DSpace at VNU: What can corporate governance build in shipping companies?

Int J Shipping and Transport Logistics, Vol 5, No 2, 2013 113 What can corporate governance build in shipping companies? Luu Trong Tuan School of Business, International University – Vietnam National University, Ho Chi Minh City, Linh Trung Ward, Thu Duc District, Ho Chi Minh City, Vietnam E-mail: luutrongtuan@vnn.vn Abstract: This empirical inquiry into shipping companies in Vietnam seeks to discern whether corporate governance influences organisational culture and leadership, which in turn influences upward influence behaviour Structural equation modeling (SEM) was utilised for the analysis of 418 responses returned from self-administered structured questionnaires sent to 710 middle level managers From the findings emerged the linkage pattern of strong corporate governance and its organisational outcomes such as adhocracy, market, and clan cultures or transformational leadership Adhocracy, market, and clan cultures and transformational leadership were also found to cultivate organisationally beneficial upward influence strategies Keywords: corporate governance; organisational culture; leadership; upward influence behaviour Reference to this paper should be made as follows: Tuan, L.T (2013) ‘What can corporate governance build in shipping companies?’, Int J Shipping and Transport Logistics, Vol 5, No 2, pp.113–136 Biographical notes: Luu Trong Tuan is currently a Business Administration (BA) Teacher at International University-Vietnam National University, Ho Chi Minh City He received his Master degree from Victoria University, Australia and PhD from Asian Institute of Technology (AIT), Thailand His research interest includes organisational behaviour, performance management, and business ethics Introduction The concept ‘corporate governance’ has reached Vietnamese businessmen through seminars on corporate governance held in the two major cities in Vietnam – Hanoi and Ho Chi Minh City Questions the audience posed in the first corporate governance seminars reveal that they came to seminars to look for an innovative framework or mechanism or a sustainable business model rather than such issues as conflict of interests between owners and CEO or disclosure and transparency presented by speakers The seminars turned out to shift their focus towards the corporate governance as one of the Copyright © 2013 Inderscience Enterprises Ltd 114 L.T Tuan five pillars of sustainability according to the World Business Council for Sustainable Development’s (WBCSD) (Saha and Darnton, 2005) The traditional focus on structural sources of power in corporate governance has been extended through growing research on managers’ utilisation of social influence tactics to promote their individual interests as well as their companies’ benefits (Stern and Westphal, 2010) Furthermore, according to Drori (2006), corporate governance can function as a mechanism for change in behaviours of members in the organisation Corporate governance mechanism activates the motion of members including leaders from the orientation towards self-interests or interests of internal stakeholders of the organisation (intrapersonal or intraorganisational interests or stakes) to the harmony of all stakeholders’ interests (cross-organisational interests) Therefore, values oriented towards external stakeholders, especially customers and community, will be cultivated within the corporate governance framework Organisational culture is defined as the values, beliefs, and norms of an organisation that shape its behaviour (Davies et al., 2000) In other words, customer- or market-oriented culture may develop in the corporate governance mechanism In the evolutionary philosophy and mechanism of corporate governance, leaders may adapt their own behaviours as well as promote changes in other organisational members’ behaviours or be influenced by behavioural changes in every point of the organisational network The wealth-creation function of corporate governance is often associated with encouraging entrepreneurial leadership and innovation even in large mature organisations (Filatotchev and Wright, 2005; Talaulicar et al., 2005) Stern and Reve (1980) discern internal polity such as power and dependence and external polity such as culture as antecedents of influence strategies However, research on how culture influences individuals’ choices of upward influence strategies still has scattered along the literature (Egri et al., 2000; Fu and Yukl, 2000) Leadership can also act as a catalyst for a phenomenon to emerge in the organisation Leadership, therefore, can catalyse upward influence behaviours Krishnan (2004) found that transformational leadership was positively associated with friendliness and reasoning among six upward influence strategies Predicated on the separate relationships between corporate governance and organisational culture or leadership as well as between organisational culture and leadership on upward influence behaviours, the aim of this empirical inquiry is to discern the impact of corporate governance on organisational culture and leadership, which in turn cultivate upward influence behaviours The philosophy behind the study is that this relationship, to some extent, sketches the anti-gravity rocket-style model in which upward influence behaviours act like forces of a rocket generated by fuels (organisational culture and leadership) and platform (corporate governance) This prelude of the paper leads to the review of corporate governance, organisational culture, and leadership literatures, followed by a discussion of upward influence behaviours as the dependent variables in this research, based upon which hypotheses were formulated The paper concludes with certain implications for managerial practice and potential research What can corporate governance build in shipping companies? 115 Literature review 2.1 Corporate governance The ultimate goal of corporate governance is to maximise the wealth creation of the company as a whole (Letza et al., 2008); nonetheless, most of the early definitions on corporate governance view corporate governance as a system utilised to shield investors’ interests Corporate governance is defined by Shleifer and Vishny (1997) as the ways in which suppliers of finance to companies assure themselves of getting a return on their investment La Porta et al (2000) refer to corporate governance as “a set of mechanisms through which outside investors protect themselves against expropriation by [managers and controlling shareholders]” However, through its definition of corporate governance as “a set of relationships between a company’s management, its board, its shareholders and other stakeholders”, the OECD (2004) looks beyond the relationship between shareholder and director into a wider network of relationships including other stakeholders The above definitions discuss those who contribute to the value chain of the company in the context of corporate governance Furthermore, the first two definitions look at corporate governance mechanistically as ways or mechanisms, whereas the last definition turns the look toward relationships among stakeholders Defining corporate governance as ‘the exercise of power over and responsibility for corporate entities’, Mallin (2002) places responsibility as a component of triple bottom line beside mechanism of control through laws and rules as reflected in numerous definitions Gillan and Starks (1998), for instance, view corporate governance as the system of laws, rules, and factors that control operations at a company Meanwhile, corporate governance is portrayed in Cadbury Report (1992) as “the system by which companies are directed and controlled” Cadbury Report (1992) is not merely concerned with the control mechanism but also the leadership required for that mechanism reflected in the term ‘directed’ in the definition One of the reforms in this control mechanism in corporate governance is the scorecard on corporate governance (Cheung and Jang, 2008) as an attempt to comprehensively manage and measure the performance of all stakeholders 2.2 Organisational culture Organisational culture is depicted as an expansion of the hypernym ‘culture’ (Schein, 2004) A universal definition on organisational culture has turned out to be elusive (Lewis, 2002); nonetheless, one of the most common definitions of organisational culture entails a set of beliefs, values, and behaviour patterns shaping the members’ behaviour and building the core identity of organisations (Deshpande and Farley, 1999) Culture builds a sense of identity in employees, providing unwritten guidelines on how to behave (Holbeche, 2006) Imparting the notion of understandings to Schein’s (1985) definition, Daft (2005) views organisational culture as a set of key assumptions, norms, values, and understandings that is shared by an organisation’s members and taught to new members as right The rendezvous of most of the definitions on organisational culture is the shared nature of the values, beliefs, philosophies, norms, meanings, etc Numerous authors 116 L.T Tuan contended that the function of organisational culture is to produce a feeling of esprit de corps within the organisation [Van Maanen and Barley, (1985), p.39] Quinn and Rohrbaugh’s (1983) the competing values framework (CVF) was developed by Quinn (1988) into an organisational culture model predicated on two dimensions: organisational process (organic vs mechanistic) organisational orientation (internal vs external) Cameron and Freeman (1991) and Deshpande et al (1993) further adapted the CVF, which enables the more profound investigation of organisational culture The first dimension and the second dimension are denoted by the vertical axis and the horizontal axis respectively, whose intersection produces four quadrants displaying four culture types labelled as clan, adhocracy, hierarchy and market The current research is predicated on the CVF since the CFV was empirically derived, has been validated in previous studies, and captures most of the proposed dimensions of organisational culture (Cameron and Quinn, 2006) Additionally, the CVF aligns with widely accepted categorical schemes that outline how people think, how they organise their values and ideologies, and how they process information (Cameron and Quinn, 2006) 2.3 Leadership Bass’ (1985) model portraying two leadership paradigms, transformational and transactional, has been criticised for having overlooked the capability of leadership to disperse throughout the organisation The notion that leadership is not the preserve of an individual but a fluid or emergent property rather than a fixed phenomenon is at the core of the concept of distributed leadership (Harris, 2005; Spillane, 2006) Avery (2004) also looks at the distribution of leadership, but views this distribution as not emanating from a leader, but as contributions from multiple leaders in organic organisations Introduced by Drath (2001) and expanded by Avery (2004), organic leadership tends to obnubilate the distinction between leaders and subordinates Reciprocal actions which this paradigm rests on implies that team members work together in whatever roles of power they have, without being governed by power of position (Hirschhorn, 1997; Raelin, 2003) Employees become interacting partners in determining what makes sense Organic leader is rather a temporal coordinator for the group of like-minded people, a servant or facilitator, sharing the vision and values based on self-control and self-organisation, where people have a lucid sense of purpose and autonomy within a particular setting Bass’ (1990) review of the various conceptualisations of leadership culminates in the ensuing definition of leadership: “Leadership is an interaction between two or more members of a group that often involves a structuring or restructuring of the situation and the perceptions and expectations of the members Leaders are agents of change – persons whose acts affect other people more than other people’s acts affect them Leadership occurs when one group member modifies the motivation or competencies of others in the group.” What can corporate governance build in shipping companies? 117 This definition of leadership by Bass (1990), analogous to the concept of organic leadership, endeavours to erase the boundary between leaders and subordinates Since this definition underscores that “leadership occurs when one group member modifies the motivation or competencies of others in the group” without specifying “this group member”, leadership can come from any member in an organisation Thus, transformational and transactional styles in this definition are not associated with a particular leader, but distributed through the organisation and instilled in the organisation’s culture Moreover, the rendezvous between the notions of interaction and meaning-making in Bass’ (1990) definition and those of reciprocal actions and sense-making in Avery’s (2004) discussion on organic leadership denote that the definitions of leadership incrementally converge, so Bass’ (1990) definition can serve as a underpinning on which the conceptual model is built 2.4 Upward influence behaviours Influence is crucial for managers’ effective performance An effective manager must influence others to implement requests and decisions The success of an endeavour by a person (the ‘agent’) to influence another person (‘the target’) is highly contingent on the influence tactics adopted by the agent (Yukl et al., 2008) Upward influence denotes an agent’s influential behaviours oriented toward individuals at higher levels in the organisational hierarchy (Wayne et al., 1997) This study resorted to a spectrum of upward influence behaviours ranging from organisationally positive, legal and socially desirable to negative, illegal and ethically questionable (Ralston et al., 1993) encompassing organisationally beneficial behaviours, self-indulgent behaviours, and destructive behaviours (Egri et al., 2000) 2.4.1 Organisationally beneficial behaviours As its name hints, organisationally beneficial behaviours tend to be directly beneficial to the organisation and viewed as the ‘organisational person’ approach to upward influence They are the standard prescribed behaviours for organisational members encompassing caring for other stakeholders and behaving in a manner seen as promoting organisational sustainability 2.4.2 Self-indulgent behaviours Self-indulgent behaviours reflect ‘it is me first’ approach in individuals’ behaviours toward other stakeholders in an organisation Their self-interest is not merely above the interests of other stakeholders but also diverges from the interests and values of the organisation as a whole Whether these behaviours functionally or dysfunctionally influence the organisation is contingent on the contextual factors such as ethical degree of organisational culture and leadership Self-indulgent behaviours encompass discerning and following an influential superior and using professional expertise to render the superior dependent on them 118 L.T Tuan 2.4.3 Destructive behaviours These extreme self-serving behaviours directly harm other stakeholders, and even the organisation, which may lead to white-collar crimes The term ‘burn, pillage and plunder’ is used to portray these behaviours White-collar crimes, in certain cases, lead to corporate crimes towards all stakeholders Conceptual framework and methodology 3.1 Conceptual framework and research hypotheses In a value-creating stakeholder network, there is a growing magnitude of the notions of customers and market orientation (Enquist et al., 2005) Corporate governance looks beyond internal stakeholders towards external stakeholders, so tends to cultivate market orientation in the organisation Ho et al (2010) study also divulged that companies with effective corporate governance demonstrate a strong propensity for market orientation Corporate governance is viewed as “a set of relationships between a company’s management, its board, its shareholders and other stakeholders” (OECD, 2004) Meanwhile, market orientation encompasses not merely interfunctional coordination (Slater and Narver, 1994), but coordination among stakeholders as well, so can be nourished by a strong corporate governance Strong corporate governance therefore cultivates market culture Furthermore, corporate governance influences innovation in a manner that institutional devices promote knowledge flows and the integration of diverse capabilities (Lacetera, 2001) Corporate governance is also a framework for change (Drori, 2006), so corporate governance can help build values of innovation through the organisation, which is consistent with dominant attributes of adhocracy culture, so the correspondence between strong corporate governance and adhocracy culture is rationally presumed Strong corporate governance is built through guidelines rather than through strict laws and rules Bonding forces of all members are based on the relationships rather than rules or policies, which are the underpinning of adhocracy culture, market culture, and clan culture rather than hierarchy culture (Deshpande et al., 1993) Forces of all or most organisational members are directed towards the organisation’s vision and sustainable growth Above discussions lead to the ensuing hypotheses and subhypotheses: H1 Strong corporate governance positively relates to adhocracy culture, market culture, and clan culture, but negatively relates to hierarchy culture H1a Strong corporate governance positively relates to adhocracy culture H1b Strong corporate governance positively relates to market culture H1c Strong corporate governance positively relates to clan culture H1d Strong corporate governance negatively relates to hierarchy culture From OECD’s (2004) definition of corporate governance as “a set of relationships between a company’s management, its board, its shareholders and other stakeholders”, and Mallin’s (2002) view of corporate governance as ‘the exercise of power over and What can corporate governance build in shipping companies? 119 responsibility for corporate entities’, in an organisation with strong corporate governance, the relationships between the management and all stakeholders are nurtured, and the leader exercises their power in a socialised manner to fulfil their responsibilities for the organisation as a whole and to all stakerholders The leader can build an organisational mechanism; however, an organisational mechanism also can promote a leadership style Strong corporate governance mechanism can drive leaders on the path of organisational sustainable growth Leaders, within corporate governance mechanism as a framework for change (Drori, 2006), are not only agents for all stakeholders as corporate governance designates, but also change agents and encourage all members to be change agents as well as build distributed change agentship among members Strong corporate governance therefore tends to adapt the leader into transformational leadership style, paving the path for the following hypothesis and subhypotheses: H2 Strong corporate governance positively relates to transformational leadership, but negatively relates to transactional leadership H2a Strong corporate governance positively relates to transformational leadership H2b Strong corporate governance negatively relates to transactional leadership Bonds among organisational members based on rules may generate smoothness in operations; however, this smoothness may be superficial or even ‘artificial’ Therefore, rule obedience in the organisation may not promote functional or constructive upward influence behaviours Upward influence tactics which are in compliance with rules tend to grow in the thin consent context where subordinates have no other alternatives than abiding by rules or policies and member-organisation fit in terms of interests or values does not occur In organisations with hierarchy culture where rules prevail (Deshpande et al., 1993), subordinates thus tend to look at themselves rather than their organisation and develop self-indulgent behaviours or even destructive behaviours rather than organisationally beneficial behaviours Growth forces in organisations with adhocracy culture or market culture tend to be outward for external positioning (Deshpande et al., 1993), encouraging the stream of upward interaction in which market-oriented innovative ideas drift up towards leaders The flow of upward interaction also increases the understanding and fit between subordinates and leaders in terms of interests or values, which in turn increases organisationally beneficial upward influence behaviours Despite its focus on internal maintenance, clan culture, with high sense of ‘cosy family’ (Deshpande et al., 1993), tends to allow all directions of influence, especially upward influence as a way to contribute to the cosiness of the organisation The following hypotheses and subhypotheses thus emerged: H3 Adhocracy culture positively relates to organisationally beneficial behaviour, but negatively relates to self-indulgent behaviour or destructive behaviour H3a Adhocracy culture positively relates to organisationally beneficial behaviour H3b Adhocracy culture negatively relates to self-indulgent behaviour H3c Adhocracy culture negatively relates to destructive behaviour H4 Market culture positively relates to organisationally beneficial behaviour, but negatively relates to self-indulgent behaviour or destructive behaviour 120 L.T Tuan H4a Market culture positively relates to organisationally beneficial behaviour H4b Market culture negatively relates to self-indulgent behaviour H4c Market culture negatively relates to destructive behaviour H5 Clan culture positively relates to organisationally beneficial behaviour, but negatively relates to self-indulgent behaviour or destructive behaviour H5a Clan culture positively relates to organisationally beneficial behaviour H5b Clan culture negatively relates to self-indulgent behaviour H5c Clan culture negatively relates to destructive behaviour H6 Hierarchy culture negatively relates to organisationally beneficial behaviour, but positively relates to self-indulgent behaviour or destructive behaviour H6a Hierarchy culture negatively relates to organisationally beneficial behaviour H6b Hierarchy culture positively relates to self-indulgent behaviour H6c Hierarchy culture positively relates to destructive behaviour Transactional leaders who involve subordinates in the exchange between performance and rewards (McShane and Von Glinow, 2008) tend to cultivate in subordinates’ mindsets financial exchange between their contributions and compensations Transactional leadership thus may nourish calculation-based attitude, ‘it is me first’ behaviour or self-interest in subordinates, whose behaviours may even become too self-serving to turn toward ‘win-win’ approach among members ‘Win-lose’ behavioural attitude may grow in the relationships with their colleagues The transactional leader works within norms (Bass, 1985), so when subordinates can not obtain support from the transactional leader to ‘break’ the norms, they tend, on the surface, support these norms, but deep down develop their self-indulgent behaviours or, in other words, ‘break’ these norms in silence The transformational leader, on the contrary, redefines or alters the norms of the organisational culture based on her or his visioning of a more satisfactory alternative future state (Bass, 1985) A transforming leader, as Burns (1978, p.4) identified, “… looks for potential motives in followers, seeks to satisfy higher needs, and engages the full person of the follower” Burns (1978, p.4) also suggested that transforming leaders built “… [a] relationship of mutual stimulation and elevation that converts followers into leaders” Examples of transformational leadership include ‘the leader’s providing a sense of vision’, ‘challenging the status quo’ and ‘providing stimulation and inspiration’ The transformational leader thus tends to open the door and cascade down the organisational hierarchy to welcome upward influence from subordinates for mutual stimulation and inspiration Bass (1990, p.631) observed that “… transformational leaders have better relationships with their supervisors and make more of a contribution to the organisation than those who are only transactional” Transformational leaders therefore also implement organisationally beneficial upward influence behaviours and may stimulate upward influence behaviours in their subordinates through this role modelling Being innovative in nature, transformational leaders are more concerned with the improvement of the life quality of their subordinates (Tucker and Russell, 2004) as well as other stakeholders A leader with transformational leadership, therefore, acts as a change agent to harmonise interests of all stakeholders Individualised consideration What can corporate governance build in shipping companies? 121 as an element of transformational leadership implies the building of this value and interest fit between individuals and organisation as well as the alignment between individual tactics and organisational strategy Transformational leadership, as a result, tends to cultivate organisationally beneficial upward influence behaviours and diminish the density of egotism in their upward influence behaviours The ensuing hypotheses and subhypotheses are consequently expected to surface: H7 Transformational leadership positively relates to organisationally beneficial behaviour, but negatively relates to self-indulgent behaviour or destructive behaviour H7a Transformational leadership positively relates to organisationally beneficial behaviour H7b Transformational leadership negatively relates to self-indulgent behaviour H7c Transformational leadership negatively relates to destructive behaviour H8 Transactional leadership negatively relates to organisationally beneficial behaviour, but positively relates to self-indulgent behaviour or destructive behaviour H8a Transactional leadership negatively relates to organisationally beneficial behaviour H8b Transactional leadership positively relates to self-indulgent behaviour H8c Transactional leadership positively relates to destructive behaviour Effective corporate governance entails the principles of accountability, transparency, fairness and responsibility in the management of the organisation (Ehikioya, 2009) An organisation with strong corporate governance is a place where responsibilities develop from code of ethics rather than strict laws and rules and intrinsically motivated Dimensions of responsibility encompassing economic, legal, and ethical responsibilities are harmonised, and self-responsibility and responsibility for others and the organisation are also balanced In the organisation with strong corporate governance, upward influence is seen as a crucial means to display responsibility for value creation However, it is likely that organisationally beneficial behaviour has more chances to develop than self-indulgent behaviour or destructive behaviour Strong corporate governance builds the compatibility between individual interests and organisational interests (Cadbury, 2000), so can minimise self-indulgent behaviour or destructive behaviour Strong corporate governance, furthermore, with transparency mechanism to defend interests of stakeholders, both inside and outside, can filter destructive behaviour The subsequent hypothesis and subhypotheses were hence proposed: H9 Strong corporate governance positively relates to organisationally beneficial behaviour, but negatively relates to self-indulgent behaviour or destructive behaviour H9a Strong corporate governance positively relates to organisationally beneficial behaviour H9b Strong corporate governance negatively relates to self-indulgent behaviour H9c Strong corporate governance negatively relates to destructive behaviour Figure displays the hypothesised interconnections amongst corporate governance, organisational culture types, leadership styles, and upward influence behaviours 122 L.T Tuan Figure Hypothesised framework 3.2 Methodology 3.2.1 Sample and procedure The sample for this study was derived from a population of 1,037 shipping companies listed in the 2010 Vietnam Trade Directory Since companies should be sufficiently large to ensure that organisational and strategy variables apply (Miller, 1987), merely 142 companies reached the two criteria: annual sales are at least Vietnam Dong25 billion (equivalent to $1,170 thousand US) at least 100 employees are working The criterion on sales is based on average sales of small enterprises in Vietnam market context (Ministry of Planning and Investment, 2008) Data on such variables as corporate governance, organisational culture, leadership, and upward influence behaviour were collated via self-administered structured questionnaires despatched to 710 middle level managers in these 142 companies, an average of five middle managers in each company Middle management members were relied on as the respondents since they would have more opportunities to observe high as well as low layers of organisational behaviours than would lower level members Data collection was conducted between March 2011 and August 2011 As displayed in Table 1, the demographic profile of the sample represented a relatively wide range of company ownership types 5 Sales manager Others 106 43 Male Female Respondent gender 28 23 Marketing manager 26 22 Logistics manager 29 Operations manager 16 HR manager Number Chief accountant % Respondent education (years after high school) 149 11 Respondent average tenure (years) Respondent position 3.7 34 Respondent average age (years) 28.86 71.14 3.36 15.44 18.79 14.77 17.45 19.46 10.74 5.4 5.1 17.6 24.2 Company age (years) 587.1 SD 421 Mean State-owned companies 52 77 20 21 22 24 24 15 129 Number 31 14.7 125 Mean 40.31 59.69 2.33 15.50 16.28 17.05 18.60 18.60 11.63 % 1.7 4.2 3.7 15.5 321.1 SD Private domestic companies 21 47 13 10 12 15 11 68 Number 27 10.2 247 Mean 30.88 69.12 2.94 19.12 14.71 17.65 22.06 16.18 7.35 % 2.3 4.4 3.7 17.4 170.2 SD 100% foreign-invested companies 25 47 15 14 11 14 12 72 Number 32 13.7 206 Mean 34.72 65.28 0.00 20.83 19.44 15.28 19.44 16.67 8.33 % 2.4 2.5 3.9 15.2 215.3 SD Joint-venture companies 1.51 17.18 Chi-square 1.15 25.77 1.08 10.68 33.08 F test 04 01 Sig .09 00 16 00 00 Sig Table Company size (number of employees) Characteristics What can corporate governance build in shipping companies? 123 The demographic profile of the sample 124 L.T Tuan Due to scanty time among middle and top managers, the response rate range of 15%–25% has been found in numerous studies (e.g., Baines and Langfield-Smith, 2003; Spanos and Lioukas, 2001) In this research, nonetheless, out of 710 questionnaires relayed to middle level managers, 418 were returned in completed form for a response rate of 58.87% This high response rate resulted from the voluntary cooperation from these 418 managers with most of whom the relationships were forged through the researcher’s close business partners in the snowball sampling process (Robson, 1993) 3.2.2 Quantitative measures While the quantitative approach utilised in this study does not allow for an analysis of the most profound level of the constructs, it, as a “journey of the facts” [Smith, (1983), p.10], enables the investigation of respondents’ perceptual realities (Ashkanasy et al., 2000) 3.2.2.1 Corporate governance To measure the strength of the governance mechanisms for a firm, an index of composite governance mechanisms developed by institutional shareholder services (ISS) was utilised The ISS index consists of 61 separate variables covering the eight corporate governance categories, with each variable equally weighted by ‘1’ This governance index composite score was identified as ‘GI’ A higher index score implies stronger governance effectiveness The eight corporate governance categories encompass audit issues (e.g., audit committee consists solely of independent outside directors; auditors were ratified at the most recent annual meeting; consulting fees paid to auditors are less than audit fees paid to auditors; company has a formal policy on auditor rotation), board structure and composition (managers respond to shareholder proposals within 12 months of shareholder meeting; CEO serves on no more than two additional boards of other public companies; all directors attended at least 75% of board meetings or had a valid excuse for non-attendance; size of board of directors is at least six but not more than 15 members), charter and bylaw provisions (e.g., a simple majority vote is required to approve a merger (not a supermajority); company either has no poison pill or a pill that shareholder approved; shareholders are allowed to call special meetings; a majority vote is required to amend charter/bylaws (not a supermajority)), director education (At least one member of the board has participated in an ISS-accredited director education programme), executive and director compensation (e.g., no interlocks exist among directors on the compensation committee; non-employees not participate in company pension plans; option re-pricing did not occur within last three years; stock incentive plans were adopted with shareholder approval), director and officer ownership (e.g., all directors with more than one year of service own stock; officers’ and directors’ stock ownership is at least 1% but not over 30% of total shares outstanding; executives are subject to stock ownership guidelines; directors are subject to stock ownership guidelines), progressive practices (e.g., mandatory retirement age for directors exists; performance of the board is reviewed regularly; a board-approved CEO succession plan is in place; board has outside advisors), and the state of incorporation related to takeover defences (incorporation in a state without any anti-takeover provisions) What can corporate governance build in shipping companies? 125 3.2.2.2 Organisational culture Cameron and Freeman’s (1991) operationalisation of the culture construct was further adapted by Deshpande et al (1993), who constructed brief scenarios to depict the dominant characteristics of each of the four culture types The scenarios, where organisation A refers to clan culture, organisation B refers to adhocracy culture, organisation C refers to hierarchy culture, and organisation D refers to market culture, are consistently arranged in the questions, appraising the organisational characteristics, organisational leadership, organisational bonding, and organisational strategic emphases To give respondents the opportunity to designate both culture type and culture strength, respondents were invited to dispense 100 points among the four scenarios in the questions, contingent on how similar respondents thought each scenario was to their own organisation The validity of this instrument has been corroborated (e.g., Zammuto and Krakower, 1991), and it has been recently used in an accounting setting (Bhimani, 2003) 3.2.2.3 Leadership style This construct was appraised using Bass and Avolio’s (1995) multifactor leadership questionnaire MLQ 5X (MLQ – leader form – form 5X), which comprises 45 behavioural statements and uses a five-point rating system (1 = not at all; = once in a while; = sometimes; = fairly often; = frequently, if not always) Middle management employees were invited to indicate how frequently each statement portrays the leadership style of their top level managers Scores were then generated for nine separate scales, five of which reflect facets of transformational leadership and four of which reflect facets of transactional leadership (see Table 2) Table MLQ 5X leadership scales Transformational leadership Idealised influence (attributed) Transactional leadership Contingent reward Idealised influence (behaviour) Management by exception – active Inspirational motivation Management by exception – passive Intellectual stimulation Laissez-faire Individualised consideration Scores for each leadership scale on the MLQ 5X were computed using the completed surveys of direct reports, which is consistent with the work of Bass (1985) who denotes these scales reflect distinct, but related components of transformational and transactional leadership The original MLQ has been examined in numerous research studies and on a broad range of sample populations (Lowe et al., 1996) Form 5X was launched in 1991 and has assimilated a variety of refinements (Avolio et al., 1999) Reliability coefficients for the MLQ 5X leadership scales range from 0.74 to 0.91 (Bass and Avolio, 1995) While the profundity of research conducted on the MLQ 5X is not as extensive as that conducted on the original questionnaire, there is sufficient validation data to indicate that it is likely to replicate or improve upon the research record of its predecessor (Lowe et al., 1996) 126 L.T Tuan 3.2.2.4 Upward influence behaviours The strategies of upward influence (SUI) instrument, developed by Ralston et al (1993), was utilised to measure views on upward influence behaviours Under the three dimensions – organisationally beneficial behaviours, self-indulgent behaviours, and destructive behaviours – 38 scenario items of the instrument are anchored on an eight-point Likert scale ranging between the two ends and 8, which denotes that an item is extremely unacceptable or extremely acceptable respectively for co-workers to resort to as a means of influencing a superior The higher the score is, the higher is the acceptability of a type of upward influence behaviour Albeit the responses were perceived coworkers’ behaviour, it is likely that respondents actually reported their own perceptions (Egri et al., 2000) Data collated from the questionnaire survey was analysed using LISREL 8.52 The measures’ reliability was potentially enhanced through the utilisation of multiple-item measures (Neuman, 2000) The reliability of each construct and its specific dimensions was appraised using Cronbach alpha coefficients Nunnally’s (1967) recommended cut-off point of 0.70 was surpassed by all constructs Convergent validity is also suggested when the individual variable scores are merged into a single scale to yield a Cronbach alpha of 0.772 Prior to structural equation model analysis, a multi-sample analysis (moderate cross-validation) was implemented to assess the measurement models (the relationships between the latent construct and their indicators) All measurement models comprising corporate governance (eight indicators), organisational culture (four indicators), leadership style (two indicators) and upward influence behaviours (three indicators) latent construct displayed a good model fit to the data across both samples and all indicators’ loadings were significant at p < 01 Furthermore, appraising the composite reliability value for each measurement model demonstrates that weighted composite factor reliability exceeds the 0.60 threshold (ranging from 0.75 to 0.87) and the average variance extracted (AVE) exceeds 0.50 threshold (ranging from 0.54 to 0.76) These provide validity and reliability proofs for indicators representing the constructs (Diamantopoulos and Siguaw, 2000) The structural part of the model was then assessed to determine whether relationships exist among latent variables specified at the conceptualisation phase Partial or moderate cross-validation was conducted via multi-sample analysis (Schumacker and Lomax, 2004) Content validity was established through the adoption of existing and validated scales utilised in the existing literature In addition, the questionnaire underwent three-phase pre-test The questionnaire was first examined and edited by numerous academics Ten top managers in a CEO training class were then invited to complete the questionnaire and to share comments on its form and content The students in an MBA class were then involved in the completion of this questionnaire Minor adjustments on wording and presentation were eventually conducted Discriminant validity between the two dimensions of leadership – transformational and transactional – was tested through a series of chi-square difference tests which had been performed by constraining the estimated correlation parameter to 1.0 (Anderson and Gerbing, 1988) Discriminant validity was supported by a significant lower χ2 value for the unconstrained model What can corporate governance build in shipping companies? 127 Findings and discussion The structural model’s fit statistics prove rational: χ2 = 561.8, df = 348, p < 01, CFI = 93, TLI = 93, IFI = 93, and RMSEA = 03 As most of the hypotheses (24 out of 27) were statistically substantiated (see Table 3), the findings provide robust support for the research framework The findings displayed in Table demonstrate positive and significant path coefficients between strong corporate governance and adhocracy culture (p < 0.01), market culture (p < 0.01), or clan culture (p < 0.05) strong corporate governance and transformational leadership (p < 0.01) adhocracy culture (p < 0.01), market culture (p < 0.01), or clan culture (p < 0.05) and organisationally beneficial behaviour hierarchy culture and self-indulgent behaviour (p < 0.01) transformational leadership and organisationally beneficial behaviour (p < 0.01) transactional leadership and self-indulgent behaviour (p < 0.05) strong corporate governance and organisationally beneficial behaviour (p < 0.05) Table Findings from the structural equation model Path coefficient Z Conclusion statistics Hypothesis Description of path H1a Strong corporate governance → Adhocracy culture 105 2.63** H1a (+): S H1b Strong corporate governance → Market culture 142 2.86** H1b (+): S H1c Strong corporate governance → Clan culture 104 1.72* H1c (+): S H1d Strong corporate governance → Hierarchy culture −.089 −2.19** H1d (−): S H2a Strong corporate governance → Transformational leadership 270 4.25** H2a (+): S H2b Strong corporate governance → Transactional leadership −.122 −1.06* H2b (−): S H3a Adhocracy culture → Organisationally beneficial behaviour 229 3.37** H3a (+): S H3b Adhocracy culture → Self-indulgent behaviour −.121 −1.76* H3b (−): S H3c Adhocracy culture → Destructive behaviour −.169 −2.34** H3c (−): S Notes: Model fit: χ2 = 561.8, df = 348, IFI = 93, TLI = 93, CFI = 93, RMSEA = 03 Tests of hypotheses are one-tail tests *p < 0.05, **p < 0.01, S = supported, NS = not supported 128 L.T Tuan Table Findings from the structural equation model (continued) Path coefficient Hypothesis Description of path H4a Market culture → Organisationally beneficial behaviour 237 H4b Market culture → Self-indulgent behaviour H4c Market culture → Destructive behaviour H5a Z Conclusion statistics 3.51** H4a (+): S −.138 −1.92* H4b (−): S −.164 −3.12** H4c (−): S Clan culture → Organisationally beneficial behaviour 129 1.31* H5a (+): S H5b Clan culture → Self-indulgent behaviour −.108 −1.55* H5b (−): S H5c Clan culture → Destructive behaviour −.134 −2.40** H5c (−): S H6a Hierarchy culture → Organisationally beneficial behaviour −.436 −5.58** H6a (−): S H6b Hierarchy culture → Self-indulgent behaviour 131 2.45** H6b (+): S H6c Hierarchy culture → Destructive behaviour 099 1.32 H6c (+): NS H7a Transformational leadership → Organisationally beneficial behaviour 314 4.46** H7a (+): S H7b Transformational leadership → Self-indulgent behaviour −.091 −1.53 H7b (−): NS H7c Transformational leadership → Destructive behaviour −.174 −2.49** H7c (−): S H8a Transactional leadership → Organisationally beneficial behaviour −.102 −1.21* H8a (−): S H8b Transactional leadership → Self-indulgent behaviour 116 1.17* H8b (+): S H8c Transactional leadership → Destructive behaviour 068 1.19 H8c (+): NS Strong corporate H9a governance → Organisationally beneficial behaviour 094 2.55* H9a (+): S H9b Strong corporate governance → Self-indulgent behaviour −.461 −1.31* H9b (−): S H9c Strong corporate governance → Destructive behaviour −.508 −4.68** H9c (−): S Notes: Model fit: χ2 = 561.8, df = 348, IFI = 93, TLI = 93, CFI = 93, RMSEA = 03 Tests of hypotheses are one-tail tests *p < 0.05, **p < 0.01, S = supported, NS = not supported Hypotheses H1a through H1d were corroborated through the positive and significant associations between strong corporate governance and adhocracy culture (.105; p < 0.01), market culture (.142; p < 0.01), clan culture (.104; p < 0.05), and through the negative and significant association between strong corporate governance and hierarchy culture (–.089; p < 0.01) Reputation, one of the four corporate governance mechanisms What can corporate governance build in shipping companies? 129 (Wang and Chen, 2004), acts as an indicator of market orientation Corporate governance also cultivates market orientation through corporate transparency Corporate governance, therefore, builds adhocracy culture and market culture, which is oriented towards external positioning through innovation or customer-centerness (Deshpande et al., 1993) Corporate governance aims to nurture the relationships among all stakeholders through the compatibility between individual interests and organisational interests (Cadbury, 2000) rather than through rules and policies, so corporate governance tends to promote clan culture rather than hierarchy culture in the organisation The positive interconnection between strong corporate governance and transformational leadership was substantiated (.270; p < 0.01) Nonetheless, transactional leadership was found to negatively correspond to strong corporte governance (–.122; p < 0.05) As a framework for change (Drori, 2006), corporate governance changes behaviours as well as shapes change agents Corporate governance, therefore, not merely builds transformational leadership but distributes transformational leadership throughout the organisation as well Corporate governance reinforces leaders’ responsibility to the internal stakeholders of the organisation and extends it towards the external stakeholders Leaders are more all-stakeholder-oriented and support changes beneficial to all stakeholders Transformational leadership champion is a value which corporate governance endeavours to cultivate In corporate governance framework, leaders elevate employees’ mindsets above the level of exchange between their performance and rewards, which transactional leadership aims at The positive and significant relationships between adhocracy culture and organisationally beneficial behaviour (.229; p < 0.01), between market culture and organisationally beneficial behaviour (.237; p < 0.01), and between clan culture and organisationally beneficial behaviour (.129; p < 0.05) substantiate hypotheses H3a, H4a, and H5a respectively Adhocracy culture with such dominant components as entrepreneurship, creativity, and adaptability (Deshpande et al., 1993) and market culture with strategic emphasis on competitive edge and market superiority (Deshpande et al., 1993) buttress upward influence behaviours which create a new set of organisational values for innovation and market success Clan culture, on the other hand, with high sense of family and high interpersonal cohesiveness (Deshpande et al., 1993) looks upon upward influence behaviours as a crucial flow of communication and interaction, which helps the leader, also as the mentor in clan culture, understand her or his members in their ‘big family’ in order to help them as Arthur Combs says, “Without an understanding of the unique meanings existing for the individual, the problems of helping him effectively are almost insurmountable” (cited in Kryza et al., 2009) Moreover, clan culture incubated in the atmosphere of a family and a rather flat organisational structure tends to yield physical as well as relational proximity between superiors and subordinates, so facilitates organisationally beneficial upward influence behaviours Adhocracy, market, or clan cultures cultivate in organisational members drives or forces towards the survival or sustainable growth of the organisation Organisations with these types of culture therefore are not the garden for the seeds of self-indulgent behaviours or destructive behaviours to flourish This is reflected through the negative and significant relationships between adhocracy culture and self-indulgent behaviour (−.121; p < 0.05) or destructive behaviour (−.169; p < 0.01), between market culture and self-indulgent behaviour (−.138; p < 0.05) or destructive behaviour (−.164; p < 0.01), between clan culture and self-indulgent behaviour (−.108; p < 0.05) or destructive 130 L.T Tuan behaviour (−.134; p < 0.01), which corroborate hypotheses H3b, H3c, H4b, H4c, H5b, and H5c respectively Hypothesis H6a which posited that hierarchy culture would be negatively associated with organisationally beneficial behaviour is attested as denoted by the negative and significant coefficient between hierarchy culture and organisationally beneficial behaviour (−.436; p < 0.01) Hierarchy culture was found to be positively correlated with self-indulgent behaviour (.131; p < 0.01); however, there was no lucid link between hierarchy culture and destructive behaviour Hierarchy culture with member bonds based on rules and policies (Deshpande et al., 1993) encourages conservatism and a ‘playing safe’ attitude (Otley, 1994) Employees in hierarchy culture thus tend to think about themselves rather than other stakeholders, so tend to let self-indulgent behaviours manifest themselves However, as the findings divulge, there was no empirical evidence that hierarchy culture nurtures destructive behaviours, and rules and policies in hierarchy culture should not be deemed to be culprits of destructive behaviours in the organisation Rules, if adeptly built as guidelines for ethical behaviours and aligned with organisational mission and vision, may control destructive upward influence behaviours Hypothesis H7a was verified due to the positive and significant coefficient between transformational leadership and organisationally beneficial behaviour (.314; p < 0.01) Transformational leadership does not support destructive behaviour (hypothesis H7c) as demonstrated through the negative and significant link between transformational leadership and destructive behaviour (−.174; p < 0.01) However, hypothesis H7b which posits the negative correspondence between transformational leadership and self-indulgent behaviour was not confirmed by the findings Transformational leadership welcomes upward influence with the aim to stimulate innovative contributions in subordinates toward the organisational value chain Nonetheless, subordinates’ upward influence may be directed toward ‘me’ rather than the organisation A subordinate may influence a superior for an innovation project for her or his own benefit rather than that shared among her or his team In this case, transformational leadership provides opportunities for self-indulgent behaviour to surface rather than inhibiting it Conversely, the findings reveal that transactional leadership was negatively associated with organisationally beneficial behaviour (−.102; p < 0.05), but positively correlated with self-indulgent behaviour (.116; p < 0.05) However, the positive bridge between transactional leadership and destructive behaviour was not supported as hypothesis H8c presumed Transactional leadership increases employee performance and satisfaction by linking job performance to valued rewards (McShane and Von Glinow, 2008); nonetheless, employees may decipher this management approach as an exchange between their individual contributions and compensations, which may develop ‘it is me first’ attitude However, role elaboration which transactional leadership generates (Robbins, 2003) can help employees decode their roles as important contributions toward the organisational vision, so their ‘it is me first’ attitude may not extend further into destructive behaviour Organisationally beneficial behaviour was found to positively relate to strong corporate governance, which substantiates hypothesis H9a Strong corporate governance does not facilitate self-indulgent behaviour or destructive behaviour as reflected through the negative and significant relationships between strong corporate governance and self-indulgent behaviour (−.461; p < 0.05) (hypothesis H9b), and between strong corporate governance and destructive behaviour (−.508; p < 0.01) (hypothesis H9c) As “a set of relationships between a company’s management, its board, its shareholders and What can corporate governance build in shipping companies? 131 other stakeholders” (OECD, 2004), and ‘the exercise of power over and responsibility for corporate entities’ (Mallin, 2002), corporate governance is a framework for behaviours oriented towards the benefit of the organisation as a whole as well as towards the benefits of stakeholders inside and outside the organisation Self-indulgent behaviour or destructive behaviour, which is apathetic to the interests of stakeholders, does not favourably grow in corporate governance mechanism According to Waxer (2004), corporate governance has placed enormous pressure on businesses to hold employees to the highest of ethical standards, so such behaviours deviating from high ethical standards as destructive behaviours can be minimised Conclusions The hypothesised framework shown in Figure was passably advocated by the findings The bridges between strong corporate governance and culture types were amply established The positive links were encountered between strong corporate governance and adhocracy, market, and clan cultures, but the negative link was found between strong corporate governance and hierarchy culture Strong corporate governance was also positively linked with transformational leadership, but negatively linked with transactional leadership Adhocracy, market, and clan cultures, within expectation, were positively correlated with organisationally beneficial upward influence behaviour Hierarchy culture, on the other hand, cultivates self-indulgent behaviour, but not necessarily destructive behaviour Furthermore, transformational leadership was found to positively relate to organisationally beneficial behaviour, but negatively relate to destructive behaviour Transactional leadership, on the contrary, turned out to negatively relate to organisationally beneficial behaviour, but positively relate to self-indulgent behaviour The direct viaduct between strong corporate governance and organisationally beneficial upward influence behaviour was also unveiled Corporate governance is a mechanism which helps cultivate proactive culture with market and innovation focus and proactive leadership with transformational nature Guidelines in corporate governance mechanism therefore navigate members in a shipping company to transcend norms in shipping services such as shaping vessel charterers’ demands into existing vessel particulars (e.g., persuading charterers to accept gearless vessels rather than strategically upgrading them with new derricks) and issuing bill of lading within office working hours Managers in shipping services, under corporate governance guidelines, should appraise and recognise the contributions of employees especially outside office working hours to involve all parties including shippers and inspectors in timely document preparation process Furthermore, through the corporate governance mechanism, managers in shipping companies develop their self-efficacy to become change agents to proactively create superior values for customers such as effective arrangement of berthing with port authority, and regular updating of the vessel journey toward loading or discharging port On the journey of behaviour transformation, this proactive corporate governance mechanism nurtures upward influence behaviours in organisational members, which leads to organisational changes from low-level members Thus, distributed leadership, which aims to shape change agents through the organisation as Avery (2004) highlights, can be engendered by strong corporate governance Corporate governance therefore 132 L.T Tuan catalyses the diffusion of leadership from the low points in the organisation through the activation of organisationally beneficial behaviours in members Through corporate governance mechanism, shipping service staffs not wait for the change in leadership, but find themselves change agents to change norms and create novel values Staffs then proactively inquire into strategic evolution in customer demands in the short run as well as in the long run along the dynamic change in regional cargo trade For instance, there may be potential demands in 2012 for handy-size or panamax vessels to carry fertilisers from Middle-East or Black Sea areas to Vietnam due to reduced fertiliser supply from China as a result of new high export tax policy Market culture is then built, promoting subordinates’ organisationally beneficial upward influence behaviours, especially initiatives to increase availability of such vessels so that customers can timely secure their cargo for the market with a higher success probability An indispensable facet of a manager’s effectiveness is her or his competence to influence others within the organisation (Yukl and Tracey, 1992) Managers desire to influence people who are higher (rather than lower) in the organisational hierarchy, so they should, through training, build their competence to wield effective upward influence strategies (Tandon et al., 1991) Thus, in order for upward influence for changes in shipping services to thrive more swiftly and profoundly, there is a necessity for training on building competencies in managers to influence higher level leaders to shift to management by strategic objectives from managing their presence in the office chasing chartering demands through phone calls or e-mails This behaviour training process can be facilitated by a new set of values of an appropriate culture type such as adhocracy culture, market culture, or clan culture If all dependent variables of corporate governance – organisational culture, leadership, and upward influence behaviours – are wrapped in a dummy variable, a new model of culture is built and portrayed in Table Table Components of lead culture and lag culture Lead culture Lag culture Organisational orientation Orientation towards all stakeholders Orientation towards internal stakeholders Leadership Transformational leadership Transactional leadership Leadership is diffused from low points in the organisation Diffusion of leadership tends to be practically blocked due to selfindulgent behaviours Organisationally beneficial behaviours Self-indulgent behaviours or destructive behaviours Upward influence behaviours Lead culture is robustly associated with strong corporate governance while weak corporate governance leads to lag culture Lead culture in the organisation contains catalysts of proactive changes, so can be deemed to be sustainable organisational culture As with every research endeavour, certain potential limitations should be discerned The findings from empirical questionnaire survey must be further tested due to such limitations of the current study as its cross-sectional nature and the utilisation of perceptual measures Another limitation is that the causal direction of the linkages amongst the variables has been partially established By controlling the effect of past performance on the perceptions of organisational culture and leadership style, the study can argue that culture and leadership have an influence on upward influence behaviours What can corporate governance build in shipping companies? 133 One though has to acknowledge 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