Verit View- October 2018
Focus on Leadership, Talent Development to Improve Operating & Exit Outcomes
Verit Advisors’ view is that business owners must build a commitment throughout the organization to develop talent; not only will it help their business grow more quickly, it can spell the difference between having a range of options for keeping a business private or needing to sell it at a discounted valuation.
The critical importance of leadership and talent development for privately held and family-owned companies cannot be overemphasized. This is especially true in today’s tight job market that places a premium on talent retention and development, and when maximizing talent can spell the difference between keeping the business private or selling it.
One survey in particular illuminates why it often proves difficult for many leaders and owners to stress leadership development. While many companies claim to use the 70-20-10 approach to leadership development – 70 percent should be experiential, 20 percent relational and 10 percent coursework and training – a recent study by Gallup finds an alarming deficit in the experience piece. As Gallup notes, “Too few programs can clearly define the experiences that lead to excellence in leadership; they don’t individualize, they can’t match leader to experience at the time it’s most needed, and they don’t help leaders analyze their experiences so they can effectively apply them in the future.”
Thinness in leadership ranks can be damaging, particularly at the time of sale and especially when owners resist addressing these topics because things are going well and they enjoy being in charge. While they may be able to create avenues for liquidity to transition their business, such as forming an ESOP or selling a minority stake, their reluctance to focus on developing leadership and talent has a price.
Here are the problems that can develop. If the sale of the company is the goal, research finds that a company sells at a discount if it doesn’t have strong management beyond the selling founder or CEO. Moreover, private companies that don’t nurture their top executives with continuous growth opportunities often lose them to greener pastures, retarding company growth and limiting the owner’s options for succession.
Leaders who recognize the distinct value of talent development come out winners more often than not. Consider the CEO of a third-generation family business who in her fifties began thinking about who would succeed her. She tried different strategies including hiring a possible future leader from outside the company, then retaining an outside firm to evaluate internal talent and providing coaching for the most promising internal candidate. She also formed an ESOP to give employees an ownership interest to help retain strong performers. It has been over a decade since starting succession planning, but things are going smoothly, and her early planning has given her peace of mind.
Leaders who appreciate talent development at all levels of the organization recognize that privately run companies have certain advantages over public competitors in landing and retaining strong hires if they offer such inherent traits as an entrepreneurial culture, better chances for advancement and meaningful roles, greater access to leaders, and wealth-creation opportunities
At Verit Advisors, a privately held service business, we recognize our earning assets are our people. For that reason, we have long made a disproportionate-to-market investment in coaching and team and talent development. We understand that leadership development isn’t a one-week retreat, but a routine part of the organization. These suggestions from our own playbook possibly can serve as a blueprint for leadership enhancement:
Enlist professional coaches: Each associate works with an individual coach to cultivate professional and personal growth. We use various modules that focus every few weeks on such leadership elements as teamwork, client interaction, conflict management, business development, giving feedback and the like.
The result: We haven’t lost a senior person in 10 years during good times and bad, and we get strong positive feedback from associates, in surveys or, when they do leave, in exit interviews about our culture and coaching.
Review employee performance regularly: Drop the “check the box” annual performance review for assessments and feedback. Millennials and younger talent are hungry to learn and grow and highly value periodic conversations about career progress. These periodic reviews help them understand and monitor their career path and skills needed to continue to progress.
Recruit for the values, key traits that signal success: In our industry, the investment banking staffing road map focuses on recruiting from an elite talent pool – the top students at highly rated business schools and liberal arts universities – and giving them internships. Our approach differs. We assume candidates possess the technical skills to be effective, so we center on traits such as ethics, the ability to work on a team (and not wanting to be No. 1 all the time), diversity of thought, open-mindedness, initiative and self-motivation that determine who is a high-performing team member and who fails to thrive.
To determine if a candidate possesses those values and traits, seek out stories from them and encourage candidness to uncover the “real” person. That can be difficult as candidates are well-coached for interviews, but that training can backfire. For example, our team liked a talented candidate, but we couldn’t dislodge her from giving canned responses to questions.
Encourage mentoring: Having a mentor both inside and outside the organization as a “trainer” and sounding board proves beneficial. A new employee has learned a lot of skills, but applying them to different situations within a complex ecosystem of colleagues can be daunting. A mentor can help navigate internal dynamics and personalities. An external mentor can help answer sensitive questions or concerns that an employee may not want to pose to a colleague.
One of Verit’s sounding boards, BPI Group CEO Susan Gallagher, favors providing a coach and encouraging employees to find a mentor, explaining: “A coach works on development issues and a mentor advises on how to navigate certain situations.” Susan recommends board members getting to know future leaders, perhaps at a dinner when the board is in town or having them drive directors to/from the airport, explaining: “Directors need to know these people so when they develop a succession plan, it’s not the first time they’ve learned about them.”
Private company leaders benefit by recognizing a new talent development mindset has emerged. No longer is HR solely responsible for people management, or is a week-long talent development course sufficient. The new mindset recognizes that fostering better talent through training, coaching, mentoring and supervision leads to better company.