As the financial advisory profession evolves into real businesses, more and more advisors are hiring chief executive officers or chief operating officers to run their practices. However, we find that most of these practitioners wind up regretting their decision to hire a CEO or COO.
Why are they disappointed? In our consulting work with such firms on their organization and compensation plans after they've become disillusioned with their executive experience, we've discovered some common complaints, most of which have to do with the executive himself:
o We're paying too much for what the chief provides.
o He won't handle details.
o He won't address the big, strategic questions.
o He has poor people skills.
o We can't get the reports we want and need from him.
o He has no sense of urgency or how to set priorities in his management.
o His answer for everything is to hire more staff.
o He can't deal with conflicts or other difficult situations.
o He wants to renegotiate his contract.
o He says we're not clear in what we want from him.
It is not uncommon to hear all these complaints about the same person. Therefore, it is not surprising to see how the CEO does not fulfill the expectations of the owner.
But it goes beyond unfilled expectations. In reality, the owners may have made mistakes in the hiring decision in the first place. The most common mistakes we see in hiring for a leadership position are:
1. Failure to clearly define the roles and expectations of the individual.
2. Failure to hire to the right level and then failing to establish measurable criteria for evaluating the executive's performance.
3. Failure to deal with the individual in a constructive way when he makes mistakes.
4. Hiring an individual based on a bias toward resumes showing advanced degrees and big-company experience.
5. Failure to interview properly to get real insight into the individual's makeup.
6. Failure to test for aptitude, motivation, interests, and personality.
7. Failure to tie compensation to expectations or market performance.
Link Hiring to Strategy
Every practice management decision has to be tied back to your overall strategy. If you do not have clarity of vision, you are operating in a vacuum. The consequence will be multiple false starts and thousands of wasted dollars.
For example, if your vision is to grow your practice to three times its current size in the next five years, you will want to recruit leaders who have experience with rapidly growing businesses. Furthermore, you want to reward those leaders for helping you achieve certain benchmarks in your growth.
Defining the Job
Most financial advisory practices are small businesses whose physical spaces and culture are too small to be consumed by issues like titles and size of offices. Yet many still perceive that you need to have a bona fide CEO at the helm of a practice before it can be regarded as a business.
In the book Navigating Change, by Donald Hambrick, David Nadler, and Michael Tushman (Harvard Business School Press, 1998) the authors argue that effective and successful CEOs share three broad personality traits.
They are: Envisioning.
Successful CEOs share an ability to articulate and communicate a vision of the organization that captures the imagination of the people they lead.
Energizing. Effective CEOs energize their people by constantly and publicly demonstrating their own sense of personal excitement and total engagement. They consistently convey a sense of absolute confidence in the organization's ability to achieve the most challenging goals.
Enabling. Effective CEOs find realistic ways to give people the confidence, authority, and resources they need to work toward their shared objectives.If you examine these traits, you begin to realize that either these are the functions you personally are supposed to perform as the leader of the business, or that you have to have the self-confidence to vest your new leader with this authority. More importantly, you have to decide if what you are looking for is a general manager and not a CEO.
How to Hire
Many hires within financial advisory practices occur because the owner stumbles on somebody who has become available. This mistake happens at all levels. Rather than thinking about how to build their practice to help achieve their goals, these owners react to perceived opportunities because the resume is so impressive.
The process should be more deliberate, and should start by posing these questions:
o What are the responsibilities that I want to delegate?
o Where are the leadership gaps that are impeding my progress?
o What level of revenue must I generate to support this new position?
o How will I know I'm successful if I hire right, or if I hire wrong?
o What characteristics in an executive am I looking for that will improve my practice?
o What job experiences or education should this potential CEO or COO have for this role?
With this framework, practitioners will be able to be more thoughtful about what position they are trying to fill, and what their expectations will be.
What's Their Motivation?
There are some legal limitations on the use of personality tools in the hiring process, especially if they are regarded as discriminatory in any form. There are literally hundreds of psychometric tools available, however, the results of which can provide useful insight and information into how individuals will perform their job functions.
Whatever tools or techniques you use, it is essential to evaluate the candidate's aptitude, motivations and interests, and his or her personality.
It is not so important to hire the most intelligent person, but it is important to hire people who have an aptitude or ability to quickly learn in the areas you want them to be strong. In particular, you want to evaluate their general abilities and their facility with numbers, words, or concepts. Any single one of these skills may be more important than the other.
In addition to evaluating their aptitude, it is important to evaluate what motivates the candidates--people, data, or things. In other words, do they tend to be more social or more attached to their computer? Are they hands-on or hands-off managers?
Finally, it is important to evaluate the candidate's personality to ensure it fits your benchmark for the position and that he or she is compatible with the culture you are trying to create. Some critical personality criteria to consider are:
Self-reliance. Are they collaborators or independent? Are they submissive or assertive?
Process orientation. Are they innovative or orderly and predictable? Reactive or organized?
Work style. Are they analytical and self-sufficient? Or are they group-oriented and outgoing?
Social skills. Can they easily handle constructive criticism, or do they overreact? Do they have passion, or are they dullards? Are they frank?
Most leadership positions require a blending of these attributes. But before hiring, one should establish a benchmark of the optimal characteristics for that specific job.
Managers or Leaders?
It is important to distinguish between those who are merely managers and those who are true leaders when hiring for top positions. With managers, it is usually important to consider specific skills that will help that individual implement and manage certain tasks. But leaders must possess other attributes. They must be:
Team Oriented. They must be able to identify differences in others and capitalize on varied perspectives.
Competent. They must be knowledgeable in core areas and have had success in managing transitions.
Sensitive. Leaders must be aware of others, and communicate at levels appropriate to the listener.
Centered. They must be comfortable with themselves but remain open to the ideas of others.
Values-Driven. They must demonstrate the motivation to provide a service and have a positive impact.
Comfortable With Change. They must demonstrate the ability to handle change, yet attain closure, and be able to measure progress throughout the process.
Flexible Influencers. Leaders must be able to vary the way they influence others based on an evaluation of the specific dynamics of the situation.
Adaptable. They must be able to demonstrate versatility based upon situations and individuals.
Ethical. Leaders must make difficult decisions based upon principle, and should have a reputation for honesty and candor.
Analytical. They must be able to gather information and organize it in usable ways; see relationships; be aware of cause/effect, and have the proven ability to predict outcomes.
If running a business were so easy, everyone would be doing it. But if the typical planner applied the same rigorous thought process to building a business through effective hiring as she does to selecting and serving clients, that planner would realize greater success and avoid much heartache.