How Much is Bad Leadership Costing You?

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The main reason organizations spend money on executive coaching is because bad leadership negatively impacts organizations, leading to higher costs and increased risks. Some of these costs can be measured and others cannot, but they are all significant and worthy of attention.

1. The Impact of a Leader

Image courtesy of jscreationzs at FreeDigitalPhotos.net

A leader is ultimately responsible for his or her organization. The leader’s decisions ripple throughout the entire organization they lead, to customers, co-workers, suppliers, clients, and the community they’re a part of. This means that the leader’s individual actions are amplified for better or for worse, and when leadership fails or is less than optimal, the effects can be staggering. This is why most turnarounds begin with the replacement of the existing management or the removal of a CEO. It’s a modern day mutiny initiated by a crew no longer willing to bear the cost of the leader’s failure.

Even after the ineffective executive has been removed, there are still significant lingering costs to the organization. Unfortunately, the ex-executive will probably receive a severance package (golden parachute) instead of being marooned on a desert island. Then there’s the cost of finding and recruiting a replacement, paying him or her a signing bonus, and then getting him or her up to speed, all while the organization is floating in the doldrums and the crew is slipping off the side and into the lifeboats. Customers and suppliers begin to look for more stable companies to do business with–losing a leader is ugly.

2. Lack of Vision

A leader’s primary responsibility is to cast a compelling vision his or her organization can aspire to and then to unite people around that vision. An organization without a vision doesn’t know where it’s going and this means that it can’t create or implement a strategy to arrive at its goals. This in turn results in a company operating totally at the mercy of outside forces and luck. Not only is this lack of vision risky for the company’s survival, but employees who work at such a directionless place suffer from low motivation and a sense of purposelessness in their work. Over time they leave and move on or simply look for ways to do as little as possible and still collect a paycheck. Most people want to go somewhere and know that someone competent–a good leader–is taking them there.

The cost of a lack of a compelling vision can be difficult to measure because it is hard to know “how much better things could have been.” However, we can attempt to prove the value of a visionary leader by looking at what happens to the stock price of a publicly traded company when a key leader joins or leaves the corporation. After Steve Jobs resigned from his chief executive role at Apple in 2011 the stock immediately dropped 3 percent. 3 percent may not sound like much, but it represents a decrease of about $10bn of the company’s value. What did that $10bn represent? What did Steve Jobs actually contribute to the company, some might ask, especially as he had notoriously bad people skills and wasn’t much fun to work with. In a sense, that $10bn represents intangible value that investors attributed to Steve Job’s ability cast a compelling vision that would excite Apple’s loyal customers and that Apple’s employees would be inspired to work very hard towards.

3. Bad leadership leads to dysfunctional teams.

This means that people are in the wrong roles, some people who shouldn’t even be in the organization poison it from the inside, and opportunities for synergy are squandered. The workplace becomes full of dissonance and productivity and creativity plummet.

Executive coaching, then, can be understood as an investment an organization makes to minimize and lower the risks of costly failure of leadership. Leadership is a huge responsibility and it makes sense that executives are increasingly seeking out coaches to help them hone their people skills, create and cast compelling visions employees can feel good getting behind, and build teams that people love to work in.

 

3 Comments
  1. Sarah Gemmen May 13, 2013 at 3:06 pm

    Great article Ray.

  2. Bob Cowper May 13, 2013 at 10:01 pm

    Great blog Ray. Thinking of you brother. Look forward to reading more.

  3. Tara Howe May 13, 2013 at 10:48 pm

    Ray, good article, to add to your point about leadership, a person doesn’t necessarily need to be “in charge” to be a leader. My motto is “lead by example”, whether you are line worker sweeping the floor all day or the owner of an organization, there are daily opportunities to motivate and lead by example. Also, when it comes to vision, the leader needs to live and breathe the vision as well in order for it thrive (they need to hold themselves accountable as well as the employees).

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