The Leadership Capital Index: A book review by Bob Morris

Posted on: October 16th, 2015 by bobmorris

Leadership CapitalThe Leadership Capital Index: Realizing the Market Value of Leadership
Dave Ulrich
Berrett-Koehler Publishers (October 2019)

Finally, a means by which to determine the bottom-line impact and value of individual and organizational leadership

I have read and reviewed all of Dave Ulrich’s previously published books and consider him to be among the most valuable contemporary business thinkers in terms of how to accelerate personal growth and professional development within a workplace culture. In the Foreword to this, his latest work, Mark Mobius suggests that Ulrich offers “a systematic and logical way to measure the elusive variable of company leadership that plays such a key role in determining company success and market value. Dave Ulrich has found a way to measure this variable, so critical to investment success.”

Obviously, all organizations need effective leadership at all levels and in all areas of the given enterprise. How to determine the market value of this leadership? As Ulrich acknowledges, people often make this demand: “Show me the measures on the existing balance sheet and income statement…The value of this book is that it provides you with the right questions to ask and the right indicators to track.”

In an article that appeared in the April (2015) issue of Harvard Business Review, Allan Freed and Ulrich observe, “What we need is a leadership capital index, similar to a financial confidence index (such as Moody’s or Standard & Poor’s). It would move beyond casual and piecemeal observations of leaders to more thorough assessment of leadership.” They then explain how they and their colleagues at the RBL Group created a leadership capital index by interviewing and surveying investors and by synthesizing at dozens of studies of the impact of leadership. “In general, these studies offered deep insights on one piece of an overall leadership puzzle. Some focused on personal leadership style of the CEO, others on compensation or training practices, and still others on organization governance and design. Few attempted to prepare a comprehensive approach to leadership as a whole that could be accessed by investors.”

As is often the case with an HBR article, “Calculating the Market Value of Leadership” led to this book in which Ulrich develops in much greater detail what does indeed offer “a comprehensive approach to leadership as a whole that could be accessed by investors.”

These are among the subjects of greatest interest and value to me in Chapters 1-5, also listed to suggest the scope of Ulrich’s coverage:

o Examples of Studies on Individual Leader Competencies and Financial Results
o Individual Leader Proficiencies: Personal, Strategic, Execution, People, and Leadership Brand
o Examples of Studies on Organizational Capabilities/Human Capital and Financial Results
o High-Level Overview of Leadership Capital Index
o Thought Leader Assessments of Leadership Capital Index Factors
o Types of Risk (Based on the COSO Framework)
o Framework for Assessing Leaders’ Personal Proficiency
o Indicators for Personal Proficiency
o Framework for Assessing Leaders’ Strategic Proficiency
o Approaches to Strategy (Key Dimensions of Strategic Proficiency That Create Overall Strategic Approach)
o Environmental Trends and Redefinition of Industry
o Indicators for Strategic Proficiency
o Framework for Assessing Leaders’ Execution Proficiency
o Exemplary Thought Leaders on Execution and Change Processes
o Decision-Making Governance Grid

It is no coincidence that most of the companies annually ranked among those that are most highly admired and best to work for are also annually ranked among those that are most profitable and have the greatest cap value. However different these companies may be in many (if not most) respects, all of them have this in common: effective leadership at all levels and in all areas of the given enterprise. Until now, with all due respect to ratings, it has been difficult (if not impossible) to calculate the value of an organization’s leadership.

As Ulrich explains, the leadership capital index has two dimensions, or domains: individual and organizational. “Individual refers to the personal qualities (competencies, traits, characteristics) of both the top leader and the key leadership team in the organization. Organizational refers to the systems these leaders create to manage leadership throughout the organization and the application of organization systems to specific business conditions. Using these two domains, previous leadership and human capital work may be synthesized into a leadership capital index that investors can use to inform their valuation decisions.”

Obviously, no brief commentary such as mine could possibly do full justice to the abundance of information, insights, and counsel that Dave Ulrich provides when helping his reader to understand WHY it is imperative to realize the market value of leadership and HOW to do that by putting the Leadership Capital Index into practice. I am among the readers of this book who are convinced that studying leadership through investor expectations is a very good and breakthrough idea. Just about everything an executive needs to know about that idea is in this book. It is a stunning achievement. Bravo!

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