The Economic Toll of Poor Leadership

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A quick search on Google, LinkedIn, The Harvard Business Journal, or any reputable business publication will provide a host of results about bad leaders. Back in 2017, Success.com published an article breaking down 11 types of ineffective leaders. In March 2020, TechWell.com referenced “absentee leadership” as the worst type of managerial style. As readers, we see these articles and gobble them up, imagining which managers from our past they’re talking about. In other words, we’ve all had our share of too many bad leaders.

Recently, when catching up with a former coworker, she told me some great news. As a hard-working single mom with two kids, she’s been passed over for several promotions as seemingly less-qualified candidates in her office were promoted. Even though her efforts were what was keeping her team afloat, her achievements weren’t being recognized.

In late 2018 she finally got her break — a promotion to a new department and leader. The jump in salary was significant, and because of her naturally high performing nature, her benefit to the company resulted in a bonus she said was “life changing.” Since that promotion, her new leader has mentored her and helped her grow. Once again, she’s being considered for a promotion.

This begs a few important questions: If a bad leader can prevent one person from being successful and experiencing career growth, what is the overall financial impact of bad leadership across the entire organization? What about society as a whole?

As a leader, can I have a positive impact on my team and my company simply by improving my leadership style? And can the ripple effect of my leadership improvements impact the surrounding community, beyond just my direct reports?

The answer is: yes.

In the previous example, we heard about a single mom who can now send her two kids to college. She now can afford health care and a 401k when she previously had to choose between retirement planning and her children’s school supplies. A change in leadership not only directly benefited the employee, but also impacted her family and — potentially — society at large.

In an article published by CompareCamp in May 2020, three key pieces of data stand out:

  1. There are an estimated 14.9 million Americans in management positions.
  2. Organizations believe that 40% to 60% of their leaders are “good.”
  3. Employees report that only 25% are getting what they need from their leader to be effective in their role.

If we combine the averages, we find that about half of our 15 million leaders could benefit from some form of leadership development training. That’s approximately 7.5 million “good” leaders and 7.5 million that range between “not great” and “horrible.”

Assuming a 10:1 ratio of team members to leaders, an estimated 75 million people in the US are working under poor or deficient leadership. That’s approximately twice the population of California.

Like any well-thought-out social program, good leadership has the potential to lift people up in a meaningful way and ultimately change their lives. The good news is this type of change doesn’t rely on politicians or policy — you alone can help make that change by growing your skills and helping upskill your leadership teams.

But how can companies raise the funds to properly compensate high-performing employees?

The answer is simple: by enabling leaders to be better and reducing turnover.

Gallup estimates that voluntary turnover costs US businesses approximately $1 trillion annually. According to Terra Staffing Group, full-time hourly employees cost nearly $4,000 per turnover while entry level jobs cost about $12,000 to replace. Manager and executive level replacements, on the other hand, cost $20,000 or more.

Poor leadership was identified as the driving force behind 70% of the workforce seeking a new job in 2020, greatly impacting businesses throughout the US. Adding insult to injury is the fact that the first employees to jump ship are typically highly skilled and marketable high performers. This leaves an even greater need for strong leaders who can manage the remaining team members.

With nearly five billion books on poor leadership published each year, it’s no surprise that we have a leadership issue. There are nearly one million management and leadership consulting businesses in the US. If you don’t have the knowledge or experience to up-skill your leadership or solve a leadership issue, find a trusted partner that can help you. Your people, shareholders, and community are counting on it.

Slalom is a global consulting firm focused on strategy, technology, and business transformation. Learn more and reach out today.