Investors Assess Leadership Ability to Value the Future Intangible Value of the Firm
In Professor Dave Ulrich’s, soon to be published work, he proposes that leadership is the key underlying value factor in organisations. His latest research centres primarily on the impact of leadership on both equity and debt investors who want to accurately value the intangible assets of a company, and in particular how they assess the leaders and leadership who make the intangibles happen.
He asks this, “Does your organisations’ intangible value trade at a premium or discount to your industry?”
Two firms in the same industry with the same financial results may have dramatically different market valuation. This differentiated market valuation is often attributed to intangibles. Intangibles show up in business by boosting – or undercutting investor’s confidence. Baruch Lev has shown that the importance of intangibles as indicated through the market-to-book value [the ratio of capital market value of companies compared to their net asset value] of the S & P 500, has risen from 1 to over 6 in the last 25 years – suggesting that for every $6 of market value, only $1 occurs on the balance sheet. This shows that the value of many firms comes as much from perceived value as from hard assets.
HR professionals who design and deliver leadership improvement efforts should be facilitating conversations from “Outside-In” with their shareholders and investment analysts. At a recent conference, with senior HR professionals, Dave asked the group to consider what their investors would like to know about their quality of leadership? Almost none present had considered this question. At the same conference one of the world’s leading investors shared their desired list of leadership attributes. Almost no-one was taking notes. This is why Dave believes that HR have the number 1 opportunity to create value in their organisations. Becoming the architects of culture, capability and competence can vastly improve investor confidence, beyond the tangibles. “Spend time with your investors and establish what leadership traits they look for and you will ensure your leadership investment, architecture and efforts are aligned and stimulate confidence beyond the traditional tangibles”, he says.
Still not convinced. In a recent Deloitte survey with 445 analysts from investment banks, private equity firms and hedge funds in 6 countries, 52% factored corporate leadership into their assessment, second only to financial results and ahead of 7 other criteria. This is what they call “The Leadership Premium”. Leadership is more important to them than competitor anlaysis, historical performance or even debt/equity ratios.
In 2014, BRG & GIBs will present Dave Ulrich – Live and in Person : The 13 Milestones for HR to transcend the way they deliver measurable value to their organisations. Become architects of talent, culture and leadership for 21st Century Organisations.
“Follow Dave Ulrich on Twitter: @dave_ulrich”
