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.