The true cost of a bad leader

Stories of poor and ineffective leaders are nothing new – for every inspirational CEO in Australia, there is an incompetent business leader who is doing more to drag their organisation down than to help it grow.

While being the basis for tongue-in-cheek TV shows and films such as The Office and Horrible Bosses, bad leaders are a much more grave matter in the real world. The persona of the individual at the head of the organisation has a big impact on employees and the organisation as a whole, from staff morale to the effectiveness of team building and even its bottom line.

The importance of recruiting, selecting and developing an effective leader to take the reins of a company is explored in two recent studies – both of which look at separate but equally critical aspects of leadership.

Bullying and leader 'abrasion'

Workplace bullying is still an issue that is rife in many organisations around Australia, as evidenced in the new anti-bullying laws that rolled out at the start of the year.

While prevalent at any level of an organisation, a substantial number of bullying cases derive from incidents of business leaders exploiting their position of power to abuse those below them. According to the new 'Bullying Bosses: A Full Cost Accounting' report from Executive Confidante, bullying from “abrasive” leaders is costing businesses around the world dearly.

Analysis from the consulting firm revealed that such bosses, whether they instigate the bulling themselves or sweep it under the rug, can cost their organisation both financially and in terms of worker performance. For instance, the group revealed that the cost of replacing employees who leave due to bullying can be over 7 per cent of the company's annual revenue, for a company with 10,000 employees and annual revenue of $500 million.

Workplace bullying affects staff productivity through other areas as well, for example reduced engagement and days taken off due to stress and anxiety.

“Many companies have no idea of the full financial impact of abrasive leaders,” Executive Confidante Owner Kalli Matsuhashi said in a January 22 statement.

“Often, these leaders are strong performers, and organisations are highly resistant to confronting these behaviours for fear that the individual will leave. The truth is, the hidden costs likely outweigh the financial benefit to a company's bottom line.”


Sometimes the ineffectiveness of a leader may not be down to any malicious or bullying behaviour, but a simple lack of frontline leadership skills and experience.

The 'Middle Managers – Evaluating Australia's Biggest Management Resource' report from the Australian Institute of Management (AIM) looked at the competence of the country's middle managers. It found that there was a big discrepancy in the perceived ability of these managers between the managers themselves and their colleagues.

The majority of middle managers were confident in their ability to “manage other managers”, with only a quarter (27 per cent) of them believing their skills are “average” or “below average”. However, their confidence isn't shared by their peers – almost two thirds (64 per cent) felt their skills were average or below average.

While respondents to AIM's survey believed people management is the most important skill for middle managers to have, over half (52 per cent) of their colleagues felt they had sub-par people management skills. A similar proportion (55 per cent) believed that these managers' communication skills were wanting, although nine in 10 respondents said it is another key skill requirement for middle managers.

Incompetent leadership ability simply cannot be forgiven in any individual who aspires to reach the very top of their organisation. Accordingly, businesses that want to ensure the future of their organisation is in safe hands should use careful recruitment and selection strategies when choosing their next leaders, and make the most of leadership development initiatives so they stay on track to succeed in their new role.