Role of Corporate Governance in Risk Management
Discuss about the Critical Evaluation of Leadership Styles for Risk Management.
Leadership may be defined as the extraordinary ability on the part of an individual; this particular concept, which is also known as the great man theory in common parlance, refers to the various leadership abilities evident in a personality and the study of such traits (Nanjundeswaraswamy and Swamy 2014). A leadership style may be used to refer to the way a leader instills motivation into his people, and provides them direction. Ever since the 1930s, there has been significant study into the various styles of leadership, and consequently, a number of frameworks and models have been devised to analyze them (Dinh et al. 2014). From the primitive models to the more modern ones, like transformational leadership styles, there has been extensive study into the matter (Northouse 2018). In the thesis proposal presented earlier, it is obvious that two leadership styles are the most effective, as far as risk management in the nuclear energy sector is concerned. They are – situational and transactional leadership. The following paper attempts a critical evaluation of these models, in relation to risk management in the nuclear energy sector.
In the thesis proposal, corporate governance has been established as the chief proponent of risk management; in times of crisis, corporate governance is expected to take control of the situation and exert policies and regulations necessary. However, it must also be ascertained that leadership styles, or how the policies are executed and governance are interlinked. To state it simply, corporate governance is based on self regulation, and requires effective leadership in order to function (Westphal and Zajac 2013). The myriad practices of corporate governance rely on principles of leadership theory; hence proving that in risk management, leadership styles do play a crucial role.
Situational leadership, as the name suggests, emphasizes that effective leadership can be possible only through a rational understanding of the existing circumstances, and a response that fits the requirements (McCleskey 2014). This is assumed to be more effectual than a charming, charismatic leader, with a number of followers who follow him blindly. In simpler terms, this particular leadership theory is more task oriented, than people oriented; it sheds light on the leader’s role and how he is expected to pay more attention to the task than his followers. Such a leader would chalk out goals for his followers, give directions as to the chosen course of action, devise organizational pattern and also open up channels of formal communication (Thompson and Glasø 2015). In contrast, a leader who was more focused on his followers would try to enhance relationships, resolve conflicts, enforce harmonious relationships and so on. The model, originally introduced by Blanchard and Hersey, has often been called contingency theory or behavioral theory.
Situational Leadership Style
The foundational principle of situational leadership theory is that there can be no prescribed method or style of leadership. Basically, leadership must change with the changes in the situation or the particular task in hand (Lynch 2015). For instance, in the nuclear energy sector, there are a variety of situations that may arise on a given day; this calls for effective risk management (Hillson and Murray-Webster 2017). It is thus the responsibility of corporate governance to ensure that risk management strategies are implemented in a proper fashion; it has been found that a situational leadership style can reduce the risks associated with such a high pressure job. Such a leadership style essentially entails motivating the employees in order to enhance productivity and performance (Dubois et al. 2015). Open lines of communication, coupled with robust strategies and clarity in terms of duties and responsibilities would facilitate risk management, and ensure that the followers function in an environment that is safe and secured.
According to Hersey and Blanchard, there are four integral aspects of situation leadership, which must be analyzed with respect to risk management in the nuclear sector. One, the leader is expected to direct or specify the exact role and duty of a particular individual within the team, to avoid scope of miscommunication. In a high pressure environment, clarity in terms of communication can go a long way in risk management. Two, the leader is also expected to coach or train his followers or team members so as to set an example. In risk management, the leader would be expected to enlighten the team members about the potential threats and course of action in case they occur. Three, a leader is also expected to offer support to his fellow team members; he or she should be receptive to new ideas and should also share and support the perspectives of his followers. Four, the leader is entrusted with the task of delegating; he or she is expected to monitor the progress of the team as a whole and also the individuals involved in the process (McLaurin 2013).
Transactional leadership is another efficient practice in risk management; it involves the exchanges or interactions between the leader and his team members. Such direct interaction allows the leader to assess or analyze the performance objectives of the team members, complete tasks, maintain the existing organizational situation, attainment of established goals, provide rewards, motivate followers, reduce unexpected risks and thus improve the overall efficiency of the organization as a whole. Transactional leadership works both ways, and it helps in mitigating organizational objectives, reduce anxiety and stress and also enhance their performance levels and creativity (Breevart et al. 2014). According to theorists, transactional leadership style is based on a principle of gratification. The simple transactions or exchanges between the followers and their leader occur for the sole purpose of gratification. However, this model has earned some criticism as well; for some critics of the model, transactional leadership paves the way for shallow interactions between the two parties which are not meaningful enough. Transactional leadership style is often mistakenly believed to be similar to the transformational style; while there are similarities between the two, the differences must be studied to understand why transactional leadership is more applicable in the given scenario. Transformational leadership is based on principles of intellectual stimulation, idealized models, individual consideration and inspirational motivation. The transformational leader is expected to depict these four characteristics in order to inculcate the same in his followers. However, in the nuclear energy sector, there are several unexpected threats and risks which may present themselves without warning; in that case, such a model of leadership, which lacks flexibility, would not be appropriate (Odumeru and Ogbonna 2013).
Integral Aspects of Situational Leadership Theory
It must be remembered that in case of nuclear energy sectors, there has to be some interaction between the team leader and his followers in order to facilitate productivity and high performance. A transactional leader is expected to set accepted standards of performance for others and carry out periodical performance reviews in order to assess employee performance (Hamstra et al. 2014). Such a leadership style is result oriented, and takes into account the role of formal authority in improving group performance. In this leadership style, the leader would assign a particular task to his subordinates and then assess his performance based on his productivity. If he demonstrates high levels of productivity, he would be rewarded; this would not only motivate the followers, but also reduce chances of uncalculated risks at the work place. In the nuclear energy sector, there has to be complete transparency between the corporate governance, the leader in this case, and the team members; such transparency is possible only when a transactional leadership style is adhered to. The fact that the leader would be setting goals and establishing standards for safety and performance would significantly reduce risks. Risk management includes identification of the problems that have surfaced, assessment of the grave situation and prioritizing it. All of this would be communicated to the team members, so as to create a clear picture of the same. At the same time, it is equally important to analyze resource management and economic application and the other factors that influence the crisis in question. Transactional leadership in this case would ensure that clear communication ensues between the team leader and the followers, so as to implement and execute necessary policies and strategies.
To conclude, it can be said that the most effective way of managing risks in the nuclear energy sector is through situational and transactional leadership styles, both of which entail clear lines of communication between the leader and the followers, statement of the issue, assertion of regulations and policies pertaining to risks and crisis, an emphasis on performance standards and attainment of organizational objectives. It must be remembered that no two crises can be identical, and thus it is the responsibility of the team leader to have a flexible and versatile leadership strategy in place – one that can adapt to the changing situations. For example, in the case of Emirates Nuclear Energy Corporation (ENEC), corporate governance has been endowed with the task of risk management; without a combination of situational and transactional leadership, it would be impossible for corporate governance to carry out its duties. Such leadership styles would help in developing a system using which an entity, in this case the ENEC, would be governed.
References:
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