How Do You Build and Develop the Right Team? Four Points

Situation: A CEO has two issues. One concerns her COO about whom she is receiving complaints from staff as new processes are implemented, and the other is beefing up the sales team. On the latter issue she is concerned about both her ability to pay the high-level seller-doers that are needed to support growth and potential turnover. How do you build and develop the right team?

Advice from the CEOs:

  • The COO has already put the right process in place. Coach this individual to lighten up and allow everyone to adapt to the new regime.
    • As new processes are implemented coach him not to implement them rigidly at first. Allow people time to get used to the new process. Allow some flexibility in implementation so that the new processes can be adapted to the individual styles of the key players.
    • Over time tighten expectations gradually until each process is fully in place and running smoothly.
  • Have the COO communicate to the company that it’s growing, the focus is now on hiring, and the task facing the company is revenue growth.
  • For new salespeople, the investment cycle can be 6 months to full function.
    • In the mix of salary and bonus, weigh the bonus side heavily – the side that won’t become payable until the new individual produces.
    • This becomes an incentive for new salespeople to get up to speed quickly. It also helps to weed out those whose talents aren’t as sharp as they represented in the hiring process.
  • The salespeople are the key marketers for this company as well as the rainmakers and producers. It may be necessary to commit to this investment to ensure future growth and adjust the company’s annual earnings forecasts accordingly.

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How Do You Create a Succession Plan? Three Points

Situation: A CEO, planning for his future, wants to create a succession plan. Done correctly, this should also promote the growth of the company until it is time for him to retire. The challenge is that the company is highly decentralized, and a clear successor has yet to be identified. How do you create a succession plan?

Advice from the CEOs:

  • Tie succession planning to growth. This will benefit the company whether the CEO’s retirement is in the planning horizon or the more distant future.
    • Consider geographic transfers to provide growth opportunity for key managers and to proliferate the success of highly successful regions into less successful regions.
    • Develop a leadership generation engine. Consider GE as a model for this as noted in Jim Collins’s books Good to Great and its predecessor, Built to Last. GE’s success is a model for building long-lasting value substantially beyond the current value of the company.
    • Create a vision of what the company could be and the organization chart to fulfill this vision. This will guide and support the two points, above.
  • As new talent is acquired, conduct this with an eye to growth.
    • As the company identifies and hires top prospects, conduct the hiring process to fill the organization chart of the future company that is envisioned.
    • Look at outside hires for growth positions to complement home grown talent.
    • If business or company acquisitions are being considered, be aware that the leadership of the acquired business or company and its top talent may depart. Include retention clauses and incentives in any acquisition contract.
  • This effort must be approached as a long-term development process – it does not happen through quick-fixes but through a commitment to excellence in acquiring and developing talent.

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How Do You Control Insurance Expense? Four Options

Situation: A CEO has seen the expense of employee benefits, particularly the cost of health insurance, grow higher than the inflation rate in recent years. There are no indications that this will be reduced. Employees appreciate their benefits, and in the current environment the CEO is hesitant to reduce them. What alternatives are available? How do you control insurance expense?

Advice from the CEOs:

  • To control rises in healthcare benefit costs, consider offering high deductible health insurance combined with company contributions to HSA Accounts. This combination can be less than current health coverage and may reduce the cost inflation of these benefits.
  • Another alternative is to raise the deductible on medical insurance provided but cover the deductible differential for employees.
  • Consider a benefits administrator to assist in putting together a benefits package to reduce costs. There are many alternatives available.
  • Another big expense is Workers’ Comp (WC). The group shared strategies to control WC expense. Investigate those that apply to the company’s business model.
    • Make sure that the company is coded in the proper category – if not the company may be paying a higher rate than required;
    • Develop a proactive company safety policy, with documentation – this can gain discounts from some insurers;
    • Industry or trade associations have developed ADR components for association members to help control costs;
    • Investigate eliminating the medical coverage component on auto insurance for company cars that employees use to drive home. This may already be covered by WC;
    • Shop insurance providers for WC coverage – some will quote more competitive rates to get the company’s business;
    • Challenge the amount of WC reserves that are required for outstanding WC cases – the insurers may be assuming an excessive reserve to cover contingencies and charging the company for this excess;
    • If the company’s insurer is maintaining an employee on the WC list pending resolution of the claim for an excessive period, push them to resolve the case quickly;
    • Eliminate optional employees (e.g., officers) from WC coverage.

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How Do You Grow Knowledge Workers into Servant Leaders? Three Methods

Situation: A company’s staff is made up primarily of knowledge workers. These are highly skilled individuals who excel in their roles. The CEO wishes to shift their focus to servant leadership – where the focus is the growth and development of the company. How do you grow knowledge workers into servant leaders?

Advice from the CEOs:

  • One option is to create a different set of incentives. Offering key managers the option to invest in and hold shares in the company will change their perspective. This, in turn, can change their behavior because servant leadership will improve company performance and the value of their shares.
  • Another option, used by Accenture and many Fortune 500s, is to hire a lot of the best and brightest individuals that they can find out of college and see who rises to the top.
    • The ratio in large firms is generally 15 hires to produce 1 high performer. Another CEO at the table is now shifting to this model at his company.
    • Create an entry level position for recent graduates that will allow for this sifting without disrupting the company’s culture.
    • Speed identification and retention of the best talent through annual evaluations of the company’s talent. This includes ratings by employees’ supervisors of both how the individual is doing and their ultimate potential within the company.
    • Be aware of the downsides to this model. One is that the two groups that tend to leave of their own accord are the best and the worst employees.
  • A third option is to create two career tracks within the Company.
    • One track is upwardly mobile. This is the track that identifies, develops and grooms future servant leaders.
    • The other track is a specialty track, which can produce servant leaders along a different dimension – breadth of experience and expertise in key skills of value to the firm.
    • This second track also allows for growth, characterized by levels of title, salary and recognition that reward the acquisition and perfection of skills in key disciplines.
    • Several “kinder, gentler” environments such as 3M have used parallel tracks with great success.

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What Is Your Bonus Plan This Year? Four Thoughts

Situation: A CEO is thinking about the end of the year and bonus plans for his company. It has been a difficult year between remote work and workplace COVID restrictions for those on-site. Recent moves by public and large private employers to mandate vaccination has some employees worried. The latest inflation reports are also of concern to many employees. The CEO wants to retain as many staff as possible. What is your bonus plan this year?

Advice from the CEOs:

  • The CEO queued up a suggestion of a bonus in the 8% to 18% range depending upon performance on top of 10% 401K contribution. Several others agreed.
  • One CEO said that in a good year they award a 6% 401K match plus a bonus range of 10 -18% for non-commission personnel. They don’t offer bonuses for commissioned salespeople. Support staff get an 8-10% bonus.
  • Another CEO suggested that the CEOs plan was possibly over generous with a 10% 401K contribution. Given the current economy many employees may prefer cash.
  • This has been an exceedingly difficult year for most businesses with myriad challenges. As the economy reopens it will be as critical to hold on to high performing employees as it is bringing back previously laid-off employees or attracting new employees. Think in terms of recognition for those who have helped the business work throughout the year in additional to bonuses.

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How Do You Focus on Doing Things Right? Seven Recommendations

Situation: A CEO is concerned that her company is not as efficient or effective as it could be. Of the key activities where the company is focused, few have any obvious connection to the customer or the customers’ needs. How do you focus on doing things right?

Advice from the CEOs:

  • Create a set of cost graphs to parallel the company’s revenue graphs. If these are put side by side, does it indicate that the company is doing some things that add relatively low value and profit? What happens if resources are shifted away from less valuable activity?
  • Concentrate resources on doing one profitable thing well. Become best in class at this one thing. This may both increase the value of the firm and help to focus future development.
  • Bring in a senior level marketing research person or marketing manager with marketing research experience to determine what the customer wants, how should the company compete, and what current customers may be willing to pay for its software.
  • Strengthen the primary product – it represents 90% of sales. This is where the company has the best understanding of both its customers and the market. Look at what it takes to become enterprise wide with the company’s largest customers. Expand vertical capabilities and build $1 million accounts to $5 million a year.
  • The company already has a diverse group of clients, many of whom are huge.
    • How deep is the company in each of these clients? It may be easier and less expensive from a sales standpoint to go deeper into these clients than to bring on new clients.
    • Look for ways to make current $1 million clients $5 million clients by selling what the company currently sell to more of their divisions and locations.
    • The key to executing this strategy is to listen closely to what clients’ needs are and adjust or customize the offering to better meet their needs.
  • Focus on solutions and reduce the cost of solution implementation. Consider becoming more vertical in one key implementation and become the best at that.
  • Create a relevant framework for the company’s strategy. For what purpose is it necessary to do the right thing? If the purpose is to exit in 2 to 3 years, this yields a very different strategy than if the objective to dominate the company’s market in a 5 to10 year period.

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How Do you Evaluate a New Opportunity? Five Views

Situation: A CEO has been approached about new opportunity. The company has been through some hard times, and the opportunity offers access to quick cash which would remedy the company’s debt exposure. A downside is that the deal would erode the company’s brand exposure because it would operate under another brand. How do you evaluate a new opportunity?

Advice from the CEOs:

  • Carefully evaluate how this opportunity will impact current operations.
    • What percent of time and effort will the opportunity require? Will it compromise the company’s current operations?
    • The appeal is access to quick cash. However, if the bottom line isn’t sufficient to meet the company’s needs, walk away.
    • Given that the project would be under another brand, why not spend the time and resources growing the company’s brand?
  • Is there anything that could make the opportunity more appealing?
    • See if the other company is open to offering a piece of the business after a period of commitment.
    • Management control. Assure that the company’s principals would have the autonomy to make it work.
    • The ability to keep the company’s name visible and prominently cited in all joint projects.
  • Look at this opportunity the same way that the company evaluates other opportunities.
    • Opportunity to build brand presence.
    • Assure that the proposed project meets the company’s current rates of return, or if not at least the current dollar return per project.
  • Is this a way to get into larger projects more quickly with reduced risk? If so, negotiate this into the deal.
  • Bottom line:
    • The company is emerging from hard times nicely.
    • The company is building a strong brand and reputation in its target geography.
    • Stay the course and trust in the company’s abilities.
    • Take on projects from this new opportunity only if they help build the company’s brand and reputation with less risk than is currently carried.
    • There is no reason to entertain this opportunity if it reduces the company’s brand equity and/or carries the same or more risk than the company’s current project mix.

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How Do You Manage Conflicts of Interest? Four Tactics

Situation: A service company was acquired by a larger company. There are limited operational crossovers between the two, but where conflicts of interest arise the acquirer seems uninterested in addressing these. How do you manage conflicts of interest?

Advice from the CEOs:

  • Within the company it is necessary to clarify what can be done autonomously and what must be done with the acquirer’s support.
    • Where the company sees issues it can develop a recommended set of actions that will avoid pain – particularly where its systems are more developed than those of the acquirer.
  • Reconstruct the acquirer’s motivations for the acquisition.
    • Was their objective synergy or portfolio diversification? If it was a synergy play, then more structure and integration are needed.
    • From observed behavior, it looks more like it was a portfolio diversification strategy. In this case they will expect the company to continue to perform as a quasi-independent structure, but under their umbrella.
    • Given this, where do possible market synergies between the companies exist? Look for these and develop mutually beneficial alternatives.
  • The CEO feels a responsibility to his company’s staff, assisting them to be more comfortable within the current situation.
    • If the analysis of the acquirer’s motivations rings true, then share this with the company’s staff. If this is the case then they should not be seeking a lead from the acquirer but should concentrate on maintaining what company has done well over the years.
  • What options are available for CEO?
    • It is possible to maintain status quo. The company is getting new business and performing well.
    • On the other hand, if the CEO is acting in the leadership role with decreasing focus and interest, this will not bode well for the organization or staff.
    • In the latter case, set a timeline and date for departure. This can be some time out but should be comfortable for the CEO.
    • Communicate this timeline to acquirer and when the time is right offer to help look for a successor.

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What Do You Gain by Buying Out a Co-founder? Six Points

Situation: A CEO founded his company with a long-term friend. For several years, this co-founder has contributed little and has proven to be difficult with key employees. In an important sense, the co-founder has become a distraction. A challenge is that the co-founder is a significant shareholder. What do you gain by buying out a co-founder?

Advice from the CEOs:

  • First and foremost – peace of mind. While the CEO and his allies control a majority of shares there is no guarantee that this remains the case. Long-term it can cause headaches to have a large block of shares in the hands of someone who could be hostile. The challenge is gaining control of a solid majority of shares at a reasonable price.
  • How is the value of the co-founder’s shares determined?
    • In most minority interest situations, minority interest is discounted because it is of limited value to a non-company purchaser. While it may be necessary to pay a premium to gain controlling interest in the company, this will be a premium over the discounted minority interest value, not over the fair value for all shares.
  • There are two aspects to a purchase: price and terms. It is acceptable to accept the co-founder’s price, but insist on favorable terms, e.g., 10 years to pay at 5% interest.
    • Set the terms so that the company guarantees the payment, not the CEO personally.
  • At this point the co-founder is a disruptive force within the company. Act now before more damage is done.
    • As to order of business, take action with respect to the co-founder first, then negotiate the purchase of his shares after he is no longer an employee.
    • Be sure to communicate the decision effectively to the other employees. Speak to the long-term strategic value of the company, the CEO’s vision for the company, and a determination to build the company into a viable entity with a range of customers and growth opportunities for the team.
  • Important steps as you move forward:
    • Have a plan.
    • Speak to an attorney – the company should pay but this is the CEO’s attorney, not the company’s attorney. Assure that as CEO you limit personal exposure and do things appropriately.
    • Assure that the employees understand and support this action and that they clearly understand the plan going forward.
    • Offer the co-founder a more generous severance package than would ordinarily be considered prudent.
    • Fire the co-founder as soon as plans are in place and announce a Board Meeting 30 days hence to discuss the management restructuring.
  • As a final note, this is one of the most difficult things that must be done by a CEO. The co-founder has been a long-term friend. Nothing about this is easy. It is likely to get more painful before it gets better. In the long run, however, this can be better for both individuals. Work toward that objective.

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How Do You Recruit and Retain the Best People? Three Suggestions

Situation: A company is losing employees. Not the top ones, but the 2nd level. It’s not a manner of money but other reasons. Some don’t like the developing culture of accountability. Others are younger high potential employees who have performed well but have left for unexplained reasons. How do you recruit and retain the best people?

Advice from the CEOs:

  • It’s important to learn why they are leaving.
    • It may be a millennial phenomenon – this group may regard work as a transitory necessity.
    • Determine whether it because of accountability or other reasons.
      • Could they be unhappy with the level of growth opportunity?
      • Previous generations were used to moving to move up – are the younger employees less prone to do this?
    • Could younger workers see work as a job, whereas previous generations saw work as their livelihood – as their life.
  • What options could be tried?
    • Set up a hiring plan – over-hire to assure availability of talent – 15 people in the next 3 months.
    • During the hiring process employ a focused interview diagnostic to identify the key factors that will boost in employee retention.
  • One CEO has suggested an approach:
    • Start with a volunteer employee focus group that holds a series of meetings over lunch.
    • Use company channels to ask for volunteers.
    • Allow the group to relax and open-up over time. Then begin to drill down to the real issues, including legacy issues.
    • Use feedback from the focus group meetings to design a survey to establish metrics, validate the findings of the focus group, and establish benchmarks for long-term attitude monitoring.

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