Recently, I read an article in The Seattle Times about how each successive generation of parents has become more permissive in rearing their children. One observation I’ve often made about my contemporaries, especially those raised in more authoritarian households, is their desire to be friends first and parents second. They would proudly boast about the warm and fuzzy relationship they have with their children, qualities absent in the relationship they had with their own parents, while in the same breath whine about how incorrigible their kids had become.

I couldn’t help but reflect on how many practitioners have applied this same theory to managing and leading their staffs. In an ideal world, you would have created an environment in which motivated people manage themselves, but the reality is that most employees need some structure, focus, and reinforcement at least some of the time.

The downside of growing your advisory business is that you have to manage other people. Some financial advisors are more predisposed to this role than others and are able to follow their instincts. But I don’t know of a single business owner who has never struggled with the challenge of managing difficult people.

If you’ve ever worked for somebody else, you should start by asking yourself, “Have I ever been mismanaged?” There’s a high probability the answer will be yes. Sometime in your career, you worked for someone who did not appreciate or respect you, or pay you appropriately. Assuming your perception about this past experience is correct, have you ever thought about how you lead your own people or applied the lessons about bad management that you learned from your experiences? As with parenting, as managers we often apply approaches that we ourselves were subjected to (rather than thinking about what worked and what didn’t), which causes those we are supervising to rebel.

As you reflect back on the days when you worked for somebody else, try to remember the conversations you had with co-workers. Think about the after-work pub crawls where your antipathy towards your employer grew increasingly passionate in proportion to the pints you consumed. Recall the lunches when all your co-workers engaged in a whine-fest. Remember the times you challenged your bosses and threatened to quit. Try to determine how much of your complaint was due to immaturity or the result of your own insecurity, and how much was valid and could have been fixed by a more effective manager.

Before you think this is just another article that blames the parent or the boss, it’s important to acknowledge that you could have jerks working for you and there may be nothing you can do about it except to kick them out. But learning to recognize what is troubling your staff and relating better to them may help you to deal more effectively with those folks whom you regard as “difficult people.”

In our consulting work with financial services firms on organization, staffing, and strategic issues, we delve into the human dynamics of the business. We’ve found some common reasons for discontent that can be solved by getting a firm’s strategy and structure back into alignment, and by helping these businesses improve their internal communications. In other cases, we find that it helps to define a career path so that people can focus on a goal instead of their immediate circumstances.

Sometimes, however, we find there is an employee or partner who single-handedly sucks the energy and enthusiasm right out of the practice. These are people who are not happy unless they are unhappy. They are carriers of a potentially virulent disease that I call “staff rot.” It is your obligation as a leader to assess whether a person is a chronic problem, or if his attitude is justified and fixable.

When I look back at my biggest management mistakes, I realize I did not deal with these types of people quickly enough. Such individuals have the uncanny ability to make you feel like their problems are your fault. Our tendency is to accommodate them, acknowledge their pain, and throw money at them in hopes we can be redeemed in their eyes. But appeasement does not usually work when you are dealing with people who are immature, insecure, and a moving target for what ails them.

The time to confront them is now, or at least as soon as possible. If they suffer in silence, or triangulate the complaint by venting to others, the situation gets closer to being hopeless, so it’s time to act.

That said, it is important that you not automatically turn all blame back to the employees. Many of the complaints we hear in interviews of advisory firm staff are legitimate, and more an issue of poor management than bad employees. It is important to be introspective before you react.

A study published in 2001 by McKenzie & Co. found that within any company, about 15% of the workforce at every level–management included–is non-performing, i.e., not meeting critical success initiatives. Imagine what you could do by knocking 15% off your payroll. The prospect of adding 15% to the bottom line, reinvesting it, or redirecting it to those who are top performers can certainly catch anyone’s attention. We have helped many firms reconfigure their human capital equation through the Strategy of the five B’s (buy, build, borrow, bounce, and bind). We use a series of tools such as profile benchmarking, interviewing, organizational surveying and auditing, and plan redesign to help our clients reconfigure their human capital to maximize results and profits. Here are some steps you can take to tap this windfall:

o If you do not have a formal evaluation process, start one. Formal appraisals give you a foundation for counseling the staff member. We recommend that you employ downstream evaluations in which you appraise your staff; upstream evaluations in which they evaluate you; and self evaluations in which they assess themselves. In an ideal world and if your practice is big enough, you might also use peer evaluations to elicit constructive ideas on what co-workers or fellow partners observe about performance and behavior. It is important that you counsel those doing the evaluations to be candid and constructive, and that you protect them against recrimination or punishment. Taking these evaluations seriously is essential to this process: make an appraisal of folk’s evaluations one criterion for advancement and reward.

o Listen and respond to the employee; do not react. If the employee’s point is valid, you should acknowledge and deal with it. If you do not feel you can be responsive to the employee, then be forthright about the reason. If the problem is a perpetual thorn in the employee’s paw, then explore other solutions. If it’s a nuisance issue, you can deal with it. But if the problem is too great for the employee to overcome, and is affecting his or her morale, then encourage him to seek work elsewhere. Before you take such an extreme step, however, be sure you are clear in your mind whether the employee is the problem, or you are.

We recently faced a good example of this. Some years ago, an employee of an advisory firm felt that the owner had encouraged him to do something unethical. In hindsight, it was difficult to determine whether the employee’s perception was accurate, because the communication was loose and subject to interpretation. But in any event, the owner never again made such a request.

Over the following two years, whenever a conflict arose or this employee became overwhelmed, he would bring up the issue by saying, “…and this is why I’m not sure I can keep working here.” The issue defined the relationship between employee and employer and caused the boss to look for ways to appease this person through money, extra attention, time off, a new title, and so on. Obviously, the employee had found the right button to push and the reactions of the boss encouraged him to continue with this strategy. Situations like this become a distraction and are manipulative. Whether valid or not, if such an affront could not be buried after two years, it is unlikely it will ever be resolved.

There is a practical model to resolve differences between people and help steer behavior back on track to exceptional performance or send them out the door. It works best when the following five steps are deployed. We call this the DESCO Model (not to be confused with Disco):

o Describe the specific observed behavior that you want to discuss.

o Express your feelings, reactions, and concerns about the behavior.

o Suggest an alternative behavior or set of behaviors.

o State the consequences.

o Offer support to help the person move up or move out.

You should consider using psychometric tests such as Profiles! or Kolbe to determine whether the individual is matched to the right job. We always encourage that such assessments be conducted during the hiring process because they provide tremendous insight into whether individuals have the motivation, personality, interests, and ability to perform certain work. But we also find it to be a powerful means of understanding what makes people tick. For example, your employee may have been hired for a highly technical position and was judged qualified by his experience and education. But if the results of the psychometric tests suggest the candidate cannot sustain a long-term interest in such detailed or complex work, then he will burn out like a supernova. The employee himself may recognize that he no longer can fulfill your expectations. Rather than owning up to this, he may lash out at you as being the reason he’s foundering.

As with parenting, there isn’t much practical training to be a boss until you’re on the job and in the line of fire. But good advisors tend to be intuitive people, so applying these techniques to staff may help you to get to the root cause of the issue. That said, don’t overindulge employees who won’t conform to the culture you are trying to build. Ultimately, it is up to employees to act their age. If they are unable to respond positively to constructive solutions that are within the framework of your business purpose and expectations, it may be best to cut your losses and find people who will. As Winston Churchill said, “graveyards are filled with indispensable people.”

Mark Tibergien is a nationally recognized specialist in practice management for financial services firms, and partner-in-charge of the Securities & Insurance Niche for Moss Adams LLP, the 10th largest CPA firm in the U.S. He can be reached at mark.tibergien@mossadams.com.