Business Leadership Today

What’s the ROI of a Great Leader? How Effective Leaders Benefit a Business


Jeff Skipper, Contributor

When I joined IBM 25 years ago, I was eager to contribute and have an impact. Having recently completed a master’s degree in organizational psychology, I knew what did and did not work for selecting new employees. Getting it wrong is very expensive. 

I was working with a leader purchasing an employee selection tool based on personality testing. Research clearly showed that it would not give him the results he wanted. I shared my knowledge in the spirit of helping. 

What I received was an angry blast amounting to, “Who do you think you are to tell me what to do?” It scared the crap out of me. 

What do you think that did to my performance? Fearing a repeat of that type of feedback severely restrained what I would contribute to IBM for the entire 12 years I worked for Big Blue.

This is no isolated incident. I constantly hear about leaders who abuse their power and continue to rule by threat and punishment, valuing compliance over commitment. They don’t realize the productivity and profit they are leaving on the table. 

This behavior indicates that a leader is not effective because they are not aligned with the organization’s goals. This kind of leadership tends to demotivate employees, which ultimately leads to disengagement and low retention rates. This is a costly mistake for any business.

Effective leaders benefit a business by keeping employees consistently motivated and productive through coaching, collaboration, and empowerment. This results in top performance, greater profitability, and improved engagement and retention. 

In this article, I’ll delve into the top mistakes businesses make and how to steer clear of them.

Your Investors Are Watching

Igor Bekker founded 42KM Investment Partners Ltd. He described it as a culture-led investment firm. Why would he choose where to put his money based on culture? Because he knows that culture—as evidenced by the behavior of its leaders—indicates whether an organization will implement its strategy successfully.

In an interview with the Financial Post, Mr. Bekker identifies some indicators that tell him whether leaders are out of step with their strategy or staying the course. Here are a few: 

  • Stewardship mentality: Honest and capable leaders seeking to pass on a stronger enterprise to the next generation.
  • Directional consistency: Values and purpose remain consistent over long periods and match how people are treated.
  • Plain, common-sense language: Investor communications that are free of corporate jargon; management mistakes are acknowledged with honesty and humility.

McKinsey & Co. recently published a study that analyzed the success of 1,800 organizations over nine years. They found that companies focused solely on performance did well, with an average profit of $400 million. 

However, companies that balanced a performance focus with a people focus fared much better, to the tune of $1.1 billion in average profit and significantly lower attrition!

What do those organizations’ leaders do differently? Coaching, collaboration, and empowerment. They invest in the development of their people.

The Cost of Bad Leaders

Have you heard the phrase, “People don’t leave organizations; they leave bad bosses?” It’s true. In a period of record-breaking job vacancies, people have had little incentive to remain with poor leaders, and so many have taken flight or left the workforce altogether.

Consider the cost of turnover. At a recent meeting with a client of mine, they made a rough calculation that they needed another $10 million in sales to cover the cost of high turnover. Recruiting and training new employees, coupled with the loss of institutional knowledge, amount to a hefty bill. 

What if employees stick with a poor leader? Gallup data gives another angle on the issue: “Having a bad manager is often a one-two punch: Employees feel miserable while at work, and that misery follows them home, compounding their stress and putting their well-being in peril.“ 

How much are employee benefits costing you? 

According to Mercer’s National Survey of Employer-Sponsored Health Plans, the average per-employee cost of employer-sponsored health insurance rose by 5.2% in 2023. A Kaiser Family Foundation (KFF) survey found that the average premium for employer-sponsored individual health coverage has risen 20% since 2016.

So, we know that poor leadership can reduce your returns. Let’s look at what you can do to generate massive returns from your leaders. 

Find the Fear

If you aren’t getting the performance you expect, start looking for fear. When leaders tell me people aren’t doing their best, I often find there is fear at work. 

Leaders are often unaware of how they contribute to a sense of fear. Here are several obvious sources:

  1. Attempts to help or improve are ignored or punished. There is nothing like public humiliation or the weight of silence to stifle any further attempts to get involved. When a leader blasted me, it was in front of a peer who didn’t know what to say afterward. No consolation and double the pain. Why would I do it again?
  2. When employees failed in the past, it was handled poorly. No one wants to repeat mistakes. We all make them. It’s a legitimate part of the learning process. But there’s a big difference between support and coaching and a look of disappointment on a leader’s face.
  3. The reward system reinforces the wrong behaviors. Leaders control the rewards. If performance appraisal ratings and relationships are driven by one’s ability to “keep your head down, and play the yes man,” then fear will keep employees from sticking their neck out. 

This is where leaders often need the help of a third party—an outside person or an external survey company with no vested interest in the business—who can collect honest, anonymous insights from employees. 

Mind Your Culture

Peter Drucker’s classic quote, “Culture eats strategy for breakfast,” remains true today. The unseen rules about how the organization works—what is and is not acceptable—direct behavior more effectively than the most innovative, rock-solid strategy. 

Culture is shaped by the company’s systems for hiring, onboarding, firing, setting goals, and measuring performance. But the style of its leaders is the most powerful driver of culture. Leaders communicate what is most important in every action they take. 

What culture do you want? If high performance is on the menu, it requires reviewing every aspect of leadership. Value statements are not enough. In fact, they are often only useful as an indicator of what leaders are doing wrong. 

Motivate Like a Master

We know that motivated individuals put in more effort and persist longer in the face of obstacles. The study by Adam Grant, which put call center workers in contact with the very students they were raising funds to support, is particularly persuasive. 

Call center work is a grind. People quit regularly. From his experiment, Grant recounts that “callers who had interacted with the scholarship student spent more than two times as many minutes on the phone [with potential donors] and brought in vastly more money: a weekly average of $503.22, up from $185.94.” 

That’s the ROI you can take to the bank. 

Few call centers bring the voice of the customer into the business. Isn’t that exactly what a great leader would do—find ways to motivate their employees? 

Great leaders discover what excites their people and then do everything to bring it to life. They extract high performance by building strong relationships based on trust. 

A client recently took time off to attend to the loss of a family member. She told the team I work with, “It’s too good to know I have nothing to worry about. The work is in your hands.” 

That’s trust. She earned it. And every member of that team, including me, will bend over backward to ensure she is covered.

Get Started

Not sure where to begin? Try out these practical steps:

Run exit interviews. Find out what they have to say about leaders.

Ask your new hires what surprised them about the culture. What was the difference between what they expected, what they were led to believe during recruitment, and what they experienced in the first 60 days?

Build a network of employees who are willing to give you unfiltered feedback. Meet with them regularly.

Start a conversation about the culture you want. Do it with your employees.

When leaders set the stage for motivation, for work without fear, and for a culture that excels, the potential returns are limitless.

Jeff Skipper is an expert in accelerating change. For more than 25 years, clients such as IBM, Suncor, Goldman Sachs, and The Salvation Army have engaged him to achieve dramatic results during strategic transformation by wrapping complex change in motivating missions. Jeff holds a Master’s degree in Organizational Psychology and is a Certified Change Management Professional. His book, Dancing with Disruption, was published in 2023.

Others Recent Articles and Podcast Episodes