Deficient business leadership

The capacity for industrialization and economic growth depends, to a large extent, on a nation's ability to develop the productivity of its manpower, in particular that of individuals in top managerial positions.

It is not the number of non-executive directors or the separation of chairman and chief executive which determines whether a company is well governed. It is the quality of the non-executives, the effectiveness of the audit committee, the accuracy of the valuations made in the accounts, and the nature of the relationship between management and the auditors.

In most former colonial nations, managerial posts prior to independence were held by expatriates, so that the process of decision-making on critical issues was the prerogative of the foreigners who controlled business. For many cultures, this action-oriented style of the Western industrial revolution conflicted with images of good breeding and responsible living.

A 1993 study by a team of accounting academics concluded that UK company directors almost invariably use arbitrary, simplistic measures to work out what products cost, how much profit they make, who has been overspending, and how various divisions have performed. As a result, managers are often held accountable for costs they cannot control and many investment decisions are based on faulty analysis.

In many developing countries there is a shortage of managerial skills. Typically such countries start with great handicaps: experienced administrators are scarce, and those who are available at the time when the development effort is launched have been trained with a narrow and restricted view of their functions; few have the background or experience needed to master the complex responsibilities which the development task imposes. In dealing with the international transfer of management skills, trainers have to face several peripheral problems, such as the mutual understanding between managers with different cultural backgrounds, education, behaviour, belief, or mother-tongue. Disregarding such problems often results in misunderstandings or in the ineffective application of management techniques and methods. A related problem is that until very recently, industry in developing countries was as a general rule represented by family enterprises. To develop a family enterprise into a manageable industrial set-up can be a major task, which it may take generations to complete.