New Study by Turner College's Cotten and Navarrete Finds that Companies Led by Servant Leaders are more Efficient and Profitable

Prior research has found servant leadership to be positively associated with beneficial outcomes, including employee satisfaction, employee engagement, and employee commitment. Servant leadership theory suggests that these outcomes should translate into better financial performance. However, little research has examined the relationship between servant leadership and firm financial performance. To address this issue, Turner College finance professor Brett Cotten, Douglas Schneider, the Edwin Jones Endowed Professor of Accounting at East Carolina University, and Danielle Navarrete, an adjunct professor of business in the Turner College, examine, in a study appearing in the current issue of Servant Leadership: Theory & Practice, a number of profitability and efficiency ratios of servant leadership firms, comparing them to those of their non-servant leadership peers. To identify Servant Leadership firms, the researchers began with the ‘Servant Leadership Companies List’ from the Modern Servant Leader website. To be included on this list there must be at least one publicly documented reference to the organization and its view of, support for, or belief in servant leadership principles. This list contains 124 organizations, including for-profit, non-profit, and governmental organizations. From this list the researchers eliminated non-profits, governmental organizations, and private or international firms for which financial data are unavailable. In addition, they eliminated three start-ups that were not yet profitable, leaving them with 20 firms. From here Cotten and his team additional two firms suggested by a published study and one additional firm from a blog post on Servant Leadership firms by Sorry on Mute, creating a dataset with 23 firms. 

They conducted an annual analysis of these firms using financial data obtained from the Standard and Poor’s Compustat database over the 25-year time period beginning in 2000 and running through 2024. To assess profitability, the researchers include profit margin, return on assets, return on equity, and return on invested capital for insight into overall profitability, and gross profit margin and operating profit margin to give more insight into what factors may impact the overall profit margin. To assess efficiency, they include asset turnover, as it measures how efficiently firms use their assets to generate revenues, and revenue per employee to assess employee productivity. They also include accounts receivable turnover and inventory turnover to see if servant leadership impacts working capital efficiency. 

According to their statistical analysis, firms in the servant leadership sample have a higher profit margin than non-sample firms in all 25 years of the sample period, and the differences are statistically significant. Interestingly, there is no significant difference in the gross profit margin between sample and non-sample firms, suggesting that the differences in profit margin are primarily due to sample firms better controlling operating costs. This is also reflected in the sample firms’ operating profit margins (OPM), which are higher in all but one year with the differences being statistically significant in 23 of the 25 years. This supports the premise that servant leaders are better stewards of organizational resources and that the more committed employees of servant leadership firms tend to be more effective, resulting in better financial performance.

Overall, sample firms also appear to be more efficient than non-sample firms, having a higher asset turnover in all years, with the difference being significant in 14 of the 25 years. This means sample firms are generating more revenue for each dollar of assets in place than non-sample firms. Interestingly, there are no significant differences in inventory turnover or accounts receivable turnover and no pattern of these differences being typically positive or negative. This suggests that the higher asset turnover is due to better overall efficiency rather than differences in working capital management. Lastly, revenue per employee tells a similar story.  This measure is higher for sample firms in all years, and the difference is statistically significant in all but two years.  This suggests that employees at servant leadership firms are more productive, supporting the hypothesis that servant leadership leads to increased employee productivity and profits.