The fact that leaders affect both morale and financial performance seems self-evident. Nonetheless, leaders and managers often have far less influence over Football performance than most people think. As Mike Ditka, a former National Football League player and coach has stated, "Coaches get too much credit and too much blame." One study of the performance of 167 companies  over a 20-year period sought to allocate variation in performance to the effects of industry, year (time period, which presumably measures general economic conditions), company-specific effects, and the impact of changes in leadership. Not surprisingly, the conclusion was that company and industry had much larger effects on variation in sales, profits, and profit margins than did changes in leadership . When Jeffrey Pfeffer published a review of research on leadership back in 1977, he found that although leaders do have some impact, their actions rarely explain more than 10 percent of the differences in performance between the best and the worst organizations and teams. Scores of more recent studies confirm that the link between leadership and performance is modest. Scholars who conduct and evaluate the best peer-reviewed studies argue over how much leadership matters and when it mat­ters most. But when they put their often petty differences aside, most agree that the effects of leadership on performance are modest under most condi­tions, strong under a few conditions, and absent in others. Studies of leaders from large samples of CEOs in public companies, to university presidents, to managers of college and professional sports teams show that organizational performance is determined largely by factors that no individual—including the leader—can control.

Even the most powerful executives have little influence over macroeconomic trends, the price of international currency and oil, wars and terrorism, organizational history, and the weather. That is why although stock prices sometimes move dramatically in the short term when a CEO is fired or hired, there are seldom long-term effects on market value.

Those who have studied the investment impact contend that the replace­ment of a corporate boss is often like that of a baseball team manager: after a knee-jerk sense of relief comes a realization that it won't do much good if the new guy has to lead the same bunch of bums whose losing streak got the previous manager axed. In the same way, a company can have new leadership but still be burdened by a poor reputation, an unprofitable business mix, and a shortage of clear ways to extricate itself.

There are a number of reasons why leaders may make only a small difference in how well companies do. One reason is that they often operate within constraints that they can't change easily or at all—the existing people, products, markets, and general economic conditions. There is also evidence that leadership effects are modest because the people who are allowed to hold and keep leadership positions are pretty similar to each other. In theory, different leaders could have a big impact if they saw the world in different ways, if there were wildly varying skill sets and competence levels among leaders, and if there were big differences in how those leaders who are hired and remain did their jobs. In practice, however, leaders don't exhibit such differences because they are selected for similarity in education and outlook. Many leaders wind up thinking similarly and making similar decisions as a result. And organizations do not have unfettered access to any leader who might be potentially available. Leaders who appear to be successful will be more highly sought after and are more likely to take positions at larger, already more successful organizations. So, another reason why leaders may make less difference in practice than in theory is that poorly performing orga­nizations may have limited access to those leaders who would be most able to make a big difference.

Particularly in large organizations, people are heavily screened for creden­tials, competencies, and backgrounds similar to those of other CEOs (e.g., there are currently only eight female CEOs in the Fortune 500 and seven of these women have MBAs). Many organizations also choose internal candidates, people who have worked their way up the ranks. As renowned management theorist James March pointed out, this too drives out differences: "Assuming that all promotions are based on similar attributes, each successive filter further refines the pool, reducing variation among managers. On attributes the organization considers important, vice presidents are likely to be significantly more homogeneous than first-level managers."

The result is what statisticians call a restriction of range in the observed population of senior executives. What the evidence indicates is that leaders can and do make an important difference in organizational and group performance, although the effects are not as large as usually assumed nor as important as many other factors. It seems clear that leaders have some chance of making things better but they can also make things much worse by taking actions that increase employee turnover and diminish employee motivation, as well as encourage lying and stealing, and causing numerous other organizational problems. This all suggest that avoiding bad leaders may be a crucial goal, perhaps more important than getting great leaders.

 with thanks to “Hard facts dangerous half-truths  & total nonsense by J Pfeffer & R I Sutton

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