Six Degrees: Analyzing Your Financial Traits

Dr. E. Ted Prince's career has spanned 20 years as a CEO and a 6-year stint as chairman and CEO of a Nasdaq company, but it was his experience on various boards that posed the question that shaped his recent work. The boards hired CEOs, and the CEOs regularly flamed out. "It happened a lot," he recalls. "These were powerful people, very strong leaders who were passionate, driven, smart, and yet they failed on financial grounds. Why is it that otherwise good leaders still can't make money and therefore have to be fired -- and then you have to go through the entire problem of finding someone else?"

Prince realized that the answer had nothing to do with these leaders' "charisma" or lack of it. Nothing to do with their perspicacity or determination. And nothing to do with their leadership style, at least in any sense in which that term is usually understood.

It had everything to do with their financial personality.

"Fundamentally, all humans have financial traits; they're part of our personality, in exactly the same way that we can be timid or aggressive," he explains. "We all make financial decisions, even if we ask, 'Is it worth going out to dinner tonight?' That's a financial decision; I'm balancing off value against the resources I've got to expend, whether it be money, effort, time, or psychic energy."

Financial traits are innate and unconscious, Prince believes, but they can be modeled in terms of an individual's propensity to create or consume capital, a view that he elaborates in his book The Three Financial Styles of Very Successful Leaders (McGraw-Hill, 2005). Prince organizes the universe of financial traits into nine categories that he calls "financial signatures," which generate characteristic decision-making styles and which in turn cluster into three financial styles: value-centric, resource-centric, and balanced.

Value-centric individuals have a natural tendency to make money; resource-centric people tend to lose it. And people who have a balanced financial style just maintain the assets they have. "Most people naturally consume capital or at best maintain it," says Prince. "If this weren't true, we'd all be trillionaires, right? And no CEO would ever get fired for losing money. But this clearly isn't the case; 80 percent of CEOs get fired because they lose money."

The financial styles condition decision-making at all levels of an organization, according to this model, which forms the core of the instruction offered by the Perth Leadership Institute, founded by Prince in 2005. All employees influence a company's financial outcomes, he points out. "It may be pretty minor, and clearly the CEO and top management teams and top executives generally have more impact, but everyone has an impact on the value of an organization through their financial signature."

Take a junior cost center manager, for example. "Most people don't act as owners; most cost center managers get a budget and they figure they've got to spend that budget. They don't figure out that 'Boy, I'm part of P&L too, and the way I handle that cost center will eventually roll up into a P&L statement.' If you're resource-centric, you'll tend to spend the whole lot."

This has profound implications for the transformative role of the CFO. "The more financial signatures you have that are value-centric, the better you'll do in terms of your valuation relative to your peers," says Prince. "So you can think of the financial styles as having a direct impact on your profitability relative to your competitive peers."

Given that the financial styles are innate, according to Prince, is there anything that you can do if your personal style happens to be resource-centric or balanced? "It doesn't really matter if you're resource-centric as long as you know it. If you're self-aware and mentally agile and your ego doesn't get in the way, you can make a lot of money."