Does leadership matter? CEO leadership attributes and profitability under conditions of perceived environmental uncertainty

Topic: Leadership

Author(s), Title and Publication
Waldman, D. A.; Ramirez, G. G.; House, R. J.; & Puranam, P. (2001). Does leadership matter? CEO leadership attributes and profitability under conditions of perceived environmental uncertainty. Academy of Management Journal, 44(1), 134-143.

Summary
This study examined the effects of CEO leadership style on organizational financial performance. Two leadership styles were explored: 1) transactional leadership, in which a leader attempts to satisfy the needs of subordinates with exchanges and contingent rewards, and pays close attention to mistakes and corrects them; and 2) charismatic leadership, wherein a leader articulates a vision, shows determination, and expresses high performance expectations. The researchers argued that charismatic leadership would have more positive influence on organizational performance, especially when the environment in the organization is perceived as highly uncertain.

In a survey, 210 executives from 48 Fortune 500 firms answered questions about their CEOs’ leadership style (transactional, charismatic) and perceived environmental uncertainty. Net profit margin of surveyed firms was measured by dividing net income by net sales. Results indicated that CEOs were generally seen as exhibiting more charismatic than transactional leadership. Charismatic leadership was found to be significantly related to organizational financial performance, while transactional leadership was not. Moreover, findings suggested that charismatic leadership had more positive effects on financial performance when environmental uncertainty is high.

Implications for Practice
Organizations in transition or undergoing other changes may want to encourage charismatic leadership to ensure organizational performance.  Organizations also may want to seek out future managers and executives with this style of leadership as the global marketplace is dynamic and undergoing rapid transition.

Location of Article
The article is available online at: http://www.jstor.org/discover/10.2307/3069341?uid=3739520&uid=367896781&uid=2129&uid=2&uid=70&uid=3&uid=3739256&uid=60&sid=21102003683057 (read online for free, free registration needed)

Posted in [Research Library], Culture and Values, Employee / Organizational Communication, Leadership Communications and tagged , , , , , .

One Comment

  1. Great to see a study on CEO leadership in IPR’s OCRC database. CEO topics have been somehow under-researched in public relations, although CEOs have been widely recognized as the face/spokesperson/representative of the organization. Especially in today’s social media era, the availability of a wide array of social media tools such as Facebook, Twitter, and LinkedIn has brought CEOs to life. Those CEOs who remain active on social media can directly interact with the publics, listen to different voices, solicit ideas, communicate and engage, and help build the organization’s public image. It’s not hard to link the CEO of an organization, his/her personality, character, what he/she says and does to an organization. Intended or not, CEOs are communicating publicly, online or offline, internally and externally. From the internal perspective, how CEOs communicate with the employees and CEO’s leadership behavior could possibly influence employees’ perception of the organization and their confidence in the organization. Living in Silicon Valley during summer and winter breaks, I’ve had the chance to talk to employees who work for those giant high-tech companies, such as Facebook, LinkedIn, Apple, Google, etc. When asking about their CEO, many times I noticed that those who are loyal to the company trust and respect much their CEO. Such observation led me to the current project I am working on–what’s the CEO’s role in the organization’s internal branding and communication. What are your thoughts on this topic? I welcome any ideas, suggestions and discussion!

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