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All Leaders Are Investment Managers
Throw out those old, outmoded terms
The conditions facing organizations today have changed so dramatically, and continue to do so, that it’s time to rethink how we talk about leadership. And, it’s not just that old terms and images are outdated, they may quite simply take us down the wrong road. As an example, many companies have installed enterprise-wide systems. These and related systems provide access to a vast array of information and then make this information available to employees throughout a company, often all the way out to the frontline. But the value of such information in serving customers better, and providing the company with a competitive advantage, is derailed when companies lead in the same old way. Instead of bringing employees into the loop as "partners" and helping them use information, many of these companies continue to treat their employees as outsiders.
"Managing intellectual assets has become the single most important task of business."
from Thomas A. Stewart
Over the years a myriad of terms has been used to describe leadership: Master, ruler, parent, teacher, coach and many others. We think it’s time to add one more to the lexicon — investment manager. The job of all managers in organizations is to increase the value of the assets under their responsibility, whether those assets are tangible (such as machinery and property) or intangible (such as people). As companies, all companies, have become more "information-intensive," managing intellectual assets has taken on more importance. Intellectual capital and people are not the same thing. Intellectual capital is the byproduct of developing people.
Leaders become transformed into investment managers when they actively and deliberately increase the intellectual assets under their purview. This is an age in which the management of information is the single factor that distinguishes one company from another. Information (and knowledge) is the lifeblood of every single company today, both service and manufacturing. It’s up to leaders to build the capability of their companies to find the value of information fully.
You increase the knowledge of an organization, in large part, through people. Peter Drucker writes that the "the goal is to make productive the specific strengths and knowledge of each individual." Southwest Airlines has created a culture that cares about its people and sees its culture as a competitive advantage. As Herb Kelleher said recently in Wall Street Journal: "The intangibles are more important than the tangibles. Someone can go out and buy airplanes….but they can't buy our culture, our esprit de corps." Their continuous profitability, outstanding customer ratings, strong growth, and excellent safety record speak volumes. Treating people well, increasing their capabilities, and making organizations more effective go hand in hand.
"The best leaders see themselves as the Chief People Officers of their enterprise…."
from Robert H. Rosen
Investment management is a powerful metaphor for leadership in an era where knowledge is the dominant economic resource. When looking at the work of Warren Buffett, one of the richest men in the world and possibly the most successful investor ever, we found a framework that has application far beyond the financial arena. He makes his decisions to invest on the intrinsic value of the business. Buffet’s unparalleled success is based on simple, time-tested, and value-driven principles. We boiled them down to three.
- Decisions to invest are based on the capability of a company’s management and underlying strengths, and not the stock price.
- Investments are made with a long-term perspective.
- Building and balancing a portfolio is more important than selecting any single stock.
Many of the best leaders we know just naturally work at increasing the value of their portfolios. In this instance, portfolio refers to the ongoing, continuous investment that leaders make in people. Finding ways to enhance the use of people is at the core of investment management.
Building employee resiliency
Buffett’s strategies ring true for the way we must lead organizations today. Here are the parallels that we see to his three principles:
-Focus on the underlying strengths and capabilities.Buffett is well known for setting plans in place for the companies in which he invests and then letting management do its job. The parallel for investment-management-style leadership is simple: Give employees clear direction, increase their knowledge, enhance their skills and then provide them with room to excel. Information becomes the key element for running the business. In the case of Koch Industries its CEO believes that "freeing individual workers to apply their particular knowledge has added hundreds of millions of dollars in revenue to the company’s books each year." The company has grown two-hundred fold over thirty years.
-Go in for the long term. Buffet buys blue chips and holds onto them. He takes actions that will payoff over the long term. When companies bring a short-term perspective to their policies and practices, they leave no room for the cultivation of people. The addiction to downsizing that many companies exhibited over the past decade has been devastating. While employees are often cynical about their employers’ motives, many have learned to live with these new conditions — in fact, many have flourished by becoming the equivalent of free agents. The bigger problem is with managers. A short-term perspective is deeply embedded in the way managers operate and this leads to excessive turnover and very high levels of dissatisfaction.
Just as successful companies keep one eye on their present operation and the other on the future, employees should keep one eye on day-to-day performance and the other on capabilities they will need in the future. Investment managers create the conditions and open up possibilities for their employees to balance the short with the long term. Investment managers are an absolute necessity in companies that must shift and change frequently through a resilient workforce. But then what company doesn’t?
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