Do CEOs really matter when it comes to safety performance?
My curiosity was revived recently with a column1 by Eric McNulty for the strategy + business blog summarizing a recent research paper from The Leadership Quarterly.2 He focused on reviving interest in the benefits of a charismatic CEO, since he believed they had no effect.
What characterizes an influential “charismatic CEO”? Boehm, et al.3 list these qualities: “1) presenting a compelling vision, inspiration and enthusiasm that leads to motivation, commitment, and efforts on behalf of the organization; 2) expressing strong convictions and confidence in their employees abilities, empowering employees to increase their persistence and ability to overcome difficulties and obstacles; 3) through their vision, strong values, and role-modeling behavior they provide a focal point that increases intra-organizational integration; 4) behaving in a manner that increases the salience of the collective identity of the organization’s members leading to a willingness to make sacrifices for the organization; and 5) providing intellectual stimulation and a sense of collective efficacy and, by generating a high level of trust and confidence in their leader’s abilities among employees, charismatic CEOs help the organization overcome various forms of cognitive, motivational, and obligation inertia, deviate from the status quo, and make the necessary changes to better adapt to environmental changes.”
According to Boehm, et al., empirical research reveals a lack of evidence of a direct link between a CEO’s charisma and his/her firm’s performance. But they did find that CEO charisma could affect performance through creating a Transformational Leadership (TFL) climate and Organizational Identity Strength (OIDS). They write, “If organizations and their management cannot project a solid and unified [safety] identity for employees to follow, their [safety] performance seems to suffer due to the lack of a common point of reference [to safety].”4 I’ve taken the liberty to insert safety into this quote.
The researchers demonstrated a charismatic CEO who fosters a TFL climate can influence the firm’s overall OIDS, which can lead to producing results that lead to improved firm performance. Performance in this case was measured using company growth, financial performance, and return on assets.
The TFL climate results from leaders within the organization emulating the CEO’s leadership behaviors, taking into account their employees’ understanding of the CEO’s vision. Leaders encourage a sense of pride among employees to show commitment to the vision and exhibit a willingness to deliver extra effort.
Can you see where a charismatic CEO with a strong appreciation and commitment to the safety of his/her employees could foster a TFL climate among his/her direct reports? This safety commitment cascades down through the organization creating an OIDS of shared commitment to safety among employees, leading to improved safety performance.
This research not directly focus on safety per se, but on whether a CEO’s charisma, TFL climate and OIDS could influence a firm’s performance. I think the researchers validate a simple model that can offer organizations a means to view safety in a more transformational fashion, allowing safety to be woven into the fabric of the business versus being a separate activity as is so often the case.
Do great returns include safety?
While writing this column, the Wall Street Journal published an article on the compensation of 300 CEOs and the returns these CEOs delivered to their shareholders.5 I wondered if the top performing CEOs not only delivered great returns, but also delivered great safety performance for their employees.
The online Wall Street Journal provides an interactive graphic with 2014 data in a searchable format.6 Of course safety statistics are not found in the database, but you would think they would be found in these corporations annual sustainability or Global Reporting Initiative (GRI) reports. I sorted the list of CEOs by the “10 Highest Paid” and then looked for safety stats in their company’s sustainability report or on the GRI Sustainability Disclosure Database.7
The companies with the top 10 highest-paid CEOs in order included Liberty Global, Microsoft, Oracle, Qualcomm, CBS, Disney, Viacom, Prudential Financial, General Electric, and Actavis pic. Only three — Microsoft, Qualcomm, and General Electric — provided any sort of safety statistics that I could find.
Companies want to portray their best image regarding any of these data, but it is interesting how they go about doing it.
For example, Qualcomm states their recordables and lost-workday rates were less than 32% and 83%, respectably, of their industry; however, their numeric data reveals the company’s recordable and lost-workday rates have actually increased between 2012 and 2014.
Microsoft simply gives a recordable rate of 0.14 and a lost-workday rate of 0.02.
General Electric uses a chart to show declining rates since 1995, which appears to have plateaued around 2010. Of the top 10 companies, General Electric provides the greatest detail regarding their safety statistics, even though their recordable and lost-workday rates have increased since 2012 (recordables 0.25 to 0.38, lost-workdays 0.4 to 3.67, and 8 fatalities in 2013). The company notes the reasons (ergonomic issues and slip-trips-falls) for the increasing recordable and lost-workday rates and states what it is doing to address the increasing rates. General Electric was one of the top ten that showed a negative shareholder return for 2014.
I encourage you to review the Boehm, et al. research paper and the Wall Street Journal online compensation versus performance database. You can draw some conclusions and suggest approaches leaders in your organization could use to create a Transformational Leadership climate that will strengthen Organizational Identity and possibly lead to overall improvement in the firm’s financial and safety, health and environmental performance.
1 McNulty, E.J. Posted May 20, 2015. “Reconsidering the Charismatic CEO” on strategy + business blog.
2 Boehm, S.A., D.J.G. Dwertmann, H. Bruch, and B. Shamir. The missing link? Investigating organizational identity strength and transformational leadership climate as mechanisms that connect CEO charisma with firm performance. In The Leadership Quarterly. 26 (2015) 156-171.
3 Ibid. pp. 158.
4 Ibid. pp. 157.
5 Lublin, J.S. June 25, 2015. Parsing the Pay and Performance of Top CEOs. In the Wall Street Journal. New York, NY.
6 C. Canipe and S. Slobin. June 24, 2015. CEO Pay vs. Performance. Retrieved at http://graphics.wsj.com/ceopay-2015/
7 Global Reporting Initiative. Sustainability Disclosure Database. Retrieved at http://database.globalreporting.org/search