Article · 6-minute read

What is the true cost of poor leadership?

By Richard Williams – 7th June 2024

Poor leadership costs businesses up to $550 billion annually, and up to 79% of employees may quit their jobs due to a lack of management appreciation.1

With figures like this, it’s not difficult to see the importance of getting good leadership in place, as well as the importance of hiring or developing individuals who truly align with your organizational culture and the outcomes that they need to deliver.  

Let’s take a closer look at some of the wide-ranging implications of poor leadership:

Company Culture

Leaders play a vital role in the promotion of a positive workplace culture. A leader who ensures employees know that their contributions are valued creates a culture of recognition and a leader who encourages team members to recognize each other creates a culture that builds stronger teams. 

Conversely, poor leadership can result in a culture where employees lack engagement and settle for mediocre performance.

Research suggests that almost one third of UK workers (28%) have left a job due to a poor workplace culture (CMI),2 which highlights the significance of getting it right.

Loss of Productivity & Financial Revenue

Poor leadership can also drive down profits. Without fostering the right culture and environment, employees are unlikely to be working to their full potential. They won’t be motivated to go ‘above and beyond’ for the organization; they are likely to simply do the bare minimum to get by, impacting your bottom line.

According to Gallup’s State of the Global Workplace Report:3

  • Only 21% of employees are currently engaged at work
  • Low engagement costs the global economy $7.8 trillion, accounting for 11% of GDP globally
  • Sub-optimal leadership practices can cost organizations an amount up to 7% of their total annual sales

    Other studies suggest that a single poor leader costs an organization an average of $126,000 in lost revenue each year. 4

Staff Wellbeing

Leaders who fail to praise employees for their work and give recognition for their achievements can also have a detrimental effect on morale. Employees are likely to feel deflated if nothing seems to satisfy leadership, or if they feel they are constantly receiving criticism or negative remarks, leading to a lack of confidence and enjoyment in their work.

This can manifest itself in high levels of absenteeism and therefore decreased productivity. Perhaps more worryingly, employees may experience symptoms of anxiety, depression and stress, which can have long-lasting impacts on their physical and mental health, with the effects extending beyond the workplace, affecting employees’ personal lives and relationships.

Staff Retention

It’s very difficult for an organization to retain employees in the long term if leadership is ineffective. A study by DDI suggests that 57% of people have quit roles because of a negative relationship with management and 37% reported that they’ve considered leaving because of their superiors.

Poor leadership or leadership styles are reportedly so common that 65% of employees would rather have a new manager than a pay raise, according to surveys. 5

Another study found that as much as 32% of an organization’s voluntary staff turnover can be avoided through better leadership skills, and that 52% of employees leaving their jobs could have been persuaded to stay had they not had poor management (Gallup).

If your organization does not have the right leadership in place, you risk losing top talent that could otherwise thrive and progress – not to mention the significant time wasted and costs associated with replacing those individuals. Every time a business replaces a salaried employee it costs, on average, six to nine months of their salary and up to 150% of the salary for technical positions.6  

Public Image

Strong leadership can help you avoid potential PR disasters. When poor leadership decisions are made,  it can cause a public backlash, resulting in decreased customer loyalty and loss of advertising revenue or investment.

When customer satisfaction and brand reputation are damaged, companies face an uphill battle to gain new customers – costing them five times as much in marketing and acquisition costs. 8

Good leaders, with a good organizational fit, can help drive the right culture and values, with figures suggesting that better leadership can generate 3-4% improvement in customer satisfaction scores, subsequently resulting in a 1.5% increase in revenue growth.7

The positive effects of good leadership:

Let’s look at the flip side. If negativity surrounds poor leadership, then great leadership has the opposite effect; it accelerates productivity and engagement creates a cohesive effort in workers towards a common cause.

Effective leaders are also able to motivate and inspire employees to think creatively and try new approaches, culminating in increased innovation and the development of new ideas and solutions.

An obvious main benefit of effective leadership is the ability to drive an organization’s revenue. Experienced leaders understand how to change or adjust a company’s structure to generate more money. According to a 2023 McKinsey report, top-performing managers and leaders produce five times more shareholder value than average or below-average managers over a five-year period.9

Research suggests that great leaders drive around 70% of employee engagement, but if an untrained or generally poor manager enters a leadership position, this can cause a massive drop off in employee engagement — leading to lost productivity, poor morale, and burnout. 10

“Leaders set the tone for their team and/or organization. Positive leadership encourages, empowers and energizes people, whereas negative leadership drains, discourages, depletes and demoralizes employees,”  explains Joyce E. A. Russell of Forbes.11

How can you enhance leadership selection?

Enhancing leadership selection is one clear way to avoid the ramifications and negative impact of poor leadership.  To recruit leaders who are going to be truly successful, you need to understand what constitutes a good leader and to then make selection decisions based on real in-depth data – not just a candidate’s CV, previous leadership experience, or because they are good at the role they currently do. Their skills and behaviors need to align with your organizational demands. 

Approaches commonly used often lack real rigor and objectivity, allowing factors such as similarity bias to creep in, unintentionally reducing DE&I  You can find out more about this in our article: The Importance of Inclusive Leadership and How You Can Nurture It

The first step to enhancing leadership hiring is to truly understand what the ultimate drivers of success are for leaders in your organization. However, this can often be hard due to differing opinions on what constitutes a good leader. Using an effective leadership assessment tool can help align potential leadership behaviors with your organizational goals, and where impact is needed, significantly reducing the risks of making a poor hire.    

Our Leadership & Executive Hiring solution peels back more layers of personality than any other assessment, allowing you to uniquely align leaders against the strategic outcomes they need to deliver.  Interactive data from our Wave® personality questionnaire highlights leadership potential against specific areas of leadership. Users gain insight into the impact of a leader’s behavior, the situational effectiveness of their leadership style, and the risk they may pose to the organization, its culture and themselves; giving you a much more holistic view of leadership. 

With the cost of a bad hire at Exec level equating up to 213% of the salary, can your organization really afford to be making mistakes?12

Get leadership selection right the first time with
Saville Assessment

Our Leadership & Executive Hiring package gives you the confidence to identify and select exceptional leaders with the perfect cultural fit for your organization.

About the Author

Richard Williams 

Richard is Marketing Manager at Saville Assessment and heads up our training and product marketing activity, as well as helping to organize virtual and face-to-face industry events.     

You can connect with Richard on LinkedIn here

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