A new study by global management consultancy Hay Group analyzes leadership styles around the world and their impact on organizational performance. The firm’s head of leadership and talent, Ruth Malloy, examines the results.

Leadership is the most influential factor determining an organization’s performance. As our research demonstrates, the world’s best companies for leadership have outperformed the S&P 500 for shareholder return by almost 100 per cent over the past ten years.

Exceptional leadership has the power to unite staff around a firm’s vision, and to energize and engage them to go the extra mile to achieve its objectives. Yet, just when most organizations are striving to enhance performance and get the best from their people, our recent study revealed that more than half of leaders are creating demotivating working climates.

We analyzed 86,000 leaders in over 1,200 organizations worldwide, comparing the climate that their employees prefer to work in to the one they actually experience on the job. Worryingly, we found that some 55 per cent of leaders are failing to create the conditions for success.

The environment generated by leaders has an enormous effect on team performance. A negative working climate damages employee engagement, and results in a lack of clarity and alignment around the organization’s strategic objectives. And it goes without saying that it exacerbates staff turnover.

As a result, we found in our research over several decades, that climate can impact an organization’s bottom line by up to 30 per cent.

The impact of style

So what is it about leadership that results in high – and low – performance climates?

It comes down to leadership style.

Research begun at Harvard University, and developed by decades of practice by our team, has identified six leadership styles that influence working climate. These are the coercive, authoritative, affiliative, democratic, pacesetting and coaching styles (see panel).

This research also found that the more of these approaches leaders can confidently use, the more energizing the environment they will generate. A leader generally needs to be able to draw on at least three styles to create a positive working climate.

Each of the six approaches has its place. Effective leaders not only rely on a broad range of styles; they also know exactly when to use each one, continually adapting to the individual and circumstance at hand. Yet, our study found that as many as a third (36 per cent) of leaders globally rely on just one leadership style.

This is because people like to live in their comfort zones – and when it comes to leadership style, business leaders are no different. They tend to rely on what comes most naturally to them. In addition, they can be influenced by what they see elsewhere in the organization, which can perpetuate negative working climates.

To develop a broad range of leadership styles, a leader needs to understand why they behave the way they do. Self awareness, and more broadly emotional intelligence, is the cornerstone to great leadership. A leader who knows their strengths can apply a familiar skill to strengthen an under-used style. And, a leader who can manage their natural responses has the time to choose the right leadership style, at the right time with the right person.

Hay Group’s research has found that high levels of emotional intelligence are even more critical in matrix work environments, where individuals are required to lead by influence, rather than lead through direct authority.

Six of the best

The six styles of leadership proven to drive team performance are:

1. Coercive: Gains immediate compliance from employees
2. Authoritative: Provides long-term vision and direction
3. Affiliative: Aims for trust and harmony within the team
4. Democratic: Seeks consensus among the team
5. Pacesetting: Leads by example and sets the highest standards
6. Coaching: Prioritizes the growth and development of team members

Asia’s limited repertoire

Our study also examined how leadership styles differ across different regions of the world.

Overall, the analysis paints a fairly consistent picture. In every region, at least half of leaders are creating demotivating climates, with only slightly more using at least four leadership styles.

However, a closer look reveals some interesting variations.

In Asia, the coercive style is by far the most dominant, and is typically combined with the affiliative style to create a highly paternalistic approach to leadership.

To a degree, this is explained by a pronounced collectivism in some Asian cultures. Yet however culturally apt it may be, overreliance on the coercive style will prove unsustainable over the long term, as it erodes innovation and creativity.

In addition, most leaders in Asia have a narrow leadership repertoire. Just a quarter (24 per cent) of Asian leaders regularly utilize four or more leadership styles.

This is inevitably reflected in the working environments they are generating. Some two thirds (66 per cent) of leaders in Asia are producing demotivating climates.

A slightly different story emerges in mature markets. Here, the coercive style has traditionally been far less prevalent. But the recession has prompted leaders to increasingly fall back on this approach, which is most useful in times of difficultly.

Interestingly, leaders in crisis-hit Europe in particular are defaulting to the coercive style. Once rarely used in this region, it is now the dominant approach for over a third of leaders – compared to 23 per cent in North America and 24 per cent in Asia Pacific.

The leadership bright spot is North America, where little more than a third of leaders (37 per cent) are creating positive climates. Of course, the region is home to a number of large, multi-national companies, which tend to invest heavily in leadership development.

Better leaders, better results

Whatever the regional differences in leadership style are, the key to success is the same across the world.

Our study found that the best leaders from every region use at least four leadership styles, including the authoritative, coaching, affiliative and democratic approaches. Regardless of geography or culture, the most effective leaders pull from a broad range of approaches, and are adept at applying the right one to the right situation.

But becoming a great leader does not happen overnight. Great leaders work to develop their repertoires over months and even years.

It is a worthwhile effort. Time and again, we have seen organizations generate better business performance through better leadership.

When firms place a focus on leadership development, the results speak for themselves.