Why the “Bake Off” story might interest CEOs working through, or negotiating, their earn-outs….

bakeoff

…and that’s because, according to the Financial Times, “Mr. McKerrow had an incentive to maximise the deal: together with Anna Beatie, his co-founder of Love, he is said to be on an earn-out deal with revenue targets to reach the full value of the acquisition deal with Sky made in 2014”.

If you were on another planet last week or simply have no interest in TV programmes about cakes, you won’t know that there has been a Brexit-sized kerfuffle about a hugely popular television programme called “Bake Off” which the BBC has lost to Channel 4 who agreed to pay substantially more for it.

The subplot about the earn-out is interesting because it highlights particular leadership behaviour which manifests only during earn-outs. I have advised CEOs on these issues, have observed their behaviour, that of their boards and teams and that of the leaders of the acquiring companies.

Earn-out deals are structured to incentivise the management team of the acquired company, usually across a two or three year period, based on a percentage of profits after “add-backs” i.e. after adding back costs for reasons to do with “fairness”.

Unsurprisingly CEOs and other team members included in the earn-out become obsessed with three things: revenue, costs and add-backs. They tend to focus on short-term performance and not on building capability for the medium-term. Why would they do otherwise?

The purchase price agreed in Sale and Purchase Agreements (SPAs) is based on a stab at the future value far beyond the earn-out term i.e. x times EBITDA or y times revenue or whatever formula is appropriate for the relevant sector. But since CEOs are usually not incentivised to build capability acquirers may be overpaying for the first three years.

If acquirers incentivised CEOs on building capability as well as on performance, then everyone would have a less stressful earn-out; there would fewer rows with co-founders, with the acquiring company and with those team members not incentivised. They might even generate more revenue because everyone feels that they are on the same team.

Would this have led to a different outcome at “Bake Off”? Probably not, since the issues are complex involving a mix of state (BBC), semi-state (Channel 4) and private sector (Love Productions) factors. Nevertheless, no-one can be sure what the outcome might have been had the earn-out package included a medium-term capability building component. But that’s conjecture.

What isn’t conjecture is that, in my experience and from observation, earn-out deals end with some or all parties “in tears” for one reason or another. I suspect that if leaders gave each other permission to behave differently, they could avoid these, and generate more value for all over a longer period.

Ciaran Fenton

September 2016

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What’s holding you back from getting the NED roles you want?

The Seven Deadly Sins of New and Aspiring NEDs – Frightening the CEO

scaring-the-ceo

Few people start their careers, aspiring to be a Non-Executive Director. If you have the drive, the determination and the tenacity – the chances are you’ll have spent your career pushing towards, and achieving CXO status. To do this, you’ll have asserted yourself in some way, perhaps a typical “alpha” male or female. The one who inspires his / her team, drives organisational change and creates an environment in which people thrive.

Naturally then, when the time comes for you to pursue a Non-Executive Director career – you’ll believe that you have what it takes to excel. In many ways you do. You’ve got the strategic mindset – the wealth of experience and no doubt the industry knowledge. So why then, are you not able to “seal the deal” when it comes to securing your chosen NED role?

“The market is saturated” is a common belief. “There’s too many aspiring NEDs and not nearly enough relevant NED opportunities on the market” you might be thinking – and to an extent, that is true. Finding suitable roles feels like trying to find a needle in a haystack. Many of the vacancies advertised are often not interesting enough and those that are, are oversubscribed with applicants.
Worse still, on paper – competing applicants might look as equally qualified for the role as you. What that means – if you get an interview – is that you’ll need to demonstrate, not just that you were an exceptional CXO, but also that you will make an exceptional Non-Executive Director. It’s a completely different way of thinking and, possibly, will go against the grain of the core trait that has enabled your success.

You will have to stop trying to be the smartest person in the room during interviews.

The role of a NED is not to be the assertive leader, but to support that person. Anyone choosing to display so called alpha behaviour during an interview is likely to be seen as a threat rather than an asset. They’re unlikely to be successful, regardless of their experience or skillset.

There’s an art in reassuring the CEO that he or she shouldn’t feel threatened by your experience and your capabilities. ‘Avuncular’ is a perfect word to describe the right attitude to adopt – reassuring, safe, and wise. Leaning forward at an interview and behaving like an aggressive CEO is a common mistake. Avuncular NEDs are much more likely to sit back and be prepared to listen, rather than demand that they are heard first.

If you want to build a NED portfolio you must go through the painful process of deciding on a purpose and strategy appropriate to that goal. This will be different than the strategy you used to become a CXO. One that is no longer about being at the very top of the leadership hierarchy.

To learn more about how to secure Non-Executive Director roles in a crowded marketplace, sign up for one of my upcoming NED workshops.

Ciaran Fenton

September 2016

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#CEOs should not copy Mrs May if micromanagement means micromanagement; she and they might reread #Chilcot and trust more…

Prime Minister May is, allegedly, a micromanager. According to press reports, she alone makes critical decisions, fails to communicate current government policy to the embarrassment of officials, and controls conversations between her ministers and the Press. If true, this behaviour should concern us for three reasons.

First, it’s dangerous. It creates grave risk if she makes the wrong call. Second, it creates an environment in which her team can’t thrive, the opposite of what good leaders should do. Third, it gives a bad example to other leaders, especially CEOs some of whom are looking for every excuse to justify their meddling with their directors.

The risk argument alone should be an incentive for her to consider changing her behaviour. If not convinced then she should reread the Chilcot Report into the decision on invading Iraq which explicitly criticised the “sofa-style” decision-making that led to that decision. I wrote a blog after the publication of the report, aimed at CEOs entitled: Business leaders should heed #Chilcot criticism of “sofa” style decision-making – the dangers of which are self-evident.

Concerning morale, the first responsibility of any leader is to create an environment in which the people who work for and with them can thrive and do their best work. Work satisfaction is impossible if they are not trusted to do the jobs they are paid to do. They justifiably feel controlled and stifled. But to be fair to Mrs May and micromanaging CEOs their intention is not, I suspect, to control others. That’s the collateral damage of an inability to trust. Control is not the primary motivator.

I’ve worked with many CEOs and other leaders, all micromanagers to a greater or lesser degree. But if they could tell the truth, they would say that they are exhausted by their own micromanaging. It eats up their time and saps their energy. But they feel powerless to change, not least because some of their micromanaging behaviour helped them to climb the greasy pole.

But the problem with leadership is that it’s impossible to lead without trusting the people you lead. So how do you learn to trust? Well, a good start would be to acknowledge why you don’t trust people in the first place. Experts tell us that our distrust starts in our formative years. If we were not trusted or allowed to fail as children, it’s unlikely that we will find it easy to trust anyone in adult life.

But if Mrs May, micromanaging CEOs and other leaders were to meddle just ten times less out of every hundred actions, that would be just 10% less micromanaging. That’s small change, I know. But I also know that the impact of small changes is huge. I have case study evidence that small changes in micromanaging behaviour lead to happier and more efficient teams, yielding more time for leaders to focus on leadership and, crucially, to give them time to dig deeper to find their hidden potential. Hidden because they weren’t leading.

Finally, the issue of giving bad example is important. Mrs May is a role model whether she likes it or not. So are CEOs and other leaders. Their underlings watch and copy them. But they too struggle with trust. If you are the top of the tree your distrust is across or down. But if you are a follower you won’t trust upwards if your boss doesn’t trust you. The result is that both leader and follower needs are not met, risks increase and everyone misses their targets.

The trigger for incentivising behavioural change is a belief that you might get your needs met. But if you want your needs met, the first step is to tell someone what you need. However, if you don’t have a track record of being able to negotiate your needs productively, you are unlikely to risk the vulnerability required to ask. This is a vicious circle.

Do we know what Mrs May needs? Has she told anyone? She has told us about actions. Not feelings or needs. When she says “Brexit means Brexit” she means that the vote will be implemented. But she doesn’t say how she feels about making that happen and what she needs to execute it. She must be feeling afraid that she won’t get what she needs if she trusts people. She may be right. She may be wrong. But we all need her to succeed.

So the first step for her and CEOs is to articulate what they need and ask, not force, compliance. They may be pleasantly surprised that if they allow themselves to be vulnerable by risking the clear articulation of requirements that someone might meet them. Vulnerability sends a signal of trust. The greatest leaders show vulnerability. In doing so they may, as one of my former bosses was fond of saying wryly, be in grave danger of success.

Ciaran Fenton

September 2016

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Curriculum vitae and cover letters: an alternative approach

One of the most frequent requests for advice I receive is when CEOs and other leaders are job hunting, applying for roles or have been headhunted. They send me the job specification or headhunter’s mandate along with a draft CV and cover letter. I’ve received scores over the years. They usually make three common mistakes.

First, they assert, rather than demonstrate competence. Second, they forget what a CV is for and try to “gear it”. Third, they almost always undersell themselves. This last mistake is a surprise since my clients are in the main, as Sir Humphrey might say, “not entirely displeased with themselves”. This is a front, and part of the reason they are successful. And indeed why I like working with them.

But taking the third point first, I rarely experience senior leaders over selling in their CVs. That’s not to say that some don’t. It’s just that I don’t work with that type of leader. That said, it never ceases to surprise me the extent to which they will hide their light under a bushel in the first draft of their CV and how they manage to mangle a cover letter.

I use the same editing approach every time. I don’t turn on “tracking changes” because there are usually too many. Not in content but in the presentation. I might add or delete the odd word or sentence, but my purpose is to reveal, not to change. My first step is to delete the dreaded summary paragraph at the beginning of most first draft CVs. Some headhunters recommend these; some don’t.

I advise my clients that the risks of summary paragraphs outweigh, absolutely, the benefits. Unless you write like Tolstoy you won’t get it right. You will end up asserting competence – “strategic…visionary…dynamic…”. Don’t do it. Let the CV speak for itself.

Remember that the Latin words curriculum vitae mean literally “the course of my life”. So just write that, in two pages. Dates – with months, and no gaps. Organisations and job titles with a short list of achievements, one per line. Start each achievement with a verb. Led… launched…developed. That’s it.

But – and I have great sympathy with this – CEOs and other leaders feel vulnerable at these points of inflexion. Worse they are usually hard on themselves. A deadly combination when you are trying to sell yourself. And a CV is a selling document, but it is only an appendix to the cover letter. The cover letter is where the real selling or “gearing” is done.

You can’t “gear” your CV. As we say in Ireland: “It is what it is”. But you can and should gear your cover letter. But most first drafts treat the cover letter with scant respect. That’s because most successful CEOs and leaders don’t often need to sell themselves. They’re out of practice.

The cover should start with obvious: I wish to apply for X role as advertised in Y or advised by Z headhunter. Then it should reprise the top three things the role needs and how, in headline terms, you intend to meet those needs. Then, crucially, a few sentences carefully crafted to demonstrate your unique approach to the role. You are, after all, unique.

So, why not highlight your unique selling proposition in your cover letter? This won’t be about your roles. These are not unique. It will be about how you do what you do, and who you are. That’s your USP. Use it.

In doing so, you will help them choose you. Organisations always choose the least risky, not the best. People who don’t reveal themselves are a risk. Reveal yourself, in a manner which makes you the least risky, and win.

Ciaran Fenton

September 2016

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People, not companies, own their human capital assets and equity in their careers

people

Gary Becker and Jacob Mincer made the term human capital famous. Their intention was to focus on human attributes that can add value. But those who want to attempt the impossible have hijacked their work: to own people. “People are our greatest assets,” they say. They’re not. If they were, the accountants would have gleefully found a way to value them. They haven’t because they can’t.

This is an inconvenient truth for organisations. How wonderful would it be, for some, to slap a barcode on each employee, value them on the asset register and set about sweating the asset? It’s not going to happen. But business is largely in denial about this. It often persists in treating people as mere hires, direct reports, and leavers.

The cost of this denial is high. Businesses spend trillions on human capital asset management (HCM) systems and processes. Even the most evangelical HCM exponents would agree that the return on investment in HCM is often poor. Cynics are scathing and HR, unfairly, takes the rap for what is the CEO’s problem.

CEOs know that they can’t put people on their balance sheets. But if human capital exists – and it does – then who owns it? People own their own human capital assets. I have created a model to help individuals capture and exploit their own human capital value.

career equity

Career Equity is one component of that model (see diagram) which is a function of your Curriculum Vitae, Emotional Intelligence and Reputation. People talk about “shaping their CVs” when they can’t. A CV is a CV. The Latin words curriculum vitae are clear: they mean “the course of my life”. It’s a list of dates, employers, roles, and achievements. Keep “shaping” for the cover letter.

Much has been written about Emotional Intelligence, mostly by Daniel Goleman. My focus is on three aspects. Empathy – your capacity to understand what another person is feeling; self-awareness – your ability to connect with and observe your feelings and finally your ability to negotiate your needs productively.

Your reputation is what it is. You may not like it but you have created it. Over many years as a leadership consultant, I have taken hundreds of references. These are, essentially, reputational statements. I ask five questions: what is s/he good at? What do they enjoy? What is their outstanding behavioural weakness at work? What do you think they should do with their career? How can I help them the small ways? The answers constitute a rough reputation audit.

You can make an assessment now of your career equity. How strong is your CV? How good is your reputation? How emotionally intelligent are you? Taken together, these comprise your career equity now. What will it be in three years time? How can you maximise that outcome? How can you and your employer/customer build a relationship whereby your purpose and theirs is inter-dependent? This is impossible if organisations view you as a capital asset which they own, when they don’t and can’t. Imagine how more successful a CEO you would be if you treated the people who work with you as if they, and not you, owned their own career equity since they do.

Ciaran Fenton

September 2016

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Three reasons why CEOs should heed Marshall Rosenberg’s advice on meeting needs

 

Marshall Rosenberg

Marshall Rosenberg is famous for his work on nonviolent communication. He died in 2015. Commentators have wondered why he wasn’t more famous than he was. Not that he wasn’t famous. His book Nonviolent Communication: A Language of Life is a best seller. He was a renowned international peacemaker and mediator, and he received several awards for his work.

His book does not feature on the main “Best Business Books Ever” lists on Google. His peace-making and mediating were not high profile, nor were the organisations that honoured him with awards. Marshall was clearly not a self-publicist. Perhaps this explains why CEOs don’t quote him as often as they do Jim Collins, Jack Welch or Warren Buffet. Here are three reasons why they should.

First, his advice on getting needs met is invaluable to leaders. He might have been even more famous had he renamed his book  “How to get what you need?” That’s his core message. “If we express our needs, we have a better chance of getting them met”, he says. So what? Unresolved conflict, which is bad for your business, is invariably about unmet needs which are not expressed.

Unresolved conflict within boards, teams and joint ventures abound. They are deeply damaging. I know this from my work with clients. I have developed a simple grid, which I call The Relationship Grid, to help clients track their key relationships. I ask them to “RAG” each relationship on a regular basis. On any given day, each leader I know has at least one “Red”, a few “Ambers” and the rest are “Green”. Getting the Reds and the Ambers to Green is the challenge. Marshall’s advice may help.

Second, CEOs should note his distinction between need and strategy. Needs are about feelings. Strategy is about action. He tells the story of the couple who had given up on their marriage. “I need to get out of this marriage,” the husband said. This statement was a strategy, not a need. Rosenberg advised them to connect with needs they could meet without ending the marriage. The husband needed more appreciation, and the wife more closeness. They arrived at a set of agreements that satisfied their needs.

In business, this scenario is also achievable. I have used this technique on many occasions by facilitating  “soft contracts” between board members. One CEO client was a self-confessed micro manager. One of his directors was a not so self-confessed “shoulder wiper” i.e. he would never take responsibility for mistakes. Consequently, they both wound each other up and the rest of the Board.

The Board needed the CEO to micro-manage less and the “shoulder wiper” to own up more. I facilitated a soft contract between the two, with the rest of the Board as witnesses, to change their behaviour by a minimum of 10%. That is, the CEO would micro-manage ten times less out of every hundred actions and the “shoulder wiper” would “own up” ten times more.

We also legislated for the breach i.e. what would happen if they broke the deal? A simple “call out” process was agreed.  Nothing was written down. I came back after six weeks to review progress.

The CEO reported that he was meddling twenty times less – not just ten (competitive or what?); that his team were happier and that he had more time. All these came as no surprise. What interested me was what he was going to do with the time released from meddling, and we worked on that.

The third reason CEOs should heed Marshall Rosenberg is his views on “freeing ourselves from old programming”. By this, he means our conditioning. The most powerful from our parents. My micro-managing client was intellectually aware that his behaviour came from the fact that he was never allowed to fail as a child. He understood the impact of this conditioning. If you don’t allow children to fail, they will trust no one, least of all themselves. But changing this is easier said than done.

Rosenberg proposes a “literacy of needs” as an antidote to conditioning by becoming, merely, conscious of it. All mindfulness experts agree that this is the first step in behavioural change. Many CEOs behave unconsciously. Once they become aware, something shifts for them.

Then they can articulate their needs. Needs are feelings, not actions. “When Joe Bloggs does not take responsibility for his team, I panic because I (desperately) need to succeed, and I depend on him”. Those are feelings. “I, therefore, micro-manage him.” That’s an action.

But that move doesn’t help Joe Bloggs. In fact, he feels worse.  “When things go wrong, I panic because I need reassurance that I’m not the bad guy, and therefore I blame others”. It was likely that shame dominated his formative years.

Rosenberg’s formula is: “When a, I feel b, because I’m needing c and therefore I would like d.” So, instead of micromanaging him, the CEO could reassure the director that he just needs the problems fixed; his need is not to blame him. In turn, the director could take more ownership knowing that his need not to feel ashamed would be helped by the CEO doing his job: which is to create an environment in which people thrive.

Ciaran Fenton

September 2016

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