As an angel investor in early-stage startups, I’ve long noticed my peers apparent bias toward the strength and character of the founding entrepreneurs, often overriding a strong solution to a painful problem with a big opportunity. In other words, the entrepreneur quality is more important than the idea -- in investor jargon, people invest in the jockey, and not the horse.
I’ve often wondered if anyone has quantified the implied assumption that leadership character is indeed a critical element of the success equation for startups, so I was pleased to see the classic book “Return On Character,” by Fred Kiel, a renowned leadership consultant. He has completed a study of more than 100 CEOs, with feedback from over 8,000 of their employees on this topic.
His research concluded that CEOs who received high scores for character also achieved much higher business results – nearly five times the average return on assets (ROA) during the two-year period covered. On the other hand, those CEOs with the lowest character scores (self-focused) were distrusted and suspected of telling the truth only slightly more than half the time.
Through interviews, Kiel identified eight common traits and habits exhibited by all the CEOs with a top character ranking (deemed virtuoso CEOs – masters of the skills and art of leadership):
- Displayed and demanded high moral principles. These are summarized as the four keystone character habits of integrity, responsibility, forgiveness and compassion. The authors found these to be achievable through self-training and practice, rather than requiring a genetic endowment. That means all of us have a chance.
- Embraced a worldview of positive beliefs. The scope of the positive leadership views included human nature, organization life, and personal purpose. The lower character leaders were consistently more negative and pessimistic in their worldview. In both cases, the beliefs tended to become realities.
- Developed a higher level of mental complexity. A leader judged high on cognitive complexity tends to perceive nuances and subtle differences that a person with a lower measure does not. High leaders continually challenged their own ideas and were quicker to adapt them to encompass new information, experiences, and meaning.
- Sought out and listened to critical feedback from others. High scoring leaders seek and positively respond to feedback from three critical groups: peers, customers, and direct reporting team members. Self-focused leaders, on the other hand, are more likely to resort to denial when faced with unpleasant feedback.
- Find and enjoy the company of one or more mentors. The leadership benefits of mentoring start in childhood, but are just as important at the mature CEO level. Virtuoso leaders recognize and seek three types of mentoring – career mentoring for the longer term, peer mentoring for tactical guidance, and life mentoring for quality of life balancing.
- Demonstrate the ideas and behaviors of self-determination. Leaders with a high level of self-determination continually seek more competence in their chosen domain, relatedness and connectivity to other stakeholders, and the autonomy to act in harmony with an integrated view of themselves.
- Virtuoso leaders know their life story. By crafting a coherent narrative of their life, they are better able to understand the major events and influences that have shaped their personal development and use that understanding to assess and improve their response to new situations as they arise.
- Sought and accepted help from many supportive people since childhood. Leaders who have sought help from natural helpers since childhood, including parents, teachers, and business influencers, usually feel more accepted, respected, and affirmed, and pass that feeling on to followers.
While Kiel’s focus was not specifically on startups, I believe the insights and conclusions apply equally well, if not more so, to startup environments. Every entrepreneur needs to understand the importance of character and leadership is to their growth and success, as well as their ability to attract investors. The return on character in business is well worth the investment.