Introduction
The global economic recession, which began in 2007, emphasized the importance of leadership in modern organizations. Such scholar as Warren Bennis argues that these challenges can force educators and managers to reconsider their understanding of leadership if they want to better respond to various challenges (2007, p. 1).
These individuals will have to change their attitude toward communication, decision-making, and structure of their organizations. There are numerous definitions of this concept; overall, it can be understood as the ability to influence and inspire other people and make them committed to ones ideas and strategies (Northouse 2009, p. 5).
Many researchers such as Penny Tamkin and Stephen Overell believe that post-recession leaders will have to meet much higher standards in order to sustain their companies during this recession (2009, p. 1). Furthermore, special attention should be paid to negotiation strategies since they are an integral element of leadership and have to reflect the interest of an entire organization.
This paper is aimed at analyzing the impacts of economic recession on leadership theory and practice. In particular, it is necessary to single out those aspects of leadership and negotiations practices which become important during this crisis.
Economic crisis and its impact on leadership
Overall, the ongoing economic recession prompted many people to reconsider modern definition of leadership and leaders. Many corporate executives as well as educators understood this term as the exercise of power and authority within hierarchical structure of the organization (Tamkin & Overell 2009, p. 8).
Yet, this strictly functional interpretation of this concept overlooks the responsibilities of leaders and their roles. The fallacy of this definition has been eloquently illustrated by numerous corporate scandals which broke out during the recession. It has become apparent that many corporate executives failed to take into account the interest of different stakeholders, especially investors, customers, and employees. This crisis showed that some foundational principles of should be reevaluated.
This is one of the reasons why a group of scholars under the guidance of Craig Perrin suggested a new model for evaluating the work of leaders. Their framework singles out several aspects or “zones” of leadership, namely
- people;
- society;
- business;
- reflection, and
- ingenuity (Perrin et al, n.d. p.6).
There are several peculiarities of this model. First of all, it expands the range of a leader’s responsibility. This person has to be accountable to shareholders, employees, and community. This responsibility and accountability were often overlooked by corporate executives before the recession.
The second principle is that he/she should be aware about the incompleteness of his/her knowledge (Perrin et al, n.d. p.8). Although this recommendation may appear to be self-evident, it is particularly relevant in the light of economic crisis which was largely caused by irresponsible managerial policies and complete confidences in ones knowledge and decision-making skills. Additionally, this zonal approach to leadership attaches great importance to ingenuity and innovation.
According to Perrin et al, the efforts of corporate executives were focused on the preservation of status quo and gaining short-term profits. As a result, their organizations were unable to respond to challenges such as economic recession.
It is worth mentioning that many managers attempted to predict and measure specific risks to which their organizations were exposed. This is why these organizations were unable to respond to various economic, social, and technological changes. Thus, the ability of leaders to adapt quickly to changing environment becomes crucial during the time of turmoil.
In addition, many practitioners and scholars indicate that a leader should be able to see opportunities for the organization and explore them (Tamkin & Overell 2009, p. 18). In other words, this person should have a vision of how the company can grow in the long term (Ihlenfeldt 2011). Unfortunately, this aspect has often been neglected executives.
To some degree, the ideas of these scholars are supported by corporate leaders whose companies survived the recession. For instance, one can mention Herbert Henkel who restructured the company Ingersoll Rand, developed contingency plans, and reduced inventory long before the recession (Carey, Patsalos-Fox, & Useem 2009, p. 2).
His ideas were highly unpopular, and many people believed that he had been almost incompetent. Yet, his policies helped the company sustain itself during the crisis. His example indicates that a leader should have the courage to do the unpopular thing. Moreover, he should be able to see the challenges which an organization can face.
The crisis has shown that autocratic management is not the most effective way of leadership because it essentially slows down the exchange of information and decision-making within the company. A good leader is a person who can empower other people (Tamkin & Overell 2009, p. 18).
To better illustrate this point, we can mention Eric Foss who is the CEO of Pepsi Bottling Group. This corporate leader emphasized the importance of involving board into decision-making (Carey, Patsalos-Fox, & Useem 2009, p.5). This cooperation enabled the company to see the magnitude of oncoming recession and work out contingency plans.
Responsibility and integrity can also be viewed as an attributes of leadership. They can be the key to the survival of a company. In this case, one can mention Terry Lundgren, the CEO of a retailing company Macy. Inc.
He warned both investors and employees about future crisis and this helped him gain the trust of these people (Carey, Patsalos-Fox, & Useem 2009, p.6). He preferred to say something very unpopular, but in this way he averted panic among investors and workers. Overall, corporate managers described in this paper preferred democratic style of leadership.
Similarly, we can mention the companies which failed during recession. One of them is Lehman Brothers. Its executives lacked the qualities typical of leaders, especially integrity and sense of responsibility toward investors and employees. Moreover, they preferred autocratic style of leadership.
There are numerous theories and models of leadership, for instance, one can mention trait theory, transformational leadership, role models approach, style theory, and so forth. They describe the character traits of a leader and his/her behavior (Ephross & Vassil 2005, p. 53).
It is rather difficult to say that the economic recession called a dramatically new approach. Yet, these challenge demonstrated that leadership should be closely tied to such things as social responsibility, ability to innovate and make organization more agile, empowerment of other people, and understanding of ones limitations. These are the main concepts that were highlighted by the recession.
Negotiations concepts and economic recession
Negotiation is one of the most important activities in which leaders participate. Such researchers as Chia-Jung Tsay and Max Bazerman point out that very often corporate executives prove to be extremely egocentric and overconfident (2009, p. 7); as a result, they disregard the interests of other stakeholders.
Additionally, these scholars identify another fallacy which leaders should definitely avoid, and it is motivated illusion (Tsay & Bazerman 2009, p. 8). The thing is that many senior executives tend to be over-confident in their ability to control events which can hardly be predicted (Tsay & Bazerman 2009, p. 8). The recent economic recession highlighted these errors. It demonstrated that many corporate leaders were over-confident and egocentric.
Therefore, they endangered their companies. Overall, a person, who takes part in the process of negotiations, must know his/her limitations, especially if we are speaking about knowledge and control. Otherwise, negotiations will essentially be fruitless. Thus, a leader, who takes part in negotiations, should avoid cognitive biases which prevent him/her from taking irresponsible decisions.
On the whole, negotiation is an inseparable component of leadership. Those people, who are responsible for the management of different organizations, can negotiate with their business partners, competitors, colleagues, and so forth (Lewicki & Hiam 2006). Additionally, the process of negotiations should certainly reflect the interests of the main stakeholders.
Unfortunately, very often it is driven primarily by ambitions of corporate executives, willingness to achieve short-term gains (Silkenat, Aresty & Klosek 2009). The leaders should represent the entire organizations. Therefore, they need to think about the effect of negotiations which is dependent on their company.
Thus, managers and leaders should focus on intellectual and ethical elements of negotiation since they are equally necessary for the success. Again, the significance of ethical and intellectual elements was emphasized by the crisis which was caused by unscrupulous business policies, orientation toward short-term results, and the belief in ones infallibility. These pitfalls have to be overcome by modern leaders.
Conclusion
Recession is one of those organizational challenges which prompt leaders to display their best qualities in order to sustain their companies. The failure of many executives to cope with their duties calls for a new type of leadership. It is possible to single out several elements of leadership, in particular, vision, social responsibility, empowerment of other people, willingness to improve ones professional qualities.
These elements are essential for the sustainability of profit and non-profit organizations. This essay has touched upon negotiations as an important element of leadership. This activity has to reflect the interests of various stakeholders can effect the organization. The changes notion of leadership can have significance implication for the training of future business administrators. Moreover, it can affect the policies of different organizations.
References
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