Rising Costs of Bad Leadership

Bad leadership is clearly expensive. Fraud resulting from mismanagement at Wells Fargo, for example, has cost the bank about US$300 million in fines and pre-settlement investigative costs while wiping out around US$6 billion in shareholder value. Ex-employees, meanwhile, are seeking at least US$2.6 billion in a class action lawsuit related to the Well Fargo corporate culture that rewarded employees who created multiple accounts for customers without permission. And let’s not forget the extra millions lost from the hit to Wells Fargo’s brand value.

It has been less than a decade since banking-sector leadership and governance failures almost toppled the global financial system, but the lessons embedded in the 2008 financial crisis already appear forgotten as cases of appalling corporate behaviour continue to undermine capitalism. It is no secret that good leadership requires commitment to doing the hard work it takes to look out for all of an organization’s stakeholders, along with the intellect and competencies required to compete in today’s disruptive times. But as research into the financial crisis has made clear, good leadership also requires a balance of identifiable character dimensions. When recruiting leaders and directors, organizations have long invested time and money to ensure they are managed and governed by people with adequate experience and competencies. But all that time and money can be wasted when leadership character isn’t also given the attention it deserves. This is because costly failures in decision making are often rooted in character-based issues such as close-mindedness and impatience, as well as a lack of accountability, empathy, humility, and courage.