- One study contrasted 18 visionary companies with 18 comparable nonvision-
ary firms over a 65-year period.^44 The visionary companies performed 6 times
better than the comparison group, based on standard financial criteria, and
their stocks performed 15 times better than the general market. - In a study of 250 executives and managers at a major financial services company,
Jane Howell (at the Richard Ivey School of Business at the University of Western
Ontario) and her colleagues found that “transformational leaders had 34 percent
higher business unit performance results than other types of leaders.”^45 - An unpublished study by Robert House and some colleagues of 63 American
and 49 Canadian companies (including Nortel Networks, Molson, Gulf
Canada [now ConocoPhillips], and Manulife Financial) found that “between
15 and 25 percent of the variation in profitability among the companies was
accounted for by the leadership qualities of their CEO.”^46 That is, charismatic
leaders led more profitable companies in the 1990s. This may explain the
high compensation packages for CEOs that we discussed in Chapter 4.
Individual Performance An increasing body of research shows that people work-
ing for charismatic leaders are motivated to exert extra work effort and, because they
like their leaders, they express greater satisfaction.^47
To learn more about how to be transformational/charismatic yourself, see the Working
With Others Exerciseon page 287.
The evidence supporting the superiority of transformational leadership over the
transactional variety is overwhelmingly impressive. For instance, a number of studies of
US, Canadian, and German military officers found, at every level, that transformational
leaders were evaluated as more effective than their transactional counterparts.^48 Managers
at FedEx who were rated by their followers as exhibiting more transformational leadership
were evaluated by their immediate supervisors as higher performers and more pro-
motable.^49 Nevertheless, transformational leadership should be used with some caution
in non–North American contexts, because its effectiveness may be affected by cultural
values concerning leadership.^50
In summary, the overall evidence indicates that transformational leadership correlates
more strongly than transactional leadership with lower turnover rates, higher produc-
tivity, and higher employee satisfaction.^51 One caveat to this research is a study by
Professor Timothy DeGroot of McMaster University and his colleagues. They found
that charismatic leadership had a greater impact on team performance than on indi-
vidual performance, and they suggest that the positive findings of previous studies are
the result of charismatic leaders’ providing a better team environment for everyone,
which then resulted in higher performance.^52
The Downside of Charismatic Leadership
When organizations are in need of great change, charismatic leaders are often able to
inspire their followers to meet the challenges of change. Be aware that a charismatic leader
may become a liability to an organization once the crisis is over and the need for dra-
matic change subsides.^53 Why? Because then the charismatic leader’s overwhelming self-
confidence can be a liability. He or she is unable to listen to others, becomes uncomfortable
when challenged by aggressive employees, and begins to hold an unjustifiable belief in his
or her “rightness” on issues. Some would argue that Jean Chrétien’s behaviour leading
up to his decision to announce that he would eventually step down as prime minister, thus
preventing a divisive leadership review in February 2003, would fit this description.
Many have argued that the recent accounting scandals and high-profile bankrupt-
cies facing North American companies, including Enron and WorldCom, point to some
Chapter 8Leadership 271