Finance & Banking


What may work well in developing countries not
necessarily work in other parts of the world, i.e., the
Western world and the emerging markets. It is also
true conversely. This means that successful adoption
of a style in one context may lead to failure if emulated
elsewhere. This article focuses on different leadership
styles being practiced in banking and finance in
emerging markets, with a special reference to Malaysia.
From a wide spectrum of leadership styles, three
types can be identified, namely, transformational,
transactional and entrepreneurial. It is hard to pick the
best out of the three, as one may work better than
the other in a given context. It is equally possible
that no one individual leadership style may suit in an
environment but a combination of two or even three
may be the best choice.

Although various leadership styles share general
aspects of leadership and management, some vital
factors differentiate them from each other. As national
cultures are influenced by geographical boundaries of
the countries, leadership styles vary from country to
country. Hence, location of an Organisation may lead
to a leadership style generally acceptable in a national
context. Within a country, different industries may
have slight, and in some cases, significant differences.

Next, we briefly discuss the three above-mentioned
leadership styles.

Transformational leadership as a concept was
introduced by James McGregor Burns in his seminal
work, Leadership, first published in 1978. According to
him, leaders and their followers raise one another to a
higher level of morality and motivation. The leaders
are expected to set higher expectations as well as clear
goals and at the same time lead with example. They
support their followers and recognise their work and
contributions. In this paradigm, the leaders must inspire
their followers. Hence, a leader is not only someone
who talks the talk but someone who also walks the
walk. A transformational leader not only leads their
followers but also encourage them to share their ideas
to evaluate and give their feedback on them.
In an old-style leadership, leaders would give
instructions and monitor their followers.
Transformational leadership, however, emphasises
upon coaching and mentoring instead. The underlying
view is that coaching and mentoring breeds creativity
and innovation, unlike the old school that personal
interest and initiative hampers learning to progress within the Organisation. There are four factors
associated with transformational leadership, which are discussed next.

Intellectual Stimulation
Intellectual simulation encourages creativity and
innovation. The leaders encourage their followers to
develop new ideas and avoid criticizing them publically
for their mistakes. People make mistakes but leaders
try to correct them rather than blaming the wrongdoers. At least, this should be the first course of
action following a mistake. There must be solutions
and mechanisms to ensure that the mistakes are not

Individualised consideration means that the leaders
treat the followers individually, based on their talent
and knowledge. Each of the followers is treated
differently and a transformational leader acts as a
mentor and coach rather than a manager. Leaders with
this trait empower the employees to make their own
decisions that the leaders support.

Idealised Influence
The idealised influence implies the leaders acting
as role models to the followers. In this respect, the
leaders influence their followers to get a job done
by demonstrating their own high standards. Ethics is
important here, as the leaders influence their followers
with ethical conduct and moral behaviour. By doing
so, the leaders gain more respect and trust from their
followers. In other words, the leaders with idealised
influence reduce the risk of corruptions and scandals in
their Organisations. Furthermore, the leaders at times
sacrifice their own personal gains, in consideration of
their followers’ needs.

Inspirational Motivation
The transformational leaders inspire their followers by
providing clear mission, vision and goals to solicit their
full commitment to work. The leaders also promote
teamwork among the followers to achieve the set
goals collectively instead of working towards achieving
individual goals.

Max Weber is attributed to have first highlighted in
1947 what is now known as transactional leadership
style. In this style of leadership, the role of the leader
is to manage, monitor and supervise the followers.
Followers must obey the instruction of the leaders.
In exchange of the work done by the followers, the
leaders promise them a good reward. On the other
hand, if the followers disobey the leaders’ instructions
and perform poorly in their works, the leaders have
the right to penalize them. This type of leadership
does not welcome new ideas, innovations or creativity
from the followers. Leaders set rules and regulations
that must be followed by the followers.

Unlike the transformational leaders that are concerned
with the mission, vision and long-term goals, the
transactional leaders are concerned with the shortterm performance goals of the Organisations. The
transactional leaders must ensure that the followers
achieve their targets to ensure the Organisation
achieve its overall performance target. Each follower is
to ensure that they achieve their own KPIs on which a
reward system is based. The transactional leaders also
are not emotionally bonded with the followers. As the
leaders believe that any directions or orders should
come directly from them, employees’ engagement and
their empowerment do not feature significantly in this
style of leadership.

Entrepreneurial leadership involves forming
a group of people to achieve a common goal
through entrepreneurial behaviour by optimizing
risks , exploiting opportunities, taking personal
responsibility and managing change within a dynamic
environment. The end result of this is for the benefit
of the Organisation. To strive for excellence in
performance, leaders should equip themselves with
the entrepreneurial skills. Leaders must think as an
entrepreneur, know when to grab opportunity, and
treat the Organisation as their own business.

As an entrepreneur, a leader must know when to
drop a non-working strategy. If the routine SOPs and
procedures fail to give desired result, the entrepreneur
ought to be brave enough to change to a new plan that
may give better results. An entrepreneurship leader
knows better when to grab the opportunity that can
impact their Organisation favourably. Similar to the
transformational leaders, entrepreneurship leaders
also listen to the ideas of their followers. These leaders
welcome feedback and act upon it after adequate

Finally, entrepreneurship leadership is based on
perseverance, determination and the ability to make
changes constantly. Leaders with entrepreneurship
traits are not afraid to make mistakes. Through
mistakes, these leaders will have the ability to learn
new things and discoveries. Entrepreneurship leaders
are able to sell and promote their Organisations.
Hence, they add value to the Organisation due to their
boldness and braveness.

Among the famous transformational leaders is Warren
Buffet who transformed a clothing manufacturer into
a giant holding company. Another transformational
leader is Jack Welch who transformed General Electric
into a lean and agile powerhouse. John D. Rockefeller,
who was the founder of Standard Oil, transformed it
into a huge company from a single refinery, through

From the contemporary Islamic banking and finance
(IBF) industry, Dr Adnan Chilwan (Group CEO of Dubai
Islamic Bank), Dato Sri Zukri Samat (CEO of Bank
Islam Malaysia), and Dato’ Wan Fadzmi Wan Othman
(former CEO of Agrobank Malaysia) provide examples
of transformation leadership.

By way of example, we present the case of Dato Sri
Zukri Samat who was appointed as Managing Director
of Bank Islam Malaysia Berhad in 2006, with one
immediate mission. The mission was to resuscitate
the bank after the huge losses it incurred prior to
appointment of Dato Sri Zukri. He managed to
transform the bank and returned it to black in just six
months after implementing his strategy.

The first challenge facing him was to change the
culture of the bank. He instilled his vision for the bank
amongst all the employees – from low management
positions right to the top – and motivated them to
accept changes willingly. He welcomed new ideas and
encouraged feedbacks from his employees. Leading by
examples, Dato Sri Zukri inspired the employees and
gained their trust and respect. He also took concrete
measures to empower his employees and engaged
them in the decision-making process. Obviously, all
these measures are popular amongst transformational

An example from outside the IBF industry is provided
by Kamardy Arief who was appointed as the President
Director of Bank Rakyat Indonesia (BRI) in 1983 – a
time when the bank was suffering huge losses. As a
first step towards transformation, he attempted to
change the culture of the bank. His leadership style transformed the bank from being a subsidized bank
into a profitable business. Like Dato Zukri, Kamardy
Arief also implemented the change of attitudes
among his employees. He brought changes in the
Organisational and institutional structures, salaries
and rewards, and in product offerings and credit
policies. Consequently, Kamardy Arief was able to
transform BRI from a government-owned bank into
a viable and self-sufficient business. As a leader he
is motivated, inspired, sought commitment from his
employees, and recognised their contributions and
achievements. These are certainly among the good
qualities of a transformational leader.

One may argue that in any profit-oriented business,
the transformational leadership style of nurturing,
coaching and mentoring may not be the best model.
Hence, the transformational leadership style may
be fused with the transactional leadership style to
achieve desired optimality of profits. This suggestion
assumes that the transformational leaders alone may
not sufficiently succeed in contributing to the bottom
line. Thus, the transactional leaders remain important
in such environments.

Having said that, most people tend to believe that
the transformational leaders are important in creating
conducive environments within Organisations.
However, it is also true that the reward systems
drive the Organisations towards performance. Most
Malaysian Organisations are still not open to the
transformational leadership style. This can partly be
explained by the national culture that still respects
authority and a top-down approach. This suits
transactional leaders. For the followers, their own
personal gains are important. They look forward to be
awarded with the rewards as promised by the leaders.

Moreover, it remains a cultural taboo for the followers
to share their own views and ideas to the leader.
This in many ways is not unique to Malaysia, as other
neighbouring countries, particularly Indonesia, also
share similar culture. Perhaps this is why Kamardy
Arief tried to fuse his transformational leadership style
with an explicit performance reward system.

One famous example of transactional leaders was
Steve Jobs of Apple Computers. He was known as a
down to earth leader but was not hesitant to give his
employees a dressing down if they failed to meet his

Going forward into the new economy with fierce
competition in the financial sector, the key players must
adopt both the transformational and transactional
leadership styles. It is fair to assume that the lower
management staff require a transactional leader to monitor, supervise and control them in achieving the
performance of the Organisations. They can best be
led by transformational leaders. This certainly helps in
stimulating creativity, innovative ideas and feedbacks
from the employees. The middle level of employees
should be allowed room for improvement through
employee empowerment and continuous engagement.
Finally, the top level employees should adopt the
transformational leadership style in ensuring that the
Organisation achieves its long-term goals.

Transformational leadership may best suit Islamic
financial institutions. The reality is actually different,
as Islamic financial institutions tend to follow national
cultures many of which are not entirely in its favour.
Having said so, many conventional financial institutions
in the Muslim world have successfully adopted the
transformational leadership style. However, given the
heavy emphasis on the bottom line, Islamic financial
institutions tend to favour the transactional style.

There are a few reasons for the adoption of
transactional leadership in Islamic financial institutions,

  1. Lack of sophistication of management practices;
  2. Lack of depth from historical legacy for the top
    management; and
  3. Shari’a restrictions in some limited cases..

In concluding the article, one must emphasise that all
the three leadership styles have their own strengths.
As the competition in the industry has become fiercer,
leaders should equip themselves with the correct style
that can enhance the sustainability and ensure growth
of the Organisation. All the three styles should be
adopted interchangeably. None of the leadership style
is superior to the other.

In Islamic financial institutions, the transactional
leadership style is more prevalent for the reasons given
above. IBF is still new compared to its conventional
counterpart. Understandably, conventional financial
institutions are more innovative and creative due to
their longevity.

There are now some scattered examples of
transformational leadership emerging in IBF. One may
hope that this will take IBF away from a heavy emphasis
on the bottom line to more passion, compassion,
inspiration and pursuit of ideals.

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