Tag Archives: OrgDev

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.

A 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?

 

Focus on EQ Rather Than IQ

While one may not be able to improve IQ, the ability to improve one’s Emotional Quotient has been shown effective in enhancing management decision-making.     EQ Mentoring is most successful when directed management team members who support an organization’s executives.

“Emotional intelligence isn’t a luxury tool you can dispense with in tough times. It’s a basic tool that, deployed with finesse, is the key to professional success.”

~Dan Goleman in The Harvard Business Review

What is Emotional Intelligence (EQ)?

Effective and timely decision-making is at the heart of good performance. To improve performance, we need to understand how to make better decisions. At the most basic level, our ability to make good decisions and, in turn, perform well is captured by our competencies. Competencies are the things we know how to do and what we are good at are capabilities. Most performance management processes are built on the concept that competencies are the direct antecedent or predecessor to good decision making and high performance. What determines our competencies?

Preceding our competencies are our behaviors. Behaviors include our day-to-day activities that determine where we focus our time and where we focus our energies. Cognition precedes behavior. Slightly oversimplifying this concept, cognition refers to one’s intellectual capacities, thoughts, knowledge, and memories. This is the rational part of our brain. What finally precedes cognition in this physiological sequence to high performance is one’s EQ—a body of personal characteristics and social abilities that are closely tied to success in both our professional and personal lives.

How is EQ Improved?

In order to establish a baseline, an EQ Assessment is taken at the inception of the competency improvement process by each team member individually. The mentoring process is explained to the group and some recurring group meetings are held (minimum of once/month) to reinforce concepts in a team environment. Primarily, however, the mentoring  occurs individually and the scheduling of weekly meetings with each team member (half hour ea.) creates an environment for concepts to “grow legs” and become implemented.

The mentoring is administered by a professional certified in the process and competent to interpret the assessment results into a personal development program. The five competencies (self-awareness, self-regulation, motivation, empathy and social skills) that constitute one’s EQ scores are evaluated and a plan created to improve the mentee’s lowest area(s) first.

During the weekly sessions, hypothetical scenarios are discussed between mentor and mentee to identify thought processes, offer alternatives, and learn better decision-making styles. After six to eight weeks, the hypothetical gives way to actual work examples and on-the-job learning occurs. Generally, it is at this point that executives can see early signs of improved management skills.

As the mentee becomes more enlightened, additional tools and assessments are introduced to keep the free flow of information positive, eye-opening, and stimulating. Generally, a follow-on assessment is administered at the six month point and a joint decision is made as to how to proceed.

NOTE: For EQ improvement to become part of the culture, it is generally advisable that the owner/CEO/etc also submit to the process and go through their own mentoring. After such, there is opportunity to learn new methods of interaction that reinforce principles and better habits learned.

Guide the Culture to Continuous Innovation

As your company expands, don’t forget what has led you to this success. Make sure you embrace your company’s history and that your new employees do as well. Your employees will see the success that you have previously attained and will look to fit in and add to that success. Include mission-vision-values elements in new-employee orientations. ake responsibility within your domain for personal growth, AND enlist help from other managers to keep the momentum going across the company. Consider collaborating on the following:

  • Add flexibility to planning & budgeting

Many times, rituals are demotivating to employees. Think about recurring activities—particularly important ones such as planning and budgeting—and how you may get more enthusiastic participation if the process became more flexible. For instance, in balanced scorecard environments, one often does quarterly or monthly review of performance against plan rather than waiting until year-end. Consider going off-site. Consider hiring a third-party facilitator. How can you “shake things up” and make the tedious more engaging?

  • Design interactions across organization

One of the biggest hindrances to innovation is structure. Make it a new practice to collaborate across departmental lines, across multiple layers, and among newly arrived and long-tenured alike. Seek out different viewpoints, structure teams in creative ways, and generally think, “how can I get objective, insightful input?”

Once the management team is effectively collaborating, then strategies can be put into place to move from considering the right motives to change to cultural innovation. Successful organizations deconstruct themselves in order to grow and become more responsive. At IBM, Lou Gerstner inherited a company losing almost a billion dollars per month. He realized that “culture isn’t just one aspect of the game—it is the game.”

Gerstner had heard that one of IBM’s chief rivals had made the comment that, “IBM? We don’t even think about those guys anymore. They’re not dead, but they’re irrelevant.”  When he shared this comment with his senior leadership group, there was instant motivation, but the skills and creativity were six years in coming. During that time, IBM became hugely profitable, and share price increased more than tenfold. What drove the turnaround was a change in internal communications. An internal memo by Gerstner to all employees instructed everyone on the new agenda:

FROM: TO:
Product (focus) Customer (focus)
Do it my way Do it the customer’s way
Manage to morale Manage to succeed
Decisions based on anecdotes and myths Decisions based on facts and data
Relationship-driven Performance-driven
Conformity (politically correct) Diversity of ideas and opinions
Attack the people Attack the process
Rule-driven Principle-driven
Value me (the silo) Value us (the whole)
Analysis paralysis (everything must be proven 100%+) Make decisions & move forward with urgency (80%/20%)
Fund everything Prioritize
   

If your market-leading competitor were to make a comment about your business, would they say that you are irrelevant? How can you keep that from ever being the case? By making a commitment to continuous innovation!

Lukewarm Defenders of Change

Inside every company there is a culture. In order to remain competitive, companies need to make cultural and process changes that are holding them back. How the employees respond is a critical predictive factor in the achievement of the desired outcome.

 

“There is nothing more difficult to take in hand, more perilous to conduct, more uncertain in its success, than to take the lead in introducing a new order of things; because the innovator will have for enemies all who have done well under the old conditions and only lukewarm defenders in those who may do well under the new.”

-Machiavelli

As Machiavelli points out, leading others to a new order is tough work. Here are some management suggestions on how to make it a part of your culture:

Know your people

  • What is the thing they like most about their position? What would they change?
  • Have them explain why they are on this particular career path.
  • What do they think about the company and its management? What do they believe should be done differently?
  • Ask them who have been the greatest influences in their lives/careers. Listen intently and ask follow-up questions.
  • Ask what they like to do away from work.  Don’t make them uncomfortable. Make it known you are interested in getting to know them as people.
  • Share what values are important to you and why. Provide some stories where appropriate—people relate to stories.
  • Find out about their personal and career goals; share your own.
  • Become vulnerable. Ask what you could do better to serve them and the department/company.

Please remember to respond with empathy.  Demonstrate sincere interest in what your people say, significance to them, and how they feel about it.

Assign properly

1.    Delegate those things that would be helpful to you and to their development.

2.   Select the most strategic person to complete the task(s).

3.   When possible, get the employee to create a plan to complete the task(s).

4.   Ask the employee to repeat back their understanding of the desired outcome and process.

5.   Have a mid-point check-in on complex tasks.

6.   Follow up in a positively.

7.   Consider the rotating tasks.

8.   Delegate tasks that enhance cross-training.

9.   Try to include some delegation to everyone in the group.

10. Ask for input at the end of each task.

Motivate

Internal Motivation:

Have the employee ask himself these three questions—

  • Do I have awareness about my passions?
  • What would I ideally like to look forward to each morning?
  • How do I make this ideal happen?

Discuss how the answers to these questions must factor into job responsibilities and performance.

External Motivation: How do you reward your employees?

The columns below offer employee types, potential felt needs, and some suggested rewards. For each employee, think about needs and rewards. (You may pull from categories more than once).

EMPLOYEE DESCRIPTION

NEEDS

REWARDS
1. Employee feels disconnected from others.

Likely Need:

Appropriate Rewards:

 

2. Solid worker boasts of recent accomplishments.

Likely Need:

Appropriate Rewards:

 

3. Someone who displays a knack for learning and innovation.

Likely Need:

Appropriate Rewards:

 

4. Turnover in a department causes an employee to withdraw.

Likely Need:

Appropriate Rewards:

 

5. A shining star complains about the lack of opportunity for advancement.

Likely Need:

Appropriate Rewards:

 

 a. Security

b. Socializing

c. Esteem

d. Achievement

e. Power

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 1. A letter of praise sent to the CEO and a copy of it given to the employee.

 

2. The right to select and manage a project.

 

3. A dress-down day.

 

4. An opportunity to gain some training & development.

 

5. An extra vacation day.

 

6. Involvement in a new committee/team.

 

7. Peer “attaboys” posted in lunch room.

 

8. Opportunity to lead a presentation/team.

 

9. Reassurance that his/her position is vital.

 

10. Role in developing a new company program.

Root Causes of Executive Failure

Smart leaders make dumb decisions. This statement should come as no surprise. The questions we should ask, though, are why? when? and how? By attacking the root causes and attempting to understand the character issues, we can “peel the onion” and see what is so potently wrong when poor decisions are made and executives fail.

Do you know a leader who sees himself and the company dominating its environment? If so, they collectively are set up for a fall. The basic fallacious assumption is that success in one domain can be infinitely translated into every other domain.

Similarly, the executive who treats the business as a private empire blurs the necessary distinctions between the personality and the entity. Beware the (wo)man who uses position to attempt to carry our personal ambitions. Those who see themselves as stewards of a resource as opposed to royalty seem to avoid this trap.

Know-it-alls are another type of failure waiting to happen. Those who feel they must look polished and do not invite the input of others suffer from hubris that is unhealthy. Being decisive without considering alternative views and related outcomes is not a sign of executive skillfulness.

Slash & burn is not just a rain forest dangerous practice–it is also bad for a talent management policy. We’ve all seen mobster movies where opposing viewpoints are literally snuffed out. When an executive does this inside a business, it shows a lack of appreciation for objectivity. More than likely, decisions will be weaker and mid-course corrections will be missed.

Is the top executive an attention hog? Choosing appearance over substantive management can be a fatal character flaw. Hyper-focus with image can also mean that underlying, important issues like financial performance are not getting the attention they should.

Trying to vision-cast one’s way around a hurdle instead of approaching it head-on is almost always a huge mistake. Shrugging off a problem or pretending it is inconsequential shows immaturity and a lack of executive responsibility. It’s more than okay to admit a problem exists–in doing so, we invite others to help us resolve it and the organization benefits.

Fascination with the past as opposed to staying in the moment is a final way executives doom their organizations to failure. As we’ve heard it said, “what got you here won’t get you there!” Embracing innovation is a good habit of top leaders.

Sydney Finkelstein addresses many of these issues in greater depth in Why Executives Fail, a book published a few years ago that examines case studies of companies that once thrived and then took a nose dive. Similar to Good to Great in its treatment of lessons learned, the book highlights problems with mindsets, information management, and habits.