What Is The Missing Ingredient In “Traditional” Exit Planning.
September 30, 2011 by Harvey Wigder · Leave a Comment
In this newsletter the word “exit” refers to an owner leaving his or her business via sale, transfer or liquidation.
The first baby boomers have passed the traditional 65 year retirement age and every year, that number will increase. This will impact the economy because it is estimated that this age quadrant owns about 8 million businesses. This is an important time for making some key decisions in the life of a business owner, especially since it is estimated that 80% of his or her wealth is tied up in the business. Since a business is not a liquid investment, it must be sold for the owner to realize its value.
There are two problems with exits. The first is that the owner has spent his life operating the business and usually doesn’t have the skills to sell it. What generally seems to happen is that the owner has a crisis or 
gets fed up and seeks an immediate sale. Since owners often have unrealistic notions of the value of the business and have not done anything to prepare it for sale, selling the business can be very problematic. One statistic that shows the result of that lack of expertise is that 78% of businesses presented to M&A firms do not find a buyer and are subsequently liquidated. Many others find buyers, but don’t maximize the selling price. These transitions are not good for the owner, his or her family, employees, or customers; it also represents a loss of jobs and value added for the economy.
Advisors who understand that most owners do not have the skills to sell their businesses have begun to focus on the idea that bigger picture exit thinking needs to be coupled with their specific professional expertise. Many money managers, M&A firms, lawyers, accountants and business consultants are realizing that each situation has its own complexity and it will take a team of specialists (legal, tax, accounting, and others), plugged into the needs of the owner, to help guide that person to a successful exit. These advisors help the owner understand the process and form the team needed for success. And in this case, the term success is defined as the completion of a transaction wherein the owner is able to monetize his or her investment to the greatest financial benefit possible, while at the same time ensuring employees, customers, vendors, and the buyer are also benefited.
Thus, the initial approach to the realization that “exits” would become increasingly prevalent was financial. The questions most often posed to owners were “how much money do you need to fund the life you would like when you no longer have cash flow from the business?”, and “what is your business worth – assuming you can sell it?” If the business was worth more than his or her needs, the owner could sell it and was encouraged to create a plan around value maximization. If the business was worth less, the challenge was to create a plan that included steps to increase the businesses value (and its likelihood of sale). However, these insights often don’t necessarily lead to action. Why? What is the missing component?
The missing ingredient is emotional readiness. Although I have heard there are owners who want to retire, I don’t know them. The ones I know have their identities and lives so wrapped in running their companies that they do not have a clue about what they might do with their lives if they didn’t have the business to go to. Instead, they ask themselves, “if I sell my business on Friday, what do I do Monday morning?” When they contemplate the prospect of not actually not “going to work” at the business, they figuratively (and sometimes literally) grow cold and clammy because they feel that without the business, they would drop into a black hole that feels somewhat like a walking death. In a sense, the business is their life and without the business, life seems pretty empty.
Understanding the emotional component has led to the next generation of exit planning, more properly called transition planning. With this focus, the owner considers his or her (and often the spouse is included) emotional readiness early in the process. If an owner can get excited about the prospects of an interesting and meaningful life after leaving the business, they are motivated to proceed. Otherwise, they nearly always put off needed planning; avoid the subject altogether, or (unconsciously) sabotage planning and selling efforts because of this lack of emotional readiness to move into another phase of life. This emotional component of the situation has many variables – and they differ from person to person. The point here is that those variables should be carefully examined, planned for, and resolved as part of the transition process.
I have gone through my own transition planning which I will discuss in the next newsletter. During my planning I discovered the Successful Personal Planning Institute which has created a systematic, business oriented process to help owners deal with emotional issues. I have been certified by them to use their process and am now working with business owners to help plan and effect a successful emotional and financial transition from their business to a new and equally fulfilling life. We will continue on this topic in the next newsletter.
What does the BP oil spill have to do with executive recruiting?
June 21, 2010 by Harvey Wigder · 3 Comments
Every night on the evening news, we see oil soaked animals and witness interviews with unfortunate and hardworking people who can’t make their mortgage payments. Then we cut to the underwater camera which shows the continued rapid flow of oil and finally we switch to a map that shows us a bigger and bigger area of destruction. Recently, ABC Evening News superimposed a map of Nebraska over the Gulf. Maybe by now, they are showing Alaska. Last weekend, in acts of PR “genius” BP’s Chairman sympathized with the “little people” and its President attended a yacht race,
As this goes on we get angrier and feel more hopeless. We wonder how and why the parties could have done what they did, why we can’t fix it faster, and last, who exactly is responsible.
Assigning responsibility is tricky. Certainly BP underestimated risks and cut corners and deserves its current prominence for malfeasance. But, the responsibility is broader. The oil industry wasn’t prepared and this isn’t the first leaking rig. The government structure for regulation was in place, but the people who did the regulating didn’t act in the public interest. Despite the warning signs, our appetite for petroleum fuels remains unabated. The consequence seems to be riskier and riskier drilling. Should we hold successive administrations responsible for insufficiently dealing with this potential crisis?
Besides bail out, the solutions that are now being proposed address responsibility and punishment. The mechanisms are increased penalties and better regulation. Given the current malaise in Washington, the Congressional debate on how exactly what to enact will go on for years and will end with the public having little confidence in the final result.
Last week the news also brought the story of a Tylenol recall because bottles manufactured in Mexico gave off an offensive, and to some, sickening odor. Before BP took them off the top half of the page, Toyota also showed offensive irresponsibility. The problems caused by the Greek governments irresponsible stewardship of the country’s economy have also impacted us all. The sources of threat are everywhere! If you believe that global warming is in progress, that ups your level of concern about the fate of our earth.
Our ability to cope hasn’t kept up with our ability to manage global interdependency. National governments are now dealing with issues of international impact with agreement between nations almost impossible because of diverging interests.
Dealing with these issues will require systems thinking on an international scale with a corresponding recognition of the problems and a will to deal with them. The track record isn’t good so this is highly unlikely. I can only anticipate a long series of unanticipated disasters. These issues don’t have a single culprit or even a root cause. The problem is that we can’t manage a diverse system. Fortunately a company is a smaller entity than the world economy and some are managed very well.
Executive recruiting is more problematic than the search industry wants to publicize. Just to get you oriented, recent surveys have shown that 40% of newly hired CEOs don’t last 18 months. For more metrics that show how dismal executive retention rates are, click here.
When you are an owner who sees that a hiring mistake has been made, you are seeing an oil leak on a smaller scale as the business makes bad decisions, looses market credibility, experiences drops in profits and morale, and begins to lose its best people. The cause can be summarized by this phrase: people get hired based on their resumes and get fired because of their personalities and their failure to provide leadership in the right way in an organization with a specific culture.
A non-systems oriented search will list the skills and experience that the resume of the new executive should contain. On the other hand, a systems perspective would consider the culture of the organization, its strategic plan, the role a new executive can play in implementing it and the obstacles the new executive would have to overcome to be effective. The specification would go beyond the resume and consider personality, character and ability to fit into the culture while simultaneously being a change agent.
The systems view would then go broader still: It would consider that the organization and its current leadership need to collaborate for success and therefore will have as much or more responsibility for achieving the organizations goals as the new executive. That is follow up and integration is included as an important step for success. Both the organization and the new executive need feedback to ensure they stay on track to achieve the larger goals of the organization.
Conclusion
The time for limited, non-systems thinking has past. Those who are engaged in executive search can continue to make the mistake of seeing the responsibility for success as only being in the hands of the person hired (e.g. if that person doesn’t work out, we hired the wrong person) and begin to take a broader systems look at what the organization wants to achieve and the responsibility of the whole for achieving it.
The Advisor’s Dilemma
May 4, 2010 by Harvey Wigder · 3 Comments
I belong to two professional associations that consist of seasoned advisors who consult to family and private businesses. To get the juices flowing, we sometimes discuss cases that highlight issues and make us think about common concerns and ways we can collaborate to provide the most value to our clients.
Let’s look at the structure of a typical case. The case starts with the history that resulted in the company’s origins and place in its market. Generally the cases present a company that is a going concern and has, at its core, a foundation for a good future. However, there are problems. It almost always is declining profits. Underlying and contributing to this are problems with funding, sales, marketing, customer service, and operations. There will also be further underlying concerns about family dynamics, the quality of owner leadership, and the quality of the management team.
The advisors who discuss these problems offer different perspectives:
- Those who are accounting oriented, analyze the content and nature of financial data to get to the issues that seem to most affect the bottom line.
- The M&A specialists talk about what has to improve to make it more attractive for buyers and fetch a higher price.
- The business and turnaround consultants focus on the strategies they implement to turn the company around.
- The lawyers offer up the legal tools to draw up buy sell terms and related succession plans, but usually need to hold off until other issues are resolved.
- Estate planners outline strategies to preserve and grow wealth.
- The money manages optimize security and investment income.
- The organizational development people will see problems with leadership and will propose programs or coaching to improve planning and communications to better link human resources together to better achieve the mission of the company.
- Insurance people think of how to provide a financial safety net for the owners.
- I, as a recruiter, see opportunities to strengthen the company by introducing new talent.
We come out of these discussions with two conclusions:
The first is that the situation is much too complex for any single discipline, and in an ideal world, several would collaborate to help the owners solve complex and interrelated problems.
The second is a desire for, what I will call, the Holy Grail. By this I mean each discipline knows it has an important role to play with a focused successful company. What we all seek is company leadership that has an intelligent, well implanted business plan which leads to growth along with leadership who has an exit or transition plan to ensure the continuity of the business for the long haul.
Result: This can lead to the ultimate win-win. The owner has the experience of meeting business and life goals and advisors have the satisfaction of providing valued support along the way.
As advisors, our thinking about the company is not limited by its culture, and we know all companies go through cycles and leadership strengths in earlier stages can be weaknesses in later stages. We understand there is strength in coming to grips with change and being open to new ways of thinking necessary for the company’s present reality. We also know the owner who plans for the future dramatically increases the odds of achieving the highest quality result.
Put another way, our client may benefit from a changed way of thinking but doesn’t see the need or resists taking the risks inherent in implementing change.
The dilemma is tantalizingly simple:
How hard (or perhaps, in what way) should a trusted advisor push the owner to take a broader perspective and engage the support of other advisors and coaches who will help incorporate new ways of thinking and a more planning oriented approach to the transition that is inevitable?
The best advisors put their clients first and are consistent advocates for what is best for their clients and their clients businesses – but how can they do this if the client simply does not see the forest because of the trees? What do you think?
Machiavelli’s Take on Advisors
May 4, 2010 by Harvey Wigder · Leave a Comment
The word Machiavellian is often regarded as synonymous with manipulation. But, is that really what Machiavelli was about?
I recently read The Prince and was taken with Machiavelli’s sensible and straightforward message. He showed how applying an understanding of human nature would allow a ruler to increase power and territory. The manipulation inherent in the concepts was based on strategies that increased the ruler’s power through providing influence and wealth to supporters.
When he classified states in terms of how they were governed, it was clear to Machiavelli that democratic states were more lasting than despotic ones. They found a way to balance extremes and give each class a piece of the action. Sooner or later, he observed, a ruler in a monarchy would get caught up in himself and forget to govern for the common good. This would alienate subjects, leading to revolution and vulnerability to ambitious rival regimes.
Leadership requires wisdom and knowledge and no one individual has a monopoly on it. As a result, Machiavelli understood how important it was for a Prince to have advisers who could help him stay grounded in reality. Sustained power required that policies and decisions spread rewards and minimize discontent.
He cautioned that the price of choosing advisors who were sycophants would sooner or later be high. Conversely, he documented that Princes who had the wisdom to use advisors with knowledge and skill and the backbone to be truthful had a better chance of survival and enhanced success.
These insights are as relevant today for a business owner as they were for a Prince in Machiavelli’s time. (Read more.)
The business owner whose advisors are cronies or dependent vendors and employees without the background and insight to provide needed advice or who have been trained not to offer it will lose out in the end. If you are an owner, it might meet certain human needs to have your judgment reinforced by yes men. (We will review the tale of the Emperor’s New Clothes on the right hand side bar.) However, it isn’t good business practice. Here are ways you can evaluate your advisors and your ability to benefit from good advice:
- Does the advisor have experience and success in an area where you need help and where you are seeking guidance? (This could be in domains as distinct as general management, whether to invest in new plant or technologies, or financial management.) You should seek people with the resume to provide guidance and bolster your strengths.
- When you ask for advice, are your views reinforced or are you challenged (respectfully) to see things in a new way, think out of the box, examine prejudices, or question past policies?
- If you take the risk of following advice and doing something that is out of your comfort zone, does following the advice lead to hoped for improvements?
- If yes, you are probably on the right track and have a valuable advisor and should followed his/her advice literally and in sprit. Treasure that person and your collaboration.
- If no, there is a problem. Then you need the wisdom to find out if the problem was the advice or the way you implemented it or something else. Whether the problem was with you or the advisor, the business will be preserved and enhanced if you show the courage to deal with reality.
Machiavelli remains pertinent today because human nature remains the same. We can get caught up in our technological world and forget the universal principles that tend to repeat themselves through recorded history. One universal principle is that self insight and the ability to learn and change behavior remains problematic. People are complicated.
Six Keys to Successful Hiring in Private Businesses
May 4, 2010 by Harvey Wigder · 1 Comment
Companies have traditionally defined successful executive hiring as finding and hiring an executive with the requisite skills, experience and personality for the position. From this perspective, if the executive fails, it is because the wrong executive was hired. Unfortunately, over 40% of executives leave within the first 18 months, proving time and again, that hiring the ‘right’ executive does not necessarily guarantee success.
At Fulcrum, we take the common sense view that success is not achieved the day an executive is hired, it is achieved over time. We define success as hiring an executive who helps a company achieve its objectives and the company becoming stronger after the executive is hired.
It is easy to blame performance failure on a new executive when it is clear that objectives were not achieved and the person and situation did not match as well as hoped. A more honest view looks at the executive and the organization to diagnose the causes of failure.
At Fulcrum, we believe that the owner and new executive must collaborate and plan for success. We list the six keys to successful executive hiring below.
1. Prepare Yourself for Change
One of the saddest failed executive hiring I witnessed was by an owner who hated running his company, and was unsuccessful selling it because his asking price was too high. Rather than improve his business to increase its value, the owner decided to hire an executive to run the company for him. Unfortunately, since the owner did not understand the need to build value, he set out to hire an executive with the contrary objectives of: 1) having significant talent and 2) behaving like a clone by operating the business the same way he did.
A proactive person was hired and every idea for change was knocked down. The relationship lasted six months. It was a disaster for both the company and new executive.
The truth is there are opportunities for change in any organization. Sometimes the important opportunities will be in sales and marketing: what is sold, how it is sold and to whom. Other times change will be in capitalization, improving internal operations or building a strong management team.
The hiring owner or CEO should understand that hiring a seasoned, proactive executive implies change. During the hiring process, the owner needs to understand: 1) what the executive candidate will seek to change, and 2) buy into how the company might be different as a result. If not, the relationship starts off with a basis for conflict and failure in place.
2. Gain Commitment of Management Team Early On
Too often, an owner or CEO decides to hire and then postpones getting the balance of the management team involved in the process. Whether this is due to lack of management skill or impatience to get the job done, this is a crucial mistake for two reasons. First, the wisdom of the team is not utilized to define needs and objectives, the skills to achieve them, or evaluate executive candidates. Second, the team loses an opportunity to gain a consensus on the problems that the candidate will seek to solve, and a commitment to any of the programs the candidate will seek to initiate. A lack of consensus forces the new executive to work in an environment in which the balance of the organization does not understand their mandate, or the role they need to play in achieving the company’s objectives.
It is essential for owners to channel the insights of their management team and key employees when initiating the hiring process and engaging them in the selection process.
3. Commit to Each Other’s Goals
Both the hiring executive and the new executive bet an important part of their future on the success of their new working relationship. Often, the hiring executive focuses on their own goals, without understanding that the goals of the new executive will drive their own actions and/or satisfaction with results.
Both parties need to understand what the other wants to accomplish, and be committed to achieving mutual success. This implies a literal contract and a psychological contract with fair and proper terms built on a foundation of mutual respect.
Owner-Managed Companies Have an Advantage in the War for Talent
May 4, 2010 by Harvey Wigder · 1 Comment
In more than 20 years of advising business owners of private companies on hiring and retaining top talent, I’ve witnessed unique problems they face in building their management teams as they grow their companies.
In his seminal book Good to Great, Jim Collins stresses that getting the right people on the bus is paramount to building a great organization. While hiring the best people is a challenge for both private and public companies, it’s a more daunting task for smaller, privately owned companies that must compete with larger, public companies for the same talent pool. Smaller, private companies are at a competitive disadvantage when it comes to hiring top talent for three reasons:
1. Lack of large recruiting budgets to find top talent;
2. Lack of brand name recognition and prestige to woo top talent; and
3. Lack of competitive compensation and benefits packages to hire top talent.
That said, I’m about to contradict myself and argue that these hiring challenges are no longer hurdles. This exact point in time — the early years of the 21st century — offers the greatest opportunity in modern business history for private companies to find, hire, and retain top talent. In fact, I’d wager that as a result of a dramatic and fundamental shift in the world of work, private companies are in an increasingly powerful position to attract top talent. Two phenomena are bearing out this prediction.
First, members of Generations X and Y are seeking alternative employment to large, publicly traded corporations because they are suspicious of corporate America: Not only did they grow up in a world rife with corporate scandals, but many of them experienced first-hand how their baby-boomer parents were scorched by big corporations – they’ve either seen their parents suffer the financial and psychological blows of being laid off, or watched their parents practically work themselves into their graves to obtain the corner office. In this regard, the younger generations are redefining work and what it means to them. Instead of adopting the work ethic of their parents, they are seeking a quality of life and work/life balance that go beyond monetary compensation, fancy-sounding corporate titles, and climbing the corporate ladder.
Second, in an ironic twist, many baby boomers who have been successful in corporate America are growing tired of the corporate rat race. Since many of them want to continue working, they’re turning to the private sector as a place where they can add value and have a more profound and an immediate impact on a company’s bottom line. For many baby boomers, being a big fish in the small pond of a private company is more appealing and satisfying by mid-career; they no longer have to prove to themselves that they’ve made it.
My predictions are already being supported by a recent survey conducted by Burson-Marsteller, a leading public relations firm. The survey, 2005 CEO Capital™, reveals that “64 percent of workers from around the world say that a poor work/life balance is their top reason for not wanting to become a chief executive or other corporate bigwig.” Lesley Gaines-Ross, chief knowledge and research officer at Burson-Marsteller, further commented that “recent college graduates looking for jobs say that balancing work and home is important to them and work/life balance in general is a big issue that might give [them] pause before taking advantage of an opportunity.”
As a hiring consultant to privately owned companies, this survey is music to my ears and may be the most exciting time in my career because, as I’ve said before, the opportunities for private companies to grow by hiring top talent have never been greater than they are now. Thus, I’m motivated more than ever by the challenge of helping business owners “get the right people on the bus,” so they can take advantage of this shift in attitude and mindset.
Profit Sharing: Entitlement or Motivator?
April 26, 2010 by Harvey Wigder · 1 Comment
Background
Many business owners believe in profit sharing because of their personal values and also because they believe that profit sharing motivates employee loyalty and performance. This second conviction remains firm even though research shows that for incentive to impact behavior, there must be a clear link between the behavior and the reward. Because most jobs are so far removed from a direct impact on profits, this condition is seldom met.
Employees are unhappy when they do not get profit sharing and are happy when the do. Therefore, profit sharing can have a positive impact on employees’ feelings about their company–but it does not motivate performance.
The original purpose of Geiger’s profit sharing plan was to reward associate loyalty and compensate for lower pay during a period when the company was struggling for survival. Third generation President, Ray Geiger, promised to his new employees, “If you help us earn a profit, we will share it with you.”
That period of struggle has long been over, and Geiger is now one of the largest and most stable companies in the industry.
The Geiger Challenge
A few years ago I was hired by Geiger to conduct a systematic review of all compensation programs with the goal of ensuring equitable and competitive compensation, including incentives at all levels.
The mechanics of Geiger’s profit-sharing plan were typically straightforward. After the end of the financial year, the company allocated a portion of profits to a profit-sharing pool, which was distributed to associates in the same ration as individual wages to total wages. Management felt the associates didn’t understand the plan and were distrustful of the way is was administered. They wanted to turn this around and get them to share some of management’s concern for profits.
Plan Design
The most dramatic change in the new palm was to base the program on company and business unit earnings targets that were clearly stated at the start of the year. This meant that instead of having to wait until year-end to learn about their shares, associates were given a score-card to keep track of company results and their own share of profits.
At the start of the year, each associate is presented the financial targets for the company overall and for his or her division and department. Each associate’s incentive is linked primarily to the department performance, but at the same time it was decided that everyone should have no less than 25 percent of the incentive linked to the results of the company as a whole. Geiger hoped everyone would fee part of the total Geiger “family boundaries.
Due to budget constraints, hourly associates were targeted to earn a meaningful but modes 2.5 percent of annual compensation if targets were achieved–and proportionately more if the targets were exceeded. Some selected manager had higher earnings targets consistent with increased impact on overall results.
The plan had a minimum threshold for overall company profitability below which no payments would be made to anyone. Employees were told how their payment would increase, decrease, or fail to be paid depending on actual results.
Questions and Concerns
In the process of designing this program, management had numerous concerns and questions about the plan design. Here are some.
• Keeping It Understandable. It is very easy to overcomplicate a plan so that employees don’t ..understand how it works. If they don’t understand the plan, motivating value is lost. Indeed, lack of ..understanding may even result in a negative effect if people feel something is being put over on them. ..This suspicion existed with the previous plan.
• Non-Financial Performance Measures. The company had quality metrics for its Departments. They ..could be part of the scorecard. Theoretically, it would be preferable to base bonuses on some ..combination of profits and other metrics. However, this would be too difficult administratively. It was ..decided to continue to provide feedback on the quality measures but base the profit sharing payoff only ..on profit targets and results. The question remained: Were profit targets (which were more removed ..than team quality targets) be enough to drive performance?
• Making it Meaningful. The bridge between individual jobs and Department results is more direct than ..that between corporate results and individual jobs, but not as direct as desirable. The way to make the ..connection was with good communications and through wide spread problem-solving meetings. Could ..management pull this off?
• Size of Rewards. Were the target bonuses too small? The $775 shown in the example translated into ..about 1.3 weeks’ pay. Some employees even had smaller dollar targets, depending on annual wage. ..Was this amount large enough to make employees care about whether the company and their unit ..achieved its goals?
..Difficult Economic Times. The industry and company were going through difficult times. Because the ..economy was weak, client advertising budgets were down as were company revenues and profits. Did ..it make sense to launch a plan like this in a year when it was possible that there would be no profit ..sharing bonuses?
• The Unknowns. There were probably unanticipated consequences. What would they be? Would they ..be damaging?
Geiger management decided to implement the plan despite these concerns and evaluate results, making modifications as appropriate.
Results
The company’s experience in the second year of the plan shows the value of connecting the profit sharing plan and individual rewards to unit performance. Company revenue ended significantly below plan, yet profit exceeded targeted profits. As a result most employees received profit sharing payments that exceeded their original targeted amounts.
Why did this occur?
• Managers reported monthly (verbally and with graphs posted) to all employees how their units were ..performing compared to target. The CEO issued quarterly reports the overall company performance. ..Employees knew of the sales struggle and understood the need to focus on cost reduction
• Employees clearly understood that cost cutting was necessary if they were to get bonuses and put ..pressure on management to do so. Was the size of the potential reward large enough to motivate ..employees? The result indicates that potential bonuses were enough and additionally, that employees ..understood how the system worked for them.
• One large unit did not achieve bonuses the first year. What impact did that have on morale? The unit ..was particularly diligent about costs the second year, and successfully achieved bonuses. The first ..year was very disappointing for that unit. This disappointment seemed to focus the unit. When the unit ..made target and bonuses were paid the second year, there was a big celebration.
• The company had training programs for managers and employees on leading teams and motivating ..quality performance. This helped the process on involving employees in cost cutting and other ..improvement strategies and minimized resistance to implementation of the plans..
What were the unintended consequences?
The pressure on managers to achieve targeted goals came from above and below. In particular, the head of the largest division understood that the performance of her unit was critical to the company’s overall profits and, therefore, to whether the company reached the minimum threshold for any bonuses to be paid at all. She reports lost sleep over the challenges. The plan can hurt morale in units that get low bonuses because of unit performance. It is up to the unit leader to mobilize people.
Some scorecards had to be fine-tuned to better reflect circumstances in the unit. The biggest adjustment to the plan was in the sales organization. In the first year, bonuses were paid on profit as in other units. The results were as indicated above: costs were cut and profit targets were made. However, there was concern that this worked against building new business. Therefore, for the sales organization there was a major change. Now, half of the target is for building revenue and half for profits. This made the job of the sales executives more complicated but prevented the plan from motivating only cost cutting.
In any planning process, some executives will provide stretch targets while others will be conservative to both protect themselves and make bonuses more attainable. It is very important for a plan like this to provide a level playing field. Management must be diligent to prevent “sandbagging” and make goals uniformly realistic.
Conclusions
Everyone Understood The Link Between Profits and Their Personal Reward. This plan was dramatically successful in getting employees involved in the profitability of the business. It gave them a meaningful stake in the business’s success. Everyone at the same organizational level in the same unit had the same scorecard. Therefore, the plan provided group rather than individual incentives.
Hourly and Management In Same System. The plan proved meaningful to management and hourly employees and tied them together with a concern for company profits.
Beyond Entitlement To Earned Reward. Employees are still disappointed when there is no bonus. In this regard such a plan is no different from when profit sharing is seen as entitlement or a benefit. However, when bonuses are received they are seen as something earned and are celebrated. Structuring a plan in this way allows profit sharing to impact business results.
Employees Understood Rules and Wanted to Play. The success of this plan also reinforces research that indicates it is not the size or amount that counts. What counts most is making the ground rules clear and giving employees a means of making an impact on whether they receive a reward.
Ongoing Involvement By Senior Management. Finally, and most important, Gene Geiger and his management team wanted this program to succeed. He and his management team believed in sharing success and in profit sharing. As a result they were willing to invest effort in the communications and the process of reacting to events and making changes when necessary to make the program succeed. Their reward was that the profit sharing plan helped them improve corporate performance.
Hiring Executives to Run an Owner-Managed Business
April 26, 2010 by Harvey Wigder · 1 Comment
Several years ago, when beginning the process that resulted in the methodologies I now use for search, I took the time to interview owners who had hired executives to run their businesses to understand the issues and challenges from their point of view. My objective was to gain insight that might add depth to my practice and to communicate conclusions that might be helpful to others.
I conducted sixteen in-depth discussions with business owners who had attempted to replace themselves. We talked about why they made the decision to find someone, how difficult it was to find the right person, what difficulties they experienced in turning over the business, and whether they considered the result a success. As you would imagine, the answers were as varied as the personalities of these hard working people.
The Results
The interviews made the highly personal nature of the decision very clear. Each of these businesses was established with a viable future. In the vast majority of cases, the decision to make the change was driven more by personal and lifestyle goals than financial considerations.
Therefore, I concluded that a successful transition has two elements. First, business performance had to be enhanced. Second, the owner had to be satisfied with how the business was run, and the quality of their life after the change. They needed to feel that the business would be in good hands under the new leadership.
The first, and perhaps most important conclusion, is how hard it is to do this right. Only 25 percent of the participants were able to achieve success with the first executive person hired. Another 25% were successful the second time with a second generation of hired executives.
The factors that appeared to be most significant in the successes were:
• The owner drove the process and did not react to outside pressure. (When outsiders drove the change, ..failure was very likely.) In the successful cases, the owner made the decision to find someone new ..and controlled who was selected for the position.
• The person selected fit the job specification and understood that the job was to take charge of day-to- ..day operations. The person’s ego didn’t go beyond that domain. They saw themselves working to ..achieve the owner’s objectives. These people also had relevant, solid business experience and ..management credentials.
• In all of the cases, there were transition issues where the owner had to exercise self-control and give ..the person hired an opportunity to take charge. It was never easy for the owner (or for the person hired) ..on day one.
• In all of the successful cases the business owner relied upon advisors, to help with selection and for ..guidance in the transition process.
I found the last conclusion most interesting. Is this a recommendation for advisors? Advisors can be very useful but that isn’t the principal point. I think it is because the owners who were successful had the self confidence to realize that they didn’t have the ability to do everything themselves. They were open to the input of others and to trusting others abilities. That made them, more than the ones who failed, ready to share authority.