Tag Archives: Responsibility

How Do You Structure a Small Company Board? Five Suggestions

Situation: A small tech company’s Board of Directors is made up primarily of founders and advisors. The CEO wants to know how other companies structure their Boards. Concerns include increasing accountability of management, obtaining an objective view of company operations so to counteract group-think, and accessing opportunities for strategic alignment. How do you structure a small company Board?

Advice from the CEOs:

  • In a small company, the fewer the number of board members and owners, the better. There are two considerations: control of the destiny of the company and complexity of the transaction in case of an investment or buy-out opportunity.
  • It is important to differentiate major from minor shareholders, including incentive-based owners.
  • What are the advantages of a Board of Directors?
    • Sounding Board – a group that can help management evaluate product and market opportunities.
    • Accountability – Board meetings provide an opportunity to assure that leadership and management are focusing on the best opportunities for the company.
    • Exit – knowledge of the industry, ties and introductions to potential acquirers.
  • Given new Federal regulations, the proper role of a Board has changed. Key responsibilities of Boards include:
    • Oversight of Corporate Governance.
    • Fiduciary Responsibility – to the shareholders.
    • Work with local or regional experts on Board role and structure. Experts can provide introductions to potential Board members that fit the company’s needs.
    • Good Board members will want Directors and Officers Insurance coverage.
  • Consider developing an Advisory Board, to compliment a stronger Boards of Directors.
    • Look at the key talents that the company is missing internally.
    • Ask friends, business partners and associates who they know who can add these talents.
    • Before kicking off a formal Advisory Board, start with informal discussions. Consider a facilitated dinner to share ideas.
    • One company has eight outside advisors who each receive 1/8 of a percent of the shares of the company for three years of service. The share offer required for service may be a function of the eventual forecasted exit value of the company.

Special thanks to the late Bill Rusher for his insight and contribution to this discussion.

How Do You Transition to New Leadership? Four Perspectives

Situation: The CEO of a professional service company is reaching retirement age. The plan for years has been for a key field manager to take on this role; however, neither the CEO, the founder nor most employees feel that this individual is up to the job. What can be done to either better prepare the key manager for the new role, or to demonstrate that this is unfeasible? How do you transition to new leadership?

Advice from the CEOs:

  • For the long-term benefit of the company, it is important to create a situation that will either prepare the field manager to succeed or provide the Company with a back-up plan for ongoing leadership.
  • If the CEO and founder are concerned about this individual’s ability to succeed, then coordinate a plan with the founder and then meet with the key manager.
    • Let the key manager know that the owners plan to sell the company in 3 years.
    • This can be an internal sale – the CEO and founder sell their shares to the key manager – or the owners will look for an outside buyer to buy out all current owners.
    • See how the key manager responds.
    • If the key manager expresses an interest in buying the CEO’s and founder’s shares, then require this individual to make the same level of financial commitment that the CEO and founder have made.
  • Another CEO experienced a comparable situation with an individual who was both underperforming and a significant shareholder.
    • This CEO created a very public vision of what he expected this individual to achieve – in positive terms. The CEO also put an outside hire in a similar role to create a performance comparison. The result was a significant increase in performance by the inside individual and a successful transition to additional responsibility.
  • If the key manager is to be put on a track that leads to the CEO role there will be two challenges: assuring that this individual can acquire the skills to succeed and assuring that the individual can demonstrate successful leadership within the Company. To meet these challenges, take the following steps:
    • Make a public announcement of the plan to transfer the mantle of leadership to the key manager;
    • Raise the bar of expectations for the key manager to demonstrate his or her leadership capacity;
    • Define a full program of training to provide the key manager with the skills to lead the Company;
    • Ideally, allow the key manager to prove his or her mettle through a highly visible responsibility – like growing a key market segment – so that he or she gains the respect of the others.
    • Require the same level of financial commitment that the CEO and founder currently bear, so that everyone knows that the key manager has “skin in the game.”
    • Put the key manager on the same compensation program as the CEO and founder, as this will become his or her compensation program on becoming CEO.

How Do You Create Consistency in a Business? Six Suggestions

Situation: A CEO feels like he is on a roller coaster ride with unpredictable revenue and processes month to month. His ideal outcome will be to be able to go on vacation for 4-6 weeks, and have the business running better when he returns than when he left. Have you managed to achieve this? How do you create consistency in a business?

Advice from the CEOs:

  • Make your managers live up to their titles.
    • Insist that they go to each other to solve problems first, instead of always asking you.
    • When they ask a question, answer how to solve it – but don’t give them the solution.
    • Require them to present solutions rather than problems.
    • Be willing to spend money on their solutions.
  • Answer all questions with questions.
    • Ask them for their recommendation.
    • Keep asking until they come up with the answer.
  • You should not be doing jobs or tasks that are really your employees’ responsibilities.
  • When you start to delegate, it hurts for a while but it will work itself out.
  • What has been the impact on other companies when they’ve made these changes?
    • Businesses have become more diversified.
    • CEOs are focused strategically vs. tactically.
    • Businesses are more successful and profitable.
    • CEOs enjoy coming to work again.
  • How do you work with younger workers, millennials?
    • Allow flexibility – where appropriate – on hours and how they do their jobs.
    • Responsibility will vary by pay level – with the understanding that higher pay equals more responsibility and most likely longer hours.

How Do You Manage Residual Commissions? Three Thoughts

Situation: A CEO is renegotiating the company’s agreement with a sales person. The sales person wants a declining residual commission on sales from past customers, regardless of who is servicing the account. A consultant who knows the industry advises the CEO to focus on new sales. What are the implications of each choice? How do you manage residual commissions?

Advice from the CEOs:

  • There are two types of salespeople: Hunters and Farmers.
    • Hunters focus on new business and generally get paid first year, then in later years only on sales that come specifically through their efforts.
    • Farmers focus on ongoing relationships with existing customers and are the service people for those customers. If they are paid commissions, they get paid on the ongoing sales that result directly from their efforts.
  • It is rare to find a salesperson who can manage both of these roles well, so companies often divide responsibilities, and any commissions paid, according to responsibility.
  • Decide what behavior you want from your sales person and pay for this – make the distinction between hunting and farming. Then ask the sales person which they want to be. If they say “both,” challenge this and let them know that they need to make a choice.

How Do You Delegate Yet Stay Informed? Seven Suggestions

Situation: A CEO wants to push project ownership down to lower levels of the company. This is not happening unless the CEO pushes. How do you delegate yet stay informed as you push authority down the organization chart?

Advice from the CEOs:

  • The company needs systems and guidelines to clarify on what and when the CEO wants to either have input or hear back, and what can happen without the CEO’s knowledge.
    • Set levels of approval – dollar impact or decision type – and clarify what decisions can made at what level, what decisions need higher level approval and at what level, where they must inform you, and where you must sign off.
    • Similarly, establish regular reporting and meeting schedules, along with guidelines as to what is to be reported – again by budgetary impact or decision type – and assure that this reporting takes place.
  • “The Great Game of Business” by Jack Stack describes a company which has implemented these systems with astounding results. It provides a template and describes in detail how the system is implemented and what bumps they encountered along the way.
  • Invest more time in setting roles and responsibilities for your direct reports.
  • Keep reporting systems aligned across the company.
  • Expect over time to adjust levels of authority as individuals grow in responsibility and accountability.
  • Most importantly, lead by example. If a team member comes to the CEO for guidance on a project, refer them back to the proper manager for advice.
  • 2015 Top ranked software systems to manage projects and processes from selected searches:
    • Capterra: Microsoft Project, Basecamp, Atlassian, Wrike, Podio
    • Insider.com: Smartsheet, Mavenlink, Wrike, Posoda, Metier
    • PC Magazine: Zoho Projects, Teamwork Projects, LiquidPlanner, Workfront, Wrike

How Do You Focus Managers on Growth? Five Suggestions

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.

How Do You Recruit Outside Board Members? Seven Suggestions

Situation: A company wants to recruit outside members to its Board of Directors. Currently, all Board members are founders except for a single early investor. How do you recruit outside Board members?

Advice from the CEOs:

  • Board Member selection is a strategic matter. You want to have people on your Board who have done what you want to do strategically with the company.
  • A Board does not run the company. Board Members provide input and perspective to help the CEO make better choices while running the company.
  • Board Members have fiduciary responsibility – to the Shareholders, the government (to assure that the company is being run legally), to customers, to employees, and to vendors. Their role is to assure that the company does what it says it plans to do.
  • How affordable are Board Members?
    • Stock options are very feasible if you have little cash to pay salaries. Much will have to do with the prospective member’s buying into your vision.
    • You will need to secure Directors and Officers Insurance for Board Members – $3K+ per year per member.
    • The rationale behind payment in stock is for Board Members to have the same incentives for company success as shareholders.
  • Target remuneration of Board Members is, for a pre-IPO company $100K per year if the company is successful, but if not then $100K over 5 years. Members of the Audit Committee are generally paid about double what other Board Members receive.
  • Is there a downside of having numerous minor shareholders?
    • Not really, except perhaps nuisance. You run the company. As long as you retain majority share ownership, Board members can only advise.
  • Sitting on another Board is one of the best ways to improve your own abilities as CEO. Advising another CEO on how to run their company is a learning experience.

Special thanks for input on this topic to Bill Rusher, founder of Rusher, Loscavio and LoPresto.

What are Best Practices in Succession Planning? Four Ideas

Situation: A company wants to create a succession plan for key roles. Historically they haven’t had succession plans, but they are actively looking at candidates, skill sets, and so forth. The CEO wants to be able to make a recommendation to the Board. What are best practices in succession planning?

Advice from the CEOs:

  • Start with job and role descriptions. Select internal candidates for the positions and offer trial opportunities to assess their capabilities.
    • Test potential successors with projects to see if they can rise to the level of the higher responsibility. It may take more than one try to assess this.
    • Along the way you may discover hidden talents possessed by some of your employees.
  • Start with your incumbents. One of their responsibilities should be to identify possible inside candidates as successors for their positions, and to create a profile of qualifications for outside candidates. This should also be part of their job descriptions.
  • Succession candidates must desire the responsibility of the higher position. Don’t assume that everyone will want this. Some will be very good in their current role. Trying to force them to advance in responsibility can be counterproductive.
  • Do not assume that an outsider with a good resume and industry connections can fill the role of an insider who knows the company and its products and services.

How Do You Work With a Protector? Three Thoughts

Situation: The CEO of a company has a Director of Operations who aspires to more professional responsibility, but who is also hesitant to take on more work. This conflict in the mind of the Director poses a challenge for the CEO. How should the CEO work with this individual?

Advice from the CEOs:

  • Key managers in certain roles, for example operations and finance, are naturally more conservative in their outlook. Often this is desirable for the role and is characterized as protector behavior in contrast with the ambitious entrepreneur’s builder behavior. These complimentary behaviors are essential to a successful enterprise – the builder to push the envelope and the protector to assure that the company’s resources aren’t stretched too thin.
  • Take the time to determine the source of hesitation by asking questions. Is it because the individual is meticulous and precise, or is there something else behind the hesitation? If the former, then a plan of action will enable the person to assess whether the next level of responsibility is in line with his or her expectations. If there is something else, work with the individual to define what this is and whether it is a barrier to additional responsibility or a temporary situation that can be alleviated.
  • Because this individual aspires to additional responsibility, be precise in explaining the demands of the next level position and the performance that you expect at this level. Develop a plan and objectives that will demonstrate whether the individual is ready to take on additional responsibility or not. For the meticulous, precise individual the plan will serve as confirmation of what is expected and will help him or her determine whether they are ready for more responsibility.

How Do You Gain Commitment to Plan Revisions? Three Thoughts

Situation: A company goes through an annual strategic planning process followed by an annual business planning process. At mid-year they do a review and correction. The challenge is that if the company is behind plan, the management team does not take ownership of plan revisions – it becomes “the CEO’s Plan.” How do you gain commitment to revisions in the annual plan?

Advice from the CEOs:

  • Throw out your current process and start over.
    • The challenge is to gain more buy-in and accountability. This only comes if the targets come from those responsible for delivering them – both for the original plan and if any revisions need to be made.
    • Look at who you involve within the organization – can you drive involvement deeper to generate additional buy-in across the organization?
    • Hire an outside facilitator to guide you through the process instead of chairing the meeting yourself. This prevents the resulting plan from becoming “your” plan. It also changes the culture of the meeting as well as the buy-in.
  • If you use a bottom-up / top-down process, moderate the plan results with an eye to two realities:
    • Bottom-up input from the sales team is rarely more pessimistic than the CEO’s input. If it is ask what is happening.
    • Make sure that your top-down numbers are empirical and based on the best market research that you can obtain.
  • If your plans have consistently fallen short over recent years:
    • You may be baking the targets too high.
    • Consider building the revenue plan optimistically, but build the expense plan conservatively. This helps control expenses and attain profitability targets.
    • So that the two plans are not misaligned, review them more frequently – perhaps quarterly on a formal basis with monthly reviews – so that if your revenue plan is meeting targets you can adjust spending to support production and delivery.
    • It is common to have one set of numbers for sales and a different, more conservative, number for expenses. As long as you conduct frequent review and adjustment of the expense number to sales performance, this works. Many companies also use different targets for operations than what they present to the Board – with the more conservative numbers for the Board.