My executive coaching program has a “Management” stage, which includes the “Leadership” dimension. People find it often difficult to make the difference between these two approaches with the idea that managing a company or a project makes you automatically a leader of it…but is it true? My experience tells me that at best 5% of managers are real leaders, where the rest are “just” managers or bosses. And is not only about wearing a suit and a tie working in casual dress (the clothes do not make the man). It also involves taking risks.

But how important is it? In fact, it is key from a strategy and value perspective: whereas management is about control and short-term goals, leadership is about inspiration, long term targets (a.k.a strategy) and leading by example. This explains why managers are “easily” replaceable (although good managers are sometimes not so easy to find) while leaders are not, sometimes irreplaceable at the point to plunge the value of the company when he leaves or gets sacked. Even worst, when managers quit nothing dramatically changes, but when leaders resigns their teams tend to follow them and projects, they were involved with tend to collapse.

You’ll find below an excellent article from Paul Zhao explaining you 3 Big Differences Between a Manager and a Leader:

 “Do you work for a manager or a leader? And if you have a team under your care, are you their manager or a leader?

These two questions apply to both the world of entrepreneurship and the arena of corporate America. Here are the three dimensions that I’ve come to observe, each with deeper and broader sub-implications.

Doing things right vs. doing the right thing

Is there a difference? Absolutely. A manageris preoccupied with making sure rules are followed correctly and work is done accurately. That weekly business report? Better get it in on time and with the precise title, formatting, and metrics, or there will be blood. Be prepared to have answers in your back pocket for when higher-ups pop a question or two.

Managers don’t want to make waves, so they want to ensure existing processes are respected. This isn’t to say managers are wrong; it’s merely to state that managers are typically risk averse. Managers manage you the way they want to please their superiors — that is, by following directions so no surprises (good or bad) pop up. Doing things right is another way of saying “minimize risk.” And while that’s not necessarily a bad quality, it certainly isn’t very inspiring.

Leaders do the right thing, even if it means breaking convention. If you launch a new product and it makes no sense to put together a weekly business report for it, a leader will not automatically require you to do it. They will actively make a case and set the proper expectations for either altering the reporting cadence more appropriately or dispensing with the practice entirely. Leaders who focus on doing the right thing manage people by encouraging them to think critically about why a task should be done, rather than mechanical follow through. In their minds, it’s more important to do tasks that return good value on the time spent than it is to just tick another “required” item off a checklist. Therefore, a leader will appropriately challenge the status quo by taking actions that make sense, rather than make the system happy by default.

Counting value vs. creating value

Managers prioritize quantifying and measuring value. They are often obsessed with tracking results in order to report on specific targets. There’s nothing inherently wrong with this behaviour, and, in fact, being able to ascertain things like revenue, profit, volume, and costs is critical to being a good manager in many cases. But managers who are hyper focused on counting value tend to miss the big picture by shooting for short-term targets that can be actively detrimental to a business in the long run. For instance, I once worked with a product manager who deliberately set prices unnecessarily low to boost the initial software-install base metrics, which was great for showcasing “traction” for a brand-new product. He began to abuse the default argument: “It’s okay. Let’s get volume first and then worry about profit!” Sometimes, even volume can’t save your business.

It takes a whole team to build a great piece of software and only one bad manager to destroy all the sweat and hard work.

This manager’s actions were severely short-sighted, as the low price backfired in four ways: 1) It attracted lemon customer segments who weren’t serious about using the software; 2) it decreased the perceived value of the product below its actual utility value; 3) it incited a price war with competitors; and 4) it wasn’t a sustainable unit price point, even at scale. Ultimately, the product failed. It takes a whole team to build a great piece of software and only one bad manager to destroy all the sweat and hard work. A manager who is hyper focused on counting results is tempted to sacrifice long-term value and success by ensuring they’ve met the target on some short-term goals. It sounds silly, but it happens (more often than you might think).

Leaders focus on creating value. They don’t dismiss the importance of measuring performance, but to them, quantifying results is just a basic best practice. Real leaders are always thinking about how to grow the top line or minimize the cost structure (hence, value creation). To do so, they may employ creative routes and risks, often taking calculated bets that drive up short-term costs but can potentially reap windfalls in the long run. The challenge for leaders is how to influence an organization to accept the short-run risks and manage expectations for the long-term strategy to eventually pay off.

A long time ago, when I was but a wee boy interning on Wall Street, a VP on our exotics trading desk told me on my first day, “Don’t worry about getting in at 6 a.m. and staying until 1 a.m. just to get in face time [a meaningless “devotion” metric]. You don’t have to hobnob at happy hour if you don’t want to, either [a “team player” metric]. I care about the value you can bring to the table. Can you pick some trades that make sense to you? And can you run some simulations that track those trades? Can you show the team the logic and assumptions you used to make the decisions? I’ll have a senior associate execute your decisions on small experimental volumes. Don’t worry if the trades don’t make money initially. We’ll need to repeat the experiment a few times before we get the hang of it, so it’s all right. Do your best.”

This guy was a leader who was cultivating independent and analytical thinking. He wasn’t concerned about a few bucks (tens of thousands, actually; remember that big and small is relative depending on the industry and domain) for training purposes. To him, letting an intern make a few decisions to learn from mistakes is an investment, not a loss. The long-term bet for this leader was that when his people are empowered, they will create more value than by following trading scriptures. Remember, this was during a time (and probably still is at most firms) when interns were expected to get coffee and be hazed while doing some menial research assignment (or deck, if you’re in IBD) that ended up in the shredder anyway.

Managing by fear vs. leading by example

Managers give you tasks and tell you the consequences of not completing them a certain way. They organize a team around penalties, either explicitly or, worse, by docking points under the table without bringing it to your attention (until it’s already too late). As mentioned above, managers like to measure things. Sometimes these measurements make sense; we call them KPIs (key performance metrics). Other times, managers are just lazy and mechanically hide behind a wall of byzantine requirements and consequences to drive you like a whip drives a donkey. Managers who do this often share stories like, “Oh yeah, you’re going to want to do X this way, because the last time someone didn’t, Z happened, and we don’t want that.” They pass it off like they’re giving you some sage advice, but really it’s just a disguised way of saying, “My way or the highway, bub.” Managers are exceptionally well practiced at packaging shit in a gift box.

Leaders, by contrast, will say something like, “I’ve done X thing using this method. It worked then, but I’m open to you using another method, so long as it achieves the same goal or better. Feel free to use or dispense with what I’ve done in the past, and make improvements along the way.” Leaders will typically set an example of good operations or decision-making and then give you the freedom to interpret, borrow, improvise, and enhance the process. They lead with an open-mindedness and humbleness, acknowledging that their example is only one way out of many possible solutions. Leaders will demonstrate and mentor you with their experience and past cases, but they don’t ever prescribe to you the exact way to achieve success on a task or goal. There is no ego involved in terms of her or his way being the “preferred” methodology. Moreover, leaders don’t expect you to emulate success; they expect you to invent it. And that says a lot about whether a leader trusts you or whether a manager “trusts you to do it right.”

Whether you’ve had managers or leaders—and, to be fair, there are good and bad examples of both—you should feel blessed, because you can learn from both. You can’t change the people you work with, but you can definitely change how you work with them if you take the time to understand their motivations and inclinations.”

And you, are you manager or a leader? What makes you think so? Is your viewpoint aligned with what your team thinks about you? And don’t forget, what your business card says about you shows your responsibility, what your people say about you makes you a leader (or not).