Effective leadership can raise company valuation as much as 16%, says Deloitte
New York, 29 March 2012 — Market perceptions of leaders move share prices – and a new report from Deloitte Touche Tohmatsu Limited (DTTL), The Leadership Premium, reveals just how much.
Based on a survey of leading market analysts in the United Kingdom, the United States, China, India, Japan, and Brazil, the report finds that the quality of senior leadership—including core capabilities as well as personal qualities such as honesty and integrity—has a direct, and measurable, impact on analysts’ assessments of whether companies have been successful and will be successful in the future.
'With this research we wanted to put a quantitative metric on the effectiveness of leadership, to help businesses understand the impact that leadership can have on their performance and market value,' said Margot Thom, Managing Director, Global Talent and Human Capital Consulting Leader, DTTL. 'This report uncovers a tangible metric that has a real impact on the long-term shareholder value of organizations, which we hope will set out a compelling vision of effective leadership for the future.'
According to the report, the analysts who said the quality of leadership affected their valuations awarded, on average, a premium of 15.7% for particularly effective leadership—and a discount of 19.8% for its opposite. To that end, 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%.
The report indicates that analysts look for three core components when assessing an organization’s leadership strength:
• Strategic clarity – a clear vision of what the organization needs to achieve.
• Successful execution – proven ability to meet objectives.
• A culture of innovation – commitment to enterprise; an environment for ideas.
In addition, analysts look for two attributes that support these components: effective corporate governance and effective leadership characteristics.
Simon Holland, DTTL Strategic Change and Organizational Transformation Leader, commented: 'To succeed in the long term, an organization 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 recognize that.'
Read The Leadership Premium report.
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