Turning Your Employees Into Owners
Phone: 314.283.1589

One of the questions any business owner faces is how and when to share information. I believe that sharing information openly is critically important, because employees want to feel involved and to know that what they’re doing really makes a difference for the company. How can you create such a collaborative, empowered environment without sharing the measuring stick of success—financial numbers?

There’s a whole cultural hurdle, a trust hurdle about sharing numbers, but I want to propose something a little different. Let’s talk about effective ways to share information so we can have authentic conversations with our team members and so they can understand where we’re going, where we’ve been and how we can make knowledgeable decisions to accentuate our strengths and maximize our successes.

Up is good, down is badrevenue

The traditional way to talk about numbers is the balance sheet or P&L, but not everyone in an organization knows how to read a P&L.  You need a more accessible way of disseminating information—like a graph. If the trends are going up, that’s good. If they’re going down, that’s bad.  With that simple metric of up is good and down is bad, everyone at every level of the company can help make knowledgeable decisions.

Looking over the bow and the stern

I’m a Coast Guard captain and I love boating. In the boating world, if you look over your stern and see that your wake is straight then you know you’re doing a good job steering—but that doesn’t tell you where you’re going.

The traditional financial tools we get from our accountant, such as a profit and loss statement, are like looking over the stern. That’s useful, but it doesn’t give us the information we need to strategize about the future. So, how can we look over the bow?

We can look at an economic report or economists’ predictions for our industry segment. We can also look at our own website traffic and how many inquires we’re getting, since inquiries may eventually become sales and then become revenue.   Our own data can help us predict what’s going to happen in our organization in six months or a year.

Creating your own “kitchen cabinet”

In the early 1800’s, President Andrew Jackson sought help and support from an informal group of advisers. His political adversaries made fun of this unofficial “kitchen cabinet,” but the President actually had a good idea. Support networks, even informal networks, are an import tool we can use to exchange information and ideas.

As CEO’s who are some of the industry professionals with which we as CEOs have working relationships?  By collectively sharing information we can fine tune our picture of where the industry is going. That will help us figure out how to work with our customers and suppliers in order to create holistic solutions that work for everybody.

The Bottom Line

The take-home message here is if you share critical information effectively including financial numbers, your company can work together as a team.

Get by With a Little Help from Your Friends

They say it’s lonely at the top and they are all too often right. You come up through the ranks, you have the support of your friends and colleagues, the guidance of your professional mentors, but then you make it to the top and suddenly everyone vanishes. You’re not one of the guys anymore. You can’t go to your supervisor for advice because you don’t have one.

But even CEOs need mentors and friends in the field. How else can you keep growing as a leader and as a person? How else can you stay relevant in today’s ever-changing business world? You might not be able to find as much support inside your company anymore, but you do have a couple of other options.

Get to Know Someone

To find a good mentor, you, as a CEO, could approach current or former CEOs of other companies. Some people develop excellent working relationships that way. Most folks are happy to offer their expertise and flattered to be asked. But finding the right person can be difficult if you don’t have an established friendship already—not everyone has the time or energy to spare, and you won’t “click” with everyone.

Work with a Consultant

You can also hire an outside firm (like Ardent) to help you improve your leadership skills. While it might seem odd to hire someone for support and feedback, it isn’t so different from the kind of mentorship you might have found back in school—you were paying tuition, after all. This way, instead of you going to school, you hire the school to come to you. The big advantage of working with a consultant is that there is no question that the person will have the time and energy and interest to mentor you. For a consultant, working with you doesn’t require time off from work. The consultant’s whole job is to help you.

Join a Group of Your Peers

You can also join an organization for CEOs, like Vistage. At monthly chapter meetings, Vistage members learn new information and skills from outside speakers and also discuss with each other issues that arise within their own companies. It is almost like being like members of each other’s boards.

I’ve actually been a member of Vistage for over ten years. You get that constant flow of information. You never know when you’re going to use that information, when you’re going to need it. You build your repertoire of skills over time so you’re equipped for whatever comes up.

To Sum Up

An individual coach or mentor in your specific area, whether that’s marketing, construction, transition, or whatever else, is a great option. And either an individual or a consultant can adapt to your specific situation and help you with what’s going on in your company today. Peer group organizations, on the other hand, give you a wide range of more generalized information and provide a context with which you can both give and receive support.

However you do it, the point is to find someone who really has no agenda apart from being there for you. You need someone who will be in the trenches with you, no matter what.

Every CEO wrestles with the compensation issue. How do you motivate employees to succeed? How do you meet the expectations of the labor market? How do you create a sustainable business plan and culture?

When I purchased the firm from my father, the very first day I implemented a shared fate program. I identified our historical earnings and I said that for every dollar over that we earn, we’re going to share a portion of that with every employee in the firm from the receptionists on up.

I wanted a very formulaic approach, where each person would earn an amount based on their roles’ ability to influence the profits of the company. The team wanted a discretionary portion so, I as CEO, could give extra to certain people based on my judgment. I resisted that because I felt it would dilute the purpose of the shared fate plan.

Why Didn’t I Want to Be in Control of Bonuses?

There is actually research out showing that sometimes the more you pay someone, the less well they work (Daniel Pink’s “Drive“). That is, for tasks that require some kind of creative engagement, where the worker is not just following a set of instructions over and over, a sense of pride and accomplishment is really the best motivation. You get the best results by paying enough that your employees don’t have to worry about finances and then stepping back and let them work. If you pay large bonuses and make it about the money, that creative engagement turns off.

Of course, there is a conflict here because you have to keep compensation competitive for your industry or you won’t attract the talent you need. But the point is it is ultimately a sense of meaning and purpose that motivates people to do their best work.

We shared our earnings in order to give everyone in the company an investment in the future of the firm. I was extremely invested because I had essentially mortgaged my family’s future in order to make that business work and I couldn’t do it alone. I needed the rest of my team to be invested too.

The shared fate program wasn’t so much about giving people extra money for better performances. Instead it was a tool to give everyone a sense of ownership in the outcome of their work and to foster that creative engagement I was talking about.

Two other unique things we did to attract the best of the best—we gave our people ownership of the deliverable and ownership of our culture.

What Is Ownership of the Deliverable?

Most companies are what I like to call benevolent dictatorships, where directives come down from on high and everyone just does as they’re told. I don’t think that 1950’s style of management is going to work for much longer because it doesn’t give people a sense of control over the outcome of their work. It doesn’t provide that sense of meaning that you need for creative buy-in.

Today I think we need to look to our team members for ideas, not just to the leadership at the top. Now there are a lot of different ways to get those conversations happening, but the key takeaway here is that when an individual joins your organization they have to be able to influence what they’re doing and how they’re doing it. You have to give them the best possible tools and allow them to apply those tools in the best possible way to meet the needs of their customers. You don’t want to treat your employees like puppets.

What is Ownership of the Culture?

Ownership of culture is the ability of individuals to change how things happen within the organization. As CEOs, we’re really managers of change. Some CEOs embrace change, others resist it.  For some, letting other people change the organization is part of that sheer terror zone I wrote about earlier.

The Bottom Line

The benefit of a compensation program that isn’t just based on money but is also based on shared ownership of the deliverable and of the culture creates a desirable place to work. When the word got out that we had a fair work environment that empowered the team to achieve their best and to contribute individually, we found that people from our competitors—the best of the best of our industry—started to seek us out as the place where they wanted to spend their career.

I want to tell you a story. Sometimes our roll as business leaders includes really taking care of our employees and not just looking at the bottom dollar and getting product out the door.

On a fall day about thirteen years ago, I was in a business meeting when I got a call from my wife. She knew I’d be in a meeting and not taking calls, but we had a pre-arranged single for emergencies—she would call and let it ring twice, so I’d feel the vibration and call her back. That morning, I got the signal.

I excused myself and stepped out of the room. When I got out and called her back, she asked me if I’d seen a TV and I said no. Well, I was at a hotel where I could go and look at a TV, so I went and looked and it was 9/11 and I saw the second plane hit the building. Then I went back into the meeting, told my friends what had gone on, and we adjourned and went back to our offices.

The first thing we were trying to do was make sure everybody was safe—we had a number of people out on the road. We allowed employees to rent cars and bring them home, whatever they needed to do. It was like all bets were off. I think any business leader would make those same kinds of decisions in order to make sure their people were safe. But we also felt we had an obligation to take care of our extended corporate family, our employees’ spouses and kids as well.  And we realized we didn’t really have an organized way to do that.

So, after the crisis was over, we all got together and sat down and said what if we shared our information with each other? Our spouses’ and parents’ names and phone numbers, our kids’ schools, their babysitters and their phone numbers, all of that. And we created an elective database for our team members where they could put all the information we would need so that if they were unreachable for whatever reason we would be able to step in and make sure their families were taken care of.

I’ve been thinking about this again lately with the attacks in France being in the news so much. I think as business leaders we have a responsibility, a moral responsibility, not just for our employees—our corporate family—but also our extended family, their spouses and children. Recognizing this can only improve your company culture.

We really need to recognize that our team members are not just our employees, but also their families. It is appropriate, I think it is appropriate, that if our employees want to share that kind of information with us—and not all of them do—that we make ourselves available to help them out.

 

Giving as Good as You Get

A successful CEO needs a mentor, for all sorts of reasons, but just as important as having a mentor is being one. Helping and teaching others is a big part of your role as a leader—especially if you want to be in a position to sell your company to your employees someday.

Mentoring Other CEOs

You do not have to know everything knowable about business in order to mentor others. If you are a CEO, then you have already have a foundation of success and you can share that success with others. In any case, one of the best ways to learn something is to teach it because that way you uncover how much you already know. Making yourself available to other business leaders is just an extension of basic professional networking. And while organizations such as Vistage that offer peer support to CEOs are one way to get help for yourself, participants offer assistance as well as receiving it.

Mentoring as a Component of Leadership

A lot of CEOs are very good at attending to the daily minutia of running a company, but they forget to step back and keep track of the big picture. And that is not helpful.

As a CEO, you can think of yourself as the captain of your ship—but the captains of real sailing ships do not raise and lower the sails themselves. If they did, their focus would narrow to just the rope in their hands and they would lose their awareness of the ship and its crew as a whole. The reality is, your job as CEO is not to play wack-a-mole with every crisis that comes up, but to train and support your employees to take care of those crises for you. In order words, the more you can function as your employees’ mentor, the better your business will go.

Learning to Be a Mentor

But if you do not keep up with changes in culture and technology, how are you going to stay relevant to the people you are trying to help? My mother bought herself a smartphone so she could learn to use Facebook and Twitter—not that she’s interested in Facebook and Twitter, but she wanted to be able to understand her grandkids. In order to be able to offer useful guidance to others, you need to keep learning yourself and a mentor of your own can help you do that.

So we’ve come full circle; one of the most important thing you can learn from having a mentor is how to be a good one yourself.

 

We talk a lot of about how important it is to be able to get out of our comfort zones. Getting out of the comfort zone is how we grow, it’s how we learn, it’s how we discover new things, both personally and professionally. If we’re only ever willing to do what’s comfortable, we can coast along, just paying attention to the daily minutia of our businesses, and then wake up five years later to discover we’re no longer relevant in our industry.

But what’s outside of the comfort zone? If you go too far outside of the comfort zone you get into what my friend Vince Langley calls the sheer terror zone.

The sheer terror zone is where whatever’s going on is too much and we just stop. It might not even be a conscious decision—when you find yourself just forgetting to take certain steps, or maybe there’s never any time to try something new because you’re too busy dealing with day-to-day issues, what I call playing Wack-a-Mole, to take a step back and look at the big picture—that might be the terror zone at work.

Different things do it for different people. Some people are afraid of heights. Other people are afraid of looking like fools. Whatever it is, you get too close to that terror and you jump back automatically. It’s like touching a hot stove. It’s important to stay away from the sheer terror zone, because we don’t have time to stop. We can’t afford to not take risks.

So, what can we do? How do we learn to tolerate discomfort so that we can push ourselves and grow?

The question applies not just to us as CEOs, but also to our colleagues and employees. It’s our job to build their capacity to handle discomfort as well, so they can grow and our companies can thrive. Just ordering people to do things they can’t stand to do won’t work, just like willing ourselves to quit being terrified won’t work.

Instead, we have to look at potential costs vs. benefits. If someone is stuck because a task is so far outside of their comfort zone that they’re just panicking, we can get them moving by either reducing the perceived cost or by increasing the potential benefit. If I ask you to climb up the cables of the George Washington Bridge and you’re afraid of heights, you’ll probably say no. If I say there’s ten thousand dollars waiting for you up at the top, maybe you’ll try it. If your kid is stuck up there, you’ll climb up to save your kid. Or, maybe we can reduce the perceived risk by giving you a safety harness and maybe a mask so you can’t see how high up you are.

As CEOs, we have to find ways to do both, increase perceived benefit and decrease perceived risk—and we have to do it in ways that are meaningful to the person facing the challenge, because different people have different fears and look for different rewards.

Maybe that means being more transparent about why the company needs to take certain steps or adjusting compensation packages so people have a greater stake in the outcome. Maybe it means breaking up a project into manageable tasks and letting multiple people work together as a team. A big part of it is helping the people we work with find ways of accomplishing necessary goals in ways that work for them. For example, let’s say you have a colleague who is painfully, just intolerably shy, and you need this person to make a couple of cold calls for you. It’s not going to happen—that phone might as well weigh three thousand pounds. But if you let him or her make the contacts via email, that could work.

The take-away here is that sometimes in order to get ourselves—or our employees and colleagues—out of our comfort zones we need to make challenges seem a little less scary and a little more worthwhile. Given the choice between comfort and sheer terror, we all choose comfort every time. But if we can make a little space between those two extremes, then we can go ahead and take the risk. And every time we take risks, we get a little better at it.

We become more able to face the sheer terror zone.

So, you’ve put time and energy—maybe years of your life—into growing your business and making it a success. Congratulations. But if you think retiring or moving on to your next project is as simple as hanging out a “For Sale” sign, you might want to think again. Many of these sales simply do not go through. Since 74% of those failed deals involve businesses worth less than half a million dollars, if yours is a small business you face especially long odds.

You can improve your chances of success by treating the ownership transition as a process, a process that begins with careful planning, sometimes years before you actually plan to move on.

One of the reasons that selling is particularly difficult for smaller companies is that the buyer is typically another individual looking for an employment opportunity, not a private equity firm trying to make an investment. And as the Baby Boom moves into retirement age, there aren’t very many younger entrepreneurs coming up to take their places. Generation X just isn’t as big. You’re facing a classic buyer’s market, and that weakens your negotiating power and reduces your options.

One way to shift the advantage your way is to grow your own successor by training your employees to take over the business.

As a small business owner, you probably have little experience, if any, with ownership transitions. That is the other reason why the owners of smaller companies often can’t close the deal. But you do know how to grow your business and how to work with your people. You can draw on the experience you already have by treating the transition as just another phase of developing your business and training your team. Focus on preparing your company to change hands and preparing your people to take over. This is a great opportunity to reflect on exactly what it is you do that works so well, where you want to make sure your successors stick to your vision and where you need to let go and allow their innovations to take your company in a new direction.

Training new, prospective leaders does not necessarily obligate you to sell to insiders (unless you start making promises). If an outside buyer comes along with a more appealing offer, you can take it. The point is that you will have more options and you will be able to oversee the leadership transition from a position of power, not a place of desperation.

Turning employees into owners is one of those situations where everyone wins. You win, because you know you’ll have at least one qualified, interested buyer and so you can negotiate from a stronger position. Your employees win, because one or more of them gets to own a successful business. Your business wins because a smooth transfer to a fully trained team increases the chance that your winning strategy will keep on winning. And since most people do better work when they have a sense of ownership of a project, training to your employees to take over not only protects the future of your business but also enriches its present.

 

You have established your company through unwavering determination and sheer will power.  You have moved beyond the startup mode into a thriving successful business.  As your company matures and grows, so does your family.  At some point, it is likely you will be confronted with the decision to hire a family member.  Candidates may include spouses, children, siblings, in-laws, and family friends.  In the interest of full disclosure, I was a boss’s son in the family business.  And now for the “Good” the “Bad” and the “Ugly”.Smal

The “good” being that the family business gave me a ten year head start on learning the business.  I got to do more quickly and learn at the elbow of my father.  This greatly accelerated my learning curve and provided me opportunities that were not available to my co-workers.

The “bad”.  It changed but expanded my relationship with my father.  No longer were we just father and son.  We now saw each other both through the eyes of the family and business.  While we tried not to talk business in a family setting, it was almost impossible.  It not only changes the father/son dynamic, but also influenced my relationship with my siblings.

The “ugly”.  For me it worked out.  I give most of the credit to my father.  He gave me enough rope to learn but not enough to hang myself.  Over time as my role increased he gave me the room to make my own decisions even if he would have chosen differently.

However, others have not been so lucky.  In my banking days, I saw several family businesses suffer from a domineering family patriarch that was not able to share or teach and ruled with an iron fist.  In other instances, I saw a son or daughter that was in over their head and did not know how to transition to their passion outside the family business gracefully.

Based on my observations and experience here are some of the lessons I have learned.

 

1.  The Thanksgiving Test

One of our definitions of success was always being able to sit down at the family table for Thanksgiving.  We were able to combine a family and business life that allowed this to happen.  However, some families have not and it is a very big price to pay.

2.  Learn on Someone Else’s Nickel

As a new employee fresh out of school, we often make mistakes.  Everything from getting to work on time, to defining your own work ethic.  In addition, the intangibles and the business lessons learned from other organizations will have tremendous value.  For me, a four year stint in the banking industry gave me a great skill set to contribute to the family business.

3.  Being The Boss’ Kid Makes You Different

Your work ethic, personality and capabilities will impact how you are viewed, but you will never be one of the gang.  As a family member you have tremendous opportunities, but it can also be lonely.

4.  Start At The Bottom

Even if you move through the ranks quickly, it is important for family members to know the organization well.  Lead by example and no job is too big or too small.  The relationships you build with the team will be critical to your future success.

 

Why Do It?

As the patriarch and business leader it is important to recognize that you will give more than you get for some time.  Be patient.  As the leader it is our responsibility to anticipate and plan for the future.  When you initiate a planned succession or a tragic event creates change in leadership, having several good options is a blessing.  Some options may include the following:

 

1.  Close The Doors: While this may seem simple and straight forward, there are many loose ends to consider. How and who will take care of the current customers, employees, accounts receivable, suppliers, and tax obligations? If you are still in the leadership role the likelihood of a smooth closing is possible. If not, a crash landing with significant carnage may result.

2.  Sell To A Financial Buyer: Often this may be a competitor or financial investor. This solution could significantly impact your customers, employees, suppliers and business’ legacy. How do these relationships and outcomes impact your definition of success?

3.  Family Asset: Your Company is generating a quality of life that allows you and your family to live very nicely. Cashing out may seem short sighted and wasting an opportunity for future generations to benefit from this family asset. If the family talent is not available today, a professional manager may provide the needed expertise while leaving options for younger family members.

4.  Selling To The Family Or Employees: Creating and nurturing the next leadership team involves passing on the institutional knowledge and business savvy you have developed throughout your career. With your hand picked team and having evaluated each member’s ability and will to lead, you can feel comfortable leaving your customers, suppliers, employees, and legacy in good hands.

 

When planning for the future it is important to create a number of options that you can test and pick from at the appointed time.  Change is constant and what looks like the best path today may not be the desired outcome tomorrow.

 

 

In today’s WSJ there was an article titled “Amid Crackdown, Some Firms Rethink ESOP Sales Practices” which relates to owners rethinking how to sell to employee-stock-ownership-plans (ESOP) following a crackdown by the Labor Department.  It seems to me we are missing a piece of important information in the ESOP relationship that allows the new owners to make an informed decision.

The Basics:  When a founder or majority shareholder wants to liquidate their closely controlled shares to their employees, one option is an ESOP.  In this scenario, a trust is created that will hold the company shares.  The value of these shares is determined by an outside appraiser.  The purchase of these shares may be funded by the employees’ retirement savings account.  In my view, the premise of this structure is that the employee is not capable of making an informed decision.  A trustee is hired (often an outsider and, with the recent crackdown, a likely choice to protect the business owner) to protect the workers’ interests and a third party valuation firm is hired to determine a value.  It seems to me that if employees have a working knowledge of the organization that includes the institutional knowledge and business savvy, they are qualified to make their own decisions.  If they don’t, are they really qualified to be an owner?

What If:  I would submit that an employee team that has the information necessary to make an informed decision regarding the purchase of their company results in a better outcome for both the current owner and the future owners.  An ownership group that is informed will be equipped to capitalize on the historical successes and lead the firm well into the future.  This means today’s owners need to invest time and resources in the future owners by passing on the institutional knowledge and business savvy to the next generation of leaders.  By institutionalizing this knowledge and getting it out of the leader or founder’s head, it will make the company more valuable not only in the owner’s eyes but in those around them.

The WSJ suggests that the Labor Department has observed that the value of a firm may be set to meet some predetermined expectation on the part of existing owners.  This could be viewed as a one-sided negotiation that a willing participant would never accept when buying a car or home.  Why should we consider it when buying a business?

The ESOP is to be used as a financial and legal tool to facilitate the completion of a business relationship between competent, knowledgeable parties.  It should not be used as a tool to manipulate terms and conditions based on a lack of knowledge or transparency.  As business leaders it is our duty to pay it forward by developing a team of leaders and owners that have a sustainable financial foundation to lead the company into the future.  It should not be our priority to squeeze every cent out of the transaction by taking advantage of our position.

As the CEO of an engineering firm in the a creative market segment, I felt one of my primary roles was to find the best possible people, provide the best possible tools and get out of the way.  The traditional business practice made this challenging.  For example, a qualified candidate for a leadership position would often have an advanced degree and a professional license to practice in the design industry. When we would bring them into the typical engineering firm, we would ask them to clock in and clock out and account for every moment of their day.  The reality was we were treating these highly trained industry professionals like a teenager at their first job with a fast food chain.

I submit this arcane legacy of micromanaging the best of the best has little or no benefit and may be actually driving away your best talent.

One morning I traveled to an architect’s office to prepare for an interview later that day.  When I went into the CEO’s office, it looked like a ticker tape parade had just passed through.  Paper was all over the place. I commented on what appeared to be a significant research project that was underway.  The response was “no.  I am doing my time sheet.  It is more of an art than science.”

Given this feedback, I often asked other firm leaders if they do timesheets and why.  The vast majority required detailed timesheets and most admitted to fixing the numbers to make them work.  Is there anything more demoralizing than asking a highly educated and trained individual to report back like a small child while supporting a culture that requires fixing the numbers to achieve a desired outcome?

Daniel Pink, author of Drive, observes that a financial reward system only works in jobs where mechanical skills are critical.  When cognitive skill are required, high financial rewards lead to poorer performance.  For these roles he recommends paying people enough so money is not an issue.  Once the basic financial need is met, the professional will be attracted to a firm that provides autonomy, mastery and purpose.

So what did we do…we did not do time sheets unless absolutely necessary for a specific project.  We created a shared fate reward system where the entire team succeeded or failed together.  We invested heavily in tools that provided timely and accurate information to the team members (autonomous and mastery) so they could support their clients.

As business leaders, our role is to be educators, nurtures and observers.  By being predictable leaders, the team was able to focus on the customer and the business.  This culture of empowerment attracted the best of the best and gave them the freedom to do their best work.