Whether you know it or not, your "leadership capital" is always at stake, always in flux and always a key factor in determining your success in any endeavour. Leadership capital can be formed or drained, managed or mismanaged, and can have a high or a low yield.
In most discussions on leadership, the emphasis is on sexy issues such as vision, goals, strategy and decision making. There is far too little talk about leadership capital, which I define as an executive's resources available to fuel his agenda. A lack of leadership capital awareness can lead to dangerous misconceptions among many aspiring leaders - for capital is not merely a constraint or an enabler, it is a central force in leadership.
I wish I had learned that lesson earlier in my own career. Hearing people speak of "political capital" got me thinking about the hidden threads that form the fabric of great leadership. Having seen the dynamics of leadership capital in small-scale entrepreneurial operations, at a moderate scale in major corporations and at a large scale in the federal government, I have learned a set of essential principles governing capital. I hope they'll help you and perhaps inspire you to share some of your own lessons.
Capital is indivisible. Your capital is made up of all the political, personal, intellectual, physical and monetary assets you can bring to bear in meeting challenges. These are all interrelated. A big budget enhances authority. Reputation qualifies personal wealth. As a result, leaders need to manage their total capital.
The most clearheaded leaders I've known - my best recruits, most valuable allies, greatest mentors and most dangerous adversaries - have always viewed capital in its totality. I've also observed leaders that compartmentalise it. For instance, they rely on authority, budget power and position, while neglecting trust, respect and goodwill. That approach limits what they can accomplish.
Soft capital drives hard capital. Soft capital - people, relationships, ideas, information and reputation - determines the allocation and value of hard capital, such as money and physical assets. The best hard assets in the world can be rapidly destroyed in the hands of a corrupt leader or at the mercy of fluctuating demand. One of my mentors used to call the elements of soft capital "the four Cs": character, competence, contacts and creativity.
The reason Tylenol remains a byword for crisis management is that the manufacturer's leadership recognised from the outset that the risks to the company's soft capital would affect its hard capital for many years to come. During US poisoning scares in 1982 and 1986, Johnson & Johnson quickly recalled Tylenol products from stores. Because of this widely lauded response, the short-term costs of the crises, though high, were temporary.
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