This paper reports on a qualitative study of principals' perceptions of the impact of high-stakes testing on empowerment. The data were obtained from interviews with 26 "empowered" principals in select schools participating in the South Florida Annenberg Challenge. Three questions were addressed: (1) To what degree does a school's standardized test "grade" influence a principal's sense of empowerment? (2) To what degree and in what ways is morale affected by high stakes testing? and (3) What lessons do empowered principals have to share with others about the impact that empowerment has on the quality of teaching and learning in schools? Results show that testing commonly has a negative effect on principals' sense of empowerment. Testing appears to generate a pervasive fear of failure in lower grade schools. Grade "A" schools appear to use high-stakes testing in positive ways, such as incentives to create student-enrichment programs, whereas lower grade schools focus more on meeting students' basic needs. Lessons learned from the study are that schools are complex, requiring many heads to make good decisions; trust needs to be promoted and maintained among school personnel, district office personnel, and community; and barriers are overcome when problems are viewed as challenges. (Contains 29 references and 1 table.) (RT)