Measuring leadership effectiveness

Measuring the effectiveness of leaders is nothing new, but should HR be looking beyond financial outputs?

There are countless books devoted to leadership and innumerable pithy quotes from or about famous leaders that are oft-cited to sum up a compelling philosophy or flag up some glorious achievement.

We all have hero-leaders whose accomplishments we admire. Perhaps we look up to them because of what we have read. Or maybe we have had the good fortune to actually work with them.

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We judge their leadership by the decisions they make, the way they arrive at them and the outcomes of their actions. Put this way, evaluating the effectiveness of a leader sounds remarkably straightforward. Yet from an organisational standpoint the best way to go about it is often far from clear-cut and depends on a number of variables.

“Leaders have always been subjected to measurement but usually after the event: would Wellington have been regarded as such a great leader if we had lost at Waterloo?” wonders Paul Kearns, chair of the Maturity Institute (MI).

“Measuring leaders is not new but levels of objectivity and validity have to be significantly improved. This can only happen when a common scale for making meaningful comparisons is adopted.”

For example, although financial performance is an obvious metric for measuring the impact of a CEO, the bottom line only tells part of the story – and, given a host of other factors at play, may not tell it accurately.

How, for instance, might one judge Pascal Soriot through a financial lens? Soriot took over as AstraZeneca’s CEO in October 2012 and was awarded Business Person of the Year by the Sunday Times after barely two years in the job. More recently, five years in, the FT reported that Soriot’s second quarter results for 2017 “showed total revenues had fallen by 10% to about $5 billion”.

In the case of someone like Soriot what is the most practical and meaningful way to assess the value of their work? If it is to be by measuring financial value then what time period should be used to assess performance and effective leadership?

Kearns says it is important to take a broader view of leadership by looking at organisational maturity.

The MI uses its OM30 instrument to measure total stakeholder value in a way that “combines both financial value and societal value” in a single metric. “Any HR director involved in senior-level succession today needs a much more mature set of tools – using a common basis for comparison – to do their job effectively,” adds Kearns.

Leigh Lafever-Ayer, HR director for UK and Ireland at Enterprise Rent-A-Car, argues that the ability to measure leadership is crucial in developing succession plans that are diverse, inclusive and give a company sustainability and competitive advantage at the same time. Building “an engaged leadership bench” is key to any organisation.

“Our leaders are given a ‘cultural compass’ model of leadership expectations based on our founding values,” she says. “Operational excellence is one area to measure leadership performance but our model also includes diversity, inclusion, workplace quality, business ethics, community, charity and environmental sustainability measures, so it takes a more holistic approach.”

A potential pitfall to watch out for, she says, is when HR and leadership are not aligned. “Be clear about your leadership competency framework. Be certain to engage stakeholders in your framework, hiring and measurement activities. This takes time, effort and budget but without it you will never be clearly aligned in what you aspire to from a leadership perspective.”

Some leaders may achieve objectives and deliver on profit targets and therefore deliver shareholder value, but in doing so leave a trail of destruction in their wake. That being the case, there is a strong argument for measuring a leader’s performance beyond the financial results.

Rick Chattell, managing director of Quantum Performance Development, says that quite simply the “measurement unit” for leadership is behaviour. Quantum has developed a behavioural model, horizontally split by management level and vertically split by competence, which includes behaviours relating to the self, other people, and to business.

“There are only up to eight insights,” says Chattell. “It may not seem like enough, but critically this is at a scale that people can engage with and act upon.”

When researching his book The Measure of a Leader Robert Mann found wide variation in the personality traits of good leaders. More usefully, however, he identified certain commonalities. He concluded that good leaders: have a mission and inspire others to join them, create strong organisations, have excellent interpersonal skills, and are good motivators.

This chimes with the findings of Tamara Friedrich, associate professor of entrepreneurship and innovation at Warwick Business School, who has conducted a lot of research into leadership. She believes the satisfaction and commitment to the organisation shown by employees is an important aspect when evaluating leadership performance.

“I know we get fixated on things that are tied to the bottom line,” she says. “But we also have what people might think are more peripheral matters that ultimately, in the long term, affect the bottom line.

There is research to show that authoritative, direct, almost bullying leaders might get a lot of performance out of people in the short term but after a while that performance drops off a cliff. People leave and that is money walking out your door. It’s costly to the organisation to have lots of churn.”

Creativity and innovation are other areas of Friedrich’s research. She makes the point that the sort of leadership that delivers an efficient production line, turning out a huge number of uniform widgets, may well differ greatly from the kind of leadership that brings about lots of “new, interesting and different widgets”.

The latter, she elaborates, calls for an environment where there is a lot of “psychological safety” – in other words: making people feel involved, part of the process and giving them the freedom to take appropriate risks. As such, leadership must be judged in the context of organisational purpose and business objectives.

Where many organisations have gone wrong in the past is by promoting employees into leadership roles after putting too much emphasis on performance in previous roles. “A well-trained HR manager would not make this mistake, but sometimes it is assumed that competence in technical work relates to the ability to be a leader,” says Friedrich. “So you end up promoted to a leadership position because you are the best at your job – you sold the most widgets, made the most calls, whatever. But leadership requires a different set of skills.”

Leaders are under the spotlight as never before, scrutinised by employees and external stakeholders alike. HR must be rigorous in assessing leadership talent. Undoubtedly metrics should not be limited to financial performance.

An interesting emerging area of leadership measurement centres on values and purpose, says CIPD head of research and thought leadership Ksenia Zheltoukhova. In June 2017 the CIPD published a report on purposeful leadership exploring the link between ethical or values-led leadership and its influence on various employee and organisational outcomes.

So what pitfalls should organisations avoid if seeking to assess leadership along these lines?

“The main one for me is that when developing measures of leadership, organisations focus on inputs, just looking at the values and behaviours and not looking at the outputs of leadership and what actually the organisation is trying to achieve with it,” says Zheltoukhova.

“Then they end up with models where leaders are demonstrating all these behaviours but the organisation doesn’t see any value added, because the outputs weren’t focused on the front.”

There is some way still to go then. But leadership measurement is undeniably an evolving field.

This piece appeared in the January 2018 issue. Subscribe today to have all our latest articles delivered right to your desk