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Effective leaders worth stock market premium of 16%, says Deloitte report

29 March 2012

A new research paper published by Deloitte today, reveals just how market perceptions of leaders move share prices.

In surveys and interviews in the United Kingdom, United States, China, India, Japan and Brazil, stock market analysts told Deloitte they’d award significant premiums for effective leadership and levy sizeable discounts for its opposite.

Deloitte discovered an average premium of 15.7% and an average discount of 19.8% – making the potential gap between the value of a company with good leadership and that of a company with weaker leadership an astonishing 35.5%.

It is clear that company valuations go up or down partly according to the perceived quality of leaders. The paper, The Leadership Premium, finds that analysts look beyond financial ratios to the broader picture of public and press opinion and corporate governance, to core leadership capabilities and to personal qualities such as honesty and integrity.

“I don’t view financial performance as that important because I think it is only a result,” an analyst in China told the firm.

Simon Holland, head of Deloitte’s global change and transformation practice, comments: “To succeed over 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. It also needs a culture that supports new ideas and that fosters a strong sense of belonging and purpose. These conditions aren’t developed accidentally: effective leaders design them in, and analysts recognise that.”

For effective leaders wishing to achieve the maximum leadership premium possible – regardless of sector – Deloitte recommends personal contact with analysts. Four out of five analysts surveyed cited face-to-face meetings as one of their preferred ways of finding out about leadership capabilities – with more than half saying it was their first choice method.

“It’s very important to see and listen to them, so I put enormous value in the analysts’ conferences they hold,” a UK analyst said.

Deloitte’s findings vary slightly by sector. Of the analysts surveyed, those focusing on consumer goods ascribed an average of 21% of company equity to the senior leadership team, compared with 14% for technology, media and telecoms (TMT) analysts.

“The impact of performance on results is often delayed in industries such as TMT, which are undergoing rapid and radical structural change and are subject to constant innovation,” says Will Gosling, a partner in Deloitte’s Consulting practice. “These industries might have to work specially hard to win a leadership premium.”

The implications of the research for the TMT sector are analysed in a separate report, part of the Deloitte ‘Digital Leadership’ series.

“Our earlier research has highlighted the importance of effective leadership to organisations operating in the dynamic environment of TMT,” Gosling continues, “The Leadership Premium: How TMT companies win the confidence of investors underlines that – analysts want to see leaders capable of responding and adapting quickly and supporting and developing innovation. They want to know that the conditions for successful execution of strategy are in place.”

Ends

Notes to editors

About the report
The findings of this report are based on online surveys and interviews with analysts from leading investment banks, private equity investors, hedge fund executives and portfolio managers in the United Kingdom, United States, Japan, China, India and Brazil. The research was conducted between August 2011 and January 2012.

  • The online surveys were carried out by YouGov on behalf of Deloitte between November 2011 and January 2012, based on a question set written by Deloitte. The sample sizes were: UK: 202; US: 202; Japan: 17; China: 24.
  • Face-to-face and telephone interviews were carried out by YouGov and Deloitte in the UK, US, Japan, China, India and Brazil between August 2011 and January 2012. The questions asked reflected those in the online survey, but also probed respondents in more depth about their valuation decisions. The sample sizes were: UK: 50; US: 19; Japan: 37; China: 38; India: 15; Brazil: 14.
  • All responses were given on the condition of anonymity, both for the respondents and their employers.

The views expressed by third parties in this report are not necessarily those of Deloitte Touche Tohmatsu Limited and its member firms.

About Deloitte
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

The information contained in this press release is correct at the time of going to press.

Member of Deloitte Touche Tohmatsu Limited.

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