When should leaders show leadership, and when should they try to gain consensus? At what point is it imperative to act in the face of opposition? When should time be taken to ensure that hearts and minds have been won before proceeding? Many leaders wrestle with these dilemmas.
In business, such predicaments usually arise where the organisation recognises the need to undergo change. If a leadership group gets too far ahead of the rest of the organisation, the change programme won’t be successful. However, if the leaders wait for consensus then it may become too late to act. So where does one draw the line?
We see this in politics as well. How much of what government does should be leading the way, and how much should be done from looking at focus group results and trying to work out how to keep the voters happy? Let’s pick a contentious example. Many economists and policymakers over the years have pointed out the downside of having a capital gains tax exemption on the family home (perverse incentives to own a massive house for two people, skewed property prices in certain market segments, difficulty in accessing capital to fund retirement, etc). It would be a brave government which would remove this tax exemption. They would have to be way out on the ‘leadership’ side of the equation and be willing to forego consensus – that is, take the consequence of being voted out at the next election.
Personality types affect decisions
The personality types of the leaders involved can play a big part in where the balance between leadership and consensus is struck. If you have ever been exposed to the DISC personality programming system, you will remember that some personality types prefer to gain consensus before acting (the S type). Others like to quantify things and prefer to have concrete proof before proceeding (the C type). Some (the I type) are likely to influence and persuade people to follow them. And some (the D type) are likely to just do it and ask forgiveness not permission.
There is also the question of training and past experience. Leadership teams at businesses who have lived through a ‘near death’ experience for the organisation may be much more conservative than their competitors. In my experience, some people who are trained to manage risk focus overly on downside risk and miss upside opportunities. The bottom line for any business or organisation is that you can’t succeed without taking risks. Those practicing traditional risk management, as opposed to Enterprise Risk Management (which looks holistically at risks that impact the whole organisation and is a key input into business strategy) may be focused on risks from a bottom-up and miss the big ‘black swan’ risks.
The type of organisation also has an influence on how the dilemma of leadership versus consensus is handled. In a military situation, the leadership has ultimate control. In a corporate environment, a leadership team (board and senior management) also has a high level of control over the direction the business takes. By contrast, in a political party where the leaders are representing their constituents, there needs to be recognition that there may need to be more consensus, or at least the message needs to be carefully sold.
Responsibilities of super funds
What about a super fund? It’s a membership organisation and the management and trustee board are there to act in the best interest of members. Does this change the balance of how far leaders can go out on a limb? I believe it does, and should make leaders place more emphasis on getting hearts and minds aligned with what they are doing.
Industry and corporate superannuation funds have always dealt with the unions that represent their members and the employers of their members. They have been used to gaining consensus amongst these powerful groups before proceeding with a course of action. In fact, due to equal representation rules, these groups have been directly represented on the super fund boards, and many such super fund board members see themselves as being there to lobby for the views of the union or of the employer sponsor. This view of being there to represent a constituency could in many situations be in conflict with the trustee’s core duty to act in the best interest of all members of the fund. In future the regulator APRA will take a much closer interest in how trustees demonstrate that they are making decisions in the members’ best interests.
However, it’s clear that individual members have remained largely disengaged. As a result, superannuation fund leadership has not had to worry about gaining consensus amongst the members themselves. Having gained consensus with the representative groups, they have then leant towards the ‘leadership’ end of the scale and made the call on what’s in the members’ best interests without any real input from those members (as the members are disengaged).
It will be interesting to see how this dynamic changes if fund members become more engaged in future as superannuation balances grow and consumers become more aware and want more of a voice. There have been predictions for many years now of this happening, but there is little evidence so far that Jane or Joe Average Employee is at all engaged with their superannuation. A surprising proportion don’t even know what fund it’s in and how it’s invested!
There are two possibilities. If members become more engaged, super funds will find themselves dealing with a more vocal group of members who are exerting their own rights. There may be many and disparate views as to the right course of action for the fund. How will the style of leadership and decision-making in superannuation need to change? How will management and trustees engage with these members in their decision making? How far will they swing towards a management style that seeks to gain consensus with individual members? It will certainly become harder for the trustees to demonstrate that they are acting in members’ best interests where there is a wide range of member views being forcefully expressed.
Fund members remain disengaged
The other (more likely) possibility is that the majority of fund members will continue to be disengaged. As corporate funds decline, and many industry funds are now public offer and increasingly have memberships made up of a large range of industry and employer groups, there will be a dilution of the influence the previous groups who were ‘looking after’ the members – unions and employers. Will super funds move to a more ‘leadership’ style of decision-making and away from the current consensus basis? Will this be a good or bad thing for the super industry? Will the quality of decision-making improve or worsen? It’s hard to know. And it may be equally difficult for trustees in this situation to demonstrate that they are acting in the members’ best interests.
Melinda Howes is CEO of the Actuaries Institute. The opinions expressed in this article are her own.