Review of “Unrequited Profit: How Stakeholder and Economic Values Relate to Subordinates’ Perceptions of Leadership and Firm Performance,” by Mary Sully de Luque (Thunderbird School of Global Management), Nathan T. Washburn (Thunderbird School of Global Management), David A. Waldman (Arizona State University), and Robert J. House (University of Pennsylvania).
The article is based on a study that examines the indirect effects of executives’ stakeholder and economic values on firm performance through their followers’ perceptions of leadership and followers’ extra effort. Two types of leadership are perceived by followers in the study, autocratic and visionary. The study notes that leaders’ emphasis on economic values is associated with the followers’ perceptions of autocratic leadership and leaders’ emphasis on stakeholder values is associated with followers’ perceptions of visionary leadership. The study takes this one step more and says visionary leadership relates positively to employees’ extra effort, thus relating to firm performance, while a relationship does not exist for autocratic leadership.
Managers look to management theories as a normative guideline in decision making. One example is the stakeholder theory perspective which directs managers to consider multiple stakeholders in their decisions. In contrast, the economic and finance theory perspective directs managers to make decisions that focus on profit maximization. Though the theories differ in perspective, both theories attempt to provide leaders with decision making criteria. The decisions are also tied to managers’ values, as they are part of each management perspective.
Though values influence a decision maker in a decision, these values in turn influence subordinates. Subordinates are affected by executive value laden decisions, and in turn interpret these decisions and thus influence attitudes and feelings that subordinates develop toward the executive. As decision makers are influenced by their own values in decision making, these values then affect the subordinates’ willingness to follow the executive’s lead, based on the values associated with the decision.
The article notes, “Ghoshal (2005) implied that economic and stakeholder values are associated with certain leadership styles. On the one hand, executives espousing economic values are described as “ruthlessly hard-driving, strictly top-down, command-and-control focused” (Ghoshal, 2005: 85), a colloquial description of autocratic leadership style. In contrast, executives espousing stakeholder values are described as establishing a sense of purpose or shared destiny within the company (Ghoshal and Moran, 1996: Ghoshal, Bartlett, and Moran, 1999), the essence of a visionary leadership style. Leadership may thus be a mediating variable that partially explains the relationship between executives’ values and subordinates’ extra effort (Bass, 1995).” From this excerpt it is interesting to see how a subordinate interprets a leadership style and then reacts by either exerting extra effort or none at all. From this point it seems beneficial that leaders use the visionary style, as not only will the subordinate put in extra effort, but the firm in turn should realize improved performance.
The article states that a relationship of extra effort from subordinates and increased firm performance does not exist for the autocratic leadership style. It is further explained that autocratic leaders typically see their followers as contributors or obstacles to efforts to meet their goals. In this leadership style the leaders are not looking to build relationships with their followers, but rather utilize them towards meeting their own goals, so it is not surprising that the article does not note a relationship of extra effort from subordinates.
Ghoshal also points out that when CEO’s use economic values in decision making, this may force tough decisions that in turn create unpleasant feelings that give a negative impression of the leader. The subordinates in turn associate the CEO as an autocratic leader.
In contrast, when executives use stakeholder values in their decision making they are most likely to be perceived as non-autocratic leaders. When this occurs, subordinates feel “engaged” in the process and take note that their viewpoints have been considered.
The visionary leadership style is perceived as providing a sense of mission or purpose and articulates a vision that challenges the status quo while being based in powerful imagery and a sense of purpose. The article gives the example of Kevin Sharer who, “led Amgen to become one of the world’s largest biotechnology companies, not through force or position power, but, rather, by spending time in the labs to understand employees’ challenges, questioning old assumptions, and creating a shared vision that allowed people to align themselves around common goals and values (Hemp, 2004).” It is consistent with the previous mention of subordinates putting in extra effort under visionary leaders, and I think this example shows exactly why. The subordinates feel a part of something and are given the chance to challenge the norms and think outside the box.
Outside of the relationship previously mentioned between economic values based decisions being associated with autocratic leadership, another important point to remember is that, “economic values may more directly encourage behaviors that foster short-term on non-visionary leadership prototype. An emphasis on profitability and other financial measures as the primary strategic decision criteria may create shortened time horizons for decisions (Hayes and Abernathy, 1980; Drucker, 1986; Hoskisson and Hitt, 1988; Jacobs, 1991; Laverty, 1996).” The article notes a relationship between improved firm performance and visionary leadership style, and this pinpoints why economic values based decisions are mainly focused on the short-term, thus eliminating future firm improvement.
The results of the study do indicate that stakeholder values provide better decision-making criteria for executives. From the benefits mentioned previously, it is worthwhile for leaders to understand how their values may affect and influence their subordinates. It is also important to note the potential the visionary leadership style has for all stakeholders involved, especially the firm. When the leader builds relationships and understands his subordinates it only makes sense that the outcomes will be greater as the ability to brainstorm and test the norms becomes more acceptable and appreciated. Leaders should welcome this leadership style as the evidence is there to prove how worthwhile the stakeholder values based leading may be.
Jennifer Myers, 9/24/09
Comments