Essay: Analysis of CEO’s leadership – Fairfax Ltd.

Fairfax Ltd. is a new startup originating in Mr. Fairfax’s garage. The company has expanded rapidly, currently operating at an office in town. The company is environmentally friendly, manufacturing sustainable products and the staff are environmentally conscious. Since the introduction of the new experienced CEO (Christine MacDonald), there have been several changes to the company in attempt to manage revenue and business growth. With individuals having different perceptions of what leadership is, the actions of the CEO, owner and employees will ultimately shape the behaviour of those interacting within the company. There are different values, norms and beliefs between any group of people and subsequently, the way social situations are internalised will affect the way in which individuals react to changes in the workplace. MacDonald has concentrated mainly on cost reduction, she is directive and task focussed but staff have responded negatively to her leadership methods as they find her unapproachable and unwilling to listen to feedback. This lack of communication has developed into a tense situation between staff and MacDonald, resulting in strategic implementation difficulties. This report will highlight the effects that MacDonald’s leadership methods have on the company and offer recommendations for the future.
MacDonald was approached by Fairfax to help overcome a challenging economic period. The company was growing exponentially, yet profits did not match growth resulting in a cash flow deficit. MacDonald began making decisions with an autocratic approach, imposing strict rules within the previously freethinking office; working from 9am to 5pm only, with all electricity switched off outside those hours, giving tighter deadlines and switching to cheaper office supplies. Previous research from Simon (1979) and Kahneman (2003) suggests that MacDonald uses a ‘bounded rationality decision-making’ technique. Saving money by minimising utility usage reduces the problem at a minimal, office-based level and appears a feasible solution to the energy wasting issue caused by lenient office hours.
However, these restructuring changes were not discussed with employees beforehand, disregarding staff views and not considering subsequent reactions. It is possible that MacDonald may have made improvements with previous companies and Mr. Fairfax’s approval along with initial positive results may have generated a desirability bias (Sharot & Garrett, 2016), since those who identify strongly with their place of work are more likely to show supportive behaviour towards the company (Kim, Chang & Ko, 2010). Yet, by focussing solely on the money saved, MacDonald neglected to notice other failing factors. These changes were in the best interest of the company from an economic standpoint, but money saved from utility bills is now used to cover other problems within the office.
Previous hours were flexible, but since McDonald’s changes, the added stress of tighter deadlines and strictly enforced working hours have increased staff illness and may have reduced productivity, possibly due to loss of freedom and control of their own hours. Nijp, Beckers, Geurts, Tucker and Kompier (2012) conducted a systematic review of 63 papers into employee work time control (WTC). Findings suggest moderately strong cross-sectional evidence for positive associations between flexible working hours and work-non-work balance, job related outcomes as well as health and wellbeing. In contrast, global WTC (traditional 9am-5pm) offered positive association between all, except health and wellbeing. This provides an understanding for why employees may be falling ill more frequently under the new changes. However, this is a limited view since the studies were from 1995-2011 and may not reflect the current technological and managerial advancements within companies.
Money is saved by reducing energy usage. Heating is switched off after hours meaning the office is extremely cold in the mornings. Globally, office temperature affects productivity, particularly in extreme thermal environments (Hedge, Sakr & Agarwal, 2005). Additionally, women are frequently colder in offices than men (Kiersz & Lewis, 2015; Gorvett, 2016; Kingma & van Marken Lichtenbelt 2015).  A survey commissioned by the International Interior Design Association and the Business + Institutional Furniture Manufacturer’s Association (2016), found that the 46% of employees hate the inability to change workspace temperature and was the leading cause for dissatisfaction. Although, surveys are not precise nor do they offer real world validity, they can be generalised to a wider sample. It is also possible that cold offices create a hostile atmosphere. Participants were significantly less likely to cooperate with others when holding cold objects, compared to hot objects (Storey & Workman, 2013), suggesting that the cold temperature correlates with employees perceptions of MacDonald being a cold or untrustworthy person.
It is clear that MacDonald does not fully understand the ethos of the company and does not share the same set of values as the staff. Fairfax Ltd. has a reputation built on environmental awareness. In a bid to cut costs, MacDonald switched from sustainable, locally sourced materials and office supplies to significantly cheaper but wasteful, damaging alternatives. As CEO, MacDonald should be building the culture of the brand, leading the way by promoting the vision of environmentally friendly manufacturing for staff and clients. This negligence has led some staff members to distrust MacDonald. Due to the apparent lack of respect for the company’s core values, staff may also fear redundancies may follow in her plight for cost reduction. Peterson, Walumbwa, Byron & Myrowitz (2009) found that positive psychological traits of CEO’s positively relate to their leadership ratings and company productivity, while Hartnell, Kinicki, Lambert, Fugate & Doyle-Corner (2016) found that CEO leadership is effective when it provides psychological and motivational resources that are lacking in the company’s culture. Therefore, staff dissatisfaction with MacDonald’s directive approach could lead to further issues if her leadership style does not benefit the company’s environmentally friendly culture and staff do not become more reciprocal.
These changes have had a temporary positive financial impact but have brought  more problems to the office due to poor decision-making and communication skills from MacDonald. This correlates with the results of a meta-analysis of 57 reorganisations (Blenko, Mankins and Rodgers, 2010). Less than 33% produced a meaningful improvement in company performance, and some reorganisations decreased productivity, which appears to be the case for Fairfax Ltd. It is reasonable to assume that since implementing these changes, MacDonald is seeking confirmation for her actions and may be conforming to a sunk cost fallacy and hopes that staff will simply adjust, as she is personally responsible for the changes (Staw & Fox, 1977).
MacDonald is clearly an experienced leader, her behaviours can be explained through Contingency Theory. Hershey & Blanchard’s (1984) Situational Leadership Theory (SLT) presented four leadership styles, which change depending on the position of the employees. We can see how Fairfax Ltd. employees do not support MacDonald and her changes to the company. This lack of readiness to accept the new CEO results in MacDonald taking an autocratic approach, which in SLT is described as a directive leadership style. The employees have little confidence in her at present but MacDonald’s style should adopt a less directive, more delegating role as the employees gain confidence in her and themselves. Furthermore, SLT has been supported by Landsberg’s (1996) Skill-Will Matrix (Figure 1). Essentially, the CEO’s leadership style alters, depending on the circumstances of the employee. The lower the skill and will an employee has, the more directive the leadership style. The leadership style is contingent upon an employee’s progression and changes in their needs. The employees need more excitement from MacDonald, their will to work is low (primarily because of the negative impact of the changes) and MacDonald perceives this reluctance to work as a predictor for low skills, hence her adoption of a direct approach. However, this theory suggests they simply lack interest and need stimulating.
Figure 1: Skill Will Matrix (Landsberg 1996).
Fiedler’s Contingency Theory (1967) offers an alternative explanation for the behaviour of the CEO. This two factor model suggests that leadership styles vary in response to the situation, rather than employees. He divides leaders into task-orientated or person-oriented groups, finding that task-oriented leaders tend to perform better in stress-free situations, while person-oriented leaders perform better in stressful situations. MacDonald’s leadership style can be argued as ineffective with Fairfax Ltd.’s problems as she is task-oriented, therefore less likely to perform well in stressful situations. This is amplified by having poor leader-member relationships with the employees.
There are limitations to these contingency theories. SLT has flaws in it’s conformity, consistency and continuity (McClesky, 2014), and there are conceptual contradictions and ambiguities (Bass 2008). Additionally, Glynn & DeJordy (2010) suggest there is no globally effective leadership style that can be generalized to all situations. Lorsch (2010) reports that contingency theories such as Fiedler’s Contingency Theory (1967) are too focused on smaller groups and ignore leadership styles in larger companies. Criticism from Gill (2011) states that leadership styles are difficult to identify and measure. Moreover, we cannot monitor the success or failures of contingency theories as there are a vast number of situations and leadership types. No single leadership style is suitable for every situation (Lorsch, 2010).
MacDonald is operating on an old and redundant leadership style. Bass (1991) offers a refreshing model of transactional and transformational leadership. It is recommended that MacDonald receive training in these new styles. Bass (1991) suggests that a transformational leader exhibits charisma, inspiration, intellectual stimulation and individualised consideration. It has been said that good transformational leaders have ‘exceptional influence’ on employees and can motivate them to become dedicated, committed, make self-sacrifices (Avolio & Bass, 1995), and exceed expectations (Hartog, Muijen and Koopman, 1997). Dvir, Eden, Avolio, & Shamir (2002) found that transformational leaders had a more positive impact on their followers’ development than the control group. MacDonald could utilize these traits to inspire and excite her staff maintaining company growth. Despite this, Yuki (1999) criticized the theory, reporting that transformational leadership is ambiguous and promotes the exclusion of some helpful behaviours, creating a bias towards ‘heroic conceptions of leadership’. Additionally Hartog, Muijen and Koopman (1997) question the validity of the Multifactor Leadership Questionnaire (Bass & Avolio, 1990) which is used to measure transformational leadership.
(Bass 1991) also suggests a transactional leadership style, consisting of contingent reward, management by exception (either actively or passively) and laissez-faire.  Bass (1991) explains that a transactional leader promotes compliance through rewards or punishments. MacDonald does not appear to use these leadership techniques, despite the obvious benefits. MacDonald could begin exchanging extrinsic rewards for successful completion of tasks. However, there has been criticism for this theory. Kunhert and Lewis (1987) report that transactional leaders simply manipulate employee wants for their own gain. This is comparable to basic operant conditioning (Skinner, 1938), as through positive and negative reinforcement, employees conform to the needs of their leader.
In conclusion, the leadership style of an individual varies significantly depending on their personality. Leadership styles can overlap and there is no single style that is universally accepted. MacDonald’s leadership style is responsive to the situation and employees, she may have misinterpreted the situation which has resulted in dissatisfaction in the office. She does not deal well with stressful situations and needs to excite and motivate staff members.
There are several recommendations for MacDonald to take onboard: The company needs to create a sense of trust between the new CEO and original employees. I suggest team building exercises to ensure the employees and management feel valued, included and respected. I also propose the insertion of an anonymous peer review or feedback system. Employees need to be able to express their concerns or praises to management, oppose changes or offer suggestions which will give them a sense of control (over hours, temperature, colleagues etc) without the threat of repercussions. A third recommendation is that all staff members and any new recruits take part in a ‘core values’ training course, to ensure the ethos of the company is not jeopardized in the future. A final recommendation is that all management receive updated training in leadership and motivation to ensure the success of the company.
Overall, MacDonald had attempted to make meaningful and resourceful changes which have not been well received. With the recommendations I have made, MacDonald and Fairfax Ltd. should be able to progress further as successful company in the future.