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Proof that Good Character Yields Higher Profits

Posted on in Growth Strategies

By: Lalaina Rabary, VGM Marketing

Principled leaders can do many things – build trust, strengthen relationships, overcome conflict – but does ethical leadership also yield higher profits?

Yes, more than five times greater revenue than companies led by leaders with low character ratings, according to a study by KRW International, a Minnesota-based consulting firm. The findings were surprising to KRW International co-founder Fred Kiel, Ph.D. He has spent 40 years advising executive leaders.

“I always had an intense curiosity about character and expected there to be a relationship between character and profit, but was overwhelmed at the strong correlation,” Kiel said in an interview with VGM Group, Inc.

“After three to four years of research, we learned that profitability was four times greater in the businesses of strong (virtuoso) leaders versus weak (self-focused) leaders. Character is truly the foundation of effective leadership,” Kiel said.

Behind the Study

Character can be a difficult concept to define and quantify. The KRW team first identified four universal moral principles: integrity, responsibility, forgiveness and compassion.

Then researchers sent anonymous surveys to 84 U.S. companies and non-profits asking employees how consistently their CEO and leadership team displayed the four characteristics.

After interviewing 84 CEOs and more than 8,000 of their employees, the researchers sorted leaders into two groups:  

  • Virtuoso -- leaders whose employees gave them high ratings in all four principles, e.g., standing up for what’s right, letting go of mistakes, showing empathy.
  • Self-focused -- leaders who distort the truth for personal gain and care mostly about themselves and their own financial security, regardless of the cost to others.

“The researchers found that CEOs whose employees gave them high marks for character had an average return on assets of 9.35 percent over a two-year period. That’s nearly five times as much as what those with low character ratings had; their ROA averaged only 1.93 percent,” the Harvard Business Journal noted.

Self-awareness is Key

Despite its many benefits, why do CEOs and leadership teams struggle to execute good character?  

“Self-awareness,” says Kiel. “Until the self-focused CEOs learned how they ranked in the study, many were unaware of their actions.

“All individuals, when they face their own shortcomings, when their reputation doesn’t match up with their self-image, go through a challenging journey of self-awareness. That is a many-faceted journey.”

As a former self-focused CEO who decided to make a change, this is a journey Kiel knows well. “Personal change always starts individually,” Kiel emphasizes. The good news is self-focused leaders can get past their shortcomings, and everyone can improve leadership skills. 

Steps to Better Leadership

In his book, “Return on Character,” Kiel identifies several steps to cultivating better leadership: 

  • Step 1: Acknowledge Invitations to Change
  • Step 2: Discover What You Want to Change
  • Step 3: Find the Fuel for Change
  • Step 4: Identify the Keystone Change
  • Step 5: Disarm Your Security System
  • Step 6: Rewire Your Brain

Kiel notes that going through the journey is not just important for CEOs but their leadership teams as well.

“The C.E.O. leads the charge, and the senior team does the heavy lifting,” said Kiel. “They are responsible for creating the culture of the organization and executing it.”

The road to becoming a virtuoso leader isn’t easy, but KRW’s study and Kiel’s experience reminds us that it is worth it. Learn more about KRW International and its findings on its website and in Kiel’s book, Return on Character.