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Recent Ratings Downgrade of U.S. Debt Signals Deficit in Leadership

8/18/2011 --

RBL Group co-founders Dave Ulrich and Norm Smallwood say investors lost trust in our leaders.

ANN ARBOR, Mich.—Standard & Poor's recently downgraded the U.S. credit rating. Most blame the debt. But it is not just the debt that drove this move. It is the decision-making behind the debt. Investors downgraded the U.S. credit rating because they lost trust in its leadership.

In our global research at RBL Group on how investors value firms we find they cite three indicators

Financial performance - 38 percent
Industry attractiveness - 33 percent
Quality of leadership - 29 percent

To translate this into national terms, financial performance is debt, industry attractiveness relates to the U.S. economy compared to other global economies, and quality of leadership refers to government leaders.

So leadership matters. Rating agencies know it and citizens deserve it. Agencies have downgraded U.S. credit because they have lost confidence in our ability to get things done.

The inability to appropriately face and solve the debt crisis symbolizes a deeper symptom of ineffective leadership. Effective leaders solve problems more than posture political positions. Effective leaders disagree without being disagreeable. Effective leaders put aside self-interest in their desire to do what's right to serve others. Effective leaders build confidence rather than undermine it.

This leadership downgrade is not just about Republicans or Democrats, the administration or Congress. It is about all government leaders who have been elected or appointed to lead. U.S. politics is increasingly characterized not only by differences of opinion but by divisiveness, hostility, and outright contempt.

In our work on leadership through the eyes of investors, we have found that leaders build confidence when they know and do six things:

Shape the Future
Leaders have a vision of the future and use that vision to face and make today's tough decisions. They have a consistency of purpose that creates a future better than the present. They build organization disciplines that turn aspirations into sustainable actions. Government leaders who start with a shared vision of economic stability are more likely to figure out how to make the tough decisions to get there. It is time to publicly agree on the scale of the economic problems so that leaders are committed to work to solve them.

Make Things Happen
Leaders get things done. They have the personal courage to work with others across the political aisle and put aside their individual differences in the quest for innovative solutions. They have the ability to make decisions that need to be made and to make change happen. They are accountable to deliver what they are elected to do. They emphasize common ground in order to enact workable solutions. To get elected, political leaders highlight differences, but to govern, they need to work together.

Engage Today's Talent
Leaders get work done through others. They communicate openly to engage others. They have robust conversations but recognize that they need to model for others their commitment to higher principles. They are meaning makers who help others find purpose. Public animosity, bickering, and name calling only postpones real decision-making. We need leaders who have enough respect for each other that they engage in the give-and-take of negotiation and compromise.

Build the Next Generation.
Leaders think about and serve future generations. They recognize the impact of their decisions today on their children and grandchildren. They are willing to sacrifice the present to invest in the future. Political legacy resides in their ability to offer each generation unique opportunities.

Invest in Themselves
The best leaders focus on those they serve more than themselves. They have a strong moral code based on this commitment to serve others. They are emotionally intelligent and authentic so they can share and compromise their views without losing personal face. They constantly learn how to improve their stewardship. We deserve political leaders who acknowledge mistakes, learn from them, and improve.

Offer Unique or Branded Leadership
Ultimately, leaders are branded when their behavior inside their organization reflects expectations of those outside their organization. America is founded on the truths that citizens have inalienable rights of life, liberty, and the pursuit of happiness. To secure these rights, governments are instituted that derive their powers from the consent of those governed. The unique leadership principles that endow this consent are around freedom of debate and dissent with an obligation to make decisions and take action.

We need to solve the U.S. debt crisis to reassure the credit agencies. Even more, we need to resolve our leadership crisis to assure citizens who expect and deserve better. Only by creating a surplus in leadership will we restore confidence on both Wall Street and Main Street.

About the Authors
Dave Ulrich is a professor at Ross and a partner at the RBL Group, a consulting firm focused on helping organizations and leaders deliver value. He studies how organizations build capabilities of leadership, speed, learning, accountability, and talent through leveraging human resources. He has helped generate award-winning databases that assess alignment between strategies, organization capabilities, HR practices, HR competencies, and customer and investor results. He has published more than 175 articles and book chapters and 23 books. His latest best-seller is titled
The Why of Work.

Norm Smallwood is a recognized authority in developing businesses and their leaders to deliver results and increase value. His current work relates to increasing business value by building organization, leadership, and strategic HR capabilities that measurably impact market value. In addition to co-founding the RBL Group with Dave Ulrich, Smallwood has co-authored six books, including Real-Time Strategy, Results-Based Leadership, and Why The Bottom Line Isn't.



For more information, contact:
Bernie DeGroat, (734) 647-1847, bernied@umich.edu