Why Good Leaders Don’t Need Charisma 03-24

Reproduced from MIT Sloan Management Review

Why Good Leaders Don’t Need Charisma

Think top executives have to have charisma? Think again.

When you read the business press, it’s easy to get the impression that all you need to do to make your company great is add a charismatic CEO. Find the next Steve Jobs, Jack Welch or Phil Knight and you’re halfway home.

And maybe you would be — if you happened to sign that one-in-a-million leader.

The problem is that, among charismatic executives, for every Steve Jobs, there is at least one Dick Fuld — maybe more. Persuasive and strong-minded, Fuld presided over the downfall of Lehman Brothers. Nor is Fuld alone: Six out of 18 of Germany’s most recent winners of the title “Manager of the Year” were responsible for dramatic missteps, including Daimler’s disastrous acquisition of Chrysler Corp. under CEO Jürgen Schrempp. That raises a question: Do charismatic business leaders typically outperform their more ordinary counterparts over the long run?

The Downside of Charisma

The simple answer is no. In a study of 100-year-old European corporations, we found that leaders of the higher-performing companies were often not charismatic — and were, in fact, less likely to be charismatic than the leaders of the lower-performing companies. The problem with charismatic leaders is that exceptional powers of persuasion make it easy for them to overcome resistance and opposition to their chosen course of action. If your company is heading in the right direction, a charismatic leader will get you there faster. Unfortunately, if you’re heading in the wrong direction, charisma will also get you there faster.

Take the case of Michael Frenzel, the CEO of TUI AG, Europe’s largest travel agency. When he came into office, the company was a conglomerate primarily focusing on commodities and steel. He was convinced that these businesses had no future, but he saw great potential in tourism. To set the radical reorientation in motion, the charismatic Frenzel acquired Hapag-Lloyd AG, a shipping and logistics company with a stake in a German travel agency. Divestments of commodities and steel in subsequent years provided sufficient cash to expand the tourism business, including the acquisition of Thomson Travel Group. While the spun-off steel business generated 270% return to its shareholders from 1997 to today, TUI shareholders saw their investment decline by almost 60% over the same 15-year span.

The problem with charismatic leaders is that exceptional powers of persuasion make it easy for them to overcome resistance and opposition to their chosen course of action.

Another Way to Lead

Fortunately, there is a surer way to lead successfully. In our study of the leadership and strategy of 100-year-old European corporations, we found a different style of leadership was far more common among companies that have achieved enduring success — something that we call “intelligent conservatism.” Occasionally, charismatic leaders pop up, but for the most part, this group has succeeded by listening to their people and relying on old-fashioned industry expertise.

Listening takes time, and yet it ensures that an organization not only is on board but also engages everyone in the process — producing more solid results in the long run and leading to less reckless strategic shifts. It also helps leaders to gain an understanding of new lines of business as they develop. At Glaxo, for example, top executives displayed a keen interest in learning from their scientists when the company started the transition from being a producer of milk powder to becoming a drug company in the 1920s. At Lafarge, a manufacturer of building materials based in France, we were able to document the determination of managers to learn from their staff as early as 1833. Léon Pavin de Lafarge, the second leader of the young corporation, for example, spent considerable time at the plant to learn more about production from the workers, a practice that was picked up by some of his successors.

The second ingredient of intelligently conservative leadership is that it has an in-depth understanding of the corporation. In-depth knowledge of the organization makes it easier for the leader to form responsive networks and to find out what is going on throughout the enterprise. Not surprisingly, in our study of long-lived corporations, 97% of CEOs were promoted from within.

In fact, although charismatic outsiders are often brought in to reinvigorate a company, our study suggests that relying on homegrown talent does not not seem to lead to parochialism or to stunt company growth. On the contrary, the most dramatic and successful transformations of outstanding corporations happened at a time when leaders who had spent their entire career with the company gained control. Glaxo’s forerunner was transformed from a New Zealand wholesaler into a thriving British milk powder producer during the leadership of Alec Nathan. Sir John Bond was at the helm of HSBC when the corporate colonial bank turned itself into a global financial powerhouse. John Loudon, Royal Dutch Shell’s leader in the 1950s and 1960s, helped to overhaul the entire structure of the oil giant, creating a business model that generated growth for more than 30 years. These leaders succeeded because of — not despite — their long experience in their companies.

We don’t mean to imply that charisma is a calamity. A leader with a gift for being the center of attention can still have a very productive career. However, such a CEO is more likely to succeed if he or she spends more time learning and listening than cheer leading.

Reproduced from MIT Sloan Management Review