Quality Leadership Yields Higher Market Value Over Industry Averages

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New book Leadership Brand, and recent Harvard Business Review article show shareholder value is superior for companies with strong leadership investments.

Ratio Chart

Quality of leadership is a key human capital asset. Clearly leaders in the companies with strong leadership brands have made decisions that have consistently outperformed their peers in the last 10 years.

When leaders throughout a company learn how to turn customer expectations into employee actions, they create what Dave Ulrich and Norm Smallwood, cofounders of the RBL Group call a leadership brand. This leadership brand deepens the impact of a firm's reputation and identity and increases customer and investor confidence in the future. In their new book Leadership Brand and in the July issue of Harvard Business Review they demonstrate how a leadership brand shows up in higher market valuations.

When Ulrich and Smallwood compared the P/E ratios of a sample of public companies that had strong leadership brands with the ratios of their industry over the past decade, they found that the leadership brand companies had consistently higher ratios.

"Leaders who organize resources to serve customers, who motivate employees to be customer focused, and who track their business's success with customers can turn their company's leadership brand into market share. Firms with a strong leadership brand also benefit, over time, from a rising price/earnings ratio," said Ulrich, who is also a professor of business administration at the University of Michigan's Ross School of Business.

In the Harvard Business Review article and new book they show how a firm can create a leadership brand that differentiates the organization to employees inside and to customers and investors outside. The effort requires commitment from individuals through out an organization. Boards of directors need to encourage building leadership brands; senior executives need to sponsor leadership brand initiatives; HR professionals need to design and facilitate programs that foster the leadership brand in a way that connects employees and customers. The CEO of a company must function as its "leadership brand manager" and be the driving force behind building it as an organizational capability.

"Companies that find ways to increase confidence of their employees, customers, and investors by involving them in the process of delivering value will win," said Smallwood. "Quality of leadership is a key human capital asset. Clearly leaders in the companies with strong leadership brands have made decisions that have consistently outperformed their peers in the last 10 years."

About The RBL Group: The RBL Group specializes in helping clients deliver a strong leadership brand and a strategic HR agenda. Dave Ulrich and Norm Smallwood, the firm's co-founders new book, Leadership Brand: Developing Customer-Focused Leaders to Drive and Build Lasting Value (HBSP, September 2007) contributed to the criteria for the Global Top Companies for Leaders study done in partnership with Hewitt Associates and FORTUNE magazine (release forthcoming). The RBL Group delivers results-oriented, quality solutions by engaging people and processes that help HR and line executives integrate the latest thinking into their organizations through practical tools and approaches. For more information please visit http://www.rbl.net or call (801) 373-4238.

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Kellie Englehardt

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