The Social Capital of the Leader »
The old saying "It's not just what you know, but who you know" isn't a cynical commentary. It's a well-established principle, supported by twenty years of scientific research. This has been reflected by Ex US President Bill Clinton who shared that he had used his connections with other governors to learn how to excel in that role. Later, as the president of the United States, networks proved vital to managing the give-and-take of demands and concessions among the world’s power brokers.

The best performers and the most profitable companies invest in social capital. Take the example of Southwest Airlines that leverages its social capital which is in the network of relationships between the employees who collaborate and cooperate to achieve the organizational goals. Even the strong and charismatic leader like Herb Kelleher attributes his success to his team which continues to use the social capital of the organization and achieve success even though Herb Kelleher is semi retired.

So what is Social Capital? Social Capital involves the relationships between individuals and organizations that facilitate actions and create value (Adler and Kwoon, 2002). Enabling people to act collectively, social capital reflects the value of relationship and is a quality existing among the people and organizations and yields potential opportunities to the holders of the capital (Hitt and Ireland 2002, Naphiet and Ghoshal,1998).

Social Capital is classified in two categories: internal social capital and external social capital. The internal social capital is concerned with the relationships across all the levels of the organization and its work units. The external social capital is concerned with relationships that exist between the boundary spanners/ leaders and the entities outside the organizations with whom they interact to enhance or further the firm’s interests. Effectively designed and integrated relationships enable members to collaborate in ways that contribute to creating and using competitive advantages (Cross, Nohria and Parker, 2002). The external Social Capital that is the informal and the formal relationships between the organizations help the organizations to access information, knowledge, technology and other capabilities. The external social capital helps the organizations to develop a competitive advantage as well as survival through difficult times.

So how does social capital acts as a differentiator between successful and not so successful leaders? Insightful leaders build diverse and rich relationships which can be utilized when facing a problem particularly in the difficult as well as competitive environment or a situation. The successful leaders build a relationship of trust within the group as well as outside the group which leads to more openness and receptivity to creativity, effective work flow through the teams. They continuously develop and integrate the organization’s external social capital with its internal social capital.

How do you build your social capital?
  • To let the trust thrive in your team or amongst your people, be transparent and fair.
  • Create a climate or culture of transparency and fairness.
  • Create rules that are clear and consistent. The mantra is that you should live by the rules and living by them will create trust.
  • Trust grows out of trust- as the saying goes so to get trust you need to show trust yourself.
  • Trust and transparency should be built with the external stake holders too and they in turn create the external social capital.
  • Be sensitive to your external partners’, alliances’ needs.
  • Make sure that your/ organization’s partner/ alliances benefit from this relationship and are able to meet their goals.

To navigate effectively through the present uncertain, dynamic, competitive and difficult environment needs astute leadership. The leaders at all the organizational levels must acquire, develop and effectively manage all the network of relationships. These relationships create the social capital of the leaders that in turn help the organizations successfully sail through these tough times. The social capital of the leader and the organization will provide the competitive advantage to tide over the difficult times.

References

Adler P.S. and Kwoon, S-W, ( 2002), Social Capital: Prospects of the new concept, Academy of Management Review,27, 17-40.
Cross R, Nohria N & Parker A (2002), Six Myths about informal networks- and how to overcome them. MIT Sloan Management Review 43(3), 67-75
Nahapiet ,J. & Ghoshal,S. (1998), Social Capital, Intellectual Capital and the Organizational Advantage, Academy of Management Review,23,242-266
Hitt,M & Ireland R. Essence of Strategic Leadership Managing Human and Social Capital.The Journal of Leadership and Organizational Studies,Vol 9, No.1,3-14

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