Entrepreneurs often complain that their young employees fail to “act like owners.” That phrase sticks in my craw. Not because the boss’ desire is not right, but because the execution is often lacking.
Business owners retain certain powers. They can hire and fire, invest in ideas or cut costs at will. They can accept clients and reject clients. They can make decisions on pricing and incentives. This control is especially prevalent in small closely held businesses, such as most advisory firms.
Ownership also means exposure to higher risks and potentially higher rewards. The simultaneous avoidance of pain and pursuit of pleasure — the risk/reward dichotomy — influences owner behavior in a way that non-owners cannot always appreciate.
Employees who did not create the business may not experience the thrill of victory or the agony of defeat the same way the founders do. They may not understand what it was like to go months without a paycheck. Most likely, they have never grappled with the fear of not meeting payroll.
New people coming into financial services today — at least since 2010 — have experienced only up-markets. In most cases, the demand for their services has prevented lay-offs and wage cuts from touching them. The current talent shortage continues to ensure an abundance of job opportunities. Thus, newcomers are able to achieve forward momentum and rising compensation without experiencing the burdens of their forbears; why should they have to “act” like their long-suffering bosses?
Firm leaders who entered the business pre-crisis often expect their followers to suffer as much as they did. New employees look at the tired faces of their leaders and ask, “Why would I want to do that?” This conviction builds when their positive contributions do not result in real ownership in the business.
Many advisory firms maintain a death grip on equity for fear of dilution or loss of control. They use techniques like phantom stock to give employees a “sense of ownership.” Perhaps this is why their employees act like phantom owners.
Words have meaning. When leaders deploy the phrase “act like an owner,” they suggest that employees feel entitled and stubbornly reject accountability and respect. Many leaders are pre-conditioned to believe that young employees lack a work ethic and only wish to milk the owners of their hard-fought gains. These leaders view employees as a cost to be managed, rather than an investment on which to produce a return. As a result, they actually create a dynamic wherein the young employees work in direct proportion to the (low) expectations and potential rewards. Meanwhile, the leaders continue to seethe.
To change this dynamic, leaders must invest in the development and management of human capital. Most employees will rise to the occasion — if given something to which to rise. Advisory firms need career paths that lay out a natural progression for employees. As an individual’s responsibility increases, so does their level of accountability. As with the risk/reward model for owners, when a person owns more of the job, they also own the outcome.
Creating a dynamic work environment with true alignment between risk management and risk taking begins with at least three key ingredients: