EP24 - IRON MAN - Dealing with Difficult Leadership Decisions for your ESOP

Thank you so much for joining us today. I am the ESOP guy and we have been working through this podcast called Journey to an ESOP. The podcast was designed as a resource really to help those that are thinking that they might want to convert their businesses to an employee stock ownership plan. And the resource is really created because we know that there's a lot of information out there on ESOPs, but there's, uh, it is trying to really kind of clear the air and, and look at issues and topics that might be really helpful if you're listening and you're, and you're interested in those topics, and this topic doesn't hit what you're thinking, go to journey to an ESOP.com. There are multiple episodes, there's interviews with different Um, ESOP professionals, and I think you'll find a lot of varying topics that might be things that you are looking for. So if you're continuing on this journey to an ESOP with us, thank you so much again for, for tuning in. Um, before I started today, I wanted to kind of do a quick shout out to my son, who is, his name is Riley Hayes. He is the one that wrote the intro and the outro music for the podcast. He is a 17 year old, um, budding musician, and he's writing another piece of music for me down the road here. So we're kind of keeping that in the family and it's been exciting to work with him. The title of this episode today is called Iron Man Dealing with Difficult Leaders. The whole point of this podcast is going to be really address one of the, I think one of the central issues that all businesses face. And or have faced in building their business from the standpoint of, of strength and sustainability. I believe it's paramount for companies when when they want to go to an ESOP because without good leadership in the current period and the future period, uh, the business will inevitably flounder. So enhancing the leadership of your business is really part is really the focus of what this episode is gonna be about. So again, if you like what you hear, please subscribe to the podcast. It is absolutely free, and it might be really helpful to you, uh, or someone you know. So please share it with a friend as well. Leaders are made. They're not born. They are made by hard effort, which is the price which all of us must pay to achieve any goal that is worth while. Vince Lombardi. In the very first movie of the Iron Man series, which is made by the Marvel, uh, Marvel Comics, the scene is epic. Iron Man, who is Tony Stark, is a famous billionaire playboy who finally figures out what he wants to do when he grows up after being blown up and held hostage in a cave. After he escapes through the genius of creating an Iron Man, his very first Iron Man suit with pretty much just a blowtorch, he decides to shut down the weapon manufacturing division of his global company. Well, here comes the leadership problem because his second in command, Obadia Stein, is a freaky, power hungry guy who decides to file an injunction against Tony behind his back, but worse than that, he decides to try to kill Tony. So the whole thing ends with this, this really cool battle between the Ironman and, and his second in command. And I was thinking as I watched it, I'm like, well, you should have just fired the guy a long time ago. But he, but that wouldn't have made a really good movie, so this was a very good movie, by the way. Leadership issues are difficult to pinpoint and frankly, there are people that really in your organization that do a great job. And Suddenly they start to get promoted and, and you don't realize how bad it is until they, they, they start to have influence over your organization. So the problem that we get into is understanding your, who's a good leader, who's not a good leader, and that's, and that's really kind of a basic idea. So I know it's a lot more complicated than that. Um, we've seen clients go through major downturns given issues related to, to the folks at the top. So, Looking at one of the, one of the central themes of, of going back and saying, what's wrong with the business. Sometimes it's the leadership group and, and that's probably some of the hardest issues that you can deal with as a business because it's hard to really identify when you have people you've been working with for so many years and it just becomes these leadership issues. So the problem I want to identify here is assessing the true nature of your leadership group. So, as I mentioned a little bit, leaders are often promoted. Based upon their job and technical skills, not on their leadership potential. So, for example, if, if a guy or a lady is very good at sales and they're, they're excelling at sales, but that's a very external job. They're great with clients and prospects and they're getting tons and tons of new work. But because of that performance, they've been promoted and promoted and promoted. Eventually, that person is going to have um people that they're going to manage. So they're going to start to have some internal influence over your organization. Supervisors and managers often don't receive formal ongoing training on how to be a good supervisor and lead others. So that's another aspect of it. They don't recognize that the skills that made them successful as a worker are the skills that will make them fail as a leader. The day they become a leader and their their accountability really changes 180 degrees. They were no longer evaluate on what they do personally, but on the success of the people reporting to them. So that's kind of that switch over when we talk about this, we're talking about managerial switches, but we're also talking about um the leadership idea like you're switching from um being a self-contained performance employee who does a lot of really good things, but then they they transition into Um, really influencing the culture, the growth, the other employees and, and have a, um, you know, a significant influence over the business in general. So the issue I have come across in our business and really others is how performance on the job equals promotion and eventually influences the organization. So for those that are bottom line people, as they start to talk about this issue, I know that it's a little bit of a warm and fuzzy and it's a softer issue, but let me bring it back to the bottom line where a bad leader has too much influence. It will absolutely affect your, your profitability of your company and it's gonna be in, in different forms. It's gonna be in lost client revenue, lost customer revenue, um, it's gonna be in lost employees and the turnover that creates more training costs, uh, more, um, work, work, uh, rework, more all, all kinds of things when you have new employees coming into the organization. Um, it may be damaging your reputation and your business as well and you won't, you won't, you won't know that. Um, unless you're really looking at those aspects of it, um, the company will inevitably lose its momentum as it struggles with, you know, even leadership quarrels in your, in your management group. And so culturally, that will erode. So kind of to be very specific about um these issues, um, we're gonna see things that are gonna affect your profitability, so you're gonna see decreased profitability. You're gonna see um reduction in productivity as well. Um, with increases in turnover, you're gonna have a lot more inefficiencies in your business. Employees, um, will quit, but they won't leave, which means you're gonna have a, a group of employees that will become unengaged or disengaged. Um, these are invisible issues sometimes unless you're really investigating them, investigating those on an ongoing basis. You're gonna see uh more safety issues, um, increased accidents. You're gonna have Um, wasted time and, and opportunities, you might even have departmental conflicts. So these are just a few things that would be, what I'd say are bottom line effects of having um a leadership issues in your business. When you start evaluating your, your, um, specific signs for a specific leader who you think might have issues, you're going to look for these types of signs, and this is just, uh, I guess an assessment of, you know, things that are probably obvious in some ways, but they're also very important to be thinking about. Um, sometimes we don't always see every angle of things, but certainly issues like the leader shows communication problems. They're not really good at communicating all of the information. Maybe they hold on information, maybe they're not necessarily, uh, in your organization you really highly value the teamwork approach and they're not really communicating at the at the team level. Um, they may not communicate downward either and and their people might be pretty confused by, by what is expected of them. There may, they may be instigating conflict in the organization. So when you get out of a meeting, you're like, we're always disagreeing on things. It's OK to have um healthy disagreement, but when it's always, you know, a problem or, or heavy conflict, um, that might be a sign. Um, they were resistant to change. Some leaders just won't say, you know, they, they'll challenge everything, but they'll never actually um sign off on the change that you might need to make. And every business is going to have to make changes as we As we know, the economy is always changing, our customers are always changing, our employees are always changing, everything's changing, so. They, they may demonstrate real signs of, of low employee morale, um, that will be demonstrated in just their attitude, maybe their attitude is pretty bad and they, uh, they, they demonstrate a a sourness or, um, just to, you know, a lot of people in our organization are just happy people and we like doing what we do, we like working with each other. So in our organization, you're going to stick out like a sore thumb if you're, if you're coming to work like that with that kind of attitude. They're gonna, they're gonna, some people are just not going to take the responsibility that they should, or there's just a real clear lack of follow-up and um accountability and, and it's usually those people that are also blaming others. So some of that is very obvious, but other times, and I, and I think I made, you know, this list too. I just wanted to kind of point out that you always have to be looking for these things and they're. They're not necessarily at all from a metric standpoint, they're more qualitative, they're not quantitative. And I think that's really important because sometimes when we're managing businesses, we, we are, of course, reviewing financial data to make sure we're on track and the qualitative issues sometimes don't obviously come out of the financial data until it's later down the road. So there's this concept of a lag period. Now, I'll say that as we get into that, we assess that we have as a business organization. And I hope you're not one, but when you assess this, you're like, yeah, we have a leadership issue. Um, my, my first thing from a general standpoint is to say, you know, leadership decisions are some of the most difficult to make. But at the same time, they will have the greatest impact on your business. So if you, if you don't make them, they're going to have a great negative impact. But when you do make them, they have a really positive impact. And you're going to see an impact in your business from both a short and a long term standpoint. And so I think there's, there's things in business when you start talking about what will really move the dime or what will really, really affect my business. This is one of those things I think um that are so significant. And in my career, I've seen. The leadership changes that we've made have been the most significant changes we've made in our organization that have impacted um not just the profitability of our business, but also the, the strength and the sustainability of the business as well. Now, when you're busy with growth, now this is interesting from a timing standpoint because we're, we're coming out of the COVID thing hit us really hard as a business industry or as an economy, um, but prior to COVID, everybody was so busy with growth. When that's happening, it's really difficult sometimes to really weed out. I'm just gonna go ahead and call these bad leaders, um, for lack of a better terminology, but just like the uh Obadiah and the Iron Man, these are just bad leaders. They don't belong in your organization, but sometimes they're difficult to weed out. Um, in that example, of course, Iron Man was busy, you know, going all over the world and, and, um, selling defense weapons and, you know, he was too busy to see that he really had a problem in his leadership group. So, as a CEO, it's difficult too to be aware, um, what is happening throughout the entire organization. I mean, you, you are really res you know, people are, are reporting to you or you're looking at reports. It's really hard as your business grows and has um a lot more layers, it's difficult to always see these things coming up the pike. So you do have to rely as a cultural leader group to determine to continually assess issues with leadership throughout your organization. When you do discover an issue with a bad leader, or someone who just is not aligned with your business culture and values. So I'm kind of, you know, when I talk about bad leader, I mean, literally, it's not something that's bad and per se, they may fit perfect in another organization, but I think the key is, is they don't fit your culture as a business. They don't fit your values, and that sticks out and that will have a long term impact. So when you do find them there, um, they may be good at something else that you're that within your organization, but maybe not that specific um leadership position when that comes to, to a head, a lot of times if they're really performing well, they're not gonna want to step down into a different role. So, um, I know that this, this is also true with this issue with some, sometimes it's difficult to manage and deal with it with a bad leadership issue because you're The temptation is, especially if they're doing a pretty good job in other areas, but they're not really fitting within your culture, is to try to mentor them into a position or, you know, help them through this leadership issue that they have. And I, and then that's a real difficult thing to judge and everybody has to make that decision, um. And I think it starts with what is a significant breach of your culture and your values. If it's, yeah, they could be a better team player, but, or if it's, no, they're way off the mark. They're just, there's no way that they fit within the organization. So you have to really gauge the, the, the breach of where they, they stack up in terms of your, of your culture. So if they're off a little bit, obviously mentoring always would be a good idea. Um, my experience is that the, they're, they're not, if it's not just a little tweak here and there, then it's not going to likely work and there's a very low probability that you're going to be able to, to bring them back in the organization and, and have them be successful. So I'd mentioned in a previous podcast entitled We the People, which was all about cultivating talent. That it is very good to use assessment tools to document um the qualitative measures of your employees. And I, and I was noting and borrowed this from Gino Wickham with a book that he that he wrote called Traction. And the concept of this is, do they get it? Do they have it, and do they want it? And so the idea behind that is, when it comes to those three questions, if one of them is a no, Then the predictive area here is that they're, they're most likely not gonna fit within your organization. And that comes back to the degree of that now, and I, and I, and I think I would key in on the main question is do they have it? And that means as a leader, do they have the, not just the skill set to do the job, but do they have the, the, the cultural values that align well with your organization? are their core values in alignment with your organization. If they don't have those things, and that's a strong no, then the answer to me and to you would be obvious that we need to make a change in that position because it's not going to work. And as I said, the tendency is to um try to make it work. But the 11 truth of this is, uh, is, it's, it's in my experience and I think it's in a lot of other um Business owners' experience is that the longer you let that go on and advance in the organization, the more costly it will be for your company. So, you are much better off going through and really identifying that those specific issues with the leaders early on and not let that grow into something much bigger. So to illustrate this issue, I would just kind of finish with this idea that uh from a case study, we have recently experienced a company that had made a very strategic addition to their business. They took on some heavy payroll to work out this position, um, because they believed in the position itself, and they were trying to like really work it out. They had an opportunity in the business market to really grow that part of their business. So it was a, it was partly a strategic decision to bring on this key manager. Um, in order to, um, really strengthen that part of the business and grow that portion of the business. So the person that came in had a very strong work ethic, a very hard worker, but at the end of the day, they were, um, Not able to um work within the constraints of the company's cultural values because those kept, they kept coming out over and over again within, um, in, within meetings and mentoring meetings and that kind of thing. So, ultimately, um, this led to the only decision that could be made, which is uh transition that, that key person out and and bring a, a new key person in. Um, that takes a lot of time and it takes a lot of energy. Um, but in the end, it is the best thing that the business could have done to, um, to strengthen and keep their business in intact. And again, it's very, it's a very difficult decision too because you have to um stop everything that's happening and work out the, uh, the next steps. So as a final note, I just say successful companies embrace leadership development, where they internally train the leaders of tomorrow. So as your organization grows and you start identifying the need for leadership, you have to also as the leadership management, you have to also embrace the idea that sometimes as Vince Lombardi said, business leaders, are made and they are, they are trained and they're the people that really want it, but they have to be trained and I would strongly encourage you business to have some type of ongoing leadership training program. Some people, some companies do that internally. Some send their leaders off um to external training. And so either one, I think is important, but you have to continually invest in this very important asset, um, which ultimately will yield your business if you come back to the, to some of the practical aspects of this, they will, this will yield a higher valuation for your company. Um, and ultimately, if we come back to the concept of the ESOP, it will make a more successful ESOP company. If you're looking at this prior to an ESOP transaction, Um, certainly, those are two, there are two aspects of it. If you're a company that's, that's already in ESOP, um, I would just say, of course, you wanna have this ongoing, um, potential, you know, improvement in leadership just to continue the sustainability and the, and the strength of your ESOP. So at the end of it, I would just say, Let's finish with the Iron Man movie again. One of the most favorite parts of the movie is at the very end, and he's supposed to lie to the reporters, but he, but he looks up and he, and he says the truth is, I am Iron Man. Thanks again for joining us today at the, for this podcast episode. And please, if you like it, please share it with a friend and subscribe, and we will see you next time. Thank you.