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Lead Your Team Leadership

Should Managers Let Economics Drive Their Leadership Style?

Should Managers Let Economics Drive Their Leadership Style?
Credit: Monkey Business Images/Shutterstock

CEOs who use an authoritarian leadership style, in which they demand unquestioned compliance, see a more positive impact on their companies' performance when economic conditions are poor, compared with companies that use a transformational style, which focuses on motivating employees, according to a study recently published in the the journal Academy of Management Discoveries.

"In such a situation, authoritarian leaders, who reinforce discipline and obedience, can help followers and organizations to achieve operational efficiency and effective coordination, which are critical in harsh environments," the study's authors wrote.

The study was based on data from 102 subsidiaries of a major Chinese telecommunications company, so the results might not apply to all countries and industries. The research analyzed the interrelationship among several factors, including the economic conditions in the county where each of the subsidiaries operates, the extent of transformational or authoritarian leadership in each of these units and the performance of each subsidiary as measured in revenue growth.

To determine the type of leadership style executives in each company subsidiary were using, the researchers surveyed employees about their bosses. Transformational leadership was measured by how strongly they agreed with statements such as "paints an interesting picture of the future for our group," "inspires others with his/her plans for the future," "develops a team attitude and spirit among employees," "shows respect for my personal feelings" and "has stimulated me to rethink the way I do things." See also: DiSC Assessment: What Kind of Leader Are You?

Conversely, authoritarian leadership was measured by how much employees agreed with statements such as "always behaves in a commanding fashion in front of employees," "determines all decisions in the team whether important or not," "exercises strict discipline over subordinates," "scolds us when we can't accomplish our tasks" and "requires we follow his/her rules or we are punished severely."

The study's authors found that, in counties where economic conditions were poor, greater authoritarian leadership was associated with significantly higher performance in the following year, while greater authoritarian leadership was associated with significantly lower performance in counties where economic conditions were the strongest. 

"What our study suggests is that the best leaders have more than one style of leadership and adjust them based on circumstances," Xu Huang, a professor at Hong Kong Polytechnic University and a co-author of the study, said in a statement. "For example, we cite the case of Steve Jobs, who was as inspirational a leader as one can find but who resorted to an authoritarian approach when Apple was on the brink of bankruptcy."

The study was co-authored by Erica Xu of Baptist University of Hong Kong, Warren Chiu of the Hong Kong Polytechnic University, Catherine Lam of City University of Hong Kong, and Jiing-Lih Farh of the Hong Kong University of Science and Technology.

Chad Brooks

Chad Brooks is a Chicago-based writer and editor with nearly 20 years in media. A 1998 journalism graduate of Indiana University, Chad began his career with Business News Daily in 2011 as a freelance writer. In 2014, he joined the staff full time as a senior writer. Before Business News Daily, Chad spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including local and state government, crime, the legal system and education. Chad has also worked on the other side of the media industry, promoting small businesses throughout the United States for two years in a public relations role. His first book, How to Start a Home-Based App Development Business, was published in 2014. He lives with his wife and daughter in the Chicago suburbs.