Francesco Di Costanzo
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(1) Leadership as Capital Allocation

/4 min read

The Leadership Industry Is Teaching the Wrong Thing

Walk into any leadership development programme and you will find a familiar curriculum: empathy, psychological safety, communication, self-awareness. These are not trivial skills. But they are not the core job of a senior leader. The core job is allocating scarce resources — capital, time, attention — under uncertainty. And on that front, the leadership industry is largely silent.

The Returns to Reallocation Are Staggering

McKinsey found that companies reallocating more than half their capital expenditures across business units over a decade created fifty percent more shareholder value than slower reallocators. Top-decile CEOs were thirty-five percent more likely to dynamically reallocate than average performers. Yet a third of companies barely moved their capital at all — reallocation rates of roughly one percent year to year. This is not a minor operational detail. It is the single highest-leverage behaviour available to a chief executive. And it is almost never taught in leadership programmes.

Managerial Ability Is the Mechanism

The evidence on why reallocation matters runs deeper than headline figures. A 2023 study of S&P 1,500 firms by Benz, Demerjian, Hoang and Ruckes found that a one-standard-deviation increase in division-manager ability produced an 18.3 percent increase in segment investment, translating to roughly $4.7 million in additional capital deployed per manager per year. Better managers identify better opportunities. The implication is direct: capital allocation is not merely a financial exercise. It is a talent-judgment exercise. The best allocators are those who can identify which managers deserve more resources and which deserve less.

But the Training Gap Is Structural

Despite this, leadership development curricula remain dominated by interpersonal competencies. Harvard Business Publishing's 2024 Global Leadership Development Study found that only forty-three percent of organisations plan to increase emphasis on business or financial acumen in their training. Meanwhile, more than half are prioritising reducing turnover and improving employee experience. A 2025 content analysis of leadership development programmes found technical, digital, and strategic-foresight capabilities severely underrepresented. The curricula have not caught up with what the evidence says executives actually do.

Soft Skills Are Not the Enemy

It would be easy to frame this as a simple either-or: hard skills versus soft skills, spreadsheets versus emotional intelligence. That would be wrong. The research on soft-skills training is robust. MIT Sloan documented a 250 percent return on communication and problem-solving training. A Boston University and Harvard study found 256 percent ROI on self-awareness training through productivity gains alone. The argument is not that empathy is worthless. It is that empathy is oversupplied in leadership development while capital-allocation discipline — the senior leader's primary function — remains an afterthought, treated as something finance teams handle in the background.

The Real Fracture

Here is the non-obvious tension. When researchers interview CFOs about how capital is actually allocated inside firms, they discover that top management relies heavily on soft, non-financial information: assessments of divisional managers' abilities, strategic judgment, trust. The hard skill of capital allocation turns out to depend on the soft skill of judging talent under uncertainty. The fracture is not between interpersonal skill and financial discipline. It is that leadership development teaches soft skills in a vacuum — disconnected from the allocative decisions they ought to inform.

What This Means

If the evidence holds, the leadership industry does not need less empathy. It needs empathy tethered to judgment, communication tethered to resource allocation, self-awareness tethered to the willingness to move capital away from underperforming teams and toward better ones. The executives who create the most value are not those who are merely likeable or merely numerate. They are those who can combine both — and organisations that select and train for that combination will outpace those that treat leadership as a personality trait rather than a resource discipline.

Sources

  1. McKinsey, "The mindsets and practices of excellent CEOs" https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/the-mindsets-and-practices-of-excellent-ceos

  2. Benz, Demerjian, Hoang & Ruckes, "Picking Winners: Managerial Ability and Capital Allocation" https://www.econstor.eu/bitstream/10419/283896/1/1881560155.pdf

  3. Harvard Business Publishing Corporate Learning, "2024 Global Leadership Development Study" https://www.harvardbusiness.org/wp-content/uploads/2024/06/CRE5057_CL_TT24_Research-Findings_June24.pdf

  4. Henry, "Leadership Development Programs and Their Effectiveness in Building Future Managers" https://www.scirp.org/journal/paperinformation?paperid=146184

  5. Lacerenza et al., "Leadership Training Design, Delivery, and Implementation: A Meta-Analysis" https://doerr.rice.edu/sites/g/files/bxs3016/files/2020-03/Leadership%20Training%20Design,%20Delivery,%20and%20Implementation.pdf

  6. Hoang, Gatzer & Ruckes, "The Economics of Capital Allocation in Firms: Evidence from Internal Capital Markets" https://pubsonline.informs.org/doi/10.1287/mnsc.2021.02755