If you’re a leader, how do you like the idea of people being able to rate you – giving you a mark out of 10 for your strategic thinking or your people management skills? Initially, it might sound a bit alarming but, in the cut and thrust of business, a company’s success depends largely on its leaders' abilities. So isn’t it fair enough for stakeholders to rate them?
Dave Ulrich thinks so. The author and leadership expert works with investors seeking to weigh up companies' potential before investing in them. In his experience, prospective investors look at a company’s income, strategy, brand, global position – of course – but they also place great store by its leaders. In fact, leadership usually takes up a quarter of their consideration, Ulrich says.
"But here's the problem: it's hard to track. How do you know somebody's a good leader?" he asks, in our Expert Interview podcast.
"Sometimes investors go on instinct. They say, 'Oh this person's great! They dressed well. They wore a great suit. They had great temperament.' But that's not real leadership, and we wanted to come up with a way to more rigorously define what investors can look at in [assessing] the effectiveness of a leader."
And so the Leadership Capital Index was born. Ulrich and his colleagues use it in their consultancy work with investors, and now it's available for general use too, via Ulrich's new book titled, "The Leadership Capital Index, Realizing the Market Value of Leadership."
The index lists characteristics in two broad domains: the individual domain, looking at the personal qualities of a leader, his or her strategic prowess, execution proficiency, interpersonal skills, and leadership "brand" or style; and the organizational domain, covering the leader's ability to nurture an appropriate culture, manage talent, inspire accountability, communicate information, and create work processes that align with the company's strategy.
Each of these 10 elements is given a mark out of 10 for the leader, and another mark out of 10 for the senior leadership team. So you end up with percentage indicators of the effectiveness, or "leadership capital," of the top executive and his team.
That's helpful but you can drill further down into each of these 10 elements to get a more detailed view. In fact, Ulrich has identified five or six items per element that may indicate the quality of leadership. As an example, "personal proficiency" breaks down into six items: