I had thought that the business world’s supposed need for highly charismatic leaders had been thoroughly debunked by Harvard Business School’s Rakesh Khurana in his 2002 book, Searching for a Corporate Savior: The Irrational Quest for Charismatic CEOs. According to the book’s publisher, Khurana’s study of the CEO selection process at 850 U.S. companies revealed that companies were consistently attracted to individuals “whose fame and force of personality impress analysts and the business media, but whose experience and abilities are not necessarily right for companies' specific needs.” But even though star power may have gotten the new chiefs their jobs, Khurana also showed that general economic conditions and industry trends had greater impact on firm performance than any single executive.
Business culture may be a bit less star-focused than it was when Khurana published his book. The decline of print publications takes some of the glamour out of having one’s picture on the cover of Forbes or Fortune. Some of today’s more enduring stars — Tim Cook, Jeff Immelt, and Indra Nooyi, for example — seem to have an air of humility about them. They don’t pretend to be omnipotent masters of the universe. Others remain brash (Jamie Dimon pops to mind), but are as often in the headlines defending themselves and their firms from government inquiries as they are for spectacular performance.
A new study may, however, revive interest in the benefits of a charismatic CEO. Published in The Leadership Quarterly, the paper examines 150 German companies to understand (or debunk) the connection between CEO charisma and bottom-line results. The authors did not find evidence that there is any direct link. Aha! Khurana was right. But, wait: They did find evidence that CEO charisma was linked to two factors that affect performance: transformational leadership (TFL) climate and organizational identity strength (OIDS). And this is where things get interesting.
TFL is an approach whereby the leader takes his or her followers’ goals, needs, and motivations into account when crafting a compelling vision. Introduced by James MacGregor Burns, this model creates conditions under which “leaders and followers make each other advance to a higher level of morality and motivation.” Thus, individual interests become collective aspirations. The I of the transformational leader is ultimately about the we of the company, and his or her charisma emerges, in part, from serving as a role model: communicating values and creating the feeling that everyone is part of the same team.
An exemplary TFL climate is one in which there is a high degree of alignment between top managers’ and line managers’ principles and their behaviors: The advantage lies less in the impact of a single person than a pervasive environment of clarity of purpose, values, and performance.
OIDS, an offshoot of TFL, is the extent to which those team members see the team as special and something of which to be proud. Southwest Airlines and Starbucks are two companies I see as having strong, positive organizational identities. In their study, the researchers argue that the charismatic CEO is able to influence internal and external constituencies with regard to “the distinctiveness, prestige, superiority” of the collective identity and its values. Again, alignment between senior managers and frontline managers is essential.
The researchers assessed CEO charisma using survey statements with employees such as “our chief executive has a clear understanding of where we are going.” Transformational leadership climate was gauged using agreement or disagreement with statements such as “my supervisor is able to get others committed to his/her dream of the future.” Organizational identity strength was tested with statements such as “in this company we feel that the company has carved out a significant place in the industry.” Performance was measured using company growth, financial performance, and return on assets.
What’s the bottom line? The researchers cite numerous studies that draw a link between TFL, OIDS, and performance. The charismatic CEO alone does not seem to drive performance, but he or she can be an essential catalyst to the conditions for company success. So Khurana wasn’t wrong, but he wasn’t completely right, either: Leadership effectiveness comes, in part, from the CEO’s ability to “project a salient social identity” that traverses past, present, and future. Thus, companies should ignore star power and look for a leader with an extraordinary ability to foster camaraderie, cooperation, and collective competitive drive.
Just as important, the effective, charismatic CEO in this study subscribes to a “cascading model of leadership” in which leadership is seen as a distinctive organizational capability. Everything from hiring to training and promotion should reinforce the culture. The authors maintain that “all top managers can adopt important behaviors to influence both the TFL climate and OIDS.” Leadership, it turns out, is everyone’s job.
What’s missing from this study? Given that CEO charisma was determined through employee surveys, one must ask if executives at high-performing companies are inclined to see their leaders as more charismatic than they would if those same leaders were heading low-performing companies. I am reminded of a comment made by the CEO of a company that had gone from dowdy regional player to red-hot national IPO: “I’m not as stupid as they said I was then, and I’m not as smart as they think I am now.” Strong returns create a certain halo effect.
Also, there isn’t a clear indication of the durability of the impact of a charismatic leader. The benefits of a truly effective leader should be evident years after any individual has moved on, not simply while he or she is in office.
Still, there is a lesson here: By drawing a clear connection between a commitment to transformational leadership, robust shared identity, and bottom-line performance, this research provides a model of the charismatic chief executive worth further exploration.