Ulrich's Leadership Capital Index

Putting a Value on Leadership

Ulrich's Leadership Capital Index - Putting a Value on Leadership

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The Leadership Capital Index measures the market value of your organization's leadership.

Your organization's market value depends on many things, not least measurable and attention-grabbing factors such as profitability, assets and earnings.

But many investors are increasingly looking beyond your bottom line. They are putting your leadership under the microscope, because they recognize that effective leadership produces financial results. In other words, they are trying to put a market value on leadership.

So, is it possible to put a tangible value on intangible elements such as personal leadership qualities, organizational culture, and talent management? The Leadership Capital Index is a new tool that aims to give investors and organizations a rigorous framework for doing just that.

In this article, we look at the origins of the Leadership Capital Index, how it can be used by investors and organizations, what leaders can do to boost their Index rating, and how it can be useful to team managers.

What Is the Leadership Capital Index?

Dave Ulrich, a professor of business administration at the University of Michigan's Ross School of Business, wanted to create a tool that he said would "evaluate leadership through the eyes of investors to more fully determine a firm's value."

His research led to his 2015 book, The Leadership Capital Index, in which he details how leadership can be audited, in much the same way that financial confidence is assessed in indices from ratings agencies such as Moody's and Standard & Poor's.

The Index outlines a set of leadership skills, competencies and behaviors that Ulrich's Leadership Capital Index Group (LCIG) assesses on behalf of investors. These audits are designed to reduce the risk of investing in companies, and to provide a more dependable way to measure the quality, or financial value, of an organization's leadership.

And investors really do pay attention to how an organization is run. Ulrich's research found that between 25 and 30 percent of an investment decision is based on the quality of a company's leadership.

The Index is divided into two domains, individual leadership and organizational leadership, and each domain is divided into five areas for assessment. We look at each domain in more detail, below.

Individual Leadership

This domain focuses on the people at the helm of your organization, and examines their personal qualities and competencies.

The LCIG assesses leaders during on-site visits and interviews, and by analyzing corporate reports. It also looks at a leader's performance appraisals, key performance indicators, and 360-degree feedback results.

Note:

Organizations can sign up for a Leadership Capital Assessment, and the audits are carried out with the permission of all the parties involved.

The Group also monitors business blogs and social media to see if a leader's reputation matches the promises that he or she makes to customers and employees. It will even factor in his diet, exercise regime and sleeping habits!

All of this research is analyzed to see how the findings contribute toward five assessment areas. We show these areas and how they are scored, in the table below.

Table 1: Leadership Capital Index Individual Leadership Assessment Areas

Assessment Area Description Rating (1 low, 10 high)
1. Personal Proficiency This looks at a leader's aptitude for the role. Does he have the right character, behaviors and integrity to be an effective leader?  
2. Strategy Does she have a clear idea about the future direction of the organization?  
3. Execution Does he follow up on plans and strategies, and implement them?  
4. Managing Talent Does she find, develop and retain a strong, competent workforce?  
5. Leadership Brand Does he behave in a way that is consistent with customer expectations for the company? Also, how effectively does he react to changing market conditions?  
    Total:

Organizational Leadership

Your organization's key leaders will have their own strengths, talents and weaknesses. But the Leadership Capital Index also rates their effectiveness as a team. It analyzes the systems that they put in place to manage and develop leadership within the organization, and whether they have created, and live up to, a shared culture and set of values for the organization.

The Index rates organizational leadership across five areas, which you can see in the table, below.

Table 2: Leadership Capital Index Organizational Leadership Assessment Areas

Assessment Area Description Rating (1 low, 10 high)
Culture How effectively are the organization's values shared throughout the organization's leadership and management structure?  
Managing the Flow of Talent Does the leadership team invest in identifying and developing people with leadership potential?  
Managing Performance and Accountability Has the leadership team established effective performance management systems, and does it motivate people to meet their objectives?  
Managing Information Does the leadership team promote an effective flow of information? Does the right information reach the right people and places at the right time?  
Managing Work Has the leadership team created an organization with effective working practices that delivers goods or services that meet its customers' needs? And is it able to react to changing business conditions?  
    Total:

How to Use the Leadership Capital Index

Ulrich's framework gives potential investors a useful tool to help them to make decisions, but what value does it have to an organization, and its leaders, managers and people? The answer is that it gives them the power to influence and boost their shareholders' confidence and their organization's market value.

If you know what investors care about, and what leadership qualities they are looking for, then you can aim to provide them. A comprehensive Leadership Capital Index audit will pinpoint the strengths and failings of individual and organizational leadership, but there are steps that you can take right now to make your organization more appealing to investors by improving the quality of its leadership. We explore six of them, below.

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Tip:

These six steps can also be used or implemented by team managers. The strategies and techniques below can help managers to be more effective, and to develop their own leadership skills.

1. Develop Future Leaders

The Index favors leaders and organizations that create more good leaders. Identify and nurture your potential leaders, then put them into positions where they can best use their talents. The Index describes leaders who take on talented people but then lock them into one role as "magnets." Don't be a magnet!

2. Listen to Your Customers

Get to know how your customers view you. What is their experience of dealing with your organization? You can find out more about how to put yourself in their shoes in our article, Customer Experience Mapping. Also, you need to ask whether your brand reflects your customers' values and beliefs? Ulrich believes that an organization's culture is its identity "in the minds of its best customers made real to your people."

It's also important to develop an effective social media strategy to engage with your customers, and live up to the values and behaviors that you promote online. The Index analyzes social media to see if your messages and posts match the reputation that you want to have.

3. Invest in Training

Give your people the tools and resources that they need to meet your customers' needs and wants. That includes looking at your leadership training programs, to ensure that they also cover how to deliver what you promise to your customers. Our article, Training Needs Assessment, explores strategies for identifying the who, what and how of delivering your people's training needs.

4. Be an Unselfish Leader or Manager

Ulrich's group looks at how often a leader says "we" rather than "I." Creating and celebrating wins for yourself will make you appear a selfish, rather than an inclusive, leader or manager. Good leadership and people management is about making others feel successful. Share the credit for successes with everyone involved.

5. Invite Investor Input

As we mentioned earlier, much of a company's market value comes from "intangibles" such as the quality of leadership. At a senior level, leaders should try to give intangible factors more definition. For example, the Index itself takes an intangible – the value of leadership – and breaks it down into the measurable elements in the two domains described above.

An organization can invite investors and other key stakeholders to co-create, facilitate and participate in the leadership development process, so they get the leadership that they want.

6. Run Positive Meetings

There are some well-established methods for running effective meetings. However, the Leadership Capital Index Group looks at more than just their effectiveness; it also looks at how much you involve people in meetings, and at how they feel afterward. Consider not just how to steer your team toward its meeting goals, but also how you can create a positive, inclusive atmosphere in those meetings.

The Leadership Capital Index, and the approaches for using it, are reproduced with permission from Professor Dave Ulrich.

Key Points

The Leadership Capital Index is a framework designed to give investors a measurable value of leadership. It was developed by Professor Dave Ulrich, after his research revealed that the quality of an organization's leadership accounts for up to 30 percent of an investor's decision about whether to put money in it.

The Index divides leadership into two domains: individual and organizational. Each domain is scored against five assessment areas.

Not only does the Index help investors to more accurately determine an organization's market value, but the organization itself can also use it to improve its leadership processes and systems, so that investors have more confidence in it and its market value is boosted.

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