The Monetization of Leadership Strength - April 2013 Seattle CHO Group Presentation
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The Monetization of Leadership Strength - April 2013 Seattle CHO Group Presentation

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The Monetization of Leadership Strength - April 2013 Seattle CHO Group Presentation The Monetization of Leadership Strength - April 2013 Seattle CHO Group Presentation Presentation Transcript

  • 1© 2012 MERCER LEADERSHIP DEVELOPMENT. ALL RIGHTS RESERVED.Agenda: Examine How Views of “Top” Leadership Affects theValuation of Firms•  Discuss how analysts’ & investors’ view the value of leadership inestimating a firm’s worth.•  Discuss the implications for HR Strategic Leadership
  • 2© 2012 MERCER LEADERSHIP DEVELOPMENT. ALL RIGHTS RESERVED.An eye opener–The strength of management plays a significantrole as analysts develop stock recommendations.
  • 3© 2012 MERCER LEADERSHIP DEVELOPMENT. ALL RIGHTS RESERVED.Different research methods arrive at the same conclusion–analysts and investors are swayed by leadership quality.
  • 4© 2012 MERCER LEADERSHIP DEVELOPMENT. ALL RIGHTS RESERVED.A major challenge for HR and Talent Management is convincing others of theneed to invest in leadership development.No relationship ever mentioned between HR and Investor Relations. Typically,not invited to Investors Day.Competencies for 360s mostly based on internal requirements–not onanalysts view.Ironically, prior Finance and Organizational Research show connectionsbetween ____ and firm value:ü  Optimism and positivity in voiceü  Transparency conveyedü  Behavioral integrity/Informational justiceü  Taking ownership
  • 5© 2012 MERCER LEADERSHIP DEVELOPMENT. ALL RIGHTS RESERVED.We decided to conduct some field research.How do you go about assessingthe strength or quality ofleadership associated with a firmusing the following questions:•  What data do you consider?•  How do you gather this data?•  How do you weigh it againstother data?Walk us through a specificrecommendation you issued byhaving them describe:•  How management strengthwas factored in•  What impact it had on theirrecommendationInitially interviewed35 equity analysts
  • 6© 2012 MERCER LEADERSHIP DEVELOPMENT. ALL RIGHTS RESERVED.The initial 35 analysts we talked to were from various geographies.North America28%Latin America29%Europe20%Asia Pacific23%Responses by region
  • 7© 2012 MERCER LEADERSHIP DEVELOPMENT. ALL RIGHTS RESERVED.Responses by sectorThey followed a mix of industry sectors.
  • 8© 2012 MERCER LEADERSHIP DEVELOPMENT. ALL RIGHTS RESERVED..Number of years as an analystSome of the analysts were inexperienced and others had20+ years of experience.
  • 9© 2012 MERCER LEADERSHIP DEVELOPMENT. ALL RIGHTS RESERVED.Analyst Logic“Second – I adjust year 1. Thisdepends on the capability andengagement of the front line. TheCEO can’t change these much in thenext quarter or two”.“Third – I adjust all years two through 20. Thisdepends on the front line’s ability to transform andcapitalize on the changes in technology, consumersand regulations. This transformation depends on theCEOs and the shots they call.”“First - I develop a numbers drivenforecast of 20 years of cash flow”.Source: COO Comments & ThomsonOne RankingSource: Organizationsupplied date,Economic dataSource: Qualitative data, informally gathered,& intuitive judgment
  • 10© 2012 MERCER LEADERSHIP DEVELOPMENT. ALL RIGHTS RESERVED.To validate our findings we conducted an on-line survey inpartnership with Forbes Insights.•  On-line survey•  Completed by 305 analysts•  Analyst group broadened to includemoney managers and venturecapitalists•  Conducted in August 2011
  • 11© 2012 MERCER LEADERSHIP DEVELOPMENT. ALL RIGHTS RESERVED.How they assess the quality of leadership.We asked the analysts to explain how they assess the quality of aCEO of an organization they follow and how they use this assessmentto estimate the value of the firm. Analysts typically referred to thesame three criteria for judging the CEO’s leadership:•  Track record – Previous roles and challenges and the resultsachieved.•  Reputation – Experiences, stories, books and articles thatdescribe the CEOs approach, character, and confidence.•  Presence – Effectiveness in articulating the way forward,addressing opportunities, questions, concerns, crises, anddisruptions in plans.
  • 12© 2012 MERCER LEADERSHIP DEVELOPMENT. ALL RIGHTS RESERVED.What is the greatest percentage change you have made in your valuation of a companyin response to a change you’ve perceived in the strength of its leadership?0% 5% 10% 15% 20% 25%Less than 5%6-10%11-15%16-20%21-25%Greater than 25%Do not consider leadership strengthLeadership quality is material. 95% of analysts surveyed made changes>5% based on strength of leadership. 50% made significant changes(>15%)Sample size 305
  • 13© 2012 MERCER LEADERSHIP DEVELOPMENT. ALL RIGHTS RESERVED.Three quarters of respondents see the assessment of leadershipgrowing in importance over the next three years.0% 10% 20% 30% 40% 50% 60%Strongly agreeAgreeDisagreeStrongly disagreeDont knowSample size 305Over the next three years, more emphasis will be placed on determining the best ways tojudge the strength of leadership in a firm.
  • 14© 2012 MERCER LEADERSHIP DEVELOPMENT. ALL RIGHTS RESERVED.Sample size 30580% said they could be more accurate with better data
  • 15© 2012 MERCER LEADERSHIP DEVELOPMENT. ALL RIGHTS RESERVED.Next Stage of Research1. Financial analysts in training…§  Randomly assigned to company that exceeded or missed expectations toreview books and conference call information.§  Accounts: Internal, External vs. None§  Ratings: Projected Stock Price, EPS and Buy, Sell or HoldResults:§  Accounts significantly and positively impacted all 3 ratings.§  Trust in the leader impacted ratings explaining how accounts areinterpreted.§  Internal accounts by leaders led to higher buy ratings.
  • 16© 2012 MERCER LEADERSHIP DEVELOPMENT. ALL RIGHTS RESERVED.2. Interpreting market data and analyst comments…§  Gathering data from analyst data feed and social media.§  Back out leadership implications with IR, CMO and CHRO.§  Develop plans to manage leadership quality§  Identify requirements and gaps§  Influence market perceptionNext Stage of Research (Continued)