In a recent update to a paper on culture and governance published on its website, the FCA states: “We define culture as the habitual behaviours and mindsets that characterise an organisation. We do not attempt to assess mindsets and behaviours directly; instead, we recognise that there are many drivers of behaviour which firms can identify and manage. As a regulator, we focus on 4 key drivers which we believe can lead to harm:
- Approach to rewarding and managing people
Through our supervision of firms, we determine how effective each of these drivers of behaviour are in reducing the potential harm arising from a firm’s business model”.
In its document FCA Mission: Approach to Supervision, the regulator also states, under the heading Focus on culture and governance: “We look at what drives behaviour in a firm. We address the key drivers of behaviour which are likely to cause harm. These include the firm’s purpose (as it is understood by its employees), the attitude, behaviour, competence and compliance of the firm’s leadership, the firm’s approach to managing and rewarding people (e.g. staff competence and incentives), and the firm’s governance arrangements, controls and key processes (e.g. for whistleblowing or complaint handling)”.
We do not attempt to assess mindsets and behaviours directly; instead, we recognise that there are many drivers of behaviour which firms can identify and manage
In my last article, I discussed the Purpose of a Business and how it is important for a business to articulate its purpose to its staff. This time, I will focus on Leadership and the relationship between leadership and management.
All businesses need leaders and managers, in smaller businesses they will be the same individuals. But what is a leader and what is a manager, how do they differ?
Investopedia defines leadership as “the capacity of a company’s management to set and achieve challenging goals, take fast and decisive action when needed, outperform the competition and inspire others to perform at the highest level they can.”
These are all laudable aspirations, but how can, and indeed, does good leadership make a positive difference to a business, and what is the difference between Leadership and Management?
The Cambridge English Dictionary defines management as “the control and organisation of something” which could be tasks and/or people.
In simple terms, leadership includes setting corporate objectives and inspiring others to perform at the highest level to help the organisation achieve them. Management includes arranging resources to ensure tasks are completed to time and to quality to meet those objectives.
The leaders of a business, be it the Board or Senior Leadership Team set the tone for the organisation, give the direction for the business, and generally set the standards of acceptable behaviour. Tone from the top is a phrase that goes in and out of use and is often linked to the culture of the business. How does this relate to the elements of the definition?
Set and achieve challenging goals: all commercial enterprises set targets and budgets to ensure the business remains profitable. These are set by the senior leadership team and communicated to the business in such a way that the business is prepared to work to achieve them. This is generally by way of a remuneration and bonus structure, but other non-monetary rewards may be used to get the best out of staff.
Take fast and decisive action: expect the unexpected is a truism, as 2020 has demonstrated. Leaders need to be able to react to circumstances be it external e.g. a takeover bid, or internal, e.g. a breakthrough in R&D, in a way that maximises the opportunity and adjust targets accordingly.
If there is evidence of poor performance or wrongdoing by a member of staff it is for the leadership team to take immediate and decisive action to ensure the business knows such behaviour is unacceptable.
Outperform the competition: whilst it may not always be possible to outperform the competition, your leadership should be mindful of how firms in your sector are doing and any innovation that may give them a competitive edge.
Inspire others to perform at the highest level: true leaders inspire their people to push themselves to achieve and be the best they can be.
True leaders inspire the business to achieve as a group more than they can as individuals. Managers then identify the tasks required to achieve the goals the leadership team has set. Businesses need both leaders and managers and in smaller organisations these can be the same individuals. It is therefore important for owner/managers of smaller businesses to be able to lead where the situation requires and manage their team to deliver their vision.
Thousands of millions of words have been written about leadership style and how it impacts an organisation. Here is a summary of a few that may ring true.
Democratic leadership is exactly what it sounds like: the leader makes decisions based upon the input from staff members. Democratic leadership is one of the most effective leadership styles because it allows lower-level employees to have an input into the discussion that leads to a decision made by the leadership team.
Autocratic leadership is the opposite of democratic leadership. The leader makes decisions without taking input from anyone who reports to them. Employees are neither considered nor consulted prior to a direction and are expected to adhere to the decision at a time and pace stipulated by the leader.
Autocratic leaders may not necessarily get the best out of their staff who may be looking for ways to circumvent the leadership.
The French term “laissez faire” translates to “let them do,” and leaders who embrace it delegate nearly all authority to their employees.
A young start-up business might adopt a laissez faire leadership style, for example, putting full trust into their staff while they focus on building the company. Eventually, they may need to move towards a more democratic form of leadership’
Staff may have a basic set of tasks and goals to achieve, but the leader is constantly pushing them outside of their comfort zone.
This is an effective form of leadership among growth-minded companies because it can encourage and motivate staff to see what they are capable of. But transformational leaders can risk losing sight of everyone’s individual learning capabilities if direct reports do not receive the right coaching to guide them through new responsibilities.
A coach-style leader focuses on identifying and nurturing the individual strengths of each member of their team. They will focus on strategies that will enable their team work better together, using individual strengths for the greater good of the project. This style puts emphasis on the growth and success of individual employees.
Bureaucratic leaders go by the books. This style of leadership might listen and consider the input of employees but the leader tends to reject an employee’s input if it conflicts with company policy or past practices – how many times have you heard “but we’ve always done it that way”.
The Leadership Team
The style of a firm’s leadership is as important to an organisation as the attitude, behaviour, and competence, of the leaders themselves.
In a highly regulated industry such as financial services, one size won’t fit all on every occasion and leaders may well need to alter style to suit the circumstances at hand.