Companies’ leadership needs to be held to account and rated definitively in the same way credit is – or so says respected industry figure Dave Ulrich.
“We surveyed investors and found about 30 per cent of their decision-making is tied to leadership, but they don’t know how to do it,” reveals Ulrich.
“Leadership matters but there’s variance of what good leadership looks like.”
Now, the professor of business has confirmed his latest project – a new Leadership Capital index that aims to provide investors with more concrete information about the effectiveness of a company’s leadership.
“In the financial capital market they have a Moody’s index, a Standard & Poor’s index, Fitch’s – the credit rating of a firm,” he said. “If you get a good rating you can borrow money at 4 per cent, if you get a bad rating you pay 6 per cent because there is a risk associated. Why not create that for leadership? What a simple concept. Why not have a leadership rating risk index?”
According to Ulrich, when people assess leaders they too often look at traits like style, charisma and authenticity. “They’re not seeing leadership as driving outcomes,” he says. “That’s the next phase. Can leaders create outcomes investors care about?”
Ulrich explained the new index will assess five personal traits and five systems that create good leadership; “It’s ten dimensions, each with five indicators, so you can get really detailed, but it will help investors better measure the leadership risk of a company.”
He says the Leadership Capital index, out next autumn, has the potential to form part of a broader set of performance indicators – including financials, sustainability and credit ratings – that investors rely on when making decisions.