Is your CEO on the nose? Expect huge losses

by Stephanie Zillman17 May 2012

It’s no secret that a scandal is all it takes to bring down an empire – look no further than News of the World or Enron. But a more insidious issue could be chipping away at the company bottom line and it could be right under your nose. If your leaders are disliked or there are questions over their leadership, it won’t go unnoticed by investors.

New research from professional services firm Deloitte has provided the statistical backing to an issue of which HR has long been aware. After a global survey of analysts, it was found that market perceptions of leaders can move share prices. Just this week, upon the departure of former Yahoo CEO Scott Thomson, the company’s shares went up 1.6% in pre-market trading alone. After having spent 10 tumultuous days in free-fall following news Thomson had padded his qualifications, investors took the change in leadership as a green light.

The report, The leadership premium; How companies win the confidence of investors, revealed the following key statistics:

  • 80% of analysts factor in a discount for ineffective leadership and a premium for effective leadership
  • The gap between the value of a company with good leadership and that of a company with weaker leadership could be more than 35.5%
  • Concerns over the quality of a senior leadership team is enough for some analysts to avoid investing in the stock at all
  • 45% stated that senior leadership team effectiveness is the second most important criteria that analysts use to judge the success of a company.

While financial results are still the most important factor for analysts, the quality of senior leadership has a tangible, measurable impact on analysts’ opinions as to whether companies have been successful and, crucially, will be successful in the future.“If the company has an effective leadership, it becomes a target for us, if not we do not invest,” an asset manager based in Brazil told Deloitte.

The research highlights that if leadership can be developed to the appropriate level, then organisations can be set up to create long-term, sustainable leadership capability and in doing so will improve bottom-line performance and increase shareholder value. “With this research we wanted to put a quantitative metric on the effectiveness of leadership, in order to help businesses understand the impact that leadership can have on their performance and market value,” Adam Canwell from Deloitte said.

Effective leadership characteristics

The research suggests analysts’ expectations of leaders are broadly based around their tangible capabilities, but also their personal qualities.

The Deloitte research, corroborated by data from Kaisen Consulting, identified six core competencies as:

1. Driving competitiveness and innovation

2. Providing direction and purpose

3. Making effective decisions

4. Inspiring others to act

5. Developing people

6. Building high‑performing teams


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