by Mark Stoleson
When creating long term value, you need leaders with good character

Although the fad is fading, many Boards and some investors remain preoccupied with ESG, but businesses would achieve more by just focusing on “the G”, or perhaps “GG”: good governance.

by Mark Stoleson

Putting people of good character in charge means better companies, long term value creation and more virtuous practices, resulting in getting the E and S as a natural result of GG.

As an investment firm, Legatum has a lengthy track-record of building value globally through both financial and philanthropic investments. Our humanitarian endeavours are designed to take on the seismic problems facing the world – from increasing opportunities in education and health, to tackling modern slavery. The complexity of such issues is staggering, and over a series of decades, we’ve learned a few maxims that help us succeed. And oftentimes, they’re simple.

Perhaps the most vital is our hiring mantra. In the beginning, like everyone else we evaluated candidates based primarily on their competence, only then trying to assess “fit”. It took us a while, but we eventually realised our approach was flawed. We were effectively putting competence ahead of character. The reality is that people can work on their competence, whereas good character tends to be something more innate and the product of a closely held set of values. We found that individuals with this asset grow into the best leaders, with the right support. We went from being competence-first, to character-first. This has been a cornerstone of our success as an investment organisation.

Character first companies

More stakeholders across the business landscape are turning their attention to character. This is smart: your leader’s character dictates how they manage teams, how they will respond in a crisis, and how their principles feed into the company culture. People with good character build organisations that employees want to work in. They also produce better long-term results, which means a return on investment for shareholders, job stability and opportunity for workers, and a healthy relationship with the regulatory environment.

Evidence that supports the idea of character-based leadership is emerging in the UK. For instance, The Oxford Character Project is a research offshoot of Oxford University. It explores the relationship between character and leadership. In a recent study it polled 1,100 people working in 36 firms across the country, asking them to list features that are important in leadership, ranging from ‘decisive’ and ‘strategic’, to ‘team building’ and ‘empowering’. Researchers discovered that over 50% of the top 20 features of good leaders pertain to character rather than competence or interpersonal skill.

Avoiding trouble

Those sceptical about the value of character-based leadership should study the outcomes that arise in its absence. Examples abound. The trial of Sam Bankman-Fried, the disgraced former CEO of crypto exchange FTX is an allegory for what happens when poor character takes control. Scandals can cause companies to collapse and destroy shareholder value. Leaders of good character can help a company thrive over the long term, steering their organisations clear of these kinds of crisis, not just through good business practice – but on principle.

Just do ‘G’

The rise of character-based leadership is encouraging. It signals the arrival of a time where more emphasis is placed on the conduct of those at the helm of companies. Meanwhile, it represents a renewed focus on governance. In recent decades, executives’ heads have been turned by ill-advised ESG efforts, where companies wade into issues that they know little about – often for posturing purposes rather than real world impact. Our perspective is that stakeholders should put the last letter in this acronym first, and then double down for “GG”, good governance. Good governance should mean that your organisation contributes to a more prosperous society, is a good steward of our natural resources and environment and strives to sustainability through innovation and entrepreneurial acumen. Governance means caring for communities and being a good global citizen.

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