Time to Adjust Your Leadership Style?

Most advisors don’t give leadership much thought until after they have people working for them. In fact, many advisors think incorrectly that the skills necessary to properly supervise people and manage tasks are the same as leadership. (Spoiler alert: They’re not.)

As advisory practices start to employ multiple staff, owners must add separate leadership skills to their supervisory and managerial abilities. But what leadership style is appropriate in your advisory firm? To find this out you should consider two questions: What culture does my firm have? And what leadership style will be most effective in that culture?

CORPORATE CULTURE

Corporate culture is best described using two sociological terms: sociability and solidarity. Sociability refers to the development of relationships with no expectation of gain. People regard others as equals who share attitudes, ideas, interests or values.

A high sociability culture fosters teamwork, sharing of information and a spirit of openness to new ideas and “out of the box” thinking. People often work harder to help colleagues look good and succeed. The downside, however, is tolerance of poor performance, an exaggerated concern for consensus and an unwillingness to disagree or debate goals. Often, this organization seeks the best compromise rather than the best solution.

A high-solidarity organization is more like a pro sports team: It focuses strategically on a few goals, responds swiftly to competitive threats and doesn’t tolerate poor performance — even to a point of ruthlessness.

If the organization’s strategy and goals are correct, this focused intent and resulting action can be overwhelmingly effective. When employees are all held to the same strict standards, it builds trust in the organization, because the company cuts no special deals for favored employees. Yet this kind of culture can lead to business suicide if the wrong objectives are chosen. The company may do all the wrong things really well.

4 CULTURES

Organizations can be roughly categorized into four separate cultures depending on their sociability and solidarity scores. Ask everyone in your firm to take the “What’s Your Firm’s Culture?” quiz on page 27, then map the scores on the grid at top.

Networking organization: Works a lot in hallways and after hours. People move from job to job with little formal training, and flexibility is the rule. But because there is little commitment to shared objectives, employees often contest use of resources and remuneration.

Mercenary organization: Low on socializing and high on data-rich email. Most communication focuses on business issues, for good reason: Individual interests coincide with firm objectives. People respond swiftly to perceived opportunities or threats. Priorities are decided with little debate and action happens quickly.
Fragmented organization: Think universities, highly successful R&D labs and law firms. This type of organization won’t work for advisors who want centralized management and a “corporate client” model.

Communal organization: This may seem to have the best of all worlds. Many fast-growing startups grow into a communal culture with shared objectives. The corporate vision and mission statements are often given front-office billing, evoking enthusiasm from employees. Intense personal relationships are developed.

Communal organizations can have a downside, however: As this type of organization grows, high-sociability employees may oppose certain types of growth, diversification or institutionalization.

LEADERSHIP VARIES

Leadership styles vary as well, of course.

Authoritarian/command-based: This leadership style keeps strict controls on staff, using regulation, procedures and close supervision. Micromanagement is common, and there is little room for dialogue.

Paternalistic/charismatic: Leaders act as a parental figure, expecting complete trust and loyalty. Organizations with paternalistic leaders are often very efficient and productivity is highly rewarded.

Democratic/collaborative: Decision-making is shared, promoting group interests and social equality. Discussion, debate and idea sharing are common, but this style requires a wider set of skills. Research shows this style of leadership produces higher productivity, more competitive ideas and increased morale.

Laissez-faire: Decision-making is fully given to the staff. This works well where all staff members are experts.

Transactional: This style provides clear goals with appropriate training and rewards. Most sports and sales teams are led in this fashion.

Transformative/pacesetter: This style requires innovation and flexibility, as goals, organizational structure and technology tend to change.

WHICH STYLE IS BEST?

No one style fits every firm perfectly. Even so, there are some styles that work better than others at different times in a firm’s history.

Several years ago, our firm took the survey and found we had a communal organization. At that time, with a small team, a paternalistic style worked well. However, as the staff became more experienced, a more democratic/collaborative style worked better. Later, as the firm grew even further, primary responsibility for the firm’s growth goals passed from the founders to other senior advisors. At that point, a combination of transactional and transformative/pacesetting leadership has continued to result in growth that’s above industry averages.

Even in high-performance communal organizations, different subcultures (or different offices) may require different leadership styles. But if the variances are hampering the company from reaching goals, effective leadership will require realigning individuals’ participation in the desired company culture — or possibly releasing them.

The essence of leadership in any firm is getting individuals to do what you want, when you want, willingly and with the right people. Excellent leadership is not a natural attribute, nor is it bestowed by a job title. Good leaders must commit to learn and employ these skills.

The need for excellent leadership grows as firms become more organizationally complex. If you wish to lead effectively, you must first learn how to lead.

Glenn G. Kautt, CFP, EA, AIFA, is a Financial Planning columnist and vice chairman of Savant Capital Management, based in Rockford, Ill.

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