White Paper - Leadership Development and Financial and Credit Crises

WHITE PAPER - HOW LEADERSHIP DEVELOPMENT CAN ADDRESS FINANCIAL AND CREDIT CRISES

The current credit market crisis reveals a basic problem in leadership development, that is, the lack of programs to develop business acumen, particularly for the executives who are charged with the responsibility for risk, and especially the quants. It is highlighting the vulnerabilities of executives in both financial services companies, and companies generally in assessing and predicting levels of market and systemic risk.  This White Paper from Perth Leadership Institute shows the link between behavior and financial risk and how leadership development programs can incorporate mechanisms to address it.

The vast majority of leadership development programs are based on either or both personality and competency assessments and approaches. However in neither case does the approach have any direct link with financial and market risk and market outcome. Research shows conclusively that personality assessments are not correlated with leadership outcomes. This is why most financial services companies tend to hold these approaches in low esteem, since they do not address the central issues of financial risk assessment and prediction.

Traditional approaches do not attempt to assess or develop business acumen. They tend to equate technical expertise and academic intelligence with business acumen, a very basic error. They tend to focus on a high level of learned and book knowledge as against the intangibles of business acumen and real-world outcomes. As a result, leadership development programs, particularly but not only, in financial services companies haveled to a divorce between market risk and executive behavior, as distinct from executive learning and credentials.

This paper draws together two strands which many leadership development professionals and business leaders might not have seen to be connected, namely market risk assessment/prediction and leadership development programs. The link is indeed a tight one. Modern scholarship and recent developments in behavioral finance are opening up new ways to think about this connection and how we can use this knowledge to actually alleviate the potential for future problems.

In order to address this problem, companies need to partly decentralize the organizational structure for managing risk and move from the current Boffin model of risk, in which a centralized, technical approach is adopted, to a partly decentralized model, which the White Paper terms the Rug Merchant Model, in which business acumen rather than business education or mathematical skills becomes the key qualification for being a member of this broader group that manages risk.

White Paper - How Leadership Development can Address Financial and Credit Crises

White Paper - Transforming Leadership Development in a Recession

Cost cutting in a recession usually includes strategic HR and leadership development initiatives and expenses. Recessions often also lead to negative perceptions of HR since they are made responsible for cutting people and programs in line with company directives. The CEO and board are usually so preoccupied with company survival and the need to significantly cut expenses that they often have no sympathy or time left for strategic leadership development initiatives.

 However, unconscious financial behaviors of many CEOs and senior management result in more than just costs being cut.  Margins are often unwittingly chopped in the race for aesthetically-pleasing expense line items.  Falls in margins are usually the consequence of reducing value-adding expense items, which reduces the medium and long-term competitive edge of the company.  Executives need to be aware of these behavioral biases so that they can reduce costs without threatening the long term sustainability of the company. 

 This White Paper shows that a recession is actually an opportunity for HR and leadership development to increase its credibility by promoting programs to modify financial behaviors that directly support the CEO and board’s agenda to cut expenses while increasing margins. By adopting such approaches, HR can put in place programs and behaviors that not only rapidly improve short-term financial outcomes, but also put in place a framework for longer-term increases in profit quality and financial performance.

White Paper - Coaching Leaders in a Recession

We're in a huge recession which no-one expected. How do you coaching leaders for this totally new situation? By showing them that the goalposts have moved a lot and they need to beef up their business acumen and financial impact. See the White Paper by Perth to figure it out and get the skinny.

Executive Summary
Traditional coaching programs have focused on interpersonal skills. In a recession the focus must shift decisively to improving business acumen and financial performance. Only by doing this can HR gain the proverbial seat at the table and gain business credibility.

New advances in the disciplines of behavioral economics and behavioral finance have opened up new techniques for coaching managers and executives in how to improve their business acumen and their financial and valuation impact. HR and companies need to open up this new type of coaching to their executives as a way of contributing to the financial health of their firms and contributing to the overall business recovery.

Business acumen coaching is very different to traditional coaching although there are some areas of similarity too. It focuses squarely on financial outcomes and performance and on measurement of outcomes using financial metrics. In order to be credible to executives, it needs to use coaches with strong business backgrounds rather than with backgrounds solely in psychology.

Business acumen coaching tends to be used with more senior managers although it is also appropriate for high potential and less senior mangers with potential for taking over P&L roles. It is used not just for improving financial performance but also for organizational transformation because of its tight link with innovation behaviors.

Companies should look to this new type of coaching as another means to improve their financial performance in difficult economic times and as a complement to traditional coaching which satisfies financial needs as well as the traditional emphasis on social and cultural needs.

if you are in a public company, how do you know your new CXO has high business acumen rather than just being a technical expert or merely good at her job? If you are in a family-owned company, how do you know that your daughter or son has it? Check out this White Paper to find out.