What is the financial value of strong leadership?

Wall Street is monetizing human assets. Our question is: why aren’t you helping them?

Bruce Avolio, management professor, to a group of HR executives

The idea that Wall Street values leadership is not new. For more than a decade, research has shown the importance in firms’ stock prices of intangibles like brand, reputation and leadership. But until I heard a talk by Bruce Avolio and Susan Dunn at a recent event on strategic HR, I hadn’t fully realized how much attention equity analysts on the Street pay to leadership.

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Avolio, a management professor at the University of Washington, and Dunn, a partner at Mercer Consulting, conducted a fascinating study. They interviewed dozens of equity analysts, the folks who study public companies to determine their overall financial worth, about what factors influence their assessments and what processes they use to make these assessments. What they learned is that these analysts – on both the buy and sell side – don’t just closely study companies’ top leaders, but actually use their (often gut level) take on the quality of this leadership as quantifiable adjustment factors in their valuation of firms. When they said this, I could see a lot of jaws (beside my own) dropping in the room.

How many companies’ heads of investor relations are aware of this? How many people running HR organizations?

And, if you were a really smart company, wouldn’t you be getting your SVP of HR, CFO ,and head of investor relations into a room together to talk about how to strengthen the company’s senior leadership and make this visible to Wall Street?

The implications are potentially enormous. In fact, I’ll be writing more about this in upcoming posts.