We see the correlation between individual character and group culture all around us. But can the character of business leaders affect financial results?
The book, "Return on Character," says it can. And its author, the academic and consultant Fred Kiel, has found a way to calculate the impact of a leader’s character on the financial performance of their company. His research team carried out a seven-year study into this topic and the results are fascinating.
Imagine... You sense a warm, positive buzz in a certain café, where the baristas are relaxed, good humored, and attentive. Then you meet the manager and – surprise! – she exudes a warm, friendly calm. She involves her team in decision making and she respects their skills and experience. Meanwhile, in the store next door, resentful employees listlessly stack shelves, under the steely eye of their grumpy boss.
But is this just about personalities? When I met Kiel to record my Mind Tools Expert Interview podcast, I began with the basics. What does a leader of good character look like?
Members of the Mind Tools Club can hear the full interview. If you're not already signed up, read on here for a taster...
Fred Kiel asserts that a leader of good character tells the truth. Further, "They keep their promises. They stand up for what’s right, and then they have a certain humility about them, where they own up to their own mistakes and accept the consequences.
"They tend to look first at what they did wrong, rather than what other people did wrong, and when other people make mistakes they tend to be curious rather than blaming and shaming. And then they treat you as a human being and not as an object."
In his groundbreaking study, Kiel set out to put a hard value on those admirable traits. The first step was to ask the 84 CEOs participating in the study to rate themselves against four defining characteristics: integrity, compassion, forgiveness, and responsibility. Then their employees were asked to rate these leaders against the same characteristics, to provide objectivity and perspective.
From this data, the CEOs were given scores relating to their leadership behavior. The most highly principled leaders were labeled "virtuoso CEOs," while those at the other end of the spectrum were called "self-focused CEOs."
The research team then cross-referenced these character scores with the financial results of the leaders’ companies. It discovered that the virtuoso CEOs achieved nearly five times greater return on assets than their low-ranking counterparts.
It’s a remarkable finding, but what can we do with this information, given that leopards don’t change their spots? Once a self-focused CEO, always a self-focused CEO, right? Wrong, says Kiel. It may not be easy, but leaders can move from one end of the spectrum to the other.
In "Return on Character," Kiel outlines this process of personal change. He sees it as a six-part journey, starting with "invitations to change." As an example of this step, he talks about a young executive who effortlessly rose through the ranks of a company and assumed he was next in line to be named president of a major business unit.
"His invitation for change, or wake-up call, came when the CEO invited him into his office. He came in expecting to get the good news and instead he was told, ‘I’m sorry, but I’m not giving you this job. I’m giving it to your peer instead.’ And that was a very traumatic event for him because he’d never had a failure experience to deal with before. So that became a real invitation for him to change."
The other five steps to becoming a virtuoso leader require just as much humility and self-awareness, with the final one, "rewire your brain," designed to cement new good habits through focus and practice.
Completing all six steps in this process is a major undertaking, but no doubt worth it, on a personal and organizational level, for under-performing leaders.
What about those leaders who don’t need, or want, to undergo large-scale personal change, but would still like to maximize their return on character? Kiel offers some useful tips in this audio clip from our Expert Interview podcast.
"Return on Character" is an absorbing read that shows leadership behavior can be linked to business results. Senior executives may well benefit from taking these ideas on board. But even if we’re not in charge of our company’s financial performance, we can still learn from the basic principle: it pays, literally, to be honest, compassionate and responsible.
What would you do to improve return on character, for yourself or your organization? Share your thoughts and experiences in the comments below.
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