Leadership : the critical key to financial success
Posted Thu, 03 Mar 2005
In a volatile and unpredictable economy and even in good times, leaders must demonstrate extraordinary performance to their employees, customers, stakeholders and shareholders. Regrettably, at the beginning of the 21st century, we have too many poignant reminders of the effects of leadership failures. The trust and credibility of leaders is at its lowest.
Restoring stakeholder trust and confidence will require exceptional leadership abilities. Fact is, the performance of top management is crucial to the bottom- line success of a company.
Building the kind of leadership that is vital in today's competitive environment resulting in high-performance global organisations is not a phenomenon that develops magically on its own. It must be deliberately cultivated.
Senior executives consistently maintain that leadership development is the single most important organisational issue facing their companies today. But the fact that so many firms fail to perform to their potential suggests that accomplishing the goal of developing leaders is more difficult than it appears.
John Alban-Metcalfe, a lecturer in psychology and Beverly Alimo-Metcalfe, professor of leadership studies at the University of Leeds in the UK stated, "Leadership qualities are often found in organisations, but rarely at the top. The reason is simple: while track record and management competencies are adopted as criteria for selection or promotion, leadership is rarely defined explicitly."
Compounding the situation is a demographic shift. A global demographic shift is occurring as the baby boom generation enters its retirement phase. Not only are many senior managers preparing to retire, few qualified people in succeeding generations will be available to fill the resulting vacancies. Organisations around the world are going to have to be much more active and progressive in the selection and development of their managerial talent.
Watson Wyatt, an international consulting firm, tackled the complex study of leadership development. Their work examined corporate leadership globally in order to answer a number of critical questions. According to the results of their study, the more companies do to develop their leaders, the greater their financial success. Below are 'leadership' key findings followed by an overview of the study and a global profile of what decision- makers believe matters most.
To understand what comprises corporate leadership, interviews were initially conducted with CEOs at 75 of the world's premier global companies.
The top executives were asked to rate the importance and need for improvement for leadership in three strategic areas: people, processes and programmes, and the marketplace. The similarity of views about leadership held by these executives suggests that companies will benefit from crafting consistent leadership development efforts on a global scale.
The leadership survey reveals that a significant relationship exists between leadership development efforts and financial success. In particular, the more comprehensive a company's leadership development efforts, the better its financial results on four financial measures.
Highly performing companies are more likely to be using a number of developmental programmes.
Building leadership strength
As global demographics move towards an ageing population, a leadership 'crunch' will soon be upon us. The survey results demonstrate that many of the top business leaders around the world have similar views regarding key organisational priorities in terms of people, processes and markets.
Frequently, however, the issues deemed most imprtant are the ones most in need of improvement. What can be done in an organisation to build the necessary leadership structure to close this gap?
Finally, rewarding effective leadership requires a deliberate decision from top management to make leadership a focal point of compensation decisions. Leadership must be defined in clear, unambiguous terms that can be measured. Assessments and other data sources, such as employee surveys, are valid bases for differentiating a portion of pay among leaders. Any of the regular reward mechanisms can be used to reward a demonstration of leadership competencies, including merit pay increases, bonus programmes, stock options and others.
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