We remember wartime prime ministers and presidents better than peacetime leaders, and the same is true for company executives.
Organisational leadership matters most during a period of stress and uncertainty.
Organisational leadership matters most during a period of stress and uncertainty.
This conclusion emerges from a 1996 study of 48 firms among the Fortune 500 largest U.S. manufacturers.
Wharton Professor Robert J. House and colleagues asked two direct subordinates of each of the firm's chief executives to assess the extent to which the CEO...
- is a visionary
- shows strong confidence in self and others
- communicates high performance expectations and standards
- personally exemplifies the firm's vision, values, and standards
- demonstrates personal sacrifice, determination, persistence, and courage.
The researchers also assessed the extent to which the firms face environments that are dynamic, risky, and uncertain.
Taking into account a company's size, sector, and other factors, they find that these CEO leadership qualities make a significant difference in the firm's net profit margins when the company is facing a highly uncertain environment. When the firm is not so challenged, however, such leadership qualities make far less of a difference.
Several practical implications follow:
- Your leadership matters most when it is least clear what course you should follow. The decisions and actions of those above, beside, and below you also matter most when the organisation is facing intensified competition or requires strategic redirection. Yet these are the very moments when developing leadership is least practical.
- Periods of normalcy -- when strategies are working and performance is strong -- are therefore those when the need for leadership development is least evident but best achieved.
Source: David A. Waldman, Gabriel G. Ramirez, and Robert J. House, "CEO Charisma and Profitability: Under Conditions of Perceived Environmental Certainty and Uncertainty," 1996.
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