Lee IacoccaThe Benefits and Costs of Charismatic Leadership

Andras Török

Syamak Bahmanyar

„We are continually faced by great opportunities brilliantly disguised as insoluble problems“

Lee Iacocca

Outline

Short biography Charismatic leadership Power

– Personal– Position

The dark side of Charisma Conclusion and recommendations

Short Biography I

Born in 1924 Parents were immigrants from Italy Excelled already in school Received a master‘s degree in mechanical

engineering from Princeton Joined Ford in 1946 Became President of Ford in 1970

Short Biography II

Was dismissed by Henry Ford II Joined Chrysler immediately afterwards

– Company was in trouble

Iacocca managed to save Chrysler– Secured government backed loans– Appeared in advertisements

Left Chrysler in the early 90‘s

Charismatic Leadership

Building a vision Communicating the vision Instilling trust in the vision Unconventional ways to achieve the vision Empowerment

Iacocca: Building a vision

Arrived at Chrysler when the company was in big trouble and close to bankruptcy

Created the vision of turning the company around, making it profitable and elevating it to the top players in the automobile business

Iacocca: Communicating the vision

Linked the vision to the most basic values of followers

Iacocca possessed outstanding rhetorical abilities

Used metaphors frequently for communication

I didn’t take the one dollar a year to be a martyr. I took it because I had to go into the pits.” Lee Iacocca on the question why he cut his salary to 1$.

Iacocca: Instilling trust in the vision Trust through self-sacrifice

– Cut salary to one dollar („equality of sacrifice“)

Trust through expertise– Very good reputation in the industry– Expert Power

“Although my reduced salary didn’t mean I had to skip any meals, it still made a big statement in Detroit. It showed that we were all in this together. It showed that we could survive only if each of us tightened his belt.” Lee Iacocca

Iacocca: Unconventional Ways

Brought union representation to the board– Chrysler was the first company to do so

Appeared in advertisements Introduced money-back guarantees on cars Secured government-backed loans

Iacocca: Empowerment

Introduced quarterly review system– Managers could set their own goals for the next

three months– Were responsible for these goals

“First, it allows man to be his own boss and to set his own goals. Second, it makes him more productive and gets him motivated on his own.”

Lee Iacocca, when asked why he introduced the quarterly review system

Power and Charisma

Power connected to charismatic leadership– Idolized Leaders– Decisions not questioned– More autocratic decision-making

Referent power

Expert power

Iacocca: Personal Power

Strong referent power– Great skill in verbal persuasion– Many employees followed him from Ford

Expert Power– Very good reputation– Invented the Ford Mustang

Iacocca: Positional Power

Took the most important decisions by himself

Very autocratic

“Despite what the textbooks say, most important decisions in corporate life are made by individuals, not by committees. My policy has always been to be democratic all the way to the point of decision. Then I become the ruthless commander.”

Lee Iacocca on decision-making

Too autocratic???

Dark side of Charisma

Charisma does not only have positive effects– Negative charismatics have a personalized

power orientation– Harms the followers– Does not benefit the vision

Iacocca: Negative Charisma Vision

– Failed to recognize fundamental change in customers‘ needs in the 80‘s

Dysfunctional management practices– Failure to manage details effectively– Creation of in-group/out-group conflict– Too autocratic management

Succession– Did want to leave the company– Wanted to hold on to his position

Conclusion & Recommendations

Charismatic Leadership can be beneficial– More likely in crisis situation

If conducted to excessively it rather harms than it does any good

Charismatic leader should install measure to prevent this from taking place

Measures Create feedback mechanism

– Increases awareness of „bad“ behaviors Encourage feedback

– No penalty for feedback– Reward feedback

Listen to advice– Do not consider yourself flawless

Retrospective thinking– Ensures decision quality

Learn to accept the status quo– Sometimes status quo might be beneficial– In this case learn to accept it

Thank you for the attention

Good luck with the final exam!!!!

Before we end, one final quote by Lee Iacocca

„In times of great stress or adversity, it's always best to keep busy, to plow your anger and your energy into something positive.“