Situation: The CEO of a family-owned company has struggled to align family members with the business plan. When difficult decisions must be made, established personality patterns and family history hinder consensus on what should be done. The CEO seeks advice on whether the addition of one or more outside Board Members can help to build consensus. Can outside Board members help a struggling company?
Advice from the CEOs:
The CEO of another closely-held company brought in an outside Board member two years ago. This has added considerable focus to the Board discussions. The addition of a fresh and respected perspective has helped to clarify decisions and reduce conflicts among the founders.
First, have a conversation with the team. Give them the opportunity to straighten out things themselves. Present the addition of an outside Board member as an option. Get their support. This will make the addition of an outside Board member a company decision, rather than the CEO’s.
The experience of other companies is that compensation can range from free – a retiree who wants to help – to expensive. Arrangements and expense will depend on what the company leadership wants to achieve.
Investigate SCORE – a well-established source for outside board members for small and family businesses.
Situation: A technology company has established a leadership position in their niche. Nevertheless, they struggle with individual performance and buy-in to company performance. The CEO asks whether increasing ownership through stock incentives in a non-public company is an effective incentive for employees. How do you strengthen internal incentives and ownership?
Advice from the CEOs:
In the past, employees voiced a strong predilection for share ownership as recompense for the personal risk and sweat that they have put into the company.
It may be advisable to revisit this, particularly given the increased risk that comes with share ownership as a result of regulatory changes of the last 10 years.
As a substitute for share ownership, they may be open to some proxy that will provide them with value and the opportunity to have their opinions heard in the case of a buy-out.
Another company looked at this closely at the time of formation. They decided that proper recognition for contribution did not equal ownership. Ownership also entails personal liability and risk, which many don’t realize and, once they understand the implications of owners’ liability, don’t want. As an alternative they adopted a liberal profit-sharing structure that has met with employee enthusiasm.
Think about this discussion in terms of incentives:
Short Term – Annual-type incentives
Make sure that incentives align with desired behaviors so that individuals’ contributions contribute to business plan objectives and the next step for the company.
Long Term – consider the trade-offs
Broadly distributed share ownership not only complicates future flexibility but may also complicate a buy-out or merger opportunity. Consider the implications of a situation where most shares are in the hands of past rather than current employees.
Strategic Partners wishing to invest may be reticent to work with a company with broadly distributed ownership.
ESOPs, while frequently referenced, tend to eat their children. They have several complications:
They are governed by ERISA, so you cannot discriminate. All must be able to participate.
Ownership is prescribed – with a maximum of 10% per employee. Will a future CEO candidate be happy with 10% when the admin assistant gets 3%? In this way ESOPs can impair succession and recruitment plans.
Annual valuations can be expensive.
Phantom or Synthetic Equity Programs
A company can tailor these to meet changing objectives.
Valuations are cheap and valuation metrics are easy to monitor.
To work through the options, sit and talk with the employees, and listen. Ask what concerns them. Don’t try to come up with a solution until their concerns are understood. There is an array of options available.
Situation: A company has developed a number of initiatives and priorities which are important to the success of the company. All of the initiatives are daunting. What do they need to do to get all of these accomplished? How do you manage multiple priorities?
Advice from the CEOs:
Start with corporate level objectives and set these independently from your initiatives. Pick your top corporate goals and objectives – financial, performance, and so on. Once this is in place, rate your initiatives in terms of how they help to meet your company objectives.
Create an initiative list. Measure the upside and risk for each initiative. Based on the results of your analysis classify each initiative: critical, important, or nice to have. This, plus alignment between initiatives your corporate objectives will indicate which initiatives are most critical to company success.
Every company needs long and short term goals. Use these to align and prioritize initiatives. Only and your team you can tell what is important and importance is a matter of your strategic focus and objectives.
They key to accomplishing multiple objectives is focus. Focus on your top 2-3 initiatives first – if you can reasonably handle this many. Once these are accomplished, focus on the next 2-3, and so forth.
Look at your competitors – where are the opportunities in the marketplace. How will your initiatives make you more competitive?
What does your leadership development plan look like? If you plan to add new leadership, include in your thinking a transition plan to new leadership, taking into account your multi-year timeline.
Situation: A company has experienced rapid growth. This is creating stress for the staff and CEO, who finds it difficult to break away from the day to day to focus on strategy. Employees are not keeping pace with the evolving needs of the company and turnover has increased. What have you done to manage rapid growth?
Advice from the CEOs:
The first task is to improve forecasting of business growth, and the infrastructure needed to support this growth. This includes:
Regularly updating your sales and production forecasts.
Updating staff and training plans to meet growth forecasts.
Updating infrastructure and support plans.
Without these, the organization will whipsaw in response to market demands.
Take a critical look at your staff development plans and staff training.
Look at those areas that are most impacted by business growth. Determine whether you have the right managers and support in place.
Evaluate whether you have the right people and whether they have the skills to handle new demands of their positions.
Critically evaluate each now job that you take on. Assure that you have the staff and infrastructure to meet client demands.
Always assure that you deliver on your company’s integrity, reputation and core values.
In addition to addressing immediate needs, look at long-term plans strategically. Ask where you will be in 10 years. Articulate this vision in detail, and drive plans down through the organization. Make sure that everyone is on the same page, aligned with the same values, aiming at the same targets.
Also differentiate your vision from your mission:
You vision is a 10 year time frame, not one year.
Your mission is what you will be doing this year and in 5 years – the activities you will undertake to realize your longer term vision.
Fine tune your vision and mission and drive these through the organization. This will give you clarity on how you wish to do business and will help you to make hard choices as you handle rapid growth.