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BOOK REVIEW: Real reasons why companies succeed

Return on Character - The Real Reasons Leaders and Their Companies Win, by Fred Kiel

This book records a very important set of insights into the significance of character to corporate leadership. Much has been written about “nice guys finish first” and for the most part, the best of these writings have the force of a compelling sermon.

Fred Kiel has produced a report of a superbly crafted piece of research conducted between 2006 and 2013 on 121 CEOs from Fortune 500 and 100 companies, private companies, and non-profit organisations.  

The bottom line? Companies led by CEOs of good character make more money. The most highly principled CEOs are called “Virtuoso CEOs” by Kiel, and the least principled are called “Self-Focused CEOs”. The Virtuosos achieved nearly five times the return on assets when compared to the Self-Focused, a 9.35% return as against 1.93%.

In these cases there was clear evidence Virtuosos lead organisations to ongoing and sustainable business success and that their good character was also exhibited by their company's executives.

Character is a well-known descriptor, but a poorly defined one. It is probably this lack of a tight definition that has led to it being relegated to the fuzzier parts of business conduct. By character, Kiel is referring to a set of habitually manifest ways of behaving. Anthropologist Donald Brown has drawn a set of four “universal moral principles” from a list of nearly 500 internationally observed behaviours. These are integrity, responsibility, forgiveness, and compassion.  

Kiel calls these the “Keystone Character Habits” of leadership. The studies of the Virtuoso versus the Self-Focused CEOs revealed the former were habitually high on these Keystones and produced better results, with the latter habitually lower on the Keystones and producing lower results.  

Integrity and responsibility are “head” characteristics. Integrity involves telling the truth, walking the talk, standing up for what is right and keeping promises. Responsibility involves owning one’s personal choices, admitting mistakes and failures, and expressing a concern for the common good.

Forgiveness and compassion are “heart” characteristics. Forgiveness involves letting go of one’s mistakes, letting go of others' mistakes, and focusing on what is right rather than what is wrong. Compassion involves empathising with others, empowering others, actively caring for others, and committing to others' development.

Not only would a Virtuoso CEO have to display these characteristics, but his top team would have to do the same. A CEO could not be considered a Virtuoso leader if he is incapable of getting his own team to behave well.

The Self-Focused CEOs by contrast, were rated by their staff as not trusted to keep their promises (lacking integrity), and often passing blame off on others to protect themselves (failing to take responsibility). They were seen as frequently punishing well-intentioned people for making mistakes (not forgiving), and being especially poor at caring for people (lacking compassion).

The result of this self-focus was not only a lower return on assets for investors, but less workplace satisfaction and engagement from those they employed. In general the Self-Focused “appear to be most concerned about their own success and financial security” with little regard for their employees.   

Part of Kiel’s research was to assess the CEO’s levels of self-awareness. What emerged clearly was that the Virtuosos were relatively accurate in their assessment of themselves, as against the assessment of them by their staff. Occasionally, some did underrate themselves somewhat. In contrast, the majority of Self-Focused CEOs rated themselves as highly as the Virtuoso CEOs, indicating a significant lack of self-awareness.  

This study has more profound implications. Just as a business has a value-chain leading from raw materials to the marketable product, for example, so do all businesses have a value-chain leading from the CEO to the returns the company produces.  

The CEO value-chain starts with who the leader is – the genetic dispositions, life experiences and his or her character habits and principles. This is linked to what the leader does in terms of making decisions, developing the senior team, crafting a strategy and creating a culture of accountability. This is linked to how the CEO will impact the results of the company and the returns his or her character will yield.  

This is breakthrough work that might eventually lead to the acceptance of valuing a company based on the demonstrated level of the CEO’s character. The good news is that all can learn the habits of strong character, and all can unlearn the habits of poor character.

Readability:      Light ---+- Serious
Insights:          High +---- Low
Practical:          High -+--- Low

* Ian Mann of Gateways consults internationally on leadership and strategy and is the author of Strategy that Works. Views expressed are his own.

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