Great leadership: The elephant in the room
Intuitively we all know that great leaders are valuable property. Leaders are the difference between a great company and an ‘also ran’. Maybe we could say the same for many things - technology, processes, or access to capital for instance? Maybe? Those factors are all important. But it is leadership which creates the differential advantage, because leaders set direction and create culture. By Juliet Bourke - Consulting, Partner.
Great Leadership: The elephant in the room
Intuitively we all know that great leaders are valuable property. Leaders are the difference between a great company and an ‘also ran’. Maybe we could say the same for many things - technology, processes, or access to capital for instance? Maybe? Those factors are all important. But it is leadership which creates the differential advantage, because leaders set direction and create culture.
Of course, it’s very easy to make such bold statements, but are they true? Do we have a large pool of great leaders in our companies? How many leaders are strategic, and how many still behave as managers and deliverers? In particular, are the Chief Information Officers of finance companies known for growing a strong cadre of strategic thinkers and inspirational people leaders, or is there territory that needs to be covered quickly?
Our recent global research is sobering. We found a 34% gap between what’s needed and leaders’ current capabilities . The starting point is to address this elephant in the room - leadership. It’s not an easy conversation because many of us are more comfortable talking about tangible products/services and operating models, and, frankly, technology, than the intangibles of leadership. And as we open up the discussion on great leadership we also feel vulnerable wondering where we sit on the bell curve. Nevertheless it’s a conversation we have to have as the research shows that great leaders are in short supply.
But it doesn’t have to be that way.
Putting a number on leadership
It is notoriously hard to quantify the impact of leadership on company performance, separating it from the quality of a company’s product/service offering, or the overall performance of an industry/sector.
Yet that is exactly what we ask company analysts to do. Their role, as investment bankers, private equity investors, hedge fund executives, or portfolio managers, is to evaluate company performance. In our recent global research, The Leadership Premium , Deloitte surveyed more than 440 analysts in the US, UK, India, Brazil, China and Japan to identify the factors they use to evaluate company performance and the specific value they place on leadership.
As a collective, they called out ‘senior leadership team effectiveness’ as the second most important factor behind financial results and ahead of ratio analysis (3), quality of product/service (4) and forecast earnings (5).
The analysts also told us that they place a premium on good leadership, and a discount on poor leadership. This differential can be as high as 35%. Some 80% of analysts said they give a premium for particularly effective senior leadership team, and conversely 80% said they place a discount on a company perceived to have a particularly ineffective leadership team. The size of the prize? An additional 15.7% for a company with an effective senior leadership team, and a discounted value of almost 20% for companies with an ineffective leadership team.
The importance of senior leadership to company value has been quantified and the size of the prize is meaningful.
The current state of play: a shock to the system
The Deloitte 2014 global Human Capital Trends survey of 2,500 business and HR leaders in 94 countries revealed that leadership was their most pressing concern, regardless of industry or country. A significant 86% of respondents told us that leadership was ‘urgent’ or ‘important’, and the lack of leadership talent is constraining company growth.
Why? Because both quantity and quality are being compromised: ‘not only are companies not developing enough leaders (a flatter structure produces more demand), but they are also not equipping the leaders they are building with the critical capabilities and skills they need to succeed’ namely business acumen, collaboration, global cultural agility, creativity, customer-centricity, influence and inspiration, and building teams and talent.iii
What does that gap feel like in practice?
Les Vance, the former Chief Operating Officer Technology at Westpac, now General Manager of Investments and Business Partnering, described it to me this way: “The world is like a Babushka Doll. Leaders need to be able to see the bigger picture, the group strategy, and then trace that vision down through each of the layers to the widgets and then back up again. The problem for technology is that leaders often look at issues in terms of technology - the widget - and they struggle to keep the outcome - customer centricity - front of mind”.
More than just seeing things holistically and being able to communicate that vision to each level, Les spoke of integrity, empathy and resilience: “You have to have a position and stand for it. Be prepared to take knocks. And ultimately, and probably most importantly, you have to relate to people. There’s not many of those kind of leaders in IT and banking”. Not surprisingly our research revealed that only 13% of companies rated their organisations as having ‘excellent’ leadership programs at all levels – whether new, next generation or senior - with 87% rating their programs as ‘weak’ or ‘adequate’.
So where does that leave us?
Our view is that the conversation needs to be started by executives with executives. If 2,500 business and HR leaders tell us that developing leadership capability is their number one issue, then executives need to intervene. After all, leadership is the responsibility of leaders. This means that executives must start the conversation about leadership, and stay in that conversation so they can shape the solutions: The who; the what; and how leadership capabilities are deliberately developed.
Let’s talk, then act.
1Deloitte, Global Human Capital Trends 2014. Engaging the 21st Century Workforce (2014).
1Deloitte, the Leadership Premium. How companies win the confidence of investors (2012).
1Deloitte, Global Human Capital Trends (2014) p. 26.
Juliet Bourke is a Human Capital Partner at Deloitte. She brings more than 20 years’ experience in human capital, management and law to her work. As an internationally recognised expert on cultural change, leadership and diversity, Juliet is listed in the Who’s Who of Australian Women since 2007.
This article was first published in Asia-Pacific Banking & Finance.