An Outcome-Based Perspective Of Leadership: Investigating The Direct Effects Of Corporate Leaders On The Firms Financial Outcome

Abstract

Current leadership theories appear to have not kept up with modern theories of the firm and modern financial approaches. Now there appears to be a major disconnect between leadership measures and the firm’s financial performance. This situation can be seen through the general practice of closely identifying leaders with their firms, and yet, relying on organizational/market/industry variables to investigate the financial results of the firm in empirical business studies which directly points toward the need for an outcome-based perspective of leadership theory. This can be achieved by the assessment of their resource utilization and value-adding propensity in the course of performing their ‘stewardship’ and ‘agency’ roles. This paper proposes a framework for a leadership perspective, based on organizational results, using the financial signature concept. A sample from Fortune 500 companies was used in the study. The results show that leaders, by playing a dual roles of agent and steward, not only have a strong influence on their firm’s financial outcome, but also exhibit specific level of propensity to conserving or spending resources that is a direct reflection of their ability to govern in relation to their stakeholders expectations. This finding has many implications in understanding corporate behavior and public perception. It could also provide important elements to studying ethical and finance behavioral issues that affect many modern corporations in recent years.