Situation: A CEO is concerned that there is insufficient fairness and accountability within her company. One manager is paid hourly and the CEO is thinking about shifting this person to salary plus bonus both to put them on par with other mangers and to create more accountability. How do you create accountability?
Advice from the CEOs:
What exactly are you trying to achieve? An operations manager is paid competitively at hourly rates, even compared to salaried employees. The issue is that this person has no responsibility for results as they relate to the P&L. Given this, the group consensus is that it is better to have this person on an incentive program that ties compensation to the performance results that you want.
One objective is that you want this employee to contribute more to planning, strategy or the company’s attempts to develop solutions to the challenges that they face. Have you spoken to the employee about your expectations? Does the employee realize that you want or value their input? Direct communication with the employee is important.
While the employee understands his responsibilities in the operations area, be sure that he is aware that he is also important to the profitability of the company, and managing operational expenses which are contributors to that profitability. Depending upon the individual’s background, he may need training about the links between expenses and the P&L.
Given these factors consider the following options:
Adjust the employee’s compensation by switching from hourly to salary. Make the base livable, but not comfortable, and tie the bonus (which will make the total compensation package comfortable) to the profitability of the business. This will have an immediate effect.
Clearly explain to the employee that you value his creativity and input. Give this person the freedom to contribute and make it clear that his contribution is expected. Early on encourage this and acknowledge contributions in meetings.
You may want to make this person a part owner of the business. This will have a long-term effect.
Situation: Top managers of a company are all very experienced. All want to drive the company – but each in their own way. Overall objectives are not significantly different but the path forward varies considerably among the managers. Is this situation common? Should the CEO be doing things differently? How do you create management alignment?
Advice from the CEOs:
Strong differences among strong leaders are common. This is not necessarily a cause for concern or a problem. Rather, it means that you have a lot of options to help address opportunities or solve issues.
When you hire bright, talented people with good ideas, there will always be differences of opinion. This is healthy. You need this, particularly when sailing uncharted waters.
As CEO, sometimes you need a strong critic on your team to moderate your inclinations. Just because you are CEO doesn’t mean that you always have the answer. Rather, allowing the answer to come from the team strengthens the team as well as commitment to execution.
How do you leverage the strengths of this team to create the best future for your company?
First, assure that the broad roadmap is clear and that everyone agrees on this.
When addressing a choice, opportunity or challenge lay out the situation in broad terms. Allow all of the managers their say, and facilitate the discussion to identify commonalities and differences. Confirm the commonalities, and dig into the differences to understand the perspectives of each. Digging into differences can identify roadblocks as well as alternative options. Keep the discussion open instead of trying to drive toward a single, quick solution.
Summarize the options presented. If there are multiple alternatives, do a ranking exercise to see if one rises to the top. Be sure to credit the managers for their ideas and creative input.
In each situation there is a final decision maker. All must respect that after you’ve listened there will be a decision and that decision will be executed. Allow them to execute and focus on results.
Situation: A company anticipates closing a Round 3 financing this year. The CEO has an idea of the range of management team ownership that is likely at this round. He seeks advice from others with experience. What can the team do to assure that their ownership is at the upper end of the range? How much should management own post-financing?
Advice from the CEOs:
The numbers change depending upon both company valuation and the funding environment. Currently, Silicon Valley venture capital firms are becoming more cautious and risk averse. This is because many companies that have received financing over the last 2-3 years have underperformed. Many have yet to even produce and release a product. In this environment, the chances for maintaining a larger share of ownership for management are not as good as in headier times.
Seek two outside counsel to generate two independent opinions on a fair management option pool, and to assist in negotiations. These will likely be boutique firms.
Approach the situation as an executive option pool objective. Determine what needs to be in place to attract new executives, as well as to replace existing executives should they leave or be unable to serve.
When discussing this with your board and investors, phrase the challenge in win-win terms. The objective is to lock-in key personnel and assure that key positions will be filled to meet company objectives. This is the best way to assure future financial success.
Key members of the executive team may want to seek independent advice, apart from the company or executive team.
Situation: A company has a key employee who is a high performer; however the company has not developed a good accountability structure to direct this person. The CEO wants to add additional accountability to cover everyone, both current employees and new people as they are hired. The system should be fair and apply to all. How do you hold high performers accountable?
Advice from the CEOs:
High performing employees are essential assets to a company. They thrive on meeting and exceeding expectations. However they need to recognize and accept accountability for the inevitable mistakes or misjudgments that will occur.
Lay out the challenge, and ask your high performing employee, and this individual’s manager, to help design the system for monitoring accountability around results.
Within position descriptions, include not only the role and expectations within the description, but also expected progressions for development. These should be objective, measurable and based on specific skills or capabilities within the development progression. Gather input from current employees as you create position descriptions, so that they reflect the experience of employees rather than idealized generalities.
Set your expectations for new employees appropriately. Expect perhaps 60% of optimal performance early on. As new employees gain understanding of the company and their roles, coach and expect them to increase their performance over time. Provide training to assist their development.
James Fischer, in Navigating the Growth Curve, argues that expectations, for the CEO, management and employees, change as a company grows from start-up to a large firm. If a company is small, it doesn’t want the same structure or processes required to operate a 250 person company. Too much structure stifles creativity and growth if applied to small, nimble companies. Institute a level of structure appropriate to the size and stage of the company.
Situation: Two key managers of a company are too busy with day-to-day activities to focus their planned 40% of time on growth. The company has hired personnel to relieve some pressure on them, and a new ASP (Application Service Provider) is improving customer out-reach. How can the CEO take pressure off these managers so that they have time to grow the business? How do you focus managers on growth?
Advice from the CEOs:
Small companies grow through their early stages with everyone wearing many hats and doing everything. The company is now larger than this and it has to stop. Managers need to focus their responsibilities where you need them to focus and stop doing less important tasks.
Have you gone over key responsibilities and expectations for the two managers? Do they have clear objectives and deliverables? If not, focus on this.
Brainstorm with them how they could free-up time to focus on growth.
Do this in a meeting. Your plan is 10% growth. Ask for their ideas on how to grow the business, and develop a plan to put their ideas into action. What help or resources do they need to meet this plan?
Three heads better than one to ask core questions – let them come up with the answers.
Design processes to address needs and responsibilities.
Rank implementation of options in terms of impact to the company and financial results.
Given the ranking, implement programs sequentially – most relevant and easiest first.
Taking orders by phone is clerical. This should not be a manager’s prime focus.
Have a clerical person answer the phone, and train them over time.
Limit the manager’s direct involvement in phone orders to critical situations.
Situation: A CEO wants to schedule an off-site planning meeting with her top staff. She has heard about the potential efficacy of off-site meetings and is intrigued by the idea of taking her staff away from the office for a day or two to concentrate on planning. She is curious about typical agendas, time frames, objectives and who should be involved in the meetings. How do you plan an off-site meeting?
Advice from the CEOs:
Set the objective of the meeting in advance. Tell everyone involved the objective so that they are thinking about this prior to the meeting.
The staff involved depends on the objective of the meeting. Select participants to fit the need.
Include a team building event. One purpose of off-sites is to help the team or teams get to know each other better and improve collaboration.
Have an agenda for the meeting and meet without interruptions. Have participants notify key customers or contacts in advance, schedule back-up contacts if necessary, and don’t allow interruptions.
Hold the meeting during work hours. Options: one day, local for easy travel and return home; or two days, nice setting, dinner the first day, and late afternoon return home the second day.
Do you need a facilitator? This depends on the goal and organizer’s comfort with the topic of focus.
A speaker or educational component pertinent to the meeting goal.
Breakout and group discussions to think through important issues.
A team-building event.
Some fun – dinner or an evening activity that allows individuals to talk in a relaxed setting.
Examples of effective events:
Broad agenda – What can we do better?
All-hands meeting – prompts contribution by all.
Opportunity for CEO to communicate the company vision and involve employees in the planning process for the coming year or period.
Situation: A company is investigating off-shoring to lower costs. Trends are confusing with some companies returning operations to local production and others continuing to offshore. In addition, options include partnering with an existing company with expertise, or developing off-shore resources themselves. Does it still make sense to off-shore?
Advice from the CEOs:
Instead of looking at broad trends, narrow your focus to what other companies in your industry or closely related industries are doing. You can get this from industry publications and trade associations, as well as from other companies with whom you have personal relationships. This will help to clarify trends that potentially impact you.
Consider whether there are complimentary objectives that will influence your decision. For example, do you want to expand your market presence abroad and would off-shoring operations help you accomplish this?
Look at other US locations – for example the Midwest. Midwestern moms working from home provide high quality customer service for Southwest Airlines. Part- or flex-timers may be less expensive than full-timers.
Make this move in steps. Consider breaking up your needs into distinct components and outsourcing each component from a different provider or vendor. This will help to preserve your “secret sauce” and corporate IP resources from those who might want to steal it if they saw the whole picture.
Good off-shore functions utilize as little management as possible. Distinct tasks are easier to off-shore than complex processes.
Look at scalability issues – based on your own past experience.
Tie the resources that you need to what is readily available in different geographies.
Situation: A company has been advised to augment their Board of Directors. The principal objective is to access mentorship and advice, particularly in the areas of gaining critical mass and marketing. How do you select and pay Board members?
Advice from the CEOs:
If the principal needs are mentorship and advice in growth and marketing, pursue an Advisory Board first. Compensation for Advisory Board members is much lower and saves the need to purchase expensive Directors and Officers Insurance for Board Members. If, in the future, you decide to expand your Board, you can elevate your best Advisory Board members to your Board.
Offer Advisory Board members one-year service commitments. Particularly if the company is early-stage needs may change rapidly.
As to specific members, select Board members who will help you hold the company to its vision and mission, including a member who offers financial advice and experience for the CFO, a resources and benefits expert, and industry leaders. Align these selections with the business model of the company.
If your patent portfolio is a critical asset, consider an attorney with experience in infringement issues – as distinct from expertise in IP.
Compensation for Advisory Board or BOD members need not be uniform. Key advisors often are compensated more than strategic advisors. Enthusiasts may serve as advisors for free.
Stock compensation for Board members may be as low as 1%, pre-funding. They will be diluted as you go through successive rounds of funding. You may offer your chairperson more than regular members.
Situation: A company’s leadership is wrestling with how to handle an accusation of employee theft. In the case presented, the accuser lacks credibility, but the charge is serious. The leadership team wants to deal fairly and equitably with the case, but doesn’t want to send the message that pilferage is acceptable. How do you handle allegations of employee theft?
Advice from the CEOs:
To assure fairness and equity, determine a way to substantiate, with objective or third party information, whether charges of pilferage are valid.
Express your seriousness about the situation, and ask the accuser what evidence they can provide to substantiate the allegations.
In a warehouse or stock room situation, install inexpensive video equipment to record and verify pilferage.
To assure that messages to employees are clear, revise employee manuals to specify serious repercussions for pilferage as well as measures being taken to prevent it. This will demonstrate awareness of the issue as well as the company’s determination to discourage pilferage.
If you can verify the allegation, either through objective or third party evidence, face the employees involved. The choices are simple:
Either the behavior stops and the estimated damages repaid to the company by the employee, or
The employee is fired.
Do not think that this is something that will go away on its own. If there has been pilferage and the situation proceeds unchecked, it will damage you both financially and in terms of employee respect and morale. Employees will be watching your response closely.
To protect yourself, once you determine a course of action be sure to document everything.
Situation: The Board of a company has asked the CEO to generate to forecast of revenue for this year. Their primary technology is new and the company has just started receiving orders. An achievable revenue forecast my not please the Board. However, the company may lack manufacturing capacity to meet a higher level of demand. How do you forecast revenue for a new technology?
Be realistic in your forecast. While the Board may not like your number, the impact of setting the goal too far out of reach is potentially significant, including discouraging the team, and impairing credibility with the Board. However, if you aim realistically and significantly exceed the target you will be heroes.
How is it best to approach this in discussions with the leadership team?
Create a set of objectives and revenue targets and put probabilities around each. Also look at the obstacles to hitting the higher numbers, including manufacturing capacity and the cost of increasing capacity.
For examples if your most likely forecast is $X, then put probabilities around achievement of multiples of this number:
$X – 95%
.75X – 99%
1.5X – 75%
2X – 60%
Once your determine the objective, think through everything that must be covered to meet that goal, from sales to production, and start developing plans and contingencies to address these.
Share your probabilities with the board, as well as your plans and contingencies that may increase likelihood of reaching the higher targets. Ask for their input and assistance hitting the higher targets.