Leaders of successful organizations must be skilled stewards of capital. They need to carefully manage the inflow and outflow of cash and other financial resources the organization needs to fund operations and fuel growth. They need to manage the inflow and outflow of people – including the skills, knowledge, and creativity they possess – to develop and execute the organization’s strategies. They also need to cultivate and manage a third type of capital: psychological capital.

Psychological capital has four essential components: self-efficacy, optimism, perseverance, and resilience. People, teams, and organizations that possess self-efficacy believe in their ability to achieve their goals and succeed at challenging tasks. Those who are optimistic believe that the future will be better than the present, often despite fear, uncertainty, and doubt. Those who persevere actively set goals and pursue pathways to achieve them with energy over a long period of time. Finally, people, teams, and organizations who are resilient anticipate, cope with, and adapt to challenges, not only bouncing back but bouncing forward from significant adversity.

The benefits to people, teams, and organizations that possess psychological capital are significant and many. These include a reduction in cynicism, stress, and anxiety, a reduction in undesirable workplace behaviors, and lower employee turnover. Not only does psychological capital reduce the bad, it also promotes the good. Specifically, it improves job satisfaction, job performance, organizational citizenship at work, and overall wellbeing. These benefits have been studied in a variety of settings including workplaces and schools.

For organizations to flourish, leaders must cultivate not just financial and human capital, but also the psychological capital of its people, leaders and teams.

What role do leaders play in growing psychological capital?

Here are five evidence-based behaviors of leaders of psychologically strong organizations:

1. Vision: Leaders of psychologically strong organizations unite their teams and focus their energies toward the accomplishment of a single, simple, and compelling vision of the organization’s future. An effective vision encapsulates who the organization is meant to be, to serve which constituents, to serve what purpose, and why.

2. Effectiveness: Effective leaders operationalize this vision well across their organization. They do so by communicating it broadly, clearly, and often. They have an intuitive sense of how widely and deeply this vision has been embraced by their employees and teams, adeptly bolstering buy-in where it might be weak or lacking.

3. Empowerment: The execution of this vision must live with the employees of the organization – on the ground level (lowest organizational levels) and at the frontlines (closest to constituents being served). Leaders must equip their teams with what they need to independently, efficiently, and effectively pursue the organization’s goals. This includes not only knowledge, tools, and financial resources, but also psychological safety and the permission to act and make mistakes.

4. Supportiveness: Empowerment is not an act of setting it and forgetting it. Leaders need to remain present for their teams, ready to help them work through challenges with ideas, resources, or encouragement. Leaders understand that things worth doing are definitionally hard to do. They make it abundantly clear to their teams that difficulty is par for the course and that asking for help is not a defect.

5. Responsiveness: A responsive leader is there when you need them (responsive to the employee’s needs). They are also adaptive to an ever-changing environment (responsive to the situation). Timely action is key to leadership.

The next time you sit down to review your financial statements or human resources plans, ask yourself whether it is also time to check-in on the health of this third type of capital essential to strong organizations: psychological capital. Do your teams demonstrate self-efficacy, optimism, perseverance, and resilience?

As leaders, how well do you foster psychological capital? Do you have a single, simple, and compelling vision that is communicated broadly, clearly, and often? How do you empower and support your employees as they work to achieve this vision? Are you responsive enough to their needs and the changing circumstances around you?

What you focus on grows.

Photo Credit: Chang Duong on Unsplash

References

Carter, J. W., & Youssef-Morgan, C. (2022). Psychological capital development effectiveness of face-to-face, online, and Micro-learning interventions. Education and Information Technologies, 27(5), 6553-6575.

Luthans, F., Youssef, C. M., Sweetman, D. S., & Harms, P. D. (2013). Meeting the leadership challenge of employee well-being through relationship PsyCap and health PsyCap. Journal of Leadership & Organizational Studies, 20(1), 118–133.

Prayag, G., Muskat, B., & Dassanayake, C. (2024). Leading for Resilience: Fostering Employee and Organizational Resilience in Tourism Firms. Journal of Travel Research, 63(3), 659–680.

Singh, R., Sihag, P., & Dhoopar, A. (2023). Role of resilient leadership and psychological capital in employee engagement with special reference to COVID-19. International Journal of Organizational Analysis, 31(1), 232–252.