They’re Everywhere, But Do Bosses Really Matter?

Of the 3.5 billion working people there are (give or take), 1 in 12 are managers. Think about that. About 291,000,000 managers.

That’s a lot of bosses.

Bosses dominate the narrative of business, in the guise of leadership. Millions of leadership books assert that bosses are a fundamental particle in the physics of capitalist enterprise. Entire mythologies are woven around the transformative power of leaders, from Steve Jobs' ‘reality distortion field’ at Apple, to the (somewhat-tarnished) cold-fusion miracle of Jack Welch's constant profits at GE.

Every company in the world has bosses and when it’s you in the role, your value is self-evident. But what if we've been overestimating the importance of bosses all along?

Do bosses really matter?

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Quantifying the Boss Effect

If bosses do matter, then losing one should have an impact. Consider the case of a boss who is involuntarily extinguished. A study from Denmark examined over 1,000 cases of CEOs who died unexpectedly found that losing the big cheese was generally bad news on the economic front - operating profit declined 11% on average and stayed low for up to three years. The impact of deaths in the CEO’s family showed a reduced but still substantial impact (losing a mother-in-law, however, produced a tiny uplift in performance).

Zooming out, the consensus from hundreds of studies shows that the personality and behavior of your CEO accounts for between 5-10% of the difference in business outcomes. This suggests that CEOs are at least doing something important.

It may also be that lower level managers matter even more: evidence from a 23,000 person firm showed that replacing a poor manager with a highly skilled one increased team productivity by about 12% - which is about the equivalent of adding an extra team member.

And unsurprisingly gender makes a difference too. Adding women to top management or board positions produces a long-term uplift in performance, because they allow people to make their own decisions and apply a more rational approach to risk taking.

The good news keeps on coming.

Relationships with management are the top factor in employees’ job satisfaction, which in turn is the second most important determinant of employees’ overall well-being. Those bosses who display high EQ – who show good people management skills like communication, listening and interacting – reduce turnover. The more demanding the job, the stronger the boss effect. Add these things together and it’s clear good managers can make a big difference.

Which is what the world’s largest ongoing study of managerial practices shows that implementing basic management practices (like setting goals, monitoring progress, using incentives and training staff and leaders) makes an enormous difference – up a 25% boost to bottom line performance.

The Cost of Bad Bosses

If good bosses matter in terms of direct impacts on performance, the influence of incompetent or immoral leaders is much darker.

Research consistently shows that employees' relationship with their immediate supervisor is the single biggest factor in job satisfaction and engagement, but the bad news is that at any given point in time only 1 in 3 of us feel engaged at work. Worse, 50% of employees have left a job "to get away from their manager at some point in their career”.

And bad bosses can destroy enormous value: John Stumpf at Wells Fargo oversaw $29 billion of value destroyed; Jean-Marie Messier’s extravagant deal-making at Vivendi Universal torched $35 billion; Adam Neuman at WeWork burned $40 billion.

Bosses matter because good ones make work more pleasant and more successful; bad bosses matter too, because they don't just make work unpleasant, they drive away talent, erode organizational performance from within and through hubris can burn down the entire house.

Which really makes one wonder: why don't we have more good bosses?

How to Build Good Bosses

The only defence against bad managers is a good offence. Here are the four components of a good strategy to build good bosses:

The single most important action is to use a structured, scientific approach to selection. Too often, people are promoted to management positions based on their technical skills rather than their ability to lead people. Worse, hiring managers select and promote in their own image, or use unscientific and intuitive methods like interviewing. Modern scientific hiring tools are much better than chance in predicting leadership potential and performance.

Secondly, more than half the managers promoted to leadership received no prior training. A survey found that in any given year nearly 50% of managers receive no training. In the same way you wouldn’t agree to have brain surgery from an enthusiastic amateur, companies shouldn’t entrust millions of dollars and deep pools of human capital to untrained leaders. The methodologies of good management are very well known and described – train, train, train.

Poor selection and poor preparation is compounded by the third fact that many organizations spend the bulk of their training dollars on the most senior executives. Flipping this focus, and shaping effective leaders early in their careers is a much better strategy.

Finally, measuring leadership effectiveness by assessing the health, wellbeing and success of the team or business unit should be an essential for every organisation.

Bosses do matter – but perhaps not in the way we've traditionally thought. Their greatest impact lies not in heroic, top-down leadership, but in their ability to create positive environments where others can excel, and in promoting sound, basic management practices. As the 6th US President John Adams said: "If your actions inspire others to dream more, learn more, do more and become more, you are a leader."