Character-Based Finance - Because It Matters

“But if you look at the financials before the crash, the numbers looked really good, until they didn’t - all the balance sheets in the world couldn’t capture the risk that ultimately mattered in the end - the character of leadership.”
- Dr. Josh Yates, VP of Strategy and Innovation, Belmont University

FTX, Theranos, WeWork, Builder.ai, eFishery – the pattern repeats. The spreadsheets looked great, the markets were optimistic, yet neither the valuation nor the growth curve could compensate for the character-based weakness in its leadership. The illusion of the spreadsheet perpetuates a dangerous myth that “only the numbers matter” – yet as we have seen repeatedly, success and integrity are joined at the hip.

Character is decisive for investors, founders and the ecosystems that we are building. This isn’t soft or naïve, it is in fact rigorous due diligence, as character can determine whether a venture survives turbulence or collapses under ego and exhaustion. It is so basic yet often overlooked because it is uncomfortable. Character isn’t just about values, it’s about whether those values can hold up under pressure, and in such a way that unlocks the power of your organization’s culture. Great leaders shape great cultures, and, as we have been told many times, culture eats strategy for breakfast. Cultural fit compounds value and ultimately impact.

Character is as critical on the investment side as on the management side. Character-based finance must be mutual if it’s going to be effective - investors must assess the character of founders, and founders must also assess the characters of their investors. A Character-based Mutuality Framework can be created which both sides can use as part of their due diligence process to evaluate character alongside competence. In finance, managing risk is vital. Knowing the character of those who are managing your
investments may be one of the most underappreciated yet consequential ways of managing risk.

Crisis always reveals true character. Its depth does not reveal itself in the calm and controlled environment of the boardroom. Short of a crisis, we need a tool like a Character-Based Mutuality Framework for our due diligence. Warren Buffet famously said, “In looking for people to hire, look for 3 qualities: Integrity, intelligence, and energy. And if they don’t have the first, the other 2 will kill you.” Who are you inviting into your company’s story and will they hold up under the inevitable pressures they will face?