What is the correlation between transormational leadership and the profitability of Arizona copper mining companies?
A recent study examined leadership styles and profitability, as it relates to the cost to produce 1 lb of copper in Arizona. The examination of this correlation is important to study to improve the Arizona copper mining industry’s ability to predict organzational outcomes based on the leadership style used. It may be possible to identify the leadership style that contributes to the profitability of a copper mining operation. A quantitative methodology was used to explore the research for the following question: What is the correlation between transformational leadership and the profitability of Arizona copper mining companies?
In Arizona, copper-company leadership styles are an important factor in maintaining regional economic strength.
Growing up around and now working in the copper mining business, the leadership of mining companies has always been an area of interest to me. In my early years as the son of a miner, our family was dependent on the mining company’s top management team (TMT) for its welfare. We observed the cyclic nature of how the industry operated and we knew the effects firsthand. After entering the workforce, how the TMT affected the company and the industry became more apparent.
Similar to most mined commodities, Arizona copper follows a boom or bust cycle, and this creates a similar effect on the communities that depend on it. The dependence of the copper mining industry on each individual company’s TMT leaves the residents vulnerable to the changes in the team’s leadership style. Small changes in the TMT can have large effects in these communities. A microcosm of this can be seen by reviewing the history of copper mining in Arizona.
In the past, copper mining in little towns like Clifton was the bedrock of life. Company-owned department stores and other businesses gave credit to miners until payday, families played at the company picnic, and burly miners answered to nicknames like Tiny and Sparky. During the 20th century, Arizona mines began to close due to poor decisions made by leaders. As a result of bad leadership, some of the richest deposits became uneconomical. Communities located in the “Copper Triangle,” which extends from the Mexican border to just south of Phoenix, crumbled due to an inability to sustain profits. Businesses closed as revenue dried up and the buildings housing these businesses stood vacant or burned down. Families were forced to move away to find employment and environmentalists descended on these communities and found health risks associated with the waste piles and tailings ponds.
In this region, like many others, total earnings and employment is largely dependent on the mining companies. This story is repeated across most mining communities. The loss of mining in these areas results in increased poverty and dependence on welfare programs. The heavy dependence on the copper mining industry leaves these communities susceptible to the fortunes of the industry. This review supports the need to focus on the TMT within the organizations and the copper mining industry with the thought of alleviating some of the consequences of this boom or bust way of doing business.
With the recent advances in technology, copper is becoming easier to extract and at much lower concentrations. Copper prices have remained relatively healthy for a long period of time and this has attracted multinational companies who promise to invest billions of dollars into the local communities, providing thousands of new jobs. While some locals are encouraged, others are wary. Those who are wary fear the resurgence will hurt their chances to redefine themselves as destinations for tourism, art and outdoor recreation. Residents who grew up playing in the shadows of smelter stacks bellowing sulfur smoke and tailings ponds now consider the contamination of the air, water, and soil, before welcoming the multinational miners. They fear the boom and bust cycles and the inevitable mine closures when the next challenging time arrives. A majority of these folks resent the non-U.S. based ownership of these once-local operations and the lack of community commitment inherent to this leadership.
My predecessors would not recognize today’s mine plans. Designed in reverse, companies have to develop a reclamation plan before they can break ground. The mining plan is no longer solely based on technical and economic models, but it also incorporates the wider concerns of society. The leadership style of the TMTs must be just right to maintain a company’s competitiveness.
TMTs are the individuals of a company’s management who have day-to-day corporate management responsibility. These team members have executive powers granted to them by the board of directors or shareholders. There is usually a higher level of responsibility conferred on the board of directors or shareholders to provide strategic direction to the TMT and not the day-to-day activities. The characteristics of the team provide more insight than that of a single executive. The target population for this study focused on the TMTs of Arizona’s copper mining operations-C-level officers and operating unit teams-based on their cost per pound.
Prior to this study, transformational leadership (TFL) was thought to be lacking in the mining industry. Based on review and understanding of the literature, as well as personal and professional experience within the Arizona mining industry, the researcher found that the leaders are “more transactional than the norm.” Based on this, it was my belief that the transactional leadership (TAL) style most widely used was contingent reward. The research revealed that the most prevalently used leadership style in the Arizona mining industry was active management-by-exception. To be competitive in the ever-changing Arizona copper mining industry, leadership is vital at every level of the organization. It needs to be disseminated into traditional areas to best affect change, active management-by-exception is located directly in the midpoint of the full-range model, signaling the nature of this style, not particularly inactive or active and not particularly ineffective or effective.
|Top managers advanced education and leadership style.|
Many leadership theorists have discovered that ineffective and inactive leadership in an organization appears to be the chief reason of diminishing the organization’s productivity and the downward trending of corporations. To transform the Arizona copper mining industry from one of boom or bust, the leaders of the industry need to embrace a change from the leadership style indicated in this study, TAL (active management-by-exception) to a more TFL style.
The study did find that there was a positive correlation between the cost per pound in Arizona copper mining companies and TAL methods. While not the main focus of the research, a multifactor leadership questionnaire (MLQ) measured the participant’s TAL traits and found the Arizona mining industry to be “more transactional than the norm.” The industry is steeped in tradition and the use of TAL theory, which is the most-often used management theory in Arizona’s copper mining organizations.
|Arizona mining industry MLQ scale scores.|
TAL theory is rooted in transactions between the organization and the employee, or between the leaders and followers running a business that uses reward and punishment to get things done. The advantages of this model are that it drives desired performance if the employee is motivated by rewards. It also produces the preferred outcomes if the TMT is capable of making decisions and possesses a persuasive personality. The disadvantage of this style is that assertive leaders will thrive in this environment, they will create followers, but they will stunt the growth of future leaders. When employees are conditioned to do what they are told and only that, they will stop thinking for themselves. Original thinking is lost in this system, creating an unimaginative but obedient workforce. Future leaders will be difficult to identify in the rank and file. Furthermore, the TAL model creates a stressful work environment. Productivity within the system is maintained, but innovation is hard to find and competitive advantage is diminished.
The organization using the TAL model will build a workforce of compliant followers but fewer innovators. They will develop overbearing leaders who rarely leave behind protégés capable of sustaining the organization by inspiring and leading people. To produce copper at a profitable cost, even in a turbulent economic environment, the TMTs within the industry need to understand how leadership influences profitability. Strong and innovative organizations are at the heart of this and, through the use of TFL styles, the industry can reduce the effect of fluctuating copper prices on its organization and the surrounding communities.
By the virtue of their formal role in the mining industry, top leaders have the responsibility to empower their followers to set goals and to motivate them toward achieving these goals. Transformational leaders are goaled with “transforming” the organization and people in the literal sense. Achieving the change required by the mining industry will require leaders with initiative, patience, courage, persistence, vision, and the faith to be a transformational leader.
M. Sashkin (1987) said “that transformational leaders provide the basis for creating organizations that are extremely effective in terms of any criterion of performance or profit.” Peters & Waterman (1982) reported “that executive leadership was considered the single most important factor separating the top 100 American companies from their contemporaries.” However, leadership is still not viewed by the Arizona copper mining industry as the master key to success. Once the organization’s employees have taken responsibility and ownership for the need to change, the organization will be guaranteed to remain competitive in today’s marketplace.
Demographics and Leadership Style
An interesting finding of this study was the correlation between demographic categories and leadership style. A majority of the company’s leaders have more than 16 years in the mining industry; are more than 50 years old; and have total TMT tenure of more than 10 years. The comparison between organizational tenure of company leaders did reveal a significant difference.
When comparing the companies with the lowest copper price per pound and a “less TFL than the norm” group of leaders and the highest copper prices per pound and a “more TFL than the norm” group of leaders, there were a number of interesting findings. The company with the lowest cost per ton and a more TAL style had leaders with more than 16 years with their current organization, while the company with highest costs per ton but TFL style had few leaders with 16 or more years of organizational tenure. The high-cost more TFL team had a lot of mining experience, more than 21 years on average, but less than five years of organization tenure.
Warren Boeker’s (1997) study showed evidence that a disadvantage of long-tenured TMT is isolation from outside information because they are no longer receptive to information that may threaten their perspective. From this, it can be anticipated that long-tenured TMTs will resist strategic change. Sydney Finkelstein and Donald Hambrick (1990) expanded on previous studies to look at tenure and its effects on the outcome in a sample of 100 organizations across different industries. The researchers found that the tenure of the team did affect strategic choices, and long-tenured teams stayed within the norms of the industry. This finding was supported with Mararette Wiersema and Karen Bantel’s (1992) research. The less than five years of organization tenure mixed with the more than 21 years of average mining industry tenure may be the reason the company with the highest costs per ton scored “more TFL than the norm” than the rest of the Arizona copper mining industry.
Another finding from this study was the relationship between gender and TFL. In the review of literature, this relationship had a moderate or negative impact on effectiveness. Specifically, the female leaders in the Arizona mining industry scored above the 95th percentile in active management-by-exception. Overall, this shows that the female leaders in Arizona copper mining industry scored higher in both transactional areas. This would identify them as “more transactional than the Arizona copper mining norm.” All of the transformational scores were in line with the Arizona copper mining industry mean scores. Another notable finding was that the company with the highest costs per ton, a company that scored as “more transformational than the norm,” did not have any female members on its TMT.
Another finding from this study was the relationship between advanced education and TFL. In the review of literature, this relationship had mixed results. Avolio et al (1999) showed evidence that no relationship exists between growth and profitability and formal education. Having said this, Snell & Baldwin (1997) showed evidence that companies with TMTs with little formal management education have more variation in their performance than companies with a highly educated team. Specifically, the leaders in the Arizona mining industry that possessed an advanced education scored above the 70th percentile in the active management-by-exception. This score placed them 25% below the Arizona copper mining industry scale score in this leadership style. The research shows that leaders with an advanced education scored below the Arizona copper mining industry score in both transactional areas. This would identify them as “less transactional than the Arizona copper mining norm.” All of the transformational scores were in line with the Arizona copper mining industry mean scores.
A finding with respect to members of the TMT and advanced education was found in the company with the highest costs per ton. This company was the outlier and its leaders scored “more transformational than the Arizona mining industry norm.” Half of their leaders possess an advanced education, which was 25% of the total respondents. This compares to the Arizona mining industry’s mean that shows 18.34% possessing advanced degrees. The mean for the other five companies is 15.15%, which may be a contributing factor in this company’s resultant proclivity toward TFL styles when compared to the rest of Arizona’s mining industry.
|Organizational tenure and the top managers.|
The investigation and data analysis bared the following findings: the data showed evidence that the managers employed more TAL styles compared to TFL; they quite often contemplated the moral and ethical consequences of their decisions and debated about what needed to be done, but did not devote any time teaching and coaching; and managers with TAL styles concentrated on mistakes and deviations from standards frequently. In an industry that focuses on mining resources from the earth, this study showed evidence that the leaders employ leadership styles that mine their employees as well.
In the development of the constructs of TAL and TFL, there are two distinct schools of thought: dimensional and complementary. James M. Burns (1978) proposed the dimensional school of thought by reviewing the literature, style, research and his own observations. He felt that transformational and transactional leaders were distinct with TAL viewed as leaders that led by exchanging effort for something of value. On the opposite end of the continuum was TFL, who are leaders that engage others to rise to the occasion. This leadership style was not easily explained in traditional instrumental exchanges. Burns believed that all managers could be classified by leadership style according to their propensity for transactions versus transformation of subordinates.
Bernard M. Bass (1985) saw TAL and TFL styles as complementary constructs and not polar like Burns. Bass felt that the achievement of goals and objectives required an integration of the two styles. He also felt that TFL would be ineffective without the inclusion of transactional styles. Tosi (1982) observed that every transformational leader has to have transactional attributes or be supported by a leader with these attributes. In this school of thought, Bass branded transactional leaders as those who operate within the company systems and culture, avoid risks, keep time constraints, and prefer process to maintain control. This type of manager is effective in predictable and stable environments where straightforward activities are measured against prior performance to determine success. This type of leadership is based on an exchange between the leader and follower for performance-meeting expectations.
Transformational leaders look for new approaches to getting tasks done, they seek appropriate risks, and look to extend beyond the status quo. Bass believed that these types of leaders are not reactionary, but work to create and shape their environment. He proposed that transformational leaders will use transactional strategies when required while using symbolism and vision to increase effort. To accomplish this, leaders use intellectual awareness, possible outcomes, expand the individual needs, and ask their followers to look beyond self-interest to the health of the organization. He views followers as people with free will and the ability to exercise free choice behaviors. Avolio and Bass (1988) clarify that transactional leaders structure tasks with the “right way” to get them done and dependence on the leader for problem solutions.
Transformational leaders provide vision and strategy that empowers employees to solve problems. Despite the intuitively compelling expression of TFL early on, little evidence was offered to validate the construct. Unlike TAL, no instrument was available to test the validity, limitation or application of this theory. Bass developed an instrument that would measure both TFL and TAL behaviors and investigate the relationship between these styles and the effectiveness of the work group. This instrument is the MLQ, and it has been conceptually developed and empirically validated to reveal the complementary aspects of TAL and TFL with subscales to differentiate between leader behaviors.
Breaking down this study into the Full Range Leadership Model the sampled population is identified as follows. Starting on the active and effective end of the model, the study found the leaders in this population sample to score weakest to strongest in the following order: Individual Consideration (1.70), when the leader acts as a coach, is below the fifth percentile on the MLQ scale; Idealized Influence Attributes (1.85), relies on charismatic leaders, is below the fifth percentile on the MLQ scale; Inspirational Motivation (2.17) scored below the 10th percentile on the MLQ scale. This style offers challenge and meaning to the followers tasks and it inspires the leader to convey a vision, which; Idealized Influence Behavior (2.43), emphasizes a collective sense of values and mission, and scored below the 20th percentile on the MLQ scale; Intellectual Stimulation (2.77) scored just below the 50th percentile on the MLQ scale. This style fosters new approaches to task accomplishment. This behavior produces a stream of new ideas that challenge the employees and motivate them to rethink the way of leading people. All of these leadership styles are transformational. Based on these findings, this group of leaders would be identified as “less transformational than the norm.” Moving closer to the middle of the Full Range Leadership Model, the next set of leadership styles are classified as transactional. Still on the active and effective end of the model the next leadership style is Contingent Reward (2.92), which is just below the 50th percentile on the MLQ scale. This style has an incentive for the employee to attain the required level of performance; the final leadership style assessed in this study was Active Management By Exception (2.96). Located in the middle of the Full Range Leadership Model, it is classified as not active or inactive and not effective or ineffective. This group of leaders scored just below the 95th percentile on the MLQ scale?this is when a manager acts when there is evidence that the task is not going according to the plan. Based on this study, this group of leaders are identified as “more transactional than the norm.
In summary, TAL sets the base for required levels of performance while TFL builds on that base resulting in performance beyond expectation, according to Yammarino, Spangler and Bass (1993). By comparing the leadership styles and job performances of managers, the results suggest that leadership styles could be linked to how the leaders act in their job performances. It would appear that if a business plan with the concept of leadership training programs expanding to all levels of an organization could be implemented and kept contemporary with new technology, the staff could be enhanced for future leadership.
In this study it was concluded that TMTs in Arizona’s copper mining companies led with a predominantly TAL style, specifically, management-by-exception (active). While the MLQ was not designed to encourage the labeling of a leader as transformational or transactional, it is appropriate to identify this group of leaders as “more transactional than the norm.” However, not all of the operating unit teams could be classified in this manner. This could mean that while the industry has a proclivity to be “more transactional than the norm,” some individual operating teams are “more transformational than the norm.”
To look at the impact of this possibility, those individual operating units are leading in a “more transformational than the norm” manner, a more in-depth study of individual teams is warranted using the process detailed above. The breadth of this additional study could help determine to what degree the industry is embracing TFL styles. It would also be illuminating to study companies and operating units outside of Arizona. This would also help ascertain the impact of geographical and cultural influence on leadership style. To date, no studies of this type have been conducted in the mining industry.