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 2. Decision processes in organizations

Marcus Selart

Norwegian School of Economics

Abstract

In this chapter, it is demonstrated that the concepts of leadership and organization are closely
linked. A leader should initially get to know the organizational culture as well as possible.
Such a culture can for example be authoritarian and conformist or innovative and progressive
in nature. The assumption is that leaders are influenced by their own culture. Strategic
decisions are characterized by the fact that they are new, complex and open in nature, and
being able to develop a strategy is one of the most difficult tasks for a leader. Traditionally, it
is primarily the top leadership in an organization that works with strategic decisions, and thus
it is common that strategic issues are handled by top leadership teams. This is related to the
globalization of business and to the fact that the pace of work has increased significantly. In
order to exercise leadership, a leader must have access to power. A power base can be created
through networking as well as by using different political tactics. However, it is important to
use political tactics in order to promote the organization's interests. When a leader has built up
a power base, it is essential that power is used properly. The decisions that leaders make must
be ethically correct and not violate universal human values. For instance, they should not lead
to negative consequences for others within or outside the organization. Evidence suggests that
most leaders have the potential to develop as ethical decision makers.

Leadership, decision making, and rationality

Herbert Simon's book Administrative Behavior (1947) was groundbreaking in many ways. He
indicated that the premises for a decision are the key factors in an organization's decision
making. These premises affect, and are affected by, how an organization is structured.
Therefore we need to examine the decision-making processes in order to understand how the
administrative behavior in various organizations functions. Simon also launched the concept
of "bounded rationality". This form of rationality implies that managers' ability to process
information is limited and must be adapted to reality. The following basic assumptions are
made in the model:
1. Decision makers are generally assumed to be rational in certain given frameworks.
2. Decision makers generally lack complete information with regard to options, decision
consequences and future preferences.
3. Decision makers are likely to have limitations in terms of both time and mental capacity.
4. Decision makers are assumed to have a limited capacity to process information.
5. Decision makers are assumed to be influenced by emotions when making their decisions.
6. Perception is assumed to be important in the sense that decision makers often operate along
what they perceive.

In later research, it has been demonstrated how organizational activities have the capacity to
modify the individual leader's bounded rationality, and vice versa (March & Simon, 1958).
These results have been replicated and extended by Cyert & March (1963).

Research has since then revealed that leaders normally do not have access to all the relevant
information. They have neither the expertise nor the capacity to process all possible
information available. Due to these limitations, leaders lack the perfect knowledge of the
decision situation that is prescribed by economic decision theory. Instead, organizational
researchers have demonstrated that leaders’ actual decision-making can be described as
repetitive and complex. It is also influenced by deviations and biases (Mintzberg et al. 1976).
According to Witte (1972), it is only in a minority of decision processes where one can
discern a common thread between the problem definition and the choice of solution. Based on
observations made by March (1971), it is common that the goals of leaders and organizations
change over time. It is also common for leaders to discover their preferences through their
actions and the experienced consequences of these. Therefore, it is not always the case that
leaders first specify their preferences and then select the appropriate action. According to
Cohen et al. (1972) the decision-making in organizations is characterized by that problems,
potential solutions and actors are being mixed in an erratic manner. By this reason,
preferences, technology options, potential solutions, and participants do not always have a
strong connection to the fundamental problem. It has therefore been suggested by Lindblom
(1988) that objectives and means cannot be separated in the decision process, since they are
intertwined. Due to this, the decision maker has to evaluate the objectives and the means
simultaneously.

In line, Brunsson (1982, 1985) has noted that the more rational the decisions of different
actors are, the more likely it is that these decisions will not lead to action. When the
participants in a decision process perceive that the chosen alternative only constitutes one out
of several possible options, this can lead to a lack of commitment. A similar effect can occur
when they discover that the chosen alternative could lead to a variety of consequences that are
difficult to predict. Therefore, it is more likely that the participants in a decision process are
acting when they cannot see any alternatives and only expect good results. For this reason,
irrational decisions more often lead to action.

However, there are occasions where leaders can make use of rational theories as an ideal and
yet arrive at prompt and vigorous action. These rational theories generally assume that
(March, 1997):
1. Every decision maker is aware of all the options.
2. Every decision maker is aware of the consequences of all the options, at least in terms of
probabilities.
3. Every decision maker has a consistent preference order for all the options.
4. Every decision maker uses decision rules from which a single action can be selected.

In real life decision makers frequently use a model where they scan for information in two or
more layers (Etzioni, 1985, 1986). This is done in order to eliminate alternatives. Rational
theories can normally be used as an ideal in situations where the political dimension is not so
significant.

According to Brunsson (1989, 2007) decision making constitutes a verbal process that leaders
use as an instrument to support their actions through creating visions for the future and
mobilizing resources. It is often the case that an organization has different stakeholders and
objectives which cannot be satisfied simultaneously. For this reason it is common that leaders
are forced to present and support various visions at different times. This two-sidedness can
sometimes help the organization to make controversial decisions that may result in forceful
action. In addition, the decision process creates responsibilities. If a leader has contributed to
a decision in public he or she is also responsible for it. The way a decision process unfolds has
an impact on how the organization as a decision-making body is perceived.

Based on partially similar arguments, Weick (1969) has criticized the idea of organizational
decisions as stable and objective phenomena. Instead, these decisions are highly subject to
how individual leaders interpret them. Leaders create meaningful interpretations of
organizational decisions based on their impressions and experiences. It is these interpretations
that form the basis of how the leaders subsequently act in different situations. By this reason,
organizations operate in environments of human interpretation. For Weick, the information
process is central to all organizational activity. Organizations cannot be regarded as static
systems as they evolve continuously. This development affects ideas, impressions, data,
values and practices. Due to this development an organization can be equated with a system
of interpretation (Daft & Weick, 1984; see also Schutz, 1932).

As a result of this research Weick (1995) has developed the concept of sensemaking. By the
help of sensemaking it is possible for leaders to:

1. Change their perceptions so that they become mutually consistent.

2. Modify their goals and expectations so that they are consistent in relation to their
perceptions.

3. Change their perceptions so that they are consistent with activities that have already taken
place.

4. Manipulate the environment to make it consistent with their perceptions and needs.

It has been suggested by Weick that it is through the sharing of perceptions and expectations
that top executive teams are able to function in a crisis situation. This form of shared
understanding is referred to as a collective mind. When such a mind works optimally the
team members do not need to communicate openly. All understand each other without having
to speak (Weick & Roberts, 1993). It has been suggested by Giddens (1993) that decision
makers to some extent are guided by tacit knowledge on how to act. He states that most of the
rules implicated in the production and reproduction of social practices are only tacitly grasped
by actors.

A thorough discussion of the concept of rationality in relation to leadership and organizational

decisions is to be found in Hodgkinson & Starbuck (2008).

Knowing the organizational culture

An important ingredient in all decision making is the organization’s culture. All decisions
are both affected by, and affecting, this culture. If the organization's culture is authoritarian
and conformist, this implies that it is often tied to a bureaucracy. This generally results in
limitations when it comes to making dynamic decisions. In case the organization's own
culture is innovative and progressive, this normally implies that leaders are expected to be
more adventurous and make decisions based on their own initiative. There are also examples
of organizations that vary between an authoritarian and innovative culture. Here it is
important to be able to detect what regards the moment and act accordingly. The essence of
culture is a set of values that has a number of norms related to itself (Schein, 1991). These
norms define what is considered to be correct or incorrect behavior and what counts as
valuable to the organization. Examples are power distance between individuals, equality
between men and women, if it is important to avoid the risk, or whether it is acceptable to
take chances or not. The values are not always observable, but are often taken for granted. A
strong culture is characterized by the organization being so ideologically driven that an
individual action is affected and inhibited by the pattern of shared basic assumptions (Schein,
1991). Some theorists say that a leader can make use of a strong culture as a form of
ideological control (Morgan, 1997). According to this view, to lead an activity is equivalent
to an ideological practice that reinforces the 'right' attitudes, values and norms of an
organization. Hereby, the employees can be controlled.

In the research literature there are basically three perspectives on organizational culture
represented (Frost et al, 1991; Meyerson & Martin, 1987):

1. The integration perspective means that the organizational culture is seen as a unifying and
inclusive force, and that one has to do with a unified culture. Central concepts are "shared
values", "common goals” and “common beliefs" (Deal & Kennedy, 1982; Peters &
Waterman, 1982),

2. The differentiation perspective involves a focus on cultural differences and the existence of
subcultures. Individuals and groups are expected to have their own needs, perceptions and
values, be they organizational or personal. Since cultures, by definition, are interpretation
systems variations between individuals and between groups must be expected. A group can
differentiate by standing in contradiction to the main culture, or by representing something
additional (Meyerson & Martin, 1987). Alvesson (2002) uses the concept of "limited
ambiguity" on the organizations' limits for what is considered to be acceptable and effective
variation.

3. The fragmentation or uncertainty perspective is characterized by the organization being

regarded as an arena in which social actors constantly negotiate and renegotiate what is
perceived as meaningful.
The leader of an organization is usually in the best position to be able to influence its own
culture. In stable organizations the leaders are usually part of the culture. They must know it
and be able to express it in order to appear legitimate. Culture controls management as much
as management controls culture. This sets the limits for what is possible when it comes to
changing attitudes and behavior. Leaders who come from outside or strong reformers can
often count on a strong opposition (Strand, 2007). According to Trice and Beyer (1993),
there exist four different roles that leaders can take in case they want to influence their own
culture:

1. Leaders can mitigate conflict by creating consensus around what is considered to be

common.

2. Leaders can express culture through their personality, their role and their way of being, and
may thus provide a platform to change the culture.

3. Leaders can develop entirely new organizations and try to make their mark on them.

4. Leaders can try to take the opportunity to change the organization on special favorable
occasions, for example, during crises, mergers, etc.

It is important to remember that the type of organization has an impact on the leader's
opportunities to change and manage the culture. Roughly we can distinguish between four
main types of organizations (Strand, 2007):

1. The team-oriented organization.

2. The contractor-oriented organization.

3. The bureaucratic organization.

4. The expert organization.

Strategic aspects of decision making

Traditionally, leadership research has focused on middle managers in organizations. A shift

has taken place, in the sense that many theorists seriously have started to become interested in
how top managers make strategic decisions, often through team collaboration (Cannelle &
Monroe, 1997). This newfound interest reflects a growing interest in creating an
understanding about how large organizations must change in order to assert itself in
international competition.

A strategic decision is characterized by the fact that it is new, complex and open. It often
extends over a longer period of time and involves a number of dynamic factors. The process
is generally uncertain, and nothing can be taken for granted (Mintzberg, 1979, 1983). It
usually ends with a choice being implemented. Strategic leaders usually do not make a large
number of decisions. Instead, they concentrate on the most important ones. Moreover, they
think through the characteristics of a strategic decision and concentrate on these rather than
that they solve problems. They make a few important decisions based on thorough analyses
of consequence.

As stated by Michael Porter (1980), the most important objective for a strategic decision is to
develop and take advantage of an opportunity in the market where the competition is absent.
Such an opportunity will most likely create a protected position for the firm (Porter, 1980).
When competition is high, the prices of the products will fall and the opportunities for the
firms to make a profit will be lowered. According to Jay Barney (1991) the point of departure
for a strategic decision should be made elsewhere. Leaders should instead focus on the
resources that the organization is in possession of, either alone, or together with others
(Barney, 1991). The assumption is made that it is the different and unique combinations of
resources that create sustainable competitive advantage. The resources can include machinery,
patents, production procedures, skills, brands, or favorable locations. Some resources are
dynamic in nature, in the sense that they are developed when used, creating knowledge
(Teece, Pisano, & Shuen, 1997).

Typically, organizational decisions can be divided in three different levels. The highest level
is referred to as strategic decisions. These decisions affect an organization's general direction,
long-term objectives, philosophy and values. The uncertainty is generally high. The middle
level is referred to as tactical decisions. These support the strategic decisions. They tend to
be of moderate importance and to have moderate impact. The lowest level is known as
operational decisions. These take place every day and are used as support to the tactical
decisions. They are immediate and usually have short-term consequences generally to a low
cost. However, there are important interactions between the different levels, for example, in
the making of a strategic agenda (Dutton, 1997). Such an agenda is not only the product of
the top leadership's perception. Middle managers also play an important role as active agents
in the design. The strategic agenda is affected also by an organization's routines and
ecological processes.

Strategic decisions are primarily concerned with the top leadership of an organization. The
decisions are usually very important for the organization and often have long-term
consequences. Since the decisions are so important to the organization, they must be closely
linked with each other. In this way a consistent pattern of decisions is created, or a strategy
that can guide the organization. Strategic decisions are usually the result of a collaboration
between the most influential members of a top leadership team. Strategic choices may for
example include the development of new products to address new markets, or the investment
in new technology (Harrison, 1999). But a top leadership team must also be able to take
advantage of the organization's knowledge to create a successful strategy (Wright, 2001).
The organization's key resource in the creation of a strategy is heterogeneity in the knowledge
that employees possess.

An important theme of leadership research is what kind of role a top leadership has for the
performance of a major organization. There is research showing that leaders have significant
impact on the organization's performance (Finkelstein & Hambrick, 1996; Katz & Kahn,
1978; Peters & Waterman, 1982). Other results point in the opposite direction, i.e. a leader
has limited influence on how the organization performs (Hannan & Freeman, 1984; Meindl,
Ehrlich, Duke & Rich, 1985; Pfeffer, 1977). The type of industry may matter with regard to
this issue. Doubters present three main arguments for their position.

1. An organization's performance is determined largely by factors that the leader has no

control over. Such factors include the economic situation, the market, fiscal and
technological change.

2. Internal and external barriers imply that only political coalitions are strong enough to
change the organization.

3. Individual leaders' ability to influence organizations is exaggerated on a regular basis. They

are often given more credit than they deserve if things go well for the organization while they
often get more criticism than they deserve in case it goes bad.
There are a whole series of internal barriers to change in an organization that a leader may
face (Hambrick & Finkelstein, 1987). One type consists of strong coalitions within the
organization itself. These may involve trade unions or other leaders with a strong power base.
Another type is manifested by a strong organizational culture that is resistant to changes.
Larger organizations are often characterized by standardized routines that are difficult to
change. Generally, people are opposed to changes that threaten their status and power. They
are also against negative actions which are contrary to their values and perceptions. In
addition, they are unfavorable towards demands that require that they do things in new ways.

There are also a number of external change barriers that can meet a leader. An organization's
products and services constitute such. Even the market in which the organization operates can
be seen as some kind of barrier. If an organization is dependent on a few major customers or
suppliers it may also be considered as an obstacle. Another obstacle is the governmental laws
and regulations.

To conclude, Hambrick & Finkelstein (1987) suggest that managerial discretion is based on
three principal components:

1. The task environment.

2. The internal organization.

3. The managerial characteristics.

The task environment includes factors like product differentiability, market growth, industry
structure (especially Oligopoly), demand instability, quasi-legal constraints, and powerful
outside forces.

The internal organization includes factors like inertial forces (age, culture, capital, intensity),
resource availability, and powerful inside forces.

The managerial characteristics includes factors like aspiration level, commitment, tolerance
of ambiguity, cognitive complexity, internal locus of control, power base, and political
acumen.

Most large organizations have a top management team that includes the CEO and other top
leaders. However, it varies from organization to organization, how this group works. In some
organizations, there is a hierarchy of authority within the group, while in others the power is
allocated relatively egalitarian (Ancona & Nadler, 1989). In the latter case, it is not
uncommon for all team members to help the CEO in formulating strategies. This is known as
a top management team. It is notable that there may well be autocratic CEOs of organizations
that formally work with leadership teams. There are also cases where there are democratic
CEOs of organizations that formally work with traditional hierarchies within the top
management team.

There are many benefits to an organization with a top management team (Ancona & Nadler,
1989; Bradford & Cohen, 1984; Eisenstat & Cohen, 1990; Nadler, 1988). For instance, a top
management team has the potential to make better strategic decisions when its members
possess the relevant knowledge which the CEO lacks. Strategies designed by top
management teams are usually perceived as better than those in which the team had no
influence (Korsgaard, Schweiger & Sapienza, 1995). Strategies rooted in the team are also
perceived as more fair and they make the team feel more confident in the leader. In addition,
the team will be more motivated to implement the decisions.

Indications exist that the current situation of an organization has an effect on the top
management team's potential success (Ancona & Nadler, 1989). A team usually experience
success in environments characterized by complexity and rapid change. The team is also
effective in situations where the external requirements of the CEO are high. Research
conducted by Eisenstat and Cohen (1990) shows that the top management team is often more
successful when the CEO is allowed to choose his or her team. Such a team should be based
on the skills and experiences that the members have. It is important to remember that the
team members' individual characteristics are just as important as that of the CEO for the
organization's effectiveness (Bantel & Jackson, 1989; Edmondson, Roberto, & Watkins,
2003; Hitt & Tyler, 1991; Keck & Tushman, 1993).

The CEO should in addition give the team a broad mandate, but should make clear where the
boundaries are between their own responsibility and that of the team. It is also positive if the
CEO indicates that the climate of cooperation in the team should be characterized by
openness and trust. He or she should at the same time avoid actions that encourage
competition and distrust in the team. It is also not good if the CEO regularly invites to
meetings with part of the team on issues that are of relevance and interest to all.
An important part of strategic management decisions is to be able to control all external
factors affecting the decisions. It is not wrong to develop a monitoring system in this area.
Research suggests five activities that are all important in a surveillance context:

1. To identify what information is relevant to collect (Bates, 1985; Narchal, Kittappa &
Bhattacharya, 1987).

2. To use multiple relevant sources of information (Milliken & Vollrath, 1991).

3. To learn what customers and clients need and desire (Peters & Austin, 1985).

4. To learn about competitors' products and activities.

5. To relate ecological information to the strategic plans (Hambrick, 1982).

One of the most difficult tasks of a leader is to develop a successful strategy for the
organization. There are often no simple answers to how this can be done most effectively.
Research suggests seven activities that are essential in this context (Bennis & Nanus, 1985,
Kotter, 1996; Nanus, 1992, Wall & Wall, 1995; Worley, Hitchin, & Ross, 1996):

1. To decide on the long-term objectives and priorities.

2. To assess the organization's strengths and weaknesses.

3. To identify core competencies

4. To evaluate if there is a need for a major change of the strategy.

5. To identify promising strategies.

6. To evaluate the strategy’s likely outcome

7. To involve other leaders in the selection of strategy.

Leaders can sometimes have quite different views on which the organization's main goals
are. However, research shows that successful companies are characterized by a higher degree
of consensus on what the common goals are (Hard Aker & Ward, 1987; Grönhaug &
Falkenberg, 1990). Consensus seems to have a coordinating effect in relation to other
organizations and has an ability to facilitate the cooperation within. There are currently
developed techniques that can be used in order to draw attention to differences in a
management group’s perception of the organization's main goals. These techniques are
designed to build a consensus around the new objectives. This is done by means of probability
judgments and causal analysis, among other methods (Strand, 2002).

Different leaders learn from their experiences in different ways. There are three basic factors
that can influence leaders to learn from their strategic experiences (Camerer & Ho, 2001):
These are:

1. Reflection.

2. Change.

3. Dedication.

Reflection: Leaders who are good at learning tend to have a "high reflection index”. This
means that they actively reflect on what move they should have made in a strategic game.
Leaders who have a "low reflection index” can be trapped by using a strategy that is not
necessarily bad, but not in the vicinity of alternative strategies.

Change: The second factor is the leader's perception of how fast the surroundings change.
When change is rapid leaders should attach little importance to the old experience, because
what worked for a few years ago suddenly has become irrelevant. However, when the
environment is stable, leaders can afford to learn over longer periods and give equal weight to
past successes and failures. In the latter case, managers use a long history of profits and
losses when selecting a strategy.

Dedication: The third factor is how quickly a leader hangs on to a strategy that has proved
effective in practice. There is a tendency among leaders to repeat what has previously worked
well. This can lead to very good performance, since the repetition of this kind often improves
efficiency. But something needs to change. This happens when a previous correct decision is
no longer adequate, that is, when the environment changes rapidly. If leaders are unsure of
how fast the surroundings change, it may be justifiable to consider all decisions as first-time
choices. If it feels wrong to follow previously implemented solutions it is probably time to
find a new one. An alternative strategy may be found that work better.
Political aspects of decision making

Decision makers are often forced to use political means to achieve their goals. To act
politically means to exercise influence in any possible way. A leader can use power to
mobilize resources, energy and information in accordance with a goal or a strategy. In
addition, power and other resources may be acquired, developed and used in situations of
uncertainty or disagreement (Pfeffer, 1981). There is in other words, clearly a need for
competence in the leader's use of political means. Leaders who understand the politics,
political behavior, and political effects usually make better decisions. Since both power and
politics are key phenomena in all organizational life, these phenomena constitute a major
component of all leadership decisions. Political power is used by leaders to make choices that
ensure pre-determined conclusions that are in conformance with the leader's preferences. The
political context affects how groups make decisions, and this context is constantly subject to
change. When leaders interact or compete against each other as political actors this kind of
strategic behavior impacts on others.

All legitimate power in formal organizations derives from the top management. It is only this
management that has the power to intervene anywhere in the decision process and set the tone
for the important decisions. The relation between organizational politics and power ought to
be straightforward. A power base facilitates the use of political means to achieve more
power. Power is thus both a target and a means. Effective decision makers are generally
aware of their power, and use it in their efforts to influence and determine the outcomes of the
various decisions (Ferris & Kacmar, 1992; Bacharach, et al. 1995; Madison, et al. 1980;
Feldman, 1988).

Leaders can also build a power base by organizing themselves into networks. This is done in
order to reduce uncertainty. The organization is created to exercise control and provide an
overview. However, it is constantly threatened by circumstances over which it has no
complete knowledge of, or control over. By participating in the network leaders can increase
their ability to preserve relevant control, while they can afford to be exploratory and open to
the outside world. Still, they must give up some of their autonomy in order to be eligible for
benefits. Also, leaders must demonstrate trust which does not necessarily result in mutual
trust. The benefits of engaging in a network can be divided into four categories (Strand,
2007):
1. Market advantages.

2. Adaptation and uncertainty control.

3. Learning opportunities.

4. Governance and internal simplification.

A distinction is made in the literature between seven different kinds of basic types of power
that a leader can use:

1. Legitimate power, the power a leader receives as a result of his or her position in an
organization's formal hierarchy.

2. Information power, the power a leader receives by the possession and control of
information.

3. Expert power, the power that stems from the special knowledge and skills of the leader.

4. Reference power, the power that is based on identification, namely that the employees can
identify themselves with the leader or the organization.

5. Charismatic power, the power leaders can exercise by their personality,

6. Coercive power; the power that is based on the fact that the leader can punish employees.

7. Reward power; the power that builds on the fact that leadership can reward employees.

There is a discussion in the research literature about whether or not the use of political
behavior in itself should be regarded as legitimate or illegitimate when leaders are about to
make decisions (Mintzberg, 1983; Pfeffer, 1981). According to Mintzberg, leaders have four
choices in their daily work:

1. To pretend that the political behavior does not exist.

2. To recognize the existence of political behavior, and to regard it as illegitimate by trying to

eliminate and prevent it.

3. To acknowledge its existence, but choose not to interfere.

4. To acknowledge its existence as something inevitable and to participate actively in the
political game.

Whatever choice the leader makes, he or she may after a while experience that it is difficult
not to participate in the political game. Otherwise it will be easy for others to determine what
role you as a leader should play in it.

Mintzberg (1983) describes organizations in terms of internal and external coalitions. The
internal coalitions receive their power from four different sources, or what he chooses to call
systems:

1. The authoritarian system.

2. The ideological system.

3. The expert system.

4. The political system.

The first three systems are considered by Mintzberg as legitimate because they exist in order
to help the organization achieve its goals. The political system on the other hand, seeks to
displace the legitimate power derived from the top management.

There are clear similarities between the concepts of "leadership" and "power". For instance,
leaders use power as an important means to achieve goals. But there are also differences
between the concepts. A leader needs to exercise leadership in order to have similar
objectives as the employees, but this is not necessary for the exercise of power. In addition, a
leader must in order to exercise leadership also focus on his or her leadership style. However,
to exercise power is more about focusing on the inter-subjective level to ensure control over
individuals and groups.

Management decisions can be manifested in the context of three different types of profiles of
political power:

1. The creation of goals (Etzioni, 1964; Cyert & March, 1963).

2. The allocation of resources (Ackoff, 1970).

3. The use of dominance and autonomy (Dahrendorf, 1959).

These profiles are not mutually exclusive. For example, creating objectives have implications
for resource allocation. Similarly, the use of an internal resource may create a dominant
position in the sense that those who have control over the resource get power over consumers.
The critical resources for a task or scarce resources tend to have a high value as power bases.

The power of leadership decision making is essentially economic in nature. It is up to the

leadership to determine the allocation, utilization and outcomes of the resources it disposes of.
In large organizations the power to determine how large the new investments will be is
central. Central is also the power to decide where, when and how such investments are
implemented.

There is a lot of research that emphasizes that the need for power is an important prerequisite
for leadership. But the organizational and personal success also depends on how power is used
(Strand, 2007). According to McClelland (1999), power, performance and contact need all
have the ability to explain how leaders behave in the organization. For instance,
entrepreneurial leaders have a great need for achievement and power, but generally have less
need for relationships. Performance motives are important in any leadership, but very strong
motives may often be inconsistent with the organization's functions, as seen in a wider
context. In case you measure all success as own success and strongly link results with your
own effort, other stakeholders and the needs of the organization are at risk of coming in the
background. Performance-hungry leaders often have trouble delegating responsibility to their
employees. For these, it is more important to be better than others than to make sure that
others are performing. Power motives are more typical of the leaders of successful
organizations. The mature form of power is characterized by the fact that it focuses on
relevant organizational objectives often in combination with socially acceptable ways of
exercising power. Unacceptable manners are characterized by coercion, manipulation,
impulsive aggression, authoritarian behavior and the use of force (Strand, 2007).

It is of course interesting to study power as a source of influence. But it is also possible to

study what types of behaviors are used by leaders to exert influence. Such behavior is often
referred to as an influence tactic. The literature defines three main general types of influence
tactics (Yukl & Chavez, 2002).
Impression management tactics are aimed at influencing people to like the leader or to make
positive assessments about the same. Often, the leader gives praise to employees or offers
help without demanding anything in return. It is also effective for leaders to regularly speak
of their accomplishments and qualifications. Note that this kind of tactics works just as well
carried on by the leaders as by the employees.

Political tactics are used to influence organizational decisions, or encourage the interests of
individuals or groups (Kacmar & Baron, 1999; Pfeffer, 1992; Porter, Allen, & Angle, 1981).
A relatively common political tactic is to try to influence how key decisions are made and by
whom. As a leader one may be tempted to select decision-makers who are known to support
one's suggestions. Another popular approach is to try to influence a meeting agenda or to get
policy makers to make use of criteria known to favor one's proposal. Often it is effective to
use facts and figures (Stone, 2002). In order to quantify, decisions about categorization are
needed, that is, on what should be included and excluded in a particular context. When
measuring a phenomenon this means to create standards around what is considered to be too
little, too much and just right. Political tactics are also used in order to defend oneself against
the opposition and to silence criticism (Valle & Perrewe, 2000). Another way to influence is
to frame the problems to suit one's purposes. A leader can also be interested in preventing
certain types of decisions being made, through control of the agenda (Lukes, 1986). The trick
is to monitor the decisions that shall be made, but equally those which shall not be made. It is
not uncommon that leaders sometimes withhold important information, and merely present
the selected facts in order to avoid certain decisions. In order to escape criticism after a
decision is made, it is common for leaders to express publicly what the decision is about in as
vague and imprecise terms as possible. This is especially true for top leaders (Stone, 2002).
Some political tactics will use deception, manipulation, or abuse of power (Zanzi & O'Neill,
2001)

Proactive influence tactics are often aimed at changing how a task is performed, in one way
or another. It may be about getting an employee to perform a new task, or changing
procedures on an existing task. Other application areas for these types of tactics may be to
provide support for a project or for a proposed change. Both persuasion and legitimate power
can be used to achieve these goals.
The image of political behavior in organizations may seem to be negative, manipulative and
malicious. But it is important to remember that this type of behavior can actually support the
organization (Mintzberg, 1983). It is important that leaders realize that political action can:

1. Correct weaknesses and create flexibility.

2. Ensure that the most suitable organization members receive leadership roles.

3. Ensure that all views on an issue will be ventilated.

4. Support the necessary organizational changes.

5. Support decision making, particularly in the implementation phase, of a choice involving

several different stakeholders.

Ethical aspects of decision making

Leadership research indicates that there are a number of key ethical decision-making
perspectives that govern the decisions:

The utilitarian perspective

The rights perspective

The fairness perspective

The utilitarian perspective: The goal is to create as much benefit as possible for an
organization. The perspective has been dominant in business decisions, and important key
concepts are efficiency, productivity and profitability. The approach can sometimes mean
that a minority will be deprived in order for the majority to be better off. It has been
suggested that utility maximization is the best approach for leaders to achieve their stated
objectives (Baron, 1993). It is based on their goals that leaders can argue for taking into
account different norms as a guide to their decisions. The use of a norm can be seen as a
decision.
The human rights perspective: According to this perspective, decisions should be made in
accordance with key policy documents such as the Declaration of Human Rights. The so-
called precautionary principle means that every leader must be alert to avoid injury when
making decisions. Individual rights are often stressed. The individual right to speak freely is
an example of this. It also stresses that each citizen has certain basic rights.

The justice perspective: A distinction is made in the literature between distributive and
procedural justice. Distributive justice is about a resource to be distributed as equitably as
possible, either in full equality or on the basis of need or performance (equity). Procedural
justice is based on that the actual process of creating justice must be as fair as possible, even if
the outcome could be different for different individuals.

Almost all leaders seek to influence in any way. The main issue is not whether the leaders use
power or not. The essential issue is how they use their power (Gini, 1998). Leaders who have
power can use authority to promote their own careers and finances at the expense of the
organization's employees and the public. In addition, leaders can by the introduction of
various unethical practices affect others in a negative direction (Beu & Buckley, 2004). It is
therefore not strange that the abuse of power leads to many people being interested in the
ethical aspects of leadership. Another reason is general public’s declining trust in leaders,
fueled by the scandals published in the media (Kouzes & Posner, 1993). Despite the great
interest in ethical leadership, there is at present no consensus on how this term should be
defined or measured. One reason for this is that there is no neutral basis. Theories about
ethical leadership almost always involve values and implicit assumptions (Heifetz, 1994).

It is important to be able to make a distinction between ethics tied to an individual leader and
the ethics of various specific types of leadership behaviors (Bass & Steidlmeier, 1999). Both
types of ethics are difficult to evaluate. Regarding the assessment of individual leaders, there
is a wealth of relevant criteria, for example, the leader's values, moral development, conscious
intentions, possible choices, influence, and behavior. Many leaders often possess a mix of
strengths and weaknesses with respect to these criteria. One problem that emerges when we
evaluate individual leaders is when to determine the criteria to be used and their relative
priority. The final assessment can be colored as much by the assessor as by the leader's
qualities.

Assessments that focus on ethics related to specific decisions or actions are most likely to
include objectives (ends), whether or not the behavior is consistent with moral standards
(means), and the results (outcomes). These three criteria are considered most often in relation
to each other. A common issue is whether the objectives still justifies the means. Can leaders
for example engage in behavior such as lying to avoid injury to their employees?
There are many types of leadership behaviors that are classified as unethical by the majority.
These include falsifying information, to steal assets for personal gain, to blame mistakes on
others, to sell trade secrets to competitors, to be bribed in exchange for services, and to pursue
a ruthless leadership that damage others. It is important that leaders at all levels have respect
for their fellow human beings’ equal and high value, and seek ethical awareness and maturity.
Furthermore, leaders should use their professional position with responsibility and objectivity,
and keep their head role apart from their role as citizen and stakeholder. Leaders must also be
aware of the limits of their own competence and be open for critical review of their
leadership. It is therefore important for leaders to continuously maintain and develop their
professional skills (see also Blennberger, 2007, for detailed discussions).

A leader should, as far as possible seek to maintain loyalty to the Board of the organization.
Here, an important key word is transparency. In addition, a leader should work to develop the
organization and secure that its resources do not become over-harvested. It is an advantage if
the leaders can work in accordance with the organization's basic mission and character.
Leaders should not pursue such claims on salary and other allowances that are not
proportional to labor input value to the organization or is not compatible with fair practice in
the labor market. Recently, the issue has been raised if a board can give its CEO a bonus in
case of a profit loss (see also Blennberger, 2007, for detailed discussions).

It is essential that leaders have respect for managerial colleagues and try to maintain loyalty to
them and other employees in various positions. A leader has a specific responsibility for
employees' conditions and development, and should pay particular attention to vulnerable
individuals and groups. Sensitive information about employees or job seekers should be
handled with great care. Leaders must take responsibility for their own workplace being a
constructive, respectful and generous social environment. Significant changes in work, which
adversely affects employees, should have a factual basis and be implemented with respect,
honesty and care. In case a leader notices that others in the organization fails to respect the
laws or the correctly made decisions, he or she is obliged to take action. This may involve
colleagues or members of the Board, etc. It can also imply that others in the organization
exhibit offensive or discriminatory attitudes and actions. These can be reflected in the Board's
working methods, or in other leaders’ or co-workers’ conduct. In such cases the ethical leader
should respond strongly. In case a leader himself/herself becomes the subject of criticism, it is
important to treat this constructively, with a conciliatory and generous attitude (see also
Blennberger, 2007, for detailed discussions).

It should be emphasized that a leader should make sure that the organization inspires
confidence and protect customers, partners and stakeholders. In addition, he or she should
take care for that the organization handles competitive situations in accordance with good
business practice. Consider that two airlines are the only ones to operate a line between a
Scandinavian metropolis and a tourist resort on the Mediterranean. It can be tempting for the
financial managers in both companies to negotiate for as high ticket price as possible on the
line instead of engaging in price competition. This runs counter to good business practice and
can also be regarded as cartel conduct. (see also Blennberger, 2007, for detailed discussions).

A general rule of conduct is that the ethical leader must act in such a way that the organization
and its activities result in confidence. A leader must ensure that those seeking work in the
organization are treated in a respectful and non-discriminatory manner. In view of the
environmental debate, a leader must also ensure that the activities of the organization are
compatible with a sustainable development. Efforts should be made to make the organization
find suitable forms of social responsibility, based on its goals and conditions (see also
Blennberger, 2007, for detailed discussions).

Most leaders possess an opportunity to develop themselves to become guided by their values
(Kohlberg, 1984). This means that leaders strive to develop an advanced moral reasoning.
Value driven leaders are concerned that their daily activities reflect important ethical values
such as honesty, fairness and personal integrity (Trevino, 1986; Trevino & Youngblood,
1990). They have a highly developed moral sensitivity and are driven by formulating ethical
problems. Faced with difficult decisions, they know what they stand for, and often have the
courage to act according to their principles. Not infrequently this type of leaders integrates
codes of ethics in the formal organizational systems in order to communicate to employees
what the company stands for. For example, they can act to establish ethics committees, etc.
Also, they actively seek to facilitate an ethical discourse within the organization, by
stimulating the development of an ethical vocabulary. Since moral reality is a moving target,
value driven leaders realize that they must reiteratively formulate and reformulate the ethical
problems of the organization. They also understand that ethical problems can emerge
everywhere in the organization and that others than the human resources department must be
involved in detecting and solving them. Moreover, value driven leaders are often anxious to
scrutinize the manner in which they formulate the problems they face in an organizational
context. When an ethical issue arises, they make sure that the inter-subjective nature of the
issue is acknowledged within the organization (Pedersen, 2009).

Ethical leadership decisions may in addition be related to leaders' individual needs and
personalities (Mumford, Gessner, Connelly, O'Connor, & Clifton, 1993; O'Connor, Mumford,
Clifton, Gessner, & Connelly, 1995). Leaders who possess such personality characteristics as
narcissism, power orientation and lack of emotional maturity more often engage in destructive
self-oriented behavior than others. These leaders also have problems with trust in others. They
often treat others as objects that are subject to manipulation. Such leaders use power to exploit
others and promote their own careers, rather than to achieve objectives that are essential for
the organization.

There is also a link between ethical leadership decisions and social context, in the sense that
these decisions are strongly influenced by the situation (Trevino, 1986; Trevino, Butterfield,
& McCabe, 1998). Unethical behavior can easily be observed in organizations characterized
by the following factors:

1. High productivity demands.

2. Internal competition for rewards and advancement.

3. Strong emphasis on obedience and authority.

4. A lack of standards for ethical behavior and individual responsibility.

Emotionally mature leaders who are on a high moral level of development have in addition
been shown to reasonably well be able to resist the social pressure to use destructive and
unethical practices. Leaders are normally exposed to greater ethical challenges than the
average citizen. They are also more exposed and vulnerable to claims about fairness. Hereby
they are exposed to a range of situations involving value choices and ethical values. Leaders
are often exposed to moral choices that have the character of paradoxes and dilemmas.

Leaders must take into account both the values of their own culture, as well as market and
societal demands. For example, it can be a dilemma for many leaders whether to hire foreign
workers at lower wages or not. They are, after all, better off than in their home countries.
Another dilemma is if a leader should be able to receive stock options in their own company
to enhance his or her motivation. This may have implications for social contracts of any kind.
A third dilemma is whether leaders should hold back or delay information that they have
exclusive access to and that is likely to harm the stock price. Finally, a fourth dilemma arises
when leaders keep down the wages of their own organizations, at the same time as they raise
their personal salaries drastically.

A problem of practical leadership is that a leader's values and actions are not always in line
with each other (Irwin & Baron, 2001). For example, a leader can be a member of various
environmental protection associations, while he or she at the same time takes a decision that
goes against the environmental concerns in their own industry. A useful practical guideline
might be to ask yourself as a leader if you can stand before a group and openly declare that I
have done this and this. Several self-critical questions could be put such as:

1. What would a person that likes me say?

2. What would a person that does not want me well say?

3. How would I react if someone else had done the same thing?

4. What would the press be able to write?

In recent years, corporate governance has been suggested as a remedy for moral corruption.
The term "corporate governance" refers to a governance form that allows stakeholders in the
company, especially shareholders, to get insight into the business. Central phenomena are
transparency, strict reporting rules, leadership accountability and good structure. Scandals like
Enron, Arthur Andersen, Skandia Liv, etc. have fed this way of thinking, and the need for it
seems to have increased since the millennium shift.

Ethical decision-making often starts at the individual level, but mostly includes both group
and organizational decisions made by people who may well be on different places in the
world. Depending on background factors such as age, experience, culture and context the
definition of what is considered ethically or morally correct may vary. What ethical values we
choose to prioritize may thus also vary. This creates particular problems in a globalized
business world. Leaders who have a background in different cultures can, for example, have
problems in establishing an ethical code of conduct for a special project or a particular
commercial transaction. An important issue is how the leaders can maintain their own ethical
standards when doing business with others who do not share these standards. At present, we
know very little about how the heterogeneity of moral norms affects ethical decision making
in different business contexts. A practical solution could be to try to develop some form of
decision rules that can be helpful in ethical trade-off situations.

Conclusions
The concepts of leadership and organization are closely linked. A leader should get to know
the corporate culture as well as possible. It can for example be authoritarian and conformist or
innovative and progressive in nature. The premise is that leaders are both affected by, and
influence, their own culture.

Strategic decisions are characterized by the fact that they are new, complex and open in
nature. To develop a strategy is one of the most difficult tasks for a leader. Traditionally, it is
primarily the top management in an organization that works with strategic decisions. It is
becoming increasingly common for a top management team to be created in order to
concentrate on strategic issues. This is related to the globalization of business and to the fact
that the pace of work has increased significantly.

In order to exercise leadership, a leader must have access to power. A power base can be
created by leaders organizing themselves into networks. Such a base can also be created by
using different political tactics. However, it is important not to make use of political tactics,
for own personal profit's sake but to promote the organization's interests. When a leader has
built up a power base, it is important that power is used properly. The decisions that leaders
make must be ethically correct and must not violate universal human values. In addition, the
decisions should not have negative consequences for others within or outside the organization.
The evidence suggests that the majority of leaders have the potential to develop as ethical
decision makers and that it is possible to discern various phases of an overall development
curve.

Checklist

1. How can an organizational culture influence you as a leader? How can you as a leader
influence an organizational culture?

2. Why are strategic decisions considered so important for an organization?

3. What are the benefits of letting a top management team address the strategic decisions in an
organization?

4. What is the CEO's main role in relation to his team when a new strategy is about to be
developed?

5. What kind of power is most important to hold for you as a leader?

6. What are the pros and cons of the use of political tactics to attain power?

7. How can you as a leader develop yourself to become a good ethical decision-maker?

8. What are the main problems of ethical leadership decisions in the globalized business
world?

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