Capital isn't always transferable. The value of your leadership capital varies according to where you work, where you are and who you work with. Track records in one industry might not transfer to another. Outstanding accomplishments in one organisation may be below average in a world-class enterprise. Budgetary authority and company reputations mean different things in different countries.
Perhaps the best thing you can do is gain a sense of what forms of capital are genuinely transferable in your situation. These vary from great accomplishments and brand-name employers to prestigious awards and exclusive memberships. The best career advice I ever got was to look for intersections between my passions and opportunities that would expand my future options.
Markets make capital grow. Part of the miracle of financial markets is that they provide a means of increasing stocks of capital. Although leadership markets in and among organisations are informal and invisible, they too can make capital grow. They are driven by word of mouth and track records, and mediated by headhunters and board members.
The better you are at creating markets for leadership, the more capital you and your organisation will have at your disposal. I once counselled a client on building a leadership development system, which involved all the existing leaders of the organisation in choosing, nurturing and managing future leaders. By creating a market for leadership, these leaders were also refreshing their own leadership capital base.
The best capital is scarce and sensitive. Cash under the mattress and government bonds are safe forms of financial capital, but they are not premium capital. For leaders, a world-class reputation, brilliant personnel, revolutionary inventions and strategic alliances are premium capital with extremely high value. That type of leadership capital can bestow an extraordinary advantage. It can be leveraged to accomplish your goals and attract other forms of capital - such as a big budget and a great staff. But by its very nature, premium capital is hard to build and often very easy to destroy. One scandal tarnishes a career. A competitor poaches the high-flyers on your staff. Innovation renders a key patent obsolete.
One flaw turns an alliance into a trap.
Wise leaders look for ways to build premium leadership capital but not depend on it too much, so that they can use it to their benefit but limit the risks. My basic rule is if your premium capital is highly leveraged and relied upon for more than a few weeks or months, then you're in a danger zone.
Capital can be overspent. Financial investors manage their portfolios for a high yield. Managing your leadership capital is also about yield - getting the greatest result for the least possible investment. With leadership capital, yield comes in many forms: increased options, better outcomes or improved strategic positioning. But if you always strive to maximise yield - by, say, leaning too heavily on your relationships with other executives - you risk spending down your leadership capital. A better approach is to pick your spots, applying your capital only when it can make a difference for your position or your company.
In summary, be aware of your leadership capital, or it will limit you. Manage it poorly and you'll find yourself constrained and unable to control risks, which will lead to suboptimal outcomes and will decrease your capital stock. Manage your leadership capital well and you'll find yourself able to reach for higher goals and manage risks with an increased probability of success - which will increase your capital. So take stock of your own leadership capital and how you're managing it. Changing the way you think about capital is one more way to bring your leadership to a new level.
Christopher Hoenig is a director of strategic issues for the US General Accounting Office and has been an entrepreneur (CEO of Exolve), consultant (McKinsey & Company) and inventor; he is the author of The Problem Solving Journey: Your Guide to Making Decisions and Getting Results
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