complexities of aviation, with advanced degrees in aeronautical engineering, astronautical engineering, and management, the latter from MIT. He combined this background and experience in a career at Boeing that lasted more than thirty years and included oversight of the launch of the revolutionary 777. He led the turnaround of Boeing’s aircraft business during the near-collapse of commercial aviation following the terrorist attacks of September 11, 2001, and was recognized by Air Week & Space Technology as the ”Person of the Year” for 2006.
That’s an incredible resume, but what kind of return could Ford expect from someone who was most definitely not a car guy? There is plenty of anecdotal evidence from those who worked with and for Mulally, but let’s start with the numbers. The single, most direct assessment of the value of an organization is its market capitalization – the price of the share of a company times the number of outstanding shares. Economists define this as the market’s view of the present value of the sum total of all the assets and future earnings of a company, based on the present opportunity, leadership and ability to execute.
Ford’s market capitalization bottomed out at just over $7 billion in 2009, during the depths of Ford’s multifaceted crisis, while Mulally’s plans were still being implemented. By 2010, with his plans beginning to bear fruit, Ford’s market capitalization skyrocketed to $45 billion, representing year over year growth of more than 600%. The following year, Ford’s market cap grew by an additional $16 billion, putting the total market cap over $61 billion for the first time in the company’s history.
The Return on Ford’s investment in Mulally’s leadership was staggering. Over the course of his Ford career, industry sources estimate that Mulally received roughly $200 million in total compensation. In contrast to General Motors and Chrysler, both of whom entered government-sponsored bankruptcy during this period, the wealth of Ford shareholders, measured purely in market capitalization, increased by roughly $54 billion. Divide the change in Ford’s market cap by Mulally’s compensation, and you arrive at the Return on Leadership. Here’s the math: $54b/$200m = 270x, for an ROL of 27,000%. Anybody want in on this deal?
With that being said, Ford’s turnaround highlights an important issue for all would-be leaders of organizations. As we consider our plans for the future, our thinking is bounded by the way in which our metrics-driven management culture makes investment decisions. Bill Ford had to buck this trend, set his own auto industry biases aside, and make a seemingly irrational decision to bring in an outsider who, by definition, did not know the industry. In this case, industry knowledge had to take a backseat to a leadership mindset that seemed right.
But that decision to ignore conventional wisdom and “go with the gut” is a problem in our numbers-driven, “prove it before it happens” corporate cultures. Rational management principles state that when businesses consider investment in new equipment and employees, the decision to commit resources is based on the expected Return on Investment, or ROI. In contrast, most organizations see leadership as an unquantifiable “soft skill’ with, at best, an indirect impact on key metrics such as growth, customer satisfaction and market share. We’ve got to know the Return on Investment, but there’s no analysis of the Return on Leadership, because that’s ridiculous, right?
As I explored this problem, I began to wonder: What if there was a single metric that could be used to forecast the success or failure of leadership, regardless of gender, culture or industry? What if we could use that metric to assess leadership effectiveness the same way we assess everything else in business, by the measurable returns we receive on the carefully planned investments we make? As business leaders, when we make investments by committing capital or hiring people, we typically require a business plan that tells us what we’ll get in return: more revenue, more profit, more market share. Why should the decision to choose a highly capable, strategically differentiating leader be based on gut feeling? Where’s the data?
What if, alongside our Return on Investment (ROI) calculations, we could assess, budget and plan to grow our Return on Leadership (ROL), and reap the rewards? What if we had a single metric that would enable us to identify transformative leaders who have the capacity and drive to lead Ford-like turnarounds, both large and small? When it comes to selecting leaders for our struggling organizations, wouldn’t that be kind of like owning a crystal ball?
Moneyball
If that idea sounds familiar, it might be because it’s essentially Moneyball logic. Moneyball, a monster bestseller written by Michael Lewis and a hit movie starring Brad Pitt, is the story of a professional baseball team built around one central piece of data. Rather than relying on highly subjective observations of the style and energy of a potential roster of players, Oakland Athletics manager Billy Beane and his number-crunching sidekick reduced their strategy to one key assumption.
In a world where small market teams are always outbid for talent by the New York Yankees and the Boston Red Sox, the only real path to success was to find a single predictor of success that a small market team could measure, quantify, leverage and exploit before the competition. For Billy Beane and the Oakland Athletics, the key assumption was that runners can’t score if they can’t get on base. Therefore, Beane and the A's would recruit guys who could get on base, as captured in a single, unimpeachable metric: On Base Percentage, or OBP.
But there’s one big problem with the concept of applying Moneyball logic to leadership; there are no statistics for leadership. There’s never been a universal leadership equivalent to Moneyball’s On Base Percentage.
That has now changed. Social scientists have cracked the code quantifying the linkage between leadership behaviors, good, bad or ugly, and their impact on organizational outcomes. Recent research conducted by social scientist and leadership guru Bob Anderson at his company, The Leadership Circle, has resulted in the ability to distill those apparently subjective assessments into a single, objectively predictive measure.
Just like the time-honored Intelligence Quotient (IQ) and the trendy Emotional Quotient (EQ), there is now a Leadership Quotient (LQ). It’s the Holy Grail of leadership: a single, universal predictor of leadership success that’s accurate to two decimal places and enables no-nonsense measurement of something new – the Return on Leadership, or ROL.
It turns out that, in a way that was unthinkable just a few years ago, the practice of leadership can be quantified, shaped and deliberately developed. It’s now been proven that leadership isn’t touchy-feely witchcraft; it's the visible, measurable manifestation of a leader's ability to identify and confront their own biases and fears in service to a larger cause.
The Leadership Quotient is measured on a graduated scale that starts at zero, pivots around 1.0, and, practically speaking, caps out around 10. If your LQ is below 1, you are a strategic drag on your business. If your LQ is 2 or above, you are almost certainly a significant contributor to the overall strength, vitality and competitiveness of your organization. If your LQ is greater than 4, you are your organization’s secret weapon, a catalyst for creative, resilient value creation that appears to be magic to the uninitiated. To close the loop on Alan Mulally one final time, based on his own statements and publicly available assessments of his priorities, practices, and mindset, he can be safely placed in a category identified in Leadership Circle research as the “Optimal Leader,” with an LQ approaching 6.0.
By painstakingly correlating behaviors to outcomes, the research behind the Leadership Quotient also has made it possible to arrive at a concrete, universally applicable definition of leadership. We’ll explore the statistical grounding of this in more depth in Part II, but for now it is enough to know that Leadership is the decision to accept the ultimate responsibility for the behaviors most highly correlated to success within an organization: Vision, Engagement and Execution. In other words, clearly stated,
