I must confess to finding it completely impossible to get all the way into the head of this Extreme Leadership type. The term is thrown around somewhat loosely, and sometime misapplied by people. So let's take a look at what the Micro-manager DOES, and then think a little about what might be making him or her tick...
Micro-Managers are in the middle of everything going on in their domains -- from the trivial to the most significant. A Micro-Manager might be making a decision on an acquisition this morning, and overruling the selection of dinner napkins this afternoon. The Micro-Manager's basic action is one of OVER-RIDING. They over-ride the judgment and decisions of others -- on almost anyone and everything they command. Usually their style is aggressive to the point of domineering (a tyrant), but I've seen some Micro-Managers who operate with a softer touch as well. Just because their smiling and speaking calmly doesn't mean they're not a Micro-Manager. This style seems to be most common in smaller organizations or smaller parts of large organizations -- a Micro-Manager tends to run out of bandwidth when their span of control gets too large.
Micro-Managers tend to drive off strong-minded subordinates. What person with a good brain and a little backbone would tolerate constant second guessing of their decisions by someone who doesn't have expertise in their area? The people that remain tend to fall into a few different categories -- they're sycophantic toadies, or natural followers who are happy to have the responsibility of decision making lifted from their shoulders, or perhaps stuck in the organization for some personal reason and have to grind it out despite their leader. The folks in the last category tend to be driven crazy by the Micro-Manager, but those in the first two will appear to be completely at home in this environment.
Micro-Managers negatively impact their organizations in several ways -- one I've already mentioned, the driving off of talent. They also slow decisions down, acting as the choke point in a funnel. If they were willing to provide general direction and let people make their own calls, a lot more would happen in a company a lot faster. Perhaps the most insidious impact, however, is subordinates learn to ask "what does the boss want?", rather than "what's right for the business?". I've also noted a tendency for people to become preoccupied with trivia at times -- arranging deck chairs on the Titanic -- usually in an attempt to give the Micro-Manager what he wants.
So why are they like this? What need is this behavior satisfying? I'm no psychologist, but it seems there is some deep seated need to be right, and as a corollary, to see others as less capable than the Micro-Manager. There's probably some kind of insecurity swimming at the bottom of this pool.
Most Micro-Managers tend to effectively disguise the more flagrant aspects of their behavior -- at least they hide it from observation from above. They will tend to appear very details oriented, on top of their responsibilities, and confident. It usually takes a mass exodus, or the "right" critical person quitting, to bring their extreme behaviors to the attention of upper management. And heaven help you if the Micro-Manager is the top officer of the company. Barring an attention grabbing event, this extreme leadership type can swim in the Corporate pool for a long time undisturbed.