Can the character of the chief executive really impact an organisation’s financial returns by 30 per cent? Psychologist Fred Kiel thinks so.
“Leaders of strong character are no longer just ‘nice to have’ but are required for a company that wants to outperform its competitors,” says psychologist Dr Fred Kiel. “There is an observable and consistent relationship between character-driven leaders and better business results.”
He argues that this “leadership effect” could be the biggest source of competitive advantage for companies. And he has the data to prove it.
Kiel heads business consultancy KRW International, which has advised clients as diverse as Goldman Sachs, Deutsche Bank and the World Wildlife Fund on effective leadership.
“The behaviour of the chief executive filters down to everyone, with ripples also reaching customers.”
Through this work, Kiel formed his view that there is a connection between the financial performance of a company and the character of its chief executive.
But rather than relying on a hunch, Kiel and his team moved their research from anecdotal evidence to hard numbers. The results were surprising, with the researchers eventually calculating that financial results were impacted by up to 30 per cent due to who was in charge.
Defining a good leader
Kiel and his team defined “character” on measures of integrity, responsibility, forgiveness and compassion. Kiel then interviewed 84 chief executives and their teams and polled 8600 employees. The CEOs were then ranked from being virtuosos to self-focused (see “What Sort of Leader Are You?” below).
The research team found that over two years, the companies led by virtuosos delivered a return on assets (net operating income as a proportion of total assets) averaging 9.35 per cent – nearly five times that of the self-focused CEOs, who delivered only 1.93 per cent.
Employees also reported more satisfaction with the company. There is good evidence that the behaviour of the chief executive filters down to everyone, with ripples also reaching customers and stakeholders.
While Kiel acknowledges that the research deals only with companies based in North America, he believes his findings would apply to most developed economies. Virtuoso bosses emphasised good decision-making and drew on a range of views and resources.
They saw creating and communicating a clear vision and strategic focus as a key role. They were willing to have strong people with different views around them. They did not see execution as part of their role, but instead trusted those who reported to them to implement policies.
If a decision turned out to be wrong, the virtuoso took responsibility. But the research showed their decisions were more likely than not to be right.
Conversely, the research found self-focused leaders were not particularly effective. Their emphasis on individual, “gut” decision-making often led them to the wrong decision – often wrong even in the short term.
Is background important?
Kiel found that the family backgrounds of the virtuosos weren’t especially affluent but were stable. A high proportion said they’d had a supportive parent and good role models.
When they entered the workforce, they sought out mentors, and had mentors through their careers. Self-centred CEOs usually had no mentors and often disdained the concept of mentoring.
But Kiel rejects the idea that people’s attributes are fixed. To “rewire” one’s thinking, he suggests mindfulness training – learning to be aware of your thoughts, feelings and actions without judging them – as a good place to start. Keeping a journal can also increase self-awareness. Other steps can be as simple – or as hard – as finding reasons for both sides of an issue or decision.
Committing yourself to bear the consequences of an action is another important move. Eventually, these changes become automatic. An interesting indicator of character, Kiel says, is the way people respond to those who cannot help in your career – waiters or shop assistants, for example.
Expressing gratitude to people in these roles indicates a move away from self-centredness. Another indicator is finding reasons for optimism rather than always assuming the worst.
Some US companies have begun training programs for character building but, says Kiel, these are usually the first to go when the budget needs to be trimmed. And this sends the wrong message about the importance of character.
“There’s nothing ambiguous about our research findings,” he told INTHEBLACK. “By demonstrating the link between truthful, compassionate, responsible, forgiving and fully integrated leadership and positive business results, the research can provide a better foundation for business education, training and practice.
“There is a great need for business schools to revise their curricula to include an equal emphasis on character development, and not just treat it as a sort of optional add-on. We now know the connection between the traits of leaders and the bottom-line results, so no one can argue that character isn’t important.”
What sort of leader are you?
Virtuoso leaders are skilled businesspeople with strong characters. They create a vision, maintain a strategic focus, and build an executive team of equally strong character.
Self-focused leaders are seen by employees to place their own welfare and success squarely at the top of their priorities list.
- They keep their promises and follow through with their commitments.
- Own up to their mistakes and correct them.
- Accept that people make mistakes and forgive them.
- Treat people as people, not commodities or numbers.
- They can't be trusted to keep promises.
- Often pass off blame to others.
- Frequently punish well-intentioned people for making mistakes.
- Are especially poor at caring for people.
SOURCE: KRW International
How does character convert into profit?
Psychologist Fred Kiel says leaders of high character and their teams create the conditions for an engaged, innovative, adaptable and highly energised workforce which delivers on vision and strategy. It’s this that leads to better financial performance.
- High character leaders lower corporate risk by selecting, developing and retaining other high character people.
- They supercharge their workforce by establishing an environment where employees are confident in management, energised by the vision, clear on their priorities to support the strategy, and respectfully held accountable for their decisions and performance.
Source: KRW International
Fred Kiel’s book Return on Character
(Harvard Business Review Press) is out now. Watch his TEDx talk, “Psychopaths in the C-suite
This article is from the August issue of INTHEBLACK