Fear-based leadership; an extreme last resort, not a sustainable panacea

Leaders need to mix a fair quantity of regimentation, routine, order, and discipline with a generous dose of trust, encouragement, and motivation

“State chief accountants will be held liable for excessive expenses” was a headline which caught my eye when I opened the Sunday Times of 7 January 2024. ‘Excessive Expenditure’ was defined as any expenditure that is not in the 2024 Budget or Annual Plan. Whilst I agree that the organs of the Sri Lankan Government and State enterprises must exercise stringent, but astute, financial discipline in the face of the economic challenges we face, I wince aghast at the authoritarian tone of this statement, a tone which is fast becoming the trademark of utterances, directives, and actions of our national and corporate leaders. 

It is a tone which epitomises a “fear-based” leadership style and a growing belief that citizens, and followers, will only perform under fear, can only be managed by threats and via draconian laws even if they violate their constitutional rights. The subject statement is both ironical, and even laughable, when viewed against a backdrop where leaders who ruined our country through reckless risk-taking, unauthorised expenditure and self-serving edicts, roam scot-free without being held personally liable for their misdeeds. This, too, despite the highest court in the land finding a handful of named past leaders guilty of violating the public trust and triggering the island’s worst financial crisis by their deliberate actions. 

In this respect, it is my opinion that it is not only the named few who are guilty but even the many others before them. Bond scams, fertiliser fiascos, sugar scams, coal purchases, drug scams, organic fertiliser imports, proliferation of International Sovereign Bonds with scant regard of their serviceability and the unusual cost escalations in road construction, to name a few, have been more serious, value destructive and debilitating than exceeding a Budget. People in glass houses cannot afford to throw stones! The common story of the sprats getting hounded while the sharks swim free.

The intent of this article is not to highlight the duplicity of the two-faced, self-serving political leaders who we have tolerated, to our detriment, in the last two decades and who we, charmed by their enticing rhetoric, sweet-talk and our recurrent gullibility, may re-elect despite their abysmal track-records – but it is to discuss whether fear-based leadership is appropriate in an era where constituents, and followers are demanding greater autonomy, empowerment, freedom of choice and freedom of expression. 

While the findings of many recent studies appear to favour a collaborative, participatory and democratic style of leadership, we must accept that the world is not a perfect binary where there is a definitive “this” or a “that” in terms of what style is appropriate and relevant. In my eyes, and mind, the key factor in a leadership style is identifying the horse for the course and in arriving at the right proportions. While a completely fear-based approach has obvious shortcomings, a totally lax approach may not deliver the requisite outcomes. Leaders need to mix a fair quantity of regimentation, routine, order, and discipline with a generous dose of trust, encouragement, and motivation.

Fear-based leadership is a style employed by leaders who rule with fear, coercion, and punishment. This style usually results in swift compliance and quick results because the rules are unambiguous, and the consequence of non-adherence is crystal clear. It is Hobson’s Choice. The command, and control, nature of the direction gives rise to fewer variables and, therefore, results in enhanced predictability. The thrust of this approach is penalties over rewards and punishment over recognition. Whilst it may be productive from the subject leader’s perspective in the short-term and in selected circumstances, it is unlikely to be sustainable in the longer term in an increasingly emancipated world where choice is preferred to imposition. Psychologists confirm that prolonged states of anxiety and fear will negatively affect employees’ and followers’ mental well-being with inevitable outcomes of decreased productivity and burn-out. Further, an unabating atmosphere of suppression and the inability of followers to express their views and opinions may lead to a disastrous blow-up. It is widely acknowledged that leaders who adopt positive, supportive leadership styles are more likely to build a strong, successful nation, or organisation, in the long run. It is also proven that open and nurturing environments facilitate creativity and innovation.

There are two observations which arise out of the subject statement. They are > the style of senior government leaders in managing State Chief Accountants (SCAs) and > the use of Budgets as a sole tool of control and punishment. SCAs are educated professionals who, like any human being, value pride and dignity and wish to be successful, and effective, in their roles. I know many of them personally. They are ‘reasonable persons. The ‘reasonable person’ referred to here is the standard often used in law to determine the existence of negligence. 

Wikipedia defines a ‘reasonable person’ as a hypothetical individual who approaches any situation with the appropriate amount of caution and then acts in a sensible manner. Taking such actions requires the reasonable person to be appropriately informed, capable, competent, aware of the law, and fair-minded. Such a person may do something extraordinary in certain circumstances and may act in an unusual way in other circumstances. But whatever that person does or thinks, is at most times reasonable. 

In this light, it is foolhardy to treat SCAs as robotic intermediaries who are totally process driven. For many years, the CFO (and a SCA is a de-facto CFO) was stereotyped as a command and control oriented ‘policeman’ responsible for an organisation’s finance and accounting functions. The emphasis, then, was on stewardship. However, today, the CFO is recognised as a key colleague, a confidante and as a strategic partner in optimising value creation among business lines and support functions. The Government, as well as State Enterprises, will do well and will benefit immensely by treating SCAs as value adding, reasonable persons who have completed their exams, attained their professional status, and gained wide experience in other senior positions. Their potential must be allowed to flourish. They must be inspired by a shared vision, and they must be given appropriate decision rights. They must be given the opportunities and availed a playing field where they can display their finance and accounting prowess and have influence on the organisation through innovative thinking. 

Based on my experience in these respects over many years of leadership at the highest levels, I can unhesitatingly state that utterances in the likes of “State chief accountants will be held liable for excessive expenses” are regressive, will stifle decision making and will further slow the wheels of government, and business, in an already volatile, uncertain, complex and ambiguous environment where quick response and instant gratification are what is expected by stakeholders. SCAs must not be driven into a state of paranoia where keeping to Budgets is given more prominence than in seeking, and advising on, expenditure/investments which yield better than average returns. 

Fear based leadership is when leaders lead by fear and their followers perform through fear. The fear of not being included, fear of failure, fear of unknowns, fear of change, fear of criticism, fear of punishment and fear of status et cetera. All these fears combined can make SCAs and, for that matter, other senior employees, unable to fulfil their true potential. On the contrary it is much more effective to give them exciting goals, objectives, resources to achieve the set goals and objectives, training and development and appropriate decision rights and create in them a true sense of professional belonging. Sri Lanka’s excellent Civil Service was ruined by political interference and non-meritocratic appointments. Let us not drive another nail into that coffin.

Whilst I appreciate the need for an Annual Plan (Budget) as a sub-set of a long-term Business Plan, and as general guide in ensuring that revenues and expenses are in line with assumptions, I, particularly in my roles as Finance Director and subsequently Managing Director, American Corporation (Central Africa) Ltd., Lusaka, Zambia and Executive Director/Group Finance Director, John Keells Holdings PLC, Colombo, Sri Lanka, never used a ‘Budget’ as a way of rejecting/avoiding expenditure simply because it was not in the Budget in the first instance. 

There have been, and there are, innumerable instances where smart expenditure/investment which though unbudgeted have accelerated the achievement or enhanced the quality of outcomes. To reject such smart costs off-hand is being penny wise pounds foolish. Blind obeisance to a Budget is out of place in modern leadership thinking. Traditional budgeting, when viewed carefully, and unemotionally, is a process which attempts to embrace incompatible objectives. 

Firstly, budgeting supposedly sets targets to motivate and promote performance through direction and stretch goals. Secondly, budgeting attempts to provide forecasts of what lies ahead. This only works if the predictions are realistic and unbiased. When an Annual Budget is the baseline for short-term incentives, executives tend to deliberately understate revenues and overstate expenses to earn higher incentives. So where is the stretch? What do you do with the bias? Thirdly, C-Suite tends to allocate resources to the highest value creating opportunities to look good and not to all ‘projects’ which have a positive Net Present Value (NPV). This is a fundamental principle of corporate finance. 

One could argue that when capital is a limiting factor, projects must be prioritised. Prioritised on what basis? – Highest NPV or on what is critical to long-term sustenance of the organisation? It is my view that in an age of active financial markets, securing capital for Net Present Value Growth Opportunities (NPVGO) is not too herculean if the assumptions are realistic and marketable. As stated earlier, the traditional Budget is just a broad guideline. It must not be used fixatedly as a sole yardstick of performance management nor as a tool of punishment. 

Directing SCAs not to exceed budget is, in my opinion, tantamount to committing business Hara-kiri, because the blinkered approach will result in many NPVGO moments being missed. Conversely, I suggest that leaders demand higher accountability from SCAs in exchange for more freedom and flexibility in a spirit of recognition and reward. 

If one is adamant that Budgets be used as a tool of absolute control, then I would advocate the use of ‘beyond budgeting’ concepts as popularised by the Beyond Budgeting Round Table (BBRT), a vehicle funded, approximately 20 years ago, by 50 prominent global companies to promote leadership principles such as;- * Engaging and inspiring people around bold and noble causes and not around financial targets, * Governing through shared values and sound judgement as opposed to governing through detailed rules and regulations, * Making information open in enhancing self-regulation, innovation and learning. Not through information restriction, * Cultivating a strong sense of belonging and organising around accountable teams than exercising control through hierarchy and bureaucracy, * Trusting people with freedom to act and where failure to achieve while acting in the best interest of the organisation is not punished, and * Connecting everyone with external and internal customer needs while avoiding conflicts of interest. 

The idea of ‘beyond budgeting’ is relatively new. Its rise is associated with the shift from a traditional bureaucratic organisational model to an agile business structure. In ‘beyond budgeting’ the obsessive homage to ‘actuals’ versus ‘budget’ is downplayed. To control and safeguard performance, the management accounting team or equivalent, establishes simple transparent performance monitoring processes which facilitate quick intervention if, and when, needed. It is my belief, and my hands-on experience, that reporting numbers in accounting-like detail does not achieve performance transparency nor performance effectiveness. 

‘Beyond budgeting’ involves not just a change in process but also in how leaders think about the future and about managing, and motivating people. It is a shift from politburo-style central planning and a command-and-control style of decision making to an approach which is a mix of directional guidance, delegation, and trust. While the world is changing, Sri Lanka is becoming more and more archaic in their leadership style. That is why we are where we are. All in all, it is time we got out of this “not in the budget- therefore no can do” mentality. It is also time we reduced the frequency, and intensity, of coercing performance through threats. 

However, let us face the hard facts on the ground. Fear mongering has been effective, and is effective, in political Sri Lanka. It works at most levels. That is why our national leaders frequently resort to it. They attract followers by convincing people that things will worsen unless they heed their lead. As much as you and I may not want to agree, a great number of people do respond to tactics like this. Even we, who think we are all-knowing, act out of fear in overt and in subtle ways in various situations. 

We vote for political candidates who scare us into believing that unless they are elected, the country will be in shambles. The problem here is that we look for the one messiah. We do not look for a team. We compromise our professionalism, values, and principles in the workplace in fear of losing our jobs. We give in to the fear of failure without attempting to make a difference. Business leaders stay silent even in the face of impending disaster through fear of losing favour with the leaders in power. It goes on and on. The sad result of all this is that we develop a selfish attitude of “I will make sure I am alright – I do not care about you”. 

Fear is the lowest form of motivation. It is designed to evoke an instinctual response to anything we assume puts our survival in danger. In the face of danger, we run away from it and analyse the root cause/s much later. Simply put, fear takes us away from the actual problem. Fear is a great immobiliser in that the human tendency is that once you are out of danger you do not want to risk facing the same danger again. Trust and faith are actions which assume a positive outcome. Fear, on the other hand, is a belief in a negative outcome. It only addresses ‘survival’. Trust and faith assume survival and look to flourish beyond it. All in all, regardless of your view on fear mongering, fear-based leadership can only be temporarily effective. Trust, freedom, liberty, empowerment, and autonomy open boundless possibilities. Personally, I would choose to flourish abundantly than survive barely. You make 

your choice.

Fear-based leadership is a last resort in extreme situations. It is not a panacea for our execution ills.

(The writer is a Leadership Coach, Mentor and Consultant and boasts over 50 years of experience in very senior positions in the 

corporate world – local and overseas. 

www.ronniepeiris.com)