How to Assess Your Portfolio Companies’ Leadership Styles
Forget online quizzes, how can investors identify the leadership styles right for their businesses and identify new leaders to fill the gaps?
By: Leadership Dynamics team
How to Assess Your Future Leaders’ Leadership Styles
This article is part of our series on leadership assessment
A leadership style is a behavioural approach to influencing, directing and motivating people to deliver on a strategy. While any style can be adopted depending on the situation, most leaders tend to have a default style they fall into because they are highly influenced by their personality traits, ways of thinking, preferred skill sets and past experiences.
If you are a hiring manager or a private equity investor looking to build a high performing leadership team for a portfolio company, it’s important to understand a candidate’s default leadership style, their pros and cons and what kind of situation or organisation they are most suited to lead in. And since a leadership style is made up of a collection of behaviours, it’s even more important to get underneath the surface of a CV or an interview and build a data-driven behavioural profile.
This article will explore the different types of leadership styles, and give tips on how to assess and identify the leadership styles that suit your business.
What are the most common leadership styles?
Leadership plays a crucial role in driving businesses forward, and understanding one's leadership style can significantly impact performance. There are several common leadership styles, each with its own strengths and weaknesses.
1. Adaptive leadership
With this style, leaders focus on promoting change, growth and innovation, even in the face of adversity. The leader embraces continuous change and innovation to address complex situations. They are flexible, creative and resilient, and focus on fostering learning, collaboration and problem-solving within their team.
Adaptive leaders are particularly effective in situations that are complex, ambiguous, and rapidly changing; in situations where there is no clear solution or strategy, and where creativity and thinking outside the box is required to come up with new approaches to problems.
In addition, adaptive leaders are effective in situations where there are diverse perspectives and opinions. They are able to listen to and incorporate different viewpoints, and create a collaborative environment where everyone feels valued and heard.
Adaptive leadership may be ineffective when there is a clear and well-defined problem with a known solution. In such situations, a more direct leadership style may be more appropriate, as the leader can provide clear guidance and direction to the team to solve the problem efficiently.
2. Laissez-faire leadership
This is a hands-off approach that allows team members to make their own decisions with minimal guidance or interference from the leader. This style can work well when team members are highly skilled and self-motivated, but it may not be suitable in situations that require strong direction or if employees lack the necessary expertise.
Laissez-faire leaders are most effective when they are leading a group of experts who are capable of working independently and making decisions on their own. In such situations, the leader can provide the necessary resources and support to the team and allow them to take ownership of their work. This approach can lead to higher levels of job satisfaction and motivation among team members.
Additionally, laissez-faire leadership can be effective when the leader is not an expert in the field and does not have the necessary knowledge or skills to guide the team. As such, this kind of leader can claim a high level of self-awareness.
Laissez-faire leadership is not recommended in situations where the team members lack the necessary skills or experience to work independently.
3. Authoritarian leadership
This involves the leader making decisions, setting goals and directing activities without seeking input from others. While this style can lead to quick decision-making and clear direction, it may also limit creativity and collaboration and may result in lower morale and job satisfaction.
The benefits of an authoritarian leadership style is the clarity it offers. The leader sets the expectations and rules, and team members know exactly what is expected of them. It can also be effective in situations where quick and decisive action is required. They make decisions without delay, which can be critical in emergency situations.
However, the lack of autonomy this style offers employees can limit creativity and collaboration; a fear of making mistakes hampers innovation and absence of recognition and opportunities can reduce morale and increase employee turnover. It's recommended that leaders only use this approach judiciously and to balance it with other leadership styles.
4. Democratic leadership
A democratic leadership style is characterised by open communication, collaboration and shared decision-making. Leaders using this style encourage input from their team members and value their opinions. While democratic leadership can lead to higher levels of commitment and engagement, it may also result in slower decision-making processes as numerous opinions must be considered.
By opening up the decision making process, team members are more likely to trust the leader and be bought into the vision. With the opportunity to have their voices heard, employee’s have better job satisfaction, and are motivated to deliver on the strategy.
In situations where time is limited, however, a democratic leadership style may be ineffective, as it can be time-consuming to gather input and reach a consensus. And if the leader is coming in to make changes to a stagnant organisation, resistance to change is likely to be high, in which case a more authoritarian style is necessary to overcome legacy problems.
5. Transformational leadership
A transformational leadership style is about inspiring and motivating team members to reach their full potential by cultivating a positive and supportive environment. Transformational leaders focus on personal development, empowerment and strong relationships with their team members. This can lead to increased productivity, higher employee satisfaction and a strong team culture.
This trust-based leadership style can elevate a “manager” into a “leader”. While a manager focuses on the interests of the organisation, a leader focuses on the interests of its people. A transformational leader believes that high performance comes from enhancing the skills, behaviours and experience of employees.
However, this style needs some prerequisites in the organisation for it to be effective. For example, if there is a lack of trust in senior leadership, a resistance to change among staff or a lack of resources, people will feel unable to achieve their goals. The right conditions need to be cultivated before transformational leadership can work well.
6. Transactional leadership
This is a style where leaders emphasise the achievement of specific objectives, often using rewards and punishments to motivate team members. This approach can be effective in situations that require clear goals and structured processes but may not foster the innovation and creativity needed for long-term success.
If looking to achieve short term objectives, a transactional style can offer clarity and efficient decision making, based on the performance of team members. Its consistency can provide a sense of stability and predictability in the organisation or team, maintaining morale as everyone is treated fairly.
However, it has its limitations. It is hard to inspire employees to reach their full potential with this approach, as everyone is focused on meeting expectations rather than exceeding them. The clarity of role and objectives is also characterised by their inflexibility, limiting creative thinking and new ways of solving problems. So, while it is useful in a crisis or highly structured environment that only requires meeting standards, it is not effective in a flexible, creative or dynamic environment.
Understanding your leadership style is essential for hiring managers and private equity investors. Each style has its advantages and drawbacks, and adopting the right approach for a given situation can significantly impact the effectiveness of the leader and the success of the team.
Using behavioural analytics to assess leadership styles
One useful approach in identifying and assessing leadership styles is to employ leadership analytics or people analytics. These tools use data and psychometric models to assess an individual's behaviours, preferences and decision-making patterns.
The PACE behavioural assessment model evaluates a team of individuals on their behaviours rather than personalities. Leaders and leadership teams are benchmarked against high-performing behaviours based on data from the past ten years of successful private equity exits.
As leadership styles are behavioural approaches to leading organisations, it is important to understand two things:
Which behaviours are needed on your leadership team for your organisation to be successful
The behavioural profiles of your current and future members of the leadership team
Understanding where the gaps are is important, but it’s even more important to know how well each individual complements each other on the team. Putting together a high performing team dynamic is more important than highly talented individuals who can’t work together.
The role of emotional intelligence
Emotional intelligence also plays a significant role in leadership style assessment. As a valuable interpersonal skill, emotional intelligence involves the ability to understand, manage, and respond to one's own emotions and those of others. High emotional intelligence levels indicate strong leadership qualities, such as self-awareness, self-regulation, empathy, and effective communication. These qualities are essential for building trust, fostering collaboration, and motivating teams in a dynamic work environment.
In order to assess emotional intelligence, hiring managers and private equity investors may choose to use a leadership styles questionnaire, such as PACE or EQ-i, designed to explore an individual's typical reactions and behaviours in various situations. These questionnaires can help to reveal how well a candidate manages their emotions, understands the emotions of others and uses emotional information for decision making.
Common leadership styles questionnaires
Understanding behaviours at a deep level with tools like PACE will clearly indicate the leadership style each individual prefers to employ. In addition to behavioural analytics tools, however, there are some well-regarded leadership style questionnaires designed specifically to look at leadership style as a whole.
Goleman Leadership Styles Questionnaire
The Goleman Leadership Styles Questionnaire is based on Daniel Goleman's six leadership styles: visionary, coaching, affiliative, democratic, pacesetting and commanding. This questionnaire helps individuals identify their dominant leadership styles as well as their strengths and areas for improvement. This tool can be beneficial for both leaders who want to develop their style and organisations seeking to identify potential leaders.
Transformational Leadership Style Questionnaire
A widely used instrument to assess leadership is the Transformational Leadership Style Questionnaire. This questionnaire measures transformational leadership qualities that motivate and inspire teams, including charisma, intellectual stimulation, and individualised consideration. By using this questionnaire, organisations can identify leaders with the potential to drive positive change and improve performance.
Kurt Lewin's Leadership Styles Questionnaire
Kurt Lewin's Leadership Styles Questionnaire is based on Lewin's three primary leadership styles: authoritarian, democratic, and laissez-faire. This questionnaire helps assess the extent to which individuals exhibit each of the three styles, offering a well-rounded understanding of their leadership approach. This tool can be particularly useful for organisations looking to match leaders with teams that require certain leadership styles.
Other psychometric tests
As well as leadership style questionnaires, other psychometric tests can be useful in assessing leadership styles, such as:
The Myers-Briggs Type Indicator (MBTI) measures personality preferences, which can be linked to leadership styles.
The DiSC profile evaluates communication and behavioural styles to understand how individuals interact with others, providing valuable insights into their leadership approach.
The Situational Leadership Style Questionnaire assesses how leaders adapt to different situations and their ability to lead effectively under various conditions.
The Leadership Practices Inventory (LPI) measures the leadership behaviours based on Kouzes and Posner's Five Practices of Exemplary Leadership.