the trend is apparent as contrasted with
those with dual roles as shown in the following scatterplot:
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Figure M.1. CEO duality Figure M.2. Non CEO duality
Other Possible Regression Models: Director Gender
Result on Director gender appears to have no moderating effect on the
relationship betweeen the independent and dependent variables,
R2 = .44, F (3,26) = 6.75, p = 0.998, 95% CI (-0.17,1.04).
Table M.10
Coefficientsa
Unstandardized Coefficients
Standardized Coefficients
Model B Std. Error Beta
t
Sig. (Constant) 1.52 0.65 2.36 .03 Transformational Leadership
0.63 0.15 0.65 4.16 .00
Sex 0.03 0.13 0.03 0.19 .85 1 Moderator effect of sex on transformational leadership
0.00 0.07 0.00 -0.00 .99
a. Dependent Variable: Good corporate governance
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Table M.11
ANOVAa
Model
Sum of Squares
df
Mean Square
F
Sig.
Regression 1.92 3 0.64 6.74 .002b Residual 2.47 26 0.09 1 Total 4.38 29
a. Dependent Variable: Good corporate governance
b. Predictors: (Constant), Moderator effect of sex on transformational leadership,
Transformational Leadership, Sex
Table M.12 Model Summary
Model
R
R Square
Adjusted R Square
Std. Error of the Estimate
1 .66a .44 .37 .31 a. Predictors: (Constant), Moderator effect of sex on
transformational leadership, Transformational Leadership, Sex
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Table M.13
For Sex = Male Coefficientsa,b
Unstandardized Coefficients
Standardized Coefficients
Model B Std. Error Beta
t
Sig. (Constant) 1.55 0.75 2.06 .054
1 Transformational Leadership
0.63 0.17 .66 3.70 .002
a. Sex = Male
b. Dependent Variable: Good corporate governance
Table M.14
For Sex = Male ANOVAa,b
Model
Sum of Squares
df
Mean Square
F
Sig.
Regression 1.30 1 1.30 13.66 .002c Residual 1.71 18 0.09 1 Total 3.00 19
a. Sex = Male
b. Dependent Variable: Good corporate governance
c. Predictors: (Constant), Transformational Leadership
Table M.15 For Sex = Male Model Summarya
Model
R
R Square
Adjusted R Square
Std. Error of the Estimate
1 .66b .43 .40 .31 a. Sex = Male
b. Predictors: (Constant), Transformational Leadership
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Table M.16
For Sex = Female Coefficientsa,b
Unstandardized Coefficients
Standardized Coefficients
Model B Std. Error Beta
t
Sig. (Constant) 1.57 1.39 1.13 .291
1 Transformational Leadership
0.63 0.30 0.60 2.09 .070
a. Sex = Female
b. Dependent Variable: Good corporate governance
Table M.17
For Sex = Female ANOVAa,b
Model
Sum of Squares
df
Mean Square
F
Sig.
Regression 0.41 1 0.41 4.38 .070c Residual 0.76 8 0.09 1 Total 1.17 9
a. Sex = Female
b. Dependent Variable: Good corporate governance
c. Predictors: (Constant), Transformational Leadership
Table M.18 For Sex = Female Model Summarya
Model
R
R Square
Adjusted R Square
Std. Error of the Estimate
1 .60b .35 .27 .31 a. Sex = Female
b. Predictors: (Constant), Transformational Leadership
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Figure M.3.Male gender moderating Figure M.4. Female gender variable (non linear relationship moderating variable between good corporate governance with male gender as moderating variable �
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Appendix N
Qualitative Coding
Table N.1
CEO Leadership Style
Code Category Theme
Open communications (18) Listens to suggestions (15) Caring attitude (15) Attends to employee needs Situational leadership (3) Open door policy (2)
Individualized Consideration
Encourages creativity (13) Delegates the work (11) Nurtures and develops employees (6) Demands employees to do more (5) Implementing necessary changes (2)
Intellectual Stimulation Transformational Leadership
Motivates employees (6) Source of inspiration (5) Sets objectives clearly (4) Charismatic attribute (4) Knowledge of the business (4)
Inspirational Motivation
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�
Code Category Theme
Setting good example (6) Leadership from the top (6) Doing the right thing (4) Emulates the leader (3) Plays fair (2) Religious (2) Serving others (1)
Idealized Influence Transformational Leadership
Others
Authoritative (2) Quick to decide without thorough consultation (2) Provides financial rewards (2)
Following rules Centralized decision making Rewards for efforts and/or from productivity
Transactional Leadership
Instills fear with staff (1) Unapproachable (1) Uncaring attitude (1) No concern for employees (1) Difficult personality (1)
Dysfunctional Leadership
�
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Table N.2
Good Corporate Governance
Code Category Theme
Following the rules (18) Ensuring policy implementation (18) Producing profit for the company (16) Achieving same organizational goals (12) Managing business well (7) Sustainability (3) Fear of punishment (3) Strict compliance (3)
Control
Transparency (14) Inculcating proper values (14) Stakeholder protection (12) Welfare of employees (12) Good leadership (8) Integrity (4) Religious conviction (2)
Accountability Good Corporate Governance
Strategy formulation (6) Strategy
Wealth of experience (3) Service