He has done it again. Dave Ulrich, the Renis Likert Professor at the Ross School of Business, University of Michigan and co-founder of Result Based Leadership (disclaimer: I am associated to the same company as a principle consultant) has written another ground breaking book. After having transformed the way the HR function adds value and how companies can build a leadership brand, he has now tried his hand to measure the value of leadership.

In his newest book, The Leadership Capital Index, Dave proposes a model on how outside investors could significantly enhance their ability to judge the quality of the leadership of a company. The quality of leadership matters almost equally to the firm’s performance and industry favorableness for investors to take a position in a certain company. Till now investors’ ability to assess the quality of leadership ranges from gut and feel to more formal individual leadership assessments. None, however, have been able to assess the institutional leadership capabilities of a company.

Dave’s Leadership Capital Index consists of two domains with five factors each:

1. Individual Leader Domain

  • Personal Proficiency: demonstrating personal qualities required for effectiveness
  • Strategic Proficiency: articulating a point of view about the future
  • Execution Proficiency: making things happen
  • People Proficiency: building the competence, commitment and contribution of people
  • Leadership Brand Proficiency: leaders act in ways customers expect

2. Organizational Capability Domain

  • Culture Capability: creating a customer focused culture that is shared throughout the organisation
  • Talent Management: building practices that manage the ‘flow’ of talent through the organisation
  • Performance Accountability: created performance management practices that reinforce the right behaviours
  • Information Processes: managing the information flow to gain information asymetries
  • Work Processes: creating work practices that deal with the increasing pace of change

By his own admission, Dave thinks that his model is only the first step towards accurately measuring the market value of leadership. And although the book is light on specific tools and measures it’s a significant step forward. It provides a thinking model for others to hang their hat on.

Would be exciting to watch this space and see how we as HR and Leadership experts can actually measure the impact of our work on the value that companies create. Also of importance would be to prove, once and for all, that the biggest impact to the success of a company, its financial performance, happiness of employees, partnership with suppliers and the impact on community and environment is firmly and directly linked to the quality and value of leadership it has.