Winning: The Answers: Confronting 74 of the Toughest Questions in Business Today (17 page)

B
efore we wrote
Winning
, we would typically answer questions about privately held enterprises with a pass. We believed that such companies, often characterized by complex family relationships and absence of conventional “due process,” were out of our area of expertise. But since the book’s publication, we’ve been delighted to discover just how useful
Winning
has been to many private companies, and we’ve started to spend more time with their owners and managers. Yes, private companies have their own unique set of issues. But as the following (short) section of this book shows, they share one goal with the corporate world, and sometimes with even more passion: to create a better company for the next generation.

F
irst things first. You don’t necessarily need a succession plan. You want one.

And for that matter, your father—superb leader that he is—may very well have a plan. He’s just not telling you.

Either way, you’re getting a taste of what it feels like to work at a regular old public company, where succession plans are usually tightly held information until quite late in the game. And yet somehow, those companies still manage to move forward from one CEO to the next, and their executives manage to plan for their kids’ futures. With less information, they just end up having to use their judgment.

Yes, life would be easier for you, and for
all
CEO candidates, if they knew more about the future earlier. But we can think of at least three reasons why it so rarely happens that way.

First, people develop at different rates. A possible successor who starts in a blaze of glory might fade over time, and a slow starter might take off. A CEO needs several years at least to see candidates in many jobs and differing economic environments before making a final call.

Second, making a succession announcement too early can throw a company into disarray if there aren’t backup plans to replace the talent that inevitably leaves when a new CEO is picked. Such plans take time to put in place.

Finally, if a CEO is doing a terrific job and enjoying himself—like your dad, by the way—he has no interest in becoming a premature lame duck.

We suggest, then, that you give your father the benefit of the doubt. According to details of your letter that we didn’t print at your request, he’s quite a man. Your family business is in a brutally competitive industry, but he’s led it with insight and skill for decades, and it’s thriving. He’s built a deep management team and is respected by all. Surely he isn’t being a fool about succession. He has a reason you should wait, and if he is the leader he seems to be, you’ll understand why in due time.

N
ot to be difficult here, but where the heck were you during the hiring process for this job?

We ask because it seems a little late for you to be discovering the kind of information that should be part of everyone’s due diligence when considering employment at a family-owned company. Information like: how many cousins want your next promotion, and whether it is fatal—or merely dangerous—to disagree with the CEO’s next of kin.

Now, we’re not implying that people should avoid working in family-owned companies. These organizations, which make up a significant part of the economy, offer some of the best jobs in business.

But when you decide to work at a family-owned company, you have to realize you are accepting a special deal. And every deal has trade-offs.

With this one, the upside is real. Family-owned companies give you a level of collegiality and informality rarely found in corporate environments, with cultures that are, at their best, personal and warm. Employees can come to feel like family members, not numbers, and managers (like you, for instance) often have direct access to the shareholders and decision makers. You can really feel like you’re in the game.

The downside is real too, as you are discovering. Because when you join a family-owned business, especially a small or medium-size one, you very often give up the adjudication process, for lack of a better term, that “enforces” fairness at professionally run organizations. That’s not saying that public companies don’t have their share of arbitrary or bullying bosses, or that they are devoid of favoritism. But the checks and balances at most public companies, such as employee satisfaction surveys and the “higher authority” of HR, do go a long way in giving employees a sense that there is a way for them to be heard during conflicts.

The only way to handle the absence of adjudication at family companies is to be prepared. Even if things are going well, employees should always have an exit strategy. And if you are considering joining a family company as a CEO, or even as a high-level manager, don’t make a move unless you negotiate a severance package up front.

But what about your case? You don’t seem to have a contract, and you say you don’t want to quit. That means your only choice is, well, to adjust. You have to figure out the best way to work with the CEO’s wife. Forget her educational credentials, or lack thereof—she’s still your boss. So, slow down your desire to make changes or speak out, and give her a chance to get to know you—and trust you.

Yes, proper due diligence during the hiring process might have raised red flags, and perhaps you could have avoided the mess you’re in. But it’s too late for that now. The nepotism you’re encountering is part of the family-owned deal.

Enjoy its benefits while they last.

C
ongratulations…and congratulations. The first for the deal itself—you and your top team probably did pretty well cashing out, and you should feel great about the financial rewards of building a company that the market loved.

The second congratulations is for realizing that, even though everything might look the same going forward, nothing will be. You’ve been acquired. You and your people now work for someone else. And even if that someone else likes you very much, it will have its own way of doing things. HR will have a new way of appraising people. Finance will have a new way of formatting the numbers. And so on; there will be new processes, policies, and procedures galore.

And so, to answer your question, the quickest and most appropriate way for you to adjust is: buy in. You don’t have to stifle yourself. But your energy about change should be positive and any criticisms constructive. No “but we used to…” and “it was better in the old days” moaning and groaning. Very bluntly, you gave that “right” away with the cash-out.

We realize that being acquired is one of the most traumatic upheavals a company can live through. For you personally, money may have taken any sting out. But if you want your people and organization to thrive, as clearly you do, then your message has to be simple. The past is over—embrace the new.

U
nlikely. Your problem is too big and time is too short. Instead, you need to accept that you have reached a moment of truth in the evolution of many start-up and family-run ventures. A unique technology or product, plus passion and momentum, can take you only so far. Now you need help—from the outside.

Don’t panic. Get out there and find a star CEO. Yes, that step can be anathema for owners and entrepreneurs in your situation, but it usually hurts only at the beginning, as you hammer out new roles and relationships. After that, it can be all upside, as outsiders, with their experience and hunger for change, find the route to the growth that has eluded you.

And you, incidentally, are in a particularly fortunate position. The star you need could come from your own industry. Big Pharma is having its own growth problems. And because of that, there are lots of talented executives who would likely jump at the chance to transform a floundering family-operated biotech company.

Of course, to attract such a change agent, you will need to give something up. You and your father, for instance, may have to let go of daily operations, hiring, and strategic planning. You will also have to let go of some equity. You simply cannot reel in a great outside CEO without giving him or her a piece of the action. The good news is, if your new star does the job well, you all win, financially and otherwise, as the company grows and thrives.

Yes, letting go can be scary. But there’s really nothing to fear, since you and your father will retain majority control of the company. Just be sure to use that control judiciously.

Remember, you hired the star not to obey you—but to save you!

W
inning
could not have been published at a more fraught moment in the life cycle of world business. The technology bubble had burst, sapping enormous confidence from the system; the emergence of terrorism had introduced a new and seemingly intractable shakiness to the markets; and corporate scandals were in high gear. After more than a decade of exuberant go-go-go for business, suddenly there was a widespread sense of no-no-no. No growth, no certainty, no pride.

The last of these—the contention that business is inherently bad—has always struck us the most off base and, indeed, even the most dangerous to the future of a healthy society.

In this final set of answers, we explain why.

N
o—but we have to be careful going forward.

Look, there can be no denying that in 2001, two major events significantly impacted the U.S. business environment. First, the well-publicized spate of corporate scandals that began to unfold that year led to the eventual passage of the Sarbanes-Oxley Act, with its new legion of constrictive financial reporting requirements and correspondingly severe penalties. SOX, as the act is commonly called, cast a real chill on risk taking. And while its requirements affected every company, small entrepreneurial ventures, with their limited staffs and tight cash flow, certainly felt its additional costs the most.

Second, there was 9/11, which sparked tough new immigration rules. While completely understandable, those rules happened to affect a visa provision called H-1B, which makes it harder for skilled foreign workers, i.e., future entrepreneurs, to stay in the United States after they complete their education.

Both SOX and H-1B had unintended consequences that could have really weakened American entrepreneurship. But they haven’t. Here’s why.

Take SOX to start. Without doubt, SOX was necessary. Investors desperately needed to see that the U.S. government was committed to keeping American business clean and fair. SOX did that, and that was great. But any law that passes the U.S. Senate by a vote of 99–0
has
to be excessive—and SOX was.

Already, however, we have begun to see the most constrictive black-and-white strictures of SOX give way to good judgment by regulators. The SEC has very thoughtfully reevaluated and revised sections of SOX. Normalcy and equilibrium are creeping back into the system.

As for the new immigration laws, the picture isn’t yet so positive. In 2004, in fact, the U.S. government cut the number of H-1B aliens permitted into the country by two-thirds—from 195,000 to 65,000—although the cost of sponsoring such aliens was reduced for employers. During our recent visits to dozens of American business schools, we heard about the difficulties wrought by this rule again and again, and not just from the young people themselves, but from the professors who want to help them achieve their dreams of building businesses in America.

That said, SOX is a good example of how a much-needed but overreaching law in the U.S. system can be modified to reflect marketplace realities, and it’s likely the same will happen in regard to immigration. America was built in large part on the brains, heart, and sweat of newcomers, and it must continue to benefit from the future’s best and brightest flowing through its doors from every corner of the world.

But even if the return to more open immigration rules is slow, America still has three huge competitive advantages in the global marketplace.

First, its government and its people are ardently pro-business. They believe in capitalism, and every aspect of the political system bolsters that belief. Taxes, while significant, are not onerous. Calls for protectionist measures are beaten down in favor of free-trade initiatives.

Second, the U.S. culture celebrates entrepreneurs.

Some of its biggest heroes include great inventors from Thomas Edison and Henry Ford to Bill Gates and Michael Dell. And there is absolutely no shame in telling people—including your parents—“I’m starting a business in the garage.” In fact, it is more likely to cause envy or awe than dismay.

Third and finally, the United States has vast capital markets and the ingenuity to use them to build great enterprises. Europe, Japan, and Latin America lag far behind the United States in the capital or desire, or both, to pour resources into the venture funds that galvanize start-ups in every industry. Likewise, they lack the proliferation of private equity firms you find in the United States, with their penchant for turning business laggards into fiercely competitive organizations.

In the United States, good ideas and the entrepreneurs who spawn them don’t go begging. Instead, they get pursued to the point that there is often more money than good ideas to invest it in.

Very simply, it’s an entrepreneur’s playground in America, and even excessive knee-jerk regulation cannot take the fun, energy, power—or spirit—out of it.