When Businesses Falter: How Relational Climates Foster or Hinder Recovery

When businesses stop growing and stall, existing literature emphasizes the role of the strategic turnaround process, yet only a fraction of firms successfully recover. Our qualitative comparative study of 23 leaders from two large technology firms finds that leadership emotional and social intelligence (ESCI) competencies play an important role in establishing a positive relational climate that helps companies recover. Leaders who demonstrate high ESCI competencies are leaders that use purposeful change in inspiring ways during difficult restructuring situations. Recovering firms have effective top management teams that buy into this approach and build new operating practices aligned with this change. Leaders who demonstrate low competencies in ESCI are “toxic” leaders who create climates of fear, which inhibit effective action. There is little effort by these top managers beyond promotion of personal interests to align and act on what’s best for the business.