The True Value of Leadership
This is a post by Dave Ulrich and Justin Allen. Dave Ulrich is the author of The Leadership Capital Index in which he details how equity or debt investors can systematically and predictably determine the quality of leadership to make faster and more informed decisions and gain a critical information advantage over their competitors.
Leadership emotional intelligence, authenticity, and charisma are not enough. Leaders succeed when they add value to others. Without making others better, all the personal qualities of leadership are more self-serving narcissism than true leadership. Good leaders inspire employees to do their best. Better leaders build organizations that outlast and outlive individual leaders. But, the best leaders create investor confidence in future success.
In recent years, investors have begun to look beyond current earnings to determine a firm’s true market value. Investors have examined intangibles like strategy, brand, and R&D to ensure that a firm will produce future not just past earnings. More recently, we have found that 25 to 30% of investment decisions can be traced to investors confidence in leadership.
To determine the quality of leadership, investors can now access a Leadership Capital Index (see the book Leadership Capital Index: Realizing the Market Value of Leadership). This index gives investors a thorough and rigorous way to evaluate leadership. We envision investors starting to access and assess leadership insights much like they do financial and intangible results. The Leadership Capital Index examines both the personal qualities of a leader and the leadership team and the human capital systems that the leader puts in place.
But, how can a leader initiate conversations that give investors confidence in their leadership ability? Here are some tips for leaders who want to realize more market value through their leadership.
As an individual leader, you and your leadership team can inspire personal confidence from investors when you demonstrate:
As a leader, you should create an organization that has unique capabilities to deliver sustainable value over time. Work on creating:
When you show investors that you have created both individual leaders and organization capabilities, they will respond and give you more market value. This is the next agenda for both leaders who add value and investors who want to realize that value.
Dave Ulrich is the author of The Leadership Capital Index and Rensis Likert Professor of Business at the Ross School, University of Michigan. Justin Allen is co- author of HR Transformation, Co-Founder of Ulrich Leadership Capital, and a Principal at The RBL Group.
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