What is the ROI of Leadership Development?

Measuring Return on Investment of leadership development activities in dollars and cents is a challenge. Most often more direct measures such as observable behavioral changes are used to evaluate the success of developmental activities.

In 2010 Chief Executive Magazine and Chally published a study of 1,300 public companies. One of the purposes of the research was to measure the ROI of leadership development programs: what is the effect on market capitalization and shareholder return over a period of 10 years? 

The study applied a multi-step process. First companies were ranked on several key criteria to measure their quality of leadership development:

  • The existence of a formal leadership development process.
  • The commitment and personal involvement of the CEO in the development activities.
  • The percentage of senior leaders recruited from within the company.
  • The number of other companies in the study that recruited senior leaders from the evaluated company.

 

Afterwards the vastly different sizes of companies, changes in capital structure or mergers & acquisition activities were factored in. Finally the companies were evaluated based on market capitalization growth and shareholder return for a period of 10 years, so that short-term effects could be eliminated. The results are significant: The top 25 companies for leadership development across these criteria outperform the worst 25 by 19 points in market capitalization growth and by 44 points in shareholder return - see table.

There are several conclusions from the study:

  • Investing in formal leadership development programs produces a significant and measurable return.
  • The CEO and top management needs to sponsor and support the program through personal involvement.
  • Leadership development is not a one-off short-term activity: a consistent multi-dimensional approach that is linked to the organizational culture and overall business aims has the best potential to deliver business results.
  • Development of leadership skills needs to continue on all levels of the organization, including the most senior levels to have a sustainable impact.

     

To read more about the study visit Chief Executive Magazine (you will leave this website).

Category: general
| share