Pursuit of whose happiness? Transformational leaders and personal values

September 22, 2010

What does it take to be an effective leader of a corporation? What must a chief executive officer do to energize employees and inspire them to go beyond what is normally expected? How does a CEO motivate employees to truly commit to a company?

Management experts have identified a concept known as transformational leadership as one important factor in motivating employees. Transformational leaders have a vision for their organizations and they express that vision passionately to their followers. They encourage their followers to forego self-interest for the sake of the larger group, whether it is a work team or the entire company.

But a study of corporate leaders in China found that transformational leadership may not be enough if a key ingredient is missing: a CEO who holds the right internal values.

Mid-level managers are likely to rally around their company only if their CEO truly values the interests of the organization and is not motivated primarily by self-interest, according to the study by W. P. Carey School of Business Management Professor Anne S. Tsui, Ping Ping Fu of the Chinese University of Hong Kong, Jun Liu of Renmin University of China, and Lan Li of Chinese Entrepreneur Survey System.

"People can see your values based on your actions, your behaviors, your words, how you make decisions, and what decisions you make," Tsui said. "In other words, you really can't hide your values from other people."

Measuring values and commitment

Using both face-to-face interviews and self-administered surveys, Tsui and her colleagues examined the external leadership behaviors and internal values of chief executive officers at 42 companies in China. The researchers also surveyed middle managers in those companies to gauge their attitudes and especially commitment, toward the firms. Some 605 middle managers and 177 higher level managers, as well as all 42 CEOs of the firms, were included in the study, which took five years to complete.

In companies in which chief executives with transformational leadership behaviors valued above all the interests of the company and people -- both inside and outside -- middle managers demonstrated strong commitment to the companies and said they were unlikely to look for jobs elsewhere. But where transformational CEOs placed the highest values on personal fulfillment, the middle managers below them were less committed to the firm and more likely to seek positions outside the company.

"We have provided data to show that when you don't have the right kind of values in that position, even if you are a transformational leader, you really can do damage to the company," Tsui says. "Middle managers just don't commit to the company when they see incongruence between their CEO's leadership behavior and the CEO's internal values."

The findings of the project were published recently in an article entitled "Pursuit of Whose Happiness? Executive Leaders' Transformational Behaviors and Personal Values," in the June 2010 issue of the journal Administrative Science Quarterly, published by Cornell University's Johnson School.

CEO values and the financial crisis

The notion of transformational leadership -- the ability to motivate followers and enhance their morale and performance for the good of an organization -- has become an important concept in the social sciences in recent decades. Introduced by the political scientist James MacGregor Burns in 1978, the concept of transformational leadership has been applied and expanded upon by scholars in management science and organizational psychology.

The concept has taken on new significance in the United States since the global financial crisis exposed weaknesses in corporate leadership. Critics have complained that one factor in the crisis may have been that the leaders of certain financial firms -- some of them highly transformational in their leadership approach -- were looking primarily to enrich themselves.

China was chosen for this study, in part, because there is a strong expectation in Chinese culture that leaders will be oriented toward the interests of the group, the researchers state in the journal article. Confucian precepts, as well as Communist ideology, encourage expectations about leaders' values, according to the authors.

"People do look up to the leader and they derive pride from who they follow," Tsui said. "Leadership effects are stronger in China than in some other countries. Also, China is an important country to understand."

The values behind transformational leaders

By questioning high level officials in the companies, the researchers determined that the CEOs included in the study had demonstrated transformational leadership behavior. The researchers next wanted to discover whether the internal values of the executives supported their transformational leadership behaviors.

The researchers measured the values of the executives in two different ways. First, the CEOs were given stacks of cards, each of which had written on it statements representing certain values. The CEOs were told to sort the cards in order of importance, the extent to which the value was a guiding principle for their decisions and actions.

The second method involved lengthy, far-ranging interviews in which the executives discussed their jobs, their backgrounds, the purpose of their leadership, and important goals in life. Words used by the CEOs that indicate values were coded, allowing the investigators to categorize CEOs by their values.

Some CEOs talked about the importance of the company as their highest value, while others discussed personal happiness or the well-being of their families.

"Many of the CEOs in this sample do, in fact, care a lot about other people's happiness: employees, customers, and society," Tsui said. "They see bringing success to these groups as part of the definition of their personal success. Another group of CEOs defined their life goals as bringing success to themselves, whether it's their own financial success or their reputation or making good friends or feeling happy."

Tsui said there are more CEOs with other-oriented values than CEOs with self-interested values. "We also must point out that no one has pure type of values. Everybody has a little bit of both. It's a matter of proportion."

To describe the transformational behaviors of the CEOs, data from top managers was used. This research design avoided the problem of bias that would exist if CEOs reported their own values and describe their own behaviors.

What CEOs say, what middle managers hear

The researchers surveyed middle managers to determine how committed they are to their organizations and whether they have strong intentions to leave their companies. They surveyed the middle managers twice, 18 months apart, to make sure the results are valid and can hold up over time. The design of the study controlled for demographic variables such as age, gender, education and tenure. By controlling these factors, the researchers assured that the only factors influencing commitment are CEO's leadership behaviors and CEO's personal values.

Analyzing the data, the researchers found that middle managers' dedication to their companies was strongly correlated with the values held by their transformational CEOs. The more self-transcending the transformational executive (oriented toward others' happiness), the more likely the middle managers were to be committed to the firm and not consider working elsewhere. The more self-enhancing the transformational CEOs (oriented toward their own happiness), the lower the middle managers' commitment.

To further test these findings, the researchers asked the middle managers about the values of their CEOs, to see if they could correctly assess the values of their leaders.

"We gave them a set of adjectives and asked them to choose the ones that best described their CEO," Tsui said.

The answers confirmed the findings on the CEOs' values. The middle managers appeared to have correctly assessed the values of their leaders.

Tsui said that the study underscores the importance of CEO values to companies. Those values affect the commitment of middle managers, and if that commitment is weak, the company can suffer, she said.

"When a company loses talented middle managers, it will eventually have consequences in terms of company performance," she said. "Most of the work is done by middle managers."

The study also suggests that the values of top executives should be considered when they are being hired or promoted, according to Tsui. "Do we really want those who are going after the shareholder value only (which also enriches the executives' own pockets), or do we want someone who can have a broader perspective of the value of the firm to society, which involves caring for others' happiness?"

Bottom Line:

  • The values of CEOs are under new scrutiny since the financial crisis. Critics contend that the problems of some firms were caused, at least in part, by reckless executives pursuing personal gain.
  • Transformational leaders motivate by having a vision for their organizations and by encouraging their followers to forgo self-interest for the interest of the organization. But a research study of Chinese CEOs found that executives can demonstrate transformational leadership behaviors while holding very different values.
  • The values of the chief executive of a company are important to how committed middle managers will be to the company, the study found. Middle managers are less likely to be committed to their jobs in companies in which the CEO is transformational in behavior but holds self-interested values.
  • A CEO's values can have an important effect on a company's performance. If middle managers are not committed to their companies, firms can suffer the loss of middle management talent or commitment.