The quality of a company's senior leadership has a direct and measurable impact on the its current and future success. That is the main finding of The Leadership Premium study by Deloitte which involved leading market analysts from the UK, USA, China, India, Japan and Brazil. The quality of leadership does not include only key skills but also personal leadership qualities such as honesty or integrity.
The aim of the study was to find easily understandable and unambiguous measure of leadership effectiveness to help companies understand the impact of leadership on their performance and market value. That is why the study authors asked analysts from the ranks of investment bankers, private equity investors, hedge fund managers and portfolio managers from the above mentioned countries through online questionnaires and telephone interviews.
It turned out that more than half (52%) analysts routinely included senior leadership assessments in their evaluation of companies. 80 percent of the analysts agreed that a company with a highly effective team of senior leaders receive a premium rating. Similarly, 80% would reccomend a discount should they have a highly ineffective senior team leaders. Evaluating the effectiveness of senior team leaders is the the second most important criterion for analysts just after the financial results of companies.
Analysts who assess the quality of leadership in their recommendations award highly effective senior leadership teams by an average premium of 15.7%. In the case of highly ineffective leadership, on the contrary, they put an average discount of 19.8%. The value of companies with good leadership and bad leadership may thus vary by up to 35.5%.
In assessing the strength of leadership in an organization, the analysts consider three main criteria:
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degree of clarity of the vision that the organization wants to achieve,
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success in achieving objectives,
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commitment of the company to innovation and fostering an environment for free sharing of ideas.
In addition, they watch two other attributes that support the above criteria: effectiveness of corporate governance and leadership characteristics.
The study is available for free download on the Deloitte website here.
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