What is the correlation between transformational leadership and the profitability of Arizona copper mining companies?

Over a decade ago, I began my examination of leadership styles and profitability, as it relates to the cost to produce one pound of copper in Arizona. The examination of this correlation is important to study, as it could help to improve the Arizona copper mining industry’s ability to predict organizational outcomes based on the leadership style used. Since my original research, I have shown a connection between the leadership style and the contribution 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?

I grew up in and around and have worked 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.

Like 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, AZ., 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 nicknames like Tiny and Sparky. During the 20th century, Arizona mines began to close because of the 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 because of the 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 are 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 healthy for a long time, and this has attracted multinational companies who promise to invest billions of dollars into 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. Most 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 must 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 exactly right to maintain a company’s competitiveness.

Management theories

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 those 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 study 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. Management by exception is where the leader sets out rules and regulations and key performance indicators (KPIs; numbers) and manages by waiting for someone to step outside of these parameters and then acts. This is sometimes referred to as the “Gotcha” leader. Since my original research, I have found that this leadership style is prevalent throughout the entire mining industry. 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, and 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.

Many leadership theorists have discovered that ineffective and inactive leadership in an organization appears to be the chief reason for diminishing the organization’s productivity and the downward trending of corporations. To transform the Arizona copper mining industry from 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 TFL methods. While not the focus of the research, a multifactor leadership questionnaire (MLQ) measured the participant’s TAL traits. 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.

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 and the leaders’ promises are kept. It also produces the preferred outcomes of the short term if the TMT can make decisions and possesses a persuasive personality. The disadvantage of this style is that assertive leaders will thrive in this environment, they will create followers without the ability to think, and 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 in the short term, 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, using TFL styles, the industry can reduce the effect of fluctuating copper prices on its organization and the surrounding communities.

By virtue of their formal role in the mining industry, top leaders are responsible for empowering their followers to set goals and motivating them toward achieving them. 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 faith to be a transformational leader.

Many researchers found that “transformational leaders provide the basis for creating organizations that are extremely effective in terms of any criterion of performance or profit.” These researchers 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.

This article is one of two articles. To complete my doctoral work, I elected to study the senior leadership of the top six mining companies in Arizona. My hypothesis was that the more successful mining companies were led by transformational not transactional leaders. The second article of this research will be published in a future issue of the Canadian Mining Journal.

Dr. Nathan Wright is the founder and president of Transformational Performance Solutions LLC. With 40 years of field experience and a doctorate in Organization, Development, and Leadership Style, Nathan has a proven record of transforming organizations into revenue-producing powerhouses. He also helps corporate leaders develop their teams into top-caliber professionals, capable of effectively navigating and utilizing the tools available to them.

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