Do bosses really matter?

4 minute read

brooke-cagle-g1Kr4Ozfoac-unsplashI’m betting that if you are a corporate boss, this may not be a question you’ve much pondered. After all, a) when it’s you in a role, its value is self-evident, and b) every company in the world has them.

On the other hand we also have viruses, mosquitoes and foot fungus, and I’m not sure we need those things. Biologists may quibble, but they don’t bring a lot of obvious value to the table that I can see.

And then there is the little matter of undeniably bad bosses, who have the ability to make life unbearable for those unlucky enough to work for them, and whose inept decision-making literally kills people and torches money.

If you haven’t yet read Sydney Finklestein’s The Seven Habits of Spectacularly Unsuccessful Executives, Norman Dixon’s On the Psychology of Military Incompetence or Tomas Chamorro-Premuzic’s Why Do So Many Incompetent Men Become Leaders I commend them to you.

It's really a very good question to ask. Where is the evidence that bosses add value, help the boat go faster and make work better for everyone? I suspect that millions and millions of people working on the front lines do wonder what, if anything, some of their bosses are good for.

Well there is some good news.

Starting at the top, have you ever wished the big boss dead? What happens to firms if bosses are involuntarily removed?

Research from Denmark examined more than 1000 cases of CEOs dropping dead in the executive suite between 1992 and 2003 (yes, really). The study looked across all types of firms and industries and found that losing the big cheese was generally bad news on the economic front – operating profit declined 11 per cent on average. In fact the negative effect on firm performance could be seen for three years after the CEO’s death.

The researchers also looked at the impact of deaths in the CEO’s family and found a reduced but still substantial impact for children and spouses. (Losing a mother-in law, however, produced a tiny uplift in performance). This suggests that CEOs are at least doing something important at companies.

Glancing further down the organisation tree reveals a more nuanced pattern. Stanford University researchers carefully studied the output of over 25,000 technology workers. Unsurprisingly, they found wide differences in worker productivity.

But here’s the thing: worker output depended in large measure on the person managing them. Swapping a poor boss for a better one increased group output about 12 per cent, which is the equivalent of adding another worker to a nine-member team.

That’s like the All Blacks being legally allowed to have 16 players on the field, all the time!

Even better, we know that in studies of individual life happiness, bosses play an outsize role.

Relationships with management are the top factor in employees’ job satisfaction, which in turn is the second-most important determinant of employees’ overall wellbeing.

The good news keeps on coming. Those bosses who display high EQ – who show good people management skills like communication, listening and interacting – reduce turnover. The more demanding the job, the stronger the boss effect.

In a study of department store sales, managers who demonstrated effective communication, gave feedback, encouraged innovation and created development plans saw a 50 per cent increase in sales.

Meanwhile, here in New Zealand, my firm has amassed a data set on the behaviour of over 6000 managers, as rated by their staff.

For the worst leaders, 90 per cent of their staff were disaffected and looking for work anywhere else. These managers distinguished themselves by ignoring their people, not setting goals with them and not giving feedback.

Well duh! We know as much as 30 per cent of total factor productivity differences across firms is due to using “modern” management practices like setting goals, monitoring and rewarding performance, design-lead and lean manufacturing operations.

Yet 75 per cent of all firms fail to train first-time leaders. The reason good bosses are more rare than hen’s teeth is because we do not bother to train them or keep them up to date.

Lastly, as long as we rely on face-to-face interviews as a hiring methodology we build in biases that puts a Manapouri-sized dam across the talent flow and ensures incompetent men are preferred as bosses.

A Stuff survey showed there are fewer female chief executives at NZX-listed companies than chief executives named Mark. A 2021 survey revealed Maori and Pasifika are absent from leadership roles in NZ firms (more than 80 per cent of executives and senior managers in NZ firms are Pākehā).

So while we can be confident that good bosses are of greater value than a foot fungus, firms will host parasites unless we take care to select, train and invest in building competent leaders.

Photo credit: Unsplash.com, Brooke Cagle