Character and Long Term Value Creation

[By CoolBrands People]

I’m talking with Radu Manolescu, who was invited to speak at the DisruptHR conference. He was one of 20 speakers, including the CEO of Deutsche Bank Global Technology Center (Romania Hub), the HR Director of Enel Romania, the Executive VP CEO Clubs, the Managing Director of Genpact, etc…

-What was the set up of the conference?-

We had 5 minutes stage time each, no control over slides’ timing so we had to convey our message in a brief and concise way.

-That sounds like an interesting conference, short and sweet presentations. How was it received?-

After the conference, we received a very encouraging feedback from the organizer:

“Vulnerability and courage are what you’ve shown to the public at DisruptHR and I commend you for that. We have never imagined that DisruptHR will create such a buzz and we owe this success to you.”

-For those who could not attend the conference, we thought it would be a good idea if you’d share your main points of discussion in a summary.-

Of course, I would love to.

Impact vs. Value. The impact of the Enron scandal and eventual bankruptcy (Oct 2001) was huge: 4.500 + jobs lost, $60 billion of investors’ money lost within days, one of Big Five firms, Arthur Andersen, lost their accreditation due to audit failure, etc…

This biggest bankruptcy in American history all happened despite their corporate values of Integrity, Excellence, Communication and Respect.

After this huge American financial catastrophe in 2001, I started digging deeper into how this had happened and what the leadership teams of such companies look like. A few years later, I started digging as well into what long-term value creation really means.

Enron & Lehman Brothers

An interesting comparison appears: What did these two companies have in common from a leadership team perspective?

1.Energy company Enron (formed from a merge in 1985) – the CEO developed a staff of executives that – by the use of accounting loopholes, and poor financial reporting – were able to hide billions of dollars in debt from failed deals and projects. The CFO and other executives not only misled Enron’s board of directors and audit committee on high-risk accounting practices, but also pressured Andersen to ignore the issues. Many executives at Enron were indicted for a variety of charges and some were later sentenced to prison.

Commentators attributed the mismanagement behind Enron’s fall to a variety of ethical and political-economic causes. Ethical explanations centered on executive greed and hubris, a lack of corporate social responsibility, situation ethics, and get-it-done business pragmatism.

2. Financial Servicesfirm Lehman Brothers. Another large American bankruptcy from September 2008. They had $600 billion in assets. The bank had become so deeply involved in mortgage origination that it had effectively become a real estate hedge fund disguised as an investment bank. At the height of the subprime mortgage crisis, it was exceptionally vulnerable to any downturn in real estate values.

This episode has deep repercussions on the banking industry, where misguided investor sentiments have become hostile to both wealth management products as well as the banking industry as a whole.

So what is value? And how do we measure it? How do we know when we create value or when we destroy value?

Value is defined as by Kevin Kaiser in his book The Blue Line Imperative as “just another word for happiness, at least from the perspective of the consumer (…) And to help deliver this happiness to ourselves, we at some point created businesses that could generate the products and services to make us a little happier each day.”

Happiness could mean more relaxed, more precise, more comfortable, faster, etc.

“Great swathes of wealth have been destroyed because of a common tendency among business executives to confuse value and share price, and to believe that achieving KPI targets is tantamount to value creation” says Prof. Kevin Kaiser, INSEAD (officially: Professor of Management Practice and Director of the Transition to General Management Programme).

Kaiser has been differentiating between real long-term value creation and what managers often do instead which is chase pre-defined indicators and so ultimately destroying value.

The question is then: Is lack of competence at the basis of all major global or even local economic problems?

According to Kaiser, we rather change attitudes, and so behaviors, in executives and managers so that they can appreciate the larger, integrated whole of the business system rather than focusing on narrow indicators that, in themselves, do nothing to create value and frequently destroy it.

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The book “Return on Character - The Real Reason Leaders and Their Companies Win”

Synopsis: Once-thriving organizations falter and fail under the guidance of leaders behaving badly. In this groundbreaking book, respected leadership researcher, adviser, and author Fred Kiel offers that evidence-solid data that demonstrates the connection between character, leadership excellence, and organizational results.

Key: The KRW researchers found that leadership teams whose employees gave them high marks for character had an average return on assets (ROA) of 9.35% over a two-year period. That’s nearly five times as much as what those with low character ratings had; their ROA averaged only 1.93%.

Today it’s all about pressure on KPI’s and short term divert focus instead of long term value creation, mainly towards competences instead of values. While competences are extremely important, no doubt about that, examples of brands like Enron, RBS, etc show that values/character should be on top of the list.

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How do we know the leadership team creates long-term value?

Character is a subjective trait that might seem to defy quantification. But KRW measures character in leadership while looking mainly at four moral principles: integrity, compassion, forgiveness, responsibility.

They sent anonymous surveys to employees at 84 U.S. companies and nonprofits, asking, among other things, how consistently their CEOs and management teams embodied the four principles. They also interviewed many of the executives and analyzed the organizations’ financial results. When financial data was unavailable, leaders’ results were excluded. At one end of the spectrum are the 10 executives Kiel calls “virtuoso CEOs” - those whose employees gave them and their management teams high ratings on all four principles. People reported that these leaders frequently engaged in behaviors that reveal strong character—for instance, standing up for what’s right, expressing concern for the common good, letting go of mistakes (their own and others’), and showing empathy.

VUCA: is an acronym used to reflect on the volatility, uncertainty, complexity and ambiguity of general conditions and situations.

K.M.Trust & Partners research shows that in a VUCA world, at least 4 more principles are to be added for effective, long term oriented leadership: Adaptability, Emotional Intelligence, Digital Transformation Capabilities, Coachability

- each with their own traits; i.e Emotional Intelligence – Self Awareness, Self-Mastery; Coachability – Discipline, Humbleness

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Think about a worrying business situation, a time where you had long hours/days of stress, worries, etc. What was the root cause of it?

Was it related so someone’s lack of competence or lack of values…?

Tags: executive search, executive search consultant, IICPartners, K.M. Trust & Partners, Managing Partner, Radu, Manolescu, Radu Manolescu

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