Mind the GAAP – Leadership and the Growing Importance of Intangible Value

So what is all this fuss about leadership?  For years Generally Accepted Accounting Principles or GAAP have been central to measuring a company’s value. Yet, today, what sets the best organizations apart from others is intangible value. The graphic below shows the rising importance of such value across various industries.

Growing Intangible Value is Now Critical Element to Enhancing Market Capitalization

[note]McDonough, Gerald F and George Kettner, Ph.D, The Value of Organizational Culture, LeadFirst Learning Systems, 2017.[/note]

Now the question becomes, what are the drivers of this intangible value?  The answer is one that private equity firms becoming increasingly interested in leveraging. When you look at the research that emerges from the book Firms of Endearment, you will understand why.

Firms of Endearment Show The Way

Similar to James Collins breakthrough book ‘Good to Great‘, Firms of Endearment chronicles some of the world’s most beloved brands. The organizations studied include the likes of Southwest, Starbucks, Apple, Disney, COSCO, and Colgate-Palmolive. If you look at the cumulative returns of the companies the showcase in the book, over fifteen years, they outperform the S&P 500 fifteen to one and James Collins’ Good to Great companies six to one! In other words, these brands have nailed the growth of intangible value and are models of how to succeed in today’s increasingly ambiguous business environment.

What Separates Firms of Endearment from the Pack?

So what is so unique about how these companies run their businesses? While they have been quite profitable, they are not solely focused on growing shareholder value. They emphasize:

• Creating a high-value customer experience that is in integrity with their brand.
• Intentional shaping of cultures that bring out the best in their employees
• Attentive to taking care of all stakeholders that the business touches.
• Highly strategic in their engagement of technology that fosters high quality and efficiency.

You can say ‘well these are big companies – how does that apply to a small business?‘ But if you look at the principles they practice you will realize most of it boils down to the conscious development of leadership. Period, end of story.  And while there may moderate investment in a business executive’s leadership development, the return on investment far exceeds the investment.

What’s Central to Growing Intangible Value

The development of leadership in the human being is a central reason why companies like Firms of Endearment exist.  After all, the primary role of a leader is to generate contexts that bring out the best in others leading to high-quality execution in service to a great mission. Thus high-quality leaders attend to culture, build high-value relationships with all key stakeholders, focus on the development of those around them and are very strategic in their technology investments.

The Keys to Leadership Development

Now the question becomes, what does it take to develop leadership? There are three critical requirements that must be in place. The executive, business owner or entrepreneur must:

• Recognize their development is central to the long-term success of their business and their personal fulfillment
• Become open to being influenced by being willing to let go of control and always being right.
• Make earnest and determined efforts to expand their self-awareness and learn to trust their deeper instincts more.
• Make the investment in their own personal development.

Developing leadership is not complicated and it pays great dividends.  The key is to get over the illusion that you have to have all the answers and be willing to take much of what you worry about off your shoulders.  By developing your leadership you will build a company that engages everyone in a shared success.  If you do this, you will be well on your way to building your own firm of endearment!  If you are interested in understanding cutting edge approaches to developing your leadership, follow this link to download my white paper on The Power of Authentic Courageous Leadership.