2008 Articles

Leadership, coordination and mission-driven management

Bolton, Patrick; Brunnermeier, Markus K.; Veldkamp, Laura

What makes a good leader? A good leader is able to coordinate his followers around a credible mission statement, which communicates the future course of action of the organization. In practice, leaders learn about the best course of action for the organization over time. While learning helps improve the organization's goals it also creates a time-consistency problem. Leader overconfidence is a valuable attribute in such a setting, since it slows down the leader's learning and thus improves the credibility of the mission statement. But overconfident leaders also inhibit communication with followers and leader overconfidence is costly when followers have sufficiently valuable signals.