Fit and Family-Owned Business

by Bruce Walton, Partner in Battalia Winston’s Family-Owned Business Practice

When I’m helping family-owned businesses find new executive leadership, I often hear the following: “We want to find someone who is the right fit.” This word—fit—is difficult to define, yet is always key to a successful hire. When assessing candidates for fit, it’s helpful to use the following questions as guiding principles:

1. Does the candidate’s leadership style align with company’s value systems?

Fit really means linking the value systems and leadership style of the executive candidate with those of the hiring company. In fact, “value systems linkage” is the best predictor of happiness, in all its dimensions, for any hire. Therefore, for a family-owned business, where hiring a non-family CEO can often feel like arranging a marriage, fit is particularly important.

Naturally, the starting point for the hiring process is understanding the Core Family Values that drive the business. Businesses that have survived across multiple generations have invested much thought in the development of family values. They are typically recorded somewhere, either in a corporate handbook, website, or other core material. If this is not the case, formalizing and recording corporate values is an important exercise to complete before starting a CEO or COO search. Since the family can never be separated from the business, these core values will drive decisions that otherwise would be hard for an outsider to understand.

2. Does the candidate possess the most important competencies for the position?

When a candidate clearly aligns with the family’s value system, it can be tempting to conclude that the candidate is automatically a great fit. However, it’s important to move the decision beyond “I like them.” This is why a position competency model, designed to measure the candidate’s specific skill set against the company’s business goals, is critical. The key is to build a competency model that helps separate and prioritize the must-haves from the nice-to-haves. Nobody will be a perfect match on every competency, but the best candidate will have successfully demonstrated the top three to five competencies in the recent past.

3. Will the candidate be a steward of the family’s success?

When I try to consolidate all of the aspects of fit for family businesses, the single word that comes to mind is “stewardship.” Good candidates understand and appreciate what the family has already built. The new CEO becomes a steward of that success, even when the mandate is to transform the company. Family members in the business, ownership or governance have their own self-images (both within the family and in the community or industry) so tightly connected to the business that outside leadership needs to account for it and factor it into the leadership process.

To be a successful steward for the company, the candidate must be a confident adult who is prepared to handle sensitive situations that will arise within family businesses. For example, a mature non-family CEO will be able to react appropriately when ownership wants to drill down into the details of the business, as they always do at some point. The mature steward will not be threatened by this, while an insecure autocrat will not react well.

Investor Relations (IR) also deserves some thought. Every CEO spends a significant amount of time caring for the company’s owners. In public or private equity owned companies, this is pretty clear. In a family-owned business IR involves multi-generational dynamics and strong emotions. It may involve dealing with a Family Council or helping educate a new generation to be successful future owners. So IR does not go away; it is just very different.

In summary, the “best fit” candidates will embrace the core family values and have the capacity and patience to deal with family dynamics without becoming embroiled in them. At the same time the non-family leader will have the right core competencies to lead the business to success, however it may be defined.

Fred Lamster Featured in Total Retail Magazine

Fred Lamster, Partner in Battalia Winston’s Consumer and Retail practice, has contributed an article entitled, “Organization Planning in a Troubled Retail Sector: 6 Keys to Success,” to Total Retail, the go-to source for executives looking for analysis on the omnichannel retail industry.

Co-written with Sharon Tunstall, former VP of Human Resources at Nike, the article shares actionable strategies for impactful organizational planning. In a time when retail is in need of more strategic leadership with greater cross-functional expertise, organization planning is more critical than ever.

Read the full article on Total Retail.

Family-Owned Businesses and Long Term Incentive Programs (LTIPs)

by Bruce H. Walton, Partner at Battalia Winston

When a family-owned business needs to recruit a non-family CEO or COO, a well-structured Long Term Incentive Program (LTIP) is essential in attracting an outstanding candidate. However, LTIPs can make some family business owners uncomfortable. Few families want to give up true ownership, even when they realize that an agreement is important for the health of the business. Naturally, the non-family CEO will want to share in the value they create through an incentive program that enables them to feel, act and think like an owner.

Fortunately, there are ways to structure an LTIP that preserve ownership and make the program a win-win situation for both owners and newly hired executives. The dominant LTIP vehicle among private firms is a cash-based performance incentive which contributes the earned award to a deferred pay account with vesting conditions.

Here are a few guidelines that we have found useful in recruiting.

Work with Experts

Creating an LTIP is not something that should be handled in-house. It takes a professional compensation consultant to translate the family’s value system and objectives into an appropriate LTIP architecture, and then to fit the program to the requirements of the finalist candidate. There is always a bit of negotiating that goes on, first within the board and family, then with the finalist candidate. The process usually requires several steps/iterations over a couple of months and needs to be memorialized by a lawyer. The whole process might cost $12-15,000.

Because the process can take some time, we strongly encourage clients to start developing the LTIP at the beginning of the CEO or COO search. It is too late to start the process once the final candidate has been identified. If there is an LTIP already in place, it may need to be refreshed to match the current marketplace. Again, this process should be started early, since even minor modifications can take a couple of months.

Start with the Premise that the Program Should Pay Out Only When Value is Created

The architecture of the LTIP should be based on sharing in the value that the CEO helps create. Frequently, the way to measure that value is EBIT or EBITDA, starting with a reference value before the new CEO joins, and allocating a percentage of the value created to a pool that is shared by the top three to five members of the management team. This incents the CEO and provides some tools to attract and retain top talent.

In some programs, a third party assesses the company’s value each year, providing an independent view of the payout, but this method has a yearly expense attached to it. One recent client simply assigned a percentage of the EBITDA growth over time to a pool.

Keep it Simple

Some of my clients have tried to incent behavior with overly complex metrics, to the point that one candidate likened the proposed LTIP to the tax code. He asked, “What are you really trying to get me to do?” The company did not have a good answer. Also, it was very hard for the candidate to assess what was achievable before he moved under the tent with access to all the needed information. Ultimately, the company decided to simply base the incentive on company value growth based on their formal company annual valuation program.

LTIP payouts should be made in a reasonable timeframe, balancing the needs of the candidate with the need to protect the company from a large cash flow demand. Remember, if the CEO makes a lot of money, the family has made even more!

Of course, the value of the LTIP should be subject to a vesting schedule of a reasonable timeframe, perhaps three to five years. I had one client that wanted the monies held within the company until the CEO turned 65. That was unacceptable to the 43-year-old finalist candidate. He proved he was the right candidate by saying, “I want to be able to take some of my (earned) money out on a regular vesting schedule, invest it and then lose it, just like everyone else.” He turned the company profitable within nine months and doubled the value of their minority ESOP within three years.

While a recruiter can provide a sense of whether a program is comparable with others in the market, it takes a compensation consultant who deals with private companies to “turn the dials” and match a program to a specific situation. Recruiters familiar with family-owned businesses are accustomed to collaborating in this way and working with various other consultancies supporting the family-owned business community.

Fred Lamster featured in Total Retail Magazine

Fred Lamster recently contributed an article entitle, “The Changing Role of the Merchant” to Total Retail.

Merchants were once the only critical players in the retail industry. Their ability to drive the business by understanding the customer and predicting customer behavior made them invaluable to their organizations. However, now that “omnichannel” retailing is the new reality, the merchant’s role is rapidly changing. A merchant must now also be able to absorb enhanced analytics and work even more closely with design and marketing applications to understand and adapt to trends that satisfy quickly changing customer tastes.

Executives and HR leaders at retail companies are now asking themselves, “What does it mean to be a strong merchant, and how we can ensure that we retain and develop top merchants into future leaders?” Until recently, most retail CEOs or CHROs thought that augmenting a merchant’s skill set with leadership training was sufficient. Through informal programs — e.g., internal mentoring, coaching, etc. — they helped their merchants develop the capabilities necessary to lead a team of people.

However, in a rapidly transforming retail market, simply leading a team is no longer enough. Now, a merchant must embody a number of additional mission-critical competencies.

Continue reading on Total Retail.

Susan Medina Places Gloria Lara as CEO of the Michigan Hispanic Chamber of Commerce

Battalia Winston is pleased to announce the placement of Gloria Lara as Chief Executive Officer of the Michigan Hispanic Chamber of Commerce (MHCC). Susan Medina, Partner in Battalia Winston’s Diversity and Inclusion Practice, completed the search.

Gloria Lara is the former CEO of the Girl Scout Council, where she served as the chief spokesperson for the organization and drove funding development efforts. Lara has extensive experience in finance, marketing, sales and project management and has held executive positions at IBM, Chrysler Corporation, and Jervis B. Webb Company, among others.

The Michigan Hispanic Chamber of Commerce is the largest and best recognized organization in Michigan that promotes the development, growth and visibility of Hispanic-owned businesses. MHCC members have a collective gross revenue of more than $3 billion, and the organization was recently named Chamber of the Year by the U.S. Hispanic Chamber of Commerce.

As Companies Crack the Diversity Code,
Leadership Teams Still Lag

Susan Medina and Peter Gomez recently contributed the following article to Workforce Magazine. 

Like several Silicon Valley counterparts, tech giant Intel last year went public with its lack of employee diversity. The company is openly sharing its efforts to correct the problem. In an interview with NPR, Intel CEO Brian Krzanich discussed his company’s diversity initiatives and concluded that the “pipeline problem,” or the idea that there aren’t enough qualified diverse candidates, is overhyped, saying, “If the pipeline was such a big problem, I would have come back as a failure.”

It’s true the pipeline problem is somewhat improving — at least at the entry level — for companies like Intel that have the budget to invest in targeted recruitment programs. As more companies formalize diversity initiatives, partner with educational institutions and community organizations, and train their hiring managers on the effects of unconscious bias, they will be able to bring in more diverse talent in their junior and mid-level ranks. For example, Apple reported a 50 percent increase in the number of African-Americans hired in 2015 compared to 2014, and a 66 percent increase in Hispanics.

But this improvement is not producing greater diversity representation in the C-suite. In 2014, only 4 percent of Fortune 500 CEOs were minorities, and only 5 percent were women. Move down the corporate ladder into the executive ranks and the percentages do not improve. According to DiversityInc, Hispanics make up less than 4 percent of senior management in U.S. companies. African-Americans make up less than 3 percent, and Catalyst reports that women of color are virtually absent at the senior-level and above in S&P 500 companies.
Continue reading on Workforce. 

Reducing Staff Turnover for Nonprofits and Associations

Dale Winston recently contributed the following article to Associations Now.

With smaller, less hierarchical organizational charts, associations often struggle with attrition, losing aspiring leaders to other organizations. However, with a focus on better succession planning, leadership assessment, and onboarding, an association can slow the outflow of top talent.

Late last year, one of the largest health research foundations in the world approached our firm with an urgent request: It needed to find a transformational head of human resources to help the organization address an alarmingly high rate of employee turnover. The foundation was struggling to retain top performers within its junior- and mid-level ranks. The losses were creating disruption throughout the organization, particularly at the leadership level. Without a sufficient pool of “high-potentials” capable of moving up through the organization, the existing management team was unable to develop and nurture a pipeline of potential successors.

Continue reading on Associations Now. 

Susan Medina and Peter Gomez Discuss Diversity and Inclusion with Chicago Tribune

Battalia Winston Partners Susan Medina and Peter Gomez recently contributed to an article in the Chicago Tribune entitled “Some financial firms tackle diversity gap head-on, say they can’t afford not to.”

The article explores how the financial services companies in Chicago are working to attract and retain more diverse talent:

Susan Medina and Peter Gomez, Chicago headhunters who specialize in recruiting minority candidates for executive roles, said attention to diversity transparency in Silicon Valley and other industries has helped move the conversation in the right direction. But many efforts continue to be just lip service.

And there are more insidious challenges.

“When people think diversity, they think minority, and when they think minority, they think lowering the bar, and that’s a mindset that has to change,” Medina said.

Read the full article here. 

 

Rahquel Purcell joins L’Oreal as Vice President Supply Chain, Americas

Rahquel Purcell has joined L’Oreal as Vice President Supply Chain, Americas. Terry Gallagher completed the search.

L’Oreal, the world’s largest beauty products company with revenue in the Americas of $16 Billion, creates cosmetics, perfume, and hair and skin care items. L’Oréal USA boasts a host of consumer and luxury brands, including Garnier, Maybelline, Lancôme, and Kiehl’s. It also owns salon professional product makers Matrix and Kérastase, as well as mass market label SoftSheen/Carson and perfume brands Ralph Lauren and Giorgio Armani. L’Oréal sells its products across 130 countries. Worldwide, the beauty company boasts two dozen research centers and about 15 evaluation centers, 45 factories and some 70 distribution centers, and a handful of development and learning centers with global revenues of $32 Billion.

Ms. Purcell has a 24 year career history working for Proctor & Gamble. She is a supply chain executive with a proven track record of transforming organizations, developing opportunities and delivering game-changing results. She is a strategic thought leader with international business management experience and supply chain breadth spanning global Procurement, Supply Planning, Distribution Management and Customer Service Operations. Most recently, Ms. Purcell was Director of Global Packaging & Design Purchases and led a global team to procure $5.5 billion in packaging materials and design services. She also served as Senior Purchases Leader for the Beauty Sector, supporting $6.8 billion in raw and pack material procurement for Hair, Skin, Prestige and Cosmetics.

Prior to that Ms. Purcell was Director, Global Product Supply Leader for New Business Creation and was on the Special Task Force to deliver $5 billion in incremental revenue in 3 years. As Director of North America Product Supply Operations, she was responsible for $30 billion in finished products and led 1,200 people managing 22 distribution centers supporting 18 consumer goods categories and 2,000 daily shipments.

Ms. Purcell earned a Bachelor of Business Administration from the University of Michigan on a full academic scholarship. Ms. Purcell also serves on the Board of Directors for the National Urban League’s Cincinnati Chapter.

How to Vet Leaders for Crisis and Change Management Skills

Terry Gallagher contributed the following article to Manufacturing Business Technology.

To stay competitive in today’s market, industrial and manufacturing companies must constantly respond to rapid change. Change comes in many forms — the positive changes associated with emerging technology, new product developments and company growth — and the more disruptive changes resulting from recalls, accidents or failed product roll-outs. Regardless of the nature of the change at hand, when an organization is looking for a new leader, he or she should be carefully vetted for crisis and change management skills.

I help companies in the industrial and manufacturing industry recruit leaders, and in nearly 90 percent of the searches I conduct the client specifically asks for change management skills. A number of market conditions have combined to make change management and crisis management even more critical than they were a few years ago. As our economy becomes more global, industrial and manufacturing companies aren’t just up against regional or national competitors — they’re competing with companies worldwide. The increasingly competitive market means that companies must relentlessly pursue methods for producing superior products at a better cost. Companies are continuously searching for ways to automate, streamline, innovate and attract customers who are savvier and more educated about their choices than ever before.

Internally, companies are dealing with the impending retirement of baby boomers and a widening manufacturing skills gap, which, according to a 2015 study by Deloitte, could result in 2 million unfilled jobs over the next several decades.

Needless to say, companies need strong leaders with a proven track record of change management in order to propel business growth and retain and recruit top talent. To ensure that prospective executives have the required skills, companies should consider applying the following best practices:

Ask the Right Questions During the Interview.
An open-ended question, like “Can you tell me about your change management skills?” will not provide the insight decision makers need to properly evaluate the candidate. Instead, ask a more pointed, metric-based question. For example: “What is the most significant change management situation that you have led, why was it important to the organization and what were the results in terms of revenue cost saves and enhanced customer service?” These questions leave no space for vague answers of ambiguity. If the candidate can’t fully provide a response, he or she likely does not have the necessary change management skills.

Confirm That the Candidate’s Broader Skill Set Aligns With an Ability to Manage Change.
Managing change or navigating a company through a crisis involves a suite of skills that will come into play long after the initial communication of the situation. The ideal candidate should have experience in new product development, changing product mix, and overall project management skills. The candidate should also be able to effectively hire and retain new talent. For example, if a company is entering a new market or introducing a new product, the new leader will naturally need to hire new talent for the R&D and sales team.

Consider Looking Outside of Your Specific Sector.
When a company is in a transition period, considering a candidate from another sector can seem risky. Bringing in an “outsider” can fuel uncertainty among employees, board members, and shareholders. However, a leader with a different perspective and experience in another industry may be exactly what is required. I recently worked with a company (a major producer of consumer goods in the Northeast) that had a product suite consisting of both low-tech and high-tech products and processes. The company wanted to move away from the low-tech (and low-profit, low-margin) work and focus on their high-tech products. In order to do so, they needed a new leader — one with creativity and experience working with a highly engineered products R&D Department. This type of candidate simply could not be found in their sector. Instead, we brought in a new executive from s a highly engineered custom product manufacturer in the high technology industry, with the right experience and change management skills, and the company is now in the process of changing their product mix.