Transparency in Financial Communication: Effect of Authentic Leadership

Transparency in Financial Communication: Effect of Authentic Leadership

Elif Baykal (İstanbul Medipol University, Turkey)
DOI: 10.4018/978-1-5225-9265-5.ch006

Abstract

Authentic leadership is considered a foundation of other positive leadership styles. In this leadership, the leader is known for his openness and clarity. Authentic leaders are not hesitant in sharing information, and they are accurate and clear in their communication manners. Moreover, they tend to give importance to others' ideas, and when necessary, they do not avoid revealing their own values, emotions, and thoughts. They build integrity with their followers by creating an atmosphere congruent for open communication that results in a realistic relational climate nourished by followers' increased level of personal and social identification. In this chapter, it is suggested that authenticity and tranperency of authentic leadership will be important catalyzers for financial communication transperency. In this context, financial communication refers to all kinds of financial messages conveyed from the organization to its stakeholders. And financial communication transperency refers to the extent financial communication of an organization is open, accurate, clear, satisfying, and relevant.
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Introduction

Recent changes in the business world have created new necessities. Fierce competition among players, greater societal demands for ‘corporate citizenship’, political pressures and demands of stakeholders compell companies to be more open to communication (Cornelissen, 2008). In this demanding and challenging atmosphere, financial communication has become a kind of intangible asset for organizational development. Withoutdoubt, achieving this development necessitates the revision of rules of conducting financial messages in compatible with proper financial principles of truthfulness, clarity, transparency. In contemporary business world, successful companies are the ones that can successfully integrate corporate governance and performance optimisation (Salvioni, 2002). And globalized markets and short term assessment processes in these markets make it more important for companies to communicate effectively with their external and internal environments. And in this ever-changing time period relationships among companies are affected mostly by the information flows among them (Salvioni, 2002). That is why, many firms requires to manage their stakeholders successfully in order to avoid problems that can be potentially damaging to the reputation of the companies (Cornelissen, 2008).

In this point understanding the term stakeholder is important. The most widely known definition of stakeholder is the one described by Freeman (1984). According to Freeman (1984)a stakeholder is a specific group or personl that can affect or be affected by the actions of a certain organization. Any group that is affected by a company’s acts and decisions is regarded as its shareholder. For example; employees working for the company, shareholders having some part of the ownership, customers that the company serves or potential customers that the compay tries to serve, etc. Stakeholder approach is the result of the novel perspective that was first came about in the 1980s and 1990s claiming that, each company is dependent upon various stake-holding groups rather than just a select group of financial investors or customers (Cornelissen, 2008). The stakeholder approach created a shift from neo-classical economic theory of the firm to a socio-economic theory, wherin the stakeholder approach is embedded (Cornelissen, 2008). According to neo-classical economic theory the purpose of firms is making profits with accountability to themselves and their shareholders. The notion of accountability is very important in this theory and give importance to outside shareholders for the sustainibility of the firm and the welfare of society (Cornelissen, 2008). In this point of view, firms should contribute to wealth for itself and for the society as well. This model considers there are mutual dependencies between organizations and various stake-holding groups in these organizations (Cornelissen, 2008). This approach is different from the classic input–output model of strategic management. In this novel approach, a greater number of people and groups with legitimate interests are recognized and accounted for by the company with the aim of bolstering its financial performance. According to stakeholder approach legitimacy of an organization in the eyes of both ‘market’ and ‘non-market’ stake-holding groups, can be achieved only it it is socially and financially accountable to these stakeholder groups (Cornelissen, 2008). In this point, legitimacy refers to the fact that organizations should relate to their their stakeholders not only for instrumental reasons, including increasing market shares, revenues or reducing risks but also for normative reasons such as compliying with rules and behaving in congruent with obligations, behaving ethically, etc.

Key Terms in this Chapter

Authenticity: In this context, the kind of leadership behavior encompassing behaving in accordance with one’s true self, emotions, and ideas.

Authentic Leadership: Authentic leadership is a leadership approach emphasizing the construction of leader's legitimacy through moral relationships with followers which value their input and are built on a decent and transparent foundation.

Positive Psychology: Positive psychology is the scientific study of human strengths and virtues that enable individuals and communities to thrive.

Financial Disclosure: It is the act of the act of making a company’s financial information available to investors, banks, etc.

Financial Communication: Financial communication is all about providing financial data pertaining to the company’s performance to the investor community at large.

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