Do bosses matter?
Economics writer and self-confessed Marxist Chris Dillow asks “do bosses contribute to company performance?” He then argues that it’s not clear that they add anything.
Take Terry Leahy, CEO of [UK retailer] Tesco. He’s probably the most respected FTSE 100 boss. So you’d expect Tesco’s performance to be much better than its competitors. Is it? Well, these figures show that in 2005-06, Waitrose [UK staff trust-owned retailer] made a profit of £11,830 per full-time equivalent worker. Figures here suggest Tesco’s profit per worker was £8350. Leahy’s allegedly superior management nous doesn’t translate into obvious out-performance of a worker-owned competitor.
However, I suspect Chris is guilty of letting his prejudices influence his analysis. [Although I must admit,] assuming it’s the right measure, a 42% edge in profit/worker sounds significant to me, Waitrose has a boss too, and most so-called partnerships still elect a leader.
Other factors can also come into play. A bad boss may be mitigated by a good business, good decisions by predecessors, favourable market conditions, or good luck; and a great boss may be struggling with a bad business, bad decisions by predecessors, bad market conditions or bad luck. Large listed companies often have some scale and momentum which mutes the impact of a single person. What about smaller listed firms and private companies?
Chris continues his argument by asserting that “the average company - by definition - has an average boss.”
Clearly, as a ‘boss’, I’m biased, but I think that the process of getting to be ‘boss’ is a Darwinian selection process, i.e. the average boss is a better boss (whatever that means) than the average person. Note I didn’t say a better person than the average person! That doesn’t mean all bosses are good, by any stretch of the imagination, but a) you’ve got to have some ability to get to be boss ahead of your rivals, and b) bad bosses rarely survive long, and mediocre ones not much longer (unless they own the business).
Anyone who’s worked for a great boss or a bad boss knows they make a difference - and it usually shows up in the results. Most boards and workers know empirically that a bad boss is bad for the company, and that a good boss is better than a bad boss. Bosses matter - for better or worse.
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August 31st, 2007 at 5:49 pm
Indeed Chris’ comments do sound rather extreme. However, when taken in context, he astutely provides a clear and precise analysis of the capitalist superstructure that dominates the framework of western political, economical, and societal development. Perhaps you too are guilty of a bias, in respect towards capitalist structures?
September 1st, 2007 at 4:41 pm
I think the example of a single sample is pretty insignificant, but there are certainly other studies that have shown the complete absence of correlation between boss remuneration and the performance of their organisations.
What ever the process of selection for bosses, I’m not convinced success in selection correlates with success in performance. From your own words, “A bad boss may be mitigated by a good business,” and vice versa.
Yes, my empirical experience is that bosses make a difference, but not necessarily always positively, neither in the conduct or success of businesses.
Its odd though, that its thought that aligning the interest of bosses, usually through the impressionable stock market and shares in the company, is expected to incent bosses, but staff owning a company, as in the example, isn’t.
The hierarchical management model is a legacy of poor information availability and communication, along with some human limits that don’t scale well. Future successes will come from co-ordination of all of the potential contributor’s, even including customers, not from the head of a single, superlative individual.
September 1st, 2007 at 6:42 pm
I don’t think this debate is about the deserved or undeserved remuneration of bosses,just on whether they make a difference - good or bad.
Personally, I’m a big fan of staff having the chance to own a piece of the business, whether purchased or earned through reward sharing. Unfortunately, securities regs can make that unnecessarily hard in unlisted companies, assuming (big assumption) that owners are prepared to sell them that piece.
September 3rd, 2007 at 12:42 pm
Sure bosses matter but do they deserve the rewards they often get? that is debatable. Should Ralph Norris be picking up $10m in his first year in the job?
Bosses do make a difference in that they can allow an organization to function efficiently or not as the case may be. As Hamish notes bosses tend to be part of a hierarchical system which i believe is now due for a shake up. Whether a Maverick model is best or not i think organisations can self organise once their purpose is clear.
Chris is coming at this from a traditional marxist perspective which is about power whereas i am approaching this from a systems perspective which is about efficiency and feedback.
So i believe bosses will have less importance as we go forward with boards integrating with workers and workers becoming owners until its all one system!