Transactional theory


Today’s organizations require constant adaptation to the constant changes in the environment. Organizations are struggling to find the space and pace to meet the ever-growing challenges facing them. Hitherto, factors that were not impacting on organizations’ success are now a menace to them. These constant changes, particularly, in the external environment and their impact on organizations have necessitated the need for effective leadership. Over the years, many leadership studies have led to the development of models of leadership with particular focus on leadership effectiveness. Firstly, there was the Great man theory, which was followed by the Trait theory. These early theories were found to have some weaknesses and so the Behavioural, Situational, Transformational theory, Transactional theory, etc. followed.

In-spite of these theories, organizations continued to struggle in so far as leaders are human. That is, the need for governance structures and systems to protect diverse shareholders, minimize risk taking and lessen conflicts in organizations cannot be underestimated. Thus, governance systems or structures serve as a system of checks and balances against abuse of power, among others. Du Plessis et al. (2011) succinctly put it that corporate governance refers to the powers, accountability and relationships of the board of directors, and management, who participate in the direction and control of a company, that have an impact on the relationship between shareholders and the company. This definition clearly suggests an undisputable relationship between corporate leadership and corporate governance. The world has become a smaller place and more inter-connected to the extent that organizations need not only effective leadership but also functional governance systems in order to fend off the constant disruptions to their operations in particular and success in general.

MixCam Company Limited (MCL) is a quasi-private utility institution with widely diverse shareholders with no single individual as a majority shareholder. The company has been operating for the past 30 years and has been successful in the past, but faces mounting challenges presently. MCL has a Board membership of eight, which includes the CEO, deputy CEO and the Finance Director of the company. The CEO was recently appointed after a restructuring and is seen as a ‘no nonsense’ leader. He is also chairman of the Board of Directors of MCL. He was recruited to continue with the transformation agenda, as he was seen as a transformational leader before his appointment. Even though he has many years’ experience in the banking sector, his experience in the utility sector is limited. It is also important to note that two of the Board members have some experience in the utility sector, and the rest have diverse backgrounds and experiences.

In the first few months of his appointment, the CEO instituted many changes, without consulting or informing the board. The changes have impacted negatively on the company’s performance in terms of revenue streams. The CEO believes that leaders like him are recruited to make tough decisions and that he is special and have certain characteristics or qualities that set him apart from others. The CEO calls for meetings when he feels like, acts with little consideration for others’ needs and consistently does not take advice from the Board. Some of the Board members think that the CEO is practicing transactional leadership as opposed to transformational leadership, in that those who do not agree with him are considered enemies, whilst those who kowtow and obey him are rewarded constantly.

Some members of the Board have raised concerns about his behaviour but these concerns have fallen on ‘death ears’. In addition, some of the Board of Directors have accused the CEO of several cases of malpractices, abuse of office, and dereliction of duty. Clearly, MCL has issues with accountability, transparency, and independence. The external accounting audit of the current financial period revealed that MCL has overstated its profits, which invariably means that it overstated its current assets, total assets, retained earnings, and shareholders’ equity. Whilst some of the Board members are still under the CEO’s influence, others are not, which has led to some disagreements and division on the Board. In fact, some of the Board members are beginning to feel and think that they failed in their responsibility to recruit the right person for the job. The belief among some of the Board members is that the CEO is no more ‘faking it’ but rather being himself and that the ‘true self is out’. Some members of the Board also believe that the CEO is ‘out of his depth’.

Required: Answer the following questions based on the case study

1.     Explain (with relevant example(s) from the case study) why you think the trait theory of leadership may also be used to describe the CEO. [15 marks]

2.     Briefly explain the likely source(s) of power of the CEO. (Note: your answer should be linked to the case study). [15 marks]

3.     Explain a type of conflict that is highlighted in the case study (Note: your answer should linked to the case study). [15 marks]

4.     In the case study (paragraph 4, line 7) it is highlighted that the CEO is seen as a transactional leader. In your own words, and by using relevant examples (if any) from the case study, explain why you think the CEO is not practicing transformational leadership but transactional leadership. [15 marks]

5.     Based on the case study, explain in detail the relationship between leadership and governance. [20 marks]

6.     As a consultant with expertise in corporate governance, make recommendations for a governance system/structure for MCL, based on the issues raised in the case study. (Note: your answer should be based on the case study). [20 marks]


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