Labor still beats capital in leadership development

As is my wont I was recently idly surfing the net checking out stuff about leadership. I ran across the latest issue of Entrepreneur magazine, a very good publication I am sure. Here were its three top headlines on the leadership page:

• 3 Tough Habits You Must Drop to Succeed
• 9 Things Managers Do That Make Good Employees Quit
• 22 Qualities That Make a Great Leader

I'm sure these are all good articles. And they are definitely representative of the types of topics that we normally see on leadership development (LD), whether or not it’s for entrepreneurs or suits. But where do these articles say anything about what the qualities are that lead DIRECTLY to a company being profitable, or increasing its valuation.

No, I’m not talking about how to finesse the financials, or about your financial knowledge. I’m talking about the behavioral characteristics that will increase the profitability impact of the person. Call it business acumen, or a nose for profit. Reading about that is a pretty rare commodity in the literature.

Here’s the thing. If you do any of the personality or competency assessments that assess you for leadership ability, they are invariably about how you work on a team, your thinking style or how you take charge. Maybe about engagement or diversity. But these assessments were never designed to assess a person’s propensity to create capital, that is, to make money.

I ran companies for many years. One of them was a public company. In all those years, my shareholders, especially my public ones, cared very little if I was a good leader or not. What they cared about was either the stock price or how much we could sell the company for. That’s because in both cases our stock was part of their retirement savings. If I was a poor leader but increased their savings that was all that they really cared about.

Now of course I’m not saying that we don’t want leaders who meet all the classical criteria for being a good leader like being to get on with people, inspirational and so on. But unless you make money that’s all for naught. Just ask the stockholders of any company that has gone bankrupt.

And that’s my beef with so much of the leadership development canon. It’s aimed at benefiting employees rather than stockholders and investors. Of course we want to benefit both. But we have to include investors and stockholders too. In other words we have to include capital as well as labor.

One of the problems with much of leadership development is that it is disproportionately led by people who have degrees in I/O psychology. That means that have a particular disciplinary focus, which is things like Jungian psychology, therapy, analysis and so on. The focus is on making employees happier and more communicative rather than on cold hard cash. It’s unusual for most LD practitioners to have an MBA (not that I put such particular store by such a degree anyway) or to have held a front-line business role, rather than having come up the ranks through HR.

Now don’t accuse me of saying that I/O psychology cannot be useful in leadership assessment and development. It definitely can. And I know many switched-on LD and HR leaders who truly do get it from a business perspective. But at best the I/O approach is only half of the story. The other side is profitability and capital appreciation. Valuation. If you don’t hit that particular button your risk irrelevance to the business side of the house.

Full disclosure: that’s what my company does. We have psychometric assessments to measure business acumen and to show up-and-coming and extant leaders how to improve their profitability and valuation impact. It’s not the whole story but it sure is a key part. See more here.

I think this bias towards labor rather than capital is one of the reasons that HR and LD get such a bad rap and have such a poor image. There’s a famous article in Fast Company entitled “Why We Hate HR”. It was published in 2005 but it’s just as relevant today. Check out the following:

“When HR professionals were asked about the worth of various academic courses toward a "successful career in HR," 83% said that classes in interpersonal communications skills had "extremely high value." Employment law and business ethics followed, at 71% and 66%, respectively. Where was change management? At 35%. Strategic management? 32%. Finance? Um, that was just 2%.”

You get the idea.

I think the problem is that both HR and leadership development often have an unconscious (or oftentimes conscious) to labor rather than capital. The business side of the house sees that and takes appropriate note. That’s why they often won’t allow HR to play a meaningful role in the business.

I don’t know that the situation has changed that much in the last few years. But HR still has an image problem. Of course there are other factors in it and not all of them are HR’s fault.

And no-one, l least of all me, is arguing for a total switch to capital. That would be wrong and short-sighted too.

But there needs to be a lot more balance. Otherwise leadership development just won’t be able to play the role that CEOs and business leaders want it to play and HR and LD practitioners will continue – in the main- to be marginalized.

That’s not a good outcome for them, even if it’s the status quo now.