Lesson 3: Leader Personality and Power

Read “The Last CEO of Lehman Brothers: Richard Fuld,” starting on page 174 of your text. After reading this case, discuss the following.

Part A Discuss five (5) types of leader power. These five types fall into two (2) broader categories: position power and personal power.

a. Define each of the five (5) types of leader power.

b. Discuss how each of the five (5) types of leader power impact and/or motivate followers.

c. Which of the five types of leader power fall into the category of position power, and which fall into the category of personal power?

Part B What are the sources of Dick Fuld’s power?

Part C What elements of power corruption are present in this case?

Activity 3: Case Study

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Activity 3: Case Study

Part A: Leader Power

1. Types of Leader Power

According to Raven (2008), there are five different forms of power: coercive power, reward power, referent power, legitimate power, and expert power. These types of power describe how power is obtained and how it affects leadership and success. Coercive power is a function of the situation and the leader (Raven, 2008). It involves the ability to control people through fear or loss. Coercive power is based on a leader’s ability to punish those who do not comply and showing what happens when people comply. Threats are used when using coercive power, often relating to demotion or dismissal. Reward power is a function of the leader, the situation, and the followers (Raven, 2008). It relates to a leader’s control over the desired raise, resources, promotions, and tenure, and the ability of people to delegate roles to others and reward them. Reward power is based on the idea that people are more inclined to do things properly when they expect to get something in return. A problem arises when the perceived value of the reward expected is low since it results in the weakening of power.

Legitimate power is a function of the situation. It is a constitution of the formal authority that a leader has as a result of their assigned role (Raven, 2008). This power gives a leader the ability to link feelings of obligation to management. Punishing and rewarding people are a legitimate part of the formal leadership role. It is based on an individual’s role and is lost once a person loses their title or position. Referent power is a function of the leader and followers. It relates to the strength of the relationship that exists between the leader and the followers. Referent power is determined by the leader’s friendship and attractiveness to the followers. The leader is viewed as a role model and their power is treated with admiration by the followers. Such a leader has a lot of influence as a result of having a good appreciation of their environment. Expert power is a function of the leader. It is based on the competence, in-depth information, expertise, and knowledge of the leader in a certain area or field (Raven, 2008). A leader with expert power is often a highly intelligent individual who is trusted by the followers or organization to fulfill certain roles and responsibilities. Their expertise is appreciated and respected and forms the basis for their power.

1. Use of Power to Impact and/or Motivate Followers

When coercive power is applied, low levels of performance are observed. The effectiveness and productivity of followers become inconsistent. Followers are not motivated by coercive leadership. When reward power is applied, rewards, inspirational appeal, and coalition tactics are used to motivate employees (Nahavandi, 2006). Followers are motivated to meet targets and achieve goals, even though this motivation may be short-lived. Where legitimate power is used, follower effectiveness is boosted as a result of the influence of the leader. Follower performance and satisfaction are also improved. Referent power results in employees getting out of their comfort zones to work towards the achievement of long-term goals. This type of power and leadership promotes the professional and personal growth of the followers. Expert power results in the improvement of follower effectiveness through motivation, increased satisfaction, and improved performance. The followers accept leadership and there is no opposition.

1. Position Power and Personal Power

Reward, Legitimate, and Coercive power fall under position power (Nahavandi, 2006). These types of power are accessed by individuals depending on the positions that they hold. People with managerial or supervisory titles access legitimate and coercive power. They also have the ability to influence the behavior of their followers using rewards. When an individual loses their title or position within an organization, they lose their power. Referent and Expert power are personal powers. These powers are based on the individual and not what position they hold. To be an expert, one does not need to hold a certain position. A person can also be respected and liked by others even without having a title or position of power within an organization. Personal power cannot be taken away by the organization.

Part B: Sources of Dick Fuld’s Power

Fuld’s powers came from the position that he held as the CEO of Lehman Brothers – legitimate power, reward power, and coercive power. Fuld did not shy away from exercising his power. As a result of legitimate power, derived from his top position within the top to bottom management structure, everyone listened to him and followed his instructions. He was coercive and is described as being intimidating and having explosive behavior. He was an autocratic leader and used rewards and coercion to lead the organization and direct his followers. He also had the ability to make huge decisions and ensure that the organization reaped great rewards.

Part C: Elements of Power Corruption Present in the Case

Poor decision-making within the organization is identifiable and it resulted in the issuance of unnecessarily high rewards to the directors of the company. The high pressure to acquire rewards and incentives led to the development of a corrupt company. The wrongdoing by the leader and the directors was not expected to be discovered, which increased organizational fraud.

References

Raven, B. H. (2008). The bases of power and the power/interaction model of interpersonal influence. Analyses of social issues and public policy, 8(1), 1-22.

Nahavandi, A. (2006). The art and science of leadership.