Leadership of a Business during a Credit Crunch - Example

LEADERSHIP OF A BUSINESS DURING A CREDIT CRUNCH Name Course Tutor Institution Date Leadership of a business during a credit crunch Research question Is strong leadership necessary in times of a crisis? Questionnaire The questions are designed to collect feedback on leadership of a business during a credit crunch. 1. What do you understand by the term credit crunch? 2. What do you understand by the term leadership? 3. Is a leader capable of leading a business through a boom capable of doing the same in times of a crisis? 4. Is leadership inborn or it can be learned? 5. What do you think are the causes of a credit crunch? 6. Can you elaborate on the measures the company is taking to combat this problem? 7. What are the steps being taken by the management to avoid or insulate the business against credit crunch in the future? 8. How does a credit crunch affect the normal running of a business? 9. Is strong leadership necessary during such a crisis? 10. Is the global economic crisis responsible for the credit crunch affecting businesses? The questionnaire was distributed to 100 business executives of multinational and local businesses to assess their response to one of the challenges facing businesses and the right leadership that is required to overcome the challenge. The response from such a sample will give a clear insight on the understanding of business leadership during a crisis. The inclusion of multinational businesses is because they are highly susceptible to changes in the global financial system, and such problems like the credit crunch will severely affect them. The sample is selected basing on the vulnerability of their business to global financial trends and the response of their leadership to such challenges. Multinational companies most borrow from international credit institutions; therefore it is the right sample because both the borrower and the lender operate in similar financial conditions. They also have a complex leadership demand which is characteristic of today’s leadership environment. Since the survey involves human subjects, the following ethical considerations were factored in when designing the questions. Confidentiality is of vital importance because the privacy of the respondent must be respected, and a clear line drawn between the responses from the subject and their personalities (Kuiper 2009, pg 42). The survey ensured confidentiality by requesting the respondents to fill the questionnaires in private and submitting the completed copy in a sealed envelope. The survey also promised the subjects that the data will be kept confidential, and will not be used for any other purpose except for the study alone. To further ensure confidentiality of the subjects, the survey used codes instead of individual names or that of their organizations. Conflict of interest is another ethical issue that was dealt with in the survey. Conflict of interest can be a challenge during the collection of data. This was avoided by clearly understanding the topic of each question and the situations that can result into a conflict of interest. After drawing all the research questions, possible areas of conflict were revealed to the participants as they are responsible for removing themselves from the survey. Considering conflict of interest is crucial because in most cases it results from professional relationships (Grinnell & Unrau 2010, pg 12). The psychological impact of the questions on the participants is also an important ethical consideration that was included in the survey. Credit crunch can be a stressing issue to handle in a business environment and in most cases can result into the loss of jobs. When drafting the questions, the stresses that accompany answering such questions were considered. Subjects were allowed not to answer questions that they feel they are not comfortable to answer. They were also at liberty to bring the survey to an end at their own liking. Misrepresentation is also another ethical issue that was clearly considered in the survey. The topic of the questions was about the leadership during a credit crunch and was not for other purposes like solicitation or sales. The purpose of the study was made clear to the participants to remove any inclinations that the survey was meant for other purposes. Each participant was given a chance to understand the purpose of each question (Kuiper 2009, pg 95). The timing of the survey was important because it coincided with a time when most businesses especially those that deal on the global scale are facing problems due to the global financial crisis that started in 2008. Most countries especially the European ones are facing the worst credit crisis since the depression of 1929. Businesses must adjust to current financial situations because most of them have been forced into bankruptcy due to the harsh financial conditions. The timing was also perfect in that many leaders who managed their organizations during happier times were failing during the economic crisis. The questions that appeared on the questionnaire were selected because of the following reasons. First was to gauge the understanding of the subject by the business leadership. The first question about the understanding of the meaning of a credit crunch is important because one cannot begin to tackle a problem without first understanding what it means. Failure of the subject to understand the meaning of the subject matter will result in them giving false answers to the questions leading to the failure of the study to achieve its desired goal. The second question was to know if the business leaders understood the meaning of leadership. This included the characteristics of a good leader. These characteristics include the ability of a leader to navigate an organization through a trying period. By knowing if the business had experience such a challenge before, the participants of the survey are able to determine the possibility of the business in overcoming the challenge because one with experience is likely to survive the credit crunch than managers who are facing it for the first time. Since a credit crunch affects all the operations of a business, knowing the department that handles this problem is important because it is necessary to know if it has the relevant and sufficient resources to manage it. Some businesses may establish a task force or a special committee to look into the matter. By knowing this information it will be easy for the participants to know the seriousness that the business is dedicating to the problem. The question about the remedies that the business is taking to solve this problem is important in determining if they are in line with professional financial practices and to measure the leadership of a business if they are taking the right steps to combat a credit crunch. By knowing the measures that a business is taking, the participants are able to know the seriousness that the business is dedicating to it because any business cannot survive without credit. Failure of a business to access credit severely affects its operations especially those that seek to expand to new territories like multinational businesses. The question of whether a leader is born or made was included in order to ascertain the theory of leadership which the business leaders believe in. Since they are in a challenging business environment, they are in a good position to give an honest opinion about the most reliable theory. Many people have been surprised by the failures some renowned leaders who managed their organizations effectively during restive periods, but have not delivered during crises like the credit crunch. The question on this topic was included in the questionnaire to aid in explaining this paradox. The understanding of the causes of a credit crunch by the leadership of a business is important in that they can begin by tackling the whole problem by handling the causes one by one. If the leadership has sufficient knowledge of the causes, they can put in place practices that avoids them hence in the long run the business will be secure from external credit problems. Knowing the causes gives the management a starting point in solving it. The question on the need for a strong leadership is critical because a credit crunch is a business challenge that requires direction that can only be provided by a strong leader. The leadership must understand the causes of the crunch and working strategies that help in mitigating its impacts. A weak leader will wobble in tackling it considering the stress that the leader will go through in trying to source for new sources of credit in an environment that is not conducive. The understanding of the effects of a credit crunch on a business helps the participants in determining the understanding of the issue by the business leadership to avoid confusing it with other factors that may also affect the business. By knowing the effects, the participants will be able to compare it with those of other businesses and determine if there is uniformity in its impacts. The question about the relationship between the global financial crisis and the credit crunch aids participants in knowing if the business leadership is conversant with the current financial situation globally. Results Out of the one hundred questionnaires, seventy five of them were fully filled and submitted. 60% of these respondents fully understood the meaning of a credit crunch, while 30% responded that they understood its meaning, but could not relate to their current business environment and the remaining 10% had no idea about the term. On leadership, 80% defined it as the ability guide an organization while the remaining percentage termed it as people appointed to high offices to command and direct others. Half of the correspondents believed that a leader capable of leading during times of prosperity is also capable of doing so in times of challenges while the other half believes that the two situations are different and challenging times present new obstacles that require change in strategies. 60% of the subjects responded that leaders are naturally born, and in any environment they will exhibit their leadership qualities. 30% acknowledged that leadership, like any other discipline can be acquired through the right learning process. A further 10% believed that it is the combination of the two that creates effective leaders. All the subjects were clearly conversant on the causes of the credit crunch, and could clearly elaborate on the short-term and long-term steps that their businesses are taking to combat this problem. On the issue of the need for strong leadership in times of a crisis, 90% concurred that a strong leadership is needed in such times while the remaining opposed their need citing the existence of a strong support team since a business is not about a few individuals. All completed questionnaires agreed that the global financial crisis is responsible for the credit crunch. Discussion A credit crunch or a financial crisis is a situation where businesses find it hard to acquire cash to run their operations (Turner 2008). This is the case where the demand for money is more than its supply. The net result is the collapse of banks as more clients rely on their deposits. Many banks in the UK survived collapse courtesy of bailouts by the government or through nationalization like the Northern Rock. Leadership is the ability to influence people’s behavior in meeting desired objectives. Leaders have the responsibility of coming up with the targets of the organization and providing the environment necessary for meeting such targets (Hiebert & Klatt 2001, pg 64). There is a great difference in leadership during boom times and in times of a crisis due to the change in situations. By examining leadership during a credit crunch, one is able analyze the form of leadership during a crisis. There are leaders who have exhibited great leadership characteristics in happy times, but have failed to show the same characteristics in trying times like the case of the financial crisis. There are examples of leaders who fall into this category. They include Sir Fred Goodwin, former head of the Royal Bank of Scotland and Gordon Brown, former Chancellor of the Exchequer and Prime Minister. Goodwin received praise during the flourishing years of the bank culminating into the acquisition of NatWest in 2000 (Northouse 2009, pg 108). He has faced accusations of mismanagement prior and at the course of the financial meltdown. Gordon Brown was viewed as the most successful finance secretary during years of plenty. This led to voters electing him as the prime minister after retirement of Tony Blair, but he failed to be re-elected on the aftermath of the financial crisis. This trend questions the credibility of leaders during challenging times. Leadership during hard times requires leaders who are willing to make decisions that may not please everyone (Hiebert & Klatt 2001, pg 153). Such decision includes firing members of staff and removing some benefits as austerity measures. The diplomatic skills of a leader are tested during this period because it entails a lot of bargaining with financers and debtors in order to ensure the liquidity of the business. Many theories have attempted to elucidate the concept of leadership, with the conflicting theories of nature and nurture dominating the debate. The main theory that has received wider acclaim is the traits theory which proposes the existence of specific traits in the DNA of leaders which are encoded when they are born. Other theories include behavioral theory which argues that one can learn to be a good leader so long as they are able to learn acceptable behaviors. This theory is supported by the argument that it is easy to learn a behavior than a trait. The theory uses two examples, dictatorial and democratic leadership. Other theories are the situational, participative and contingency theory which is similar to the behavioral theory. The traits theory is easily convincing since society tends to believe that leaders are natural born with a set of characteristics that differentiates them from others. They believe that they have special talents that the Gods can only grant. This theory is supported by many years of research behind it compared to the other theories of leadership. This grants the theory some form of legitimacy which is not available to the others (Winkler 2010, pg 81). A leader has exceptional characteristics that enable him to be a good leader. The characteristics defined by this theory are not merely physical, but are depicted by the personality, in other words is behavior. Up to the present, a lot of people rely on the traits theory, believing that leaders have some innate traits that make them effective leaders. According to this theory, training is meant to refine the already existing characteristics. Leaders of big organizations seem to be more than average in their intelligence. This argument is supported by the teachings of ancient philosophers like Aristotle, Socrates and Plato. This position validates believe by most people that leaders are born and not created. It further gains legitimacy because it does not oppose our natural reasoning. By relying on the traits theory, the environment or the situation becomes irrelevant. Any individual with good traits when placed in any leadership situation will excel. This argument emphasizes the need of organizations in putting more effort in choosing leaders rather than training them. Leadership ability is compared to athletic prowess which can only be improved, but cannot be developed. Proponents of this argument summarize it by “you cannot make a silk purse out of a sow’s ear” (Northouse 2009, pg 169). This means that you cannot be a good leader if you were not born to be one. The variation in the characteristics of s good leaders such as intelligence, ethics, looks and appearance shows that the ability to lead is not wired to our genes, but this theory offers the most reliable explanation of the performance of different individuals when they are in leadership positions. Current trends show that for one to succeed in leadership he must show more the innate traits that are proposed by the traits theory. Other elements that include environment, previous experiences and learning contribute to effective leadership. The leadership environment in the current world is intricate and large. To be an effective leader in such an environment, one must possess more than the inborn characteristics, but other traits that can only be learned through training. Today’s leaders combine skills such as marketing, accounting and managerial skill, but opponents argue that such skills are only a polishing on a good leader (Winkler 2010, pg 74). The failure of leaders like Gordon Brown reveals that training and learning are not enough, but effective leadership in times of a crisis like the credit crunch requires one to make critical and unpopular decisions which will bear results at the end. Such decisions can only be made by a strong leader. Reference List Grinnell, R & Unrau, Y, 2010, Social Work Research and Evaluation: Foundations of Evidence- Based Practice, Oxford, Oxford University Press Hiebert, M & Klatt, B, 2001, The Encyclopedia of Leadership: A Practical Guide to Popular Leadership Theories and Techniques, New York, McGraw-Hill Professional Hynson, C, 2010, The Credit Crunch, London, Sea-To-Sea Publications Kuiper, S, 2009, Contemporary Business Report Writing, New York, Cengage Learning Northouse, P, 2009, Leadership: Theory and Practice, New York, SAGE Turner, G, 2008, The credit crunch: housing bubbles, globalisation and the worldwide economic crisis, Detroit, Pluto Press Winkler, I, 2010, Contemporary Leadership Theories: Enhancing the Understanding of the Complexity, Subjectivity and Dynamic of Leadership, New York, Springer Read More