What may work well in developing countries not necessarily work in other parts of the world, i.e., the Western world and the emerging markets. It is also true conversely. This means that the successful adoption of a style in one context may lead to failure if emulated elsewhere. This article focuses on different leadership styles being practised in banking and finance in emerging markets, with a special reference to Malaysia. From a wide spectrum of leadership styles, three types can be identified, namely, transformational, transactional and entrepreneurial. It is hard to pick the best out of the three, as one may work better than the other in a given context. It is equally possible that no one individual leadership style may suit in an environment but a combination of two or even three may be the best choice.
Although various leadership styles share general aspects of leadership and management, some vital factors differentiate them from each other. As national cultures are influenced by geographical boundaries of the countries, leadership styles vary from country to country. Hence, location of an Organisation may lead to a leadership style generally acceptable in a national context. Within a country, different industries may have slight, and in some cases, significant differences.
Next, we briefly discuss the three above-mentioned leadership styles.
TRANSFORMATIONAL LEADERSHIP
Transformational leadership as a concept was introduced by James McGregor Burns in his seminal work, Leadership, first published in 1978. According to him, leaders and their followers raise one another to a higher level of morality and motivation. The leaders are expected to set higher expectations as well as clear goals and at the same time lead with example. They support their followers and recognise their work and contributions. In this paradigm, leaders must inspire their followers. Hence, a leader is not only someone who talks the talk but someone who also walks the walk. Transformational leader not only leads their followers but also encourage them to share their ideas to evaluate and give their feedback on them.
In old-style leadership, leaders would give instructions and monitor their followers. Transformational leadership, however, emphasises upon coaching and mentoring instead. The underlying view is that coaching and mentoring breeds creativity and innovation, unlike the old school that personal interest and initiative hampers learning to progress within the Organisation. There are four factors associated with transformational leadership, which are discussed next.
Intellectual Stimulation
Intellectual simulation encourages creativity and innovation. The leaders encourage their followers to develop new ideas and avoid criticizing them publically for their mistakes. People make mistakes but leaders try to correct them rather than blaming the wrong-doers. At least, this should be the first course of action following a mistake. There must be solutions and mechanisms to ensure that the mistakes are not repeated.
Individualised Consideration
Individualised consideration means that the leaders treat the followers individually, based on their talent and knowledge. Each of the followers is treated differently and a transformational leader acts as a mentor and coach rather than a manager. Leaders with this trait empower the employees to make their own decisions that the leaders support.
Idealised Influence
The idealised influence implies the leaders acting as role models to the followers. In this respect, the leaders influence their followers to get a job done by demonstrating their own high standards. Ethics is important here, as leaders influence their followers with ethical conduct and moral behaviour. By doing so, the leaders gain more respect and trust from their followers. In other words, leaders with idealised influence reduce the risk of corruptions and scandals in their Organisations. Furthermore, the leaders at times sacrifice their own personal gains, in consideration of their followers’ needs.
Inspirational Motivation
Transformational leaders inspire their followers by providing clear mission, vision and goals to solicit their full commitment to work. The leaders also promote teamwork among the followers to achieve the set goals collectively instead of working towards achieving individual goals.
TRANSACTIONAL LEADERSHIP
Max Weber is attributed to have first highlighted in 1947 what is now known as transactional leadership style. In this style of leadership, the role of the leader is to manage, monitor and supervise the followers. Followers must obey the instruction of the leaders. In exchange of the work done by the followers, the leaders promise them a good reward. On the other hand, if the followers disobey the leaders’ instructions and perform poorly in their works, the leaders have the right to penalize them. This type of leadership does not welcome new ideas, innovations or creativity from the followers. Leaders set rules and regulations that must be followed by the followers.
Unlike the transformational leaders that are concerned with the mission, vision and long-term goals, the transactional leaders are concerned with the short-term performance goals of the Organisations. Transactional leaders must ensure that the followers achieve their targets to ensure the Organisation achieve its overall performance target. Each follower is to ensure that they achieve their own KPIs on which a reward system is based. Transactional leaders also are not emotionally bonded with their followers. As the leaders believe that any directions or orders should come directly from them, employees’ engagement and their empowerment do not feature significantly in this style of leadership.
ENTREPRENEURSHIP LEADERSHIP
Entrepreneurial leadership involves forming a group of people to achieve a common goal through entrepreneurial behaviour by optimizing risks, exploiting opportunities, taking personal responsibility and managing change within a dynamic environment. The end result of this is for the benefit of the Organisation. To strive for excellence in performance, leaders should equip themselves with the entrepreneurial skills. Leaders must think as an entrepreneur, know when to grab opportunity, and treat the Organisation as their own business.
As an entrepreneur, a leader must know when to drop a non-working strategy. If the routine SOPs and procedures fail to give desired result, the entrepreneur ought to be brave enough to change to a new plan that may give better results. An entrepreneurship leader knows better when to grab the opportunity that can impact their Organisation favourably. Similar to transformational leaders, entrepreneurship leaders also listen to the ideas of their followers. These leaders welcome feedback and act upon it after adequate assessment.
Finally, entrepreneurship leadership is based on perseverance, determination and the ability to make changes constantly. Leaders with entrepreneurship traits are not afraid to make mistakes. Through mistakes, these leaders will have the ability to learn new things and discoveries. Entrepreneurship leaders are able to sell and promote their Organisations. Hence, they add value to the Organisation due to their boldness and braveness.
ANALYSIS
Among the famous transformational leaders is Warren Buffet who transformed a clothing manufacturer into a giant holding company. Another transformational leader is Jack Welch who transformed General Electric into a lean and agile powerhouse. John D. Rockefeller, who was the founder of Standard Oil, transformed it into a huge company from a single refinery, through acquisitions.
From the contemporary Islamic banking and finance (IBF) industry, Dr Adnan Chilwan (Group CEO of Dubai Islamic Bank), Dato Sri Zukri Samat (CEO of Bank Islam Malaysia), and Dato’ Wan Fadzmi Wan Othman (former CEO of Agrobank Malaysia) provide examples of transformation leadership.
By way of example, we present the case of Dato Sri Zukri Samat who was appointed as Managing Director of Bank Islam Malaysia Berhad in 2006, with one immediate mission. The mission was to resuscitate the bank after the huge losses it incurred prior to appointment of Dato Sri Zukri. He managed to transform the bank and returned it to black in just six months after implementing his strategy.
The first challenge facing him was to change the culture of the bank. He instilled his vision for the bank amongst all the employees – from low management positions right to the top – and motivated them to accept changes willingly. He welcomed new ideas and encouraged feedbacks from his employees. Leading by examples, Dato Sri Zukri inspired the employees and gained their trust and respect. He also took concrete measures to empower his employees and engaged them in the decision-making process. Obviously, all these measures are popular amongst transformational leaders.
An example from outside the IBF industry is provided by Kamardy Arief who was appointed as the President Director of Bank Rakyat Indonesia (BRI) in 1983 – a time when the bank was suffering huge losses. As a first step towards transformation, he attempted to change the culture of the bank. His leadership style transformed the bank from being a subsidized bank into a profitable business. Like Dato Zukri, Kamardy Arief also implemented the change of attitudes among his employees. He brought changes in the Organisational and institutional structures, salaries and rewards, and in product offerings and credit policies. Consequently, Kamardy Arief was able to transform BRI from a government-owned bank into a viable and self-sufficient business. As a leader he is motivated, inspired, sought commitment from his employees, and recognised their contributions and achievements. These are certainly among the good qualities of a transformational leader.
One may argue that in any profit-oriented business, the transformational leadership style of nurturing, coaching and mentoring may not be the best model. Hence, the transformational leadership style may be fused with the transactional leadership style to achieve desired optimality of profits. This suggestion assumes that the transformational leaders alone may not sufficiently succeed in contributing to the bottom line. Thus, the transactional leaders remain important in such environments.
Having said that, most people tend to believe that the transformational leaders are important in creating conducive environments within Organisations. However, it is also true that the reward systems drive the Organisations towards performance. Most Malaysian Organisations are still not open to the transformational leadership style. This can partly be explained by the national culture that still respects authority and a top-down approach. This suits transactional leaders. For the followers, their own personal gains are important. They look forward to be awarded with the rewards as promised by the leaders.
Moreover, it remains a cultural taboo for the followers to share their own views and ideas to the leader. This in many ways is not unique to Malaysia, as other neighbouring countries, particularly Indonesia, also share similar culture. Perhaps this is why Kamardy Arief tried to fuse his transformational leadership style with an explicit performance reward system.
One famous example of transactional leaders was Steve Jobs of Apple Computers. He was known as a down-to-earth leader but was not hesitant to give his employees a dressing down if they failed to meet his expectations.
Going forward into the new economy with fierce competition in the financial sector, the key players must adopt both the transformational and transactional leadership styles. It is fair to assume that the lower management staff require a transactional leader to monitor, supervise and control them in achieving the performance of the Organisations. They can best be led by transformational leaders. This certainly helps in stimulating creativity, innovative ideas and feedbacks from the employees. The middle level of employees should be allowed room for improvement through employee empowerment and continuous engagement. Finally, the top-level employees should adopt the transformational leadership style in ensuring that the Organisation achieves its long-term goals.
IBF AND THE LEADERSHIP STYLES
Transformational leadership may best suit Islamic financial institutions. The reality is actually different, as Islamic financial institutions tend to follow national cultures many of which are not entirely in its favour. Having said so, many conventional financial institutions in the Muslim world have successfully adopted the transformational leadership style. However, given the heavy emphasis on the bottom line, Islamic financial institutions tend to favour the transactional style.
There are a few reasons for the adoption of transactional leadership in Islamic financial institutions, including:
- Lack of sophistication of management practices;
- Lack of depth from historical legacy for the top management; and
- Shari’a restrictions in some limited cases..
CONCLUSION
In concluding the article, one must emphasise that all three leadership styles have their own strengths. As the competition in the industry has become fiercer, leaders should equip themselves with the correct style that can enhance sustainability and ensure the growth of the Organisation. All three styles should be adopted interchangeably. None of the leadership style is superior to the other.
In Islamic financial institutions, the transactional leadership style is more prevalent for the reasons given above. IBF is still new compared to its conventional counterpart. Understandably, conventional financial institutions are more innovative and creative due to their longevity.
There are now some scattered examples of transformational leadership emerging in IBF. One may hope that this will take IBF away from a heavy emphasis on the bottom line to more passion, compassion, inspiration and pursuit of ideals.
