There are as many measures of leadership success as there are theories of leadership: Follower satisfaction, lower turnover, higher productivity, etc. However, at the end of the day, successful leadership is one component to a successful organization. So, what’s a successful organization?
For micro credit lenders, a successful organization is one that pays back its loans. This speaks to leadership in that the owner has to have the integrity to want to pay back the loan, as well as the business acumen to make enough profit to afford the payments. In the absence of credit history (which really isn’t available for micro credit borrowers), how does the bank determine who is a good risk? By using a good test, of course!
The Entrepreneurial Finance Lab (EFL) has developed a test to determine who is more likely to pay back a micro credit loan and run a profitable business. Their assessment model contains elements that we would normally use for assessing leadership potential: Intelligence (note that is measured using non-verbal and non-numeric methods), Ethics & Character (personality), Business Skills, and Attitudes & Beliefs (more personality). Interestingly, experience is not on the list. Their results show much stronger correlations between the test and profitability than with paying back the loans. The researchers attribute this to methodological issues, but I think it is more complex, having more to do with culture and expectations rather than individual differences. You can read a bit more about it here. Thanks to Bryan Baldwin for bringing it to my attention.
What is important to remember is that these are predictions of success for those who have never owned a business. It is a strikingly similar model to measuring leadership potential in those who have never (formally) led others. This is something which has been done quite well over the years with assessment centers and other tools. The results are also fairly robust across cultures, though the authors do point out that the model is more accurate when the scoring is customized for each country.
In mature economies, senior leadership is not so much hired to pay back a loan as it is to deliver value to shareholders/investors, which in a sense is paying back money put into a company. We can talk about the many steps and processes required to get to that point of returning value, but effective leaders are the ones who do this over a long period of time (not just meeting quarterly numbers).
What are you doing to evaluate these traits and abilities in your leaders?
For more information on leadership and employee engagement, please contact Warren at 310 670-4175 or [email protected]