The roles of risk management culture and management control systems in the relationship between leadership and organizational performance: a study of the Australian school sector

This study addresses the calls made in organization and accounting literature (Abernethy, Bouwens, & Lent, 2010; Scherr & Jensen, 2007; Yukl, 2005) for further investigation into relationships between leadership styles, organizational control mechanisms and organizational outcomes. Its central objective is to understand the mediating roles played by the risk management (RM) culture and the style of management control system (MCS) use in the relationship between leadership styles and organizational performance. The context for this study is the school sector in Australia, where school principals as leaders are facing unprecedented, multi-faceted management challenges (technological and otherwise) with increasing scrutiny over school performance (Pollitt & Bouckaert, 2011). While educational regulatory policies have strongly advocated a more RM-savvy approaches for improving school performance, there is negligible evidence on how school leaders are able to implement and manage such policies and approaches.<br><br> The present study draws from two major bodies of literature: (1) research on leadership, which recognizes the important role of leaders in driving organizational performance and that leadership style may differ across individuals; and (2) the MCS literature, including RM concepts, in which control systems are viewed as mechanisms to “assist the organization in managing its risk and to promote effective governance processes” (Krogstad et al., 1999, p. 33), and that such organizational control features may function as mediating factors in the relationship between leadership style and organizational performance.<br><br> This study employs both a quantitative-based approach through a questionnaire survey and a qualitative approach that uses post-survey semi-structured interviews. The survey research, using the partial least squares (PLS) technique, tests various hypotheses based on survey responses from 106 secondary school principals in the Australian state of Victoria. Post-survey interviews with 15 school principals, RM officers and leading teachers provide an in-depth understanding of the influence of external environment, the idiosyncrasies of component parts of a school RM system, and the resultant effects of their dynamic interactions on school performance.<br><br> The findings of the questionnaire survey show that a transformational leadership style is significantly and positively related to an RM culture that is performance-oriented, and that the greater the extent of performance-oriented RM culture, the higher the academic and the financial (sustainability) performance of the school in question. On the other hand, transactional leadership style is not significantly related with performance-oriented RM culture, and has a negative impact on the use of MCS in an enabling manner. Notably, an enabling use of MCS is not directly associated with a transformational leadership style, but acts as a significant variable mediating the relationship between performance-oriented RM culture and school performance. These results contribute to the management control literature by providing empirical evidence supporting both performance-oriented RM culture and an enabling approach to MCS use as critical mediating variables in the leadership style-organizational performance link.<br><br> The findings of the post-survey semi-structured interviews facilitate an in-depth understanding of how school RM contributes to school improvement from a systemic perspective. The findings highlight that the systemic achievement of school performance is a function of dynamic interactions of multiple component parts of school RM (i.e. performance-oriented RM culture, approach to MCS use, and leadership), in consideration of the influence from external environmental factors (i.e. government RM policy and the difference between public and private school sector). In particular, effective RM for school improvement is composed of operational level RM at a lower level and strategic level RM at a higher level. Each level involves managing the “double face” of risks, as threats and opportunities, by engaging coercive and enabling controls. In this process, school leaders’ own values of risk and their leadership styles also influence and facilitate how RM is implemented in schools. The findings offer important implications for school management practices to render better support for principal leadership training, school governance, and innovation with respect to the much needed school reforms in Australia.