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					Leadership 2020


In the recent years corporate governance issues have attracted the attention of the political,
corporate and academic circles because of the avalanche of corporate scandals in the U.S. and
the necessity to stimulate economic and legal institutional changes in the Eastern European
countries.1 That is why much research appeared trying to enlighten questions like ownership
structure, the composition of the boards of directors, capital structure, managerial incentive
schemes, takeovers and pressure from institutional investors.2 In this essay I will focus on one
specific participant in the whole set of governance mechanisms- the leader. The purpose of
the essay is to state and defend those qualities and roles that will be cardinal for successful
leadership in 2020.


It is assumed in the management literature that leadership arises as a necessity of the changing
economic environment. At the same time however, people expect that the leaders themselves
provoke the change. Considering the two-way relationship between leadership and economic
environment, firstly I depict the factors that call for different leadership paradigm and
secondly, I propose needed qualities for leader to be able to affect the environment in 2020.


Almost fifteen years ago, the top leaders in the corporate world were aware of the urgent
change of the way they used to operate. They defined that the rise of global competition, the
increased complexity and rate of change, and the demise of hierarchy begs for new type of
leadership that was defined as the currency of 21st century (McFarland et al., 1994). Even
though understanding the importance of change just few years later the corporate world was
shaken by a series of governance failures that had broad and lasting consequences. The fast
legislative response was closer monitoring and accountability assured by the Sarbanes-Oxley




1
   I assume that corporate governance issues deal with the way suppliers of capital receive returns on their
investment (Shleifer et al., 1997). Corporate governance mechanism are economic and legal institutions that can
be altered through the political process.
    Recent corporate scandals: Adelphia Communications, 2002; AOL TimeWarner, 2002; Arthur Andersen,
2002; Bristol-Myers Squibb, 2002; Enron, 2001; CEOs at GM, Motorola, Rite Aid, Mattel, Quaker, and Saatchi
& Saatchi have led their companies to the brink of collapse at one time. Source: Forbes
2
  Claessens et al. (1999), Hanousek et al. (2004), Shleifer et al. (1997).


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Act in 20023. Henceforth the environment for the leaders in 2020 will be characterized with
tighter regulations than for the leaders in the last decade.


According to IMF the per capita GDP growth from 1960-1980 to 1980-2000 increased 77%.
In addition to the high growth, the explosion and availability of information is the other major
reason for dramatic changing environment. People communicate more, see more, hear more
and know more-faster than ever before in the history.


My premise is that all these factors together will affect the way of leadership in 2020 and
these tendencies urge the definition of a new type of leaders, different from the definitions of
the top leaders ten years ago. Since the economy is developing with a faster speed and it is
less and less predictable, it will be valuable to think about such leaders that possess the
potential and the ability to affect the economic environment. Therefore, on one hand this type
of leaders is required because of the current state of the economy, and on the other hand on
order to be known as successful leaders they should be able to model the trends themselves.
That is why, I intend focusing on qualities that would be successful at any condition, but
particularly necessary for the leaders in 2020 considering the complexity of the environment.


In this essay I assume that management is different from leadership. The reason for this
separation, recently recognized in the literature on organizational structures, is that different
qualities and consequently different roles are pertinent to managers and leaders, however both
mutually depending. The leader is one that sees, defines and follows the “big picture”. He is
the one that focuses on the purpose, the goal and the plan, while the manager cares for the
details and the realization of the “big picture”. The most effective leaders originate from the
partnership with managers because both groups possess different qualities and hence play
diverse roles.




3
  Two normative reforms took place in 2002: the Sarbanes-Oxley Act and NYSE regulations, both of which
aimed to strip authority from the managers and return it to independent directors that represent the shareholders.
Under the Sarbanes-Oxley Act is the requirement for an independent audit committee and the obligation for the
chief executive to hand back bonuses if fraud results in an overstatement of earnings. Under NYSE, the majority
of directors are independent. Moreover, compensation, nominating, and audit committees are composed entirely
of independent directors, and non-executive directors should meet regularly without the presence of executive
managers.




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Leadership is connected with authority which is the defining feature of hierarchy. Baker et al.
(1999) and Aghion et al. (1997) distinguish between two types of authorities: formal and
informal. At the top resides formal authority and at the middle of the corporate ladder
informal authority, which comes from delegation. In this essay, I assume that in addition to
the formal authority at the top of the company, the leaders should also exercise informal
authority, which comes from the presence of leadership talent. I address leadership as a talent
that can be developed. So far leaders evolved from the organizational structure itself and
somehow they could run a company only with formal authority. However, I claim that in the
next decades just reaching the top position will not generate success but the presence of
informal authority is going to be the key to it.


The president of the Rockfeller foundation, Peter Goldmark, said that we need the highest
quality of managers in the 21st century (McFarland et al., 1994). Majority of people agree that
the need for exceptional and outstanding leaders is as sharp as never before. Therefore, I
reason that in order to understand the leadership envisioned as the currency of 21st century,
we need to attach high value to it. That is why I try to answer the following three questions.
First, what is the foundation that sustains leaders? Second, who is an efficient leader? Third,
which leader makes a long-term difference?


Vision is the foundation of the leadership. Leaders have the capacity to see the broad picture
first. They perceive the future more clearly because their vision extends beyond numbers and
linear projections. Together with the “big picture” leaders design a plan; otherwise they do
not differ from dreamers. Thus in addition to the vision, the leaders do not miss wisdom (the
ability to apply knowledge adequately), boldness and perseverance to complete what they
have seen. It is already recognized among the top leaders that the vision “is the key for any
successful organization because it provides a “magnetic north”, a true direction for people to
follow”4. However, the challenge to the leaders in 2020 is to imagine purposes that account
for factors like global competition and a broad range of social crises (family disruption,
illiteracy, joblessness, substance abuse, crime, homelessness).


The second question asks how to recognize the leadership talent. Efficient leaders do not only
possess vision and skill to plan, but they have the ability to inspire others to follow them till


4
    “21st Century Leadership: Dialogues with 100 Top Leaders”


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the vision is completed. I assume that just “leadership charisma” is not enough to motivate
somebody to follow when the time of crisis comes; rather it is the “leadership character” that
will make you pass through the tests of the time till the goal is achieved. And behind that
leadership character rests the leadership talent.


In the literature there is a concept of a “new empowerment leadership model”, meaning that
sharing of power at every level with everyone shifts away from the “position power” into
“people power” that provides incentives. The principle of empowerment in 2020 will be the
major key for the good leaders to unlock people’s potential at any level of the organization.
The reason is that through “empowerment” the leaders will be able to identify the gifts of the
group and to see them as a resource that will contribute to the vision. Furthermore, it will be
important to reconcile the personal visions with the organizational one. If so far the definition
of vision was enough to realign different interests, in the future it is necessary to understand
what the vision of each one is and how it matches the organization’s vision. This requires
different dynamics in the organization. Up to now the formal structure forced one-sided
subordination to the top managers; in 2020 the leaders themselves should descend to the
lowest part of the corporate ladder. In other words the way up seems to be that the way down.
This opposing paradigm is urgently called for because it is time when the human beings with
their talents, gifts and abilities are broadly accepted to be the most valuable resource on earth.
The efficient leaders are the ones that know how to lead them without undermining any
feature of their personality.


Finally, the efficient leader that has vision, plan and is able to “empower” could be known as
a great leader if he has the ability to identify and develop the gifts of other leaders. In my
opinion this is the highest calling of every leader: to transfer what he had attained to others
and identify their leadership talent. This process goes beyond sharing of information about
leadership: it is relational process of cultivating the gifts and imparting oneself. I argue that
this “leadership reproduction” will assign the highest value of the “future leadership
currency”. This is because the whole essence behind leadership is that it contains power and
potentials that can be both destructive and creative. In order the creative to prevail, it is
crucial to evoke today the future leaders.


There are examples of great leaders in the history that left destructive consequences for years
ahead (e.g. Hitler, Stalin, Mao and Mussolini). Since we witness highly intense global society,


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it is demanded that the power and authority, pertinent to leadership be transformed from
destructive into constructive. In order to achieve this, we need new generation of leaders that
can benefit from the heritage of their “leader fathers” and that know personally “the fathers”
they follow. That is why we need the present leaders embarking upon “leaders’ production” or
as Peter Drucker says “we are on the eve of a new Century-when such profound changes are
taking place that we need to reinvent not only our organizations and institutions, but also
ourselves as leaders.”




References


Aghion, Phillip, and Jean Tirole, 1997, „Formal and Real Authority in Organizations,”
 105, Journal of Political Economy 1-29

Baker, G., R. Gibbons, and K.Murphy, 1999, „Informal Authority in Organizations“,
 Journal of Law, Economics and Organizations, V15, 56-72

Claessens, Stijn, and Simeon Djankov, 1999, „Ownership Concentration and Corporate
  Performance in the Czech Republic“. Journal of Comparative Economics 27: 498-513

Drucker, Peter, 2002, The Effective Executive and Management Challenges for the 21st
Century

Hanousek Jan, Evžen Kočenda, and Jan Svejnar, 2004, “Ownership, Control and Corporate
 Performance after Large-Scale Privatization”, William Davidson Institute, WP 652

Joyner, Rick, 2001, Leadership the Power of a Creative Life, Morning Star

McFarland, Lynne Joy, Larry E.Senn, and John Childress, 1994, “21st Century Leadership:
 Dialogues with 100 Top Leaders”, The Leadership Press




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