THE

LEADERSHIP
CAPITAL INDEX
Realizing the Market Value of
Leadership

By
Dave Ulrich
PURPOSE OF THE BOOK
To measure the elusive variable of company
leadership which plays a key role in determining
company success and market value

To provide the right questions to ask and the right

indicators to track on leadership

Using Leadership Capital Index, Investors can hope to

move from 5% to 30% or even 40% confidence in their
assessment of leadership.
IMPORTANCE OF INTANGIBLES FOR FIRM
VALUATION
A company’s value comes from tangible assets (products, receivables,
technology, facilities) as well as intangibles (strategy, brand, intellectual property,
reputation, employee expertise, R&D, Systems). These intangibles are more
subjective but have been recognized as being just as essential to determining a
company’s desirability as an investment.
In recent years, intangibles have received more attention as a source of value.
However, firm valuation has evolved from financial metrics to intangibles to
leadership. Build Organization Capabilities

LEADERSHIP
Align core competencies

Create a clear, compelling strategy

Keep our promises

INTANGIBLE VALUE
LEADERSHIP CAPITAL DOMAINS
Leadership Capital Index has two domains:
Individual refers to the personal qualities (competencies, traits, qualities) of the
top leader and key leaders in the organization
Organizational refers to the systems (often called human capital) these leaders
create in order to manage leadership throughout the organization
LEADER COMPETENCE
FOCUS ON INDIVIDUAL

Leadership
Leader or
High

Capital Index
Talent Audit
Low

No Organization
Assessment Audit

Low High
FOCUS ON ORG CAPABILITY & HUMAN CAPITAL
INDIVIDUAL LEADER ELEMENTS
Personal
Proficiency
Maintain good
character & Health

Leadership Brand Strategic

Proficiency Individual: Personal Proficiency
Act as outside Leadership Proficiency Have a clear view of
Stakeholders expect future direction

People
Execution
Proficiency
Proficiency
Build and maintain an
Get things done
effective workforce

These five elements of leadership can be extracted through interviews,

observations, and surveys.
 ORGANIZATION ELEMENTS
Cultural
Capability
Create an Effective
Culture

Talent
Work Processes
Organize to Cope with
Organization: Human Management
Capital Systems Manage the flow of
Increasing Change
people

Information Performance
Processes Accountability
Use information for Reinforce desirable
Impact behavior

These five elements of leadership can be extracted through interviews,

observations, and surveys.
INDIVIDUAL DOMAIN
HOW WELL DOES THE INDIVIDUAL LEADER OR COLLECTION OF LEADERS BE, KNOW, AND DO
WHAT MATTERS TO INVESTORS?
FACTOR TO WHAT EXTENT DO LEADERS….. EXAMPLE METRICS OR INDICATORS

Personal Have the required personal characteristics to Has successful industry experience
Proficienc be effective? Has good character and health
y Demonstrates learning agility
Exhibits personal presence (charisma)
Has emotional intelligence (self-awareness)
Strategist Have a point of view about the future and Articulates a unique point of view about future industry
strategic positioning? trends
Understands external business drivers
Enunciates a differentiated strategy for the firm
Executor Make things happen or deliver as promised? Gets things done
Has a proven track record of success
Is willing to hold people accountable
Meets commitments
Talent Build competence, commitment, and Maintains stability of senior team
Manager / contribution of employees at all levels? Works smoothly with people with different skills
Human Engages with issues of staff retention
Capital Delivers better staff productivity than rest of industry
Developer Has a workforce plan
Empowers others
Leadershi Fit actions or behaviors with stakeholder and Links firm brand to leadership behaviors
p Brand other expectations? Aligns leadership behaviors to strategy
Lives the values and uses the values to guide decision
making
 ORGANIZATION DOMAIN
WHAT DO LEADERS DO TO BUILD ORGANIZATION CAPITAL AND HUMAN CAPITAL THAT MATTERS
TO INVESTORS?

FACTOR TO WHAT EXTENT DO EXAMPLE METRICS OR INDICATORS

LEADERS…..
Cultural Create an effective culture Pays attention to defining and delivering desired culture
Capability that matches customer Connects firm brand to culture and values
expectations? Turns culture and values statement into specific, measurable
behaviors
Has a clear shared view of desired culture
Talent / People Manage the flow of talent Promotes and monitors firm’s hiring success rate
into, through, and out of the Retains key talent
organization? Invests in training and development
Maintains a succession planning process
Performance Create a performance Sets clear standards
Accountability management process that Aligns executive compensation with performance
reinforces right behavior? Spends tome on performance conversations
Information Manage information flow to Uses social media
gain information Collects and disseminates external information
asymmetries? Turns big data into insights that inform decisions
Work Create organization and Matches organization structure for strategy
work practices that align with Understands and reengineers key processes for success
strategy? Has clear decision making and governance guidelines
 1. PERSONAL PROFICIENCY
Does the leader evoke personal trust
from key stakeholders?
Does the leader encourage a code of
ethics to shape behavior in the
company?
Moral Values
and Ethical
Judgment
Intellectual
Agility,
Resilience, and
Grit
How does the leader handle failure?
How resilient is the leader?
How committed is the leader to
learning? How able is the leader to
accept new ideas?
How successful has the leader been at meeting
performance commitments in previous assignments?
What has the leaders career path been? Similar or different
assignments? Safe assignments or risky ones?
Past
Performance
and Experience Does the leader maintain
adequate diet, exercise, and
Physical sleep habits?
Presence and Does the leader have the
Vitality vitality to meet the demand of
Leaders’ Personal
the job?
Proficiency
Emotional
Does the leader have a
Identity and
personal identity that matches
Well-Being personal strengths and needs
Social Skills of the business?
Does the leader manage ego,
balancing confidence and
Is the leader a network builder? humility?
Does the leader make others feel better about themselves
after an interaction?
 2. STRATEGIC PROFICIENCY
Do leaders have a strategic blueprint that captures all the
elements of strategic proficiency?
Do they regularly apply this framework
What percentage of people
participated in crafting the strategy?
Do leaders encourage dissent and Have an overall
dialogue in creating and
implementing the strategy?
Strategic
Approach Do leaders have a framework
Manage the Understand for thinking about future trends
Strategy that might shape the industry?
External
Process Business Do leaders have an innovation
Leaders’ Strategic Drivers premium because they turn
opportunities into products or
Proficiency services?
Engage and
Communicate Create Unique
with Position for the
Employees Future Can leaders articulate in a few
Turn Aspiration words how they are
How committed are employees to into Action positioning their organization
the strategy? to win in the future?
Do employees understand the Are leaders seen as thought
Do leaders turn strategic direction into day-to-day
strategy, and are they able to repeat leaders or strategic pioneers
choices?
its tagline, story, and narrative? in their industry?
Do leaders have a framework for what choices should
be made to make strategy happen?
 3. EXECUTION PROFICIENCY
Are leaders willing to try something
even if not fully finalized?
Do leaders learn from failures and
incorporate insights into the next
project?
Adapt Quickly
Influence
Others to
Mobilize
Commitment
Do leaders see how strategies,
choices, and projects will benefit
others?
Do leaders transfer personal
ownership for success to others?
Do leaders build a comprehensive rationale for how to make
sure that strategies are executed?
Do leaders anticipate resistance to strategy execution and
address the problem areas in advance?
Recognize and
Create a need
for Execution Do leaders know how to move
from creating opinions to
determining priorities?
Focus on
Priorities Do team members share a
Leaders’ Execution common set of priorities?
Proficiency
Ensure Clear
Accountability
Manage Do leaders have clear
Decision-making indicators about that they
expect from others?
and Governance
Do leaders follow up on what
Do leaders manage the content of decisions by breaking people promise they will
deliver?
big projects into specific choices?
Do leaders have a decision protocol for who is involved
and how they go about getting decisions done?
 4. PEOPLE PROFICIENCY
Do leaders serve as talent magnets who attract and retain
people who work for them?
Do the leaders consistently and
Do leaders generally have a positive (reinforcing, abundant)
appropriately use teams to
or a negative (belittling, deficit-creating) style?
accomplish work?
Do the leaders audit team processes Have a Positive People
to make sure each team is working Management
well?
Philosophy and Do leaders know and have
Behavior Pattern relationships with individuals
Understand and two or three levels below them
Use Teams Know and ?
Trust People
Leaders’ People Do leaders behave in ways
that engender trust?
Proficiency
Excel at Attend to their
Communication Personal
Succession Do the current leaders work to
Coach and define the future requirements
Do the leaders capture their Monitor Others for each position?
audience’s attention and inspire
people to take action? Do the current leaders nurture
Do the leaders believe more in the command-and- possible candidates to prepare
D the leaders have credibility as them for future
control or the coach-and-communicate style?
communicators because of their responsibilities?
content and process of Do the leaders ask more questions or give more
communicating? directives?
 5. LEADERSHIP BRAND
PROFICIENCY
How much overlap is there between firm brand as promised to customers and the
leadership competency model used for the organization?
What percentage of leadership team
can point to a specific incident or How much overlap is there between firm brand as promised to customers and
decision affected by values in the last investments in leadership training and performance standards?
30 days?
How do employees rate the extent to
which leaders are “meaning makers” Customer: Reflect
as they fulfill their role? Leadership Brand
Values: Embody Does the leadership have a
Strategy: Match
consensus about the strategic
the values of the leadership to priorities in the strategic
organization strategic priority options matrix?
Leaders’ Leadership Do leadership investment
Brand Proficiency activities align with the
requirements of the strategic
option?
Community: Life Cycle: Fit
Maintain strong with
community organization
reputation stage

Do leaders adapt their styles to work in different country Are leaders aware of the unique challenges of the
cultures? organization stage?

Do leaders work to become part of a broader community DO leaders have the ability to evolve their leadership from
network? one organization stage to the next?
6. CULTURE CAPABILITY
PROCESSES
Do leaders talk about culture as part of the success of the
Do management practices in financial company?
allocation, strategic planning,
Are cultural assessments woven into formal decision-
operational performance, and human
making and planning processes?
capital reflect and reinforce the
culture?
Do customers sense that the Definition Stage One:
managementProcess
practice will meet their
Agenda: Recognize need to build
Does the firm have a regular
needs? Management capability
Definition process for doing capability
processes align audits? Does the firm prioritize
Stage Two: prioritize key capabilities?
with cultural
Set Capability
message Does the firm have a
Organization’s Cultural Priorities
capabilities implementation
Capability Processes plan?
Behavioral Definition
Agenda: Stage Three:
Employee actions Equate Culture
align with culture Intellectual with identity in Does the firm have the right
Agenda: Clear customers’ culture for future success?
Does the desired culture show up in and shared minds
day-to-day employee activities? Does the internal culture
cultural message reflect external customer
Do employees take personal expectations or brand
Does the firm have a “unity of identity” about its cultural
ownership of the culture (refer to “my promises?
message?
culture” as opposed to
“management’s culture”)? Does the firm have redundant communications to share
the cultural message?
 7. TALENT MANAGEMENT
PROCESSES Do leaders allocate attention (time, energy, money) to
talent management activities?
Are leaders willing to have difficult
conversations with poor performers? How does the firm benchmark with competitors on labor
productivity?
Do leaders act boldly and decisively
with poor performers? Overall Does the firm have a rigorous
Commitment to talent acquisition process?
Out: Removing Talent Does the company have a
In: Acquiring
Poor Performers Management reputation for attracting top
the Right Talent
talent (e.g., a strong employee
value proposition)?

Organization’s Talent
Out: Managing Through: What is the training &
Management Processes
Retention Developing development budget per
Current Talent employee? As a ratio to
sales?
What is the voluntary turnover
rate? How does the company
encourage employees to
Does the company have a Through: Through: develop from experience?
thorough talent retention Building Preparing Future
strategy?
Commitment Successors
Does the firm have a strong talent pipeline?
Does the company track and use employee engagement indicators?
Does the firm have a regular annual process for
How does the company define engagement? Satisfaction, loyalty, commitment,
anticipating future key positions and reviewing how
personal responsibility?
key people can be prepared for those positions (for
example, through a rigorous succession planning
process)?
8. PERFORMANCE ACCOUNTABILITY
PROCESSES
To what extent do leaders help How much variance is there in financial performance from
employees learn from mistakes guidance?
rather than punish them? How well does the organization hold people accountable
To what extent do leaders have for meeting or missing goals?
timely performance conversations
when things need improvement?
Overall Commitment to
Accountability How well are leaders trained
Performance to have ongoing positive
Positive conversations?
Follow-Up
Accountability What percentage of
Organization’s
Conversation employees have had a
Performance
positive accountability
Accountability conversation within the last
Reward Systems Processes year?
Clear
that Drive
Standards that
Behavior
Standards Differentiate What percentage of
To what extent do employees Linked to Performance employees see how their
throughout an organization share in personal work fits with the
Consequences overall organization strategy?
the gains of the organization?
To what extent do executive What percentage of executive compensation payouts What percentage of
incentives reflect business strategy? are linked to the top five performance commitments? employees have clear
expectations for what defines
To what extent are bonuses and incentives tied to the effective performance?
interests of shareholders?
9. INFORMATION PROCESSES
How well does the organization share Does the organization have an information bias and
information outside-in boundaries? culture, so that people make decisions based on
information?
How well does the organization share
information across side-to-side Does the organization have a strategy of how to access
(horizontal) and top-to-bottom and use information? Is there integrated information
(vertical) boundaries? technology?
Maintenance of Overall
Commitment to
Management of To what extent does the
Information
Information Flow Use of organization have regular
reporting mechanisms to
Across Information monitor performance?
Boundaries for Puzzle
Organization’s Solving To what extent does the
organization solve problems
Information Processes with regular information?
Use of
Use of
Information for
Information for
Decision Making
Transparent Mystery How well does the
Can executives prioritize key choices Dissemination of Discovery organization source
and decisions they need to make to information o unsolved
Information problems or concerns in its
be effective?
field?
Does the organization use the right How well does the organization share information, both
information to make essential electronically and socially? How easily do people bring
decisions? new ideas to the leadership
How well does the organization share the right team?
information about what matters most?
10. WORK PROCESSES
Do leaders have the ability to see
multiple sides of an issue?

Does the employee workplace Do leaders address paradoxes but still

encourage workplace productivity? make decisions?
To what extent do employees
Does the work setting reflect the know the top 20% of
organization’s culture? customers and their buying
Manage by Paradox criteria?
Create a How much cocreation occurs
collaborative Paradox: with customers involved in key
Workplace Inside - activities?
Outside
Organization’s Work
Processes
Paradox: Stable -
Paradox:
Flexible
Individual -
Paradox: Collective How well does the
How well does the organization honor Centralized - organization form teams to
the past, by thanking predecessors, accomplish work?
Decentralized
and create the future, by anticipating
How well do teams operate
expectations?
To what extent does the organization structure align with against the criteria of a high-
How well do leaders show the the business strategy? performing team?
evolution of change efforts so that
they build on each other? How effectively do leaders clarify roles and
responsibilities for governance?
 INDIVIDUAL DOMAIN ASSESSMENT
Top Leader
Element To what extent does our top leader
possess….
Personal Relevant past experience and performance
Proficienc
Physical presence and vitality
y
Sense of personal well-being and identity
Ability to make others feel better and
multiply their work
Strong values and ethical judgment
Ability to learn, be resilient, grow and show
grit
Personal Proficiency Total
Strategist Understand external drivers
Position the organization for the future
Turn aspiration to action through systems
Engage and communicate with employees
Manage the process of strategy creation
Strategist Total
Top Leadership Team
Rating (Low-1, To what extent does our senior Rating
High 10) leadership team possess…. (Low-1,
High 10)
Relevant past experience and performance
Physical presence and vitality
Sense of personal well-being and identity
Ability to make others feel better and
multiply their work
Strong values and ethical judgment
Ability to learn, be resilient, grow and show
grit
= Total/6 Personal Proficiency Total = Total/6
Understand external drivers
Position the organization for the future
Turn aspiration to action through systems
Engage and communicate with employees
Manage the process of strategy creation
= Total/5 Strategist Total = Total/5
 INDIVIDUAL DOMAIN ASSESSMENT
(CONTD.)
Top Leader Top Leadership Team
Element To what extent does our top leader Rating (Low-1, To what extent does our senior Rating
possess…. High 10) leadership team possess…. (Low-1,
High 10)
Executor Recognize and create need for execution Recognize and create need for execution
Focus on priorities Focus on priorities
Ensure clear accountability Ensure clear accountability
Manage decision making or governance Manage decision making or governance
Influence others to mobilize commitment Influence others to mobilize commitment
Adapt quickly Adapt quickly
Executor Total = Total/6 Executor Total = Total/6
People Have a positive people philosophy and Have a positive people philosophy and
Manager behavior behavior
Know and trust his/her people Know and trust his/her people
Attend to his/her personal succession Attend to his/her personal succession
Coach and mentor others Coach and mentor others
Excel at communication Excel at communication
Understand and use teams Understand and use teams
People Manager Total = Total/6 People Manager Total = Total/6
 INDIVIDUAL DOMAIN ASSESSMENT
(CONTD.) Top Leader Top Leadership Team
Element To what extent does our top leader Rating (Low-1, To what extent does our senior Rating
possess…. High 10) leadership team possess…. (Low-1,
High 10)
Leadershi Leadership brand that meets customers Leadership brand that meets customers
p Brand expectations expectations
Alignment with strategic goals Alignment with strategic goals
Awareness of the unique challenges of the Awareness of the unique challenges of the
organization stage organization stage
Have strong community reputation Have strong community reputation
Embody organization values Embody organization values
Leadership Brand Total = Total/5 Leadership Brand Total = Total/5

Person
al
10

0
10 0
Leadership Individual: 0 10
Top
Strategi
Brand c
Individual
Leader 0
0
10
10
People
Execution
 ORGANIZATION CAPABILITY
ASSESSMENT
Element To what extent does our Rating (Low-1, Element To what extent does our leaders Rating
leaders …. High 10) …. (Low-1,
High 10)
Cultural Focus attention on culture?
Capability: Performance Overall commitment to
Create an Prioritize key capabilities Accountabilit performance accountability?
effective needed to win? y: Reinforce
culture that Engage in positive accountability
Create a clear intellectual desired
supports conversation?
agenda about a shared behavior
strategic
cultural message? Establish clear standards of what
capability
makes good performance?
Establish a behavioral agenda
wit employee actions aligned Link standards to rewards?
to culture? Create reward systems that drive
Embed process agendas with behavior?
HR practices aligned with Follow up on performance?
culture?
Performance Accountability Total = Total/6
Cultural Capability Total = Total/5
Information Overall commitment to
Talent Demonstrate overall Flow: Use information?
Management commitment to talent information
: Manage the management? Use information for puzzle
for impact
flow of solving?
people Acquire new talent into the
Use information for mystery
organization?
discovery?
Develop current talent? Demonstrate information
Prepare future successors? transparency?

Build commitment? Rely on information for decision

making?
Manage retention of key
people? Manage the flow of information
across boundaries?
Remove poor performers?
ORGANIZATION CAPABILITY
ASSESSMENT
Element To what extent does our leaders …. Rating (Low-1, High 10)
Work Processes: Organize Commitment to managing paradoxes of work?
to cope with increasing
change Manage paradox: inside versus outside?
Manage paradox: Individual versus collective?
Manage paradox: Centralized versus decentralized?
Manage paradox: stability versus change?
Create a collaborative workplace?
Work Processes Total = Total/6

Culture

10

0
Work 10 0
0 10 Talent
Processe Organization Manageme
s Capability nt
0
0
10
10
Information Performanc
e