Focus on Research

April 11, 2013 12:29 pm

The perils of charismatic leadership

The hubris and persuasion of a charismatic chief executive does not necessarily translate into corporate success, recently published research concludes. To the contrary, they have often led companies onto the rocks.

A historical study of the leadership and strategy of century-old European companies by Christian Stadler, a professor at Warwick Business School, and Davis Dyer, a consultant in the field of strategic management, has found that leaders of higher performing companies were less likely to be charismatic than those of less successful peers.

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In their article, published in the MIT Sloan Management Review, the authors cite Richard Fuld, chairman and chief executive of Lehman Brothers until its bankruptcy in 2008, and Jürgen Schrempp, chief executive of Daimler during its $35bn acquisition of Chrysler in 1998, as charismatic leaders “responsible for dramatic missteps”.

Their analysis identifies a more understated leadership style, which they call “intelligent conservatism”, that has been common among companies that have achieved long-term success. “Occasionally, charismatic leaders pop up, but for the most part, this group has succeeded by listening to their people and relying on old-fashioned industry expertise,” the authors write.

They argue that a key ingredient of intelligently conservative leadership is in-depth knowledge of an organisation which, they assert, allows leaders “to form responsive networks and to find out what is going on throughout the organisation”.

Their research finds that the most successful corporate transformations have often been undertaken by leaders who were promoted from within the company, rather than by charismatic outsiders who were parachuted in. Sir John Bond, of HSBC, and John Loudon, of Royal Dutch Shell, are highlighted as transformative leaders who succeeded because of their experience within their respective companies.

This is not, however, to argue that charisma is inherently problematic, they point out. They conclude; “If your company is heading in the right direction, a charismatic leader will get you there faster. Unfortunately, if you’re heading in the wrong direction, charisma will also get you there faster.”

http://sloanreview.mit.edu

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