Leadership - How valuable are you

Ben Ponne, Business Manager, Asia Pacific, Architecting the Enterprise

Last year, when Steve Jobs (former CEO of Apple) took medical leave of absence Apple’s shares fell $22, or 9% in the after-hours trading in Frankfurt. In 2009 when Jobs took a similar leave of absence, the shares fell 10% on the US market and trading was briefly suspended. This shows clearly the influence of CEO reputations on shareholder value.

Burson-Marsteller surveyed the importance of CEO reputation amongst approximately 1,400 influential business people from five key stakeholder categories, including CEOs, other senior executives, financial analysts, government officials, and journalists. Here are some of the results:

• CEO reputation can represent a staggering 45 per cent of a company's reputation;
• Companies whose CEOs were rated "most admired" by respondents achieved a 13 per cent annual shareholder return, while companies whose CEOs were rated less favorably delivered a negative 28 per cent annual shareholder return.

But it is not only the CEOs who have an impact on the value of an organisation. Each of us is part of the fabric that makes up the total value of an organisation. To illustrate this, let’s go back to the definition of an organisation from Herbert Simon (Nobel Laureate in Economics 1978). He described organisations as; "tools that permit groups of human beings to aim at and achieve goals that would be far beyond the reach of their powers as individuals". Although the CEO has a lot of power he or she will need others to achieve the organisational goals. Each and every member of an organisation has personal value that can be utilised for the benefit of the organisation.

For example; when Jose Ignacio Lopez, an executive in charge of global purchasing for General Motors, was approached by Volkswagen in the 90’s the GM shares on the New York stock exchange dropped immediately 4.4%, which corresponded to $840 million value destruction (adjusted for the Down Jones Industrial Average). Lopez had developed tremendous value by shaving about $1 billion of GM’s annual costs. This had a direct impact on his personal capital in the market as other manufacturing companies had similar challenges.

Personal value and reputation

Personal value is not something we can manufacture or change overnight. It is a reflection of our character and personality on your environment. Or in other words how your environment perceives you; your reputation. Your reputation is an expression of what is real and authentic about you. Frances Hesselbein, who was hailed by Peter Drucker as the world’s best leader, said: "Leadership is a matter of how to be, not how to do. We spend most of our lives mastering how to do things, but in the end it is the quality and character of individuals that defines the performance of great leaders." So we are back to ourselves, but what is the relationship of our personal value to the value of an organisation? The answer on this question can be found in Authentic Leadership.

Authentic leadership in organisations

Long term sustainable value can only be achieved by people who share the same values as the organisation they work for. Dedicated and motivated leaders build organisations over a prolonged period of time. This is only possible when leaders have a deep sense of purpose and are true to their core values while working in an organisation. Recent corporate scandals have shown many examples of leaders whose strategies and tactics were focussed on short-term financial considerations. They lost sight of their inner values and focussed on outward gratification, such as power, money and prestige.

The core of your reputation is who you are and what you stand for. It is a valuable asset that you can use to create tremendous value. Your personal history, the story of your life so far, is what has shaped your values and beliefs. Only when you know the essence of what has shaped you, you will be able to become an authentic leader; a leader who is true to his or her own personality, spirit, and character. You have to ask yourself how well you understand your own unique blueprint and the associated story that shaped it.

Organisational culture and your reputation

Your personal reputation is also formed by the organisations you have worked for. Organisations with excellent leadership usually have a strong culture. In a strong culture employees will slowly internalise the values of the organisation and can make independent decisions based on this. These values are reinforced over and over again and employees know exactly what is expected of them and how to act in a given situation. This has a tremendous positive impact on productivity. Employees who act on these values will receive positive feedback that keeps reinforcing them.

Your reputation will keep changing all the time based on your experiences. The reputation of organisations, good or bad, will impact your personal story. If your values and beliefs are not aligned with your organisation then you will not provide maximum value. In business and governance this is known as the agency problem. The agency problem is a conflict between the employees (the agents) who look after the interests of the business but use their authority or power for their own benefit. This is a problem that exists in almost all organisations to a certain extend. Obviously this problem gets larger when the interests of the business are completely different than the interests of the employees.

Great organisations have people whose values align with the organisation’s values and minimise the agency problem. In fact it goes even further. Jim Collins, in his seminal book "From good to great" that researched the differences between good companies and great companies, found that leaders from companies that go from good to great, do not start with "where do we need to go" but "who should be on board". They don’t set a new direction by articulating a fresh vision or strategy and hope that people "fit" in. They start by getting the right people on the bus, the wrong people off the bus, and the right people in the right seats. And they stick with that discipline; first the people, then the direction. This allows the values and beliefs of the key people to amalgamate into the organisational fabric and vision. Colins gives the following example to illustrate this:

"
Take David Maxwell’s bus ride. When he became CEO of Fannie Mae in 1981, the company was losing $1 million every business day, with $56 billion worth of mortgage loans underwater. The board desperately wanted to know what Maxwell was going to do to rescue the company. Maxwell responded to the "what" question the same way that all good-to-great leaders do: He told them, That’s the wrong first question. To decide where to drive the bus before you have the right people on the bus, and the wrong people off the bus, is absolutely the wrong approach.
"

Once the leadership and culture in an organisation is established it will be very difficult to change. It is often easier to change the leaders (the people) than change the leaders (the behaviour). Wall Street Journal editor Jack Falvey observed this very well when General Motors invested more than three million dollars on a program called "Leadership Now". He wrote: "They will discover soon that they can’t spend their way into instant leadership".

Most organisations will not just look for a skill set but for people whose character and personality fit within their organisation, at a particular point in time. This was one of the reasons Google announced in January last year that their CEO Eric Schmidt, who had been in charge for 10 years, would step down and Larry Page would become the CEO again. Larry Page cofounded the company in 1998 with Sergey Brin. Eric Schmidt had done a fantastic job and financially Google had a very strong balance sheet. However, Google’s reputation as being on the technology edge, started to erode. Competitors like Facebook, Yahoo, Twitter and Apple were starting to eat into Google’s user base and associated advertising dollars. A good balance sheet was not good enough and the board believed that Page could bring back the reputation Google once had.

Communicate your story

Smart leaders know that their reputation can help drive value into their company. When you clearly understand your personal story, and know who you are, then you will need to find out how to communicate your story. If you communicate well and you are aligned with the right organisation, then the results will be surprising. But how do you get the communication right as a leader?

Brain activity scans have shown that people who receive information that contradicts their current beliefs (cognitive dissonance), activate the emotional centers of their brain. This does not happen with information that supports their current beliefs. Once people arrive at a conclusion that makes them emotionally comfortable then the reward and pleasure centers of the brain show increased activity, which reinforces their original beliefs. This phenomenon is called the confirmation bias.

This means that trying to persuade people based on logical reasoning and abstract concepts might not be the best way to go from the outset. This approach is likely to enforce people’s current beliefs, good or bad. You better have a good story that engages people at the emotional level. Let’s illustrate this with an excellent example, the story of Al Gore.

In 2000, when Al Gore ran for president, he failed to connect with his people. He didn’t have an emotionally inspiring campaign and used abstract arguments to make his case. Also, his body language, which was perceived as quite aggressive, didn’t help him and he lost the election.

This is in stark contrast with his authentic approach in his movie "An Inconvenient Truth" in 2006. This is where he connected with the audience at an emotional level, instead of reading scripts prepared by his campaign team. He used engaging stories that captured the imagination of the audience. Authentic and sincere stories about his family, his life and what the environment meant to him personally. Between 2000 and 2006 he had learned how to emotionally connect with his audience. His body language was confident and calm with dry humor about himself. He had found his own personal story, a way to communicate it, and an environment where this would provide the most value.

Next steps

Your value as a leader is strongly connected to who you are. It is not just about the skills you have but more about who you are. Everybody is unique and understanding your own personal story can help you create great value for your organisation. It can also help you find the right place in an organisation. Or it can help managers to identify untapped potential (value) that they can leverage. However, you will need to be able to communicate your story in a clear and unambiquous, authentic way. People will immediately notice when you are inauthentic. It’s the same as a lie; the truth will always catch up. Knowing your unique personal story, and connecting to it, can add another valuable dimension to your journey to become a great leader.

"Leadership is a deep journey into yourself" – Jeff Immelt (CEO GE)