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Research Profit-Focused Execs May Hurt Bottom Line Executives who focus too heavily on the financial bottom line may actually hurt their success, according to a recent study by researchers at Ari- zona State University's School of Global Management and Leader- ship in Tempe and the Thunder- bird School of Global Management in Glendale, Arizona. The 25-page study, "Unrequited Profits: The Relationship of Economic and Stakeholder Values to Leadership and Firm Perfor- mance," compared the effects of leadership driven primarily by factors such as profit gener- ation, cost control, and market share retention with those of leadership driven primarily by factors such as employee rela- tions and development, customer or client needs, and the welfare of the greater community. The study was conducted by Mary Sully de Luque, an assistant professor of management and research fellow at Thunderbird; David Waldman, director of ASU's Center for Responsible Leadership; and Nathan Washburn, a doctoral student at ASU's W.P. Carey School of Business. Sully de Luque, Wald- man, and Washburn found that leaders who maintain a specific focus on profits in decision making may be viewed in a negative light by stakeholders. "CEOs with strong economics values tended to be viewed by fol- lowers as highly authoritarian," says Waldman. Moreover, such CEOs were not viewed as "visionary," he adds. On the other hand, Sully de Luque and Waldman found that leaders who balance a wider range 56 BizEd MAY/JUNE 2007 Reward Failure, Spark Innovation Mary Sully de Luque and David Waldman of stakeholder needs against profits were not only more likely to be viewed as visionar- ies—they were also more likely to earn more profit. The reason, explains Waldman, is that when employees view their boss as visionary, they are more likely to be optimistic about their company's future. As a result, they put forth extra effort, which leads to better performance for the firm as a whole. The researchers examined data from more than 40 academic researchers, as well as nearly 500 CEOs, whose organizations were located in 17 countries on five conti- nents. They hope that their findings might serve as a blueprint for corpo- rate leaders who want to hone their management and leadership skills. "Although executives should not disregard profit maximization and rational decision making," says 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." Business leaders who punish failure may be short-circuiting their employees' will to innovate, according to Gus- tavo Manso, an assistant professor of finance at MIT's Sloan School of Management in Cambridge, Massachusetts. "Failures are often the result of legitimate attempts to explore or innovate," says Manso. "To stimulate innovation, one must be willing to tolerate, or in some cases even reward, failures." In his paper, "Motivating Inno- vation," Manso explored past research on incentive-based innova- tion in the workplace. Incentives that protect an employee in the case of failure can actually stimulate innovation overall by providing an environment where that employee feels free to experiment without fear that a failure could result in unpleas- ant repercussions. "In Silicon Valley, if you fail once or even many times, you can start fresh," says Manso. "But in other places, if you fail even once, it becomes hard to get a new job, let alone start a new business." Manso also offers a different per- spective on the so-called "golden parachutes" for CEOs, which are often the target of public criticism. Gustavo Manso