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Econ 050: Leadership and crisis

Date:04 March 2019
Econ 050 is a podcast on the economics and finance research that matters to Groningen and the wider world, presented by Traci White.
Econ 050 is a podcast on the economics and finance research that matters to Groningen and the wider world, presented by Traci White.

More egalitarian approaches to leadership that share responsibility and power are better for weathering an economic downturn, but when the financial crisis hit in 2008, the instinct of thousands of business owners around the globe was to cling to their power even more tightly, cutting across sectors and cultures.

That's the finding of Faculty of Economics and Business professors Janka Stoker and Harry Garretsen, who discuss their research on leadership and crisis in this episode of podcast Econ 050. They explain their study on how heads of companies changed their leadership style in the immediate aftermath of the crisis.

Their research is also the subject of this video, which explains the response of leadership behaviour following the crash:

 

What is directive leadership, and does it work?

Janka Stoker: Directive is a leadership style or leadership behaviour which basically means that you well give a lot of direction to your employees, but also that you [as a manager] take a lot of responsibility yourself. So you try to have clear guidance for your employees but also that you make sure that you tell them exactly what to do.

Traci White: I mean, that sounds kind of appealing as an employee that you know clearly what is expected of you. So is that a good or bad style?

Garretsen: So it's comfortable in a way for an employee. If you're my boss and you continually tell me what to do and make life easier for me, and whether or not in the end it’s a good thing for your organisation that you exert so much control over me or direction, which kind of assumes that you know best and for a large organization, it’s not always clear whether this should be the case. And we want change and also initiatives from employees, so it's kind of a stifling style. So in the end, even though it has to be a short term benefits that there is at least some direction, I think many leadership scholars would say that it's clearly not a style that that you would associate in the end with very good firm organisational performance overall.

On why women and foreigners may be judged differently as leaders:

Stoker: If you are not the stereotypical manager, and females are not the stereotypical manager, and if you're non-native you're also not the stereotypical manager, is that you have to be extra good. So what you see is that they show more behaviours. Because the stereotypical good leader has masculine traits, for females it's more difficult to match that stereotypical perspective of a good leader, and therefore they have to be very good before they get selected. And therefore you could say, well, very often they score higher on behaviours than male leaders - it's not that they are by nature better leaders, but in their case, it was more difficult to get a position, so maybe therefore, especially the good female leaders get selected.

On why the manufacturing sector was hit harder than the financial sector in the financial crisis:

Garretsen: Even though people have rightly in their minds that this was a financial crisis, the real hard stuff went on in the manufacturing sector. So in the production sectors of the economy, that happened for two reasons: one is that the financial sector was indeed bailed out. So even though they were under threat and got a lot of publicity, in the end, not many banks actually went bankrupt because it was prevented, wrongly or rightly, by all kinds of policy measures. So that might be an explanation why, in our study, there was not much debt much of an increase from 2009 onwards in directive leadership anyway, at least not specifically in the financial sector, because even though it was a financial crisis, the financial sector itself was kind of shielded off.

White: Yeah, there was an intervention.

Garretsen: In an international economy where all of all those firms are connected - so there were recessions in every country, the Netherlands we went into quite a heavy recession the UK and the Irish economy - and also because these firms are connected in the manufacturing sector because of these value and production changes - some of their cars are not produced in one place, so all these connections kind of reinforced the uncertainty. So the nature of modern manufacturing production increased uncertainty further, which might very well explain why this phenomenon of being under shock and under threat was felt harder for good reasons in the manufacturing sector and not so much, even though they complained a lot, in the financial sector.