When Leaders Deliver

26 MAY 2021

A leader, according to the Merriam-Webster dictionary, is "a person who has commanding authority or influence".

This is not surprising because leaders are given a "right" to lead us and we expect them to show "leadership" as they lead everyone in a particular direction.

But there is no one definition of "leadership". A quick search suggests there are 18 popular definitions or traits of a leader, as suggested by a 2012 column authored by Marty Rasing.

Some of those 18 definitions are:

  • LEADERSHIP IS NOT MAGNETIC PERSONALITY, THAT CAN JUST AS WELL BE A GLIB TONGUE.
  • IT IS NOT "MAKING FRIENDS AND INFLUENCING PEOPLE", THAT IS FLATTERY.
  • LEADERSHIP IS LIFTING A PERSON'S VISION TO HIGHER SIGHTS, THE RAISING OF A PERSON'S PERFORMANCE TO A HIGHER STANDARD, THE BUILDING OF A PERSONALITY BEYOND ITS NORMAL LIMITATIONS." - PETER F. DRUCKER

This one from the CEO of VISA:

  • CONTROL IS NOT LEADERSHIP; MANAGEMENT IS NOT LEADERSHIP; LEADERSHIP IS LEADERSHIP.
  • IF YOU SEEK TO LEAD, INVEST AT LEAST 50% OF YOUR TIME IN LEADING YOURSELF-YOUR OWN PURPOSE, ETHICS, PRINCIPLES, MOTIVATION, CONDUCT. INVEST AT LEAST 20% LEADING THOSE WITH AUTHORITY OVER YOU AND 15% LEADING YOUR PEERS."- DEE HOCK, FOUNDER AND CEO EMERITUS, VISA

Galbriath saw the role of a leader to be one of solving a problem:

  • "ALL OF THE GREAT LEADERS HAVE HAD ONE CHARACTERISTIC IN COMMON: IT WAS THE WILLINGNESS TO CONFRONT UNEQUIVOCALLY THE MAJOR ANXIETY OF THEIR PEOPLE IN THEIR TIME. THIS, AND NOT MUCH ELSE, IS THE ESSENCE OF LEADERSHIP." - JOHN KENNETH GALBRAITH

Bonaparte, often at war with a need to inspire soldiers to die for a cause said:

  • "A LEADER IS A DEALER IN HOPE." - NAPOLEON BONAPARTE

While the debates over the qualities of good political leadership in steering a country through a crisis it may face from an internal or an external threat will continue for a long time, either from blinkered souls clawing with their nails as they stare at a dark abyss or from wounded souls sharpening their nails for a swipe, the question of what makes good leadership in the corporate world will gain more importance.

The Rewards of Backing Leadership

According to the United Nations' 17 Sustainable Development Goals (SDG-17), the world does not have a lot of time to fix many of its problems ranging from hunger to gender inequality to climate crisis. While national governments are enacting laws to achieve the SDG-17 goals by 2030 at an estimated cost of USD 5 to 7 trillion per year (about 7% of annual global GDP) for the 15 year period starting 2016; for a total bill of USD 75 trillion to USD 105 trillion to achieve SDG-17.

Not surprisingly, governments are relying upon companies to pick up a part of the price tag and moral responsibility of helping achieve SDG-17. With operations spread across the globe or entrenched in local communities, companies can be great partners in this journey. From paying farmers in poor nations a fair price for their crops or raw materials, to banning the use of child labour, to ensuring that women are paid on the same basis as men, to preventing pollution from their factories which may harm their host communities the corporations have their work cut out for them.

The behavior of companies, though, is driven by the signals from their leadership: whether it is leadership exhibited by the founder, the CEO, the Board - or a combination of these critical elements. It is the "tone at the top" that sets the pace for how a company behaves as it aims to build its business. The past focus on profits as a sole measure of success is passe. The future metrics by which a company - and its leadership - will be judged are the 3 P's: Planet. People. Profit.

This is commonly referred to as ESG: Environment, Social, Governance criteria.

ESG, not yet a science and barely an art.

Measuring the impact of a company on the Planet (pollution, consumption of raw materials), People (its employees, the community in which it operates), and Profit (long term, not short term quarterly focus) is not yet a science, it is still a very inexact art. Global comparisons of ESG scores are not easy, since data is not standardized. Local comparisons of ESG scores are not easy since data may not be reported by many peers. In many countries, ESG is considered as a "socialist" or "communist" ideal floated to underline the touted success and existence of capitalism.

Within this evolution of perpetual change and an increasingly deeper understanding of ESG - and using the foundation of an Integrity Screen initiated in Quantum's research and investment processes since 1996 - the Quantum India ESG Fund has exhibited that good leaders can deliver.

Table 1: When Leadership Delivers

In USD CY 2019* CY 2020 CY 2021 YTD Since Inception**
Quantum India ESG Equity Fund +1.9% +22.7% +7.8% +18.0%
MSCI India ESG Leaders Index +4.2% +22.8% +1.3% +15.5%
Nifty 100 ESG Index +2.3% +19.9% +4.8% +14.9%
BSE-30 Index +3.0% +14.2% +1.0% +10.1%
BSE-200 Index +1.8% +15.0% +5.6% +12.5%
Average Cash Position of QIESG# (End of period = 5.2%) 13.5% 6.7% 5.2% 8.3%
Source: Bloomberg, As of April 30, 2021
*From July 12, 2019 to December 31, 2019
** Since inception numbers are from the inception of Quantum India ESG Equity Fund i.e. July 12, 2019

Admittedly, it has been a short ride of 22 months of a track record - less than 2 years. Past performance can never be a guide to future performance or likely behavioural patterns of a portfolio, but it could be a gauge of success for leaders. Typically, a leader has to survive a cycle of good and bad times and show followers that leadership skills are intact across market cycles and economic environments. The Quantum India ESG Fund did participate in the surge in stock markets as investors bought into the pre-Covid India growth story; then the Fund experienced the collapse in stock markets after the 1st wave of Covid in March 2020; and, finally, the Fund saw the recovery phase since the results of clinical trials of various vaccines were announced.

The leadership skills of these highly-rated ESG companies, based on Quantum's proprietary research processes, have been tested across good and bad times.

The results suggest that good leaders, who assimilate information, assess the situation, evaluate the options, make a decision, and then execute with firmness of good intent can deliver for their followers and investors. Those companies whose leadership fails to recognize the new era of ESG signifying the changed demands of their followers are not likely to have a good future. Look around you - and think about this as you cast your next investment rupee.


Suggested allocation in Quantum Mutual Funds (after keeping safe money aside)

Quantum Long Term Equity Fund, Quantum Equity Fund of Funds, Quantum ESG India Fund Quantum Gold Savings Fund Quantum Liquid Fund
Why you
should own
it:
An investment for the future and an opportunity to profit from the long term economic growth in India A hedge against a global financial crisis and an "insurance" for your portfolio Cash in hand for any emergency uses but should get better returns than a savings account in a bank
Suggested allocation 80% in total in both; Maybe 15% in QLTEF, 10% in Q ESG and 75% in QEFOF 20% Keep aside money to meet your expenses for 12 months to 3 years
Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, fluctuation in NAV's and uncertainty of dividend distributions. Please read offer documents of the relevant schemes carefully before making any investments. Click here for the detailed risk factors and statutory information"
Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is Founder of Quantum Advisors Pvt. Ltd. which is the Sponsor of Quantum Asset Management Company Pvt. Ltd – the Investment Manager of the Quantum Mutual Funds. Ajit is also the Founder of Quantum Information Services which owns Equitymaster and PersonalFN. The views mentioned herein are that of the author only and not of Quantum Advisors, Quantum AMC or Equitymaster. The information provided herein is compiled on the basis of publicly available information, internally developed data and other sources believed to be reliable by the author. The information is meant for general reading purpose only and is not meant to serve as a professional guide / investment advice for the readers. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investment. Whilst no specific action has been suggested or offered based upon the information provided herein, due care has been taken to endeavour that the facts are correct, accurate and reasonable as on date. None of the Author, Quantum Advisors, Quantum AMC, Equitymaster, their Affiliates or Representative shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary losses or damages including lost profits arising in any way on account of any action taken basis the data / information / views provided in The Honest Truth.

Equitymaster requests your view! Post a comment on "When Leaders Deliver". Click here!

4 Responses to "When Leaders Deliver"

NoBs

May 26, 2021

Covid 19 or for that any global crisis of such magnitude, would have exposed the serious shortcomings of the West advocated liberal Democracy. The price for that is tremendous. The leadership it throws up, even the best one if there's anything like that, falls flat. Various countries' Constitutions just don't have a provion to deal with a global crisis of this magnitude. The only winners the Media and Politicians...people are losers again.

Like (2)

Mohammad Amiruddin

May 26, 2021

History is replete with leaders being God sent and truly so.
we mortals look and take God-men as leaders to our peril.

Like (2)

tony

May 26, 2021

Leaders must bench-mark Ajit

Stoic in values, open to ideas & correction ( when going wrong ),staying focussed, empowering teams and being decisive without favour or fear - are traits in him I admire

Best to all

Like (3)

Gunesh Apte

May 26, 2021

Hello Team,

I would like to add one more important point - Excellent leadership is also about identifying successors who can take the business to the next level, after your retirement. In India, there are still many examples, where the older generations are still occupying top positions in business even after crossing super retirement age, and hence lack vision needed to convert existing business into 21st century business. There are few exceptions to this but those are probably very few.
Innovation is mostly an ignored area in such companies and slowly & steadily, such companies just become a machine which can complete the day to day work, but can not think out of the box.
Leadership is also about accepting mistakes, maintaining transparency and integrity at any cost, which also requires courage and determination.

Like (6)
  
Equitymaster requests your view! Post a comment on "When Leaders Deliver". Click here!