Advisors Press Business-Owner Clients To Update Valuations

Financial Advisor Magazine

(Dow Jones) The weak economy has dragged down the value of many small businesses and made getting an updated appraisal a discouraging task.
But some financial advisors are pressing business-owning clients to get one anyway, because up-to-date valuations are needed to adjust their retirement and estate plans accordingly. …

Many business owners are so focused on growing the business––or maybe just surviving––that they haven't thought about what has happened to its value. Some businesses are worth 30% less than a few years ago, says Denver financial advisor Dave Seems, who encourages clients to get the appraisal. "It's sort of a wake-up call," he says.

A relatively precise value is needed to make planning decisions, such as whether an owner needs to be saving more outside the business, or whether it is a good time to pass a stake in the business to heirs.

When owners find out their company is worth less than they believe, many make a decision to delay retirement or a sale in the short term. Some are prompted to put more effort into building up business, "to be able to sell at some future point," Seems says.
Kurt DeLucero, owner of Arrowhead Landscape Services in Colorado, wasn't too surprised by the numbers in his company's recent valuation, but he says that the information is useful because it highlights what needs to be done if he wants to be able to sell the business in 10 years.
"I truly like to know [the value]," he says. "It shows me where we are doing well, and where we can make some improvements." …
An owner typically has 50% to 70% of their net worth in their business, says Steven Faulkner, head of specialty assets, J.P. Morgan Private Bank. Often, their investments outside of the business are largely cash, Faulkner says, and he encourages them to have a more diversified portfolio.
Owners often have buy-sell agreements with partners in case one dies, and if such a pact values the business too highly, it can leave survivors with too high a bill to pay. That could even wind up requiring the whole business to be sold.

One silver lining to a lower valuation is the impact on taxes, particularly when passing a business on to heirs. Estate taxes are expected to rise next year and new restrictions on use of trusts could also be coming soon. "Because values are so low and interest rates are so low, there's never been a better time to move assets to the next generation," says Steve Parrish, national advanced solutions consultant for the Principal Financial Group.

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Tax Break Promotes Big Gifts To Grandchildren

Financial Advisor Magazine

Dow Jones) While this year's one-year lapse in the estate tax hogs the spotlight, a lesser-known gap is offering many affluent older people a tax-free way to pass on some of their wealth to grandchildren.

Gifts have to meet certain conditions to get a break on the generation-skipping transfer tax, or GST, which also has been repealed for 2010. Only outright gifts qualify as opposed to, say, putting money in a trust, but the definition of a gift is broad enough: Someone who sets up a partnership and gives away units in it can get the tax break, for example.

David Pratt, managing partner of the personal planning department of the Boca Raton, Fla., office of law firm Proskauer Rose, says his firm is doing a lot of planning for gifts to grandchildren using family limited partnerships. The idea of putting a gift into a vehicle like this is to keep a youngster from getting control over assets all at once and possibly squandering them.

The generation-skipping tax is separate from income, estate and gift taxes. Its purpose is to keep people from transferring property too many generations out without paying tax. The tax is imposed if the transfer avoids gift or estate tax.

Take the example of a man who dies with a multi-million dollar estate, leaving his property in a trust with income payable to his children. On his death, trust assets are to go to the grandchildren. The man's estate would owe estate tax, but on the death of his children, the trust property would not be taxable in their name, so the family would have skipped a generation of estate tax. Therefore, the generation-skipping tax would apply.

The tax applies not just to grandchildren but to all so-called "skip" persons, including unrelated heirs at least 37-and-a-half years younger than a donor.

This year's donors still must pay the gift tax, at a top rate of 35%. That is the lowest level since 1934. The lifetime exemption this year on the gift tax is $1 million. Next year, unless Congress acts, the gift tax will rise to 55%, where it was before the Bush tax cuts of 2001 started taking effect.

Each donor is allowed to exempt up to a certain amount in generation-skipping gifts. Last year it was $3.5 million, and next year will be in the neighborhood of $1.06 million. (The government has not yet confirmed the new amount for 2011.) So, a donor will not owe generation-skipping tax on the first $1.06 million or so in 2011, but will owe the gift tax and the GST on any amount over that.

J.P. Morgan, in a recent analysis on taxable gifts, found that the net benefit to a recipient from a $1 million gift made in 2010, as compared to 2011, would be $305,565. That benefit grows proportionally to the assets' growth.

Making a taxable gift to a grandchild or other skip person, even in 2011, is still a smarter tax move than simply leaving the same amount to the person through the estate, according to J.P. Morgan. For every $100 of a gift in 2010, the grandchild gets $74, as compared to $42 in 2011. …

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A better way to anticipate downturns

Credit markets, though harder to follow than equity markets, provide clearer signs of looming economic decline.

McKinsey Quarterly
OCTOBER 2010 • Tim Koller
Source: Corporate Finance Practice



What executive isn’t challenged by the daily barrage of conflicting economic reports attempting to clarify the question of the hour: will the global recovery build or lapse into another recession? Indeed, executives around the world are evenly split on the topic.¹ And while the savviest executives and investors know better than to get caught up in the short-term fluctuations of the economy, many others, looking for evidence of longer-term trends, still fixate on movements in the equity markets.
They shouldn’t. The fact is that those markets, … don’t predict downturns effectively. Credit markets are a better place to look for signs of impending trouble, in no small part because they have been at the core of most financial crises and recessions for hundreds of years. Parsing the credit markets isn’t easy—there’s no single number remotely like a share price to monitor, and there are many moving parts. But for executives willing to take the time to understand the relationship between the financial and real economies, the credit markets can provide clearer indicators that a recession is on the horizon.

Collective wisdom falls short

Subscribers to the theory that markets process all information efficiently would argue that equity investors should be in very good shape to recognize early indications of a looming downturn. If that were indeed the case, current market valuations might inspire confidence. … And since equity markets do a reasonably good job of tracking long-term economic fundamentals,² investors can expect longer-term returns—dividends and share price appreciation—that are in line with historical real returns, in the range of 6 to 7 percent.
Of course, the fact that the stock market is currently in line with the long-term trend doesn’t rule out the possibility of major fluctuations on the way to the longer term. The performance of equity markets shows that they have not been a good predictor of past recessions. Indeed, during every major recession since the early 1970s, most of the decline in the S&P 500 index occurred after the economy had already slowed (Exhibit 1). … Our analysis suggests that the equity markets give too much weight to current economic activity rather than to the situation likely to materialize in a couple of months or even a year.

Exhibit 1: Most of the decline in equity markets comes after a recession has already begun.

Moreover, when the index’s value does drop during nonrecessionary periods, this rarely signals a coming downturn. In the past 30 years, there have been few major declines in the market outside of recessions (Exhibit 2). Even an extreme case, such as the 20 percent drop during a couple of days in 1987, didn’t portend a systemic downturn, and the index was back to normal a mere two months later. In the past, such market fluctuations have been caused mostly by forces that didn’t have anything to do with the real economy—and any effect they had dissipated very quickly. Equity markets played the more typical role of bystander, buffeted by and reacting to economic events rather than anticipating them.

Exhibit 2: Stock market declines do not indicate economic downturns.

While the equity markets may not predict economic trends well, their depth does provide investors with liquidity, so they generally continue to function smoothly even in difficult times. … During that time, the S&P 500’s long-term trend value—the value you would expect to see if you were confident that the economy would recover to its long-term trend within several years—stood at about 1,100–1,300. Therefore, no one should have been surprised to see a drop to the 900–1,000 level, given uncertainty about the depth and duration of the recession. …

Incubators of crisis

Unlike equity markets, credit markets don’t always function smoothly during difficult times. That, in part, is why they are a better source of clues about where the economy is heading. The credit markets are where crises develop—and then filter through to the real economy and drive downturns in the equity markets. Indeed, some sort of credit crisis has driven most major downturns over the past 30 to 40 years (Exhibit 3). Such crises include not only the recent property debacle in the United States and the 1990 one in Japan but also the crises generated by excessive government borrowing in Latin America in 1980 and by excessive corporate borrowing in Southeast Asia in 1997. So executives who find reasons for optimism in today’s equity market levels might be less sanguine looking at today’s credit markets. It’s still not clear whether prices have stabilized in once overheated real-estate markets. Banks are still somewhat vulnerable. And the level of government debt in the United States and elsewhere is still an issue.

Exhibit 3: Most major downturns in the past 30 to 40 years have been driven by some sort of credit crisis.

Moreover, the pattern of crisis development shows clearly enough that the one thing we can know for certain is that economic crises will erupt in the future—in part because the credit markets work almost as if designed to cause them. That may be a provocative point, but consider this:

• The credit markets are extremely illiquid. The trading volume of most equities is many orders of magnitude greater than that of typical debt instruments. … This illiquidity sometimes makes it difficult for banks or other investors to sell credit assets at a reasonable price. In addition, providers of short-term credit—to banks, hedge funds, and other financial institutions—may be simply unwilling to extend new credit when old debt comes due, forcing debtors to sell assets to pay down debt just as they are least sellable.
• The banking system and many investors, particularly hedge funds, earn a significant portion of their profits on the mismatch between their assets and liabilities: they invest in longer-term loans and other investments and borrow with short-term deposits and debt. … Normally, this formula works well. But two things can happen to disrupt it. Sometimes the yield curve inverts, with short-term interest rates higher than long-term rates; then, normal banking profits disappear. More important, short-term credit markets sometimes freeze up, so banks, hedge funds, or financial institutions can’t get short-term debt at a reasonable price, or any price. As a result, they sell assets at distressed prices—if they can find buyers.
• The system suffers from chronic group-think. … Banks and investors observe which banks or other investors seem to be making the highest profits and then implement similar strategies. If contrarians in the market were to counterbalance credit excesses, the system should stay in equilibrium. But the system makes it very difficult for investors with contrarian views to apply them. …
• Expectations of government bailouts create tremendous moral hazard—… If the European Union hadn’t been expected to step in and rescue the country, the spreads on its debt would have been much higher, years before the crisis hit, relative to, say, German bonds or other euro bonds, given the enormous levels of government debt and its large social obligations. Instead, investors assumed that the EU or one of its members would bail out Greece and continued to lend to it at rates far below levels that would have reflected the true risk of the debt. And in the end they were right, as the EU stepped in.

Unfortunately, it takes several years for crises to develop, and once the conditions are in place, they are nearly inevitable. The only way to stop one is to anticipate it years in advance; for example, preventing the US subprime crisis would have required clamping down on borrowing in 2005. Avoiding the crisis in Greece would have required something similar in 2005, 2006, or even earlier.

Foreshadowing a downturn

The good news, relatively speaking, for managers of companies is that because the conditions for a crisis are in place several years in advance, it is possible to see the signs of one coming—and to avoid getting caught up in credit market hazards.³

Loose lending standards

One clear sign of trouble ahead is a deterioration of lending criteria. … [During] the 2005 real-estate bubble in the United States, buyers with little or no evidence of their ability to carry a mortgage could purchase houses.

Unusually high leverage

Another warning sign of crisis is unusually high debt levels and mismatches between assets and liabilities, whether by financial institutions, companies, governments, or individuals. For example, in the months leading up to the real-estate crisis that erupted in 2007, the leverage of both banks and consumers in the United States was at unusually high levels. In addition, many consumers were financing their homes—long-term, illiquid assets—with debt in the form of adjustable-rate mortgages that had the characteristics of short-term debt.
In the 1997 Asian crisis, companies financed production facilities—obviously long-term investments—with debt in US dollars. When the dollar strengthened, borrowers needed more local currency cash flows to service the debt. And as hedge funds have grown over the past decade, the importance to their returns of their financing model—short-term debt to finance less liquid assets at very high leverage levels of 90 percent or more—has largely been left unspoken. The general public couldn’t see how leveraged these funds were, but the banks lending to them could. And even with full access to their balance sheets, no single bank was willing to give up the business as long as the hedge funds were profitable customers.

Transactions without value

It isn’t always easy for casual observers to notice, but subtle signs often indicate that financial transactions are proliferating even when they aren’t creating value (for example, by substantially easing the allocation of capital). Indeed, many collateralized debt obligations, such as those blamed for the great credit crisis that resulted in the demise of Lehman Brothers two years ago, fall into this category. … Whenever a company tries to take debt off its balance sheet, investors would be well advised to wonder why. These transactions generate a lot of fees for bankers but rarely create any value.
Watching the equity markets for signs of future crises or downturns is unlikely to provide the kind of advance notice that can inform strategic decisions. Executives with the tenacity to follow the many moving parts of the credit markets are likely to be better prepared when the economy does turn sour.

About the Author

Tim Koller is a principal in McKinsey’s New York office.

Notes

¹ “Economic Conditions Snapshot, September 2010: McKinsey Global Survey results,” mckinseyquarterly.com, September 2010.
² See Richard Dobbs, Bill Huyett, and Tim Koller, Value: The Four Cornerstones of Corporate Finance, Hoboken, NJ: Wiley, November 2010.
³ Indeed, US industrial companies that entered the crisis with healthy balance sheets were able to withstand the crisis reasonably well, precisely because they were not overleveraged and had sufficient cash reserves to be flexible as the crisis wore on.

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Employees Value More Employers that Offer Voluntary Benefits

Image via Wikipedia October 6, 2010 (PLANSPONSOR.com) - According to a survey conducted for insurer WellPoint, Inc., most employees (83%) think more highly of employers that offer voluntary insurance benefits than those that don't.

In addition, nearly 90% of respondents report that when it comes to accepting a new job, it is important that companies offer a full range of health benefits, including voluntary. More than half (56%) said it is "very important." 

Image via Wikipedia

According to a press release, eight in ten employees whose company offers voluntary benefits (82%) are satisfied with their benefits offerings, compared to 30% of those whose companies do not offer such benefits.

The top reasons employees cited for enrolling in voluntary benefits include cost savings (54%), greater protection for their families (50%), and ease of mind (44%).

Additional survey results include:

• Two thirds of employees (67%) say their company currently offers voluntary insurance.
• Specific groups of employed Americans are more likely to report their company offers voluntary insurance, including men (71%), those located in the Northeast region of the United States (74%), workers at large companies (81%), and those with an average household income of $50,000 or more (74%).
• Only half of workers (56%) say they are knowledgeable about the voluntary insurance products offered at their companies.
• The majority of workers agree (67%) that having their employer provide voluntary benefits would increase their productivity at work.

The survey was conducted online among a national sample of 2,500 Americans ages 18+ in August 2010.

Rebecca Moore
editors@plansponsor.com

How centered leaders achieve extraordinary results

Executives can thrive at work and in life by adopting a leadership model that revolves around finding their strengths and connecting with others.

McKinsey Quarterly
OCTOBER 2010 • Joanna Barsh Josephine Mogelof and Caroline Webb

• Exhibit: Five dimensions of centered leadership

…[The] global financial crisis and subsequent economic downturn have ratcheted up the pressure on leaders already grappling with a world in transformation. More than half of the CEOs we and our colleagues have spoken with in the past year have said that their organization must fundamentally rethink its business model.

Cover via AmazonOur work can help. We have conducted interviews with more than 140 leaders; … Through this research, we distilled a set of five capabilities that, in combination, generate high levels of professional performance and life satisfaction. We described this set of capabilities, which we call “centered leadership,” in the Quarterly in 2008 and subsequently in a book, How Remarkable Women Lead.¹ …

Five capabilities are at the heart of centered leadership: finding meaning in work, converting emotions such as fear or stress into opportunity, leveraging connections and community, acting in the face of risk, and sustaining the energy that is the life force of change. A recent McKinsey global survey of executives shows that leaders who have mastered even one of these skills are twice as likely as those who have mastered none to feel that they can lead through change; masters of all five are more than four times as likely.² Strikingly, leaders who have mastered all five capabilities are also more than 20 times as likely to say they are satisfied with their performance as leaders and their lives in general (for more on the research, see “The value of centered leadership: McKinsey Global Survey results”).
While such results help make the case for centered leadership, executives seeking to enhance their leadership performance and general satisfaction often find personal stories more tangible. Accordingly, as this article revisits the five dimensions of centered leadership—and their applicability to times of uncertainty, stress, and change—we share the experiences of four men and one woman, all current or former CEOs of major global corporations.

Meaning

We all recognize leaders who infuse their life and work with a sense of meaning. …[Meaning] has a significant impact on satisfaction with both work and life; indeed, its contribution to general life satisfaction is five times more powerful than that of any other dimension.
Whatever the source of meaning …, centered leaders often talk about how their purpose appeals to something greater than themselves and the importance of conveying their passion to others (for more on conveying meaning to others, see “Revealing your moment of truth”). Time and again, we heard that sharing meaning to inspire colleagues requires leaders to become great storytellers, touching hearts as well as minds. These skills are particularly applicable for executives leading through major transitions, since it takes strong personal motivation to triumph over the discomfort and fear that accompany change and that can drown out formal corporate messages, which in any event rarely fire the souls of employees and inspire greater achievement.

Image via WikipediaAvon Products CEO Andrea Jung described how meaning and storytelling came together when her company faltered after years of rapid growth. … Suddenly, it became harder for her to see where her momentum would come from. What’s more, she had to streamline her cherished community.

To remain true to her personal values, Andrea rejected the “more efficient” approach of delegating to managers the responsibility for communicating with employees about the restructuring and of sharing information only on a need-to-know basis. Instead, she traveled the world to offer her teams a vision for restoring growth and to share the difficult decisions that would be required to secure the company’s future. The result? Employees felt that Andrea treated them with honesty and humanity, making the harsh reality of job reductions easier to accept and giving them more time to prepare. They also experienced her love for the company firsthand and recognized that both she and Avon were doing all they could. By instilling greater resilience throughout the organization, Avon rebuilt its community and resumed growth within 18 months.

Positive framing

Positive psychologists have shown that some people tend to frame the world optimistically, others pessimistically.³ Optimists often have an edge: in our survey, three-quarters of the respondents who were particularly good at positive framing thought they had the right skills to lead change, while only 15 percent of those who weren’t thought so.
…When faced with too much stress (each of us has a different limit), the brain reacts with a modern version of the “fight, flight, or freeze” instinct . … This response equips us … not for coming up with creative solutions. Worse yet, in organizations such behavior feeds on itself, breeding fear and negativity that can spread and become the cultural norm.
When Steve Sadove took over Clairol, in 1991, for example, the company had been shell-shocked by a significant decline in sales volume. “I remember going to a very creative person, who did all the packaging and creative development,” Steve told us, “and saying, ‘Why don’t we do anything creative?’ He opened some drawers in his desk and started showing me all of this wonderful work that he’d done. Nobody was asking for it; people kept their head down in that culture. So part of my role as the leader was to create an environment that was going to allow innovation and creativity and make it OK to fail.”
Fortunately, we can all become aware of what triggers our fears and learn to work through them to reframe what is happening more constructively. Once we have mastered reframing, we can help others learn this skill, seeding the conditions that result in a safe environment where all employees are inspired to give their best.⁴
Steve found ways to stimulate creativity, such as exploring opposing points of view in discussions with colleagues. …[He] convinced others that speaking up wasn’t just tolerated but encouraged. He helped colleagues reframe the way they reacted to dissent, … Steve and his team introduced a winning hair care brand, Herbal Essences, and ushered in a golden period of growth for Clairol.

Connecting

With communications traveling at warp speed, simple hierarchical … are becoming less and less effective for leaders. For starters, leaders depend increasingly on their ability to manage complex webs of connections ... Further, leaders can find the volume of communication in such networks overwhelming. While this environment can be challenging, it also allows more people to contribute, generating not only wisdom and a wealth of ideas but also immeasurable commitment.
The upshot: CEOs have always needed to select exemplary leadership teams. Increasingly, they must also be adept at building relationships with people scattered across the ecosystem in which they do business and at bringing together the right people to offer meaningful input and support in solving problems.

Image by mrkathika via FlickrMacy’s CEO Terry Lundgren learned firsthand about the power of connecting the internal community in 1988 when, 15 months after joining the retailer Neiman Marcus, he became its president and CEO. Shaking things up was core to his role:…Employees greeted him with widespread skepticism. “They were all thinking, ‘Who is this 37-year-old guy who is going to tell us how we should run our fantastic business?’” So Terry held a town hall meeting in the library across the street from company headquarters, in downtown Dallas. He invited anybody who wanted to come. The first time, he recalls, “I had only about 30 people show up! I thought it was going to be a little bit bigger than that, but I tried to be very direct and use the time mostly to listen and respond.” He kept holding meetings, noting that “it really moved the needle quickly in terms of getting things done in that company.” By the time Terry left, the twice-a-year meetings filled a 1,200-seat auditorium.

Image by Getty Images via @daylifeToday, as Terry leads Macy’s, he connects the dots internally and externally in many ways, from scheduling a monthly breakfast with new managers to forming relationships with peers who have led companies through change. Terry has also emphasized corporate connectivity, regrouping Macy’s stores into 69 districts, each tasked with creating “My Macy’s” for its customer base. …Terry’s top team believes its efforts to connect managers more closely to one another and to customers, through enhanced information sharing and product offerings tailored to local needs, help explain the company’s trajectory.

Engaging

Of survey respondents who indicated they were poor at engaging—with risk, with fear, and even with opportunity—only 13 percent thought they had the skills to lead change. …[Risk] aversion and fear run rampant during times of change. Leaders who are good at acknowledging and countering these emotions can help their people summon the courage to act and thus unleash tremendous potential.
But for many leaders, encouraging others to take risks is extremely difficult. …What’s more, to acknowledge the existence of risk, CEOs must admit they don’t, in fact, have all the answers—…

Image by epSos.de via FlickrDoug Stern, CEO of United Media, has a number of ways to help his people evaluate risks and build their confidence about confronting the unknown. … Doug follows an explicit process anytime he’s facing a new, risky project (for example, selling some of his company’s assets). The process helps everyone—…prepare by devising risk mitigation strategies using these steps:

• asking the team to imagine every bad scenario, even the most remotely possible—…
• giving everyone a chance to describe those scenarios in detail and then to “peer into the darkness” together
• devising a detailed plan for countering each nightmare—…

Once fears have surfaced and been dealt with, the team has a protocol in place for every worst possible scenario and a set of next steps to implement.⁵

Managing energy

Sustaining change requires the enthusiasm and commitment of large numbers of people across an organization for an extended period of time. All too often, though, a change effort starts with a big bang …only to see energy peter out. The opposite, when work escalates maniacally through a culture of “relentless enthusiasm,” is equally problematic.⁶ Either way, leaders will find it hard to sustain energy and commitment within the organization unless they systemically restore their own energy (physical, mental, emotional, and spiritual), as well as create the conditions and serve as role models for others to do the same. …
While stress is often related to work, sometimes simple bad luck is at play, as Jurek Gruhn, president of Novo Nordisk US, can attest. Nine years ago he was diagnosed with Type 1 diabetes. Working for a world leader in diabetes care, Jurek was no stranger to the illness … “My first reaction was, ‘You may have Type 1 diabetes, but you could also have a lot of other diseases that are much worse.’” So, he told us, “I went to the hospital for two or three days of testing and then went back home. We had our Christmas break. After that, I was back in the office. My wife, who is a physician, said to me, ‘That was a quick process!’ I basically took on my disease as a task.”

Image by Siebuhr via FlickrJurek realized that one key to living a normal life with the disease is to embrace life, at work and at home. “A healthy lifestyle is important. I have five kids: … Sometimes they completely drain my energy, but they can energize me a lot. …I eat breakfast now every day, I exercise much more, and I started rock-climbing on a regular basis.” Everything improved—his physical condition, mental focus, emotional satisfaction, and spirit. He even learned to face what drained him most—unhealthy conflict at work—by addressing it directly and quickly, much as he handled his diabetes.

Even for leaders without such a challenge, Jurek sets another valuable example: “I saw this comedian who said that a man’s brain is filled with boxes, and one of them is empty. Well, when the day’s really tough in the office, I go into my empty box for 10 or 15 minutes and I do nothing. If I completely switch off for a short period of time, I get my energy back. Now, I’m not switching off every 15 minutes after working for 15 minutes… But I do not work weekends unless I really have to. And I’m not one who wakes up and the first thing is the BlackBerry. No way!”
Centered leadership is a journey, not a destination, and it starts with a highly personal decision. We’ll leave you with the words of one executive who recently chose to embark on this path: “Our senior team is always talking about changing the organization, changing the mind-sets and behavior of everyone. Now I see that transformation is not about that. It starts with me and my willingness and ability to transform myself. Only then will others transform.”

About the Authors

Joanna Barsh is a director in McKinsey’s New York office, Josephine Mogelof is a consultant in the Los Angeles office, and Caroline Webb is a principal in the London office.
The authors would like to thank Aaron De Smet and Johanne Lavoie for their extraordinary contributions to this work.

Notes

¹ Joanna Barsh, Susie Cranston, and Geoffrey Lewis, How Remarkable Women Lead: The Breakthrough Model for Work and Life, New York: Crown Business Publishing, 2009.
² The online survey was in the field from July 6 to 16, 2010. It garnered responses from 2,498 executives representing all regions, industries, functional specialties, and tenures. Respondents indicated their level of agreement with statements representing various dimensions of the leadership model. We then aggregated their answers into degrees of mastery of each dimension.
³ Martin E. P. Seligman, Authentic Happiness: Using the New Positive Psychology to Realize Your Potential for Lasting Fulfillment, New York, NY: Free Press, 2004.
⁴ Michael A. Cohn et al., “Happiness unpacked: Positive emotions increase life satisfaction by building resilience,” American Psychological Association, Emotion, 2009, Volume 9, Number 3, pp. 361–68.
⁵ Psychologist Gary Klein has developed and applied in a variety of settings a similar approach that he calls the “premortem.” For more on this technique, and on the broader problem of executive overconfidence, see “Strategic decisions: When can you trust your gut?” mckinseyquarterly.com, March 2010.
⁶ Edy Greenblatt, Restore Yourself: The Antidote for Professional Exhaustion, Los Angeles, CA: Execu-Care Press, 2009.

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