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.
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)