Most authorities on leadership effectiveness recommend the use of a variety of leadership styles rather than a one size fits all approach. However, do the various leadership styles that executives employ really have an impact on the bottom line? That’s a question that many would say is a no-brainer; however, in fact, the research indicates it’s a bit more murky. Notable is the work of the late David McClelland of Harvard and the derivative, but very popular, writings by Daniel Goleman in his HBR article, “Leadership That Gets Results” and his books on emotional intelligence. One style that gets most of the attention is that of the charismatic leader — “Charisma.” I’m sure an image of a “charismatic” leader comes instantly to mind. Steve Jobs, Oprah, or Jeff Bezos are often cited as the type of executives who fit the description of the charismatic type of leader.
When it comes to hiring or promoting someone into a senior position, usually CEO, those making the selection decisions often push the characteristics associated with charisma to the top of the list. But, is charisma all that it’s cracked up to be? New research indicates that only in one specific business environment is it really of importance and, in fact, it may be problematic in most other environments. Can you guess when charisma might have a positive impact on the performance of a company and when it doesn’t?
Using data from 48 Fortune 500 firms, David A. Waldman, Arizona State University; Gabriel G. Ramirez, Virginia Commonwealth University; Robert J. House and Phanish Puranam, of University of Pennsylvania, looked at how charisma compares to “transactional” leadership style in their impact on the bottom line performance of companies in an article from the Academy of Management Journal. Quick definitions so that we are on the same page — courtesy of Drs. Waldman, et al.:
Charisma = a charismatic leader attempts to “articulate a vision and sense of mission, showing determination, and communicating high performance expectations. Favorable effects on followers include the generation of confidence in the leader, making followers feel good in his/her presence, and the generation of strong admiration or respect.” “A charismatic leader may show persistence and enthusiasm in pursuing goals over the long haul and be demanding of others through the communication of high performance expectations.” A charismatic leader tends to drive for innovations and change.
Transactional = “a leader who attempts to strengthen existing structures, strategies, and culture in an organization. A transactional leader helps to shape strategies and structures, reward subordinates’ efforts and commitment, and takes action to correct mistakes and deviations from expectations.” A transactional leader deals with the mundane on a daily basis…they get the job done with little fanfare. A transactional leader tends to be in “maintenance” mode — keeps the ship headed on course.
What the researchers discovered is that “charismatic leaders may have a positive impact on an organization’s performance only under conditions of perceived environmental uncertainty.” In other words, when a company is new and struggling, or there is a crisis, or when competition has knocked the company out of its place in line, etc., that’s when a charismatic leader can come in handy. They can energize and mobilize the troops. However, charismatic leadership may actually be somewhat “dysfunctional when uncertainty is perceived as low.”
So what gives? It seems that charismatic leaders may be too innovative during times when uncertainty is perceived as low — when a company has hit its stride. They may generate unnecessary change or new directions when they are not needed. You know the old adage, that our strengths in extremes can become liabilities. Charismatic types of leaders often foist new directions and changes onto the organization when it’s really time for the organization to just do what they do — but better. In other words, charismatic leaders actually create havoc and more uncertainty rather than improving the operating efficiency and profitability of the organization.
On the other hand, the transactional leader, who may not be as flashy, “leads quietly” (as Joseph Badaracco writes in his book, “Leading Quietly”) and drills down on making the organization more efficient and effective. Transactional leaders tend to spend more energy working on internal relationships…how everyone in the organization works together. Transactional leaders deal with the mundane, everyday affairs of the company. They tend to spend more time figuring out how to get more out of what they have. They think about and put the necessary resources into developing and motivating employees to be more effective.
Now, our researchers, being good scientists, point out that their study has limitations (sample size, etc.). However, their findings are consistent with McClelland’s and Goleman’s research which found that a one-size approach to leadership is not very effective. Sometimes charisma is necessary and sometime something else is. Goleman noted that leaders who can readily employ more than one type of leadership style, who can change tunes when needed — when economic and organizational climate change — tend to get better bottom line results… 15–20% better results on yearly revenue targets! “Flexibility” in leadership style is the key word for any executive who wants to perform at the top of their game. So…when it comes to hiring or promoting CEOs, picking a CEO who exudes charisma may feel like the right thing to the VCs (venture capitalists) and board members who make those decisions, but…the “quiet” leader may be a better choice for companies that are no longer startups or in crisis.
Key take-a-ways from this briefing:
- A one size only approach to leadership is not the best policy — develop and expand your repertoire.
- “Charismatic” leadership can work well during times of perceived uncertainty or in the startup phase of a business.
- “Quiet,” transactional leadership may work better when it’s time to grow steadily — to become the best at what you do.