Leadership and the Bottom Line

Michael Gallagher, .

Canadian flag with business peopleBack in the 1970s, George Graen and colleagues developed the leader-member exchange (LMX) theory, which emphasized the importance of “dyadic” relationships between a leader and his/her subordinates rather that the leader’s personal traits, as had traditionally been the focus of academic studies. They found that high-quality, one-on-one relationships, leader to leader, and the “subordinate dyad” led to better performance, lower turnover, job satisfaction, and greater commitment to the organization.

“Effective workplace leadership is not a touchy-feely initiative; rather, it is essential to the long-term health of an organization. In other words, it’s good for the bottom line.”

More recently, the Development Dimensions International’s Global Leadership Forecast 2011 revealed a great sense of inefficacy among executives and human resources professionals. Over half rated their leadership development programs as less than effective. What is the problem? In many cases, it is because the companies do not want to spend the time, money, or manpower it takes to build effective programs. And it does cost a lot of each. But what kind of return on investment does it bring?

Of the companies that rated their leadership development and talent management programs as “excellent,” 78 percent had better quality performance and financials than competitors. Almost 80 percent of the companies that felt they did a good job in preparing leaders saw an actual increase in their bottom line. While correlation does not equal causation, it is a fascinating statistic and one that certainly indicates that leadership is crucial in not only creating a positive workplace atmosphere but in producing real, measurable financial benefits.

Canadian Business and Knightsbridge conducted a survey of executives to determine which companies had the most effective leadership programs. GE Canada (not part of the DDI survey) was ranked among the top; leadership, according to the survey results, “is actively cultivated and an integral part of the firm’s business practices.” GE Canada also managed to increase revenue by 14 percent year-over-year, and reports global assets of US$781 billion. Does one fact have to do with the other? Yes; leadership is inextricably linked to results, good or bad.

Implementing some of the ideas mentioned here can be challenging. If you would like to discuss them in the context of your own specific business please contact us. We’d be glad to help.

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Michael Gallagher

Mike Gallagher, President of Michael Gallagher Advisory, has spent the past 20 years helping small business owners and managers develop and implement strategic business plans, achieve sustainable, targeted growth and solve the problems that keep them up at night.