Finally, we can measure the value of good leaders

I simply have to share my excitement about a book on value-adding leadership, which I have just read. Now we can finally measure good leadership. Many have for years claimed that good leadership makes a significant impact on companies’ value creation. Dave Ulrich has with his book “The Leadership Capital Index” developed an operational method to measure the value of the leadership it-self. A book, which does not only give rise to reflections, but also actively can improve your leadership.

For years I have myself practiced and advised on the balance between the “what:s” of Management and the “how:s” of Leadership. Because, too many managers lack the experience or time to be a good manager and leader at the same time. Although I can document strong business results over time, I have always missed the intermediate value of the leadership it-self, which makes it much easier to repeat success.

Business oriented HRM up to something big

Dave Ulrich is not Mr. Anyone. Professor at Ross School of Business, University of Michigan. He has written more than 30 books and 200 articles, and he is a big spokesperson for business driven HRM, rather than specialist driven. For a start, the target audience of this ”HRM” book is investors. The aim is to help them valuate a company and assess risks based on management’s ability to create future value streams. However, the book is as relevant for board of directors and executives. Not forgetting our many HR specialist, the book is a unique opportunity to get closer to the lifeblood of the company and support its management with value-adding HRM.

Leadership Capital Index

The Leadership Capital Index is developed based on interviews and focus groups with 70 American investors. Ulrich has also scrutinized an impressive portfolio of research on leadership and value creation. He concludes that the quality of leadership is among the three most important parameters, when it comes to valuation of companies. While investors are quite comfortable with financial performance and industry favorableness, they find it much harder to assess the quality of leadership. Thus, a Leadership Capital Index is a much appreciated operational tool.

Valuation of companies and risks has so far primarily considered material and financial assets, and the classical intangibles such as strategy, brand and customer satisfaction. Dave Ulrich’s concept now expands the assessment to also valuating the leadership capabilities. His mission is to make the intangible leadership tangible, thus enabling an analytical and quantitative approach to the value of leadership.

Top 5 value creating leadership capabilities

Each of the ten capabilities are further detailed with very concrete characteristics, e.g. personal resilience, professional and social intelligence, transparent knowledge sharing, mobilization of commitment and adaptability. Leadership’s impact on value creation is as such not new, but according to Ulrich, almost all past research is one dimensional. Thus, his point is that the ability to master and mix all capabilities situationally makes the big difference.

Calculating your Leadership Capital Index

The Leadership Capital Index aims at assessing leadership on the value creating capabilities identified by Ulrich’s research. The book provides templates with the capabilities and assessment questions, which is rated on a scale from 1 to 10. The sum is calculated and divided by the number of questions, which brings you The Leadership Capital Index score between 1 to 10. You can make your own weighting of capabilities, if you find something more important than other according to your specific situation. The idea is, that you will now be able to both assess, calibrate and benchmark leadership between leaders, teams and companies.

Is leadership trivial or does it call for methodology?

My own experience tells me, that many of the leadership value drivers often are difficult to practice in a busy everyday life. Management is with its 2,5 billion Google-hits a well-documented method, which most leaders have studied at school and thus master. Leadership is with its “only” 500 million Google-hits trivial, but yet difficult, as it is about people and emotions rather than cool numbers and facts. Thus, only few master both at the same time, and leadership efforts tend to become unilateral and focused on the well-known management disciplines. Fortunately, Ulrich’s Leadership Capital Index puts leadership into system for all managers.

However, leadership needs to be articulated to achieve daily attention, and here Dave Ulrich gives a "star" example from the world of movies. At the Academy Awards it can be noted that out all Movies of the Year only 20% also won the price for Best Leading Characters, while 70% of them also won the price for Best Director, who made it all come into play.

Leadership and valueship

As an advisor on value-adding leadership I find Ulrich’s practical approach a pleasure to learn from. He has made it possible for all leadership lovers to measure the value of one’s leadership – you could literally say one’s valueship. The operational coupling with investors’ valuation of companies is after all the ultimate expression of the value of the work that employees, management and board of directors collectively perform.

You can find Dave Ulrich's book here: The Leadership Capital Index

Enjoy your leadership!

Mads Middelboe

Executive Advisor & CEO

Leadmore ®