Spotting executive blind spots

How to deal with the dysfunctional and the monofunctional, the insensitive and the innumerate, before they do too much damage.

By James E. Barrett

Many leaders of family firms realize they no longer can afford to tolerate marginal performance in executive jobs. These CEOs are determined to meet the higher standards of performance now demanded in a tougher, more unruly marketplace. They realize that advances in information technology, for example, are eliminating protected niches where many family firms traditionally have flourished.

Where do executives in family businesses stumble? The five critical sources of failure are: 1. they are unable to form an effective team; 2. they remain monofunctional; 3. they don’t understand the numbers; 4. they don’t get along with the boss; and 5. they don’t handle hiring and firing well.

 

Team-killing habits

The most common forms of executive behavior that keep teams from forming are divisive conversations, tight control of information, intolerance of strong subordinates or opposing views, and the tendency to kill messengers who deliver unpleasant news. One of the major problems in family firms is that the CEO in particular tends to be unreviewed. The top management team may discuss the leader’s demotivating, team-destroying behavior among themselves, but not with their leader. Nobody wants to bell the cat.

Some people have magnificent natural leadership skills—others seem to be highly motivated to work for them. Just about everyone in general management believes he or she has this ability. In my experience, only about one in four has. The people responsible for appointing managers, whether it’s the board, the chairman, or Dad, have to be sensitive to the qualities needed in a true leader.

What is lacking in most people who mistakenly believe they are leaders are the "soft" or "high-touch" skills. General managers need to have good self-knowledge. They should be measured on their management skills and receive regular feedback on their performance from peers, superiors, and subordinates. Review may be provided by other senior managers with secure power positions, spouses working in the business, respected outside directors or advisers, and employee surveys conducted by outside consultants. Executive peers in industry associations and groups such as The Executive Committee or Young Presidents’ Organization can also provide valuable perspective.

All team-killing habits are visible well before appointment to a senior job. If they have not been dealt with earlier in an executive’s career, the person often must eventually be removed from the job. This may call for the soft landing of a lateral move or promotion to a non-job, or the hard landing of ejection from the company. Many family firms won’t take either step, and leave the failing executive in place to damage the business further.

 

The monofunctional

We frequently hear criticisms of managers such as: "He has the general manager title, but he’s still a salesman at heart." "She’s a great operations person but needs to understand she has other functions, too, now that she’s president." "He always focuses on the numbers, but customers and employees aren’t numbers. His view is too narrow." Such exclamations are signs of monofunctionalism. The charge may not be true in every case, but even the perception that a manager lacks the full quiver of skills needed in his or her position can damage the person’s authority.

People in line for positions in general management should be given responsible assignments in various departments and functions as part of their preparation. The well-managed investor-owned company, with more established processes, often rotates high-potential people among jobs throughout the organization before promoting them to top jobs. Many family firm executives avoid the inconvenience of these changes and get away with it.

Broadening assignments are needed even in smaller family firms with fewer positions in which to test the candidates. When there’s no time to send people on two- or three-year assignments, the second-best option is to give them shorter, intensive projects with measurable results. These can be outside the business if the business is too small to generate them inside.

 

The innumeracy problem

A true understanding of numbers is vital for proper management, and yet I’ve found an especially widespread shortage of this talent in family firms. The top managers of these firms usually understand cash flow, pricing, and many costs, but they are often clueless about capital markets, the economics of the industry they are in, and how to manage their balance sheet. Accrual accounting remains a mystery to many, and some will sign whatever document the tax adviser presents, because they don’t know enough about it themselves and are too embarrassed to ask. "That stuff is only for larger companies," goes a typical refrain.

Repeatedly, I’ve heard outside advisers moan in frustration at this lack of numeracy at the top levels, which in some firms amounts to determined ignorance. Thousands of family firms stagger along for years unable to understand what their accountants, bankers, and consultants are telling them. Eventually, they confront a crisis that confounds them. A large public company in such circumstances replaces the general manager and reports a one-time loss to write off the poor results. The family firm may quickly disappear.

This and the other potential areas of failure should be watched by some outsider who assists with management development. An outside director, company adviser, a non-threatening family member, or a professional consultant may fill the role. When they spot ignorance about business numbers, correcting it should be a mandatory requirement before further promotion is permitted.

 

Disaffection with the boss

The interpersonal difficulties that interfere with a good boss-subordinate relationship are also usually visible well before the executive is given larger managerial responsibilities. Therefore, probing for these should be a standard part of the selection process before an appointment is made.

There are two exceptions to early visibility: First, a person who joins the firm from the outside (perhaps a late-entry family member) may not become aware of the boss’s irritating qualities until he’s worked with him a while. Second, in family situations, marriages change relationships, often in emotional ways that are not foreseen. The boss who becomes displeased with the spouse of a son or daughter in the business will have to work harder to maintain the work relationship. The subordinate who is not thrilled with a newly acquired step-parent, married to one’s direct boss, will have a character-building opportunity in maintaining a good boss-subordinate relationship. In both cases, managing to remain silent and not sullen is a minimal goal.

 

Trouble hiring and firing

Two leading reasons for the failure of senior executives are that they hire the wrong people or fail to remove chronic non-performers. While many family executives confess to being slow to remove people, citing loyalty for long-term service or other cultural values as the cause of their hesitation, few will admit to doing a lousy job of hiring. And when they do, they count only the costs of having an incompetent employee. They don’t understand the concept of opportunity cost—what the company would have gained by having a capable person in the position.

 

James E. Barrett heads the family business practice of Cresheim Consultants in Philadelphia.