Magazine Spring 2013

Why Good Leaders Don’t Need Charisma

Think top executives have to have charisma? Think again.

Christian Stadler and Davis Dyer Reading Time: 4 min 

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Image courtesy of Flickr user World Economic Forum

Richard Fuld was the chairman and CEO of Lehman Brothers until 2008, when it filed for bankruptcy.

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.

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About the Authors

Christian Stadler is an associate professor of strategic management at Warwick Business School in Coventry, United Kingdom, and author of Enduring Success: What We Can Learn From the History of Outstanding Corporations (Stanford University Press, 2011). Davis Dyer is a founding director of Winthrop Group, a Cambridge, Massachusetts, consulting firm.

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Comments (7)
Muftah Muftah
Thank you very much.
I agree with you, it is not a good idea to link a company's great achievement to a specific CEO's trait or character. Jim Collin in his research found that those who led their organizations from a fairly long period of  a moderate financial performance to a long period of sustained greatness were quiet, humble and professional will.   Tom Peters has an opposite viewpoint, he insisted different circumstances need different leaders and different behaviors. 
Historically, behind the success of many private and public institutions there were people with different attributes and different characters including charismatic.
Thank you
Rosalie Puiman
Interesting article, thank you!
I do wonder though, what made you decide to chose 'charisma' as the leading term, Christian? It seems to me that by the definition above, only a tiny amount of managers will be called charismatic and I don't expect the winner's the title “Manager of the Year” would all be considered charismatic when using this definition.  

On the other hand, I believe that there're many more managers/leaders who inspire others to follow them and who are closed to contradictory ideas. They can all get their companies in big trouble because of this.

In others words: I believe that the message of your article could apply to a much broader group of managers and thus impact many more companies who would be wise to focus on serving leadership instead of a more authocratic approach.
John Chiu
Often times people confused a good speaker/motivator with a good leader.  
However in this article, the definition of a good leader seem to be a bit too narrow as they refer to the "intelligent conservatism", which they seem to paint as mere traditionist.
Robert Holland
Attempts to measure charisma do exist:

By Alex "Sandy" Pentland (MIT):
http://hbr.org/2010/01/defend-your-research-we-can-measure-the-power-of-charisma/ar/1

By Kenneth J. Levine (University of Tennessee), Robert A. Muenchen 
(University of Tennessee), Abby M. Brooks (Georgia Southern University):
http://www.tandfonline.com/doi/abs/10.1080/03637751.2010.499368
megat
good issues, something to think about.
Christian Stadler
Mait,
thanks for this question. Our work uses cases studies and therefore we do not measure charisma. Which does not mean that we have not thought about the concept carefully.  In our article we follow the famous German sociologist Max Weber and see charismatic superstars as ‘super-humans’ who have the seductive ability to turn employees into devoted followers. 

In The Theory of Social and Economic Organization the German Sociologist Max Weber defined charisma the following way: Charisma is a certain quality of an individual personality by virtue of which he is set apart from ordinary men and treated as endowed with supernatural, superhuman, or at least specifically exceptional powers or qualities. These are such as are not accessible to the ordinary person, but are regarded as of divine origin or as exemplary, and on the basis of them the individual concerned is treated as a leader.

Christian Stadler
Mait Raava
How do you measure charisma?