the positive influence of transformational leadership in good corporate

THE POSITIVE INFLUENCE OF TRANSFORMATIONAL LEADERSHIP

IN GOOD CORPORATE GOVERNANCE

Leveric T. Ng

Master In Business Administration

Oklahoma City University, 1991

B.S.C. in Marketing, De La Salle University 1980

A Dissertation

Submitted in Fulfillment

of the Requirements for the

Degree Doctor of Business Administration

Management and Organization Department

Ramon V. del Rosario College of Business

De La Salle University

August 2014

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Acknowledgment

I dedicate my research to my parents, Mr. and Mrs. William Ng whose

unconditional love made me the person that I am today.

This doctoral journey has changed my life for the better as far as my professional

leadership and practice of good governance is concerned. I hope that what I have learned

and contributed to the literature of transformational leadership and corporate governance

will spur additional research into these two important facets of managing corporations,

and improve the way we think and live as Christians in our society.

I would like to thank the following people who have helped me towards the

completion of my doctoral degree:

1. Dr. Ben Teehankee, for his invaluable guidance and inspiration;

2. Dr. Mike Cortez, for his encouragement and instrumental support;

3. Ms. Reby Gaw, for her indefatigable efforts as my research assistant and

partner;

4. Dr. Daffy Morales, for his consistent moral support and for being there

during the vicissitudes of my doctoral journey; and

5. God, with whom all things are made possible!

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Abstract

Transformational leadership and corporate governance are rarely studied together, and

this applies to the Philippine context as well. The Philippine private corporate structure,

based largely on corporate ownership, provides this research a unique and fertile ground

on which to study how transformational leadership impacts good corporate governance.

This study seeks to provide empirical evidence establishing the link between

transformational leadership and good corporate governance, and how CEO pressure on

directors on firm profitability affects this relationship. The research methodology

employed is a mixed methods procedure of a concurrent triangulation strategy. Thirty

corporate directors (executive directors) were given questionnaires to complete, and

afterwards underwent personal interviews to provide the qualitative data required for this

study. Statistical results from regression analysis show that transformational leadership

positively influences good corporate governance and CEO pressure on directors on firm

profitability has no effect on the relationship between transformational leadership and

good corporate governance. Director perception of good corporate governance is not

influenced by the presence or absence of pressure on firm profitability. Furthermore, the

qualitative findings corroborate the statistical inferences from the quantitative analysis.

There were several unanticipated results such as CEO duality as a moderating variable

and religion as a conceptual definition by respondents for both transformational

leadership and good corporate governance, which may provide abundant input for

further research on leadership and corporate governance.

Keywords: transformational leadership, corporate governance, profitability, corporate board, executive directors, independent directors, CEO pressure on directors on firm profitability

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Table of Contents

Acknowledgment………………………………………………………………………….2

Abstract……………………………………………………………………………………3

Chapter 1: Problem

Background of the Problem ……………………………………………………………..12

Statement of the Problem ………………………………………………………………..19

Objectives of the Study…………………………………………………………………..19

Theoretical Perspectives…………………………………………………………………20

Conceptual Framework…………………………………………………………………..23

Operational Framework………………………………………………………………….27

Research Hypotheses…………………………………………………………………….28

Significance of the Study………………………………………………………………...33

Scope and Limitations…………………………………………………………………....37

Definition of Terms……………………………………………………………………....39

Assumptions……………………………………………………………………………...41

Chapter 2: Review of Related Literature

Overview………………………………………………………………………………...42

Transformational Leadership……………………………………………………………42

Transformational Leadership and Corporate

Governance Nexus……………………………………………………………….55

Corporate Governance…………………………………………………………………...58

CEO Duality……………………………………………………………………………..61

Board Composition………………………………………………………………………63

Roles of the Board……………………………………………………………………….64

Good Corporate Governance…………………………………………………………….68

Firm Profitability………………………………………………………………………...69

CEO Pressure on Directors on Firm Profitability…………………………...…………...70

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Philippine Corporate Governance Context……………………………………………....75

Need for Present Study…………………………………………………………………..79

Chapter 3: Methodology

Research Design.....………………………………………………………………………82

Population and Respondents……………………………………………………………..85

Sampling Design…………………………………………………………………………85

Measurement and Instrumentation……………………………………………………….89

Validity and Reliability………………………………………………………………......96

Research Procedures…………………………………………………………………......99

Data Analysis…………………………………………………………………………...101

Methodological Assumptions of the Study……………………………………………..104

Methodological Limitations………………………………………………………….....104

Chapter 4: Results

Overview………………………………………………………………………………..106

Transformational Leadership…………………………………………………………...107

Outliers………………………………………………………………………………….111

Good Corporate Governance…………………………………………………………...116

CEO Pressure on Firm Profitability…………………………………………………….120

CEO Pressure as a Moderating Influence on Transformational Leadership

and Good Corporate Governance……………………………………………….120

Chapter 5: Discussion

Overview……...………………………………………………………………………...125

Transformational and Transactional Leadership Continuum…………………………..126

Four Dimensions of Transformational Leadership……………………………………..128

Other Leadership Styles………………………………………………………………...130

Good Corporate Governance…………………………………………………………...131

Roles of Boards…………………………………………………………………….…...132

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CEO Duality…………………….………………………………………….…………. .138

Transformational Leadership and Good Corporate Governance Nexus………………..140

Shared Governance……………………………………………………………………..143

Ethics as Foundation………………………………………………………………........142

CEO Pressure on Profitability

Profit Maximization and Stress…………………………………………………….…...145

Chapter 6: Summary, Conclusions and Recommendations

Summary………………………………………………………………………………..149

Conclusion.……………………………………………………………………………. 151

Executive Directors’ Views on CEO Transformational Leadership……………….......152

Transformational Leadership and Good Corporate Governance Nexus…………….....152

CEO Pressure on Profitability………………………………………………………….153

Ethical Stewardship…………………………………………………………………….155

Limitations of the Study………………………………………………………………..156

Recommendations………………………………………………………………………157

References………………………………………………………………………………163

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Appendices

Appendix A

Questionnaire…………………………………………………………………………...174

Appendix B

Survey Matrix……………………………………………………………………….….179

Appendix C

Pretest Results………………………………………………...………………………...187

Appendix D

Final Questionnaire Form………………………………………………….………...…194

Appendix E

Policy on Use of Professional Help for Dissertation…………………………………...199

Appendix F

Interview Protocol…………………………………………………………………...…200

Appendix G

Interviewer Training Guide………..………………………………………………..….202

Appendix H

Interview Timeline…………………………………………………………….………..204

Appendix I

Correlation Coefficient of Independent and Dependent Variables…………..…………205

Appendix J

Data Analysis Matrix...........……………………………………………………………207

Appendix K

Descriptive Statistics…………………………………………………………………. .209

Appendix L

Regression Assumptions……………………………………………………………….214

Appendix M

Other Possible Regression Models…………………………………………………….222

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Appendix N

Qualitative Coding………..……………………………………………………………232

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List of Tables

Table 1. Differences Between Agency Theory and Stewardship

Theory in View of Situational Factors…………………………………………...21

Table 2. Taxonomy of Transformational Leadership……………………………………47

Table 3. Taxonomy of Corporate Governance…………………………………………..66

Table 4. Transformational Leadership Scale

and Item Statistics………………………………………………………………..90

Table 5. Good Corporate Governance Scale

and Item Statistics……………………………………………………………......92

Table 6. CEO Pressure on Directors on Firm Profitability Scale

and Item Statistics………………………………………………………………..94

Table 7. Regression Equation Coefficients (Model 1)...………………………………..107

Table 8. ANOVA (Model 1)……………………………………………………………109

Table 9. Regression Equation Coefficients (Model 2)……...…………………………..109

Table 10. ANOVA (Model 2)…………………………………………………………..106

Table 11. Outlier Residual Statistics……………………………………………………112

Table 12. Coding for Transformational Leadership……………………………………115

Table 13. CEO Transformational Leadership and

Influence on Good Corporate Governance…………………………..................116

Table 14. Coding for Good Corporate Governance…………………………………….117

Table 15. Regression Equation Coefficients (Model 3)……………………...………....118

Table 16. ANOVA (Model 3)………………………………………………………......118

Table 17. Regression Equation Coefficients (Model 4)...………………………………119

Table 18. ANOVA (Model 4)…………………………………………………………..120

Table 19. Regression Equation Coefficients (Model 5)...………………………………122

Table 20. ANOVA (Model 5)………………………………………………………......122

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Table 21. Cross Tabulation of Moderating Influence,

CEO Pressure, and CEO Duality……………………………………………….124

Table 22. Relationship of Transformational Leadership

and Good Corporate Governance………………………………………………142

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List of Figures

Figure 1. The conceptual framework…………………………………………………….26

Figure 2. The operational framework……………………………………………………27

Figure 3. H1 – The relationship of transformational leadership

and good corporate governance………………………………………………….29

Figure 4. H2 – Interaction effect of CEO pressure on directors

on firm profitability on good corporate governance……………………………..32

Figure 5. The literature map……………………………………………………………..73

Figure 6. Visual model of concurrent triangulation design……………………………...83

Figure 7. Linear relationship between transformational leadership

and good corporate governance………………………………………………...111

Figure 8. Non-linear relationship between CEO pressure on directors

on firm profitability and good corporate governance…………………………..123

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Chapter I

Background of the Problem

For as long as there are organized groups, the discussion and study of leadership

are both inevitable and critical. In the realm of business, leadership has been defined as

“a social influence process that can occur at the individual, dyadic, group or strategic

level, where it can be shared within a management team” (Avolio, Sosik, Jung, & Berson,

2003). This definition focuses on the construct of leadership, without neglecting the other

side of it, which is followership, both constructs of which have to be acknowledged for

leadership to occur.

The study on leadership has earlier centered on traits, which was a controversial

assertion (Kirkpatrick, Locke, & Edwin, 1991). Based on the model of “great man”

(Slater &Bennis, 1990, as cited in Kirkpatrick et al., 1991, p. 48), leadership traits are

possessed by a special breed of people, as if saying that leaders are born and not made.

This is contested by Stogdill (1948, as cited in Avolio et al., 2003; Kirkpatrick et al.,

1991) who proposed that effective leadership has nothing to do with traits because

contexts can likewise play a significant role. He cited that leaders in different fields do

not necessarily have the same traits but can be equally effective.

While trait has been debunked as key to effective leadership, Kirkpatrick et al.

(1991) asserted that leaders do possess special traits, in contrast to non-leaders, and they

have the right disposition not equally present in all people. These traits are drive, desire

to lead, honesty and integrity, self-confidence, cognitive ability, and knowledge of the

business.

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Following the research focus on traits, leadership studies took on a turn towards

behavior and style (Avolio et al, 2003; Kirkpatrick et al., 1991; Yukl, Gordon, & Taber,

2001) and leadership that is influenced by the situation. Situational leadership, formerly

life-cycle leadership, was initially conceptualized by Hersey and Blanchard in 1969 and

was inspired by leadership styles parents practice as their children go through the

development stages of infancy, adolescence and adulthood (Hersey, 1996). According to

the two proponents, there could be best attitudes for managers, but not leadership styles.

This leadership style is based on the maturity of the follower, or development level of

follower and the task to be performed for which the manager decides whether to perform

directive or supportive behavior (Irgens, 1995). Directive behavior is characterized by a

leader giving detailed instructions and making sure that the task is done. Supportive

behavior, on the other hand, is characterized by a leader constantly listening and

communicating, recognizing and encouraging his followers.

In Irgens’ (1995) model of situational leadership, the choice of leadership style

will not depend on the follower’s maturity alone. The directive behavior of a leader is

determined by the follower’s ability to direct his/her own work; and supportive behavior,

the follower’s ability to function without support. Irgens (1995) instead used the

variables of “can” or ability to self-direct a task, and “will” or ability to do task without

support from the leader. Increasing “can” will minimize the leader’s directive behavior,

and increasing “will” will minimize supportive behavior. Also, followers are not the only

determinant of leadership behavior, the leader’s personality and the situation requiring

leadership also matter.

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Situational leadership pioneers Hersey and Blanchard worked on the model until

1973 but worked separately later on. While they have earlier justified their use of the

term maturity, and researched about distinctions on psychological maturity and job

maturity; or studied and added variables such as willingness and readiness into the

concept, both authors agreed that situational leadership isn’t as much as about leadership

as it is about meeting followers’ (employees’) needs (Hersey, 1996).

Burns (1978) introduced the concept of transforming and transactional leadership

later developed by Bass (1985) who posited that these are independent but

complementary constructs. Transactional leadership focuses on an exchange of

productivity for reward, that is, productivity can be achieved by giving rewards and no

productivity can mean withdrawal of rewards or benefits. Meanwhile, transformational

leadership is concerned about achieving extra-ordinary outcomes and in the process

allows employees to develop their own leadership capacities (Avolio, Waldman, &

Einstein, 1988; Bass & Riggio, 2006; Bass, Waldman, Avolio, & Bebb, 1987).

Consequently, transformational leadership occurs when leaders and followers raise one

another to a higher level of motivation (Bennis&Nanus, as cited in Pawar& Eastman,

1997).

Transformational leadership will continue to be an explored area of leadership as

studies owing to many unexplored areas such as linking transformational leadership and

performance (Goodwin, Whittington, Murray, & Nichols, 2011; Valdiserri & Wilson,

2010), cascading to different levels of transformational leadership (Bass et al, 1987;

Bruch & Walter, 2007), as well as other facets like development of transformational

leadership, new predictors and contingencies, training authentic transformational leaders,

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the inner workings of transformational leaders, the dark side of transformational

leadership, and many other perspectives (Bass & Riggio, 2006).

Placed alongside this leadership perspective is the international focus on business

crises (1997 Asian financial crisis) and corporate scandals (Fortune 500 companies

Worldcom, Bear Stearns, Lehman Brothers, AIG, to name a few) spanning the decades of

1980s up to the first decade of the 21st century, which put leadership and governance

critically at the forefront. Corporate governance, or the bad practice of it, has been

blamed as the culprit for the Enron, World Tyco, and other business debacles (Elson,

2004; Lawal, 2012; Naciri, 2010). Since then, focus has been turned to governance, first

termed by the World Bank as the way in which power is exercised in the management of

social and economic resources of a country for development (Naciri, 2010). At the

corporate level, it has taken on several meanings such as all the principles, mechanism,

and processes that used to govern organizations ethically (Naciri, 2010); the process by

which companies are directed and controlled (Cadbury Report 1992; OECD, 2001, as

cited in Tricker, 2009); and the exercise of power over corporate entities (Tricker, 2009).

Variations in definitions highlighted different perspectives by authors and focus-

activities of the shareholders, the board, and management; the context in which corporate

governance is practiced; the widest focus is one which involves all and every element that

can affect the exercise of power over corporations (Clarke, 2004, as cited in Tricker,

2009; Tricker, 2009).

Directors are the central characters of corporate governance and considered the

guardians of corporations. In the OECD Principles of Corporate Governance (2008), it is

stated, “The corporate governance framework should ensure the strategic guidance of the

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company, the effective monitoring of management by the board, and the board’s

accountability to the company and shareholders.” The early conception of corporate

governance was based on agency theory which assumes that humans have individualistic

motivations, and even its psychological explanation points to humans as rooted in

economic rationality (Davis, Schoorman, & Donaldson, 1997). This gives rise to the

principal (shareholder) and agent (manager) divergence. Tricker (2009) noted that the

conceptual underpinning of corporate codes all over the world is rooted in this agency

dilemma.

The agency theory is challenged with the debate currently hailed as Simon-

Argyris debate (Davis et al., 1997). Accordingly, Argyris debunked Simon’s articulation

of man as rooted in economic rationality, but instead revered man as self-actualizing,

claiming that there’s a need for man to transcend his current state and reach higher levels

of achievement. The self-actualizing man is distinguished by factors of motivation,

identification, and use of power, which in contrast fulfills higher goals. Drawing from

this analogy, stewardship theory sees man’s behavior as collective because he seeks to

attain the objectives of the organization over and above that of one’s self (Davis et al.,

1997).

Central to the study of corporate governance in this study is the chief executive

officer (CEO). The CEO is regarded as the agent, the person regarded as having

individualistic utility motivations (Davis et al., 1997) whom the board has to monitor as

stated in the corporate governance code of OECD (2008). However, CEOs are likewise

chosen as stewards who “balances the interests of stakeholders, such as firm profitability,

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market value, product quality, and the development and stability of employment,

community, and markets” (Bass, 2007, p.34).

The relationship between CEO and board of directors as a result of the agency

dilemma can be regarded as an “uneasy but more coequal alliance” (Useem, 1996 as cited

in Chen, 2007, p. 59). Most research on the CEO and board dynamics centers around

power, control, involvement, and vigilance among others (Boyd, Hyanes, & Zona, 2011).

Under stewardship theory, this relationship is predicted to enhance performance if the

positions of Chairman and CEO are combined as one. Hailed as CEO duality, or when

the CEO also serves as Chairman of the Board (Desai, Kroll, & Wright, 2003; Faleye,

2007; Finkelstein & D’Aveni, 1994; Tuggle, Sirmon, Reutzel, & Bierman, 2010). CEO

duality “removes the role ambiguities and conflicts which might arise with the sharing of

power (Boyd et al., 2011, p. 1895), and “establishes unity of command” (Finkelstein &

D’Aveni, 1994, p. 1080). The tenets of stewardship theory suggest support for CEO

duality since this kind of structure “facilitates and empowers rather than those that

monitor and control (Davis et al., p. 26).

In this study, I will explore the relationship between transformational leadership

and good corporate governance drawing from theoretical perspectives offered by agency

theory and stewardship theory (Davis et al., 2004; Tricker, 2009). Previous studies have

linked transformational leadership with positive firm performance (Avolio et al., 1988;

Humphreys & Einstein, 2003; Jung &Avolio, 1999; Sashkin & Sashkin, 2003; Valdiserri

& Wilson, 2010; Waldman, Ramirez, House, & Puranam, 2001), some of these outcomes

measured in terms of profitability. After all, even if stewardship theory supporters

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acknowledge stakeholder interest, they believe that the directors’ responsibility is to the

shareholders (OECD, 2008; Tricker, 2009).

I will also look into the extent of moderating effect of CEO pressure on directors

on firm profitability to good corporate governance. Occupational stress (Ongori &

Angolia, 2008) and other stresses brought about by uncertain conditions (Waldman et al.,

2001) can push for performance at one end, but may also result in dissatisfaction on the

other. From the perspective of leadership, stress can also have an ill effect. “Instead of

careful analysis and calculation or the effective use of the intuition of the expert based on

learning and experience, stressed decision makers fall back on nonproductive intuitive

reactions that satisfy their immediate personal emotional needs rather than the objective

requirements of the situation” (Bass, 2008).

Another lens by which to look at this variable is the structural context by which

stress is exacted. CEO duality, as earlier mentioned, vests the power and position of CEO

and Chairman on one person. Researchers have studied that excessive power can

entrench the CEO-Chairman on top of the organization, barring the board’s ability “to

effectively monitor and discipline” (Mallette & Fowler, 1992, as cited in Finkelstein &

D’Aveni, 1994, p. 1079), or can increase bargaining control with the board (Hermalin &

Weisbach, 1998, as cited in Faleye, 2007).

Many studies on transformational leadership still do not point to the direct link of

transformational leadership to corporate governance, and even to firm performance.

Moreover, no study has tackled the effect of CEO pressure on directors on profitability

on good corporate governance, especially if the CEO is also the Chairman of the board.

Many pressures, or unstable conditions (Bass & Riggio, 2006; Waldman et al., 2001) do

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not necessarily contribute to diminishing performance, but using transformational

leadership style has even brought success to organizations (Valdiserri& Wilson, 2010).

These are the research gaps we strive to fill in this attempt.

Statement of the Problem

This study aims to answer three research questions:

1. How do executive directors perceive their CEO leadership style to be and

what leadership characteristics do these CEOs possess?

2. What is the relationship of executive directors’ view of CEO leadership style

and their view of good corporate governance?

3. What is the extent of the moderating influence of CEO pressure on directors

on firm profitability to good corporate governance?

Objectives of the Study

Drawing from existing literature and the results of a survey and face-to-face

interviews, the objectives of this study are:

1. To establish the views of executive directors on CEO transformational

leadership style.

2. To establish the relationship between transformational leadership and good

corporate governance.

3. To ascertain how CEO pressure on directors on profitability moderates this

relationship.

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Theoretical Perspectives

The foundations of this research are based on Stewardship Theory, the

components of Transformational Leadership, Economic Value/Profit Maximization

Perspective, and the Principles of Corporate Governance. These theoretical frameworks

are explanations about the phenomenon under study and provide us the lens with which

to draw the conceptual framework.

Stewardship Theory. The first conception of corporate governance is based on

agency theory, which regards man as having individualistic utility motivations (Davis et

al., 1997). It is focused on the principal-agent relationship between owners (principal)

and managers (agent) of large, public corporations (Eisendhardt, 2004). The crux of the

agency theory is the goal conflict at the organizational level. However, researchers found

agency theory to be narrow in perspective because it fails to consider other organizational

dynamics and looks at man as having only personal interest. This, researchers believe, is

not always the case (Davis et al., 1997; Tricker, 2009).

The stewardship theory is a product of the Simon-Argyris debate which claims

that humans are self-actualizing and need to grow beyond their current state and reach

higher levels of achievement. Psychology distinguishes the steward from the agent using

three situational factors: (a) motivation; (b) culture, and (c) power distance. The table

illustrates the difference.

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Table 1

Differences Between Agency Theory and Stewardship Theory in View

of Situational Factors

Factors Agency Theory

Stewardship Theory

Management

philosophy

Economic model: man drives the development of

management philosophies and systems which produces behavior in the organization

Normative model: highly participative and consisting of open communication, empowerment of workers, and the establishment of trust. (Walton, 1980, 1985, as cited in Davis, 2004)

Culture Individualism: emphasis on personal goals

Collective: Subordinate personal goals with that of the collective

Power distance High: support and legitimize the inherent inequality between principal and agent

Low: place greater value on essential equality between principal and agent

Source: Davis et al., 2004

In contrast to an agent, a steward’s goal is aligned with that of the principals’.

Because of this, the behavior of the steward is collective and will work towards the

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attainment of organizational goal instead of one’s own (Davis et al., 1997). Specifically,

this study looks at Proposition No. 9 by Davis et al. (1997) where the situational

mechanisms of principal and agent are antecedents of their choice between an agency and

stewardship relationship. The authors posited that if a mutual stewardship relationship

exists between principal and agent, then the potential performance of the firm is

optimized.

Directors who are regarded as the stewards are expected to protect the interest of

shareholders, and principals trust that directors will “act altruistically, independently, and

with integrity” (Tricker, 2009, p. 224). In stewardship theory, managers are viewed as

trustworthy, and motivated by “desire for accomplishment, acknowledgment, self-

actualization, self-fulfillment, power, and affiliation” (Lawal, 2012, p.23).

Principles of Corporate Governance. Principle VI of the OECD Principles of

Corporate Governance (2008) states the Responsibilities of the Board. Overall, it

provides the framework to ensure “the strategic guidance of the company, the effective

monitoring of management by the board, and the board’s accountability to the company

and the shareholders” (p.150).

Economic value/profit maximization perspective. CEO’s overemphasis on

economic values or maximizing profit can lead subordinates to believe that the CEO

exercises autocratic leadership (Luque , Washburn, Waldman, & House, 2008).

Autocratic leaders would usually be perceived negatively by subordinates because of its

myopic view and focus on short-term financial gains. In contrast, visionary leaders are

perceived positively and they are viewed as offering visions high in content (inspirational

concern) and quality (consideration of broader and longer-term effects). In Luque et al.’s

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(2008) study, it was shown that visionary leaders have subordinates who exert extra effort

which lead to firm performance. However, the opposite wasn’t seen for autocratic

leaders. The study was not able to establish the relationship between autocratic leadership

and subordinates’ extra effort.

Conceptual Framework

This paper acknowledges Stewardship Theory, the dimensions of

Transformational Leadership, Economic Value/Profit Maximization Perspective, and

Principles of Corporate Governance as theoretical bases. Transformational leadership is

acknowledged to lead to good corporate performance as measured by financial

performance metrics such as market share, stock price, earnings per share, return on

assets, and debt-to-equity ratio (Avolio et al., 1988; Huang, 2010; Kabigting, 2011).

While there are many aspects of performance that can be measured, no study has

currently been able to show variables of performance other than vague descriptors like

change and organizational success (Pawar & Eastman, 1997; Valdiserri & Wilson, 2010).

According to Bass and Riggio (2006), transformational leadership is about

improving performance of followers and developing these followers to their fullest

potential. Transformational leaders provide their followers with the following four (4)

dimensions:

1. Individualized consideration – the degree to which a leader pays attention to

the developmental needs of its followers by effectively listening to the

follower’s concerns and needs through mentoring. The leader supports these

needs and communication lines are constantly kept open between the leader

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and follower. Acceptance of individual differences and encouragement of

individual contribution are shown by the leader in order to achieve

organizational goals and develop followers to their fullest potential.

2. Intellectual stimulation – the degree to which the leader solicits

contributions from followers that stimulate resourcefulness, creativity,

nurture and develop followers to think independently and take responsibility

for their actions. Learning is highly valued and uncertainty is considered a

challenge, which then allows followers to think and perform activities

differently and are not criticized because their ideas are different from that

of the leader.

3. Inspirational motivation – the degree to which the leader motivates and

inspires followers by providing meaning to work performed by followers.

The leader involves followers in envisioning a collective desired state

through an articulated vision. A strong sense of purpose is needed for

followers to be motivated to achieve organizational vision. Vision must be

communicated, understood, and accepted by followers.

4. Idealized influence – the degree to which a leader serves as a role model for

high standards of moral and ethical behavior. Leaders are respected and

trusted by their followers. The leader is greatly admired and followers are

drawn to identify with the leader and emulate them.

Stewardship theory advanced that humans are motivated by intrinsic values

motivated by a desire for “accomplishment, acknowledgment, self-actualization, self-

fulfillment, power, and affiliation” (Lawal, 2012). The human person is posited, under

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stewardship theory, as “self-actualizing” (Davis et al., 1997, p. 32). Directors whose

actions are guided by this type of thinking will put higher regard on the interest of the

shareholder rather than on one’s own, so shareholders believe that directors can act

“altruistically, independently, and with integrity” (Tricker, 2009).

The stewardship theory also promotes CEO duality as well as insider directors to

enhance firm performance (Boyd et al., 2011). Several factors contribute to adopting

CEO duality as a rational, as opposed to a haphazard decision. These factors include

organizational complexity, CEO reputation, and governance structure (Faleye, 2007).

CEO duality is also a factor which dictates the attention given by the board to monitoring

(Tuggle et al., 2008). The board may give little attention to monitoring in case of CEO

duality when the CEO-Chairman wields power in controlling the board agenda, and when

CEO legitimizes his/her power by creating norms that prevent the board from challenging

him/her. In this second case, researchers (Finkelstein & D’Aveni, 199; Tuggle et al.,

2008) showed how CEO-Chairman can abuse power and even lord over the board.

Good corporate governance is indicated in this study by performing the roles of

the board, using the Principles of Corporate Governance, particularly the Principle on the

Responsibilities of the Board (OECD, 2008). The four roles of the board are: control

(Eckhart, 2006; Nicholson & Newton, 2010; Tricker, 2009), service (Carver & Oliver,

2002; Macey, 2008; Tricker 2009), strategy (Eckhart, 2006; Ingley & Van de Walt, as

cited in Nicolson & Newton, 2010; Tricker, 2009), and accountability (Tricker, 2009).

The diagram (Figure 1) is a model of the effect of transformational leadership of

the CEO as perceived by executive directors, and how the CEO’s push for profits

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moderates the director’s perception of this relationship. The framework and the

succeeding hypothesis were conceived based on:

1. The relationship of transformational leadership and corporate governance

2. The extent of influence of CEO pressure on directors on profitability to


Figure 1. The conceptual framework.

Transformational leadership

• Four components (Bass & Riggio, 2006)

Good corporate governance

• Stewardship theory (Davis et al., 2004)

• Principles of Corporate Governance, Responsibilities of the Board (OECD, 2008)

CEO pressure on director on profitability

• Occupational/leadership stress studies (Bass, 2008; Ongori & Agolia, 2008)

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Operational Framework

The operational framework identifies the independent (Transformational

leadership), dependent (Good corporate governance), and moderating (CEO pressure on

directors on profitability) variables.

Figure 2. The operational framework.

Independent variable Transformational Leadership

Idealized influence

Individualized consideration

Intellectual stimulation

Inspirational motivation

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Independent (Moderating) variable

CEO Pressure on Directors on Profitability

Stress and firm profitability

CEO pressure on directors

CEO pressure on director leadership

Dependent variable Good Corporate Governance

CG Framework Risk Management Practices Executive Selection Nomination Conflict of Interest Independent Directors Shareholder interest Compensation Objectivity Full commitment Information Guiding corporate

strategy Equitable Ethics Audit Independence Disclosure

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A questionnaire was specifically designed for this study. Perceptions of directors

will be used to measure the constructs. The instrumentation and measurement of the

items under each of the variables are discussed in detail on Chapter 3. The means of the

scores (of the three scales) from the quantitative analysis will be used to compare with

the thematic analysis of the qualitative findings.

Research Hypotheses

The hypotheses were developed based on the review of literature cognizant of the

variables to be studied.

There is no direct link between transformational leadership and good corporate

governance or at least the financial performance (Avolio et al., 1988), although most

researchers agree that transformational leadership results in better organizational and

financial outcomes. Although a number of studies have claimed that transformational

leadership does contribute to better performance, these were vaguely described as

profitability, organizational success, or financial performance without getting into

detailed variables (Petra, 2005; Valdiserri & Wilson, 2010; Waldman et al., 2001). These

can actually be derivatives of good corporate governance as described in a working paper

(McGee, 2009). Another study recommended the use of subjective and objective

strategies for measuring organizational performance, where subjective will be perceptions

of subordinates, and objective will be unit performance, productivity, goal attainment,

sales figures, or unit financial performance (Bass & Riggio, 2006).

The positive relationship between transformational leadership and good corporate

governance is shown in the succeeding figure.

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Figure 3. H1 - The relationship of transformational leadership and good corporate governance.

H1: Transformational leadership positively influences good corporate

governance.

Stress can be a deterrent to good performance and a cause for job dissatisfaction

(Ongori & Agolia, 2008). From a leadership stance, stress can cause faulty decision

making (Bass, 2008). However, in studies of transformational leadership, unstable

conditions, or stress even contributed to performance. Charisma or idealized influence

(Bass & Riggio, 2006; Waldman et al., 2001) influenced positive firm performance.

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“Members identify with a leader’s vision and with the experience a heightened sense of

self-efficacy as a result of their cohesion is developed” (Podsakoff, MacKenzie,

Moorman, & Fetter, as cited in Waldman et al., 2001). Moreover, following the

argument on charisma as an attribute of transformational leadership, a study by Tichy and

Devanna (1996, as cited in Hinkin & Tracey, 1999) claimed that “a crisis may be a

necessary condition for a charismatic leader to emerge” (p. 110). To understand better

this conflict, we put forward the following hypothesis.

A CEO’s overemphasis on economic values or maximizing profit can lead

subordinates to believe that the CEO exercises autocratic leadership (Luque et al., 2008).

This perspective runs counter to visionary leadership, which in the authors’ study, states

that autocratic leaders tend to focus on short-term financial gains and can be perceived by

subordinates as “failing to provide a compelling vision of the future” (p. 633). In contrast,

visionary leaders who hold stakeholder values have the propensity to articulate future-

oriented visions benefitting multiple constituencies can be viewed as offering visions

high in content (inspirational concern) and quality (consideration of broader and longer-

term effects). In Luque et al.’s (2008) study, it was shown that visionary leaders have

subordinates who exert extra effort which lead to firm performance. However, the

opposite wasn’t seen for autocratic leaders. The study was not able to establish the

relationship between autocratic leadership and subordinates’ extra effort.

The shareholder-wealth-maximizing paradigm (Tourigny, Dougan, Washburn, &

Clements, 2003) espouses the idea that the be-all and end-all of corporate organizations is

profitability. This pushes executives to render questionable behavior and decisions to

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enhance the bottom line. An example cited was tampering with the books, in an effort to

show short-term financial gains and satisfying powerful shareholders.

Stress may also be viewed from the structure in which it occurs. In companies

which have adopted CEO duality, the CEO also acts as Chairman of the Board, and

therefore has power at the top echelon of the organization, which bars the board from its

function to monitor and discipline (Finkelstein & D’Aveni, 1994). Moreover, with the

highest positions vested on one person, the CEO-Chairman can easily undermine the

monitoring powers of the board (Tuggle et al., 2008). Aside from CEO duality, CEOs

derive power from tenure and ownership (Combs, Kretchen, Perryman, & Donahue,

2007). Long-tenured CEOs can influence their pay structure or be protected by “golden

parachute” (p. 1307), while CEOs with ownership can cling to their power even to the

point of underperformance because they cannot be easily unseated by insiders.

In the second hypothesis, the moderating variable changes the relationship

between transformational leadership and good corporate governance depending on the

CEO pressure on directors on firm profitability. According to Hair, Black, Babin, and

Anderson (2010), this moderator or interaction effect complements the explanation for

the relationship between the independent and dependent variables, or in this case the

relationship between transformational leadership and good corporate governance. This

interaction is illustrated graphically in the succeeding figure.

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Y-Value 1: If the CEO pressure on directors on firm profitability is low, the relationship between transformational leadership good corporate governance is positive.

Y-Value 2: If the CEO pressure on directors on firm profitability is high, transformational leadership and perception of good corporate governance is negative.

Figure 4. H2 - Interaction effect of CEO pressure on directors on firm profitability on good corporate governance.

H2: CEO pressure on directors on firm profitability is a moderating influence on

good corporate governance.

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This framework highlights the consequences of transformational leadership to

good corporate governance and how CEO pressure on directors on profitability

moderates this relationship. Directors should be constantly aware of their roles as

stewards of companies and exercise vigilance to ensure proper governance.

Significance of the Study

The usual assumption of pressures on firm profitability is from the board of

directors to the CEO to deliver bottom line objectives of the company, and this is based

on the existing legal framework whereby the CEO reports to the board of directors. But

because of the nature of privately held corporations, in particular family-owned

corporations, the CEO can be in control of the board (De Ocampo, 2000; Ferrer &

Banderlipe, 2012; Khan, 1999). More often than not, these directors are placed on board

by the CEO or are the largest shareholders (De Ocampo, 2000; Latham, 1999, as cited in

Petra, 2005). Because of this, directors become beholden to the CEO (Daily et al, 2003).

Transformational leadership, on the other hand, has lofty goals of accomplishing

the corporate vision by elevating employees to sharing the vision with leadership, and in

turn raise them up to become leaders themselves, and to even make of them “moral

agents” (Avolio et al., 1988; Burns, 1978, as cited in Gardiner, 2006; Sarros & Santora,

2001; Springett, 2004) . The kind of leadership practice demanded of board of directors is

beyond that which protects the interest of shareholders, but seeks to develop leaders with

moral ascendancy.

Corporate codes around the world are all responses to the agency dilemma

(Tricker, 2009), which sees the agent (management) as someone who has “individualistic

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utility motivations” who will “rationally maximize their own utility at the expense of the

principal” (Davis et al., 1997, p. 22). This study, though, looks at the CEO as “self-

actualizing” (Davis et al., 1997), and maximizing profits for the company can be among

the “self-actualizing” drivers of CEO action.

The literature showed how these variables were studied separately, with a few of

these demonstrating a convergence of transformational leadership and corporate

governance. This study is a necessary step to establish a positive link between

transformational leadership and corporate governance, and also to ascertain whether CEO

pressure on directors on profitability has a moderating effect on corporate governance.

Using a survey and face-to-face interviews, this study should provide rich insights into

directors’ conceptions of leadership and corporate governance, and their views about how

the stress on profitability can affect their opinions on the two variables. The study will

also show how these variables operate given the peculiar and unique corporate set up in

the country. This research should be able to provide abundant input for future research on

leadership and corporate governance in the Philippines.

Addressing a substantive gap. A pioneering research effort, this study will

provide new information and insight into how transformational leadership influences

good corporate governance. Does CEO pressure on directors on firm profitability

moderate this relationship? Extant literature does not present any direct link between the

two concepts nor does it explain how CEO pressure on directors on firm profitability

affects corporate governance. Literature reviews were mainly focused on

transformational leadership and performance (Desai et al., 2003; Huang 2010; Petra,

2005; Valdiserri & Wilson, 2010; Waldman et al., 2001). Corporate governance must not

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be seen as a mere compliance of set structures. The far-reaching effects of corporate

governance, as a result of director behavior, on individuals and society only reinforce the

need for more research of this complex concept.

In this study, how leadership influences corporate governance and how CEO

pressure on directors on firm profitability affects this relationship will be examined. A

deeper understanding of director behavior needs to be studied in-depth if corporate

governance is to be truly carried out effectively. Directors may use these insights in

assessing the leadership behavior of CEOs and how this can guide them in performing the

service role of boards.

The results of this study may also be used to push for more efforts from the

Philippine government and corporate governance institutions on how to improve

corporate governance practice in private corporations, not just mere compliance through

set structures but rather beyond compliance through behavioral and ethical foundations.

Addressing a theoretical gap. The hegemony of the agency theory in the study

of corporate governance is addressed (Desai et al., 2003). CEO pressure on directors on

firm profitability can be a reason why agency theory is widely accepted as a theoretical

basis. However, this study will also contribute to explaining why the study of corporate

governance through the lens of stewardship theory, and the influence of transformational

leadership in carrying out good corporate governance may be able to explain the

dynamics between the two concepts.

Further, by exploring the moderating factor of CEO pressure on directors on firm

profitability, it may make us understand why manifestations of transformational

leadership behavior of CEOs, who themselves are either executive directors or Chairs of

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boards, may temper the level of good corporate governance. This is an unexplored area in

corporate governance research, and findings of this study will contribute to the body of

work on the wealth maximization perspective of corporations.

Addressing an empirical gap. Research on corporate governance is primarily

conducted on independent directors as respondents; very few studies, if any, are done

with executive directors (O’Toole, 2006). These studies only show how corporate

governance are complied with by independent directors and how this process improves

organization performance. When executive directors are the subject of a study, where

will the difference in opinions about CEO pressure on profitability lie? This study will

look at how executive directors in a board respond to CEO pressure on directors on firm

profitability affect their concept of good corporate governance.

When stress brought upon by work pressure leads to positive or negative

organizational performance, the conflicting findings have not been sufficiently explained

from previous studies. Also, where does the stress come from? Is it solely directly

coming from the CEO whose prime objective is to produce company profits or is it from

some other factor?

Further, pressure coming from CEO on directors on firm profitability in carrying

out good governance has not been researched on since the usual assumption of pressure

on firm profitability comes from the board of directors to the CEO. But when the

pressure on the directors comes from the CEO, does transformational leadership still

positively influence good corporate governance?

This study will contribute to the current body of knowledge in corporate

governance by our attempt to provide new insights on director views of CEO leadership

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style and if this influences their concept of good corporate governance when the directors

feel the pressure from the CEO to produce company profits. This will be of help to

researchers of corporate governance, who intend to look at economic as well as

behavioral perspectives of the topic.

Addressing a contextual gap. Corporate governance despite universally-

accepted codes, have different meanings and implications on the country of origin and its

culture (Iu & Batten, 2001). This study attempts to explain the phenomena by

demonstrating the perceptions of Philippine executive board directors on transformational

leadership and corporate governance and how pressures on them on firm profitability

affect the relationship of the two constructs. It is particularly significant as the Philippines

presents a cultural context which manifests in a unique private corporate setup. The

findings of this study will add to the literature on corporate governance in Asia.

Scope and Limitations

The study covers the transformational leadership views of company directors on

the leadership style of CEOs from various private corporations from different industries

in the Philippines, and how it influences their concepts of good corporate governance.

This relationship is further analyzed with the factor of pressure from CEO on firm

profitability. Participation selection will depend on respondent’s willingness to share

personal experiences that are relevant to this study.

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Transformational leadership. Inputs for the transformational leadership

behavior will be derived from responses to a questionnaire based on the four dimensions

of transformational leadership (Bass & Riggio, 2006).

Corporate governance. Corporate governance will be studied based on the

OECD Principles of corporate governance (2008), specifically Principle Number 6:

Responsibilities of the board, and not actual indicators of good corporate governance

such as reduction of risk, stimulation of performance, improved access to capital markets,

enhancement of marketability of goods and services, improved leadership, and

demonstration of transparency and accountability, (CPE, 2002, as cited in McGee, 2009).

CEO pressure on directors of firm profitability. Of the different stress factors,

only firm profitability will be investigated in this study. This moderating factor will be

culled from answers to the survey and personal interviews.

Sampling Design. Thirty directors from 30 private corporations based in Metro

Manila will participate in this study. Perceptions of the three variables under study are

measured using Philippine-owned private companies. The results of this study will not

affect international private companies. Sample size is based on the following constraints:

financial, time and precision.

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Definition of Terms

Leadership. Leadership is defined as a “social influence process that can occur at

the individual, dyadic, group, or strategic level, where it can be shared within a top

management team” (Avolio et al., 2003). The definition points to the importance of both

leader and follower to create a leadership situation.

Also, the study focuses on behavioral manifestations of leadership. Yukl et al.

(2001) for instance, divided leadership behaviors into task behaviors, relations behavior,

and change behavior.

Transformational leadership. Burns (1978) proposed that transformational

leadership concerns achieving extraordinary outcomes whereby, in the process leaders

also develop their own leadership capacities. Incorporating the four dimensions of

transformational leadership involves “inspiring followers to commit to a shared vision

and goals for an organization or unit, challenging them to be innovative problem solvers,

and developing followers’ leader capacity via coaching, mentoring, and provision of both

challenge and support” (Bass & Riggio, 2006, p.4).

Independent director. An independent director is a member of the board who

doesn’t have an economic or material tie to management or the company itself (Ayuso &

Argandona, as cited in Lawal, 2012; Eckhart, 2006; Elson, 2004; Shivdasani & Zenner,

as cited in Lawal, 2012). The composition of a board with independent directors is

provided in most codes of corporate governance to allow effective monitoring (Eckhart,

2006; Elson, 2004), and also to represent interests of shareholders (Petra, 2005).

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Executive director. Also referred to as management director (Petra, 2005) or

inside director (O’Toole, 2006), an executive director who sits on the board but has direct

involvement with the day-to-day operations of the company (Petra, 2005).

Corporate governance. Corporate governance is the relationship among various

participants in determining the direction and performance of corporations. The primary

participants are the shareholders, the management and the board of directors (Monks &

Minow, as cited in Tricker, 2009). It also refers to the private and public institutions,

including laws, regulations and public institutions, which together govern the

relationship, in a market economy, between corporate managers and entrepreneurs, on the

one hand, and those who invest resources in corporations on the other (OECD, 2001, as

cited in Tricker, 2009).

Good corporate governance. The measure of good corporate governance in this

study will be the performance of board roles, as defined by Principles of Responsibilities

of the Board (OECD, 2008).

Firm profitability. This will be described in terms of financial performance using

the metrics of company income statement: net profit. A study by Kabigting (2011) cited

metrics for measuring corporate performance. One is using accounting measures

including return on assets, return on equity, and earnings per share.

CEO pressure on directors on firm profitability. The closest definition based

on literature is the shareholder-wealth maximization model in which the focus is on the

“single, super-ordinate goal of profitability as the ultimate moral end of corporate

organization” (Tourigny, Dougan, Washbush, & Clements, 2003).

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Assumptions

This research assumes the following:

1. Published theories on transformational leadership and corporate governance

are valid and used as a logical basis for furthering research.

2. There is conceptual coherence between the relationships of director

responsibilities in good corporate governance.

4. The principles of corporate governance as espoused and promulgated by the

OECD are deemed to have an acceptable level of validity and veracity.

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Chapter 2

Review of Related Literature

Overview

The review of related studies will focus on the variables to be studied in this

paper. A general description of the general topics on Transformational Leadership,

Corporate Governance, and Firm Profitability will be posited, and to be pursued with

subtopics.

Transformational Leadership

Leadership is a complex subject, at times ambiguous and paradoxical in nature

(Hughes, Ginnett, & Curphy, 2007). This is mainly because the definition of leadership is

wide open for interpretation and is contingent on contextualization. But one thing is

certain, and that is, leadership is an important factor in bringing about change and

betterment of organizations (Collins, 2001; Gilley, Callahan, & Bierema, 2003). Very

few studies have been undertaken that supported the notion that leadership has very little

or no effect on company performance(Meindl, Ehrlich, & Dukerich, 1985; Pfeffer, 1977).

These findings were refuted as majority of the studies made has emphasized and

supported the importance of leadership in effecting change and improving company

performance. And even with the glut of leadership studies made from the early 1900s to

the present day, what scholars have studied for the most part of the 20th century

concentrated on supervision and management, defining a job goal clearly, making sure it

gets done, and fulfilling the job required (Sashkin & Sashkin, 2003), inferring that

leadership has mostly been transactional.

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This would mean that there is a need for more studies made on transformational

leadership, the most ideal, though not proven, style of leadership which majority of

scholars and researchers are currently supporting. Burns (1978) pioneered the concept of

transformational leadership (see Table 2 for Taxonomy of Transformational Leadership),

or transforming leadership as he originally termed it, which occurs when “leaders and

followers raise one another to higher levels of motivation and morality” (p.20).

Transforming leadership, according to Burns (1978), converts followers into leaders and

leaders into moral agents. Moral leadership is the end-goal of transformational

leadership, according to Burns (Springett, 2004).

Bass et al. (1987) studied the falling dominoes effect of transformational

leadership. In their study, the result showed that transformational leadership cascades

down to subordinates for the next two levels. It means that managers model any kind of

active leadership behavior, with middle managers emulating top-level managers. With

charismatic leadership central to the concept of transformational leadership, followers put

trust and confidence and vision of leaders, and aspire to be like them.

According to Bass and Riggio (2006), transformational leadership is about

improving performance of followers and developing these followers to their fullest

potential. Transformational leadership has four (4) dimensions which serve as guide for

determining behavior (Bass & Riggio, 2006; Brown & Reilly, 2008), and these are:

1. Individualized consideration: Gives personal attention to others, making

each individual feel uniquely valued;

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2. Intellectual stimulation: Actively encourages a new look at old methods,

stimulates creativity, and encourages others to look at problems and issues

in a new way;

3. Inspirational motivation: Increases optimism and enthusiasm, communicates

high expectations, points out possibilities not previously considered;

4. Idealized influence: Provides vision and a sense of purpose. Elicits respect,

trust, and confidence from followers.

Transformational leadership is thought to be more effective than transactional

leadership in bringing about better performance (Jung & Avolio, 1999; Sashkin &

Sashkin, 2003). However, transformational leaders must be able to manifest

transactional leadership qualities to put effective leadership in its proper context

(Goodwin, Wofford, & Whittington, 2001). Bass and Riggio (2006) further supported

this by arguing that transformational leadership cannot be studied in a vacuum since

transformational leadership is the highest level of the leadership continuum, which

include manifestations of transactional leadership qualities. Several studies have also

supported the influence of transformational leadership in company performance

(Humphreys & Einstein, 2003; Jung & Avolio, 1999; Valdiserri & Wilson, 2010).

According to Bass and Riggio (2006), even with the hegemony of the Multifactor

Leadership Questionnaire (MLQ) as a measure of transformational leadership,

researchers should develop other methods of assessing the influence of transformational

leadership, such as observational methods to objectively code leadership behaviors and

other non-quantitative methods of inquiry.

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Leaders must be able to manage conflict and the stress that comes with it.

Transformational leaders find ways to resolve conflict from agreement and cooperation.

Transactional elements may be used to reinforce trust of the parties to keep an agreement

(Bass &Riggio, 2006).

The emphasis on employees’ needs as cornerstone of situational leadership suits

the individualized consideration component of transformational leadership. Under this

concept, leaders accept individual differences (Bass & Riggio, 2006) and apply

appropriate approach to develop their employees or followers (Bass & Riggio, 2006;

Irgens, 1995). The difference perhaps lies in the rationale for the attention to employees.

Situational leadership as conceptualized by Irgens (1995) develops followers to wean

them from directional or supportive behavior and to increase their competence and

minimize the need for support. The end-goal is performance of the task. Transformational

leadership, on the other hand, stretched this further by elevating the needs of the follower

with the goals and objectives the leader, on whom the follower puts his/her trust and

confidence. In transformational leadership, the task is just the tool; the goal is to motivate

the follower to share the leader’s vision and work towards the same direction in

accomplishing it. Transformational leadership fosters a relationship in which the follower

emulates the leader (Bass et al., 1987).

Transformational leadership, however, has its share of criticisms and these are

well founded and relevant. Northouse (2007) in his book on leadership, cited the

following works of authors who criticized the transformational leadership model: Tracey

and Hinkin (1998) showed the overlapping of the four factors suggesting that they are not

delimited and transformational leadership often overlap similar constructs of leadership;

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Carless (1998) and Tejeda, Scandura, and Pillai (2001) questioned the validity of the

MLQ as a measurement because they view the factors as highly correlated and not

distinctly different from one another; Bryman (1992) suggested that transformational

leadership treats leadership as a personality trait or predisposition rather than as a

behavior which can be learned; Yukl (1999) questioned the focus on the leader because

the model failed to consider reciprocal influence, meaning followers have equal ability to

influence leaders.

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Table 2

Taxonomy of Transformational Leadership

Focus Author(s) Variables Conclusion(s)

Philosophical underpinnings

Burns, 1978 N/A Transforming leadership elevates followers into leaders and leaders into moral agents. It is a moral process by which leader and follower raise both each other’s conduct and ethical aspiration, thus has a transforming effect on both parties.

Bass, 1985 N/A Transformational leadership explored how this leadership style commands performance beyond what is required and involved commitment. The author expanded Burns’ transforming leadership and identified four dimensions: individualized consideration, intellectual stimulation, inspirational motivation, and idealized influence.

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Bass & Riggio, 2006

N/A Transformational leadership advances improving performance of followers and developing these followers to their fullest potential. The authors asserted that leadership should address followers’ self-worth in order to involve them and allow them to fully commit to a vision. This is the most ideal leadership style in the leadership spectrum (Transformational, transactional and laissez faire).

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Measurement of Transformational Leadership

Hinkin & Tracey, 1999

Independent – Transformational leadership dimensions (4Is)

Dependent – Item questions per leadership dimension

The research aimed to ascertain if the transformational leader items specified in the MLQ adequately described each of the four dimensions. Idealized influence, or charisma, has been singled out in literature as lacking empirical support. The study found that there were questions on theoretical adequacy of items included in the MLQ, as only 23 of the 39 items were classified correctly by respondents. Moreover, idealized influence could not be differentiated as a distinct construct. This could be attributed to the condition of the organization as stable. The early underpinnings of charismatic leadership would show its emergence in time or crisis, as in political or religious upheavals. Expecting this dimension to emerge in a business setting and in a period of stability seems unrealistic as conjectured by the authors.

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Focus Author(s) Variables Conclusion

Brown & Reilly, 2008

Independent – Personality traits

Dependent – Transformational leadership

Using MBTI (Myers Briggs Type Indicator) to measure elements of personality (extraversion-introversion, sensing-intuition, thinking-feeling, and judgment-perception) and MLQ to assess the transformational leadership (4Is) of managers, the study was not able to establish a link between any of the MBTI identified personality and transformational leadership. However, the study was able to support existing literature about establishing a link between transformational leadership and organizational desirable outcomes. It was also found that managers regarded themselves as more transformational than their subordinates’ perception of their leadership style.

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Transformational leadership and performance

Avolio, Waldman, & Einstein, 1988

Independent – Leadership style (Transformational and transactional)

Dependent – Team performance

The study used a management simulation game in which 27 teams represented the management of a mock-up manufacturing organization. It aimed to show the link between transformational leadership (charisma, individualized consideration, and intellectual stimulation) and active transactional leadership (contingent reward) and organizational performance. A moderately strong relationship was found between transformational and active transactional leadership of team leaders and financial performance. Passive transactional leadership (management-by-exception) was not correlated with the effectiveness of teams. Moreover, results showed that transformational leadership accounted for the largest percentage of unique variance in the financial performance of teams, thus supporting Bass’ (1985) claim that transformational leadership would be more predictive of individual and group performance, compared to transactional leadership.

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Valdiserri & Wilson, 2010

Independent – Leadership style

Dependent – Organizational success

Organizational profitability

The study sought to establish if a relationship existed between leadership style (transformational, transactional, and laissez-faire), and organizational success (employee satisfaction) and organizational profitability (employee effectiveness) in the small construction business industry. It found that there was a positive and stronger relationship between transformational and transactional leadership styles and success and profitability, than laissez-faire leadership and the dependent variables. The study showed no gap in the existing literature that failure of small businesses can be attributed to leadership.

Goodwin, Whittington, Murray, & Nichols, 2011

Independent – Transformational leadership

Dependent –

Organizational citizenship

Affective commitment

Performance

The study explored trust and its role in the transformational leadership and outcomes relationship. It concluded that trust is a mediator between transformational leadership and the depended variables. Moreover, this study also showed that trust is an outcome of transformational leadership, therefore, brings about the follower outcomes studied.

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Commitment, Loyalty, Satisfaction of Followers of Transformational Leaders

Bass, Waldman, Avolio, & Bebb, 1987

Independent – Second-level manager transformational leadership

Dependent – First-level supervisor transformational leadership

The study showed the positive falling dominoes effect of transformational leadership from second-level manager to first-level supervisor. Using MLQ to test how much transformational leadership dimensions were expected of and observed in managers and supervisors, the study also found that first-level charismatic supervisors expected less charisma from their second-level manager, debunking what was stated in literature that followers want to emulate charismatic leaders and would develop intense feelings towards their leaders.

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Bruch & Walter, 2007

Independent – Transformational leadership four dimensions (4Is)

Dependent – Job satisfaction

The study found that hierarchy provides context for the occurrence of transformational leadership. While subordinates of upper managers and middle managers rated their direct leaders above the mean score on all dimensions, idealized influence (II) and inspirational motivation (IM) were found to occur more frequently among upper managers than middle managers. Individualized consideration and intellectual stimulation (IS) showed no difference in occurrence among upper and middle managers. Moreover, II, IM, and IS were shown to be of greater influence in contributing to job satisfaction when exhibited by upper managers to middle managers than by middle managers to first-line supervisors.

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Transformational Leadership and Corporate Governance Nexus

Research on the link between transformational leadership and corporate

governance is quite limited and both concepts are mostly studied independent of each

other.

Stewardship theory (Davis et al., 1997) suggested that not all managers are

motivated by financial gains but are motivated by a need to achieve and gain the respect

of their peers and superiors. This perspective has an implicit and indirect reference to

transformational leadership theory and blends with the transformational leadership model

of Bass (1985) where non-financial motives for managerial behavior are supported.

Successful leadership implies that leaders influence the attitudes, abilities, and behaviors

of their followers. Transformational leadership at the top is expected to manifest at the

lower levels (Bass et al., 1987; Bruch & Walter, 2007).

While conformance and compliance are control mechanisms that ensure good

corporate governance and make leaders accountable for their actions (Jamali, Safieddine,

& Rabbath, 2008), transformational leadership research suggested the ethical foundation

by which good governance may be carried out effectively. An organization that does not

exact high moral and ethical standards from its leaders will weaken its governance

structure and eventually lead to its corruption and unsustainable growth (Huang & Snell,

2003).

The concept of ethics must be ingrained in all levels of an organization. By

embedding corporate responsibility through organizational transformation, firms should

be able to reap financial and social rewards. Ethics is an antecedent to consequential good

corporate governance (Bartlett, 2009; Minkes, Small, & Chatterjee, 1999). Ethics may

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also assist in deterring corporate crime. Transformational leadership is one of the key

concepts (the others are national culture, moral courage, and organizational transparency)

for corporate crime prevention (Dion, 2008).

In view of recent corporate scandals, there is a need for boards to transform

themselves into effective working groups where trust is essential for them to re-establish

governance authority. Boards must spend more time in leadership development, which is

an area of great risk if not properly pursued (Steingraber & Kane, 2010). Leadership by

corporate governance does not only entail management and accountability but includes

the concepts of encouragement, consideration, and service to others with an objective of

achieving organizational goals through ethically correct or morally accepted work

(Llopis, Gonzales, & Gasco, 2007), the concepts of which are reflected in the four

dimensions of transformational leadership. True transformational leadership must be

grounded in ethical foundations and must transcend the leader, follower, or group. It

must create a path that will blend the corresponding values and stakeholder interests

(Bass &Steidlmeier, 1999).

One of the major mechanisms that ensure good corporate governance involves the

audit process. The effectiveness of accounting and audit practices is influenced by the

leadership style of its leaders. In order for firms to be successful, leaders are encouraged

to study and emulate characteristics of transformational leadership. Transformational

leadership has substantial impact on accounting and audit practices (Friedman, Langbert,

& Giladi, 2000; Spangler & Briaotta, 1990). This supports the earlier findings of Burns

(1978) that transformational leadership involves leaders who influence and move their

followers to higher standards of moral and ethical behavior. Also, this could be similar to

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what Bass et al. (1987) proposed that the transformational leader should motivate

followers to work for “transcendental” goals. Perhaps this is similar to Burns’ (1978)

moral leader, and transcendent leader (coined by Diane Larkin as cited in Gardiner, 2006)

who transcended the self into being and action.

Transformational leadership is suggested to be relevant during times of significant

organizational changes (Humphreys, 2005). During the Asian financial crisis of 1997-

1998, there were strong indicators that transparency through higher disclosure can impact

firm performance. This was manifested through better stock prices of firms involved

(Mitton, 2002).

Culture plays an important part in the effective implementation of corporate

governance. The interacting cultural characteristics suggest the extent to which

governance mechanisms are complied with (Haniffa & Cooke, 2002; Licht, 2001;

Velayutham & Perera, 2004). Organizational governance culture and systems facilitate

transformational leadership of the board (Orlikoff, 2010).

Convergence between two concepts is based on similar core concepts (Jones &

Coviello, 2005). Ethics as previously discussed, and strategy, are major components of

corporate governance and transformational leadership.

Extant literature has also argued the importance of leadership of the board in

strategy formulation and implementation, which is another crucial component of

corporate governance. Current studies suggest a strong connection between leadership

and corporate governance such as the study by Gardiner (2006) on shared governance

which may be used to link the two concepts. However, more studies are needed to further

strengthen the link between the two concepts.

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Corporate Governance

According to Monks and Minow (2011, as cited in Tricker, 2009), “corporate

governance is the relationship among various participants in determining the direction

and performance of corporations. The primary participants are the shareholders, the

management and the board of directors” (p.39). Years of corporate governance research

(see Table 3 for Taxonomy of Corporate Governance) have produced a relatively

sufficient amount of literature but there are certain areas in which researchers can

contribute new knowledge to organizational improvement. Previous research has been

focused on the assumption of the agency theory to a point where empirical dogmatism

prevailed. The agency theory also dominates corporate practice, such as shareholder

activism, configuration of more independent directors, executive compensation,

institutional shareholders, and so forth (Daily et al., 2003). Most research view

governance mechanisms as deterrents to agent self-interest.

For example, Tricker (2009) asserted that the conceptual underpinning of

corporate governance codes around the world is to respond to the agency dilemma.

Macey (2008) stated that there is an assumption that directors add value to the company

by serving shareholders as independent monitors of managers. However, this is widely

challenged because directors elected through “traditional board process serve managers

by supporting them” (p.51).

But in recent years, this perspective has been challenged by numerous studies

using different perspectives that veer away from the agency theory such as works from

Davis et al. (1997) on stewardship theory and van Ees, Gabrielsson, and Huse (2009) on a

behavioral perspective of boards and corporate governance.

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Corporate governance should not be viewed as mere compliance and conformance

functions (Jamali et al., 2008; van Ees et al, 2009). Understanding corporate governance

through focus on the control perspective is a simplistic view that will stunt the growth

and development of this critical corporate concept. Corporate governance is and should

be currently viewed as a system whereby the organization’s growth and value creation

are contingent on how the processes and activities of an organization are being carried

out (Jamali et al, 2008; Steger & Amann, 2008). Being a multi-faceted topic, various

perspectives and contextual conceptualization can bring additional insights into the

subject matter.

Among the internal mechanisms of corporate governance is the appointment of

independent directors to the board. Independence can be defined as the “absence of any

economic ties to management or the company itself (Elson, 2004) or “without a current

or recent material relationship with the company” (Eckhart, 2006). It provides for

effective monitoring because directors do not grow too comfortable with the managers,

thus giving them more objectivity in conducting reviews (Elson, 2004). If the corporate

board has more independent directors, the focus is on monitoring; if less, concentration is

on strategic planning and other managerial functions (Macey, 2008).

Intuitively, the additional cost of effective corporate governance should be

covered by its added value and therefore should increase firm performance. However,

studies on corporate governance failed to support its impact on performance. These have

not been able to directly and conclusively establish the link between firm performance

and good corporate governance. Results also do not necessarily show a negative impact.

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Furthermore, results of these studies depend on the research question, indicators, and

methodology and are opened for discourse (Steger &Amann, 2008).

According to Porter (1996), the development and establishment of an effective

strategy is dependent on an organization’s leadership. A leader’s role is much more than

just orchestrating an entire operations and the responsibility for its bottom line.

Leadership’s core is its strategy (Porter, 1996). Strategy, in relation to corporate

governance, plays an important role in firm performance since board members are tasked

and directly responsible for the formulation of organizational strategy (Hendry & Kiel,

2004; Spanos & Lioukas, 2001; Supangco, 2006). While there is no evidence of a causal

relationship between corporate governance and firm performance, extant literature

provides strong correlation between strategy setting and firm performance (Hahn &

Powers, 2010; Robinson & Pearce, 1989).

The discussion on corporate governance also concerns external mechanisms.

External governance mechanisms such as government and machinations from third

parties provide additional insights into the corporate governance literature. The legal

system provides for the protection of shareholders and assures the enforcement of

accepted rules and regulations, and takeovers ensue as a result of internal failure (Dennis

& McConnell, 2003). Other external governance controls may include media pressure

and competition.

The Organization for Economic Cooperation and Development (OECD, 2008)

provides the guidelines in detail on how organizations may practice good governance.

However, no matter how sound the principles, Iu and Batten (2001) argued that there’s no

single model of corporate governance that can be applicable to all countries. The OECD

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Principles, a Western concoction, may not necessarily be most fitting for the Asia-Pacific

context given the different cultural contexts. The authors further asserted, “Finding which

model is superior is not important, as long as it works for the circumstance” (p. 58).

Issues such as transparency, remuneration, number of independent directors, and

so on have spurred many studies on how these attributes individually and collectively,

affect corporate governance and firm performance. This paper shall focus on the aspect

of leadership in corporate governance.

CEO Duality

A study by Desai et al. (2003) studied CEO duality or CEO who also sits as chair

of the board, board monitoring, and acquisition performance from the lens of both agency

and stewardship theories. They found that CEO duality may negatively impact

profitability of acquisition of firms. However, even if dichotomizing the position of CEO

and Chairman benefits acquisitions in general, variables such as ratio of independent

boards and their stock ownership, also contribute to acquisition performance.

The choice whether to adopt CEO duality or nonduality is contingent upon three

factors—organization complexity, CEO reputation, and governance structures. This is not

an arbitrary choice or a response to shareholder activists’ call for greater independence.

Faleye (2007) presented three conditions for adopting CEO duality. First, the more

complex the organization, the wiser it is to have CEO duality for flexibility, for faster

formulation and implementation of strategies, and instituting change. For CEO

reputation, the study noted that the more reputable the CEO, the more value it creates for

shareholders because these CEOs will less likely engage in endeavors advancing their

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self-interest, thus reducing agency cost. Meanwhile, governance structure points to the

ownership of equity by CEO-Chairman. The more significant the ownership of equity,

the more aligned the interests of owners and CEO, which again reduces agency cost.

These three conditions provide a more rationalized reason for choosing CEO duality over

non-duality.

Two studies show how power can be abused when the positions of CEO and

Chairman of the board are vested on one person. Finkelstein and D’Aveni (1994) stated

that CEO duality can promote entrenchment, and at the same time promote unity of

command at the other spectrum. The challenge, therefore, is to strike a balance between

these two seeming opposite results. The study showed that board vigilance is negatively

associated with CEO duality when informal power and firm performance are high. This

means that when the CEO has extensive resources such as contacts and loyalty of

stakeholders in the organization; or when the company is performing well, there’s less

need for board vigilance. Note that a vigilant board has “the motivation and incentive to

effectively monitor and discipline CEOs (Finkelstein & D’Aveni, 1994, p. 1080), but its

vigilance is minimized if the conditions mentioned previously are met.

This study also showed that CEO duality can encourage unity of command

(Finkelstein & D’Aveni, 1994), which to the stakeholders shows strong leadership. It

removes ambiguity and facilitates decision-making.

In Tuggle et al.’s (2008) study, the focus was the attention to monitoring accorded

by board members to organizational performance and CEO duality. CEO duality can

lessen the attention to monitoring because of the power that the CEO-Chairman wields,

such that the CEO-Chairman can control the agenda of board meetings, and can create

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the norms that inhibit the board from challenging the CEO-Chairman, even if the

company is not performing.

Board Composition

Codes of principles or governance codes around the world specify the inclusion of

independent directors on the board to monitor management and to put in place prudent

and effective controls (Eckhart, 2006). Studies on independent directors are many

compared to studies on executive (insider or managerial) directors (Petra, 2005).

Independent directors are seen to strengthen the corporate boards (Petra, 2005), for they

can monitor management, and work in the best interest of the stockholders (Eckhart,

2006; Elson, 2004; Petra, 2005; Wong, 2011). In another study conducted in Taiwan

where the interrelationship of corporate governance, corporate social responsibility, and

financial performance were explored, it was found that independent directors had the

greatest impact on most social performance of its workers, customers, suppliers, and

community. Also, having independent directors on the board is positively related to both

corporate social responsibility and financial performance (Huang, 2010).

However, independent directors, too, can deviate from their sworn in commitment

to monitor management. When independent directors are CEO themselves and deal with

other directors from their own boards, independence cannot be maximized. When they sit

simultaneously in boards, they may no longer challenge each other’s espoused beliefs.

Also, boards do not welcome directors who play devil’s advocate (Sonnenfield, 2002, as

cited in Tourigny et al., 2003). This “old boys network” thinking have directors “ignore

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important warnings, hold negative stereotypical views of stakeholder groups who oppose

their action” (Tourigny et al., 2003, p. 1038).

A notable study by O’Toole (2006) is a research about executive directors. The

professional role and responsibility represented by the executive directors in this study

are human resources or marketing. O’Toole (2006) upheld the Human Resource (HR)

executive as the steward of corporate or organizational culture, and the marketing

executive as the steward of brand equity. Moreover, these directors represent the stake of

employees in the case of HR, and consumers in the case of marketing, both important

company stakeholders. However, they are not able to represent their professional roles,

but sit in like independent directors focused on corporate matters. The focus of the board

then remains for the interest of the shareholders, even as it neglects other stakeholders.

Roles of the Board

Whether the structure of the board is majority executive or non-executive, the

mandate remains the same, to protect the shareholder (OECD, 2008; Tricker, 2009).

Nicholson and Newton (2010) summarized the role of the board as follows:

1. Control – The role is not clear cut because it can mean a lot of things. Others

claim this could mean the hiring and firing of senior management, the

adoption of control-related activities including monitoring CEO and strategy

implementation, and implementing strategic and financial control

(Nicholson & Newton, 2010). Control might also be used to assess and

manage risks (Eckhart, 2006).

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Tricker (2009) also described control as a means to supervising management

activities. A management control system has measures to gauge

profitability, growth in market share and revenues, customer satisfaction,

among other things.

2. Service – This can be considered an inward-focused role (advising) or

outward which is about enhancing reputation and establishing contacts with

the external environment. Other researchers also alluded to this service role

as offering expert advice including skills, knowledge and experience in

management (Carver & Oliver, 2002; Macey, 2008). The other service

function on linking with the external environment is akin to resource-

dependency function by which directors link the company to the resource

the company would need whether financial or other forms of capital that will

help company accomplish its goal (Tricker, 2009). Carver and Oliver (2002)

also referred to useful connections for “finance, public relations, and

potential customers”, while Hung (as cited Nicholson & Newton, 2010) used

the terms “linking, coordinating, and legitimizing”.

3. Strategy – This refers to the extremes of approving, monitoring and

reviewing strategy and establishing the goals, values, and directions

(Ingley& Van de Walt, as cited in Nicholson & Newton, 2010). Other

authors classified this service as strategy formulation (as opposed to the

functions mentioned earlier), and policy formulation (Eckhart, 2006;

Tricker, 2009).

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4. Accountability — This step is the culmination of the first three functions.

After these have been fulfilled, the board makes it accountable to the

shareholders and communicates this accountability to both internal and

external stakeholders (Tricker, 2009).

Table 3

Taxonomy of Corporate Governance

Focus Author Insights

Agency theory Tricker, 2009 The conceptual underpinning of corporate codes around the world is a response to the agency dilemma.

Macey, 2008 Board of directors act as independent monitors on behalf of the shareholders. Unfortunately, some directors serve managers instead.

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Stewardship theory Davis et al., 1997 The steward seeks to attain the goals of the organization such as growth and profits, and protects and maximizes shareholder wealth through firm performance.

Internal mechanism (board structure- independent directors)

Elson, 2004 Independence provides for effective monitoring and objective review.

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Macey, 2008 The focus of independent directors is monitoring.

Petra, 2005 Independent directors strengthen corporate boards

External mechanism (laws/regulations)

Iu & Batten, 2001 The OECD Principles promotes guidelines for good governance. However, there’s no one single model that can capture various cultural and corporate contexts. The OECD being conceived in the West may not be totally applicable to Asia Pacific cultures.

Structure (CEO duality) Desai, Krall, & Wright, 2003

CEO duality negatively impacts acquisition performance of firms.

Faleye, 2007 Choosing to adopt CEO duality in a firm should take into consideration the characteristic of the firm. Three factors should be considered before deciding on CEO duality: complexity of the firm, CEO reputation, and governance structure.

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Finkelstein & D’Aveni, 1994

CEO can promote entrenchment, and at the same time unity of command. The challenge is to strike a balance between the two.

�

Tuggle et al., 2008 CEO duality can lessen the attention given by boards to monitoring. The CEO-Chairman can control the agenda, and also legitimize his/her power by creating norms that bar the board from questioning him/her.

Good Corporate Governance

A landmark study established the link between good corporate governance and

share price levels. This survey conducted by the Association of British Insurer confirmed

this causal relationship, and has claimed that good corporate governance shields the

company during times of crisis, and its effect is long-term (Tricker, 2009). McGee (2009)

concurred in his study and stated that good corporate governance helps increase share

price and makes it easier to obtain capital because international investors are hesitant to

lend money or buy shares from companies which do not adhere to corporate governance

principles. In his working paper, he cited the Center for Private Enterprise (CPE, 2002,

as cited in McGee, 2009) which listed the main attributes of corporate governance. These

include reduction of risk, stimulation of performance, improved access to capital markets,

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enhancement of marketability of goods and services, improved leadership, and

demonstration of transparency and accountability (p.2).

In a study by Huang (2010), it was suggested that independent outside directors,

foreign and domestic financial institutional stockholders were shown to improve financial

performance. All these components are dimensions of corporate governance, with

independent directors representing board control, and foreign and domestic financial

institutional stockholders representing board ownership. The study reviewed the

interrelationship of corporate governance, corporate social responsibility, and corporate

performance using a sample of electronic companies in Taiwan. Taking on the criteria

set by the CPE, corporate governance based on this study yielded stimulation of

performance, and enhancement of marketability of goods and services.

Firm Profitability

Firm profitability is one area that is the responsibility of executives and this is a

source of stress on these executives. Other drivers of stress are seen in terms of firm size,

location of ownership and control, state of business, and roles of individuals within

organizations (Worrall & Cooper, 1995). Heads of corporations or CEOs put pressures

on their followers on firm profitability and CEO profitability values are related to how

followers subsequently act (Luque et al., 2008).

Shane (2003) also discussed the role of opportunities by enterprising individuals,

in this case, the CEO, who believes that an entrepreneurial opportunity can yield profits.

However this belief may also turn out to be unprofitable when assumptions turn out to be

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wrong. He believed that it is an individual and not groups or a company that discover

entrepreneurial opportunity.

CEO Pressure on Directors on Firm Profitability

As established earlier, the board’s primary duty is to protect shareholder interest,

this in spite of an acknowledgment of other stakeholders (Tricker, 2009). While the

board’s primary duty is to the shareholders, it should also in fact, be the body pressuring

the CEO to perform his/her job to make the company profitable, as a result of performing

its duties of control (Nicholson & Newton, 2010; Tricker, 2009), service (Carver &

Oliver, 2002; Macey, 2008), strategy (Eckart, 2006; Tricker, 2009), and accountability

(Nicholson & Newton, 2010; Tricker, 2009). Even with the plethora of studies and

articles elevating the status of corporate boards, however, the truth of the matter is the

CEO has “seized the control of the boardroom”, which makes boards the tools of

management, rather that it being the instrument for control of management by

shareholders” (Petra, 2005).

What I will discuss in this section is to focus on the effects of this stress factor.

An article published in Chief Executive (Bennett, 2002) drew attention to the unyielding

pressure to keep earnings and revenues growing at a rapid rate. Because of this,

executives are under a lot of pressure and neglect their corporate social responsibility

practice.

Another perspective to this variable is the shareholder-wealth-maximizing

paradigm which focuses on profitability as the utmost goal of corporations. Like the

situation mentioned in the previous article, this paradigm also sets aside corporate social

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responsibility and puts other stakeholders on the sideline. A study by Classens, Djankov,

and Lang (2002, as cited in Khan, 1999) noted that the East Asian model on corporate

governance typifies a non-separation of ownership and control which is true in most

Philippine companies, the focus of which is the accumulation of wealth (Ferrer &

Banderlipe, 2012).

Without pre-empting the discussion on Philippine corporate governance context,

the feature of non-separation of ownership and control present in the Philippine context is

not only an issue of CEO duality, but also of keeping the wealth within the family due to

family-ownership structure (Echanis, 2006; Iu & Batten, 2001; Kabigting, 2011; Saldaña,

1999). In Desai et al.’s (2003) research, the authors studied the relationship between CEO

duality and acquisition performance using both the agency and stewardship theory lenses.

They found that, among other conclusions, the percentage of outside board members is

negatively associated with firm acquisition in the absence of CEO duality, and positively

related in the presence of duality. This is true when viewed under the auspices of agency

theory. Overall, the study also debunked the arguments of stewardship theory because it

found that having an independent chair leads to “gains in shareholder wealth” (p. 150).

A paper presentation by de Ocampo (2000) described the typical Philippine board

as being composed of seven to eleven members representing the largest shareholders of

the company. The Corporation Code, according to him, does not specify protecting

minority shareholders, and outside directors are not common nor mandatory. Outside

directors, if present are brought in by controlling shareholdings. Having an “independent

director is not acceptable for most companies because family members and close

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associates prefer to discuss business issues of highly confidential nature within the

family” (p. 6).

The Philippine set up can be classified under the family-based governance system

proposed by Khan (1999) in which the ownership of debt and equity is concentrated, and

the investor orientation is control-oriented for family groups. It is highly possible that

Philippine corporations practice CEO duality, for which reason the CEO who also acts as

chairman of the board, can push for the profitability agenda.

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Philippine Corporate Governance Context

Corporate governance in the Philippines shares similar qualities with its East

Asian counterparts, most observed of which is the family-ownership structure (Echanis,

2006; Iu & Batten, 2001; Kabigting, 2011; Saldaña, 1999). This quality has been referred

to as among the weakest attribute of corporate governance in the country, if to be gauged

against the codes on control (monitoring function) and transparency (reporting) are

concerned.

Iu and Batten (2001) cited two key features of corporate ownership among East

Asian countries: concentration and composition. The concentration dilemma happens in

two forms—low concentration (high dispersion) and high concentration (low dispersion).

The former occurs when majority of ownership is held by a number of majority and

minority shareholders, and the latter, when majority of ownership is held by a small

number of major stockholders. In low concentration, conflict arises between shareholders

and managers, while in high concentration, between majority and minority shareholders.

The problem on concentration is manifested in an Asian Development Bank study

(2000, as cited in Iu & Batten, 2001) study, in which it was reported that 46% of

corporations in the Philippines were under family control. Because of this, it “bred a

culture of cross shareholdings, absence of independent directors, related party-lending,

and evasion of single borrower limits” (Arceo-Dumlao, 2000a, as cited in Iu & Batten,

2001). Moreover, Saldaña (1999) claimed that most publicly-listed Philippine companies

allocate only a minimum number of shares to be classified as a public corporation. Some

of these corporations, therefore, are missing a wider shareholder base to sustain broader

� 23

discussions on major management actions and on their judgment of company

performance.

Meanwhile, composition refers to the owners or shareholders. These can be in the

form of “individuals, a family or family group, a holding company, a bank, an

institutional investor, or non-financial corporation” (ADB, 2000, as cited in Iu & Batten,

2001). The dilemma on composition in the Philippine context is pronounced in the

ownership of banks by corporate groups. In the study of Saldaña (1999), forming

corporate groups are a means by which large shareholders controlled their investments

through allocation in various businesses, and banks are usually included in this

arrangement. This condition contributes to weak corporate governance because it

“diminishes the capacity of banks to be effective external control agents” because these

are in the best position to gauge “the efficiency of the corporate group’s investment and

financing activities” (p. 18).Iu and Batten (2001) added that the inclusion of banks

equates “easier financing, not more stringent monitoring” (p. 56).

The problem on composition can also be gleaned in the study of factors

contributing to bank failures. Echanis (2006) mentioned the non-separation of decision

management and decision control when owners and directors “effectively centralized and

combined these functions at the board level” (p.33). In her example, she cited the case of

Wincorp which closed in 2000 when the owners were also the biggest borrowers,

including Sta. Lucia Realty (20% ownership and procured P943M in loans), and Unioil

Resources and Holdings Company Inc (major stockholder and borrower in over 50% of

the pooled investment accounts).

� 22

Another weakness of corporate governance as a result of family ownership can be

found in transparency. Iu and Batten (2001) claimed that the need for transparency and

disclosure is not crucial in a relationship-based transaction environment where insiders

exercise control over the degree of information disclosure or what the authors would call

“information asymmetry” (p. 57). The OECD Principle (2008) stated that disclosure

influences behavior of companies and protects investors. Thus, information symmetry

lends to withholding information on impropriety and management practices, making it

difficult to make monitoring of misdeeds difficult, let alone making the culprits

accountable for their misbehavior.

With the chronicling of OECD Principles (2008) and other codes as stated in the

Philippines’regulatory structures such as those of the Securities and Exchange

Commission (SEC), BangkoSentralngPilipinas (BSP), and the Philippine Stock

Exchange, transparency has been exercised however not to a level that could have

prevented, for example, the closure of some Philippine banks. Despite audits by the BSP,

Wincorp got away with violations of the “19 lender rule” of the Revised Securities Act

which stipulates that nonbanks (e.g., investors of Wincorp) cannot collect deposits or

investments from more than 19 clients. Wincorp collected investments from its 2,200

lenders collapsed into less than 20 accounts. Monte de Piedad Savings Bank, which

closed after 115 years of operation in 1997, hid anomalous loans and transactions in their

audited report. The said bank incurred bank loans through a conduit lending investment

firm. The BSP likewise audited the reports but did not discover these discrepancies

(Echanis, 2006).

� 24

Compounding the problem of transparency is legislature as stated in the cases

previously mentioned. Disclosure clauses of both the SEC and the auditing firms were

found to be weak and too generic. The purpose of disclosure is to provide stockholders

with accurate and timely information to protect their interest. Shareholder protection is

among the cornerstones of the Principles of Corporate Governance (OECD, 2008).

Ownership structure lends itself to digressions of transparency so regular monitoring

should be conducted more often (Echanis, 2006), and perhaps demanded from these

regulators to be more stringent.

Deeply entrenched in the family ownership structure is perhaps the Asian cultural

imprint which makes transparency a difficult practice. “Asia does not have a tradition of

strong disclosure” (Iu & Batten, 2001, p. 57). The authors noted that insiders have more

control over systems, and firm factions are settled within by limiting the type and depth

of information to be released.

In the World Bank Report on the Observance of Standards and Codes of corporate

governance based on the OECD (2008) categories, the Philippines scored 74/115

maximum points. Five categories, namely rights of shareholders, equitable treatment of

shareholders, role of stakeholders in corporate governance, disclosure and transparency,

and responsibilities of the board, were rated on a five-point Likert scale from 1=Not

Observed (1 point) to 5=Observed (5 points) (McGee, 2009). Jordan (1999, as cited in Iu

& Batten, 2001) cautioned the dangers in using OECD Principles in Asia, that it might

not effect change both in the short and mid-term. Using the Principles, which is Western-

influenced, is similar to a legal transplant where a law developed in one country is

transferred to another. Iu and Batten (2001) contended that legal transplants are

� 25

unattainable since the development of law should be evolutionary (OECD, 2008), and

asserted that OECD Principles could serve as benchmarks but a country must be

measured against country-specific metrics.

The Philippines’ own Code of Corporate Governance is stated in SEC

Memorandum Circular No 2, Series of 2002, complementing the Corporation Code of the

Philippines (Paras & Ramos-Anonuevo, 2002). The said code was revised as stated in

SEC Memorandum Circular No. 6, Series of 2009). Among other things, the Revised

Code of Corporate Governance (2009) specified that the Board of Directors is mainly

responsible for governance and should be comprised of at least two independent

directors, or 20% of the total number of directors, whichever is less but not less than two;

board committees are formed to aid in complying with good corporate governance; and

that management is accountable to the board, and the board is accountable to the

stockholders. Saldaña (1999) maintained that both the Corporation Code of the

Philippines and requirements of SEC were based or inspired from counterparts in the US.

The family-ownership structure is unique to East Asia, including the Philippines,

and other countries such as Japan and Germany. This issue should be addressed in the

country’s corporate governance code, for it is not which model that is superior that

should be regarded, but which one works for the circumstance (Iu & Batten, 2001).

Need for Present Study

Leadership is a fertile ground of study in the field of business. Focusing on the

concept of transformational leadership, this study has significance for both theory and

practice. The conceptualization of transformational leadership using the 4I’s as viewed by

� 46

directors will be a further step in understanding the connection and relevance between the

two constructs. First, the traditional role of compliance-conformance through monitoring

and assessment of boards still confine the practice to transactional leadership where

performance is exchanged for reward (Bass & Riggio, 2006). The current practice

dictates that boards are beholden to the CEOs instead of the other way around as stated in

most corporate governance codes worldwide (Petra, 2005). Shifting the focus on

transformational leadership may redefine the director-CEO relationship and allow the

CEO to benefit from the institution of boards in the first place.

Second, the variable stress has both significance for both theory and practice.

Stress is generally regarded as having negative effects, but in the context of

transformational leadership has found positive yields (Lawal, 2012; Walderman et al.,

2001). In theory, this study can help ascertain positive influences of stress so leaders or

members of an organization experiencing such conditions can still perform well. On the

practical side, determining stress factors can help in designing stress interventions

(Ongori & Agolla, 2008).

Likewise, stress can also be viewed from a power perspective as who is the source

of the stress. In this case, the CEO exerts the pressure, and has the mandate to do so,

especially if the CEO is also the Chairman of the board. The origin of a CEO’s power is

also his/her tenure and ownership, aside from duality (Combs et al., 2007).

This study is an attempt to explain the influence of transformational leadership on

corporate governance and how the CEO pressure on directors on profitability affects this

relationship. Transformational leadership and corporate governance, as asserted earlier,

are rarely studied together, and this applies to the Philippine context as well. The

� 47

Philippine corporate structure based largely on corporate ownership provides this

research a unique and fertile ground on which to study how this leadership style impacts

on good corporate governance. The corporate governance dilemmas surrounding this

kind of structure include weak monitoring due to board composition and concentration,

and absence or lack of transparency in reporting, despite legislation enshrined in

governance codes (Echanis, 2006; Iu & Batten, 2001; Saldaña, 1999).

� 48

Chapter 3

Methodology

Research Design

The purpose of this research is explanatory in nature as I wanted to establish a

causal relationship between transformational leadership and good corporate governance.

For this study, I have implemented survey as a research strategy.

Method. My research took the form of anempirical investigation which probed

the influence of transformational leadership on good corporate governance and if CEO

pressure on directors on firm profitability would have a moderating effect on this

relationship. My inquiry was supported by reference to theories and concepts as

discussed in the previous sections. The primary data used to answer the research

questions were sourced from questionnaires and interviews (Cozby, 2005) given to

executive board members from different private corporations and from various industries.

Board members are leaders who ensure proper governance of their respective

organizations and they were deemed most appropriate respondents for this study

(Nicholson & Newton, 2010).

The survey that was administered to company directors helped in explaining the

positive relationship between transformational leadership and good corporate

governance, and in showing the moderated influence of CEO pressure on directors on

firm profitability. Saunders et al. (2010) stated that apart from providing quantitative

data for analysis, the survey could also be used to provide possible reasons for particular

relationships between variables.

� 49

The semi-structured interviews with the same respondents on the other hand

provided us with qualitative inputs that could corroborate the quantitative findings. Will

transformational leadership influence carrying out good corporate governance? What

factors or dimensions of transformational leadership can aid in this process? Results of

the interview provided fresh insights to the questions this research attempted to answer

and/or to provide direction for future research.

Saunders et al. (2010) in his discussion on the use of mixed methods research,

cited the works of Tashakkori and Teddlie (2003) who posited that multiple methods are

advantageous if they create better opportunities for the researcher to answer the questions

and allow evaluation of the extent of validity of findings; and Bryman (2006) for the

wealth of information that researchers could derive from the data, even unanticipated

ones.

I employed mixed methods approach for data collection and analysis. According

to Creswell (2009), there are several mixed methods models and for the purposes of this

research, I used the triangulation approach. Quantitative and qualitative data were

collected concurrently in one or two interview sessions depending on the availability of

the Directors.

Upon completion of the data set, analysis of data were done separately since the

methodology for each is different. The results from both were compared to determine if

there is convergence, difference, or some combination. Triangulation was also used to

corroborate research findings.

Bass and Riggio (2006) cited the work ofBerson (1999) in the use of the mixed

methods approach and triangulation of qualitative and quantitative methods in assessing

4:

transformational leadership. Creswell (2009) suggested the use of planned procedures

and a visual model in a mixed methodsapproach (Figure 2). This was the model I

employed for this particular study.

Quantitative Qualitative

Figure 6.Visual model of concurrent triangulation design.

Majority of studies done on transformational leadership and corporate governance

has either been done quantitatively or qualitatively. I combined these two methods to

better explain the causal relationship of the two variables and in this process, and if CEO

pressure on directors on firm profitability moderates this relationship.

The mixed methods approach is less known than the quantitative and qualitative

approaches but is growing in popularity and has a distinct advantage of addressing better

the complexities of behavioral science researches (Creswell, 2009). Bryman (2007) also

discussed the factors that influence researchers to use the mixed method strategy:

commitment to particular method, audience expectation and method with which

researcher is comfortable with.

Data Collection (Interview)

Data Collection (Survey)

�

Compared Data Analysis (Text)

Data Analysis (Statistical)

� 4;

More importantly, and in order to claim that a mixed methods research took place,

I ensured that research procedures are integrated. In carrying out the research question

for instance, the qualitative method (interviews) to address the process questions (How

does transformational leadership behavior lead to good corporate governance and why

does CEO pressure on executive directors on firm profitability affect this relationship, if

at all?) and the quantitative method (survey) to address the outcome questions (Does

transformational leadership influence good corporate governance?) should occur as a

single study. Yin (2006) suggested that integration is needed in carrying out the five

procedures in this type of research: research questions, units of analysis, samples for

study, instrumentation, and data collection methods and analytic strategies.

Population and Respondents

The sample for the study consisted of 30 executive directors from 30 Philippine

private corporations and from various industries located in Metro Manila. Demographic

profile was also solicited.

Sampling Design

A purposive sampling of 30 directors was used to gather data for analysis.

Purposive sampling is a non-probability sampling technique that is used to select

individuals who meet a set of criteria for an intended study that is looking into

relationships between variables rather than accurately estimating populationvalues

(Babbie, 1992; Cozby, 2005; Saunders et al., 2010).

The criteria for executive directors are:

� 43

1. Who have been in the company for at least three years. To be able to know

the inner workings of corporate governance in their organization,

respondents must be with the company for the specified minimum number

of years.

2. Who are currently working in a private corporation setting as an executive

director. Publicly listed companies, government corporations and non-profit

organizations are not included in this study as corporate governance practice

in these types of institutions may vary.

3. Who may have sat on any board as an independent director but must

currently not hold an independent board seat. An executive director who

also sits as an independent director in another company is not included in the

required respondent profile because views on corporate governance may

vary and may affect the results of the study.

4. Who is male or female.

5. Who are at least college graduates.

Criteria for firm selection is not limited to a any particular industry or firm size

and age, as these firm characteristics are not the basis of the variables and focus of my

research.

Babbie (1992) stated that in some instances, a researcher may wish to study a

small subset of a population in which respondents from this subset are easily identified

but identifying all of them would be impossible. Saunders et al. (2010) further argued

that within business research, it may sometimes not be possible (no sampling frame) or

appropriate in answering the research question.

� 42

The logical relationship between sample selection and the purpose of our research

is critical, and generalization is made to theory rather than about the population. I

employed a purposive sample strategy (homogeneous sampling), focused on one

particular subgroup (Executive Directors of private corporations in Metro Manila) in

which the samples were similar. Saunders et al. (2010) stated that there are no distinct

and defined rules in non-probability sampling.

In determining the number of respondents, 30 for this study, Hair et al. (2010)

stated that small samples are usually characterized as having fewer than 30 observations

and are appropriate only for simple regression analysis. Roscoe (1975) suggested, as a

rule of thumb, that statistical analyses with samples less than 10 are not recommended,

and samples of 30 or more are recommended. He stated that samples larger than 30

ensure the researcher the benefits of central limit theorem. He further argued that in

multivariate research, sample size should be at least ten times larger than the number of

variables being studied. This research looked into an independent-dependent variable

relationship that is moderated by another independent variable, which changes the form

of the relationship, thus three variables times ten meet the minimum sample size of 30.

With 30 as the sample size for this research with two independent variables, a minimum

R Square (coefficient of determination) was required to support this sample size that will

detect as statistically significant at the specified alpha level of at least .05 with a power

level of .80 (Hair et al., 2010).

The choice of sample size was as much a function of budgetary considerations as

it was statistical. When economically feasible, larger samples are of course usually

preferred over smaller samples (Roscoe, 1975). I engaged the services of Contact Asia

� 44

Services, Inc. (CASI) for an amount of one hundred thousand pesos (P100,000.00) to

conduct the survey on 30 respondents, in consideration of the following constraints:

1. Financial. In as much as I would like to increase sample size, the cost of

adding more respondents is beyond my budget.

2. Time. Due to the full time work demanded by my profession and the

pressures that come with it, the minimum sample size was set at 30.

3. Precision. I would like to increase precision of data gathered and its

encoding by hiring an experienced research company.

The “what” were drawn from a survey to assess the influence of transformational

leadership in corporate governance as experienced by executive board members and CEO

pressure on the directors on firm profitability, as a moderating factor in this relationship.

The “how’s” and “why’s” of CEO pressure on firm profitability on good governance

through transformational leadership behavior were drawn from the answers of the

respondents personal accounts through interviews with executive board directors.

I used a consent procedure to inform voluntary respondents of the study.

Respondents were informed about the purpose of this research and their involvement.

This information were addressed in a cover letter to all respondents.

Respondents in my study have a right to privacy and can expect that information

gathered will be kept strictly confidential. This basic right were disclosed to the

participants and they were advised that there will be no chance of being identified by

name at any given time since no personal identifying information were gathered. They

were likewise assured that they can withdraw from the study at any given time without

prejudicing existing relations.

� 45

Measurement and Instrumentation

A survey/questionnaire was specifically designed for this study. Perceptions of

directors were used to measure the constructs. The use of perception in conducting

scientific research has produced a sizeable amount of literature. I cite the work of Heider

(1944) who argued for the relationship between social perception and phenomenal

causality, stated that an environmental change derives its context from the source to

which it is attributed. According to Jussim (1991), much of social psychological

theorizing and research was based on the belief that social perception is a major force in

creating social reality. In a study by Boyd, Dess, and Rasheed (1993), it identified two

factors, namely level of analysis and mediating filters in explaining both causes and

consequences of divergence between archival and perceptual measures of the

environment.

One of the more contentious issues of perceptual studies is bias. Miller and Ross

(1975) argued that the literature provides support that individuals engage in self-

enhancing attributions under conditions of success and only little evidence was suggested

that individuals engage in self-protective attributions under the conditions of failure.

Another dimension of bias is the possible inflation of correlations between

measures assessed, an acknowledged problem on the use of Common Methods Variance

(CMV) involving self-report measures. Spector (1987) concluded that CMV is trivial in

nature, Crampton and Wagner (1994) argued that CMV effects are not trivial but small,

and Doty and Glick (1998) concluded that CMV poses a significant threat to validity (as

cited by Meade et al., 2007). While there are conflicting views on the influence of the

� 56

Common Methods Variance (CMV), I acknowledge my study’s limitation on accurate

sample responses due to CMV.

In anticipation and addressing of bias for my study, the detailed processes of the

interview must be handled with care to recognize and avoid interviewer and interviewee

biases. According to Saunders et al. (2010), participating in an interview is an intrusive

process, therefore preparation for the interview process must be given thoughtful

consideration to strengthen its validity and reliability.

The survey questions on the independent variable were based on Bass and

Riggio’s (2006) four dimensions of transformational leadership behavior. The statements

attempt to assess the directors’ perception of their CEO transformational leadership

behavior.

Table 4

Transformatinal Leadership Scale and Item Statements

Transformational Leadership Scale

Item Statement

Sub-scale

Individualized Consideration

1. Individual contributions to achieve organizational goals are encouraged by my CEO.

2. Communication lines are constantly kept open between my CEO and the people in the organization.

3. My CEO takes time to develop employees to reach their fullest potential as leaders.

4. Listening to employee concerns and guiding them through the process is a particular strength of my CEO.

�

� 57

Transformational Leadership Scale

Item Statement

Intellectual Stimulation

1. Uncertainty is considered a challenge and my CEO and expects his employees to think independently.

2. I have observed that my CEO actively solicits contributions from employees to manage situations.

3. Developmental learning is highly valued by my CEO and this enables employees to think and act independently.

4. My CEO encourages employees to be resourceful and creative when dealing with problems.

�

Inspirational Motivation 1. Employees are motivated and inspired by my CEO to perform to the best of their abilities.

2. The direction of my organization is clearly communicated by my CEO.

3. My CEO provides the organization with a strong sense of mission.

4. It is my CEO’s belief that leadership is a process of changing the conditions of people’s lives.

Sub-scale

Idealized Influence

1. My CEO conducts himself with the highest level of ethical consideration.

2. I have great admiration and respect for my CEO.

3. Unethical behavior by any employee at any level in my company is not tolerated by the CEO.

4. The actions of my CEO provide the employees with moral courage to do what is right and for the best interest of the organization.

� 58

The survey questions on the dependent variable were adapted from the principles

of Corporate Governance of the Organization for Economic Cooperation and

Development (OECD) with particular emphasis on Principle No. 6: Responsibilities of

the board (OECD, 2008).

Table 5

Good Corporate Governance Scale and Item Statements

Good Corporate Governance Scale

Item Statement

Strategic guidance, monitoring of management, and the board’s accountability

Our corporate governance framework ensures the strategic guidance of the company, board monitoring of management and accountability to the company and shareholders.

Acting in the interests of the company and the shareholders

As a board member, it has been my experience to act in good faith on a fully informed basis in the best interest of the company and our shareholders.

Interest of stakeholders My decisions are based on outcomes that will be equitable for all shareholders, irrespective of shareholdings and differing shareholder interests.

Ethical standards As a director, high ethical standards are expected of me by the board, management and shareholders.

Corporate strategy and performance objectives

I see to it that I participate in reviewing and guiding corporate strategy.

Risk policy As a director, risk management is an area that I regularly take up in the boardroom

Monitoring governance practices

I monitor the effectiveness of the company’s governance practices and discuss these changes with the board if needed to improve such practices.

Selecting key executives and overseeing succession planning

I am active in the selection of key executives in the company.

� 59

�

Good Corporate Governance Scale

Item Statement

Executive and board remuneration

Compensation of the board and key executives are issues that I make sure are aligned with shareholder interests.

Board nomination and election Directors nominated to the board have to go through a formal nomination and election process that have always been transparent.

Conflicts of interest and related party transactions

In my organization, potential conflicts of interest by any party are monitored and managed by us during board meetings.

Integrity of accounting and financial reporting

I have to make sure that independent audit is performed to ensure its integrity.

�

Disclosure and communications

We directors in the board clearly establish proper disclosure and communicate this clearly to shareholders.

Independent and objective judgment

It has been my practice that my decisions on corporate affairs are based on objectivity.

Board committees My company ensures that there is a sufficient number of independent directors to sit on board committees.

Time commitment, agenda, training and evaluation

I am fully committed to my responsibilities as a board member in terms of my time.

Director’s access to information

My decision making as a board member is fully supported by access to accurate, relevant and timely information.

�

�

Statements on CEO pressure on directors on firm profitability as a moderating

variable were developed by the researcher based on various discussions with directors

prior to questionnaire development to measure the strength of the relationship of the

dependent and independent variable.

� 5:

Table 6

CEO Pressure on Directors on Firm Profitability Scale and Item Statements

CEO pressure on executive directors on firm profitability Scale

Item Statement

Sub-scale

Pressure and firm profitability

1. Producing company profit puts a lot of stress/pressure on my job.

2. I am particularly conscious about the bottom line of my company to the point that it affects my mental and physical well being.

3. Failure to meet company profitability can destabilize my job security.

�

Sub-scale

CEO pressure on directors

1. When I have meetings with our CEO, he/she is highly concerned about the economic outcome of our operations.

2. I feel my decision making is compromised because of the pressure from the CEO to produce acceptable profits for the company.

3. It is a mandate from my CEO to aid him in making money for the company.

Sub-scale

CEO pressure on director leadership

1. The pressure that I feel from my CEO on

profitability causes my leadership to weaken and thus result in poorer corporate governance.

2. My leadership ability in practicing good governance is affected by my CEOs economic perspective on firm profitability.

3. CEO pressure infirm profitability forces me at times, to cut corners or omit some process on some aspects of my job and therefore affects how I lead my people.

� 5;

The use of a summated rating scale for the survey was chosen with the objective

of increasing response precision. According to Spector (1992), single items as compared

to a scale, do not produce responses that are consistent over time and thus can be

unreliable. Multiple items can also improve reliability by allowing random errors of

measurement to average out.

In developing item stems, there were several guidelines used to ensure clear and

concise statements. I wrote items that are unambiguous and avoided double-barreled

questions so as not to confuse respondents in their interpretation of statements; both

positively and negatively worded items were used to increase consistency and reduce

bias; negatives (no or not statements) were not used to increase reliability (Converse &

Presser, 1986; Spector, 1992).

The use of negatives to reverse wording of an item should be avoided for the

reason that these items are very easy for participants to miss or misread. A missed or

misread negative will lead to an answer that is at the wrong end of the scale. Further, a

possible result of the issue on bias is the possibility of producing acquiescence on the part

of respondent in using positively and negatively worded items or when statements are not

reversed. It should be noted though however, that acquiescence has not always been

shown to be a problem with summated rating scales (Spector, 1992).

See Appendix A for the questionnaire.

See Appendix B for the survey matrix.

� 53

Validity and Reliability

In using the mixed methods procedures, I needed to consider the types of validity

associated with the quantitative and qualitative components and also to the strategy

deployed for the mixed methods approach. Creswell (2009) recommended the

identification of potential threats to the issue of validity and showing how these threats

are to be addressed and resolved.

With the quantitative component, a potential threat to validity may arise from the

selection of respondents who may be predisposed to have certain outcomes such as

directors who are highly focused and committed to amassing profits for their company at

any cost. I therefore selected participants in a random manner.

Saunders et al. (2010) discussed internal validity of questionnaires as the ability

of the instrument to measure what it intends to measure, and reliability of the

questionnaire during the design stage. This internal consistency can be calculated

through the use of Cronbach’s alpha. The purpose of the pretest was to ensure

respondents will have no difficulty in answering the questions and there will be no

problems in data recording.

According to Presser and Converse (1986), the number of samples for pre-testing

is as many as one can get but suggests that 25 to 75 samples as a valuable pretest range

and 30 as the average number. The authors further argued that the number of pretest

trials is often limited to one, and for studies where the researcher brings no previous

hands-on experience, a minimum of two pretests is critical.

An initial pretest was conducted with six participants with alpha results were

mixed and inconclusive at best. Overall alpha was at 0.713 which demonstrates internal

� 52

consistency. However, alpha scores for the individual scales were low particularly in the

good corporate governance and transformational leadership scales. A second pretest was

conducted with 30 participants in an attempt to increase reliability. The ensuing result

was quite satisfactory with overall alpha at 0.914, way abovethe minimum level of 0.70.

This result was due to adjustment in item numbers, increase in pretest sample size, and

item statement reconstruction particularly on the transformational leadership scale. The

final survey with adjusted item statement number from 42 to 40 was used for research

testing.

The qualitative pretest was conducted twice, separately with two different

respondents to ensure questions were understood clearly, and answers to the questions

were consistent. The first pretest resulted in some unanswered questions because

respondent was a compliance officer who did not feel the CEO pressure on firm

profitability. The second pretest resulted in substantial and consistent responses because

the questions were rephrased and rearranged in better sequencing to improve flow of

answers from the respondent. Moreover, the respondent was an executive director.

Qualitative validity refers to the accuracy of the results by using certain

procedures while qualitative reliability refers to the approach that is consistent across

different researchers (Gibbs, 2007 as cited in Creswell, 2009). Saldaña (2010) referred

procedures to analytic memos, comparable to journal entries, where codes are used to

prompt written reflections on the meanings it elicits. Yin (2006) also recommended the

importance of documenting procedures in a detailed manner to strengthen validity.

Transcripts and codes must be checked thoroughly to prevent mistakes and

misinterpretations.

� 54

Validation of findings should happen throughout the research process. This

research conducted the following reliability procedures:

1. Surveys must be thoroughly checked to ensure data is correct during

transcription.

2. Definition of codes must be solid and unchanging in its meaning.

3. Since data gathering is outsourced to CASI, the researcher should closely

monitor the quality of descriptions.

4. Interviews must be audio-recorded, with permission of the interviewee and

properly documented after the interview.

Saunders et al. (2010) argued that an attempt to ensure that qualitative research

can be replicated by other researchers would not be realistic. He cited the work of

Marshall and Rossman (1999) that non-standardized research methods are not always

intended to be repeatable since they reflect reality at the time of a particular interview,

and in a situation that may be subject to change.

To strengthen the validity of this study, I had to:

1. Ensure strict confidentiality when interviewing respondents to be able to

come up with truthful answers and mitigate response bias.

2. Check different data sources (quantitative and qualitative) of

information to build justification of chosen themes.

3. Clarify bias on how interpretation of findings is influenced by my own

background and experience.

4. Present conflicting information that runs counter to our hypothesized

codes as contrary information can add credence to findings.

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5. Aside from the guidance of the research adviser, seeking a peer to

review and question about the study adds validity.

In qualitative research, the intent of this form of inquiry is not generalizing

findings but to provide particular description and themes developed in context,

particularity rather than generalizability which is a hallmark of qualitative research

(Creswell, 2009).

See Appendix C for Cronbach’s alpha results of pretest.

See Appendix D for the final questionnaire form.

Research Procedures

A total of 30 questionnaires were administered to executive director respondents

through the internet and face-to-face interviews. Due to time limitations of the researcher,

I hired a research company, CASI Research, to do the survey/interviews which I closely

monitored. Protocols for outsourcing this function were strictly adhered to as dictated by

the De La Salle University’s DBA policy statement on the use of professional help for

this dissertation.

Research company. The role of CASI is to primarily work on the data collection

phase of the dissertation research. This means reproduction and distribution of

questionnaires, interviewing, data entry, and tabulation. Specifications for tabulation

came from me. Professional help was allowed only in the form of advice and counsel.

Help in the form of actually doing the work for the researcher is strictly prohibited.

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I declare that the content of all the primary investigative work are mine and these

are as follows: literature review and analysis, formulation of research questions and

hypotheses, design of data collection method and instrument, sampling design, analysis

of pretest results, finalization of data collection instrument and procedures, analysis of

data, and formulation of conclusions.

I identified respondents through my personal network and recommendations from

colleagues. CASI also assisted in sourcing and identifying respondents with my prior

approval, through letters of request by fax and email and through telephone calls.

The interviews were carefully planned to show interviewer credibility and get the

confidence of the interviewees. Since the interviews were outsourced, I had to meet with

the assigned interviewer prior to actual interview with the respondents to set up the

following protocol:

1. Their level of knowledge about the research topic and interviewing

competence.

2. Their professional appearance and behavior during interviews.

3. How they will create an impact on the interviewee at the beginning of the

interview and encourage them further to talk freely and openly about the

topic.

4. Their approach to questioning should reduce bias during the interview by

phrasing clearly the questions and ideally in a neutral tone of voice.

5. Their listening skills that will lead to explore and probe explanations from

the interviewees.

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Training of the interviewer by the researcher were conducted in CASI office

before interviews with respondents are formally carried out.

See Appendix E for DLSU DBA policy statement on use of professional help.

See Appendix F for interview protocol.

See Appendix G for interview training guide.

See Appendix H for interview timeline.

Data Analysis

The type of research strategy, in this case, a concurrent triangulation design

(Creswell, 2009) was used for data analysis.

For statistical data analysis, I used multiple regression to analyze the relationship

between the variables. In this study, the objective of multiple regression analysis is to

use the independent variables of transformational leadership and CEO pressure on

directors on firm profitability to predict the single dependent variable of good corporate

governance. It also can provide possible explanations to the phenomena. Hair et al.

(2010) stated that this dependence technique can provide both prediction and explanation

to a researcher; and to optimize predictions, the issue of multicollinearity has to be

addressed. Multicollinearity happens because two or more variables measure the same

thing.

The independent variables (transformational leadership and CEO pressure on

directors on firm profitability) should ideally be highly correlated with the dependent

variable (good corporate governance) but with little correlation among themselves. An

examination of the correlation matrix between the two independent variables helped us in

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identifying multicollinearity. Multicollinearity can be assessed by examining tolerance

and the variance inflation factor (VIF). Because of shared variances between the

variables, multicollinearity decreases the ability to predict the dependent variable and

ascertain the significance of the independent variables.

Correlation of the independent variable transformational leadership was also

examined to find out the correlation among the four dimensions to measure the

transformational leadership construct. Statistics show correlation among the four

dimensions to be at an acceptable level.

The regression equation proposed for this study is as follows:

Y=𝑏� + 𝑏�𝑥� + 𝑏�𝑥� + 𝑏�𝑥�𝑥�

where:

𝑏� = intercept

𝑏�𝑥� = linear effect of 𝑥�

𝑏�𝑥� = linear effect of 𝑥�

𝑏�𝑥�𝑥� = moderator effect of 𝑥� on 𝑥�

Y = dependent variable (good corporate governance)

𝑥� = independent variable (transformational leadership)

𝑥�= independent variable (CEO pressure on directors on firm profitability)

According to Saldaña (2010), proper and meaningful coding of qualitative data is

key to good research, and a large part of the study rests on this process. The method used

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for coding the data in this study was hypothesis coding. Responses gathered from the

interviews with the directors were content-analyzed through a predetermined list of codes

developed from a theory about what were found in the data. For instance, leadership

codes used were listens to suggestions, nurtures and develops employees, setting good

example; and good corporate governance codes to be used are achieving the same

organizational goals, ensuring policy implementation, stakeholder protection. The

subsequent categorization and thematic contexts were compared with the statistical

results from the quantitative part of this study to corroborate findings.

Findings that result in significant themes served to deepen the relationships of the

variables. Saldaña (2010) argued that hypothesis coding is appropriate for hypothesis

testing and content analysis of the data set. In my study, the search for causes and

explanations warranted the use of this particular coding method.

The statistical analysis from the quantitative data was used to compare with the

thematic text analysis from the qualitative data. Creswell (2009) suggested analysis to

occur both within the quantitative (descriptive and inferential analysis) and qualitative

(description and thematic text analysis) approach. This method is advantageous and best

suited my research efforts because data collection can be accomplished in a shorter

period of time and results can be validated and substantiated.

In resolving any discrepancy that arose when comparing the results, I reviewed

the data set. Creswell and Plano Clark (2007) suggested ways to resolve these

discrepancies that are emerging from the literature, such as collecting additional data,

revisiting the original data, gaining new insights from data disparity, or pointing the

findings to another area of research in the future.

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See Appendix I for correlation coefficient table of IV and MV

See Appendix I for correlation coefficient of the transformational leadership

dimensions.

See Appendix J for statistical tools to be used.

Methodological Assumptions of the Study

The proposed research methods assume the following:

1. Responses from the instrument (survey/questionnaire) used to measure

transformational leadership and corporate governance behaviors are accurate

and reliable in explaining how transformational leadership positively

influences good corporate governance, and how CEO pressure on directors

on firm profitability may affect this process.

2. CEO pressure on directors on firm profitability is a generally accepted

phenomenon manifested by CEOs who need to satisfy stakeholders,

particularly financial investors who look to the CEO for dividend payouts.

3. Internal and external environmental factors (such as hostile takeovers or

death/replacement of a CEO) may influence respondent perception and

behavior.

Methodological Limitations

The findings of this study limited itself to the use of a single instrument.

Thesurvey, after going through developmental stages and testing, measured perceptions

and behaviors relating to the leadership style, corporate governance, and CEO pressure

� 76;

on directors on firm profitability. Another limitation of this study were the possibility of

intervening variables such as middle or lower management perceptions and views on

good corporate governance. This study examined the effects of executive directors

within the context of private corporations. The extent to which the results could be

generalized to public and non-profit organizations is not known.

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Chapter 4

Results

Overview

Results from this mixed methods research provided answers to my research

questions and allowed for the evaluation and validity of my findings. Both quantitative

and qualitative findings showed that transformational leadership positively influences

good corporate governance, and that CEO pressure on directors on firm profitability has

no moderating effect on the relationship between transformational leadership and good

corporate governance. There were unanticipated information from both the qualitative

and quantitative results which will be discussed in Chapter 6 of this paper.

For the qualitative part, I manually encoded key statements based on the research

questions, from the interview transcripts because CAQDAS (Computer aided qualitative

data analysis software) will not be able to recognize majority of responses which is in

“Taglish,” a combination of Tagalog and English words. The initial coding of the

interviews started as I receive the interview transcripts from CASI.

The method used for coding the data in this study is hypothesis coding. The

responses gathered from the director interviews were content-analyzed through a pre-

determined list of codes developed from a theory about what will be found in the data.

� 762


The coefficient x1 (transformational leadership): For every increase of one level

in transformational leadership, there is a corresponding increase of 0.64 in the good

corporate governance scores (p = 0.000). This implies that the more transformational the

CEO is with his leadership style, the practice of good corporate governance is enhanced.

Quantitative results show that the multiple linear regression model is fit,

R2 = 0.45, F (3,26) = 7.07, p = .001, 95% CI (0.15,1.05). All the assumptions appear to

have been met. However, based on the regression model and its coefficients, only

transformational leadership (independent variable) predicts good corporate governance

(dependent variable). CEO pressure on directors on firm profitability (moderating

variable) has no effect on good corporate governance nor does it influence therelationship

between the independent and dependent variables.

�

Table 7

Regression Equation Coefficients (Model 1) � �

Model B SE t p VIF Intercept -1.16 4.28 -0.27 .788 x1 Transformational Leadership 1.19 0.92 1.30 .207

x2 CEO pressure on directors on firm profitability

0.72 1.17 0.62 .541 1.06

x1x2 Moderating effect -0.15 0.25 -0.58 .566 1.07 R2 = .45 SE = .30

� �

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Table 8

ANOVAa (Model 1)

Model Sum of Squares df Mean

Square F p Regression 1.97 3 0.66 7.07 .001b Residual 2.41 26 0.09 Total 4.38 29 a. Dependent Variable: Y

b. Predictors: Intercept, x1x2, x1, x2

The proposed regression model for this study is:

𝑌��𝑥��𝑥�� 𝑥� (1)

where:

�1.16 = intercept

��𝑥� = linear effect of 𝑥�

��𝑥�= linear effect of 𝑥�

�� 𝑥�𝑥� = moderator effect of 𝑥�on 𝑥�

𝑌�dependent variable (good corporate governance)


𝑥��independent variable (CEO pressure on directors on firm profitability)

In order to ascertain the direct relationship between transformational leadership

and good corporate governance, I used a simple linear regression model (2) with one

independent variable, x1 = transformational leadership and Y = good corporate

governance. The resulting regression model is:

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𝑌<7(;8=6(3:x7 (2)

where:

1.52 = intercept

��𝑥� = linear effect of 𝑥�

𝑌� dependent variable (good corporate governance)


Table 9

Regression Equation Coefficients (Model 2) �

Model B SE t p Intercept 1.52 0.61 2.47 .020 x1 Transformational Leadership 0.64 0.14 4.66 .000 R2 = .44 SE = .30

�

Table 10

ANOVAa (Model 2)

Model Sum of Squares df

Mean Square F p

Regression 1.92 1 1.92 21.721 .000 Residual 2.47 28 0.09 Total 4.38 29 a. Dependent Variable: Y

b. Predictor: Intercept, x1

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In this model (2), It can be inferred that transformational leadership positively

influences good corporate governance, R2 = .44, F (1,28) = 21.72, p = .000, 95% CI

(0.14,1.02) as theory would dictate. Specifically, from the model I can say that 44% of

the total variation in good corporate governance is due to transformational leadership.

The coefficient of determination for this simple regression model has decreased to .44

(from the previous multiple regression model (1) where R2 = .45 but the decrease is very

small.

The scatterplot that follows shows the linear relationship between

transformational leadership and good corporate governance:

777

Figure 7. Linear relationship between transformational leadership and good corporate governance.

Outliers

It appears from the scatter plot that outliers are present, therefore the regression

model changes as the slope moves, to cover these data points. To ensure that the

regression model is a good fit of my sample data, I need to check the residuals of the

cases. The standardized residual (.00) and Studentized residual (.02) are low and this

indicates the model is an acceptable representation of the data.

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In assessing influential cases, the deleted residual (0.02) which is used to assess

the influence of a case on the ability of the model to predict that case is very small. And

using Cook’s distance to measure the overall influence of a case on the model, the value

is less than one (0.08). Overall, the residuals statistics show that the outliers pose no

threat to the stability of the model.

Table 11

Residuals Statisticsa

Minimum Maximum Mean Std. Deviation n Predicted Value 3.70 4.76 4.36 0.26 30 Std. Predicted Value -2.56 1.51 0.00 1.00 30 Standard Error of Predicted Value

0.06 0.26 0.10 0.04 30

Adjusted Predicted Value 3.14 5.00 4.35 0.33 30 Residual -0.48 0.67 0.00 0.29 30 Std. Residual -1.57 2.20 0.00 0.95 30 Stud. Residual -1.70 2.36 0.02 1.04 30 Deleted Residual -0.65 0.81 0.02 0.36 30 Stud. Deleted Residual -1.75 2.60 0.02 1.08 30 Mahal. Distance 0.10 19.28 2.90 3.94 30 Cook's Distance 0.00 1.22 0.08 0.23 30 Centered Leverage Value 0.00 0.67 0.10 0.14 30

a. Dependent Variable: Y

The high coefficient of determination (0.45) may possibly be explained by the

existence of the outliers. Upon investigation, two outliers wered identified (ED10 and

ED20) but deletion of these two cases did not produce significant changes in the residuals

therefore it is not necessary to take them out of the data set. Furthermore, the intercept

regression slope did not vary much, showing the model as robust. These two cases are

� 779

worth noting as valid but exceptional observations that may be explained by a specific

situation.

ED10 was the only respondent (1/30) who stated that his CEO’s leadership is

dysfunctional. While respondent views his CEO leadership style in a negative light, the

CEO behavior does not significantly influence his perception of good corporate

governance in a negative way. He stated that despite this circumstance, he does not allow

his integrity as a Director get in the way of good corporate governance. This may

explain low transformational leadership behavior with a corresponding moderate good

corporate governance perception.

ED20 on the other hand views his CEO to be manifesting transformational

leadership behavior and his perception of good corporate governance is not affected at all

by CEO pressure on firm profitability. This can be gathered from respondent’s statement

that pressure on firm profitability rests on his CEO’s shoulder, and that the pressure he

gets is from the work that he does, thus a very high transformational leadership and good

corporate governance relationship data point.

From the interviews, an outlier was identified (ED23) as the only respondent

(1/30) who stated that CEO pressure on firm profitability affected her perception on good

corporate governance, despite the fact of her CEO’s transformational leadership behavior.

This may explain the conflicting result of high transformational leadership but yet CEO

pressure on firm profitability moderated the relationship between transformational

leadership and good corporate governance. Further, the one instance that she mentioned

happened in the early stages of company operations. This begs the question as to whether

� 77:

start-up companies would have an effect on the relationship of the variables since all of

the companies are undergoing a period of growth.

Qualitative results show that ninety seven percent (29/30) of respondents perceive

their CEO leadership style to be transformational. CEO leadership style was described

by the respondents through their description of their CEO leadership behavior in various

situations. The codes were categorized intothe four dimensions which were contextually

themed as transformational leadership, as theorized by Bass (1985).

CEO transactional behavior was reflected in two of the cases and one particular

outlier case reflected a dysfunctional type of leadership as narrated by the respondent.

This particular case where CEO leadership behavior is considered by the respondent

astyrannical may be a basis for future research.

� 77;

Table 12

Coding for Transformational Leadership

Code Category Theme

Open communications Listens to suggestions Caring attitude Attends to employee needs Situational leadership Open door policy

Encourages creativity Delegates the work Nurtures and develops employees Demands employees to do more Implementing necessary changes

Motivates employees Source of inspiration Sets objectives clearly Charismatic attribute Knowledge of the business

Setting good example Leadership from the top Doing the right thing Emulates the leader Plays fair Religious Serving others

��

��

��

��

�

��

��

��

��

��


Intellectual Stimulation

Inspirational Motivation

Idealized Influence

Following rules Centralized decision making

Reward for efforts and/or from productivity

Transformational leadership

Transactional leadership

Dysfunctional leadership

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One hundred percent (30/30) of respondents affirm that their CEO

transformational leadership style influences their perception of good corporate

governance. The qualitative result corroborates the quantitative findings for H1, that

transformational leadership positively influences good corporate governance.

Table 13

CEO Transformational Leadership and Influence on Good Corporate Governance

Transformational Positive influence on good n=30 leadership style corporate governance % % Yes 29 97 30 100 No 1 3 30 0 Total 30 100 30 100


Good corporate governance was described the respondents from their actual

practice of governance and how they think good corporate governance is implemented in

their respective organizations. The ensuing codes were categorized into the board roles

as presented by Nicholson and Newton (2010), which was then the basis for the

thematized good corporate governance. These roles of the board reflect the

responsibilities of the board by the OECD (2008) and which is part of my conceptual

framework.

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Table 14

Coding for Corporate Governance

Code Category Theme

Following the rules Ensuring policy implementation Producing profit for the company Achieving same organizational goals

Managing business well Sustainability Fear of punishment Strict compliance

Transparency Inculcating proper values Stakeholder protection Welfare of employees Good leadership Integrity Religious conviction

Strategy formulation

Wealth of experience

Control

Accountability

Strategy

Service


In the course of the quantitative analysis, I wanted to find out which dimension of

transformational leadership influences good corporate governance the most. To answer

this question a regression model was made with the four subscales of transformational

leadership as the four independent variables. The regression model is:

𝑌��𝑥��𝑥�� 𝑥��𝑥� (3)

where:

1.399 = Intercept

��𝑥��𝑥�

��𝑥��𝑥�

� 774

�� 𝑥��𝑥�

��𝑥��𝑥�

��<��

��7<��

��8<��!��"

��9<��!��"

��:<��!�� )

Table 15 Regression Equation Coefficients (Model 3)

Model b SE t P VIF Intercept 1.339 .594 2.252 .033 Individualized consideration .060 .172 0.349 .730 2.279 Intellectual stimulation .094 .115 .821 .420 1.451 Inspirational motivation .517 .172 3.012 .006 2.222 Idealized influence 0.016 0.114 0.141 0.889 1.507 Dependent variable: Good corporate governance

R2 = 0.542 SE = .2834

Table 16 ANOVAa (Model 3)


Mean Square F P

Regression 2.376 4.000 0.594 7.395 0.000 Residual 2.008 25.000 0.080 Total 4.383 29.000 a. Dependent variable: Good corporate governance

b. Independent variables: (Intercept), Individualized consideration, intellectual

stimulation, inspirational motivation, idealized influence

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It appears that inspirational motivation is the transformational leadership

dimension that influences good corporate governance the most. Its coefficient (0.517) is

statistically significantly different from zero (p = 0.006). This implies that for every one

level increase in inspirational motivation, good corporate governance is increased by

0.517. The overall R2 for this model is 0.542 – meaning, approximately 54.2% of the

total variation in Y (good corporate governance) is explained by the linear correlation of

the four dimensions of transformational leadership. Also, the above model is assessed to

be fit (ANOVA P < 0.001).

However, I ran another simple regression model, this time with only one

independent variable – inspirational motivation and check if R2 will significantly

decrease. The simple linear regression model with only inspirational motivation as the

independent variable is shown below:

𝑌��𝑥� (4)

where:

1.667 = Intercept

��𝑥��𝑥�

��<��

��7<��

Table 17 Regression Equation Coefficients (Model 4)

Model b SE t P Intercept 1.667 .495 3.371 .002 Inspirational motivation .612 .112 5.483 .000 R2 = 0.518 SE = .2748

� 786

Table 18

ANOVAa (Model 4)


Mean Square F P

Regression 2.270 1 2.270 30.067 0.000 Residual 2.114 28 0.075 Total 4.383 29 a. Dependent variable: Good corporate governance

b. Independent variable: (Intercept), Inspirational motivation

The above model shows an R2 of 0.518. There is a decrease of 0.024 from the

previous model. However, the decrease is not really high. This simply indicates that

inspirational motivation as a stand-alone predictor for good corporate governance

influences good corporate governance approximately half (51.8%) of the time.

CEO Pressure on Firm Profitability

A total of 57% (17/30) of respondents stated that they feel direct pressure from

their CEO on firm profitability while 43% (13/30) of respondents stated that they do not

receive pressure from their CEO on firm profitability.

CEO Pressure as a Moderating Influence on Transformational Leadership and


Results showed that with the presence or absence of CEO pressure on directors

on firm profitability, directors are not affected or influenced by CEO pressure on firm

profitability in their practice of good corporate governance. Therefore we reject H2 and

accept the null statement, i.e., CEO pressure on directors on firm profitability is not a

� 787

moderating factor on the relationship between transformational leadership and good


Since the p-values for x1x2 (moderating effect of CEO pressure on directors on

firm profitability) and x2 (CEO pressure on directors on firm profitability) are both

greater than 0.05, their coefficients are not statistically significant from zero, meaning

they both do not influence good corporate governance. This implies that the CEO

pressure on the directors on firm profitability does not influence their perception and

practice of good corporate governance.

In the multiple regression model (1), R2 is .45. This means that approximately

45% of the total variation in Y (good corporate governance) is explained by the linear

correlation between x1 (transformational leadership), x2 (CEO pressure) and x1x2 (the

moderating effect of CEO pressure on transformational leadership).

In order to answer shed light on this question, a simple regression model (5) is

shown below to ascertain if CEO pressure on firm profitability influences good corporate

governance:

𝑌��𝑥� (5)

where:

4.64 = Intercept

��𝑥��𝑥�

𝑌<��

𝑥�<��#$%��

� 788

Table 19

Regression Equation Coefficients (Model 5)

Model B SE t p Intercept 4.64 0.35 13.08 .000 CEO pressure on directors on firm profitability -0.08 0.11 -0.78 .443

R2 = .02 SE = .39

Table 20

ANOVAb (Model 5)


Mean Square F p

Regression 0.09 1 0.09 0.61 0.443a Residual 4.29 28 0.15 Total 4.38 29 a. Dependent variable: Good corporate governance

b. Independent variable: (Intercept), CEO pressure on directors on firm

profitability

�

The previous model (5) shows a very low R2 (.02) as well as a poor fit for

linearity (p = 0.443). This implies that good corporate governance is not directly

influenced by CEO pressure on directors on firm profitability.

The following scatterplot shows the relationship between good corporate

governanceand CEO pressure on directors on firm profitability is non-linear. CEO

pressure on directors on firm profitability may be high or low and the corresponding

practice of good corporate governance is likewise either high or low. This therefore

means that there is norelationship between the two variables.

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Figure 8. No relationship between CEO pressure on directors on profitability and good


Qualitative responses from this question were direct answers from the participants

if the pressure they receive from their CEO on firm profitability affects their practice of

good governance. As with the quantitative findings, CEO pressure on directors on firm

profitability does not influence good corporate governance.

A total of 97% (29/30) of respondents stated that regardless of whether they

receive CEO pressure on firm profitability or not, CEO pressure on directors on firm

profitability has no effect on their perception of good corporate governance. This

corroborates the quantitative findings that CEO pressure on directors on firm profitability

� 78:

does not influence their perception and practice of good corporate governance. However,

this single case (representing 3% (1/30)) from the data corpus from the qualitative results

contradicted majority of the findings. This is anarea worth looking into for future

research.

There was only one respondent who stated in confidence, without going

intospecific details on that particular instance where her practice of good governance

wascompromised due to a financial problem she was faced at that time.

Table 21

Cross Tabulation on Ceo Pressure on Firm Profitability, CEO Duality and Moderating

Effect on Good Corporate Governance

��CEO pressure on firm CEO duality Moderating effect on n=30 profitability good corporate governance � ��

� � � ��>��>��>�

�� 72��;2� ��87��26�� 85��52�

�

�� 79� ��:9��5��96��7��9�

�

&�� 96� ��766��96��766�� 96��766�

See Appendix K for descriptive statistics (respondent and industry profiles).

See Appendix L for regression assumptions.

See Appendix M for other possible regression models.

See Appendix N for coding cycle.

� 78;

Chapter 5

Discussion

Overview

Organizational theorist Stephen Barley posited that in order to gain additional

insights into and a deeper understanding of organizational behavior, such may be viewed

through an occupational lens rather than the predominant organizational lens. According

to Barley and Maanen (1982), detailed descriptions of phenomenological boundaries or

world views by the players inside an organization provide specific context to their work

and interpretation of these rich accounts through their experiences add on to the extension

and expansion of conceptually driven research. The interviews from my research

specifically addressed this issue as reflected in my findings. One such manifestation is

the identified outliers from my data which offered new insights that may be used for

further research.

In this paper, I chronicled a profile of the views of executive directors (ED) of the

leadership style of their chief executive officers (CEO). The interviews conducted with

the EDs revealed that they perceived their CEOs to be generally employing a

transformational leadership style, except for a singular case in which the ED described

the CEO’s style to be dysfunctional. Their responses revealed the leadership qualities

displayed by their CEOs, which is consistent with this paper’s first objective—to

determine the views of EDs on their CEOs leadership style.

I also presented support for establishing a significant relationship between

transformational leadership and good corporate governance. Based on the survey and

interviews with EDs, the relationship was deemed positive in the quantitative analysis,

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and insights from the EDs fortified this hypothesis. However, my hypothesized argument

that the pressure exerted by the chief executive officer (CEO) on EDs on firm

profitability moderates the relationship showed no significance. As already mentioned in

the Results chapter, CEO pressure on directors on firm profitability has no effect on good

corporate governance, as a result of which nullified it as moderator for the relationship

between the independent and dependent variables.

The succeeding sections elucidate the findings further and relate these to existing

literature.

Transformational and Transactional Leadership Continuum

Transformational leadership was pioneered by Burns (1978) which he described

in his seminal work Leadership as the type in which “leaders and followers raise one

another to higher levels of motivation and morality” (p. 20). Transforming leadership, as

he first termed it, converts followers into leaders and leaders into moral agents. He

distinguished two types of leadership-- transactional and transformational, in which

transactional leadership focuses on an exchange of productivity for a reward, that is

productivity can be achieved by giving rewards, and no productivity can mean

withdrawal of rewards or benefits (Bass & Riggio, 2006).

Similar to the comparison between agency and stewardship theories, transactional

and transformational leadership also exist on the same continuum (Bass, 2008), where

transformational leadership is at the highest level of the leadership continuum (Bass &

Riggio, 2006) and that qualities of transactional leadership must be manifested to provide

the proper context for effective leadership (Goodwin et al., 2001). An instance in our

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sample reflected this. According to ED5, “We all work harder because we all know that

at the end of the day, it helps us; our organization grows. It also helps to grow our

dividends and patronage funds.” This statement showed the merging of extrinsic

motivation (grow our dividends and patronage funds), which is characteristic of

transactional leadership, and intrinsic motivation (our organization grows), which is akin

to transformational leadership. The results of this study validates the study made by

Goodwin et al. (2001) that linked transformational leadership with contingent rewards

which is a key dimension of transactional leadership.

Leadership occurs when both leadership and followership are present and

recognized, and could be in dyadic, group, or strategic level (Avolio et al., 2003). While

the spotlight was focused on the effectivity of transformational leadership in bringing

about performance (Avolio et al., 1988; Bass, 1985; Bass & Riggio, 2006; Goodwin et

al., 2011), organizational commitment and success (Goodwin et al., 2011; Valdiserri &

Wilson, 2010), job satisfaction (Bass et al., 1987), and profitability (Waldman et al.,

2001; Valdiserri & Wilson, 2010). However, for transformational leadership to be

effective, Pawar and Eastman (1997) proposed that leaders should confront, reshape, or

harness organizational contexts, in order to increase organizational receptivity, or

members’ reception to the transformational leader’s vision and attempts to align them to

the vision. The transformational leader has to retool internal organizational contexts such

as organizational orientation, organizational task system, organizational structure, and

mode of governance for the leadership to gain followership. This could perhaps account

for why transformational leadership would work or fail in different circumstances.

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Four Dimensions of Transformational Leadership

In the transformational leadership literature, there were four dimensions identified

which characterize transformational leadership behavior. These are: idealized influence,

which provides vision and a sense of purpose, and elicits respect, trust, and confidence

from followers; inspirational motivation, increases optimism and enthusiasm,

communicates high expectations, points out possibilities not previously considered;

intellectual stimulation, actively encourages a new look at old methods, stimulates

creativity, and encourages others to look at problems and issues in a new way; and

individualized consideration, gives personal attention to others, making each individual

feel uniquely valued (Bass & Riggio, 2006; Bass & Steidlmeier, 1999; Brown & Reilly,

2008; Bruch & Walter, 2007; Hinkin & Tracey, 1999; Kark, Gilad, & Shamir, 2003;

Nielsen & Munir, 2009; Sarros & Santora, 2001).

Of the four dimensions, idealized influence or charisma seemed to receive much

attention in literature. Bruch and Walter (2007) found that idealized influence and

inspirational motivation were the most identified transformational leadership behaviors

present among upper managers than middle managers they studied, with job satisfaction

as the dependent variable.

Hinkin and Tracey (1999) propounded the thesis that charismatic leadership

emerges at a time of crisis, as was true during political or religious upheavals. The study

of Waldman et al. (2001) also showed that the connection between top managers and firm

outcomes would depend on the managers’ charismatic leadership, but only during a

period of crisis.

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Expecting idealized influence to come up in a business setting and in a period of

stability seemed unrealistic. Charisma, for example, was found to be irrelevant during

times of organizational stability (Hinkin & Tracey, 1999). Majority of the EDs

interviewed belong to companies which are seeing a period of growth and stability. This

perhaps accounted for the “lower” turnout of inspirational motivation and idealized

influence (dimensions more coherent with charismatic leadership) among the

respondents. Respondents identified individualized consideration as the most apparent

transformational leadership behavior in the qualitative interviews. The result of my study

was not consistent with what the literature would commonly identify as the dominant

transformational leadership dimension. This may be due to the Filipino’s concept of

kapwa, which Virgilio Enriquez (1986), father of Filipino Psychology, identified as the

core concept underlying Filipino interpersonal behaviors. Kapwa is like a shared identity

with others (Church & Katigbak, 2002). This may have accounted for individualized

consideration as primary transformational leadership behavior, rooted in the Filipino’s

notion of kapwa, which “embraces both the categories of ‘outsider’ (ibang tao) and ‘one

of us’ (hindi ibang tao)” (Enriquez, 1986, p. 16) and sparks genuine concern.

Researchers have consistently acknowledged the significance of contextual

factors in the study of transformational leadership and the limited research on this area

warrants further studies. The result of my study on the dimension of individualized

consideration in a cultural context may be used to outline a framework of organizational

change and focus on this dimension may help explain its contextual role on the

transformational leadership construct.

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My study is extending the literature on transformational leadership, specifically

on the transformational and transactional leadership continuum and the dimensional

aspect of transformational leadership in a cultural context.

Other Leadership Styles

The interviews with EDs generated responses which also reflect other leadership

styles of their CEOs. Transactional and dysfunctional (or toxic) leadership styles were

also revealed in the interviews, but only in a very few cases. Transactional leadership

focuses on an exchange of productivity for reward (Bass & Riggio, 2006). It promotes

compliance by appealing to the needs and wants of individuals (Sarros & Santora, 2001),

or lower-order needs as specified by Burns (1978).

It consists of two factors: contingent reward (providing tangible, material reward

for efforts) and management by exception (according trust to finish the job to a

satisfactory standard without rocking the boat (Sarros & Santora, 2001). By this

definition, transactional leaders do not elevate their followers to perform beyond the

minimal standard. The interviews yielded two instances in which EDs saw their CEOs to

be transactional. ED5 stated, “We all work harder because we all know that at the end of

the day, it helps us; our organization grows. It also helps to grow our dividends and

patronage refund.” Another instance was when ED18 mentioned, “Minor problems are no

longer coursed through him. I’ve set up a process wherein all major decisions should be

approved by our boss.” This suggests that the transformational leader, in order to gain

organizational receptivity as espoused by Pawar and Eastman (1997) should be able to

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confront, reshape, or harness organizational contexts, in this case organizational task

system and organizational structure.

Meanwhile, one ED regarded his CEO as “uncaring”, “instilling fear with staff”

and “showing no concern for employees.” The following characteristics can be closely

described as toxic leadership in which behaviors are classified as tyrannical, destructive,

abusive, bullying, unethical or bad and toxic (Mehta & Maheshwari, 2013). ED10

moreover, had this to say about his CEO, “His style is fear management. If you don’t hit

your target, he would really lambast you… he has this sort of power tripping…

Everytime they see him, they become paranoid. They can’t move; they would rather just

vanish.”

This type of leadership, according to the authors, has a negative impact on

employee job satisfaction and the affective commitment of employees to the

organization.


Based on interviews with EDs, performance of their roles in the areas of control

and accountability still dominated their conception of good corporate governance.

Control was coded using, among other things, the following descriptions, “following the

rules, producing profits, and ensuring policy implementation.” For example, a response

coded as ensuring policy implementation, ED25 described corporate governance as such,

“…is how the company polices itself. It’s like a method of governing the company,

instilling the customs, policies, practice defining the culture.” ED18, whose response was

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coded as following the rules, said, “In good governance, I need to put in good policies

right for the company and stick to controls.”

Directors’ first responsibility is to shareholders, even if the stewardship view of

corporate governance mandates it to look after the interest of stakeholders as well

(Tricker, 2009). This accountability to shareholders is also stipulated in the roles of the

board as stated in the OECD Principles, that the corporate governance framework should

ensure “the board’s accountability to the company and to the shareholders” (OECD,

2008, p. 116). As such, producing profit was also among the most mentioned description

of good corporate governance. For example, ED22 said, “for this company, basically the

indicators (of good corporate governance) are financial for now. It’s a pro-profit

organization, so the main indicators will be, if the company meets its financial targets and

returns promised to the shareholders.” ED8 even put forward that strategy could be linked

to profitability when he said, “If the company does not profit, then there’s something

wrong with the governance; that everyone is not in the same direction. There’s a

misalignment within the organization.” ED24 also considered profitability as paramount,

but not at the expense of morality. She said, “Yes, you’d consider profit is important, but

you should be able to conform to what is morally good.”

Roles of Boards

Strategy. The Organization for Economic Cooperation and Development (OECD,

2008) provides the guidelines on how organizations may practice good governance. In

this paper, I have defined good corporate governance as the performance of the

responsibilities of the board. The OECD in Principle 6, responsibilities of the board,

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outlined those duties which can be summed up in three major themes—strategy, control

and accountability (Eckhart, 2006; Macey, 2008; Nicholson & Newton, 2010; OECD,

2008; Tricker, 2009). The other role of service (Carver & Oliver, 2002; Nicholson &

Newton, 2010; Tricker, 2009) was derived from other literature.

Of these roles, the board’s participation in strategy formulation and

implementation is among those most discussed in literature. A review conducted by

Pugliese, Bezemer, Zattoni, Huse, Van den Bosch, and Volberda (2009) identified the

dominant themes on the contribution of boards to strategy per period. Period 1 (1972-

1989) featured conceptual and empirical papers defining the extent of board participation

in strategy. Period 2 (1990-2000) focused on empirical articles exploring the

determinants and consequences of board strategic involvement. Period 3 (2001-2007)

showcased empirical articles centered on boards’ participation in strategic decision-

making, while still dominated by the input-output studies of Period 2.

My research was consistent with the dominant theme of Period 3, while little

frequencies were noted, the directors made contributions to strategy whenever these were

mentioned. The study of Hendry and Kiel (2004) was also in line with the theme of

Period 3. Also characteristic of Period 3 was the use of multi-theoretical approach, which

in their study combined organizational control and agency theories. Their study

advocated for an active school of thought for strategy making which states that boards are

independent thinkers who shape strategies in their organization. They posited strategy as

control mechanism beyond reducing divergence of interests, but also as a means of

shaping mission and vision, regulating capacity for innovation and entrepreneurship, and

initiating change when necessary.

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Strategy was rarely mentioned by the EDs in their practice of good corporate

governance. The EDs who mentioned about strategy talked about their involvement as

initiators of corporate planning and review of implementation of programs whether these

are still aligned with strategy. The strategy role can be setting the goals, values, and

direction on one end, to approving, monitoring, and reviewing on the other (Nicholson &

Gavin, 2010). ED11 mentioned initiating a “business continuity plan taking note of all

possible negative occurrence that we can encounter and for each of these, we list

company mitigating actions.” This description is consistent with the active school of

thought in strategy making, where boards actively participate in drawing up strategies.

However, as the active school acknowledges this level of involvement, research also

showed that this could pose a dilemma between setting and monitoring strategic direction

and executing strategies on an operational level (Hendry & Kiel, 2004). This could be the

case if directors are insiders, as was the situation of the interview participants.

The literature provided little attention to executive directors (O’Toole, 2006).

However, some authors did point out the advantages of executive directors on board. A

study by Masulis and Mobbs (2011) proposed that firm-specific knowledge offered by

inside directors is critical for board monitoring and decision-making. In their study, the

authors found that inside directors who also hold outside directorship in unaffiliated firms

were associated with higher firm performance, as well as better board decision making.

Thus, these inside directors with outside directorships were concluded to elevate board

monitoring and help prevent CEO entrenchment.

Meanwhile, Nicholson and Kiel (2007) also made the same claim about the

advantage of inside directors as knowing the company intimately and having superior

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access to information. This asset helps in informed decision-making. The study was

ascertaining the relationship between directors and performance, using three theoretical

lenses. Under stewardship theory, the assumption was that majority of the board members

are insiders and they will “naturally work to maximize profits for shareholders” (p.588),

which consequently leads to superior corporate performance. However, this assertion was

not supported in their study. In my own research, however, inside or executive directors

are beneficial to superior corporate performance as illustrated in the statement of ED11,

“Good governance means good management, so good management, good governance can

only contribute positively.”

Accountability. Literature on Asian or Philippine corporate governance focused

on control, transparency and accountability, or the lack of these facets, owing to the

structure of ownership, which is family-based (Echanis, 2006; Iu & Batten, 2001;

Kabigting, 2011; Saldaña, 1999). Transparency, a key feature of accountability in

corporate governance literature (Eckart, 2006; Macey, 2008; Nicholson & Newton, 2010;

OECD, 2008; Tricker, 2009) and as these were projected negatively in literature

(Echanis, 2006; Iu & Batten, 2001; Saldaña, 1999) but gained positive light in my study.

A weakness of corporate governance in family-owned structure can be found in

transparency because disclosure is not a feature of relationship-based transaction

environment (Iu & Batten, 2001).

In the study, I had two respondents who were part of family corporations, in

which one was moving away from the traditional family corporation mold. Case in point,

ED18 described this transition, as “we’re now professional”. These two corporations did

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not fit the description by (Iu & Batten, 2001) and debunked their position because my

respondents from family corporations exercised a high level of transparency. ED18 said,

“We’re professionals already and we’re in accordance now with the policy which makes

it easier for good governance. If we don’t follow the policies, then we’re not leading in

good governance.” ED24 further supported this when she said, “Process is process…It’s

so easy to cut corners if it’s a family business, so all the more [good governance] is

needed.”

All executive directors in the sample belong to the private corporations in Metro

Manila, but are not publicly-listed. Transparency was regarded as cornerstone of

accountability to the company and to other stakeholders. For example, ED28 said,

“Transparency is number one. You have to deliver your responsibilities in a way that you

should be practicing honesty. Responsibility is very important… towards the

stockholders, the stakeholders, and of course to the people, the staff, your peers, and the

officers.”

Perhaps one of the reasons for this change in transparency views from directors of

family corporations may due to the increased exposure to social awareness and activism

of the younger generation of entrepreneurs. Plus the fact that the study made by Iu and

Batten (2001) was done almost fifteen years ago and would thus require a second look

into this phenomenon.

Jamali et al. (2008) regarded corporate governance as concerned with honesty and

transparency which are expected of companies to gain investor confidence and market

efficiency, as well as earn employee trust and commitment. As a matter of fact, their

article also propounded that companies are slowly inching towards performance

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evaluation including not only financial terms but also long-term social, environmental

and economic impacts. They stressed the link between corporate governance as an

internal process and corporate social responsibility as the outward counterpart. “CG was

generally conceived as establishing a basic framework of stewardship and trusteeship,

CSR was conceived as the outward expression or manifestation of internal CG policies

and principles” (p. 457). In other words, based on Jamali and colleagues’ (2008) study, a

solid CG mechanism should be in place for CSR to genuinely work for the company.

While my study did not touch on CSR, it should be noted that the directors

interviewed were conscious of good CG practices to contribute to performance that will

benefit their stakeholders. Under stewardship theory, directors behave in a way that

serves the collective, using corporate performance such that they also gain or serve their

own interest without having to take advantage of the principal or other stakeholders

(Davis et al., 1997). From our results, ED5 shared, “The organization’s mission is to help

improve the quality of life of the contractual workers… is simply effectivity,

accountability, transparency, and most of all genuine concern for our members.” ED21

emphasized, “Governance is basically doing what is right, not sacrificing the quality…

you don’t shortchange your investors. You pay the right taxes, you have responsibility

over the people, over your investors, over your customers.”

Other indicators of good governance were also found in the performance of duties

expected of board members such as diligently attending board and committee meetings.

The EDs interviewed shared some of their thoughts, such as this one shared by ED4, “We

have this budget meetings every year, to be clear with our managers of our objectives…

And then we review every quarter.” ED2 mentioned how good corporate governance

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contributes to organizational success. “If everyone works with exactly the kind of

guideance that the board sets and the board expects them to administer these

appropriately, then periodically they were able to measure the kind of success that they

are able to achieve based on the basic goals they set for them.”

CEO Duality

CEO duality is a board structure in which the CEO and the Board Chairman

position are vested on one person (Daily & Dalton, 1997; Desai et al., 2003; Faleye,

2007; Finkelstein & D’Aveni, 1994). Davis et al. (1997) stated that pro-organizational

actions are best facilitated when the governance structure allows the CEO high authority

and discretion, and that the structure most suited for this situation is CEO duality. Under

the stewardship perspective, structures that facilitate and empower are favored more than

those that monitor and control. CEO duality is such structure because CEO-chairman is

unimpeded in determining strategy. Moreover, CEO duality’s unity of command and

strong leadership features (Finkelstein & D’Aveni, 1994) are also found to be more

consistent with the stewardship view of governance by considering the CEO as self-

actualizing (Davis et al., 1997), and that maximizing profits for the company can be

among the self-actualizing drivers of CEO actions. Faleye (2007) stated that the CEO’s

reputation adds value to shareholder, and also acts as a deterrent for a CEO to advance

self-interest.

Majority (70%) of EDs interviewed belong to board structures which adopt CEO

duality based on demographic profile. The literature would point to CEO duality as a

signal for greater board vigilance, CEO entrenchment (Finkelstein & D’Aveni, 1994), or

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simply inherently undesirable (Boyd et al., 2001). Quantitative results showed that CEO

duality moderates good corporate governance. Although this result was not part of this

study’s inquiry, it proved significant as it showed structurally an antecedent for good


Adopting CEO duality is not an arbitrary choice or a response to shareholder

activists’ call for greater independence (Faleye, 2007). Some factors mentioned include

complexity of the organization, CEO reputation (Faleye, 2007), and the firm’s

performance (Finkelstein & D’Aveni, 1994; Krause & Semadeni, 2013). If a firm is

performing well, there’s less need for board vigilance (Finkelstein & D’Aveni, 1994),

and separating the positions will only be detrimental to the organization (Krause &

Semadeni, 2013). Separating the roles at the time of poor performance lead to higher

future performance of stock return and analyst ratings, and doing so at a time of good

performance lead to lower performance in the same measures, the study of Krause and

Semadeni (2013) found.

Since this finding was not part of my formal inquiry, it wasn’t very clear how

CEO duality could lead to good corporate governance. However, based on the premise

provided by literature about CEO duality and performance, I could conjecture that the

companies in our sample were in a period of growth or stability. Tricker (2009) shared

the results of a survey conducted by the Association of British Insurer (ABI) which

confirmed that good corporate governance leads to increase in share price levels and that

it shields companies in times of crisis. Perhaps the companies in my sample were

performing relatively well, and if at a time of crisis, could have weathered it on account

of good corporate governance practices as purported by ABI. Because if such were not

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the case, the literature would suggest that these companies would have been ripe to adopt

nonduality.

A counter view was presented by Daily and Dalton (1997) who found no

significant difference between CEO duality and nonduality in six dimensions of chair

independence: inside/outside succession, organizational structure, tenure as CEO, equity

holdings in the firm, extent of familial relationships, and board composition. However,

they maintained that the joint CEO and board structure was the most efficient path to

superior firm performance because it shows that the firm has strong leadership, based on

organization theory. If no significant differences were found, I would agree with

suggestions in literature which stated that the option should be rational in which the

choice for structure would be consistent with firm characteristic (Faleye, 2007) and

circumstance (Boyd et al., 2010) and would enhance performance (Faleye, 2007). After

all, CEO duality can have both positive and negative effects depending on its market

setting (Boyd et al., 2010).

Transformational Leadership and Corporate Governance Nexus

Certain parallelisms exist between the study of transformational leadership and

corporate governance but both are conceptually distinctive from each other. While the

subject of transactional and transformational leadership is based on behavioral aspects of

leadership, the study of corporate governance is based on the assumption of the

principal/agent relationship. Transformational leadership behavior, therefore, may

influence good corporate governance through the principal/agent perspective of

stewardship. For example, if the CEO is transformational and inspires the EDs to act in a

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similar manner, then it behooves both parties to align their objectives that which supports

proposition no. 9 by Davis et al (1997) whereby potential performance of the firm is

maximized if a mutual stewardship relationship exists.

Shared Governance

It is useful to relate our findings on the positive relationship of transformational

leadership and good corporate governance on the study by Gardiner (2006). He identified

six characteristics of shared governance, to wit: (1) a climate of trust (integrity,

consistency between words and deeds); (2) information sharing (disclosure of data

necessary for decision making; (3) meaningful participation (broad involvement in all

aspects of decision making and planning; (4) collective decision making (moving toward

group consent); (5) protecting divergent views (valuing, nurturing alternative

perspectives; and (6) redefining roles (all members are leaders) (p. 66).

Using these characteristics, I related the four dimensions of transformational

leadership, and the conception of good corporate governance through the performance of

board roles.

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Table 22

Relationship of Transformational Leadership and Good Corporate Governance

Shared Governance Dimensions of Transformational Leadership


A climate of trust Idealized influence Inspirational motivation

Accountability

Information sharing Individualized consideration Accountability Meaningful participation Inspirational motivation Control Collective decision making Inspirational motivation Control Protecting divergent views Intellectual stimulation Control Redefining roles Inspirational motivation Accountability

Inspirational motivation appeared to be dimension most reflective of shared

governance. In a regression of the individual dimensions, my results showed that

inspirational motivation appear to be the most influential to good corporate governance.

Statements made by executive directors demonstrate this point. ED6 said, “My CEO, I

consider him as my mentor. I like the way he treats his people. He has a plan for

everyone, not just for the company, not just for himself, but for his employees. My boss

is really my inspiration to do my very best.” Another example came from an interview of

ED3 in which she mentioned, “He (CEO) always emphasizes on honest dealings. He’s

honest and straightforward with his people. He doesn’t believe in keeping things from his

people. So very, very transparent and very encouraging.” It is logical then that good

corporate governance is borne out of a leader’s capacity to ethically inspire, motivate and

lead by example.

Pawar and Eastman (1997) studied the organizational contexts in which

transformational leadership would gain greater organizational receptivity, or acceptance

from followers of a transformational leader’s vision and prompting for alignment to the

same vision. One of the organizational contexts was mode of governance. Of the three

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modes, namely market, bureaucratic, and clan, the clan mode of governance would be

more receptive to transformational leadership. The study recognized that organization

members are likely to pursue self-interest, but under clan mode, would be more inclined

to see an alignment between their own and the organization’s. “In this mode, individuals

are still self-interested, but they believe they can attain their goals by working toward the

collective interests” (p. 97). This assertion is consistent with assumptions of stewardship

perspective where the attainment of organizational goal in effect meets one’s own.

The authors have a word of caution though. While this finding may show the

context by which transformational leadership may enjoy receptivity, it will still depend

on the leader on how to “retool, reshape, or harness” this context. So even when literature

has supported the positive effects of transformational leadership, which is at the highest

of the leadership continuum, it doesn’t mean that it will work all the time. Based on their

study, it will take more than just exercise of the four dimensions, the contexts should also

be considered to ensure higher receptivity. And to ensure this, a leader’s context must be

grounded in a deontological perspective.

Ethics as Foundation

In the existing literature, transformational leadership was often linked with

performance (Avolio et al., 1988; Bass, 1985; Bass & Riggio, 2006; Goodwin et al.,

2011), organizational commitment and success (Goodwin et al., 2011; Valdiserri &

Wilson, 2010), job satisfaction (Bass et al., 1987), and profitability (Valdiserri & Wilson,

2010). This study has proposed the positive relationship between transformational

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leadership and good corporate governance, and has established this link. This is my

contribution to the literature on transformational leadership and corporate governance.

The positive relationship between the independent variable transformational

leadership and independent variable good corporate governance can be rationalized by

moral or ethical underpinnings. The ethics or morality link binds the two variables.

Burns (1978) asserted that “the result of a transforming leadership is a relationship of

mutual stimulation and elevation that converts followers into leaders and may convert

leaders into moral agents” (p.4). He identified three principles of moral leadership: (1)

the moral leader engages followers in a meaningful shared purpose; (2) this purpose is

morally elevating; and (3) the moral leader is successful in delivering this elevating

common purpose in practice (Springett, 2004, p. 299). Bass and Steidlmeier (1999),

meanwhile, stressed the distinction between authentic transformational and pseudo-

transformational leadership lies in the presence or absence of a “moral foundation of the

leader as a moral agent” (p. 178).

Kanugo (2001) categorized transformational leadership as ethical in motive,

value, and assumptions. Based on a deontological perspective which judges a leader’s

action to have intrinsic moral values, a transformational leader’s motivation is

characterized by genuine or moral altruism (a leader’s helping concern for other

prompted by a sense of duty towards others without regard for self-interest), values akin

to the norm of social responsibility (an internalized belief of a moral obligation to help

others without expecting any personal benefit, assumptions or self-concept typify an

allocentric self-concept (socio-centric and mainly concerned with protecting the interest

of the group knowing that the personal and group interests are one).

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Jamali et al. (2008) viewed corporate governance as an internal process of

keeping with laws and tenets of ethics, fairness, and transparency. Huang and Snell

(2003), meanwhile, stated that an organization should demand high moral and ethical

standards from its leaders so as not to weaken its governance structure and eventually

result in its corruption and unstable growth.

The OECD Principles of Corporate Governance (2008), in its Responsibilities of

the Board, stated that the board should apply “high ethical standards” (p.116). The

qualitative results of my study strongly supported the role of ethics as foundation that is

necessary for good corporate governance. As a practical implication, ethics provides the

ground for transformational leadership and good corporate governance to flourish.

Therefore it is crucial that leaders should be able to demonstrate ethical behavior for

followers to emulate. This was apparent in most of the EDs responses where they

described their CEOs as setting good examples for them and as a source of inspiration.

Also, to help ensure better corporate governance, director appointments may

need to be based not only on the candidate’s experience as a board member but also the

ability to understand the behavioral complexity of corporate governace and its effective

implementation. Further, appointments must also be based on his or her ethical beliefs.


Profit Maximization and Stress

Tricker (2009) stated that a board’s first responsibility is to its shareholders.

Economic theory pushes profit maximization as the highest goal of an executive (Luque

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et al., 2008). Under profit maximization scheme or shareholder-wealth-maximizing

model, profit is the most important and ultimate criterion for decision making and is the

super ordinate goal of an organization (Luque et al., 2008; Tourigny et al., 2003). Bennett

(2002) viewed this perspective as the unyielding pressure to keep earning and revenues

growing at a rapid rate.

For any corporation, it is but natural to seek profits as no one seeks to go into

business to lose money. More than half (57%) of the respondents feel the pressure from

the CEO on firm profitability. Even if 43% of EDs revealed that they do not feel the

CEO pressure on profitability, they gave various reasons where the pressure is coming

from, such as paying for business expenses, taking care of the welfare of employees, and

ensuring the viability of the company.

Literature on profit maximization discussed the pressure on profitability as

making decisions in favor of pragmatic and utilitarian concerns over principled decisions

benefitting all stakeholders, and inducing questionable decision making and behavior

(Tourigny et al., 2003). In the words of Bennett (2002), the effect of this pressure is

neglecting corporate social responsibility practices. It can be recalled that Jamali et al.

(2008) discussed corporate social responsibility as being based on a solid internal

governance mechanism founded on ethics, fairness, and transparency. By logical

conclusion, neglecting one’s corporate social responsibility would be tantamount to

having a weak governance structure lacking any or all of those three ideals.

While the pressure experienced by EDs seemed to be classified as regular

occupational stress or the perception of a discrepancy between environmental demands

and the individual capacities to meet them (Ongori & Agolla, 2008), the pressure goes

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deeper as it questions the morality of the person. The stress of the EDs were related to

ends that were considered for the good of others, which in the deontological perspective

of ethics, entailed actions which are allocentric or where the self is linked to a collectivity

such as an organization. “The allocentric ‘we’ self orientation of the leader is mainly

concerned with protecting the interests of the group, knowing that his/her own interests

and the group interests are inseparable” (Kanugo, 2001). The pressure felt by the EDS,

however not related to compromising one’s integrity to conduct themselves unethically

for profit, was actually a question of ethics.

The study also found that the pressure was not a moderator for the relationship

between transformational leadership and corporate governance. For occupational stress,

the answer could be as easy as adopting optimism through higher leader engagement

(Courtright, Colbert, and Choi, 2014) or reframing stressful work conditions as

meaningful and offering opportunities for growth as in the case of high hardy leaders

(Bartone, 2006). Perhaps confidence or experience would also help in coping, as when

one gains high self-efficacy to handle difficulties on the job (Jex & Gudanowski, 1992).

The answer, I believe, why the CEO pressure on profitability had no effect on the

relationship between transformational leadership and good corporate governance is the

character of the EDs as authentic transformational leaders, or leaders grounded on strong

moral foundations. Recall that the subject of this study was the transformational

leadership style of CEOs as rated by the executive directors and the effect of this

perception on their practice of good governance. So we could only allude to the EDs’

transformational leadership through their own perceptions of it. Jussim (1991) stated that

much of the psychological theorizing and research is based on the premise that social

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perception is a major force in creating social reality. It is also possible that the executive

directors were influenced by their CEOs who they regard as transformational. An

example is a statement from ED23, “That is what I learned from my boss, to be generous

with your staff, learn to work with others, be good to your employees and at the same

time to your co members of the board.” Another example is a statement from ED29, “We

tend to copy him. If you see he’s dedicated and headstrong to the things that he wants to

achieve, somehow you tend to follow because the good habits also influence people.”

These responses from my research clearly questions the propositions made by

Bennett (2002) and Tourigny et al (2003) on pressure on firm profitability. From a

practical perspective, this study made a strong case for the argument that when EDs are

faced with CEO pressure on firm profitability, an ethical option exists for them to follow

the right path.

Bass and Steidlmeier (1999) described the authentic transformational leader as

one who calls for universal brotherhood, whose inspiration is characterized by inward

and outward concern about the good for the group, organization or society, helps

followers generate more creative solutions to problems, and concerned about developing

their followers into leaders. The pressure dilemma, in this study, was a question of ethics

and answered by the same ethical foundation lived by the transformational leader.

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Chapter 6

Summary, Conclusion and Recommendation

Summary

The study of leadership has gone through various phases—exploring traits,

behavior, style, and situation. Leadership has been defined as “a social influence process

that can occur at the individual, dyadic, group or strategic level, where it can be shared

within a management team” (Avolio et al., p. 277). Leadership studies initially focused

on traits which asserted that certain individuals have been gifted to pursue leadership

positions (Kirkpatrick et al., 1991). This assertion was debunked for its limited view of

endowing trait characteristics to individuals born to be leaders, without consideration of

potential development or other contextual factors (Avolio et al., 2003; Kirkpatrick et al.,

1991).

The study on leadership then evolved towards behavior and style (Avolio et al.,

2003; Kirkpatrick et al., 1991; Yukl et al., 2001), and to situational contexts (Hersey,

1996). Situational leadership, pioneered by Hersey and Blanchard in 1969, proposed that

the appropriate leadership style should consider the maturity of the follower or

development level of follower, for which the manager decides they type of support to

deliver (Irgens, 1995).

Burns (1978) pioneered the concept of transactional and transforming leadership

and later developed by Bass (1985) who posited that these are multidimensional,

independent but complementary constructs. Transactional leadership focuses on an

exchange of productivity for rewards, while transformational leadership concerns with

achieving extraordinary outcomes and in the process allows employees to develop their

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own leadership capacities (Avolio et al., 1988; Bass & Riggio, 2006; Bass et al., 1987).

The lofty goal of transformational leadership is to elevate the follower to a status of a

leader who at the same time is a moral agent (Burns, 1978).

I took an interest on the study of transformational leadership due to a quandary on

the corporate scandals from the 1980s to the 21stcentury which saw a failure of corporate

governance. With the collapse of Enron, Worldcom, Tyco, and other businesses,

corporate governance took back, front, and center stage (Elson, 2004; Lawal, 2012;

Naciri, 2010). Corporate governance, according to Tricker (2009) is the relationship

among various participants in determining the direction and performance of corporations,

in which shareholders, management, and board of directors play key roles. It can be

viewed from two theoretical lenses—agency theory and stewardship theory.

Agency theory assumes that humans have individualistic motivations, and that

they are rooted in economic rationality (David et al., 2004). This view polarized the

relationship between principal (shareholder) and the agent (manager). Agency theory

assumes that managers are self-interested, and work in a context in which they do not

bear the full wealth effects of their decisions (Daily et al., 2003). In contrast, stewardship

theory views humans as self-actualizing and has a hunger to reach higher levels of

achievement. “Stewardship defines situations in which managers are not motivated by

individual goals, but rather are stewards whose motives are aligned with the objectives of

the principals” (Davis et al., 2004, p. 21).

In researching the link between transformational leadership and good corporate

governance, my paper presented support on the positive influence of transformational

leadership in good corporate governance. This will add on to the literature on

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transformational leadership and how its principles influence good corporate governance.

Furthermore, this research sheds additional light on the so called “black box” in corporate

boardrooms through the confidential interviews conducted with the EDs on how CEO

pressure on firm profitability affects the relationship between their CEO leadership style

and their perception and subsequent practice of good corporate governance.

Conclusion

This paper seeks to meet the following objectives: (1) to determine the views of

executive directors on CEO transformational leadership style; (2) To establish the

relationship between transformational leadership and good corporate governance; and (3)

to illustrate how CEO pressure on profitability moderates this relationship.

Quantitative and qualitative data gathered from 30 executive directors of private

companies in Metro Manila were employed for this study. The participants accomplished

a questionnaire (through the use of Likert scale) which had statements that reflected their

perceptions on CEO transformational leadership, good corporate governance, and CEO

pressure on them on firm profitability. The second part of the questionnaire (through the

use of semi-structured interview questions) was used to gather insights from the

executive directors on the aforementioned topics to corroborate the results.

The findings are discussed in order of stated objectives. Based on the results, the

following conclusions can be safely drawn.

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Executive Directors’ Views on CEO Transformational Leadership

First, executive directors generally found their CEOs to be practicing

transformational leadership based on the statistical results from the Likert scale. This

finding is corroborated in the context analysis of the qualitative interviews. Based on

interviews, CEOs seemed to be espousing intellectual stimulation and individualized

consideration more than dimensions of inspirational motivation and idealized influence,

which is more closely linked to charismatic leadership.

Transformational Leadership and Good Corporate Governance Nexus

Second, transformational leadership is positively linked to transformational

leadership. Statistical inference confirmed this relationship, and responses from

interviews also affirmed that the transformational leadership of their CEOs affects their

own practice of good corporate governance. The bond that links that these two variables

are the moral/ethical foundation required in the practice of both. Transformational

leadership, according to Burns (1978), is a relationship of mutual stimulation which

elevates followers to become leaders and eventually makes them moral agents. On the

other hand, the practice of good corporate governance as prescribed in the OECD (2008)

Principles Responsibilities of the Boards also requires high ethical standards in the

performance of their functions. In this study, the role of accountability, which has the

component of transparency, highlighted the ethical basis for good corporate governance.

The shared governance process espoused by Gardiner (2006) explained how

transformational leadership and good corporate governance could be linked. The six

characteristics he mentioned are: a climate of trust, information sharing, meaningful

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participation, collective decision making, protecting divergent views, and redefining roles

(p.66). It is a model which shows how ethics drew the concepts of transformational

leadership (through the four dimensions) and good corporate governance (through roles

of control and accountability).

CEO duality. The sample in my study mostly belonged to companies which

adopted the CEO duality board structure where CEO also acts as chair of the board

(Daily & Dalton, 1997; Desai et al., 2003; Faleye, 2007; Finkelstein & D’Aveni, 1994).

Based on quantitative study, this structure moderated good corporate governance.

Literature suggests that CEO duality promotes unity of command and also projects strong

leadership in the organization (Finkelstein & D’Aveni, 1994). This is consistent also with

the suggestion of stewardship theory that CEO duality ensures pro-organizational action

because the CEO is allowed high authority and discretion, therefore, becomes unimpeded

in determining strategy (Davis et al., 1997). Although this dilemma wasn’t part of my

inquiry, the finding was significant as it supported CEO duality as contributory to good

corporate governance. This could be a subject of future study.


Finally, CEO pressure on profitability does not moderate the relationship between

transformational leadership and good corporate governance. Quantitative analysis

showed that CEO pressure is not linked to good corporate governance, therefore nullified

it as moderator of the relationship between independent and dependent variables. The

qualitative data showed that firm profitability could be a source of stress, and that the

CEO is the party pressuring the executive director.

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Two factors could account for the positive coping behavior of our EDs when the

pressure on profitability is viewed from the perspective of occupational stress. These are

level of optimism and confidence and experience (Bass, 2008). Level of optimism

included engagement (positive work-related affective motivational state characterized by

vigor, dedication, and absorption; Courtright, 2014), and hardiness (a characteristic sense

that life is meaningful, that life presents choices, and change is interesting and valuable;

Bartone, 2006). The confidence and experience covered self-efficacy or the one’s belief

about one’s ability and capacity to do a task and cope with environmental demands

(Nielsen & Munir, 2009). All these positive coping mechanism include transformational

leadership in their conception.

The other factor on CEO pressure on profitability is viewing it from an ethical

perspective. The pressure to profit, as narrated by our EDs, is linked to the consequences

of loss, such as not being able to pay up for operational costs, and failure to take care of

employees. Some EDs even viewed the pressure as linked to not being able to keep up

with the promised returns to investors. While some of our EDs felt the pressure, results

showed that it didn’t meet the cut to be a moderator for the link between transformational

leadership and good corporate governance. An explanation is offered by Caldwell, Dixon,

Floyd, Chaudoin, Post and Cheokas (2012) when they proposed the leadership model of

transformative leadership. They said, “transformative leadership rises to the level of

ethical stewardship when leaders create integrated organizational systems that add value,

enhance lives, benefit society, and honor duties owed to stakeholders by optimizing long-

term wealth creation” (pp. 176-177). Their explanation of transformative leadership

includes the ethical components of transformational leadership in that transformational

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leadership incorporates commitments to the organization, the community, and the

individuals within the organization. This component, steeped in the ethics, must have

aided our EDs overcome this pressure, even though in this study, the transformational

leadership style of the EDs can only be alluded to based on their concept of their own

CEOs.

Ethical Stewardship

In this study, I have established the positive link between transformational

leadership and good corporate governance. Previous research has only established the

relationship between transformational leadership and performance (Avolio et al., 1988;

Bass, 1985; Bass & Riggio, 2006; Goodwin et al., 2011), organizational commitment and

success (Goodwin et al., 2011; Valdiserri & Wilson, 2010), job satisfaction (Bass et al.,

1987), and profitability (Waldman et al., 2001; Valdiserri & Wilson, 2010). This study

showed that CEO pressure on EDs on firm profitability does not affect the relationship

between transformational leadership and good corporate governance and only fortified

the importance of the consequences of authentic transformational leadership in

organizational behavior.

I viewed the study variables from the point of view of stewardship theory. With

the emergence of ethics as link for both transformational leadership and good corporate

governance, I suggest integrating this concept as well to stewardship, and affirm the

thesis of Caldwell, Hayes, Karrie, and Bernal (2008) on ethical stewardship. “Ethical

stewardship integrates long-term wealth creation, a commitment to the transformational

interests of stakeholders and creating organizational systems that reinforce both

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instrumental and normative organizational goals” (p. 154). This definition shows good

corporate governance through board roles specifically control (long-term wealth

creation), strategy (organizational systems reinforcing instrumental and normative goals),

and accountability (commitment to the transformational interests of stakeholders).

Transformational leadership, on the other hand, is the ethical hand by which good

corporate governance could be ingrained into the organization. According to Carlson and

Perrewe (1995), “transformational leadership is viewed as the best approach for instilling

ethical behavior in organizations” (p. 269), through the ethical transformation of the

organization beginning with the ethics of leadership and corporate policies, exhibiting

ethical characteristics and behaviors resulting in transformational outcomes, and

institution of organizational ethics.

Limitations of the Study

In as much as this paper provided fresh insights on transformational leadership

and good corporate governance, this research has a number of limitations. The results of

this study come from a small sample (30 private companies) and did not include other

types of corporations. While the results cannot be generalized, the richness of the

qualitative data provided context as to how EDs interpret the reality that they are in. My

study adds on to the growing number of research challenging the hegemony of agency

theory as the leading model in corporate governance and expands on the stewardship

perspective in further understanding corporate governance through transformational

leadership. Studying corporate governance under the lens of stewardship should be

encouraged further, not as a competing theory but as a complement to agency theory,

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specifically when leadership of the board is to be scrutinized I am also extending

transformational leadership literature to consider good corporate governance as a relevant

outcome. This is the most significant contribution of this paper to business research and

to academe.

The results of my study brought up more questions than answers, and it is my

hope that future researchers will use my findings to extend and expand the literature on

the two major constructs of my paper.

Recommendations

Whereas most western research showed idealized influence and inspirational

motivation as the most mentioned dimensions of transformational leadership, my

research showed individualized consideration as the behavior that is identified most with

transformational leadership. As discussed in the previous chapter, this may have

accounted for it being the primary dimension that is rooted in the Filipino notion of

“Kapwa”, by one which shows genuine concern. This dimension of individualized

consideration in a cultural context may be used to outline a framework of organizational

change and focus on this dimension for future research may help explain its contextual

role in the transformational leadership construct.

The upside of transformational leadership is that it steers the company into the

right direction when leaders motivate their subordinates, encourage their creativity and

align their vision with that of the company. However, transformational leadership has its

dark side, too. The Madisonian model (named after James Madison, among the framers

of the US Constitution) runs in contrast to transformational leadership (Keeley, 2004). It

� 7;4

acknowledges that people have differences and varied wants. The Madisonian model

noted that transformational leadership’s ideal of having followers give in to the higher

ideals of the organization at the expense of their own is something difficult to accomplish

in real life. The common goal, general interest, public good can be deemed as theoretical

concepts. In reality, these mean differently to different groups. He begged the question,

will the common interest or that of the majority not be harmful to the interest of the

minority. Truth is, unless a common goal is unanimously desired, there will always be a

contest between what the majority and the minority pursue. In contrast to

transformational leadership in which followers are elevated to pursue common

organizational goals, he proposed that legislation, rules, contracts be put in place to

govern different groups and put in check their pursuit of self-interests. How will the

Filipino concept of “Kapwa” then be viewed from this perspective?

On how transformational leadership influences good corporate governance, my

research showed that inspirational motivation as the most identified behavior that

influences good corporate governance more than 50% of the time. This implies that for

good corporate governance to be implemented effectively, Filipino CEOs must be able to

inspire and motivate his followers through communicating high expectations, and

increasing optimism and enthusiasm. Additional studies on this particular dimension

may help elucidate further how inspirational motivation in a cultural context can improve

the process of good corporate governance.

The role most identified by the EDs focused on control and accountability. A

reason was offered by a study by O’Shannassy (2010), in which he said that the modern

role of the board of directors in strategy making is limited and that the strategy comes

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from the CEO and top management. In his study based on interviews with a chairman,

executive chairman, company directors and CEOs, top managers, and internal and

external consultants, the board is expected to question and criticize the strategy proposals

and should change management if the members are not satisfied with strategy developed

by management.

Future studies could perhaps elucidate the role of the board in strategy-making

and implementation. Are these roles limited to an agency view by which the board takes

passive involvement in strategy making by serving as rubber stamps or approving body

of strategies in the organization or monitors the alignment of management decisions to

strategy (Brauer & Schmidt, 2007). What role would the board undertake in strategy

under the stewardship view of governance?

One of the major functions of an ED is management of a certain department or

area within the organization and their focus is on strategizing their area of responsibility.

This somehow lessens their focus on the company’s overall strategic planning and

because of their dual role as an executive manager and as a board member, extenuates it.

The unanticipated results from both the qualitative and quantitative results

provide a fertile ground for future research on both transformational leadership and good


1. CEO Duality, from the quantitative findings shows significance as a

moderating factor between the relationship of transformational leadership

and good corporate governance. How this actually occurs in the boardroom

may be researched upon to explicate this phenomenon.

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What are the implications of CEO duality in the perception and practice of

EDs in good corporate governance? What will the implications be if the

subject of the survey and interviews are done with EDs of publicly-listed

corporations?

2. The subject of religion (in this research referring to the Catholic faith) was

extracted from the qualitative interviews, as a conceptual definition for both

concepts of transformational leadership (ED13 and 29 described their CEO

having strong religious convictions) and good corporate governance (ED11

stated following the ten commandments as an integral part of good

governance and ED12 mentioned fear of God as an indicator in carrying out

good governance). How does one's religious faith promote and espouse

these concepts? What role does religion really have on an individual in the

exercise of transformational leadership and good corporate governance?

What are the theoretical underpinnings of religion as an antecedent of good

corporate governance and how does this translate into better leadership

abilities and better corporate governance?

3. Another theoretical challenge is the concept of transcendental leadership.

Cardona (2000) first posited this leadership concept as a contribution based

exchange relationship. While Cardona's view of transcendental leadership is

based on intrinsic motivation, Sanders, Hopkins, and Geroy (2003) views it

from a perspective of spiritual development, linking transactional,

transformational and transcendental leadership into an integrated theory of

transcendental leadership. This begs the question as to how transcendental

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influences good corporate governance. Further, will religion be a mediating

factor between transcendental leadership and good corporate governance?

Leadership is an integral component in carrying out good corporate governance as

presented in this research. I encourage further studies on role of leadership in good

corporate governance which can shed more light and understanding to the behavioral

complexities of corporate governance. Hernandez (2012) suggested the psychological

dynamics on how transformational leadership can be improved and consequently drive

stewardship behavior. Enhancing corporate governance through transformational

leadership is an area that will benefit all sectors of society who look to corporations as

receptacles for improving human lives.

As a practical implication, I suggest the following actions to be taken by

governance practicioners:

1. Leaders must continuously be trained in ethical leadership so that they may

be able to demonstrate ethical behavior for followers to emulate.

2. Director appointments must be based on his or her ethical beliefs.

3. Director appointments may need to be based not only on the candidate’s

experience as a board member but also the ability to understand the

behavioral complexity of corporate governace and its effective

implementation.

4. It is also recommended that the Philippine educational system be able to

include corporate governance as a basic subject in the business curriculum.

The future generation of entrepreneurs should be able to understand the

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concept of corporate governance and its consequences to the betterment of

society in which they live.

On a personal note, this journey has affected my own perception and practice of

good corporate governance. As an ED in the past, I was passive in my role as a board

member. This research has taught me to be more active and vocal in my current role as a

shareholding board member, to ensure that the various stakeholders of the corporation

that we are leading are protected and that firm profitability is achievable without

sacrificing good corporate governance.

� 739

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Appendix A

Questionnaire

DATE:___________________________

A SURVEY ON LEADERSHIP AND CORPORATE GOVERNANCE

Good day! My name is Mr. Leveric T. Ng, a doctoral student at the De La Salle University. I am conducting a survey on leadership and corporate governance, and have chosen you as one of thirty (30) subjects for my dissertation.

The survey is about the relationship between transformational leadership and good corporate governance, and how CEO pressure on executive directors on firm profitability affects this relationship.

Rest assured the information that will be generated from this survey will be treated with the strictest confidence. In no way can the result be used for or against your directorship by the company, as this research is undertaken for academic purposes only.

Thank you very much for your invaluable assistance.

_____________________________________________________________________

Gender:______ (Male/Female)

Age: _____

Educational level: _________________

CEO duality (CEO and Chairman of the Board position is held by one person):

Yes________ No________

Following are forty two (42) statements. Please tell me how much you agree or disagree with the statements. Let us use the following 5 point scale where a rating of SD means strongly disagree…………...SA means strongly agree. Please encircle the number in the column that represents your response, using the following column key:

SD = strongly disagree

D = disagree

N = neutral, neither agree nor disagree

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A = agree

SA = strongly agree

1. Individual contributions to achieve organizational goals are encouraged by my CEO. SD D N A SA

2. Communication lines are constantly kept open between my CEO and the people in the organization. SD D N A SA

3. My CEO takes time to develop employees to reach their fullest potential as leaders. SD D N A SA

4. Listening to employee concerns and guiding them through the process is a particular strength of my CEO. SD D N A SA

5. Uncertainty is considered a challenge and my CEO and expects his employees to think independently. SD D N A SA

6. I have observed that my CEO actively solicits contributions from employees to manage situations. SD D N A SA

7. Developmental learning is highly valued by my CEO and this enables employees to think and act independently. SD D N A SA

8. My CEO encourages employees to be resourceful and creative when dealing with problems. SD D N A SA

9. Employees are motivated and inspired by my CEO to perform to the best of their abilities. SD D N A SA

10. The direction of my organization is clearly communicated by my CEO. SD D N A SA

11. My CEO provides the organization with a strong sense of mission. SD D N A SA

12. It is my CEO’s belief that leadership is a process of changing the conditions of people’s lives. SD D N A SA

13. My CEO conducts himself with the highest level of ethical consideration. SD D N A SA

14. I have great admiration and respect for my CEO. SD D N A SA

15. Unethical behavior by any employee at any level in my company is not tolerated by the CEO. SD D N A SA

16. The actions of my CEO provide the employees with moral courage to do what is right and for the best interest of the organization. SD D N A SA

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17. Our corporate governance framework ensures the strategic guidance of the company, board monitoring of management and accountability to the company and shareholders. SD D N A SA

18. As a Board Member, it has been my experience to act in good faith on a fully informed basis in the best interest of the company and our shareholders. SD D N A SA

19. My decisions are based on outcomes that will be equitable for all shareholders, irrespective of shareholdings and differing shareholder interests. SD D N A SA

20.As a Director, high ethical standards are expected of me by the board, management and shareholders SD D N A SA

21. I see to it that I participate in reviewing and guiding corporate strategy. SD D N A SA

22. As a director, risk management is an area that I regularly take up in the boardroom. SD D N A SA

23. I monitor the effectiveness of the company’sgovernance practices and discuss these changes with the board if needed to improve such practices. SD D N A SA

24. I am active in the selection of key executives in the company. SD D N A SA 25. Compensation of the board and key executives are issues that I make sure are aligned with shareholder interests. SD D N A SA

26. Directors nominated to the board have to go through a formal nomination and election process that have always been transparent. SD D N A SA

27. In my organization, potential conflicts of interest by any party are monitored and managed by us during board meetings. SD D N A SA

28. I have to make sure that independent audit is performed to ensure integrity of reports. SD D N A SA

29. We Directors in the Board establish proper disclosure and communicate this clearly to shareholders. SD D N A SA

30. It has been my practice that my decisions on corporate affairs are based on objectivity SD D N A SA

31. My company ensures that there is a sufficient number of independent directors to sit on board committees. SD D N A SA

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32. I am fully committed to my responsibilities as a board member in terms of my time. SD D N A SA

33. My decision making as a Board Member is fully supported by access to accurate, relevant and timely information. SD D N A SA

34. Producing company profit puts a lot of stress on my job. SD D N A SA

35. I am particularly conscious about the bottom line of my company to the point that it affects my mental and physical well being. SD D N A SA 36.Failure to meet company profitability can destabilize my job security. SD D N A SA

37. When I have meetings with our CEO, he/she is highly concerned about the economic outcome of our operations. SD D N A SA

38. I feel my decision making is sometimes compromised because my CEO expects me to produce acceptable profits for the company. SD D N A SA

39. It is a mandate from my CEO to aid him in making money for the company. SD D N A SA

40. The pressure I feel from my CEO on firm profitability causes my leadership to weaken and thus result in poorer corporate governance. SD D N A SA

41. My leadership ability in practicing good governance is affected by how my CEO’seconomic perspective on firm profitability. SD D N A SA

42. CEO pressure on firm profitability forces me at times, to omit some process on some aspects of my job and therefore affects how I lead my people. SD D N A SA

INTERVIEW

43. Does leadership influence good corporate governance? If yes why do you think leadership plays such an important role in influencing good corporate governance?

In what ways do leadership reinforce good governance through ethics, strategy and performance?

Does your leadership style influence your perception of good governance?

Are there other leadership areas that can contribute to good governance?

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If no, why not?

What other factor(s) other than leadership do you think influences good governance? Why and how so?

44. What are your perceptions of good corporate governance?

Is mere compliance a sign of good corporate governance? What makes for good corporate governance? What do Directors have to perform in order to promote good governance? Why do you believe this or these will promote good governance?

45. Do you think firm profitability is a source of stress?

If yes, do you experience stress on firm profitability? Where do you think this comes from? How and why? (Is this compounded by CEO pressure on profitability?)

If no,why not?

Does CEO pressure on you on firm profitability affect your perceptions of goodcorporate governance?

If yes, how does this pressure on you affect your leadership views (on ethics, strategy and performance) and its influence on corporate governance? In what manner and why?

Does this pressure on firm profitability from the CEO affect the manner in which you comply with good governance?

If no, what do you think may influence or affect your leadership views on corporate governance? In what manner and why?

END OF SURVEY

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Appendix B

Survey Matrix

Research objective: To establish CEO transformational leadership behavior as perceived by Executive Board Directors and its influence on good corporate governance; and if this influence is moderated by CEO pressure on Executive Directors on firm profitability.

Type of research: Primarily explanatory but also attempts to find out what is happening and seeks new insights on the phenomena.

Question Variable/ Construct

Detail in which data measured

Source

1. Individual contributions to achieve organizational goals are encouraged by my CEO.

Transformational leadership Dimension: Individual Consideration

Strongly agree, Agree, Neutral, Disagree, Strongly disagree

Question 1-16 Transformational leadership dimensions.(Bass & Riggio, 2006)

2. Communication lines are constantly kept open between my CEO and the people in the organization.



3. My CEO takes time to develop employees to reach their fullest potential as leaders.



4. Listening to employee concerns and guiding them through the process is a particular strength of my CEO.



5. Uncertainty is considered a challenge and my CEO and expects his employees to thinkindependently.

Transformational leadership Dimension: Intellectual Stimulation


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�

Question Variable/

Construct


Source

6. I have observed that my CEO actively solicits contributions from employees to manage situations.



7. Developmental learning is highly valued by my CEO and this enables employees to think and act independently.



8. My CEO encourages employees to be resourceful and creative when dealing with problems.



9. Employees are motivated and inspired by my CEO to perform to the best of their abilities.

Transformational leadership Dimension: Inspirational Motivation


10. The direction of my organization is clearly communicated by my CEO.



11. My CEO provides the organization with a strong sense of mission.



12. It is my CEO’s belief that leadership is a process of changing the conditions of people’s lives.



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�

Question Variable/

Construct


Source

13. My CEO conducts himself with the highest level of ethical consideration.

Transformational leadership Dimension: Idealized Influence


14. I have great admiration and respect for my CEO.



15. Unethical behavior by any employee at any level in my company is not tolerated by the CEO.



16. The actions of my CEO provide the employees with moral courage to do what is right and for the best interest of the organization.



17. Our corporate governance framework ensures the strategic guidance of the company, board monitoring of management and accountability to the company and shareholders.



Questions 11-27 Principles of CG, (OECD, 2008), Using Principles of CG: A boardroom perspective (OECD, 2008)

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�



Source

18. As a Board Member, it has been my experience to act in good faith on a fully informed basis in the best interest of the company and our shareholders.



19. My decisions are based on outcomes that will be equitable for all shareholders, irrespective of shareholdings and differing shareholder interests.



20. As a Director, high ethical standards are expected of me by the board, management and shareholders.



21. I see to it that I participate in reviewing and guiding corporate strategy.



22. As a director, risk management is an area that I regularly take up in the boardroom.



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�



Source

23. I monitor the effectiveness of the company’s governance practices and discuss these changes with the board if needed to improve such practices.



24. I am active in the selection of key executives in the company.



25. Compensation of the board and key executives are issues that I make sure are aligned with shareholder interests.



26. Directors nominated to the board have to go through a formal nomination and election process that have always been transparent.



27. In my organization, potential conflicts of interest by any party are monitored and managed by us during board meetings.



28. I have to make sure that independent audit is performed to ensure its integrity.



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�



Source

29. We Directors in the Board clearly establish proper disclosure and communicate this clearly to shareholders.



30. It has been my practice that my decisions on corporate affairs are based on objectivity.



31. My company ensures that there is a sufficient number of independent Directors to sit on board committees.



32. I am fully committed to my responsibilities as a Board Member in terms of my time.



33. My decision making as a Board Member is fully supported by access to accurate, relevant and timely information.



34. Producing company profit puts a lot of stress/pressure on my job.



Questions 34-36 (Worral & Cooper, 1995; Ongori & Agolia, 2008)

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�



Source

35. I am particularly conscious about the bottom line of my company to the point that it affects my mental and physical well being.



36. Failure to meet company profitability can destabilize my job security.



�

37. When I have meetings with our CEO, he/she is highly concerned about the economic outcome of our operations.

CEO pressure on directors on firm profitability


Questions 37-42 (Luque et al., 2008)

38. I feel my decision making is compromised because of the pressure from the CEO to produce acceptable profits for the company.



39. It is a mandate from my CEO to aid him in making money for the company.



40. The pressure I feel from my CEO on profitability causes my leadership to weaken and thus result in poorer corporate governance.

CEO pressure effect on transformational leadership influence in good corporate governance


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�



Source

41. My leadership ability in practicing good governance is affected by my CEO’seconomic perspective on firm profitability.



42. CEO pressure on firm profitability forces me at times, to cut corners or omit some process on some aspects of my job and therefore affects how I lead my people.



Questions andsub questions from 43-45 are open ended (semi-structured interview) item.

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�

Appendix C

Pretest Results�

Pre-test 1

Table C.1

Reliability Statistics

Cronbach's Alpha

Cronbach's Alpha Based on

Standardized Items n

.71 .71 36

�

The first pretest conducted yielded a satisfactory alpha of 0.71. However upon

closer investigation of the transactional leadership and corporate governance scales, the

resulting alphas were at 0.08 and 0.55, respectively. The problem with this initial pretest

is with the low number of pretest respondents and particularly, item statements six to 10

of the transactional leadership scale.

Pre-test 2

The second pretest resulted in a much higher alpha of 0.20 primarily due to the

increase of respondents and the increase in items from 10 to 16 statements in the

transformational leadership scale and discarding the transactional leadership scale since

the study focuses the transformational leadership qualities of CEOs as perceived by

directors.

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Table C.2 Reliability Statistics

Cronbach's Alpha


Standardized Items

n .92 .92 42

The good corporate governance and CEO pressure on director on firm

profitability scales has a minimum alpha of 0.80 which is quite satisfactory. However,

under the transformational leadership scale, the subscale of individual consideration

yields an alpha of only 0.686.

Table C.3


Cronbach's Alpha


Standardized Items

n .69 .69 4

I took out statement 1 of that subscale to yield a higher alpha of 0.783.

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Cronbach's Alpha


Standardized Items

n .78 .79 3

�

Table C.5

Table C.6

Item-Total Statistics

Scale Mean if

Item Deleted

Scale Variance if

Item Deleted

Corrected Item-Total Correlation

Squared Multiple

Correlation

Cronbach’s Alpha if Item Deleted

TL-Individualized Consideration 11.30 6.83 .18 .05 .78

TL-Individualized Consideration 11.43 5.29 .61 .44 .54

TL-Individualized Consdieration 11.80 4.72 .63 .44 .51

TL-Individualized Consdieration 11.87 4.88 .52 .35 .59


Scale Mean if

Item Deleted

Scale Variance if

Item Deleted


Squared Multiple

Correlation

Cronbach's Alpha if

Item Deleted

TLCONS2 7.27 3.65 .66 .44 .68 TLCONS3 7.63 3.28 .63 .42 .69 TLCONS4 7.70 3.18 .59 .35 .75

� 756

Similarly, in the subscale of intellectual stimulation that yields an alpha of .85, we

delete statement 4 to yield a much higher alpha of .92.

Table C.7


Cronbach's Alpha


Standardized Items

n .85 .84 4


Cronbach's Alpha


Standardized Items

n .92 .92 3

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Table C.9 ��

The total number of items for the questionnaire is then decreased from 42 to 40

statements. But by reducing the number of item statements, the alpha results to a lower

number of .91 from .92.

Table C.10


Scale Mean if

Item Deleted

Scale Variance if

Item Deleted


Squared Multiple

Correlation

Cronbach’s Alpha if

Item Deleted

TLSTIM1 7.60 4.32 .83 .69 .89 TLSTIM2 7.60 4.11 .86 .73 .87 TLSTIM3 7.60 4.46 .82 .68 .89

Scale Mean if

Item Deleted

Scale Variance if

Item Deleted


Squared Multiple

Correlation

Cronbach's Alpha if Item Deleted

TL-Intellectual Stimulation

11.93 5.65 .83 .70 .75


11.93 5.58 .81 .73 .76


11.93 5.86 .81 .69 .76


11.40 9.28 .36 .16 .92

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Table C.11


Cronbach's Alpha


Standardized Items

n .91 .92 40

Upon closer look of the survey items, apart from the increase in alphas of the two

subscales (intellectual stimulation and individualized consideration),the alpha for the

transformational leadership scale has likewise increased from .94 to .95 as a result of

deleting two statements from the scale.


Cronbach's Alpha


Standardized Items

n .94 .94 16


Cronbach's Alpha


Standardized Items

n .95 .95 14

� 759

With only an insignificant decrease in overall alpha for the survey, we decided to

reduce the number of item statements in consideration for higher alpha increases in the

transformational leadership subscales of individual consideration and intellectual

stimulation.

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Appendix D

Final Questionnaire Form

DATE:___________________________

A SURVEY ON LEADERSHIP AND CORPORATE GOVERNANCE

Good day! My name is Mr. Leveric T. Ng, a doctoral student at the De La Salle chosen you as one of thirty (30) subjects for my dissertation.

The survey is about the relationship between transformational leadership and good corporate governance, and how CEO pressure on executive directors on firm profitability affects this relationship.

Rest assured the information that will be generated from this survey will be treated with the strictest confidence. In no way can the result be used for or against your directorship by the company, as this research is undertaken for academic purposes only.

Thank you very much for your invaluable assistance.

_____________________________________________________________________

Gender:______ (Male/Female)

Age: _____

Educational level: _________________

CEO duality (CEO and Chairman of the Board position is held by one person):

Yes________ No________

Following are forty two (42) statements. Please tell me how much you agree or disagree with the statements. Let us use the following five-point scale where a rating of SD means strongly disagree and SA means strongly agree. Please encircle the number in the column that represents your response, using the following column key:

SD = strongly disagree

D = disagree

N = neutral, neither agree nor disagree

� 75;

A = agree

SA = strongly agree

1. Communication lines are constantly kept open between my CEO and the people in the organization. SD D N A SA

2. My CEO takes time to develop employees to reach their fullest potential as leaders. SD D N A SA

3. Listening to employee concerns and guiding them through the process is a particular strength of my CEO. SD D N A SA

4. Uncertainty is considered a challenge and my CEO and expects his employees to think independently. SD D N A SA

5. I have observed that my CEO actively solicits contributions from employees to manage situations. SD D N A SA

6. Developmental learning is highly valued by my CEO and this enables employees to think and act independently. SD D N A SA

7. Employees are motivated and inspired by my CEO to perform to the best of their abilities. SD D N A SA

8. The direction of my organization is clearly communicated by my CEO. SD D N A SA

9. My CEO provides the organization with a strong sense of mission. SD D N A SA

10. It is my CEO’s belief that leadership is a process of changing the conditions of people’s lives. SD D N A SA

11. My CEO conducts himself with the highest level of ethical consideration. SD D N A SA

12. I have great admiration and respect for my CEO. SD D N A SA

13. Unethical behavior by any employee at any level in my company is not tolerated by the CEO. SD D N A SA

14. The actions of my CEO provide the employees with moral courage to do what is right and for the best interest of the organization. SD D N A SA

15. Our corporate governance framework ensures the strategic guidance of the company, board monitoring of

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management and accountability to the company and shareholders. SD D N A SA

16. As a Board Member, it has been my experience to act in good faith on a fully informed basis in the best interest of the company and our shareholders. SD D N A SA

17. My decisions are based on outcomes that will be equitable for all shareholders, irrespective of shareholdings and differing shareholder interests. SD D N A SA

18. As a Director, high ethical standards are expected of me by the board, management and shareholders. SD D N A SA

19. I see to it that I participate in reviewing and guiding corporate strategy. SD D N A SA

20. As a director, risk management is an area that I regularly take up in the boardroom. SD D N A SA

21. I monitor the effectiveness of the company’sgovernance practices and discuss these changes with the board if needed to improve such practices. SD D N A SA

22. I am active in the selection of key executives in the company. SD D N A SA 23. Compensation of the board and key executives are issues that I make sure are aligned with shareholder interests. SD D N A SA

24. Directors nominated to the board have to go through a formal nomination and election process that have always been transparent. SD D N A SA

25. In my organization, potential conflicts of interest by any party are monitored and managed by us during board meetings. SD D N A SA

26. I have to make sure that independent audit is performed to ensure integrity of reports. SD D N A SA

27. We Directors in the Board establish proper disclosure and communicate this clearly to shareholders. SD D N A SA

28. It has been my practice that my decisions on corporate affairs are based on objectivity SD D N A SA

29. My company ensures that there is a sufficient number of independent directors to sit on board committees. SD D N A SA

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30. I am fully committed to my responsibilities as a board member in terms of my time. SD D N A SA

31. My decision making as a Board Member is fully supported by access to accurate, relevant and timely information. SD D N A SA

32. Producing company profit puts a lot of stress on my job. SD D N A SA

33. I am particularly conscious about the bottom line of my company to the point that it affects my mental and physical well being. SD D N A SA

34. Failure to meet company profitability can destabilize my job security. SD D N A SA

35. When I have meetings with our CEO, he/she is highly concerned about the economic outcome of our operations. SD D N A SA 36. I feel my decision making is sometimes compromised because my CEO expects me to produce acceptable profits for the company. SD D N A SA

37. It is a mandate from my CEO to aid him in making money for the company. SD D N A SA

38. The pressure I feel from my CEO on firm profitability causes my leadership to weaken and thus result in poorer corporate governance. SD D N A SA

39. My leadership ability in practicing good governance is affected by how my CEO’seconomic perspective on firm profitability. SD D N A SA

40. CEO pressure on firm profitability forces me at times, to omit some process on some aspects of my job and therefore affects how I lead my people. SD D N A SA

INTERVIEW

41. What is good corporate governance to you?

What are your responsibilities as a board member?

Do you think good corporate governance contributes to organizational success? Why and how so?

What do you think are the indicators of good corporate governance? Are these indicators or measures being implemented in your organization?

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42. How would you describe the leadership style of your CEO? Pls. expound.

Does the leadership style of your CEO influence your practice of good corporate governance in your organization?

If yes, why do you think leadership plays an important role in good corporate governance? How does leadership influence good corporate governance?

If no, are there other areas other than leadership that can influence good corporate governance? Why and how?

43. Do you think firm profitability is a source of pressure?

Do you experience pressure from the CEO on firm profitability?

If yes, how does this pressure affect good corporate governance. Apart from firm profitability, are there other areas of pressure from the CEO that you experience?

If no, where do you feel or think the pressure comes from? How and why?

END OF SURVEY

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Appendix E

Policy on Use of Professional Help for Dissertation

Students may engage professional survey companies or other paid service-providers in the conduct of their dissertation research so long as the following criteria are met:

The intellectual content of all the primary investigative work must be the sole work product of the student. That includes the following steps: literature review and analysis, formulation of research questions and hypotheses, design of data collection method and instrument, sampling design, analysis of pretest results, finalization of data collection instrument and procedures, analysis of data, testing of hypotheses (if any), and formulation of conclusions.

Professional help is permitted at each of the above steps if it takes the form of advice and counsel. It is not permitted when the help pertains to actually doing the work for the student. For example, a student may receive advice from a survey research professional on the formatting and wording of a questionnaire, so long as the content and the framework of the questionnaire is done by the student. Giving a set of hypotheses to a survey professional and asking for a draft questionnaire would be prohibited.

The step where hired professionals may actually do the work is in the data collection phase of the dissertation research. This would include reproduction and distribution of questionnaires, interviewing, data entry, and tabulation. However, the specifications for the tabulation must come from the student, again possibly with advice.

Conforme:

________________________________ ________________________________ Mr. Leveric Ng Mr. Kenn Velasco DBA Student 10897720 Managing Director CASI Research

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Appendix F

Interviewer Protocol

A. The interviewer should always be equipped with the following when conducting interviews:

1. Official CASI identification card.

2. Signed copy of letter from CASI/researcher and copy of researcher university identification card.

3. Contact details of CASI and researcher in case respondent would like to verify

interviewer authenticity.

4. Presentable writing notebook and other materials.

5. Proper business attire as initial appearance and demeanor is crucial.

B. In conducting the actual interview, the interviewer should follow the succeeding procedure:

1. Confirmation. Interviewer calls respondent to confirm appointment a day prior to interview.

2. Introduction. Interviewer appears at least fifteen minutes before appointed time. After the introductions, interviewer thanks respondent for his/her time. Respondent is then briefed by the interviewer on what the survey is all about in a short and concise manner.

3. Asking questions. Interviewer follows the order of the questions in the survey

and asks only what is in the instrument. Interviewer should be patient with respondents in eliciting answers.

4. Obtaining responses. Respondents should be encouraged to elaborate on their

statements to probe deeper into their thoughts. These may be done through ‘why’ and ‘how’ questions. Interaction is key to getting the desired responses. It is also ideal to clarify statements made by respondents.

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5. Recording responses. It is imperative that responses must be captured through audio recording supported by written notes by the interviewer.

6. Ending interview. At the end of the interview, respondent must be thanked

again. Interviewer then informs respondent that they will be given copy of the survey results after research completion. Interviewer should also ideally write down immediately after leaving the interview, observations or comments about the interview in red to distinguish from respondent answers.

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Appendix G

Interviewer Training Guide

The interviewer assigned to my study by CASI is an experienced research

assistant. However, it is imperative that I conduct my own training to ensure the integrity

of the research process. I will need to spend two half day sessions with the interviewer

prior to actual interviews and will need to monitor interviewer output.

1. Explain the study.

I need to explain the background and rationale for my research before the actual

interviews are commenced. The interviewer must be made aware of the importance

of this study, briefly oriented on what previous work has been done of this area of

research for him/her to be able to probe respondent thoughts.

The expected timelines will also have to be made clear with interviewer and

CASI.

2. Review on survey research

I have to be confident with the ability of the interviewer on research methods. I

will need to guide interviewer through the research protocol before and during the

interviews.

An explanation on the survey method has to be communicated by me to the

interviewer to ensure clarity and understanding.

3. Explain sampling rationale

It is best that interviewer understands the logic of the research sampling, in that

this sampling will be the basis of my conclusions.

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4. Discuss interviewer bias

I have to ensure that interviewer is constantly aware of personal biases when

questioning respondents. I will need to rehearse the interview questioning with the

interviewer. Answers to the questions must come completely from the respondent.

5. Discuss protocol

It is also crucial that the interview protocol be adhered to strictly. I will discuss

with interviewer to follow the protocol set for this study to add further credence.

6. Interview rehearsal Two rehearsals will be done with the interviewer to strengthen competency. If

unsatisfied, I will need to request CASI for a suitable interviewer and repeat the

training process

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Appendix H

Interview Timeline

Table H.1

Interview/Transcription Timeline

Method Number of Visit

Process Schedule

Survey One May be done via email prior to actual interview or before actual interview.

Telephone calls may be done after survey completion if an item or some items on the instrument are not answered.

Contact with respondents will start during the month of June to September, 2013.

Interviews were scheduled from September, 2013 and completed 30 respondents by early February 2014.

In-depth interviews

Transcription

One to two

An average of two to three interviews per week will be conducted depending on respondent availability. Follow up questions or clarifications may be done after completing all interview sessions.

Length of interviews will average of one to two hours per interview.

SPSS and Interviews

The survey and in-depth interviews were completed in four months time, (from September 2013 to February 2014).

Data input and transcription started mid September 2013 and completed in mid February 2014.

� 86;

Appendix I Table I.1 Correlation Coefficient of Independent and Moderating Variables

TLCONS2 TLCONS3 TLCONS4 TLSTIM1 TLSTIM2 TLSTIM3 TLMOTI1 PROFSTRESS1 0.196 0.103 0.064 0.100 0.162 -0.034 0.101 PROFSTRESS2 -0.096 0.116 0.157 0.179 0.147 -0.046 0.176 PROFSTRESS3 -0.317 -0.110 -0.098 -0.117 -0.114 -0.367 -0.032 CEOPRESS1 -0.212 0.048 -0.115 0.028 -0.041 -0.223 -0.104 CEOPRESS2 -0.293 -0.056 -0.179 -0.038 -0.117 -0.292 -0.309 CEOPRESS3 -0.066 0.000 -0.006 0.368 0.127 -0.049 0.096 CGMOD1 -0.275 -0.236 -0.224 -0.131 -0.158 -0.232 -0.167 CGMOD2 -0.224 -0.087 -0.119 -0.089 -0.087 -0.207 -0.159 CGMOD3 -0.222 -0.030 -0.091 -0.018 -0.017 0.012 -0.084

TLMOTI2 TLMOTI3 TLMOTI4 TLINFLU1 TLINFLU2 TLINFLU3 TLINFLU4 PROFSTRESS1 0.160 -0.325 -0.191 -0.092 0.036 0.281 0.144 PROFSTRESS2 0.062 -0.225 -0.061 -0.213 -0.075 0.230 -0.056 PROFSTRESS3 -0.059 -0.364 -0.003 -0.496 -0.328 -0.026 -0.329 CEOPRESS1 0.133 -0.322 0.048 -0.323 -0.175 -0.087 -0.141 CEOPRESS2 -0.271 -0.492 -0.160 -0.509 -0.424 -0.092 -0.376 CEOPRESS3 -0.134 -0.077 0.208 -0.308 -0.175 0.172 -0.017 CGMOD1 -0.444 -0.344 -0.172 -0.231 -0.246 0.048 -0.216 CGMOD2 -0.361 -0.298 -0.154 -0.464 -0.360 -0.013 -0.233 CGMOD3 -0.204 -0.269 -0.115 -0.122 -0.063 0.028 0.025

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Table I.2

Correlation Coefficient of Transformational Leadership Dimensions

TLCONS2 TLCONS3 TLCONS4 TLSTIM1 TLSTIM2 TLSTIM3 TLSTIM4 TLCONS2 1.000 .607 .538 .617 .765 .636 .206 TLCONS3 .607 1.000 .516 .712 .808 .764 .213 TLCONS4 .538 .516 1.000 .600 .584 .647 .461 TLSTIM1 .617 .712 .600 1.000 .805 .764 .381 TLSTIM2 .765 .808 .584 .805 1.000 .800 .278 TLSTIM3 .636 .764 .647 .764 .800 1.000 .343 TLSTIM4 .206 .213 .461 .381 .278 .343 1.000 TLMOTI1 .594 .732 .727 .711 .691 .672 .515 TLMOTI2 .335 .534 .488 .377 .475 .531 .291 TLMOTI3 .300 .569 .435 .568 .431 .553 .224 TLMOTI4 .480 .512 .460 .701 .489 .586 .219 TLINFLU1 .368 .356 .269 .239 .348 .533 .286 TLINFLU2 .577 .626 .597 .556 .600 .763 .477 TLINFLU3 .276 .382 .477 .298 .391 .415 .422 TLINFLU4 .576 .640 .576 .587 .571 .775 .548

TLMOTI1 TLMOTI2 TLMOTI3 TLMOTI4 TLINFLU1 TLINFLU2 TLINFLU3 TLINFLU4

TLCONS2 .594 .335 .300 .480 .368 .577 .276 .576 TLCONS3 .732 .534 .569 .512 .356 .626 .382 .640 TLCONS4 .727 .488 .435 .460 .269 .597 .477 .576 TLSTIM1 .711 .377 .568 .701 .239 .556 .298 .587 TLSTIM2 .691 .475 .431 .489 .348 .600 .391 .571 TLSTIM3 .672 .531 .553 .586 .533 .763 .415 .775 TLSTIM4 .515 .291 .224 .219 .286 .477 .422 .548 TLMOTI1 1.000 .622 .663 .623 .417 .730 .532 .738 TLMOTI2 .622 1.000 .484 .380 .467 .571 .431 .615 TLMOTI3 .663 .484 1.000 .568 .547 .626 .380 .575 TLMOTI4 .623 .380 .568 1.000 .252 .479 .216 .466 TLINFLU1 .417 .467 .547 .252 1.000 .733 .464 .630 TLINFLU2 .730 .571 .626 .479 .733 1.000 .584 .844 TLINFLU3 .532 .431 .380 .216 .464 .584 1.000 .619 TLINFLU4 .738 .615 .575 .466 .630 .844 .619 1.000

Appendix J

Table J.1

Data Analysis Matrix

��

H1: Transformational leadership positively influences good corporate governance.

�

Transformational Leadership style will be measured using 14 items developed for this study (on the basis of face and content validity) and a 5-point scale ranging from Strongly agree to strongly disagree. Questions were based on the 4 dimensions of transformational leadership to measure Executive Director perception on CEO leadership style.

Director belief and behavior on good corporate governance as promulgated by OECD principles of Corporate Governance with particular emphasis on Principle No. 6: Responsibilities of the Board (OECD, 2008) are measured by 17 items specifically developed for this study (on the basis of face and content validity*) and a five-point scale ranging from Strongly agree to strongly disagree

�

Regression Analysis (Hair et al., 2010) one dependent variable and one independent variable

�

� 864

�

��

H2:Transformational leadership positively influences good corporate governance if directors are not pressured by the CEO on firm profitability.

H3: CEO pressure on directors on firm profitability has a moderating influence on good corporate governance.

Executive director belief and behavior on good corporate governance as influenced by CEO pressure on firm profitability are measured by nine items specifically developed for this study (on the basis of face and content validity) and a five-point scale ranging from Strongly agree to strongly disagree.

Multiple Regression Analysis (Hair et al, 2010) one dependent variable and two independent variable

* Content validity refers to the extent to which the questionnaire will provide adequate coverage of the research questions. This can be done through a careful definition of the research through review of the literature and discussions with individuals to assess if questions are essential, useful or not necessary. It also refers to the degree to which the measure covers the range of meanings included in a concept (Babbie, 1992; Saunders, Lewis, &Thornhill, 2010).

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Appendix K

Descriptive Statistics

Table K.1

Profile of Participants by Sex, Age and Highest Educational Attainment

Variable Category f % �Sex Male 20 66.70 � Female 10 33.30 � Total 30 100.00 �

Age 21-29 5 16.70 � 30-39 7 23.30 � 40-49 7 23.30 � 50-59 6 20.00 � 60-69 4 13.30 � 70-79 1 3.30 � Total 30 100.00 � Mean age 44.73 � Median age 40.00 � Std dev. 13.32 � Minimum 25 � Maximum 73 � Highest educational attainment AB/BS 19 63.30 � MBA/MBM 9 30.00 � DBA (candidate) 1 3.30 � PhD 1 3.30 � Total 30 100.00 �

�

� 876�

Table K.2

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� 877�

Table K.3


Subscale Minimum Maximum Mean Std.

Deviation ITEM1 3.00 5.00 4.70 0.53 ITEM2 3.00 5.00 4.37 0.61 ITEM3 4.00 5.00 4.47 0.51 Individualized consideration 3.33 5.00 4.51 0.46 ITEM4 3.00 5.00 4.40 0.56 ITEM5 1.00 5.00 4.07 1.01 ITEM6 4.00 5.00 4.40 0.50 Intellectual stimulation 3.33 5.00 4.29 0.55 ITEM7 3.00 5.00 4.53 0.57 ITEM8 3.00 5.00 4.40 0.56 ITEM9 3.00 5.00 4.43 0.63 ITEM10 3.00 5.00 4.27 0.74 Inspirational motivation 3.25 5.00 4.41 0.46 ITEM11 3.00 5.00 4.50 0.63 ITEM12 3.00 5.00 4.63 0.61 ITEM13 2.00 5.00 4.47 0.78 ITEM14 2.00 5.00 4.43 0.82 Idealized influence 2.75 5.00 4.51 0.57 Overall Mean 3.21 5.00 4.43 0.40

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Table K.4


Subscales Minimum Maximum Mean Std. Deviation

ITEM15 3.00 5.00 4.33 0.66 ITEM16 4.00 5.00 4.63 0.49 ITEM17 3.00 5.00 4.50 0.57 ITEM18 3.00 5.00 4.70 0.53 ITEM19 3.00 5.00 4.70 0.53 ITEM20 3.00 5.00 4.27 0.74 ITEM21 3.00 5.00 4.20 0.61 ITEM22 2.00 5.00 4.17 0.83 ITEM23 2.00 5.00 4.20 0.89 ITEM24 2.00 5.00 3.90 0.66 ITEM25 3.00 5.00 4.30 0.65 ITEM26 2.00 5.00 4.37 0.72 ITEM27 4.00 5.00 4.53 0.51 ITEM28 3.00 5.00 4.47 0.63 ITEM29 2.00 5.00 3.87 0.90 ITEM30 3.00 5.00 4.53 0.57 ITEM31 4.00 5.00 4.53 0.51 Overall mean 3.59 5.00 4.36 0.39

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Table K.5

CEO Pressure

Subscale Minimum Maximum Mean Std. Deviation

ITEM32 2.00 5.00 4.03 1.00 ITEM33 1.00 5.00 3.43 1.22 ITEM34 1.00 5.00 3.40 0.93 Pressure on firm profitability 1.67 5.00 3.62 0.79 ITEM35 2.00 5.00 4.17 0.79 ITEM36 1.00 5.00 3.10 1.24 ITEM37 1.00 5.00 3.97 1.22 ITEM38 1.00 5.00 2.60 1.07 ITEM39 1.00 5.00 2.87 1.17 ITEM40 1.00 5.00 2.57 1.14 CEO pressure on directors on firm profitability 1.67 5.00 3.21 0.67 Overall mean 2.11 4.89 3.35 0.64

� 87:�

Appendix L

Regression Assumptions

There are four major assumptions that must be satisfied in linear regression

modeling. These are linearity of the dependent variable and each of the independent

variables, normality and homoscedasticity of the residuals (or errors of the model), and

absence of multicollinearity among the independent variables (for multiple linear

regression).

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Linearity

Figure L.1. The scatter plot shows that the relationship between transformational

leadership and good corporate governance is linear. Specifically, when transformational

leadership is high and so is good corporate governance and conversely, if the former is

low, the latter is also low. Because of this, regression model (2) is linearly fit.

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Figure L.2. The above scatter plot shows that the relationship between CEO pressure on

directors on firm profitability and good corporate governance is not linear. From the

scatterplot, if the CEO pressure is high, good corporate governance is either low or high.

Conversely, if CEO pressure is low, good corporate governance may be low or high as

well. This is the main reason that in the first model, as well as in the rest of the models,

CEO pressure did not load significantly in all the regression models.

The assumption in linear regression is that the dependent variable is linearly

related with the independent variable. In this study, only transformational leadership is

linearly related with good corporate governance.

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Multicollinearity

Table L.1 Correlations

Transformational

leadership

Good corporate

governance

CEO pressure on firm

profitability Pearson Correlation

1 .66** -.24

Sig. (2-tailed) .00 .20 Transformational leadership

N 30 30 30 Pearson Correlation

.66** 1 -.09

Sig. (2-tailed) .00 .64 Good corporate governance

N 30 30 30 Pearson Correlation

-.24 -.09 1

Sig. (2-tailed) .20 .64 CEO pressure on firm profitability

N 30 30 30 **. Correlation is significant at the 0.01 level (2-tailed).

The correlation coefficient between the two independent variables

(transformational leadership and CEO pressure on firm profitability) is -.24 (p = 0.202),

meaning, they are not linearly correlated. Another way of checking multicollinearity is to

look at the variance inflation factor (VIF) values of the independent variables in the

regression model. Several authors are divided as to the cut-off values for VIF. However,

the model showed low values of VIF among the independent variables, meaning,

multicollinearity does not exist between the independent variables. Linear regression

model assumes that the independent variables are not significantly collinear with each

other. Hence, this assumption is complied with.

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&��,-8�

From Regression Model 1: Regression Equation Coefficients

Model B SE t p VIF Intercept -1.16 4.28 1.30 .788 x1 1.19 0.92 4.66 .207

x2 0.72 1.17 0.62 .541 1.06

x1x2 -.015 0.25 -0.58 .566 1.07

R2 = .45 SE = .30

Normality

Linear regression model assumes that the distribution of the residuals is

approximately normal. There are two ways to check this. One is to look at the

histogram of the residuals and the other one is to look at the Normal P-P plot.

Figure L.3. Histogram for regression model 1. It indicates that the distribution of the

residuals is approximately normal, i.e., it is not skewed.

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Figure L.4. Normal probability plot for regression model 1. The residuals scattered

around the line, therefore the distribution does not deviate much from normality.

Homoscedasticity

Homoscedasticity requires that the variance of the residuals of the model is

constant. Specifically, we check this by looking at the scatter plot of the standardized

residuals (y) and the standardized predicted residuals (x). If there is no pattern (or trend)

in the scatter, then this suggests that the variance of the residuals is constant.

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Figure L.5. The residuals plot for regression model 1.

All the other models may be tested for homoscedasticity. All their residual plots

show that their variances are not far from being constant. However, in all the models for

this study, the very determining factor whether the model is linearly fit is the linear

relationship between the dependent variable and independent variable.

In summary:

1. Regression model 1 complies the four assumptions of multiple linear

regression. However, of the two independent variables, transformational

leadership and CEO pressure on directors on firm profitability, only the

former aptly predicts the dependent variable, good corporate governance. In

other words, CEO pressure on directors on firm profitability is not a

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predictor of good corporate governance nor is it a moderating variable for

the independent and dependent variable.

2. Regression model 2 is a simple linear regression model and it is found to be

linearly fit. It complies with the three assumptions of linearity between their

respective dependent and independent variables, homoscedasticity and

normality of residuals.

3. Regression model 5 violated the assumption of linearity between the

dependent variable and independent variable. Therefore the null hypothesis

that they are not linearly fit cannot be rejected.

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Appendix M

Other Possible Regression Models: CEO Duality

Results on CEO duality appear to have a moderating effect on the relationship

between transformational leadership and good corporate governance,

R2 = .58, F (3,26) = 11.87, p = .000, 95% CI (0.06,0.57).

Table M.1

Coefficientsa

Unstandardized Coefficients

Standardized Coefficients

Model B Std. Error Beta

t

Sig. (Constant) 5.45 1.69 3.28 .003 Transformational Leadership

-.30 0.38 -0.31 -.80 .431

Duality -3.03 1.24 -3.63 -2.43 .022 1 Moderator effect of duality on transformational leadership

0.71 0.28 4.08 2.57 .016

a. Dependent Variable: Good corporate governance

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Table M.2 ANOVAa

Model

Sum of Squares

df

Mean Square

F

Sig.

Regression 2.53 3 .85 11.87 .000b Residual 1.85 26 .07 1 Total 4.38 29


b. Predictors: (Constant), Moderator effect of duality on transformational leadership,

Transformational Leadership, Duality

Table M.3 Model Summaryb

Model

R

R Square

Adjusted R Square

Std. Error of the Estimate

1 .76a .58 .53 .27 a. Predictors: (Constant), Moderator effect of duality on

transformational leadership, Transformational Leadership,

Duality

b. Dependent Variable: Good corporate governance

To determine where this moderating effect takes place, I ran a simple linear

regression model for each duality (i.e., dual role, no dual role).

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Table M.4 For Duality = Yes Coefficientsa,b




t

Sig. (Constant) 2.51 0.74 3.39 .003

1 Transformational Leadership

0.41 0.17 0.49 2.43 .025

a. Duality = Yes


Table M.5

For Duality = Yes ANOVAa,b

Model

Sum of Squares

df

Mean Square

F

Sig.

Regression 0.53 1 .530 5.91 .025c Residual 1.71 19 .090 1 Total 2.24 20

a. Duality = Yes


c. Predictors: (Constant), Transformational Leadership

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Table M.6

For Duality = Yes Model Summarya,c

Model

R

R Square

Adjusted R Square


1 .49b .24 .20 0.30 a. Duality = Yes

b. Predictors: (Constant), Transformational Leadership

c. Dependent Variable: Good corporate governance

Table M.7

For Duality = No Coefficientsa,b




t

Sig. (Constant) -0.50 .56 -0.89 .401


1.11 .12 .96 8.96 .000

a. Duality = No


Table M.8

For Duality = No ANOVAa,b

Model

Sum of Squares

df

Mean Square

F

Sig.

Regression 1.66 1 1.66 80.30 .000c Residual 0.14 7 0.02 1 Total 1.80 8

a. Duality = No



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Table M.9

Model Summarya,c

Model

R

R Square

Adjusted R Square


1 .96b .92 .91 .14 a. Duality = No


c. Dependent Variable: Good corporate governance

The difference in R2 of the two models is very high. For Duality = Yes,

R2 = .24, F (1,19) = 5.91, p = .025, 95% CI (-0.35,0.82) and For Duality = No,

R2 = .92, F (1,7) = 80.30, p = .000, 95% CI (0.64,1.20). It may then be inferred that

CEOs who do not have dual roles (i.e., CEOs are not holding position of Chairman of the

board concurrently), director perception of good corporate governance is positively

influenced by transformational leadership 92% of the time, while for Directors whose

CEO have dual roles, only 24% of the time. In fact, if we compare the scatterplot for

each scenario, Directors whose CEOs do not hold a concurrent position as Chairman of

the board seem to be more “well-behaved”, i.e., the trend is apparent as contrasted with

those with dual roles as shown in the following scatterplot:

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Figure M.1. CEO duality Figure M.2. Non CEO duality

Other Possible Regression Models: Director Gender

Result on Director gender appears to have no moderating effect on the

relationship betweeen the independent and dependent variables,

R2 = .44, F (3,26) = 6.75, p = 0.998, 95% CI (-0.17,1.04).

Table M.10

Coefficientsa




t

Sig. (Constant) 1.52 0.65 2.36 .03 Transformational Leadership

0.63 0.15 0.65 4.16 .00

Sex 0.03 0.13 0.03 0.19 .85 1 Moderator effect of sex on transformational leadership

0.00 0.07 0.00 -0.00 .99


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Table M.11

ANOVAa

Model

Sum of Squares

df

Mean Square

F

Sig.

Regression 1.92 3 0.64 6.74 .002b Residual 2.47 26 0.09 1 Total 4.38 29


b. Predictors: (Constant), Moderator effect of sex on transformational leadership,

Transformational Leadership, Sex

Table M.12 Model Summary

Model

R

R Square

Adjusted R Square


1 .66a .44 .37 .31 a. Predictors: (Constant), Moderator effect of sex on

transformational leadership, Transformational Leadership, Sex

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Table M.13

For Sex = Male Coefficientsa,b




t

Sig. (Constant) 1.55 0.75 2.06 .054


0.63 0.17 .66 3.70 .002

a. Sex = Male


Table M.14

For Sex = Male ANOVAa,b

Model

Sum of Squares

df

Mean Square

F

Sig.


a. Sex = Male



Table M.15 For Sex = Male Model Summarya

Model

R

R Square

Adjusted R Square


1 .66b .43 .40 .31 a. Sex = Male


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Table M.16

For Sex = Female Coefficientsa,b




t

Sig. (Constant) 1.57 1.39 1.13 .291


0.63 0.30 0.60 2.09 .070

a. Sex = Female


Table M.17

For Sex = Female ANOVAa,b

Model

Sum of Squares

df

Mean Square

F

Sig.


a. Sex = Female



Table M.18 For Sex = Female Model Summarya

Model

R

R Square

Adjusted R Square


1 .60b .35 .27 .31 a. Sex = Female


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Figure M.3.Male gender moderating Figure M.4. Female gender variable (non linear relationship moderating variable between good corporate governance with male gender as moderating variable �

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Appendix N

Qualitative Coding

Table N.1

CEO Leadership Style

Code Category Theme

Open communications (18) Listens to suggestions (15) Caring attitude (15) Attends to employee needs Situational leadership (3) Open door policy (2)


Encourages creativity (13) Delegates the work (11) Nurtures and develops employees (6) Demands employees to do more (5) Implementing necessary changes (2)

Intellectual Stimulation Transformational Leadership

Motivates employees (6) Source of inspiration (5) Sets objectives clearly (4) Charismatic attribute (4) Knowledge of the business (4)

Inspirational Motivation

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�

Code Category Theme

Setting good example (6) Leadership from the top (6) Doing the right thing (4) Emulates the leader (3) Plays fair (2) Religious (2) Serving others (1)

Idealized Influence Transformational Leadership

Others

Authoritative (2) Quick to decide without thorough consultation (2) Provides financial rewards (2)

Following rules Centralized decision making Rewards for efforts and/or from productivity

Transactional Leadership

Instills fear with staff (1) Unapproachable (1) Uncaring attitude (1) No concern for employees (1) Difficult personality (1)

Dysfunctional Leadership

�

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Table N.2


Code Category Theme

Following the rules (18) Ensuring policy implementation (18) Producing profit for the company (16) Achieving same organizational goals (12) Managing business well (7) Sustainability (3) Fear of punishment (3) Strict compliance (3)

Control

Transparency (14) Inculcating proper values (14) Stakeholder protection (12) Welfare of employees (12) Good leadership (8) Integrity (4) Religious conviction (2)

Accountability Good Corporate Governance

Strategy formulation (6) Strategy

Wealth of experience (3) Service

the positive influence of transformational leadership in good corporate

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