Just ask anyone to reflect on the impact of a past or current leader who has had positive impact on them and you won’t get “he ran good meetings“ or “she was always on time.” You will get things like, “she always told the truth and was open and transparent” or “I could trust him to support me” or “she always owned up to her mistakes and accepted the consequences – she didn’t point fingers” or even, “he was always looking out for me and my team.” Moreover, the comments will likely be about the character of the leader and rarely about the specifics of what they accomplished. In the previous blog I set the stage to now tell you about the “Character Matters” ground-breaking research conducted my colleague Dr. Fred Kiel.
Disillusioned by the unethical traits and corrupt actions by several CEOs in high places who have destroyed the value of the institutions they were entrusted to lead, Dr. Kiel sought to examine the role character might play in achieving sustainable value. Data sets were collected on 80 CEOs and their teams from a cross-section of large, medium and small private, publicly traded, nonprofit and even private equity firms, and observations were solicited from over 8,000 of their employees. From previous research the four moral principles of Integrity, Responsibility, Forgiveness and Compassion were deemed to be the differentiating elements that employees used to evaluate the character of their CEO and senior team. The results were extraordinary. High character CEOs, or what Dr. Kiel calls ‘virtuosos’, were scored to exhibit Integrity 30% more, Responsibility 40% more, Forgiveness 22% more and Compassion 45% more than ‘self-focused’ low character CEOs. What’s more, the Return on Assets for the ‘virtuosos’ was over 10% better than the ‘self-focused’ deadbeats. Perhaps even more importantly, ‘virtuosos’ had on average of 25% better scores across five Workforce Engagement Factors than their ‘self-focused’ counterparts and it doesn’t stop there. Virtuosos also scored significantly higher in things like Innovation, Adaptability, Teamwork, Collaboration, Talent Management, Communication, Vision, Strategic Focus and Accountability – all vital elements required in strategy execution. Finally, the same high scores (or low scores for the ‘self-focused’ leaders) outlined above were also reflected in the senior teams they led.
Is leadership character, or what Dr. Kiel calls “The CEO Effect”, the only critical ingredient effective in executing sustainable value? Of course not. A robust business model responsive to the macroeconomic opportunities and an organization ‘system’ aligned to deliver on that model are imperatives. However, Dr. Kiel’s research does point to the substantial impact the CEO and senior team have on sustainable value creation. This is very much aligned with the broader research done by academics and reveals that “The CEO Effect” accounts for 5%-30% of the variance in ROA. That is not trivial if you are an investor.
So what are the implications of this research? Isn’t it much easier and faster to change/develop the CEO and senior team than market macroeconomics, a whole organization and its business model? Character is as malleable as the person(s) him/herself. Keep a ‘self-focused’ C-suite leader and their low character team in place and you are going to destroy value. Or keep, develop, select or hire a ‘virtuoso’ C-suite leader and top team of high character and you will create sustainable value for your organization. Over time they will shape the organization and its business model to maximize the opportunities in the macroeconomic environment. By the way, they will also create an organizational talent magnet that will attract and retain the best and brightest. And….I KNEW IT!
By the way if you want to know more about Dr. Kiel’s research check out his Tedx Talk entitled “Psychopaths in the C-Suite” at http://www.youtube.com/watch?v=vqBPZR63vfA