Leadership Character and Corporate Governance

By Gandz, Jeffrey; Crossan, Mary et al. | Ivey Business Journal Online, May/June 2013 | Go to article overview

Leadership Character and Corporate Governance


Gandz, Jeffrey, Crossan, Mary, Seijts, Gerard, Reno, Mark, Ivey Business Journal Online


When it comes to selecting and assessing CEOs, other C-suite level executives or board members, the most important criteria for boards to consider are competencies, commitment and character. This article focuses on the most difficult of these criteria to assess - leadership character - and suggests the eleven key dimensions of character that directors should consider in their governance roles.

Corporate directors look - or should look - for three things in the C-suite level executives they hire, assess and occasionally have to fire: competencies, commitment and character (see Figure 1).

COMPETENCIES, COMMITMENT AND CHARACTER

Competencies matter. They define what a person is capable of doing; in our assessments of leaders we look for intellect as well as organizational, business, people and strategic competencies. Commitment is critical. It reflects the extent to which individuals aspire to the hard work of leadership, how engaged they are in the role, and how prepared they are to make the sacrifices necessary to succeed. But above all, character counts. It determines how leaders perceive and analyze the contexts in which they operate. Character determines how they use the competencies they have. It shapes the decisions they make, and how these decisions are implemented and evaluated.

FOCUS ON CHARACTER

Our research has focused on leadership character because it's the least understood of these three criteria and the most difficult to talk about. Character is foundational for effective decision-making. It influences what information executives seek out and consider, how they interpret it, how they report the information, how they implement board directives, and many other facets of governance.

Within a board, directors require open, robust, and critical but respectful discussions with other directors who have integrity, as well as a willingness to collaborate and the courage to dissent. They must also take the long view while focusing on the shorter-range results, and exercise excellent judgment. All of these behaviors hinge on character.

Our research team at Ivey was made very conscious of the role of character in business leadership and governance when we conducted exploratory and qualitative research on the causes of the 2008 financial meltdown and the subsequent recession.[1] In focus groups and conference-based discussions, where we met with over 300 business leaders on three continents, participants identified character weaknesses or defects as being at the epicenter of the build-up in financial-system leverage over the preceding decade, and the ensuing meltdown. Additionally, the participants identified leadership character strengths as key factors that distinguished the companies that survived or even prospered during the meltdown from those that failed or were badly damaged.

Participants in this research project identified issues with character in both leadership and governance. Among them were:

* Overconfidence bordering on arrogance that led to reckless or excessive risk-taking behaviors

* Lack of transparency and in some cases lack of integrity

* Sheer inattention to critical issues

* Lack of accountability for the huge risks associated with astronomical individual rewards

* Intemperate and injudicious decision-making

* A lack of respect for individuals that actually got in the way of effective team functioning

* Hyper-competitiveness among leaders of major financial institutions

* Irresponsibility toward shareholders and the societies within which these organizations operated.

These character elements and many others were identified as root or contributory causes of the excessive buildup of leverage in financial markets and the subsequent meltdown.

But the comments from the business leaders in our research also raise important questions about leadership character. Among them:

* What is character? It's a term that we use quite often: "He's a bad character"; "A person of good character"; "A character reference. …

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