Does Good Leadership Increase Profit?

Does Good Leadership Increase Profit?

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Over more than 30 years, international research firm, Gallup, has conducted research involving more than 17 million employees on the degree to which they are emotionally committed to their company’s goals.

Among the findings:

  • Engaged employees are more productive, more profitable and more customer-focused.
  • Actively disengaged employees erode an organisation’s bottom line, to the tune of more than $300 billion annually in the
    US alone.
  • Companies that actively engage employees in their operations have almost four times the EPS growth rate, compared with organisations in the same industry with lower engagement.

Related: Why Leaders who Trust, Grow Better Businesses

The Operating Principles

“I’ve done plenty of research on the different ways organisations are run, and how you engage people in contributing to their success,” says Bill Pasmore, senior vice president at the Centre for Creative Leadership.

“I’ve found that leaders who make choices to operate in a more participatory way – who operate on principles of high engagement, versus bureaucracies that treat people as if they were cogs in a machine – see a 30% improvement in performance.”

The Best 10 and the Worst 10

In their 2009 report How Extraordinary Leaders Double Profits, Jack Zenger, Joe Folkman and Scott Edinger cite a study they conducted for a Fortune 500 commercial bank. After a lengthy assessment, they divided the bank’s leaders into the best 10% and the worst 10%, finding that:

 

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  • More than 50% of employees who thought about quitting reported to leaders in the bottom 10%. Slightly more than 15% who thought about quitting reported to the top 10%.
  • The worst leaders’ departments experienced average annual net losses of $1,2 million, while those of the best leaders netted profit of nearly $4,5 million.
  • About 37% of employees led by the bottom 10% said they were satisfied with their pay. Nearly 60% who said they were satisfied with their pay were led by the top 10%.

The happier employees weren’t necessarily being paid more by leaders in the top 10%, the authors said: “They are often living proof of the old saying, ‘You can’t pay me enough to work for that person.’”

Creating prosperity

Good leadership has an undeniable business value, confirms Tasha Eurich, a psychologist, Fortune 500 executive coach and author of the 2013 book Bankable Leadership: Happy People, Bottom-Line Results, and the Power to Deliver Both.

“Good leaders create prosperity, and it’s not defined just by money, but by the emotional health of their employees. Good leaders treat employees as humans and appreciate them by creating an environment people want to be in,” Eurich says. “Good leadership creates happy employees, who create happy customers and, ultimately, happy shareholders.”

Related: 8 Questions Business Leaders Should Ask Themselves Every Day