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Joint study shows execs who look beyond profits can improve bottom lines

February 16, 2007

Arizona State University and Thunderbird have partnered on a research study showing that executives who look beyond profits can improve their bottom lines.

Based on collaborative research by Arizona’s top business schools, this study of leadership and company performance uncovers the effects of leadership driven by profits, cost control, and maintaining market share, versus leadership driven more by balancing employee relations and development, customer or client needs, and the welfare of the greater community.

Together, Mary Sully de Luque, assistant professor of Management and Research Fellow at Thunderbird School of Global Management and David Waldman, director of the Center for Responsible Leadership at ASU’s School of Global Management and Leadership, have found that maintaining a specific focus on profits in decision-making can have negative effects on how a leader is viewed. 

Often, executives emphasize profits thinking that their decisions will predominantly benefit their constituents, the shareholders. However, this study discovered that leaders who balance a wider range of stakeholder needs are more likely to be viewed as visionary leaders, and these leaders have a better chance of actually achieving profits.

Joined in the research by Nathan Washburn of ASU’s W. P. Carey School of Business, this complex study involved data from more than 40 academic researchers and examined nearly 500 CEOs and their organizations spread across 17 countries on five continents. These findings may serve as a blueprint for corporate leaders as they hone their management and leadership skills.

“CEOs with strong economics values tended to be viewed by followers as highly authoritarian, while not being viewed as visionary,” said Waldman, who has conducted interdisciplinary work involving colleagues from areas such as operations management, strategy, economics, information systems, accounting and finance. In this study, firms that are better performers, in terms of current financial results, employee optimism regarding the company’s future, and the extra effort that they are willing to put forward have CEOs viewed as visionary.

The 25-page study titled “Unrequited Profits: The Relationship of Economic and Stakeholder Values to Leadership and Firm Performance,” sought to determine if an emphasis on rational quantification and profit maximization is an optimal directive for executive decision-making. “Although executives should not disregard profit maximization and rational decision-making,” notes Sully de Luque, “it is advantageous for leaders to give attention to balancing the concerns of multiple stakeholder groups to make better decisions and successfully lead their organizations.”

“The most important implication of these findings is that top-level executives who give too much emphasis to rational, quantifiable outcomes inherent in economics theories may find their values go unrequited,” Washburn said. The research team noted that even though executives make decisions with profits squarely in mind, those profits may not be realized.

Based on these findings the report concludes that executives should not solely emphasize the pursuit of profits.  Instead it may behoove executives to emphasize values and vision that pertain to broader objectives and sets of stakeholders, which includes employees, customers or clients, and the greater community in which the firm exists.