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Effective leadership can raise company values by 16% says Deloitte


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May 16, 2012:  In a global survey of analysts, professional service firm Deloitte has found that market perceptions of leaders can move share prices. The new Deloitte report, The leadership premium; How companies win the confidence of investors, reveals just how important leadership is for analysts, private equity companies and investment bankers as organisations face major structural changes in the way they do business, including increased media scrutiny, evolving regulatory requirements, demographic changes and demand for increased sustainability.

The quality of senior leadership in dealing with these tough new challenges - including core capabilities as well as personal qualities such as honesty and integrity - is highlighted in the report as having a direct and measurable impact on analysts’ assessments of whether companies have been successful and will be successful in the future.

The report is based on a survey of leading market analysts in the United Kingdom, the United States, China, India, Japan, and Brazil.  

“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,” said Adam Canwell, Deloitte Consulting Principal.

“This report uncovers a tangible metric that has a real impact on the long-term shareholder value of organisations, which we hope will set out a compelling vision of effective leadership for the future,” added Mr Canwell.

According to the report, the analysts who said the quality of leadership affected their valuations of companies awarded, on average, a premium of 15.7% for particularly effective leadership, whereas, on average, 19.8% discounts are applied where there is ineffective leadership.

This means that 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%. Some analysts state that concerns about the quality of a senior leadership team would be enough for them to avoid investing in that stock at all and 80% of analysts will factor in a discount for ineffective leadership and a premium for effective leadership.

These results highlight 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 improve bottom-line performance and increase shareholder value.

The report highlights that 45% of respondents stated that senior leadership team effectiveness is a criteria that analysts use to judge the success of a company.

The report indicates that analysts look for three core components when assessing an organisation’s leadership strength:

  • Strategic clarity and setting direction – a clear vision of what the organisation needs to achieve
  • Successful execution of strategy – proven ability to meet objectives
  • A culture of innovation – commitment to enterprise and creating an environment for ideas.

In addition, analysts also look for two attributes that support these components: effective corporate governance and effective leadership characteristics.

“To succeed in the long term, an organisation needs a clear and inspiring vision of where it wants to be and the resources, ability and drive to get there. The challenge for leaders is balancing current and future needs, within a culture that supports new ideas and fosters a strong sense of belonging and purpose. These conditions aren’t developed accidentally as effective leaders need to design them and analysts recognize that,” added Mr Canwell.

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