RESULTS

CEO Leadership and Management Behavior

Using direct report and subordinate observations only (no self scores) measures of CEO leadership/management behavior (total N = 621), we discovered a series of significant partial correlations between those measures and Net Sales, Net Profit, Return on Investment (ROI), Annual Sales Increase and Five Year Profit Change. See Tables 1 and 2. We also found a number of significant interactions (frequency x quality) between CEO behavior and the financial performance of the organization. See Table 3.

TABLE 1

Significant Partial Correlations of CEO Behavior & Organizational Financial Performance

Controlled: Business Marketing Area, Business Age, Current Development Phase, Industry, CEO’s Desired Development Phase

CEO Behavior Frequency of Behavior

Net Sales

Net Profit

ROI

Annual Sales Incrs

5-Year Profit Chg

Communication

.17 p<.001

   
Customer Relations    

.14, p<.003

   
Employee Development    

.16, P<.001

 

.10, P<.03

Ethics Culture

.10, P<.02

       
Financial Management        

.11, P<.03

Human Resources    

.11, P<.03

   
Business Knowledge

-.09, P<.03

 

.15, p<.003

   
Leadership Stature

.15, p<.001

       
Listening

.13, p<.002

       
Marketing    

.21, p<.001

 

.09, p<.05

Motivating Others

.12, .<.003

       
Organizing

.10, p<.01

       
Planning/Goal Setting    

.12, p<.02

   
Problem Solving    

.13, p<.009

   
Sales    

.14, p<.004

   
Self Motivation

.09, p<.04

   

.11, p<.03

 
Vision  

.12,p<.005

.23, p<.001

   

 

Companies with higher reported Net Sales, Net Profits, and higher rates of Return on Investment (ROI), had CEOs who scored higher on Vision, Ethics, Human Resource Management, Leadership Stature, Quality of Delegation, and Quality of Organization, etc. See Figures 2-7. We also discovered that CEOs frequently scored themselves higher both in frequency and quality of the behavior than did their direct reports and subordinates. Examples are Adaptability, Delegating, Employee Development, Motivating Others, Listening, and Leadership Stature. See Figures 8 & 9.

Management Team

We found that team adaptability had a significant partial correlation (controlling for business age, current development phase, industry, marketing area, and desired development phase) of .13, p< .05 with current company profit. In addition we also discovered that Adaptability, External Communication, Innovation and Performance Monitoring all had significant partial correlations with return on investment (ROI). See Figure 10.

Management teams in organizations with above-average levels of profit reported significantly higher levels of team Structure, Morale, Performance Monitoring, Innovation, Coordination, and Adaptability. See Figure 11. However, when we controlled for Industry, Business Age, Marketing Area, and Phase of Development we did not find these same factors to have significant partial correlations with profit. We did not find any significant correlates of management team behavior with organizational profit. Unlike our other findings this result may represent a Type One Error and should be interpreted with caution. We also did not find any relationship with five year profit change.

TABLE 2

Significant Partial Correlations of CEO Behavior & Organizational Financial Performance

Controlled: Business Marketing Area, Business Age, Current Development Phase, Industry, CEO’s Desired Development Phase

CEO:
Quality of Behavior

Net Sales

Net Profit

ROI

Annual Sales Incrs

5-Year Profit Chg

Adaptability

.09, p<.04

       
Communication  

.08, p<.05

.15, p<.002

   
Customer Relations    

.10, p<.04

   
Delegating  

.11, p<.01

 

-.12, p<.02

 
Employee Development  

.09, p<.04

.14, p<.005

 

.10, p<.03

Ethics Culture

.13, p<.001

.11, p<.001

     
Human Resources  

.09, p<.04

     
Business Knowledge

-.08, p<.05

 

.12, p<.02

-.14, p<.006

 
Leadership Stature

.18, p<.001

       
Listening

.13, p<.001

       
Marketing    

.16, p<.001

 

.09, p<.04

Motivating Others

.11, p.<.007

       
Organizing

.13, p<.002

.14, p<.001

     
Planning/Goal Setting    

.12, p<.01

   
Relationship Building

.12, p<.004

       
Sales      

-.13, p<.01

 
Self Motivation

.13, p<.002

   

.11, p<.03

 
Vision  

.12, p<.003

.17, p<.001

   

 

Organizational Culture

We identified a series of significant relationships between frequency of behaviors in organizational culture and company financial performance. Certain factors such as Customer Satisfaction, Downward Communication, Job Design, Performance Facilitation and Work Group Performance had significant partial correlations with company profit at a p<.001 level or higher with other reasonable factors influencing profit controlled for (industry, company age, current phase of organizational development, marketing area).

TABLE 3

Significant Partial Correlations of CEO Behavior & Organizational Financial Performance

Controlled: Business Marketing Area, Business Age, Current Development Phase, Industry, CEO’s Desired Development Phase

CEO Behavior Interaction Frequency X Quality

Net Sales

Net Profit

ROI

Annual Sales Incrs

5-Year Profit Chg

Communication    

.15, p<.002

   
Customer Relations    

.11, p<.02

   
Delegating  

.13, p<.003

 

-.11, p<.03

 
Employee Development  

.09, P<.03

.15, P<.002

   
Ethics Culture

.12, P<.003

.09, P<.04

     
Financial Management        

.09, P<.05

Human Resources  

.10, P<.02

     
Business Knowledge    

.12, p<.01

-.11, p<.03

 
Leadership Stature

.15, p<.001

       
Listening

.11, p<.008

       
Marketing    

.17, p<.001

 

.10, p<.02

Motivating Others

.09, p.<.02

       
Organizing

.12, p<.003

.15, p<.001

     
Planning/Goal Setting      

-.11, p<.03

 
Relationship Building

.08, p<.05

       
Sales    

.11, p<.03

 

.10, p<.03

Self Motivation

.10, p<.02

       
Vision    

.16, p<.001

   

 

 

 

Many of the same factors positively correlated with profit of the organization were negatively correlated with annual sales increase. Thus, the quicker the growth, the lower the

level of many key factors associated with organizational profit (Table 4). We also found that organizations with higher levels of net sales, net profits, and return on investment, had significantly higher levels of most of these same behaviors (See Figures 12-14).

TABLE 4

Significant Partial Correlations of Organizational Culture and Financial Performance

Controlled: Business Marketing Area, Business Age, Development Phase, Industry, CEO’s Desired Development Phase

CEO Behavior Frequency of Behavior

Net Sales

Net Profit

ROI

Annual Sales Incrs

5-Year Profit Chg

Communication Across    

.09, p<.064

-.12, p< .018

 
Challenge Up

.09, p< .022

       
Conflict      

-.11, p< .029

 
Customer Satisfaction      

-.16, p< .001

.09, p< .046

Downward Commun.

.09, p< .025

.13, p<.003

 

-.16, p< .001

 
Performance Feedback  

.09, p .029

     
Getting Adequate Info

.10, p< .011

       
Job Design  

.15, p<.000

 

-.14, p< .006

 
Job Pressure  

.18, p<.000

 

-.12, p< .015

 
Job Satisfaction  

.09, p<.027

     
Leadership Confidence      

-.10, p< .038

 
Openness to Change  

.09, p<.032

     
Organizational Integration  

.12, p<.003

 

-.17, p< .001

 
Performance Facilitatn  

.14, p<.001

.11, p<.016

   
Planning  

.09, p<.035

 

-.11, p< .034

-.10p< .031

Product Quality  

.12, p<.006

.11, p< .023

-.19, p< .000

 
Recognize Performnce

.10, p< .014

   

-.10, p< .043

 
Rewards/Social Justice

.13, p< .001

       
Selection      

-.21, p< .000

 
Training & Develpmnt

.15, p< .000

       
Trust      

-.11, p<.035

 
Vision    

.10, p< .045

-.13, p< .012

 
Openness/Vitality    

.11, p< .020

   
Work Group Processes  

.17, p<.000

     
Delegating

.08, p< .044

.10, p< 020

     

 

 

 

 

 

Correlations Across The Three Surveys

We found that the measurement scales correlated across the three surveys. Thus, CEOs with higher levels of leadership/management behavior (frequency and quality) had correspondingly higher levels of management team functioning and organizational culture. This finding is robust due to the fact that in most cases we used different rater pools for each of the surveys. Also, except for the CEO, all raters were blind to the collection of financial data and any link of the data to the organization’s financial performance (Table 5).

TABLE 5
Examples of Correlations Across Surveys

CEO Vision and Vision Clarity in the Organization

CEO Delegating and Delegating in the Organizational Culture

CEO Planning and Planning in the Organizational Culture

CEO Leadership and Leadership in the Organizational Culture

.28 p<.001

.22 p<.001

.25 p<.001

.24 p<.001

Management Team Morale and Trust in Organizational Culture

Management Team Innovation and Openness to Change in Organizational Culture

Management Team External Communication and Communication in Organizational Culture

Management Team Effectiveness and Wk. Grp. Effectiveness in Organizational Culture

.27 p<001

.19 p<.001

.18 p<.001

.17 p<.001

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1997 Babson College All Rights Reserved
Last Updated 1/15/97 by Geoff Goldman & Dennis Valencia

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