Using EQ to Plan Management Succession

How to go about preparing a privately owned business for management succession… 

GDF Professional Services had been a successful company for over 10 years in the business of providing organizational development consulting. Located in the Research Triangle area of North Carolina, the firm had capitalized on the local economic growth and availability of talented human capital. Over the past few years, the platform included leadership, change management & organizational psychology services for local companies. While most clients had 30-100 employees, some were smaller, and others were considered “middle market.”

The two primary owners, “G” & “D”, had determined that they desired to cut back on their hours at work and aimed to eventually hand the business over to a strong management team. However, management group members, while strong in their individual disciplines, had not coalesced into a cohesive team and were unprepared to succeed the founders in running the company on a daily basis.

The challenge was to help the managers prepare to take over and prepare the owners to begin to step aside. To do so would require innovation in the business model, systems, processes, and offerings of the Firm. In order to introduce innovation, a baseline needed to be established and performance measured. One of the best predictors of decision-making habits among managers is a behavioral assessment that measures one’s Emotional Quotient (EQ). Scheduling mentoring sessions to discuss competencies followed the administration of the EQ assessment.

     As the management team members began to share not just facts, but heartfelt emotions, dreams, and recommendations, it was necessary to have a process to capture and assimilate all the content. Each mentee meeting, each owner meeting, each team meeting was captured in detailed notes. Additionally, consultative questions in the individual sessions regarding assigned EQ worksheet exercises yielded additional insights. The information was culled weekly for follow-up items on the individual and team level, as well as combed for items to take up within strategy sessions with the owners. A rudimentary knowledge management system was put in place for this purpose.

Nearing the six month mark, the group was becoming anxious as to what was to follow. Someone suggested that the EQ mentoring continue at the staff level so that staff members could benefit from the same body of knowledge and practice that the leadership team had. Simultaneously, the owners agreed to undergo EQ mentoring themselves in order to enhance credibility with their key reports.

The other signs of progress were:

  • The weekly management team meetings were supplemented with weekly departmental meetings that did not require the presence of the owners
  • The weekly individual mentoring sessions were replaced with monthly sessions, but weekly exercises continued
  • The weekly group educational sessions were replaced with bi-weekly ones
  • The owners agreed to hold a year-end retreat to discuss drafting a succession plan

More work needed to be done in terms of clarifying roles and responsibilities, the funding source for the succession plan, selecting a leader from within the management team or from the outside, and insisting that the owners go on record as to what they will hand off when and to whom. However, all were very encouraged at the likelihood of success based on the transformation of the culture experienced during the process.

Un-Madoff Your SMB

Even if a business has strong financials, talent is not enough – integrity is needed. Master investor Warren Buffett’s position on business performance has been: “In looking for people to hire, you should look for three qualities: integrity, intelligence, and energy. And if they don’t have the first, the other two will kill you.”  Given his track record, good corporate governance seems to be an essential part of long-term business success. Whether we go back to Michael Milken and his securities fraud, or more recently to Enron and Bernie Madoff, we have a wealth of examples of how poor checks and balances led people with intelligence and energy to behave in ways that clearly lacked integrity and cost many other people millions of dollars.

A 2003 joint Harvard and Wharton study entitled Corporate Governance and Equity Prices found that companies with good corporate governance generated superior future returns and higher profits and sales growth. The study created a “Governance Index” (G-Index) for each company based on the number of these 24 anti-shareholder provisions the company possessed. The higher the index score, the worse the company’s stock performed. Using data from 1990-1999, the study found find that companies with a low G-index score (i.e., a “democracy” portfolio) outperformed companies with a high G-index score (i.e., a “dictatorship” portfolio) by a statistically significant 8.5 percent every year. By 1999, a one-point difference in a company’s G-index score was associated with an 11.4 percent drop in a stock’s market value. Further, firms with weak shareholder rights were less profitable and suffered lower sales growth than comparable firms in the industry.

2009 joint Yale-Harvard study finds that the outperformance effect has waned in recent years as investors have learned about the importance of good corporate governance and adjusted the stock prices of good and bad companies accordingly.

In other words, bad corporate governance is now discounted in stock prices. Small-cap stocks and privately held businesses, where data is less available, seem to dodge the scrutiny of the large-cap stocks and purchasers of their stocks can take a “ding” on the regular.

 

 

How can we change the pattern in small to medium businesses?

  1. Better corporate governance measures in privately held businesses should include a progression towards true, independent boards.
  2. The boards should be evaluated on an annual basis (check out the Center for Board Excellence.)
  3. Matters such as compensation, family members in the business, succession plans, etc. need to be discussed in board meetings and action plans developed.
  4. Organizational development principles should lead to better talent management and the assignment of shared decision-making outside the CEO’s office.
  5. Internal controls need to be examined and improved to mimic best practices of a public company in a Sarbanes-Oxley environment.
These are a start–what would you recommend?

 

More focus on the components of success that…

More focus on the components of success that are critical to start-ups and their stakeholders would make all organizations more competitive.

Dr. Diane Hamilton's Blog

Wal-Mart recently inspired an unusual entrepreneurial competition. Inventors could submit product ideas, with the hope of having their product available on the stores’ shelves.  Wal-Mart is not the first company to recognize the importance of fostering creativity in unusual ways. In college-level innovation and entrepreneurship courses, one of the things students learn is that organizations place a high value on entrepreneurial thinking.

Wal-Mart initially created the entrepreneurial contest  to create buzz in social media.  The popularity of the promotion led to some creative ideas by inventors who sought attention for their creations. The Wall Street Journal reported that the winner would have the opportunity to sell on Wal-Mart.com as well as in the physical stores.

The idea of organizations recognizing the importance of entrepreneurial talents is becoming more popular.  Check out some of the following articles that demonstrate the value of entrepreneurship in the modern workplac

  1. Forbes: A…

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Rainmakers Outperformed By Personal Marketing Plans

Fundamentally, successful business development occurs when a professional has superior understanding of what a target client needs. To arrive at such enlightenment, the service provider has honed time-tested skills. The most successful ones have been very deliberate and intentional about the emphasis placed on the soft skills that wonderfully complement the technical acumen. In times past, such requisite skills for success were imparted through mentoring. However, the pressure to generate greater billings and profits today distracts mentors from their charge.

                Why not outsource a mentor like other business functions have been outsourced? In fact, why not become very specific and outsource a business development mentoring service that teaches your staff how to become inspirational? If succession planning is about identifying capable replacements, preparing them to assume a more executive role and helping them earn the following of others, then organizations should pay more earnest heed to it! Within the preparation of staff for leadership, it would be argued that business development is not learned through osmosis (years on the job). The skillset that makes one inspirational/capable of developing business is definable.

Inspirational employees are respected, admired, and well-known. Let’s say that respect means that one is competent, as evidenced by subject matter knowledge, a displayed ability to lead others and self-controlled. Admiration may then be construed as being expressed towards those who are consistent, fair and care about the well-being of others. One cannot be inspirational if no one knows in what context, how often, in what ways and to what constituency the inspiration is directed.

Do your employees have a plan to become respected, admired, and well-known? To refute the counterargument that some do not aspire to become well-known, I simply posit that unknown service providers do not enjoy the opportunity to serve significant clients. As for the aforementioned plan, we have heard of personal development plans (PDP). If the PDP is meant to address one’s emotional intelligence, then what plans are in place to help staff:

  • Become a subject matter expert?
  • Learn how to discern client needs?
  • Become referable?
  • Network more effectively?
  • Promote their personal specialty?

Savvy service firms empower their key staff to become inspirational leaders by helping them to produce a Personal Marketing Plan (PMP) that includes the PDP and the items listed in the bullets above. The PMP becomes the backbone of a succession plan, onto which other ligaments, tendons, and muscles familiar to HR executives can be attached. It is probably best developed by an outside third party who has no emotional ties to anyone internal to the organization and can objectively help staff develop and implement the Plan.

Organizations that are serious about the PMP have multiple Rainmakers and a system to produce more. Performance objectives and compensation systems can then be tied into succession management as all share the responsibility to grow personally and corporately.

Let’s become inspirational!!!

Personal Marketing Plans Outperform Rainmakers

Organizations that depend on their staff to only fulfill orders are short-sighted. Whether those orders are for products or services is not the issue; how they are sold is what is critical. Let’s assume for the moment that products are sold through a variety of sales channels and that services are primarily sold face-to-face. It is not uncommon for the services organization to have an aversion to using the term “sales” because it seems transactional. So, in an all-out effort to avoid being “salesy,” cloaked in a mantra that one’s organization is only concerned with great customer service, services firms create a culture that is averse to engaging new prospects.

There are, however, exceptions to most every business “rule” or stereotype. Enter The Rainmaker. The Rainmaker is both the organization’s greatest asset and liability. Employees understand that the creation of need for their intellectual contributions is usually a feat reserved for The Rainmaker. With considerable aplomb, this individual networks with ease, establishes strong referral networks, is well-known and is most appreciated by those who have a fear of ever being asked to copy what she does.

                When organizations rely on The Rainmaker—be that one or multiple—to generate enough work for everyone else to be paid competitive wages regardless of whether they ever successfully bring in a new account, they create a long-term liability. Like the temptation to live large off credit cards today in one’s personal life or to distribute earnings and share profits but not reinvest into a business, this practice of overreliance on The Rainmaker is precarious. Reckoning Day will arrive and most organizations realize that they have created a monstrous succession problem. Some are successful in delaying the inevitable by hiring a business development professional (read: salesman in any other context) who augments current revenue growth, but is not a viable replacement of the DNA of The Rainmaker, who is usually a 40 plus year old equity owner of the company.

Why is it that an executive who has strong technical skills is perceived as even more valuable when possessing business development skills? Is it because the firm administrator has calculated the number of employees that The Rainmaker can keep employed? While revenue generation and the ability to cover overhead expenses are important to success in business, this is not what sets The Rainmaker apart. Rainmakers are special because they inspire! The inspiration comes from fulfilled promises, a sense of hope and optimism and the ability to understand client needs.