I wish that deferred leadership costs showed up on financial statements.

Because they are real. The poor choices or behaviors happen now. But the payment happens later.

What surprises most leaders is that they pay for deferred leadership costs with real money (and time, relationships, credibility, opportunities and so on).

But they are deferred. And rarely accounted for. But they should be.

Leadership is expressed through leaders’ decisions and behaviors. When a leader (or leadership team) doesn’t exercise actual leadership – the organization or owner will pay for it. With interest.

But usually not right now. Perhaps not for many years.

Deferred leadership costs are accrued in many ways, including, but not limited to:

• When a leadership decision is needed but:
  • It is avoided or not made.
  • It is short-sighted and doesn’t consider long term consequences or needs.
  • It is reactive, usually as an attempt to avoid discomfort.
  • It is made to “be liked” or avoid conflict or any reason other than trying to make the best decision.

• When leaders demonstrate behavior patterns of:
  • Avoiding hard decisions.
  • Analysis paralysis.
  • Avoiding responsibility.
  • Avoiding conflict.
  • Not addressing toxic behaviors in others.
  • Needing to be “the boss” instead of providing leadership.
  • Being controlling and micro-managing.

First the Bad News: The Bill Collector is Coming

The issue of deferred leadership isn’t a uniquely “Baby Boomer” issue. But demographically, Baby Boomers dominate leadership positions in most sectors of American society.

Boomers are also at a stage in life where many are being forced to address deferred leadership costs in their organizations. There is what some call a “silver tsunami” of Baby Boomers exiting their businesses or looking for leadership successors.

Most are running into a set of common challenges that are illustrative to my point. Their situation also allows us to put hard numbers on what may seem like “soft” deferred leadership costs.

Here are a few, basic business facts:

• Most Boomer owners have 80% or more of their net worth tied up in their business.
• Only 20%-30% are able to find a buyer when they decide to sell.
• 70% of businesses transferred to family members fail. (These transfers are often financed by the outgoing owner. When the business fails so does the opportunity to collect on the value of the business.)

These numbers translate into real dollars. Real dollars that business owners who worked hard, risked greatly, and invested much should be able to harvest from their business but can’t.

Because they are paying for deferred leadership.

When business owners consider selling, the costs of deferred leadership make their companies unsalable between 70% and 80% of the time. That’s tragic.

For many of the companies that do sell, deferred leadership costs reduce the sales price by whole multiples.

Of course, this is about more than dollars. This loss also translates into loss of quality of life, legacy, impact and so on.

The privately-owned business example was used for illustrative purposes. But the dynamics play out as true in the following examples:

• A successful non-profit that becomes unsustainable after the founder leaves. This is often because the founder built a board of supporters, not leaders.
• An ESOP that begins a downward spiral in value because an ownership culture was never built among the employees.
• Political leaders who trade the future for votes or desired positions.
• A religious institution that loses credibility because of its past refusal to confront toxic and abusive behaviors.

Now the Good News: Deferred Leadership Costs Can Be Significantly Mitigated

The answer to addressing the deferred leadership costs in your organization is simply to begin providing that leadership now.

It’s been my observation that, with determined and active leadership, most organizations can make dramatic changes within 9-12 months. Nearly all can completely transform themselves with 3-5 years.

On one hand, this is just a matter of providing the leadership that was needed all along. That’s simple. But it isn’t necessarily easy. It often means needing to commit to choices or changes that have been avoided because of the fear or perception that they’ll be difficult, uncomfortable or unpopular.

That is sometimes true. However, in the majority of cases, my clients have been surprised to find out that once they turned the light on (and started making leadership decisions) – there was no monster in the closet.

The Four Areas Where Leadership Usually Need to Be Focused

Christopher Snider, the author of Walking to Destiny identifies four “soft” areas of investment in an organization where deferred leadership most often tends to occur. Because they are “soft” they don’t appear on financial statements and are often overlooked in executive or board meetings.

These four areas are:

• Human Capital
• Customer Capital
• Structural Capital
• Social Capital

Quick Diagnostic Questions

Human Capital: Human capital refers to the quality and utilization of the talent on your team.

• Are you rigorous about putting the right people in the right roles?
• Is there a strong and reliable management team?
• Is your organization owner or executive dependent? Can it operate without that person?
• To what degree are toxic or unproductive behaviors tolerated?
• Do you retain your highest performers?

Customer Capital: Customer capital refers to the strength of your relationships with your customers.

• Do your customer relationships tend to be long term?
• Are your customers loyal? Do they tend to work with you or receive your services even though there are other options?
• Do they tell other people about you?
• Do your customers care about your success?
• Are your customers’ brands or processes intertwined with yours?

Structural Capital: Structural capital has to do with the infrastructure of knowledge and behavior.

• Are best practices for your business or elements of your business written down?
• If you or senior leadership were to disappear, would it be relatively straightforward for someone else to come in and pick up regular operations where you left off?
• Are roles, responsibilities, and priorities clearly defined?
• Are policies and procedures followed consistently across the organization?
• Are communication and decision-making processes clear and accessible?
• Do people have easy access to the information they need when they need it?

Social Capital: Social capital refers to your values as expressed through your culture.

• Are your values clearly defined? Are goals and practices throughout the organization aligned to them?
• When a decision appears to violate corporate values, is there appropriate pushback?
• Are there practices of accountability for both performance and behavior?
• Is your brand positively known and recognized?
• Do your teams tend to work together well and develop synergistic results?
• Do your teams engage in productive conflicts and keep the disagreement from becoming personal?

Getting Caught Up

Take a look at the questions above. Are any of your answers not as satisfactory as you’d like?

Identify two or three that you think will make the biggest difference.

My guess is that there are few if any, new concepts in the list above.  The issue is rarely, “What should we do?” as much as, “Will we do it?”

What will you do?

Take good care,

Christian

PS If you’d like to talk to me, confidentially, about how you can quickly reverse your deferred leadership costs contact me at 907 522-7200 or christian@vantageconsulting.org.