February 07, 2006
The three Financial Styles of Very Successful Leaders
By E. Ted Prince
Review by Mihaela Popa Chraif - Financial Analyst
DAFI (ASE) - Master graduate
Psychology Student - University of Bucharest
“The behavior you exhibit as a child is often more revealing of your natural and innate self than what you do when you are older. As you mature, you learn how to compensate for or disguise your natural habits. You may even forget your natural ways of acting, so successful have your compensation strategies been…”
E. Ted Prince
Biographical note
Dr. E. Ted Prince is the Founder of Perth Leadership Institute. For more than two decades, he was a CEO for both public and private companies in New York, Boston and the United Kingdom thus achieving great experience in the organizational behavior field. He has had extensive operating background at the CEO level in both public and private companies. Dr. Prince was Chairman and CEO of Clearstory System (CSYS, formerly INSCI Corp) a Boston-based public (NASDAQ) company that developed software for enterprise content management. He has consulted with numerous companies and has served on the boards of many others. Also, he has had extensive experience in the merges and acquisitions field and has acquired many companies in both the US and overseas including Europe and Asia. Mr. Ted Prince is the architect of Perth’s Leadership Outcome Model (PLOM), the basis for the Perth Leadership System.
The book represents the essence of more than twenty years of experience in leaders’ selection and proposes an answer for the disturbing question filling the daily engine’s energy of research “What makes the difference between success and failure?” As a scientist and researcher, he felt the thirst and hunger for discovery by delving “deeper into the problem” and being always amazed and astonished in facing the reality: the financial traits of the leaders were linked “to company outcome and to the company’s street or market value.” So, after years of studying patterns in the leaders’ personal financial traits, he understood that leaders have different approaches in how they deal with money, market value and how they approach the process of value building.
The world of Ted Prince’s book gravitates around the concept of “financial signature”. The goal of his book is to establish a link between “the nine financial signatures”, “the nine financial Missions” and “the nine market value trajectories” identifying a financial trait of the leader for each market value movement of the company. In his vision, the stock market evolution of a company is influenced by the “leader signature”; further on we are going to meet “the Mercantilist”, “the Buccaneer” and “the Consolidator”- all these archetypes filling our financial life with Value Adding and Resource Utilization senses.
Based on the Perth Leadership Institute’s groundbreaking work, The 3 Financial Styles of Very Successful Leaders supplies you with powerful tools such as identifying the financial signature, understanding how the financial style shapes the company’s mission and so on. The book is divided in four parts and each chapter ends with self-development exercises.
In Part One - “What is a financial signature?” - the author introduces “the financial signature” as a new construct linking known financial aspects of leadership with the financial aspects of it. He provides an invaluable support for theoretical concepts (constructs) and financial styles, underlining that all people have a financial signature reflected in their behavior; he gives us a basic example “As child, for example, it would have shown up in how they spent their pocket money.” Beginning with childhood, each life moment of the future leader’s development is a clue of the behavioral puzzle of leading the company to success. Chapter 1 underlines the two characteristics of the financial style which determine a leader’s financial signature: “resource utilization” and “value adding”. We all know and feel the financial pressure of the government taxes, mortgages, payment rates - determining us to optimize our resource utilization and value adding. What could be more important than profitable resource utilization and a high value adder when talking about leadership styles?
With Chapter 2, Ted Price introduces the portraits of four market leaders: “the Frugal”, “The Extravagant”, “Bare Bones”, “the Reach” based on the two leaders’ characteristics mentioned in chapter one – the foundation of leaders’ behavior: “resource utilization” and “value adding”.
Chapter 3 and chapter 4 reveal us the correspondence between the “Nine Financial Signatures” of leaders and their “Nine Financial Missions”, indicating with examples from real case studies which is the personal leader’s trait matching the management of the company for creating value. On reading this chapter, we are going to meet: “the Venture Capitalist”, “the Profiteer”, “the Buccaneer”, “the Consolidator”, “the Conglomerator”, “the Arbitrageur”, “the Trader”, “the Discounter” and “the Mercantilist” illustrating how the nine financial missions are able to generate cash to the company creating thus company value or the predisposition of the company to fall and loose the capital invested. Using the profit and loss concepts, the author created three Financial Styles with high suggestibility: “The Surplus”, “The Deficit” and “The Puzzler”, each one representing a broad financial style.
Part two - “The Financial Signature’s Significance to Organization” - is divided into five chapters and reveals the strong connection between the financial styles of leaders and organizational culture. Chapters 5 and 6 bring on the organizational stage multiple cases of very well known companies and their leaders proving that the leader’s financial signature has a visible and direct effect on the company’s sales performance. In chapter 6 the author tries to explain that there will always be conflicts over how to achieve ongoing positive financial performance.
As you can see in figure 1, there are five stages in a company evolution. Therefore, to be successful the financial mission needs to be above the line. When a company does not understand how enterprise evolution intersects with financial mission, it will often hire leaders with Deficit styles (as you can see below).
Figure 1 Enterprise evolution and financial mission.
Chapter 7 focuses on all the concepts presented by the author in “the Five Financial Mission Bands”- grouping financial performance patterns that have the same profit quality including all nine financial missions. Ted Prince tries to underline the psychological aspect of the “Five Financial Mission Bands”- as he argues: “the bands show the path of change that are unrealistic and should never be attempted”.
The Five Financial Mission Bands, as you can see in figure 2, show us the financial missions from different perspective. The nine financial missions are categorized into five profit-quality bands revealing us what a leader can and cannot achieve by transitioning between financial missions.
Figure 2 The five profit-quality bands.
An important goal of the book is presented in chapter 8, where the author relates the Financial Signature of a leader with his childhood (already presented in part one). He gives his readers a basic advice: “if you wish to understand your financial signature, ask your parents”. He also underlines the importance of the natural and innate self in doing business or leading a company as a leader: “you may learn much more about the essence of a leader from reading about his childhood than by reading accounts of his contemporaries at a later age.”
In the end of part two, the author focuses on the four profitability correction strategies: “the Optimizer”, “the Resource Efficiency”, “the Value-Adding”, and “the Composite”.
Part three, “the Financial Signature and Street Value”, is divided into three chapters and its goal is to link the market value of a company with the leader’s personal financial trait. The stock market is very dynamic and the market value is not stable increasing or diminishing at each moment of the transaction.
In chapters 10 and 11 the author defines “the nine Fundamental Market Value Outcomes”- as nine basic patterns that enterprises can follow, over a period of years of growing value, diminishing value and growth/decline within the same cycle. Taking into consideration the volatility of stocks (and CAMP model), the author describes nine basic patterns of the market: Growth Valuation (Gently Rising Tide, Fast Rising Tide, High Plateau); Decline Valuation (Dying Swan, Terminal Patient, Quasar Outcome) and Growth/Decline Outcomes (Balloon, Brown Dwarf, Steady State). The companies gain value at different rates or loose value at different rates, these rates being described as the patterns below. At the end of chapter 10, Ted Prince presents all the nine value trajectories that an enterprise can have as a part of broader cycle including all of them. Does it look familiar to you? It’s a life cycle that a company has to pass through from the very beginning (the moment of its entrance in the market) up to the end of its life or dissolution into another company that is more profitable on the financial market.
As you can see in figure 3, each of the nine value trajectories that a company can have is part of a broader cycle.
Figure 3 Market value cycles.
So, there are financial life fluxes and cycles of the companies matching the leaders’ financial and organizational lives, all together in a symbiotic environment. Any disturbance on one side could influence the other side and throw them into different development stages. The financial signature of the leader would indicate which cycle the company should be in.
At the end of part three the author makes the final link between “the nine financial missions” of the leaders and “the nine market value trajectories”. We can learn that the Growth Valuation Trajectory in the market trend corresponds to the Buccaneer, Profiteer and the Arbitrageur. He also underlines that the organization expects that the leaders should make profits and increase the market value.
Part four, “Leadership and Market Value”, is divided into three parts bringing a very important stage into a company’s life: “Supporting the Leader”. Ted Prince underlines the role of “supporting the leader” by understanding his decisions, his mistakes and his effort in doing his financial mission and comprehending what types of support he needs.
One of the main goals of the book is revealed in the last chapter (15): partnership and partnering relationship. Everything in a company gravitates around the people- the employees. As the author said in his book “the fundamental drivers of the company value are the people, not the financial metrics”, we should go back to the beginning of the book where he stated “All people have a financial signature, which is reflected in their behavior. As children, for example, it would have shown up in how they spend their pocket money.”
The author indicates four types of Partner Relationships: “Surplus partnerships”, “Deficit partnerships”, “Puzzler partnerships” and “Conflicted partnerships”. Further more, Ted Prince reveals the efficiency of the Internet forums for group discussions on online services, TV, media conferences and all information available on the Web. We have to admit that we live in the globalization age, and our life depends on communication. What earn Value Company on the stocks market? It is a virtual imagine of what it might be…but without the source of information, without the communication and the expression of this value we might not see it, hear about it and soon will hold no interest…
What new and useful information does this book bring?
Each chapter is followed by a short report focusing on the main targets and “self-development exercises”. These self-development exercises have a special structure: helping us to review what we read, applying it on ourselves.
Applying the theoretical models and financial styles described by the book seems realistic as long as the financial environment has a solid background. But, what shall we do if there is no life history of the market, any solid background, leader portrait and financial pattern? How can we adapt the models and patterns of these researches to different financial market structure? Shall we define first the structure of the market and then match it with the theoretical patterns, or shall we build the market structure from the beginning according the theoretical patterns established?