Leadership Style and Organizational Reputation

How do management behavior and leadership effectiveness influence internal communication outcomes, such as employee perception of organizational reputation?

When employees like the company they work for, they feel a stronger sense of belongingness and commitment; they are less prone to leave and they look forward to contributing to the success of the company everyday. Another aspect is the critical role of employees as communication assets for the organization. What employees say about the organization is often perceived to be more credible and authentic than messages from senior management or the public relations team.

So how does organizational leadership at all levels influence employees’ perception of the organization’s reputation? What types of leaders are helpful in developing favorable attitudes of employees toward the organization?

Research has identified two major leadership styles in the organizational setting, namely, transformational leadership and transactional leadership. Transformational leaders are characterized by creative, interactive, visionary, empowering and passionate communication behavior. They encourage subordinates to voice opinions and provide them with support, coaching and mentoring. On the other hand, transactional leadership is an exchange process based on rewarding and disciplining employees on the quality of their performance. With this method, the leader elicits an agreement on what needs to be done and rewards followers in exchange for satisfactorily carrying out their assignments. Transactional leaders exert control through policies, rules, bureaucracies and so on, which is regarded as more authoritative.

In 2011, an on-line survey was conducted with 700 randomly selected employees of different levels from a Fortune 500 energy company, and 167 employees completed the survey.  Results show that transformational leadership style, which is relationship-oriented and people-oriented, positively influences employees’ overall evaluation of the organization in terms of emotional appeal, products and services, financial performance, vision and leadership, work environment and social responsibility. Employees who rate their leaders high on the transformational leadership index tend to rate the organization high on reputation. Employees who feel motivated, empowered, encouraged, trusted and cared for by their managers are more likely to trust, like and respect the company. By contrast, transactional leadership demonstrates a significant negative effect on employee perception of organizational reputation. The organization is less favorably evaluated by employees when managers focus only on profit-oriented approaches and exert a greater degree of control.

According to the present study, what determines the employees’ views toward the company is how they feel they are treated, whether they have enough say in decision-making and whether they feel they are doing important work. Transformational leaders can bring this scenario to fruition by empowering the employees. Transactional leaders can be effective and even necessary under certain circumstances, but they are less likely to generate trust and commitment. Over-reliance on rewards and punishment also makes employees feel that they are not fully trusted.

Although scholars argue that transformational and transactional leadership are not mutually exclusive, good leaders should know how to switch between styles based on the situation (e.g., the environment or strategy). But in terms of generating employees’ favorable attitudes, evaluation of the organization and building good internal reputation, transformational leadership should take precedence.

Based on existing literature and findings of the current study, 10 communication characteristics of transformational leadership have large positive impact on shaping employees’ favorable perception of the organization:

  1. Leaders showing interest and concern in followers’ needs, individual feelings and well-being; seeing the individual as a whole person rather than as just an employee.
  2. Leaders listening to followers through two-way communication.
  3. Leaders maintaining good relationships with followers.
  4. Leaders being role models.
  5. Leaders communicating a compelling and inspiring vision.
  6. Leaders creating clearly communicated high performance expectations to show trust in their followers.
  7. Leaders stimulating and soliciting new perspectives and ideas, and challenging the status quo.
  8. Leaders developing their followers’ skills and capabilities.
  9. Leaders delegating power and autonomy to make job-related decisions.
  10. Leaders engaging employees in departmental or organizational decision-making.

Clearly, internal reputation building is not a simple matter. It is a complex phenomenon tied to leadership behavior, communication and other contextual factors such as organizational culture and structure.

For organizational management and public relations leaders, the current study suggests that transformational leadership style, which is strategic, inspiring, interactive, empowering, democratic and relational-oriented, should be advocated not only because it affects employees’ motivation, productivity and performance, but also because of its role in building favorable internal reputation.

In the age of social media, employees are increasingly empowered to communicate with others and initiate dialogues in the public domain. How the employees perceive the organization determines what they publicly say, and their opinions consequently become the basis for how other stakeholders and stockholders perceive the organization’s reputation. Therefore, communication professionals should work with top management to build a favorable internal reputation, which in turn generates external intangible assets for the organization.

For a detailed review of the research paper, please go to http://www.instituteforpr.org/research/awards/ketchum/winners/2010-2/.

Linjuan Rita Men is a Ph.D. candidate at the University of Miami and 2010 winner of the Ketchum Excellence in Public Relations Research Award.

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One Comment

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