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14-1. Leaders versus Managers

If you’ve ever been in charge, or even just thought about it, chances are you’ve considered questions such as these: Do I have what it takes to lead? What are the most important things leaders do? How can I transform a poorly performing department, division, or company? Do I need to adjust my leadership depending on the situation and the employee? Why doesn’t my leadership inspire people? If you feel overwhelmed at the prospect of being a leader, you’re not alone—millions of leaders in organizations across the world struggle with these fundamental leadership issues on a daily basis.

Even the world’s best leaders have doubts. Theo Epstein is president of baseball operations for Major League Baseball’s Chicago Cubs, who, after 108 years since their last championship, rallied from a three games to one deficit against the Cleveland Indians to win game 7 of the 2016 worlds series in extra innings. In 2017, Fortune magazine named him “the world’s best leader.” On being told of this honor, he said, “Um, I can’t even get my dog to stop peeing in the house. That is ridiculous. The whole thing is patently ridiculous. It’s baseball—a pastime involving a lot of chance. If [Ben] Zobrist’s ball is three inches farther off the line, I’m on the hot seat for a failed five-year plan. And I’m not even the best leader in our organization; our players are.” *

Whether you construct buildings, create and innovate to bring new products to markets, help a company gain competitive advantage and thereby increase profits, or build a historically bad baseball franchise into world champs, leadership is the process of influencing others to achieve group or organizational goals. The knowledge and skills you’ll learn in this chapter won’t make the task of leadership less daunting, but they will help you navigate your journey as a leader.

According to late business professor Warren Bennis, the primary difference between leaders and managers is that leaders are concerned with doing the right thing, while managers are concerned with doing things right. *  In other words, leaders begin with the question “What should we be doing?” while managers start with “How can we do what we’re already doing better?” Before becoming the CEO of open source software company Red Hat, Jim Whitehurst was chief operating officer of Delta Airlines. When Whitehurst made the switch, he knew that his new job would be different. “Red Hat is a high-growth company with incredible opportunities. My job is a lot more about developing strategies, inspiring people, inspiring creativity,” he said. As CEO, Whitehurst found, “The input you receive will often conflict. Some investors may want you to focus more on short-term results than long-term growth. Different customers may want very different things. Even individual board members can have very different opinions…That’s one of the most challenging things about the job; since you have multiple bosses with multiple agendas, you constantly wonder, ‘Am I doing the right things?’” *

Leaders focus on vision, mission, goals, and objectives, while managers focus on productivity and efficiency. Managers see themselves as preservers of the status quo, while leaders see themselves as promoters of change and challengers of the status quo in that they encourage creativity and risk taking. The Chicago Cubs had three straight losing seasons before Epstein became president of baseball operations in 2012, when he began the process of changing the team’s “lovable losers” culture by telling players, coaches, office and behind-the-scenes employees that the Cub would win the World Series within five years (they did). As described by Sport’s Illustrated’s Tom Verducci, “Back in January 2012, Epstein summoned every manager, coach, scout, instructor, trainer, and baseball operations person in the Cubs’ organization to a budget hotel in Mesa, Arizona, for a four-day summit. They spent one day on hitting philosophy, one day on pitching philosophy, one day on defense and base-running philosophy—and one day on character: ‘What types of human beings we wanted and what our expectations would be for players, how we want them to behave,’ says Epstein.” * Verducci further explained that Epstein, “set about changing the Cubs’ culture so that rather than expecting to lose, members of the organization expected to thrive and win through camaraderie and attention to detail. ‘That’s so Cub’ became short hand for playing baseball the right way.” *

Another difference is that managers have a relatively short-term perspective, while leaders take a long-term view. Managers are concerned with control and limiting the choices of others, while leaders are more concerned with expanding people’s choices and options. *  Managers also solve problems so that others can do their work, while leaders inspire and motivate others to find their own solutions. Finally, managers are also more concerned with means, how to get things done, while leaders are more concerned with ends, what gets done.

Although leaders are different from managers, organizations need them both. Managers are critical to getting out the day-to-day work, and leaders are critical to inspiring employees and setting the organization’s long-term direction. The key issue for any organization is the extent to which it is properly led and properly managed. As Bennis said in summing up the difference between leaders and managers, “American organizations (and probably those in much of the rest of the industrialized world) are underled and overmanaged. They do not pay enough attention to doing the right thing, while they pay too much attention to doing things right.” *

14-2. Who Leaders Are and What Leaders Do

Jack Dorsey, Twitter’s CEO, once a micromanager, has become a listener who asks questions to facilitate discussion and strategic direction with his leadership team. *  Mark Donegan, CEO of Precision Castparts, which makes complex parts for aircrafts and aircraft engines, is known for being a hard-nosed businessperson, focused more on tasks than people. His predecessor and mentor, Bill McCormick, says, “I was relatively relentless. But he was a lot more relentless.” *

Which one is likely to be successful as a CEO? According to a survey of 1,542 senior managers, it’s the extrovert. Of those 1,542 senior managers, 47 percent felt that extroverts make better CEOs, while 65 percent said that being an introvert hurts a CEO’s chances of success. *  So clearly, senior managers believe that extroverted CEOs are better leaders. But are they? Not necessarily. In fact, a relatively high percentage of CEOs, 40 percent, are introverts. Elena Lytkina Botelho, a partner at executive consulting firm ghSmart, says, “The biggest aha, overall, is that some of the things that make CEOs attractive to the board have no bearing on their performance. Like most human beings, they get seduced by [extroverts, who are] charismatic, polished presenters. They simply do better in interviews.” *

So, what makes a good leader? Does leadership success depend on who leaders are, such as introverts or extroverts, or on what leaders do and how they behave?

Let’s learn more about who leaders are by investigating 14-2a leadership traits and 14-2b leadership behaviors.

14-2a. Leadership Traits

Trait theory is one way to describe who leaders are. Trait theory says that effective leaders possess a similar set of traits or characteristics. Traits are relatively stable characteristics such as abilities, psychological motives, or consistent patterns of behavior. For example, trait theory holds that leaders are taller and more confident and have greater physical stamina (that is, higher energy levels) than nonleaders. In fact, studies show we perceive those in authority as being taller than they actually are, and that taller people see themselves as more qualified to lead. *  Indeed, while just 14.5 percent of men are six feet tall, 58 percent of Fortune 500 CEOs are six feet or taller. Author Malcolm Gladwell says, “We have a sense, in our minds, of what a leader is supposed to look like, and that stereotype is so powerful that when someone fits it, we simply become blind to other considerations. *  Likewise, in terms of physical stamina, companies whose CEOs have run and finished a marathon have a stock valuation that is 5 percent larger than those whose CEO had not. *  Another study found a small relationship between Fortune 500 CEO face width (thought to indicate a leader’s dominance, ambition, and power) and company profitability. *  Trait theory is also known as the “great person” theory because early versions of the theory stated that leaders are born, not made. In other words, you either have the right stuff to be a leader, or you don’t. And if you don’t, there is no way to get it.

For some time, it was thought that trait theory was wrong and that there are no consistent trait differences between leaders and nonleaders, or between effective and ineffective leaders. However, more recent evidence shows that “successful leaders are not like other people,” that successful leaders are indeed different from the rest of us. *  More specifically, leaders are different from non-leaders in the following traits: drive, the desire to lead, honesty/integrity, self-confidence, emotional stability, cognitive ability, and knowledge of the business. *

Drive refers to high levels of effort and is characterized by achievement, motivation, initiative, energy, and tenacity. In terms of achievement and ambition, leaders always try to make improvements or achieve success in what they’re doing. Because of their initiative, they have strong desires to promote change or solve problems. At Amazon, founder Jeff Bezos calls this “high-velocity decision making.” Bezos says, “…most decisions should probably be made with somewhere around 70 percent of the information you wish you had. If you wait for 90 percent, in most cases, you’re probably being slow. Plus, either way, you need to be good at quickly recognizing and correcting bad decisions. If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.” * Leaders who possess drive typically have more energy—they have to, given the long hours they put in and followers’ expectations that they be positive and upbeat. Thus, leaders must have physical, mental, and emotional vitality. Leaders are also more tenacious than nonleaders and are better at overcoming obstacles and problems that would deter most of us.

Successful leaders also have a stronger desire to lead. They want to be in charge and think about ways to influence or convince others about what should or shouldn’t be done. Honesty/integrity is also important to leaders. Honesty, being truthful with others, is a cornerstone of leadership. Without it, leaders won’t be trusted. When leaders are honest, subordinates are willing to overlook other flaws. Bezos says, “If you have conviction on a particular direction even though there’s no consensus, it’s helpful to say, ‘Look, I know we disagree on this but will you gamble with me on it? Disagree and commit?’” *  He cites the example of a new Amazon Studios TV show that he didn’t like, but which was still approved for funding. “I told the team my [negative] view…They had a completely different opinion and wanted to go ahead. I wrote back right away with, “I disagree and commit and hope it becomes the most watched thing we’ve ever made.” *  Integrity is the extent to which leaders do what they say they will do. Leaders may be honest and have good intentions, but if they don’t consistently deliver on what they promise, they won’t be trusted.

Self-confidence, or believing in one’s abilities, also distinguishes leaders from nonleaders. Self-confident leaders are more decisive and assertive and are more likely to gain others’ confidence. Moreover, self-confident leaders will admit mistakes because they view them as learning opportunities rather than as refutations of their leadership capabilities. Krispy Kreme looked for candidates who demonstrated these specific qualities during a recent CEO hunt. According to chair (and former CEO) James Morgan, humility and servant leadership are strong aspects of Krispy Kreme’s culture. Morgan says that Tony Thomson, who was selected to succeed him, “exhibited those two characteristics strongly.” Not everyone who joins the company understands how integral this philosophy is, however. One senior manager would not collaborate with his team on new product or operation ideas, but would take credit for them and would steal the limelight when they were presented to the executive leadership team. This executive was later fired, said Morgan, because, “He didn’t understand the humility part.” *

Leaders also have emotional stability. Even when things go wrong, they remain even-tempered and consistent in their outlook and in the way they treat others. After experiencing disappointing results in its mobile unit, Samsung appointed DJ Koh, who is known for his even-tempered demeanor, to lead the division. Having joined Samsung out of college, Koh quickly rose through the company ranks because he was well-liked and kept a low-profile. In contrast to his hard-charging predecessor, employees describe Koh as a “predictable, realistic, and reasonable executive who is hardworking and direct.” One of his close colleagues adds, “He’s not a screamer.” *  Leaders who can’t control their emotions, who anger quickly or attack and blame others for mistakes, are unlikely to be trusted.

Leaders are also smart—they typically have strong cognitive abilities. This doesn’t mean that leaders are necessarily geniuses—far from it. But it does mean that leaders have the capacity to analyze large amounts of seemingly unrelated, complex information and see patterns, opportunities, or threats where others might not see them. Finally, leaders also know their stuff, which means they have superior technical knowledge about the businesses they run. Leaders who have a good knowledge of the business understand the key technological decisions and concerns facing their companies. More often than not, studies indicate that effective leaders have long, extensive experience in their industries. Emirates Airline CEO Tim Clark has been in the airline industry for four decades. Starting with just two planes 32 years ago, Emirates is the world’s largest international carrier thanks to his 30+ years of leadership. Emirates’s massive industrial dishwashers clean 3.5 million items a day. All the meals it serves are made in its flight kitchens, which bakes 25,000 muffins a day. And, to keep passengers happy, it owns a wine cellar in Burgundy, France for aging 3.75 million bottles of wine. *

14-2b. Leadership Behaviors

Thus far, you’ve read about who leaders are. But traits alone are not enough to make a successful leader. They are, however, a precondition for success. After all, it’s hard to imagine a truly successful leader who lacks most of these qualities. Leaders who have these traits (or many of them) must then take actions that encourage people to achieve group or organizational goals. *  Accordingly, we now examine what leaders do, meaning the behaviors they perform or the actions they take to influence others to achieve group or organizational goals.

Researchers at the University of Michigan, the Ohio State University, and the University of Texas examined the specific behaviors that leaders use to improve subordinate satisfaction and performance. Hundreds of studies were conducted, and hundreds of leader behaviors were examined. At all three universities, two basic leader behaviors emerged as central to successful leadership: initiating structure (called job-centered leadership at the University of Michigan and concern for production at the University of Texas) and considerate leader behavior (called employee-centered leadership at the University of Michigan and concern for people at the University of Texas). *  These two leader behaviors form the basis for many of the leadership theories discussed in this chapter.

Initiating structure is the degree to which a leader structures the roles of followers by setting goals, giving directions, setting deadlines, and assigning tasks. A leader’s ability to initiate structure primarily affects subordinates’ job performance. Precision Castparts’ CEO Mark Donegan, described earlier as focused more on tasks than people, initiated structure in terms of the performance goals and directions (lower costs) for its 150+ factories. AeroDynamic Advisory’s Kevin Michaels says, “They’re maniacs about operational improvement. That comes right from Mark Donegan.” Donegan has regular on-site reviews at every factory every three months, meeting with the factory’s plant manager, head of finance, the business segment president to whom the plant manager reports, and the factory’s head of operations. Prior to each meeting, 26 identical charts, used across all 150 factories, are used to track productivity, plant earnings, product market share, and fixed costs per employee. When once asked how the company could keep costs so low, he responded, “We’re a different breed. We’re kind of a blue-collar, in-your-face, slug-it-out, down-in-the-trenches type of company. And I take great pride in that.” *

Consideration is the extent to which a leader is friendly, approachable, and supportive and shows concern for employees. Consideration primarily affects subordinates’ job satisfaction. Specific leader consideration behaviors include listening to employees’ problems and concerns, consulting with employees before making decisions, and treating employees as equals. When Chip Conley joined Airbnb at age 52 as the strategic advisor for hospitality and leadership, he had run a boutique hotel chain for 24 years, but he’d never used Airbnb, didn’t know how to code software, was twice as old as most employees, and had a new boss, “a smart guy,” 21 years his junior. He quickly adopted a considerate leadership style. He says, “More than anything, I listened and watched intently, with as little judgment or ego as possible…Part of my job was to just observe. Often I would leave a meeting and discreetly ask one of my fellow leaders, who might be two decades younger than I was, if they were open to some private feedback on how to read the emotions in the room, or the motivations of a particular engineer, a little more effectively.” *  Often he would say, “I’ll offer you some emotional intelligence for your digital intelligence.” *

Although researchers at all three universities generally agreed that initiating structure and consideration were basic leader behaviors, their interpretation differed on how these two behaviors are related to one another and which are necessary for effective leadership. The University of Michigan studies indicated that initiating structure and consideration were mutually exclusive behaviors on opposite ends of the same continuum. In other words, leaders who wanted to be more considerate would have to do less initiating of structure (and vice versa). The University of Michigan studies also indicated that only considerate leader behaviors (that is, employee-centered behaviors) were associated with successful leadership. By contrast, researchers at the Ohio State University and the University of Texas found that initiating structure and consideration were independent behaviors, meaning that leaders can be considerate and initiate structure at the same time. Additional evidence confirms this finding. *  The same researchers also concluded that the most effective leaders were strong on both initiating structure and considerate leader behaviors.

This “high-high” approach can be seen in the upper-right corner of the Blake/Mouton leadership grid, as shown in Exhibit 14.1. Blake and Mouton used two leadership behaviors, concern for people (that is, consideration) and concern for production (that is, initiating structure), to categorize five different leadership styles. Both behaviors are rated on a nine-point scale, with 1 representing “low” and 9 representing “high.” Blake and Mouton suggest that a “high-high,” or 9,9, leadership style is the best. They call this style team management because leaders who use it display a high concern for people (9) and a high concern for production (9).

By contrast, leaders use a 9,1 authority-compliance leadership style when they have a high concern for production and a low concern for people. A 1,9 country club style occurs when leaders care about having a friendly, enjoyable work environment but don’t really pay much attention to production or performance. The worst leadership style, according to the grid, is the 1,1 impoverished leader, who shows little concern for people or production and does the bare minimum needed to keep his or her job. Finally, the 5,5 middle-of-the-road style occurs when leaders show a moderate amount of concern for both people and production.

Is the team management style, with a high concern for production and a high concern for people, the best leadership style? Logically, it would seem so. Why wouldn’t you want to show high concern for both people and production? Nonetheless, nearly 50 years of research indicates that there isn’t one best leadership style. The best leadership style depends on the situation. In other words, no one leadership behavior by itself and no one combination of leadership behaviors work well across all situations and employees.

14-3. Putting Leaders in the Right Situation: Fiedler’s Contingency Theory

After leader traits and behaviors, the situational approach to leadership is the third major method used in the study of leadership. We’ll review four major situational approaches to leadership—Fiedler’s contingency theory, path-goal theory, Hersey and Blanchard’s Situational Leadership theory, and Vroom, Yetton, and Jago’s normative decision model. All assume that the effectiveness of any leadership style, the way a leader generally behaves toward followers, depends on the situation. *  A study of 130 restaurants in a pizza franchise examined the interaction between how extroverted store managers were and how involved employees were in trying “to bring about improved procedures [in the store.]” Profits were 16 percent above average in stores with extroverted managers and less involved employees. In those instances, the strengths of the more outgoing boss fit well with the less involved employees. By contrast, profits were 14 percent belowaverage in stores with extroverted leaders and highly involved employees. Why? Because the extroverted leaders were less comfortable with employees who wanted a say in making improvements. Again, leadership success depends on the situation. *

According to situational leadership theories, there is no one best leadership style. But one of these situational theories differs from the other three in one significant way. Fiedler’s contingency theory assumes that leadership styles are consistent and difficult to change. Therefore, leaders must be placed in or matched to a situation that fits their leadership style. By contrast, the other three situational theories all assume that leaders are capable of adapting and adjusting their leadership styles to fit the demands of different situations.

Fiedler’s contingency theory states that in order to maximize work group performance, leaders must be matched to the right leadership situation. *  More specifically, the first basic assumption of Fiedler’s theory is that leaders are effective when the work groups they lead perform well. So, instead of judging leaders’ effectiveness by what they do (that is, initiating structure and consideration) or who they are (that is, trait theory), Fiedler assesses leaders by the conduct and performance of the people they supervise. Second, Fiedler assumes that leaders are generally unable to change their leadership styles and that they will be more effective when their styles are matched to the proper situation. This explains why company founders are not always the best suited to lead their companies. Evernote, a software company known for its digital note taking applications, was growing at such a rate that it eventually surpassed founder Phil Libin’s ability to lead it. Although the company is valued at roughly $1 billion, Evernote began to stumble as it transitioned from a free app to a paid subscription service for professionals. After cutting about 13 percent of its staff and closing some global operations, Libin brought in a former Google executive to be Evernote’s new CEO. At the same time, Evernote’s board named Jeff Shotts, a former finance executive from eBay, as its new CFO. Shotts explained the need for different leadership this way: “The company is transitioning from startup mode to a more mature organization. *

Let’s learn more about Fiedler’s contingency theory by examining 14-3a the least preferred coworker and leadership styles, 14-3b situational favorableness, and 14-3c how to match leadership styles to situations.

14-3a. Leadership Style: Least Preferred Coworker

When Fiedler refers to leadership style, he means the way that leaders generally behave toward their followers. Do the leaders yell and scream and blame others when things go wrong? Or do they correct mistakes by listening and then quietly but directly make their point? Do they take credit for others’ work when things go right? Or do they make sure that those who did the work receive the credit they rightfully deserve? Do they let others make their own decisions and hold them accountable for the results? Or do they micromanage, insisting that all decisions be approved first by them? Fiedler also assumes that leadership styles are tied to leaders’ underlying needs and personalities. Because personalities and needs are relatively stable, he assumes that leaders are generally incapable of changing their leadership styles. In other words, the way that leaders treat people now is probably the way they’ve always treated others. So, according to Fiedler, if your boss’s first instinct is to yell and scream and blame others, chances are he or she has always done that.

Fiedler uses a questionnaire called the Least Preferred Coworker (LPC) scale to measure leadership style. When completing the LPC scale, people are instructed to consider all of the people with whom they have ever worked and then to choose the one person with whom they have worked least well. Fiedler explains, “This does not have to be the person you liked least well, but should be the one person with whom you have the most trouble getting the job done.” *

Would you describe your LPC as pleasant, friendly, supportive, interesting, cheerful, and sincere? Or would you describe the person as unpleasant, unfriendly, hostile, boring, gloomy, and insincere? People who describe their LPC in a positive way (scoring 64 and above) have relationship-oriented leadership styles. After all, if they can still be positive about their least preferred coworker, they must be people-oriented. By contrast, people who describe their LPC in a negative way (scoring 57 or below) have task-oriented leadership styles. Given a choice, they’ll focus first on getting the job done and second on making sure everyone gets along. Finally, those with moderate scores (from 58 to 63) have a more flexibleleadership style and can be somewhat relationship-oriented or somewhat task oriented.

14-3b. Situational Favorableness

Fiedler assumes that leaders will be more effective when their leadership styles are matched to the proper situation. More specifically, Fiedler defines situational favorableness as the degree to which a particular situation either permits or denies a leader the chance to influence the behavior of group members. *  In highly favorable situations, leaders find that their actions influence followers. But in highly unfavorable situations, leaders have little or no success influencing the people they are trying to lead.

Three situational factors determine the favorability of a situation: leader-member relations, task structure, and position power. The most important situational factor is leader-member relations, which refers to how well followers respect, trust, and like their leaders. When leader-member relations are good, followers trust the leader, and there is a friendly work atmosphere. Task structure is the degree to which the requirements of a subordinate’s tasks are clearly specified. With highly structured tasks, employees have clear job responsibilities, goals, and procedures. Position power is the degree to which leaders are able to hire, fire, reward, and punish workers. The more influence leaders have over hiring, firing, rewards, and punishments, the greater their power.

Exhibit 14.2 shows how leader-member relations, task structure, and position power can be combined into eight situations that differ in their favorability to leaders. In general, Situation I, on the left side of Exhibit 14.2, is the most favorable leader situation. Followers like and trust their leaders and know what to do because their tasks are highly structured. Also, the leaders have the formal power to influence workers through hiring, firing, rewarding, and punishing them. Therefore, it’s relatively easy for a leader to influence followers in Situation I. By contrast, Situation VIII, on the right side of Exhibit 14.2, is the least favorable situation for leaders. Followers don’t like or trust their leaders. Plus, followers are not sure what they’re supposed to be doing, given that their tasks or jobs are highly unstructured. Finally, leaders find it difficult to influence followers because they don’t have the ability to hire, fire, reward, or punish the people who work for them. In short, it’s very difficult to influence followers given the conditions found in Situation VIII.

Relationship-oriented leaders with high LPC scores were better leaders (that is, their groups performed more effectively) under moderately favorable situations. In moderately favorable situations, the leader may be liked somewhat, tasks may be somewhat structured, and the leader may have some position power. In this situation, a relationship-oriented leader improves leader-member relations, which is the most important of the three situational factors. In turn, morale and performance improve.

By contrast, as Exhibit 14.3 shows, task-oriented leaders with low LPC scores are better leaders in highly favorable and unfavorable situations. Task-oriented leaders do well in favorable situations where leaders are liked, tasks are structured, and the leader has the power to hire, fire, reward, and punish. In these favorable situations, task-oriented leaders effectively step on the gas of a well-tuned car. Their focus on performance sets the goal for the group, which then charges forward to meet it. But task-oriented leaders also do well in unfavorable situations where leaders are disliked, tasks are unstructured, and the leader doesn’t have the power to hire, fire, reward, and punish. In these unfavorable situations, the task-oriented leader sets goals that focus attention on performance and clarify what needs to be done, thus overcoming low task structure. This is enough to jump-start performance even if workers don’t like or trust the leader.

Finally, though not shown in Exhibit 14.3, people with moderate LPC scores, who can be somewhat relationship-oriented or somewhat task-oriented, tend to do fairly well in all situations because they can adapt their behavior. Typically, though, they don’t perform quite as well as relationship-oriented or task-oriented leaders whose leadership styles are well matched to the situation.

Recall, however, that Fiedler assumes leaders to be incapable of changing their leadership styles. Accordingly, the key to applying Fiedler’s contingency theory in the workplace is to accurately measure and match leaders to situations or to teach leaders how to change situational favorableness by changing leader-member relations, task structure, or position power. Although matching or placing leaders in appropriate situations works particularly well, practicing managers have had little luck reengineering situations to fit their leadership styles. The primary problem, as you’ve no doubt realized, is the complexity of the theory.

In a study designed to teach leaders how to reengineer their situations to fit their leadership styles, Fiedler found that most of the leaders simply did not understand what they were supposed to do to change their situations. Furthermore, if they didn’t like their LPC profile (perhaps they felt they were more relationship-oriented than their scores indicated), they arbitrarily changed it to better suit their view of themselves. Of course, the theory won’t work as well if leaders are attempting to change situational factors to fit their perceived leadership style rather than their real leadership style. *

14-4. Adapting Leader Behavior: Hersey and Blanchard’s Situational Leadership®Theory

Have you ever had a new job that you didn’t know how to do and your boss was not around to help you learn it? Conversely, have you ever known exactly how to do your job but your boss kept treating you like you didn’t? Hersey and Blanchard’s Situational Leadership theory is based on the idea of follower readiness. Hersey and Blanchard argue that employees have different levels of readiness for handling different jobs, responsibilities, and work assignments. Accordingly, Hersey and Blanchard’s situational theory states that leaders need to adjust their leadership styles to match followers’ readiness. *

Let’s learn more about Hersey and Blanchard’s situational theory by examining 14-4a worker readiness and 14-4b different leadership styles.

14-4a. Worker Readiness

Performance readiness is the ability and willingness to take responsibility for directing one’s behavior at work. Readiness is composed of two components. Job readiness consists of the amount of knowledge, skill, ability, and experience people have to perform their jobs. As you would expect, people with greater skill, ability, and experience do a better job of supervising their own work. Psychological readiness, on the other hand, is a feeling of self-confidence or self-respect. Likewise, confident people do a better job of guiding their own work than do insecure people. Job readiness and psychological readiness are combined to produce four different levels of readiness in Hersey and Blanchard’s Situational Leadership theory.

The lowest level, R1, represents insecure people who are neither willing nor able to take responsibility for guiding their own work. R2 represents people who are confident and are willing but not able to take responsibility for guiding their own work. R3 represents people who are insecure and are able but not willing to take responsibility for guiding their own work. And R4 represents people who are confident and willing and able to take responsibility for guiding their own work. It’s important to note that a follower’s readiness is usually task specific. For example, you may be highly confident and capable when it comes to social media marketing, but know nothing about setting up budgets for planning purposes. Thus, you would possess readiness (R4) with respect to social media marketing but not (R1) with respect to budgets.

14-4b. Leadership Styles

Similar to Blake and Mouton’s managerial grid, situational theory defines leadership styles in terms of task behavior (that is, concern for production) and relationship behavior (that is, concern for people). As shown in Exhibit 14.4, these two behaviors can be combined to form four different leadership styles: telling, selling, participating, and delegating. Leaders choose one of these styles, depending on the readiness a follower has for a specific.

A telling leadership style (high task behavior and low relationship behavior) is based on one-way communication, in which followers are told what, how, when, and where to do particular tasks. Telling is used when people are insecure and neither willing nor able to take responsibility for guiding their own work (R1). For instance, someone using a telling leadership style might say, “We’re going to start a company e-newsletter that goes out once a month to our customers, pointing them to new content on our website. I want you to contact bulk email services, like MailChimp for cost estimates. Then get together with each product manager and then get a list of product feature and usability updates. Don’t write these yourself. Have the product managers write them and we’ll edit them as we see fit. Also, call the CEO’s assistant to remind her that we need her comments. Finally, have this all assembled in a draft email for me next Friday.”

A selling leadership style (high task behavior and high relationship behavior) involves two-way communication and psychological support to encourage followers to “own” or “buy into” particular ways of doing things. Selling is used when confident people are willing but not able to take responsibility for guiding their own work (R2). For instance, someone using a selling leadership style might say, “We’re going to start a company e-newsletter that goes out once a month to our customers, pointing them to new content on our website. I really think that’s a great idea, don’t you? We’re going to need some cost estimates from bulk email services, like MailChimp, and a list of product feature and usability updates from each product manager. But that’s pretty straightforward. Oh, don’t forget that we need the CEO’s comments, too. She’s expecting you to call. I know that you’ll do a great job on this. We’ll meet next Tuesday to see if you have any questions once you’ve dug into this. I’d like to see a draft email at that time. By the way, we need to have this done by next Friday.”

A participating style (low task behavior and high relationship behavior) is based on two-way communication and shared decision making. Participating is used when insecure people are able but not willing to take responsibility for guiding their own work (R3). Since the problem is with motivation and not ability, someone using a participating leadership style might say, “What do you think about starting a company e-newsletter that goes out once a month to our customers, pointing them to new content on our website? Uh-huh, uh-huh (listening). Ok, I think so, too. What kind of stuff do you hate in company e-newsletters? Un-huh (listening). Ok, I agree. That stuff drives me nuts, too. Well, what do you think we should put in ours? Uh-huh (listening). Those are great ideas. I’d like to see you implement them. We’ve got about 10 days to put it together. Why don’t you put together a first draft, based on what we talked about here today, get the product managers involved to generate web content, touch base with the CEO’s assistant, and we can meet on Tuesday to review those ideas. Great!”

A delegating style (low task behavior and low relationship behavior) is used when leaders basically let workers “run their own show” and make their own decisions. Delegating is used when people are willing and able to take responsibility for guiding their own work (R4). For instance, someone using a delegating leadership style might say, “We’re going to start a company e-newsletter that goes out once a month to our customers, pointing them to new content on our website generated by the product managers. You’ve got 10 days to do it. Run with it. Let me know when you’ve got it done. I’ll email you a couple of ideas, but other than that, do what you think is best. Thanks.”

In general, as people become more “ready,” and thus more willing and able to guide their own behavior, leaders should become less task oriented and more relationship oriented. Then, as people become even more “ready,” leaders should become both less task oriented and less relationship oriented until people eventually manage their own work with little input from their leaders.

How well does Hersey and Blanchard’s situational theory work? Despite its intuitive appeal (managers and consultants tend to prefer it over Fiedler’s contingency theory because of its underlying logic and simplicity), most studies don’t support situational theory. *  While managers generally do a good job of judging followers’ readiness levels, the theory doesn’t seem to work well, except at lower levels, where a telling style is recommended for people who are insecure and neither willing nor able to take responsibility for guiding their own work. *

14-5. Adapting Leader Behavior: Path-Goal Theory

Just as its name suggests, path-goal theory states that leaders can increase subordinate satisfaction and performance by clarifying and clearing the paths to goals and by increasing the number and kinds of rewards available for goal attainment. Said another way, leaders need to clarify how followers can achieve organizational goals, take care of problems that prevent followers from achieving goals, and then find more and varied rewards to motivate followers to achieve those goals. *

Leaders must meet two conditions for path clarification, path clearing, and rewards to increase followers’ motivation and effort. First, leader behavior must be a source of immediate or future satisfaction for followers. The things you do as a leader must either please your followers today or lead to activities or rewards that will satisfy them in the future. One of the key cultural principles followed by Charlie Kim, CEO of New York-based Next Jump, which runs web-based reward programs for 90,000 companies, is “Better Me + Better You = Better Us,” Kim says, “The culture we’re building is predicated on the concept of long-term, sustained happiness.” *  This is why Next Jump’s leadership frequently asks its people what would make them happier. Because of the long hours they put in, employees were spending half a day per weekend in a NYC laundromat doing their laundry. So they asked if washers and dryers could be installed at work to be used (and which they would pay for) when working late hours. Recognizing the problem (not laundry, but the secondary effect of long hours resulting in lost weekend time), Next Jump now pays for laundry service. Employees bring in laundry on Fridays and it returns done on Mondays in a bag with Next Jump’s logo and this phrase: “My company gets my laundry. I get my weekends back.” *  Next Jump’s culture is so positive, rewarding, and satisfying that 18,000 people applied for 35 openings last year. Furthermore, while the quit rate in the tech industry is 22 percent per year, Next Jump has an incredibly low 1 percent quit rate.

Second, while providing the coaching, guidance, support, and rewards necessary for effective work performance, leader behaviors must complement and not duplicate the characteristics of followers’ work environments. Thus, leader behaviors must offer something unique and valuable to followers beyond what they’re already experiencing as they do their jobs or what they can already do for themselves.

In contrast to Fiedler’s contingency theory, path-goal theory assumes that leaders can change and adapt their leadership styles. Exhibit 14.5 illustrates this process, showing that leaders change and adapt their leadership styles contingent on their subordinates or the environment in which those subordinates work.

Let’s learn more about path-goal theory by examining 14-5a the four kinds of leadership styles that leaders use, 14-5b the subordinate and environmental contingency factors that determine when different leader styles are effective, and 14-5c the outcomes of path-goal theory in improving employee satisfaction and performance.

14-5a. Leadership Styles

As illustrated in Exhibit 14.5, the four leadership styles in path-goal theory are directive, supportive, participative, and achievement oriented. *  Directive leadership involves letting employees know precisely what is expected of them, giving them specific guidelines for performing tasks, scheduling work, setting standards of performance, and making sure that people follow standard rules and regulations. These activities are especially important during economic downturns and periods during which a company is struggling. Recent research suggests that in more challenging economic environments (such as recessions), a more directive and authoritarian approach to leadership may produce stronger financial results for the company. More directive leaders reinforce discipline, effective coordination, and operational efficiency, so they are more likely to increase revenues during short-term crises and economic downturns. *  Directive leadership is very similar to initiating structure.

Supportive leadership involves being approachable and friendly to employees, showing concern for them and their welfare, treating them as equals, and creating a friendly climate. Supportive leadership is very similar to considerate leader behavior. Supportive leadership often results in employee satisfaction with the job and with leaders. This leadership style may also result in improved performance when it increases employee confidence, lowers employee job stress, or improves relations and trust between employees and leaders. *

Participative leadership involves consulting employees for their suggestions and input before making decisions. Participation in decision making should help followers understand which goals are most important and clarify the paths to accomplishing them. Furthermore, when people participate in decisions, they become more committed to making them work. San Antonio, Texas-based H-E-B Grocery regularly is frequently honored as a “best place to work.” President and COO Craig Boyan says there is a culture of “restless dissatisfaction” to reduce costs, satisfy customers, and keep employees engaged. Listening to and empowering employees is central to those efforts. Boyan says, “Our store leaders run their business the way they know best, and each store and each department in each store is always looking to improve and evolve how we do things. The key is pushing decision making to those who know best—partners in our stores—and having great leaders and partners to be constantly learning and working to evolve our business.” *  H-E-B employees are even more committed now that the company awarded 15 percent of its stock to 55,000+ employees (who must be over 21 and have worked at least 1,000 hours in the last year). Veronica Solis, who started with H-E-B after high school and manages store payroll, says, “I’m going to retire from here. I’m not going anywhere.” *

Achievement-oriented leadership means setting challenging goals, having high expectations of employees, and displaying confidence that employees will assume responsibility and put forth extraordinary effort. Psychiatrist Samantha Boardman did her medical internship with two physicians. The first, Dr. M, was clearly an achievement-oriented leader. The second, Dr. F, wasn’t. Boardman wrote of the experience, “Dr. M, thought the world of me. ‘Dr. Boardman, what do you think?’ he asked whenever there was a question about a diagnosis. ‘Good work, Dr. Boardman,’ he said whenever I reported lab results or presented a new patient. I thrived under his leadership and did my utmost to live up to his high expectations. It motivated me to work harder and to do my best.” *  Dr. F, she says, “thought very little of me. His low expectations became a reality. I made dumb mistakes. My mind went blank whenever he asked me questions. My confidence evaporated along with my motivation. I became a completely different person in his presence.” *

14-5b. Subordinate and Environmental Contingencies

As shown in Exhibit 14.5, path-goal theory specifies that leader behaviors should be adapted to subordinate characteristics. The theory identifies three kinds of subordinate contingencies: perceived ability, experience, and locus of control. Perceived ability is simply how much ability subordinates believe they have for doing their jobs well. Subordinates who perceive that they have a great deal of ability will be dissatisfied with directive leader behaviors. Experienced employees are likely to react in a similar way. Because they already know how to do their jobs (or perceive that they do), they don’t need or want close supervision. By contrast, subordinates with little experience or little perceived ability will welcome directive leadership.

Locus of control is a personality measure that indicates the extent to which people believe that they have control over what happens to them in life. Internals believe that what happens to them, good or bad, is largely a result of their choices and actions. Externals, on the other hand, believe that what happens to them is caused by external forces beyond their control. Accordingly, externals are much more comfortable with a directive leadership style, whereas internals greatly prefer a participative leadership style because they like to have a say in what goes on at work.

Path-goal theory specifies that leader behaviors should complement rather than duplicate the characteristics of followers’ work environments. There are three kinds of environmental contingencies: task structure, the formal authority system, and the primary work group. As in Fiedler’s contingency theory, task structure is the degree to which the requirements of a subordinate’s tasks are clearly specified. When task structure is low, and tasks are unclear, directive leadership should be used because it complements the work environment. When task structure is high and tasks are clear, however, directive leadership is not needed because it duplicates what task structure provides. Alternatively, when tasks are stressful, frustrating, or dissatisfying, leaders should respond with supportive leadership.

The formal authority system is an organization’s set of procedures, rules, and policies. When the formal authority system is unclear, directive leadership complements the situation by reducing uncertainty and increasing clarity. But when the formal authority system is clear, directive leadership is redundant and should not be used.

Primary work group refers to the amount of work-oriented participation or emotional support that is provided by an employee’s immediate work group. Participative leadership should be used when tasks are complex, and there is little existing work-oriented participation in the primary work group. When tasks are stressful, frustrating, or repetitive, supportive leadership is called for.

Finally, because keeping track of all of these subordinate and environmental contingencies can get a bit confusing, Exhibit 14.6 provides a summary of when directive, supportive, participative, and achievement-oriented leadership styles should be used.

14-5c. Outcomes

Does following path-goal theory improve subordinate satisfaction and performance? Preliminary evidence suggests that it does. *  In particular, people who work for supportive leaders are much more satisfied with their jobs and their bosses. Likewise, people who work for directive leaders are more satisfied with their jobs and bosses (but not quite as much as when their bosses are supportive) and perform their jobs better, too. Does adapting one’s leadership style to subordinateand environmental characteristics improve subordinate satisfaction and performance? At this point, because it is difficult to completely test this complex theory, it’s too early to tell. *  However, because the data clearly show that it makes sense for leaders to be both supportive and directive, it also makes sense that leaders could improve subordinate satisfaction and performance by adding participative and achievement-oriented leadership styles to their capabilities as leaders.

Poor Sleep Is Hurting Your Leadership

Whether due to stress, long hours, or travel, four nights a week 43 percent of leaders don’t get enough sleep. That hurts their ability to focus, to be creative and innovative, to learn new things, and to recall what they’ve learned. Sleep deficiencies make it more difficult for leaders to regulate their emotions and read others’ emotions correctly, both of which increase the odds of inappropriately snapping at others. Finally, lack of sleep zaps the charisma from leaders, which hurts their relationship with subordinates. Solutions include reasonable time limits, time off after disruptive travel, true work-free vacations, and nap rooms at work. Get enough sleep each night. You’ll be a better leader!

14-6. Adapting Leader Behavior: Normative Decision Theory

Many people believe that making tough decisions is at the heart of leadership. Yet experienced leaders will tell you that deciding how to make decisions is just as important. The normative decision theory (also known as the Vroom-Yetton-Jago model) helps leaders decide how much employee participation (from none to letting employees make the entire decision) should be used when making decisions. *

Let’s learn more about normative decision theory by investigating 14-6a decision styles and 14-6b decision quality and acceptance.

14-6a. Decision Styles

Unlike nearly all of the other leadership theories discussed in this chapter, which have specified leadership styles, that is, the way a leader generally behaves toward followers, the normative decision theory specifies five different decision styles, or ways of making decisions. (See Chapter 5 for a more complete review of decision making in organizations.) As shown in Exhibit 14.7, those styles vary from autocratic decisions (AI or AII) on the left, in which leaders make the decisions by themselves, to consultative decisions (CI or CII), in which leaders share problems with subordinates but still make the decisions themselves, to group decisions (GII) on the right, in which leaders share the problems with subordinates and then have the group make the decisions.

GE Aircraft Engines in Durham, North Carolina, uses a similar approach when making decisions. According to Fast Company magazine, “At GE/Durham, every decision is either an ‘A’ decision, a ‘B’ decision, or a ‘C’ decision. An ‘A’ decision is one that the plant manager makes herself, without consulting anyone.*  One plant manager said, “I don’t make very many of those, and when I do make one, everyone at the plant knows it. I make maybe 10 or 12 a year.”*  “B” decisions are also made by the plant manager but with input from the people affected. “C” decisions, the most common type, are made by consensus, by the people directly involved, with plenty of discussion. With “C” decisions, the view of the plant manager doesn’t necessarily carry more weight than the views of those affected.*

14-6b. Decision Quality and Acceptance

Management consultant John Canfield says, “Leaders are responsible for improving the performance of organizations. Two significant components of [a leader’s] decisions are the quality of the decision and the level of buy-in associated with it. Effective leaders want them both.” *  According to the normative decision theory, using the right degree of employee participation improves the quality of decisions and the extent to which employees accept and are committed to decisions (that is, buy-in). Exhibit 14.8 lists the decision rules that normative decision theory uses to increase the quality of a decision and the degree to which employees accept and commit to it.

The quality, leader information, subordinate information, goal congruence, and problem structure rules are used to increase decision quality. For example, the leader information rule states that if a leader doesn’t have enough information to make a decision on his or her own, then the leader should not use an autocratic decision style. The commitment probability, subordinate conflict, and commitment requirement rules shown in Exhibit 14.8 are used to increase employee acceptance and commitment to decisions. For example, the commitment requirement rule says that if decision acceptance and commitment are important, and the subordinates share the organization’s goals, then you shouldn’t use an autocratic or consultative style. In other words, if followers want to do what’s best for the company, and you need their acceptance and commitment to make a decision work, then use a group decision style and let them make the decision. As you can see, these decision rules help leaders improve decision quality and follower acceptance and commitment by eliminating decision styles that don’t fit the particular decision or situation they’re facing. Normative decision theory, like path-goal theory, is situational in nature. The abstract decision rules in Exhibit 14.8 are framed as yes/no questions, which makes the process of applying these rules more concrete. These questions are shown in the decision tree displayed in Exhibit 14.9. You start at the left side of the tree and answer the first question, “How important is the technical quality of this decision?” by choosing “high” or “low.” Then you continue by answering each question as you proceed along the decision tree until you get to a recommended decision style

Let’s use the model to make the decision of whether to change from private offices to open offices and cubicles. The problem sounds simple, but it is actually more complex than you might think. Follow the yellow line in Exhibit 14.9 as we work through the decision in the bottom half of the exhibit (see Problem: Change To Open Offices and Cubicles).

How well does the normative decision theory work? A prominent leadership scholar has described it as the best supported of all leadership theories. *  In general, the more managers violate the decision rules in Exhibit 14.8, the less effective their decisions are, especially with respect to subordinate acceptance and commitment. *

14-7. Visionary Leadership

Strategic leadership is the ability to anticipate, envision, maintain flexibility, think strategically, and work with others to initiate changes that will create a positive future for an organization. *  Even though 25 percent of Japanese online purchases are made on  Rakuten.com , CEO Hiroshi Mikitani worries about Japan’s shrinking population. So he acquired Ebates, the U.S. shopping reward website, and invested in Lyft and Pinterest. But his biggest strategic investment in Rakuten’s future was requiring all 8,000 employees to use English in all written and spoken communication. Mikitani said, “To grow, we need to go outside Japan. To do that, we need talented, non-Japanese people, and we need to have a standard of communication, which is spoken English. Therefore, the Japanese staff needs to be able to communicate in English so that we don’t alienate non-Japanese speakers. And it is working extremely well. Already, close to 40 percent of our engineers in Japan are non-Japanese. We are hiring from all over the world. Now our e-commerce team can speak with our Ebates team without any trouble. Five years ago, it was almost impossible. We needed to have a translator.” * Thus, strategic leadership captures how leaders inspire their companies to change and their followers to give extraordinary effort to accomplish organizational goals.

Problem: Change to Open Offices and Cubicles?

1. Quality requirement: How important is the technical quality of this decision? High. This question has to do with whether there are quality differences in the alternatives and whether those quality differences matter. In other words: Is there a lot at stake in this decision? People have incredibly strong reactions to giving up private offices for cubicles. While companies use open offices to increase communication, workers will see this as a loss of privacy and status. Yes, there is a lot at stake.

2. Commitment requirement: How important is subordinate commitment to the decision? High. Changes in offices, from private to open settings, require subordinate commitment or they fail. In fact, it’s not uncommon for companies to abandon open offices after trying them.

3. Leader’s information: Do you have sufficient information to make a high-quality decision? Yes. Let’s assume that you’ve done your homework. Much has been written about open offices and cubicles, from how to make the change to the effects it has in companies (which are mixed, sometimes positive and sometimes negative).

4. Commitment probability: If you were to make the decision by yourself, is it reasonably certain that your subordinate(s) would be committed to the decision? No. Studies of companies that change from private offices to open offices find that employees’ initial reactions are almost uniformly negative. Employees are likely to be angry if you change something as personal as their offices without consulting them.

5. Goal congruence: Do subordinates share the organizational goals to be attained in solving this problem? Probably not. The goals that usually accompany a change to open offices are a more informal culture, better communication, and less money spent on renting or buying office space (because open offices and cubicles take less square footage than private offices), none of which will matter much to employees who are losing their private offices.

6. CII is the answer: With a CII, or consultative decision process, the leader shares the problem with employees as a group, obtains their ideas and suggestions, and then makes the decision, which may or may not reflect their input. So, given the answers to these questions (remember, different managers won’t necessarily answer these questions the same way), the normative decision theory recommends that leaders consult with their subordinates before deciding whether to change from private offices to open offices and cubicles.

In Chapter 5, we defined a purpose statement, which is often referred to as an organizational mission or vision, as a statement of a company’s purpose or reason for existing. Similarly, visionary leadership creates a positive image of the future that motivates organizational members and provides direction for future planning and goal setting. *

Two kinds of visionary leadership are 14-7a charismatic leadership and 14-7b transformational leadership.

14-7a. Charismatic Leadership

Charisma is a Greek word meaning “divine gift.” The ancient Greeks saw people with charisma as inspired by the gods and capable of incredible accomplishments. German sociologist Max Weber viewed charisma as a special bond between leaders and followers. *  Weber wrote that the special qualities of charismatic leaders enable them to strongly influence followers. Weber also noted that charismatic leaders tend to emerge in times of crisis and that the radical solutions they propose enhance the admiration that followers feel for them. In fact, charismatic leaders tend to have incredible influence over followers who may be inspired by their leaders and become fanatically devoted to them. From this perspective, charismatic leaders are often seen as larger-than-life.

Charismatic leaders have strong, confident, dynamic personalities that attract followers and enable the leaders to create strong bonds with their followers. Followers trust charismatic leaders, are loyal to them, and are inspired to work toward the accomplishment of the leader’s vision. Followers who become devoted to charismatic leaders may go to extraordinary lengths to please them. Therefore, we can define charismatic leadership as the behavioral tendencies and personal characteristics of leaders that create an exceptionally strong relationship between them and their followers. Charismatic leaders also

• articulate a clear vision for the future that is based on strongly held values or morals;

• model those values by acting in a way consistent with the vision;

• communicate high performance expectations to followers; and

• display confidence in followers’ abilities to achieve the vision. *

Does charismatic leadership work? Studies indicate that it often does. In general, the followers of charismatic leaders are more committed and satisfied, are better performers, are more likely to trust their leaders, and simply work harder. * Nonetheless, charismatic leadership also has risks that are at least as large as its benefits. The problems are likely to occur with ego-driven charismatic leaders who take advantage of fanatical followers.

In general, there are two kinds of charismatic leaders, ethical charismatics and unethical charismatics. *Ethical charismatics provide developmental opportu-nities for followers, are open to positive and negative feedback, recognize others’ contributions, share information, and have moral standards that emphasize the larger interests of the group, organization, or society. Twenty years ago, J. J. Irani, then CEO of Tata Steel, had to close down a money-losing steel plant in Jamshedpur, India. Given that Tata not only guaranteed all employees’ jobs but also jobs for their children (after you had worked at Tata 25 years), this was the first time that any Tata employees would lose their jobs. Rather than doing only what was best for Tata, Irani decided that laid-off employees, age 40 or under, would receive full salaries for the remainder of their working lives. Laid-off employees over 40 would get salaries plus a 20–50 percent bonus, depending on how close they were to retirement. Moreover, workers’ families would receive the payments even if the workers died prior to retiring. Tata benefited, too, because it no longer had to pay payroll taxes, and part of the deal was that workers’ payments would not increase over time. Over time, its labor costs shrunk, but its reputation as a caring employer among Indian managers and workers persisted. *  As you would expect, ethical charismatics like Irani produce stronger commitment, higher satisfaction, more effort, better performance, and greater trust.

By contrast, unethical charismatics control and manipulate followers, do what is best for themselves instead of their organizations, want to hear only positive feedback, share information that is only beneficial to themselves, and have moral standards that put their interests before everyone else’s. Steven Cohen, the billionaire owner of SAC Capital Advisors, was renowned for being acerbic and impatient with his staff of financial analysts and managers. One of his standard responses when portfolio managers couldn’t answer a question about a stock was, “Do you even know how to do your f***ing job?” Once, during the first week of January, he yelled at an employee for not having come up with any good trading ideas so far that year. Cohen routinely pitted traders against each other by displaying their profits and losses in real time. He also pushed them to compete to have their picks included in his personal portfolio. Under his leadership, SAC Capital pleaded guilty to insider trading, paying $1.8 billion in fines.

Because followers can become just as committed to unethical charismatics as to ethical charismatics, unethical characteristics pose a tremendous risk for companies. Professor Diane Chandler explains, “By being greatly influenced by charismatic leaders, followers are apt to agree with, feel affection for, and obey them. With charismatic leaders fostering a sense of strong identification with followers, they may likewise curry followers’ inordinate allegiance to them in the face of unethical or moral leadership indiscretion.” *

Exhibit 14.10 shows the stark differences between ethical and unethical charismatics on several leader behaviors: exercising power, creating the vision, communicating with followers, accepting feedback, stimulating followers intellectually, developing followers, and living by moral standards. For example, ethical charismatics account for the concerns and wishes of their followers when creating a vision by having followers participate in the development of the company vision. By contrast, unethical charismatics develop a vision by themselves solely to meet their personal agendas. One unethical charismatic said, “The key thing is that it is my idea; and I am going to win with it at all costs

14-7b. Transformational Leadership

While charismatic leadership involves articulating a clear vision, modeling values consistent with that vision, communicating high performance expectations, and establishing very strong relationships with followers, transformational leadership goes further by generating awareness and acceptance of a group’s purpose and mission and by getting employees to see beyond their own needs and self-interest for the good of the group. *  Like charismatic leaders, transformational leaders are visionary, but they transform their organizations by getting their followers to accomplish more than they intended and even more than they thought possible.

Transformational leaders are able to make their followers feel that they are a vital part of the organization and help them see how their jobs fit with the organization’s vision. By linking individual and organizational interests, transformational leaders encourage followers to make sacrifices for the organization because they know that they will prosper when the organization prospers. Transformational leadership has four components: charismatic leadership or idealized influence, inspirational motivation, intellectual stimulation, and individualized consideration. *

Charismatic leadership or idealized influence means that transformational leaders act as role models for their followers. Because transformational leaders put others’ needs ahead of their own and share risks with their followers, they are admired, respected, and trusted, and followers want to emulate them. When Whole Foods’ profit dropped 10 percent and the company needed to trim costs, co-CEO John Mackey voluntarily cut his pay by 67 percent. Likewise, Jay Leno, who hosted the Tonight Show for 22 years, voluntarily took a $15 million cut in pay when NBC announced that it needed to cut $20 million in costs for the show. While 20 employees were let go, Leno’s voluntary pay cut absorbed 75 percent of the needed cost reduction so that many other long-time staffers on the show could keep their jobs. *  Thus, in contrast to purely charismatic leaders (especially unethical charismatics), transformational leaders can be counted on to do the right thing and maintain high standards for ethical and personal conduct.

Inspirational motivation means that transformational leaders motivate and inspire followers by providing meaning and challenge to their work. By clearly communicating expectations and demonstrating commitment to goals, transformational leaders help followers envision future states, such as the organizational vision or mission. In turn, this leads to greater enthusiasm and optimism about the future.

Intellectual stimulation means that transformational leaders encourage followers to be creative and innovative, to question assumptions, and to look at problems and situations in new ways even if their ideas are different from those of leaders. Guive Balooch, global vice president for L’Oreal’s Technology Incubator, leads a 26-person team charged with marrying beauty products to technology. Says Balooch, “If you put a UX (user experience) designer, a physicist, a biologist and a micro-engineer all together in a room, the tension between their ideas creates really cool things.” *  One of their first products, the MakeupGenius App, combines the camera on a smartphone with software to, “select that new shade of eyeshadow or lipstick and virtually try it on yourself.” *  Just like in a store, the app uses augmented reality technology to virtually “apply” the makeup to your image on your smart phone or tablet, allowing you to see how you look from any angle in real time. Balooch says, “My team has freedom to create, to innovate, to embrace the very best in industrial design, in science, and technology and adapt it for the beauty industry.” *

Individualized consideration means that transformational leaders pay special attention to followers’ individual needs by creating learning opportunities, accepting and tolerating individual differences, encouraging two-way communication, and being good listeners.

Finally, a distinction needs to be drawn between transformational leadership and transactional leadership. While transformational leaders use visionary and inspirational appeals to influence followers, transactional leadership is based on an exchange process in which followers are rewarded for good performance and punished for poor performance. When leaders administer rewards fairly and offer followers the rewards that they want, followers will often reciprocate with effort. A problem, however, is that transactional leaders often rely too heavily on discipline or threats to bring performance up to standards. This may work in the short run, but it’s much less effective in the long run. Also, as discussed in Chapters 11 and 13 , many leaders and organizations have difficulty successfully linking pay practices to individual performance. As a result, studies consistently show that transformational leadership is much more effective on average than transactional leadership. In the United States, Canada, Japan, and India at all organizational levels, from first-level supervisors to upper-level executives, followers view transformational leaders as much better leaders and are much more satisfied when working for them. Furthermore, companies with transformational leaders have significantly better financial performance. *