Leadership in business matters

Any organisation, be that a financial one or manufacturing one, needs good leadership to flourish. If one good leadership is not succeeded by another good leadership, all the important areas of the organisation are affected.

A business organisation with a corporate structure sustains through continuity. If it is not a corporation but a private enterprise under sole proprietorship, it is likely to face problems in maintaining its sustainability after the death of the proprietor. Even a limited company or enterprise with limited liability stumbles in business if the other owners fail to provide proper leadership after the death of the person who initially founded the enterprise. Many family-owned businesses do not shine or fail to do any business when the head of the family dies or becomes inactive due to old age. Single person-owned business fairs well so long as the person remains active. However, such business goes on if the heirs of the person become capable of pushing the business forward. Some businesses run by descendents do well simply because of the latter's capability in managing the businesses reinforced by their innovative ideas to keep up with the changes in time.

Considering the problem of non-continuity of business, regulators in any market economy imposes a condition that if a business wants to take money from the public that business must be a corporate one, or what is called under the Companies Act, a public limited company. In a public limited company, leadership is elected by the people who supplied the equity capital. The suppliers of equity capital are called shareholders. When a company goes public, shareholders stand in equal right with the sponsors or the founders of the company in respect of voting. The sponsors enjoy a special privilege of having representation on the management board of the company because they proved their worth of providing leadership before the company went public, and the regulator recognises this special privilege. Of course, this privilege prevails so long the sponsors hold the majority of the shares in the equity capital. If they sell out the shares or lose majority of shareholding, then anyone from outside having more shares than those of sponsors can challenge the sponsors as to who would be sitting on the company board.

When a business goes public, its leadership is elected democratically. In Bangladesh, shareholders enjoy equal rights in voting, but in some other countries the golden shareholders -- normally the initial founders of the business -- enjoy more rights in voting than other shareholders when the question of electing leadership comes. The regulator in Bangladesh has imposed conditions that some non-shareholders are also to be admitted in the management boards as directors. These people are designated as 'independent directors'. The regulator has also prescribed that minority shareholders should be appropriately represented in the management boards of the listed companies through holding elections. The regulation prescribing a diversified representation on the management board of a publicly traded company was made taking into consideration the issue of public interest, especially those of the minority shareholders.

Ironically, in some cases in Bangladesh, sponsors sell most of their equity shares but still continue to sit on the management boards. Such a practice has become possible simply because of the retail or institutional shareholders' indifference to electing their leadership on the board.

Many share investors are eager to know about the persons who are leading the business where they hold equity shares. If the sponsors hold the majority of equity shares in a business, the next thing investors want to know is: who will be the successors of the old sponsors when the latter die. The investors also want to  know whether the successors are capable persons or not. 

If we take the economic history of Bangladesh, we will see only the businesses that were led by capable persons flourished more. Now-a-days, brand matters. But the rise of brands in Bangladesh was not easy. Good leadership for over a long period was behind the development of such brands. When good leadership leads a business, business expands into many areas and such business becomes known as conglomerates. Investors trust the conglomerates, and they buy the shares of conglomerates without hesitation. 

The writer is Professor of Economics at the University of Dhaka. 

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