CEO – Bates Creek Consulting

Finding the Right Senior Executive

Recruiting talent is probably one of the most important jobs of a management team. Unfortunately it is a pain. Deciding who to hire takes time and requires a lot of thought. The consequences of the decision are great, which causes risk adverse executives to procrastinate and delegate the decision making to a committee.

Hiring a senior team member is even more complicated. Frequently there is a contract that needs to be negotiated, options, bonuses, other perq’s and job responsibilities to be decided. A new member of the senior management team has to work within their functional group (e.g. marketing or finance) and within a senior management group. So a lot of executives have say about the process.

I won’t rehash a bunch of techniques for getting the right person. I recommend “Who: The A Method for Hiring” by Smart & Street. There are a lot of books on how to hire although relatively few about hiring a senior executive.

The root problem is simple. We are all trying to hire someone who can do the job and and fit in with the culture. There is a lot of focus on limiting the risk of hiring which perversely can increase the chance you won’t find the right candidate.

The Downside of Minimizing Hiring Risk

There are several pitfalls in this risk oriented approach. A common way to minimize risk is to find someone who has already done the task in the same industry for another larger and hopefully smarter company. This approach has big drawbacks. First, you can’t assume that the challenges you have today will be the same in two years. Hiring a CIO with experience handling a crumbling systems infrastructure makes sense when you have a crumbling infrastructure. But are they the right candidate after it’s fixed?

Secondly, hiring from bigger, hopefully smarter firms doesn’t guarantee that the candidate knows how to succeed in your environment. A firm I was with wanted to jump start their internet initiatives and hired a head of the internet division from a big company that had a successful web site . The candidate interviewed well, was smart and knew the technology. However after joining, we found they were a caretaker manager, focused on maintaining a well functioning department that they’d inherited. The new hire didn’t know how to grow a business and left after six months having made very little progress. I see this all the time, growth firms hiring the executives from industry leaders such as Intel, Microsoft, Home Depot or Wal-Mart and being surprised to find out they’ve never actually dealt with much growth.

Another risk management technique is to hire someone you’ve worked with in the past. This is pretty common in Silicon Valley and it does limit some risks. However, the chance that someone you’ve worked for in the past is perfect for a position is remote. The risk of not getting along declines but the risk of not getting the right skills and competence increases.

In addition, most executives don’t want to repeat their same experience over and over. A lot of CFO’s get tired of the numbers and seek to move into operations roles. Any work relationship you enter where the employer is hiring one thing and the employee wants to do something else is bound to be a problem. This in some ways explains the relatively short tenure for CIO, CFO positions. After a couple of years these executives are bored and are ready to move on.

The best way to minimize risk is to follow a good hiring process. Hire people that fit and have the skills you need.

Determining Fit

Fit is a function of shared values. Defining a firm’s values takes some time and the result isn’t a black or white. I’ve successfully hired formal executives into relatively informal firms. Sometimes you can open up the values of the organization by hiring someone on the edge of the company’s comfort zone. This can be difficult for the executive (and the company) if it is too far a stretch.

I recently worked with a senior executive who lasted six months on a new position. The company is very loose, with no procedures, budgets, plans or structure. The senior management team wears jeans or shorts and the decision process is very consensus oriented. The new executive was a much more formal, process oriented executive, who worked more “top-down”. The fit issues were an issue early and they only got resolved when the new executive was ejected from the business. Failures like this are both costly and painful for the participants.

Identifying values in senior executives is a lot about understanding the stories that make up their lives. How they tell that story will help the interviewer identify the values of the candidate.

The CTO of Looker, Lloyd Tabb, commented in a recent interview on his secret question for hiring. Lloyd says he looks for “we” rather than “I” in the interview conversation. This is good advice as word choice often reflects values (although be careful, word choice can also be driven by culture and social groups). The culture at Looker is very customer and team focused and “we” oriented.

Interviews don’t often include much time for free ranging values discussions but they should. The interview process should include a meal, time away from the office and be a sufficiently long process to allow the candidate to open up about goals, plans and dreams. This is sometimes called the “open kimono” approach and it requires an equal amount of sharing from the company.

Executives searching for positions can similarly learn about the company by focusing on the process, people and surroundings as they go through the interview cycle.

Skills and Competence

Senior executives have the dual role of functional head and senior executive group member. As I noted earlier, we try to minimize risk by choosing executives from the industry. This avoids functional risk but the real risk of failure is outside the functional area.

Executives fail because they can’t effect change. It isn’t functional knowledge but the ability to get things done within the organization that makes a difference. Actual industry expertise isn’t all that helpful, as is expertise in the particular software or the particular systems the firm uses. If you are planning on turning over your management team every two years, it makes sense to hire from the industry. If you are looking to build a management team for five to ten years, then look for executives who have experience getting things done successfully.

One of the most effective firms I have worked with have the majority of senior executives from outside the industry. The new perspectives have allowed them to move a lot faster and smarter than hiring from bigger, slower moving competitors. Viewpoint diversity is valuable and new perspectives bring new ideas and fresh approaches.

Some of the worst hires are candidates with industry experience in weak firms with “it was someone else’s fault” stories. Every career has a clunker or two in it, but senior executives have to be responsible for where they go to work. If an executive has been forced out of three or four firms and can’t give a reference from any of them, it’s a red flag.

A senior executive has to be open to new approaches, but have standards they will always keep. Hiring a senior executive that won’t say no to the CEO is a waste of company resources and a disservice to the firm and the shareholders. As a hedge fund analyst, if I saw a CEO that dominated the management team, it was usually an excellent short.

A rule of thumb is that every senior executive should have the skills and abilities that could result in them serving as a CEO, either with this company or with another company. If I don’t see that ability, I pass. I am sure most of these executives will not serve as CEO’s, the opportunities may not come up, they won’t want to put in the time and effort or it isn’t a good fit personally. But having the communication skills, the curiosity, the optimism and the leadership that CEO’s have will make them better members of the senior management team. And that is the best way to minimize risk.

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Dr. John Zott is the CFO for Carlson Wireless Technologies, and Principal consultant at Bates Creek Consulting. John is the chair of the Careers Committee at FEI Silicon Valley, a senior adjunct professor at Golden Gate University and comments regularly on issues that affect consumer businesses. If you are a former student, colleague or would just like to connect – reach out.

Four thoughts on how to deal with Hedge Fund Investors

After being a public company CFO, I spent some time as hedge fund analyst. During that twelve years I spoke with a lot of management teams, watched hundreds of investor presentations and read a
roomful of disclosure documents.

The most interesting change in perspective was 1:1 meetings, when we’d be in a room with the CEO and CFO and we’d have an hour to ask questions. Sitting in those meetings on investor side of the table was a lot easier than being a CFO. However, the biggest difference in the two positions is time span.

When you run a company you are thinking about time differently than a hedge fund portfolio manager. Projects take years and to turn the ship is hard. Profitable business investments have to be identified, planned and implemented. If you are a hedge fund manager, you can reshape your portfolio in an afternoon, and exit your positions within a week.

Elliot Jacques wrote about the “time span of discretion” which dealt with the time frame where the executive was focused. Most senior managers are focused on the coming 6-12 months. Most fund managers are focused on the next 2-3 months. I’ve argued before that senior management needs to raise its focus from making this year to a process of making every years’ numbers. Thinking further out will not help your discussions with a short term investor. I’ve come up with four ideas for you to think about when dealing with professional investors and the hedgies.

1) Prepare your company presentation as a story.

Most stock analysts are intense, smart, educated and inexperienced. When they make mistakes it is usually based on relying too much on book learning and too much reliance on models. Most risk isn’t covered in an excel spreadsheet, and at best they generate a couple of point estimates for EPS based on simplistic assumptions. Their lack of experience makes them open to a good story. A well constructed narrative will sway an analyst, even if the story is simplistic and inaccurate. Good stories have a beginning, a middle and an end. There are characters. A good story has a coherent theme and is easy to remember.

2) Keep your messaging consistent.

Because analysts often lack the experience to tell if a management team can deliver, they simplify and judge on message consistency. If you separate a CFO and CEO at a stock conference and quiz them individually about recent events at the company, you will often hear two stories, which is a problem. If the words in the 10k don’t align with the slide deck then there is another inconsistency. Hedge fund analysts are a little more savvy, they are paid more and they have been burned a few times. They are less swayed by a story and are more tuned in to the results.

Off the cuff remarks and meetings at the bar are a danger to management teams. I once heard a senior executive announce that they had to work the weekend on the budget. It was April. What does “having to work the weekend on the budget” mean in April? It means you are off plan. Analysts are not your friends and there are no “off the record” conversations.

3) Be prepared.

A management team presents the strategy to the board, to executive management, to senior management, to the employees and to the investors. If the investor presentation doesn’t sound practiced, then how much has management communicated to the company? If your presentation isn’t crystal clear, clear enough that a person with a high school education can understand, then you probably haven’t presented it the 20+ times you need to if you are going to convince the employees. Repetition equals retention. Management teams that are not practiced fail. After valuation, this was my most reliable source of ideas. If I heard a management team stumble through the presentation of a complicated new strategy that would require thousands of employees to do something different (say make panini’s at Starbucks), I knew I had a winner short idea.

4) Don’t take it personally.

A hedge fund trades in and out of stocks a lot. Selling your stock doesn’t mean they hate your company. It just means that they’ve found something that will move more or sooner than your company. We shorted a lot of good companies because we have to hedge our other positions, that is what we are being paid to do. I went to a lot of meetings without a preconceived notion of whether a stock was a long or a short. We’d be short for an event or a tough quarter, and then would go long. Management teams that obsessed with whether the analyst is a “long” or a “short” wasted their efforts. Keep your ego out of it, manage what you can manage and make the company better.

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Why Your Staff Quits

Nothing gets done until someone does something. Those someone’s are your staff. Recently a friend quit her job for a new better position closer to home. I couldn’t help but thinking that part of the reason she left was due to how she was treated.

I am not a great “people” person. I am better than Christian Wolff from “The Accountant” as I don’t shoot people and I do have the reputation of being a decent boss. CFO’s in general tend to be quieter than other exec’s, more introspective, we do spend an inordinate amount of time analyzing information, have a large body of technical accounting knowledge and normally emotional intelligence isn’t a prerequisite for the job. Whether you are great at this or not, there are three things I’ve learned that a any senior executive can do to improve their relationships at work. And good relationships lead to lower turnover and higher work satisfaction.

1) Respect your staff. In the movie, Jerry Maguire, Rod Tidwell wanted “quan”. Quan is loosely translated as respect, admiration for skill and the money. Most professionals want their time and skills respected. I hated waiting outside my bosses office for a meeting to begin. I hated getting slide changes for the board meeting 30 minutes before the directors arrived. Respect your people’s efforts. Many senior executives feel more comfortable micro-managing and doing their employees work. Don’t be surprised if your staff doesn’t like it.

2) Talk to your staff. I believe in weekly one on one meetings. The purpose of the meeting is to go over current projects and planning, but you must leave time for the personal. I always started the meeting with a check in and if that was good proceeded to work related issues. Your staff doesn’t leave its humanity at the door when they come to work. Many of my meetings dealt with personal issues, smoothing out work disputes, and understanding more about my staff’s interests, goals and dreams. Unfortunately, a lot of what we do in modern corporations is repetitive and can be a bit dull. If there isn’t a pressing problem, I didn’t cancel the meeting but I’d cut it a little short and we’d focus on mutual interests. If there is a pressing problem the check in was usually cursory. Personal chat is distracting if you are on a deadline.

3) Listen to your staff. If they are dissatisfied it will come out. Usually you are told multiple times before an executive quits. Listening means quieting your voice and engaging with someone else’s story. Listening includes more than just the words. Word selection, intonation, facial expression, eye movements, body position are some of the elements of good listening. Listening takes an effort and your staff can sense when you are putting that effort out and when you aren’t.

Dale Carnegie was right, simply smiling and listening can make a difference in relationships. Often a simple thank you to the staff is all that is required. Turnover is a normal, but lots of turnover occurs because your staff doesn’t feel the quan.

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