EP28 - Breakfast Club - The Importance of Culture for an ESOP

Thank you so much for joining us today. I'm the ESOP guy, and we've been walking through this journey to an ESOP and really working through all kinds of topics and providing what I think is a, a great resource to you in terms of, of helping provide information on employee stock ownership plans. So, if you're a company that's thinking that you might want to use that in your strategy, uh this is the right podcast for you. If you're brand new to the, to the podcast, I wanted to say welcome and thank you for showing up. And if you have an interest in any other podcast episodes, please go to journey to an ESOP.com. Today, I want to stop and just say, happy Fourth of July, America. I'm so excited to have a weekend, a long weekend, um, to enjoy. We've had a crazy year, and it's continually being crazy, I guess, with, um, all the COVID issues that we have. So, um, it's a perfect opportunity to stop and take a deep breath and just enjoy your family. And that's exactly what I'm gonna do. And hopefully not um blow myself up with fireworks and just enjoy, you know, a great time. So, happy Fourth of July. With that, I wanted to kind of say this, this podcast episode, I'm trying to make a little bit more fun in terms of um a little lighter. And so just kind of thinking about that as we go to the next um as we go into the actual episode. I want to start with this. 0706. You have exactly 8 hours and 54 minutes to ponder the error of your ways. Any questions? Yeah. Does Barry Manilow know that you raid his wardrobe? So, if you don't know that movie, I'm sorry, but it's going to be the title of this episode, and it's called Breakfast Club. This is a lesson in business culture. Business culture is fundamental to understanding whether or not your company is a good fit for an ESOP. So whether or not your employees get it, and you know what I mean by that, how do they interact relative to company goals? These are, these and other questions are really essential to understanding how your company might benefit from becoming an ESOP. So, as I, as always, if you like what you hear, please subscribe to the podcast and share it with a friend. It may just help them in their journey to an ESOP. So I wanted to start with this quote, and I don't often use quotes, but I like, I like quotes every once in a while when they really are um relevant to the topic. Culture eats strategy for breakfast. This is a phrase originated by Peter Drucker. You might have heard of him, he's written several business books. Um, it was also made famous by a Mark Fields, Mark Fields, who is the president of Ford. So, um, I use this, we use this statement all the time in our CEO group, our CEO facilitator and our CEO roundtable uses it all the time. So people like me who really love strategy, and if you understand the Strength Finders, um, which is a, a program that helps kind of understand your personality and how you, what your strengths and talents are, um, I'm, I'm my I'm more of a strategic um person anyways. So, when I, when I see this statement about culture, I realize the value of people's strengths when they become, when they're very relationship oriented, um, and how they can really be influencers of people, and how important that is to an organization. We're gonna talk a little bit about that as we go through this, but I wanna start with this, um, uh, with the title. And so, the Breakfast Club, one of my all-time favorite movies growing up. And it has a cast of teenagers that get stuck in school on a Saturday because they all got a detention. Now, when I was in school, um, I got detentions too, but we usually had to stay like after school. We didn't usually have to go in on Saturday. Um, but this is like an eight-hour detention, so it's an all-day deal. They all did something bad. Um, in this group of people, they're all from, so there's 5 kids and they're all from different factions of their school. There's a, there's a nerd, a jock, a bad kid, a good girl, and a mentally troubled girl as well. So, all of them are kind of the the extreme stereotype of those types of personalities. So they're thrown together in the library and they're guarded by the principal and who started off our podcast with um them saying, hey, you, you will see the errors of your ways, you know, as you sit here in the library and rot away. And so that all day long, They get into all kinds of trouble. Um, but because they always are working together, um, they end up figuring out how to get out of the trouble, um, that they get in. And so really what this does, this movie speaks to this idea of culture and how blending of different types of personalities actually makes an organization stronger. And the movie is interesting because it works. These are very extreme. Um, types of people, as I said, the personalities. But what happens is they find this common ground, um, they find common goals and they connect into um really solid relationships with one another. And so really, I don't have this is in a movie um review podcast, but I probably should do one. but I, I would recommend this movie um for those people that haven't seen it or if you want to just watch it because you're nostalgic about being growing up in the 80s, um over the weekend, if you're looking for something to do. But moving on to the episode, let's talk about a little bit about the business and as we run businesses and what, how this really ties together. So, most people that have run a company or manage people, they know, they know that that they manage people and everyone is different. That's why I brought up that Strengthinder. uh Strength Finders really helps us to see that everybody has different strengths in an organization. And so, in order to create a culture, what you really have to do is be inclusive of how do you actually um draw those strengths together and not exclude people because certain types of people, especially people that have a very strong influence. Um, usually are the ones that you're hearing the most in your organization and the people that are quieter are people that you're probably not hearing. But it's very important that you try to draw all people into a place in your organization that they can participate and contribute. And that's really what Strength Finder um does. If you haven't ever looked at it, Google that and look at it. We've used it in our firm for years and um it helps us to understand that, that we all, we are all significantly different people. And so we all have this challenge of as we manage people, of blending those personalities together, blending the different strengths together. Sometimes when we start the process of hiring somebody in our organization, we will start off giving them what we call like a, a personality test. Um, some people use a tool called predictive index, if you go into that. And those, those types of things help us to try to figure out whether or not this person that we're looking to hire is a good fit for the job that we're hiring for, for them. But it also might also give us information on whether or not they're a good fit for our company culture. And company culture as we start to define it is very difficult to put to pin down because it's very fluid. It's always changing. Um, it's always changing because the people that you have in your organization are coming in and coming out. Um, it will definitely reflect the leadership of your company and as your leadership changes, your culture is going to change as well. And when it changes, as it changes, the, the idea is that you have to, as simply as I could say it, you have to continually look for a healthy company culture, um, versus an unhealthy company culture. And why is it so important to an ESOP as they draw it back to the, to the main focus? Well, the truth is that the power of an ESOP is that really does strengthen an already good or healthy culture for a business to become even more successful. The ESOP is an added benefit and really is not the sole solution to a bad culture. So, You know, one of the steps of feasibility is to, is to ask these kind of questions about what your company culture is, and I think there might be a misnomer when it comes to, well, if I do an ESOP, I'm going to have a stronger company culture, um, because people are now going to have this this sense of ownership. I think there's all truth in that. But the problem is, is if your culture is bad and you throw in an added benefit to the employees, it's really not gonna help your culture. Because you're not adding anything to the culture unless you connect the dots for your people and start changing the way you do things in terms of communicating, solving problems, building consensus. The ESOP is an enhancement to a culture. It's not the solution. And so I think that's important and it is not the catch-all um thing to actually elevate your culture. So, When I think about my own story, and it's, and it's a strange, I guess, weird story because I'm um a managing partner of a CPA firm, um, yet I'm not an, um, I'm not a CPA. So when, when I, when I look at my role, I'm definitely outside of the box of, of people in my organization that you would think, hey, that person's gonna fit into this organization perfectly. Um, obviously, the name of a CPA firm is saying, hey, this company is going to be filled with CPAs. For me to come into the firm, become a partner, become managing partner is a very unusual um career track. I've often had people at conferences give me really weird looks because I go to CPA conferences. And that, that doesn't mean CPAs are weird, but anyway, so they give me weird looks because they look at, um, you know, my position and they say, well, that's weird, how could you be the managing partner of the CPA firm? And I think partly is, it kind of demonstrates what we've seen not just within CPA firms, but it demonstrates that a lot of organizations have a high need for homogeneous folks that can be just like them. So when they're Interviewing for positions from a cultural standpoint, they're somewhat cautioned to try to bring people in that have a lot of different backgrounds and different culture. But when you think about this movie that we're talking about, it's just kind of the opposite. Um, when you're bringing in, if you are able to blend in personalities that are different with talents that are different, your organization with a healthy culture will be way stronger because those will, will offset one another. And if your, if your organization is truly more homogeneous, everybody's the same kind of personality and the same kind of skill set, then you're not gonna have, you're not gonna be able to check and balance yourself and you're gonna have, um, you know, issues related to that. So as a potential ESOP company with an existing culture, you know, dealing with the reality of Peter Drucker's statement is really essential, culture is strategy for breakfast. And so, my first piece of advice here. is to stop thinking that you know what your culture is as a leader, and start asking the right questions. So, I'll give you a little bit of a uh uh uh an opportunity or an idea behind this in employee meetings, um, one of the best ways I've seen this done within our organization and other organizations is really for the CEO. Who should be, um, as a CEO should be really connected to um his or her people. And in this situation, what you're, what the CEO should do is do a cultural meeting where they're able to remove the, the boundaries and remove, you know, as much as possible the um that layer of management that people are, are afraid to kind of talk about. Um, so you, you really do have your, your core group of staff that are with you in this, in this meeting. And in this cultural session, what the CEO will do is really have an honest discussion and tee up this opportunity for everybody to participate and have a voice. And in this, the CEO would be really asking the question, um, not what he or she thinks the culture is, but what do you think the culture is? And so then at that point, um, the people, um, maybe there's one brave person, there usually is at least one brave person that's going to speak up, and they're going to start giving you adjectives about what the culture is. At that point, the CEO's job is to write down those words as keywords to just start describing the culture to the group of people, um, because the culture again, is not what you think it is, it's what people think and how they live. And so there may be things In that session that come up that I would say are very important to deal with and talk through. And it could be as many positive things that you want to hear. Um, your culture is honest, your culture is, um, hardworking, your culture has is rewarding, um, as many of those positives that you might hear, you also might hear some negatives, and I, and then the encouragement I would have for you is that if, as you hear the negatives, those are going to be um the highest potential for you as the business owner, as the CEO, as the leader to walk through the door of the real questions behind those key words, those key adjectives, because ultimately what you're trying to do is not just define your culture with the group, you're actually trying to establish and build a culture in this setting. So if they say something like, Well, you know, you're, you're, you're saying your culture is open and transparent, but they're saying that it is actually closed and the leadership really holds back on the employees. Now you have an opportunity to really address that and ask the real hard questions for yourself and for your leadership team, and then build on that. And I think the promise in that session is that you are, you listen and you care for them and you really want this to be the right culture. And be prepared to, um, and to do something about it. Obviously, don't, don't start that and, and not be prepared to follow it through. And so sometimes when you do hear something that's negative and you don't agree, you're just gonna have to check your emotions in at the front desk and, and, and discipline yourself to listen and ask deeper questions. And that will give your employees a place to voice their concerns, which I think by itself is part of a healthy culture. And so, as you do that, I think you're gonna see people really want to participate more and more in the, in the business and become more engaged. Now, when we talk about culture, we're also gonna talk about engagement. So, one of the things that we, we have done, and I know other, other companies do this is to do an engagement survey. And so, this is just a tool to help build and provide a stronger culture. When you um when you're asking these questions in an engagement survey, you really are doing the same thing as I just talked about, but you're doing that for the entire organization and you're doing it to track the score that you get from an engagement standpoint. So if your engagement score is a 1 to 55 being strongest, and you're getting into 2s and 3s or 1 to 2s, then you know you have a fundamental problem in your business. Recently downloaded this survey published in the Minneapolis Tribune, and it had multiple questions and I like this and we're gonna, we're looking at changing our survey as we speak. Um, I like these questions. And I'll give you a few of them just to talk about it and then think about like what you might want to do in your organization. What I'm gonna do is I'll take these questions if you have an interest in them, but I'll post them on my website journey to an ESOP.com so you can literally take these and use these if you think this will be helpful for you. So, the first are like statement questions, so this company enables me to work at my full potential. I feel genuinely appreciated at this company, my job makes me feel like I'm part of something meaningful. I feel well informed about information decisions at this company. So just getting a general idea of, of how they are actually perceiving the experience at your company. The second set of questions is about alignment. So, am I aligned with the organization? I believe this company is going in the right direction. This company operates by strong values. Meetings at this company make good use of my time. There is a good interdepartmental cooperation at this company, so just is the organization aligned. The third grouping is effectiveness is, are the senior managers and do they understand what's really happening at this company or the leadership group? This company encourages different points of view. Um, at this company, we do things efficiently and well. New ideas are encouraged at this company. The next are basics. I get formal training in my career, so just kind of what is the job training about. Um, the, the next one really is really interesting and it's, it's a brave question for the leaders. I have confidence in the leader of this company. So that's really putting the CEO on um the, the survey and putting their, um, whether or not they're actually um being perceived like they think they are. And then the final is just talking about the manager, um, which I think is, is just as important as the main leader of the company, but my manager cares about my concerns, helps me learn and grow, makes it easier to do my job. So, with that, um, just thinking about those, I will again download those or upload those into the website so you can have those. Um The, the next things are just talking about the things that as you look at the engagement side, other aspects of culture that are important. So your culture philosophy as it relates to your core values need to be clearly mapped out and documented. Um, cultural events need to be, um, very, uh, I would say strategic, but not, not really strategic. They need to be intentional. And what I mean by that is, is you need to have, um, Building in that cultural, social event, you know, what is it that your company is trying to pro you know, promote. If you're a company that promotes family values, for instance, and you're not having any type of family get get-togethers, there's probably a, a disconnect, right? Um, in this, you can do cultural rewards, awards, spot bonuses, things that motivate and and enhance and incentivize your actual culture. So as you, as you prepare your company for an ESOP, it's really vital that you stop and ask these hard questions about culture. What is your company culture? And some tips from the National Center of Employee Ownership and an article they published um on creating a winning culture for an ESOP include the following, and I'll just talk a little bit about each one of them. So providing a financially meaningful ownership stake, enough to be an important part of employees' financial security. Um, this could be obviously in the form of the ESOP, right? So the whole point of the ESOP is to connect the dots from a financial reward platform, which also has this, this inherent long term. Um, opportunity for the employee to benefit. And so that would be one way. Um, there are other ways to connect financial rewards, um, in an ESOP and some of that could be using a stock appreciation rights program for your key managers which would typically be set up at the front end of the ESOP. And um other things might be your, your normal profit sharing or things that you do for bonuses. Uh, the second thing would be to provide ownership education that teaches people how the company makes money and their role in making that happen. One of the things that we can't do in, in, in certainly in business leadership is assume that people really understand the nuts and bolts of running a business and connect the dots. Now even though some, some of those are kind of basic and say, well, of course, we shouldn't have Um, more rework on a job, we're gonna have more costs. But a lot of times people don't understand the impact of those decisions and so helping train people, um, in ownership thinking is a critical aspect of creating a winning culture. And one of the ways I've heard it done, and I, and I have a client who actually practices this is in the great game of business, um, which is an open book management philosophy and Um, this philosophy basically says, hey, let's tell the, the business, the employees everything, and they'll, they'll learn everything about the financials so they know where they are at all times. Um, and I'm just saying that that might be an option, um, you know, some companies are way more comfortable with a closed book system. Um, I'm not recommending either. I think you have to know what your culture is, and it's gonna be a reflection of the philosophy, the values, um, of the leadership group. As long as you're genuine about those values, then it's gonna come across genuine with your people. And I think that's, that's a key ingredient of culture is authenticity at the top. So don't, don't throw something in people's laps, that's not something that you truly believe in yourself. Um, always know that you would want that for yourself if you're gonna, if you're gonna put it out there for him. And then secondly, don't keep throwing out new things all the time. I did suffer that a long time ago when I was managing partner and I always come up with a new, new idea. Um, it gets confusing and you create inconsistency and lack of trust. Along the same lines as you build ownership thinking, you're gonna also want to share performance data and so that people understand not only what they're looking at, but they can understand where their goals are and how they're accomplishing those goals. So if they're Um, if they're responsible for sales, or if they're responsible for efficiencies, um, collections, whatever it is, give them the data that they need to be trackable now. Um, there are definitely some great tools, but building scorecards is a very key element of any real successful business that's creating business processes. And we often go to a book called Traction which has a, a good model for creating those scorecards. So if you're interested in, in that book, I would definitely Google that and look deeper in it. Um, creating scorecards can be very difficult, but it's truly important um to actually not only track the KPI, the key performance indicators, but also the activity measures that go into that KPI. More importantly, making sure there's accountability relative to the activity metrics. So as you train people in ownership thinking, you're also gonna train them in this idea of business literacy, um, so really understanding the financial side of the equation. So revenue and expenses and, and how that adds up and, and sometimes we can get in this place where we just think everybody should understand it, but the reality is not everybody is going to. Um, building employee involvement is really not just allowing employees to contribute ideas and information, but really making part, making it part of their everyday work through teams feedback, opportunities. And so, so when you're building a culture and you're in a, again, it's just obvious to say a team is going to always be better than than one individual. But sometimes it's really a struggle for people, for businesses to work in team settings. So, um, it just depends on the type of business that they are. But the encouragement here is to try to use team formats as much as possible because um you're creating uh relationship bonds between people and you're getting a better solution when you blend those types of personalities together in terms of your culture. So creating a high engagement culture, obviously is, is the point of all the things I just talked about. Um, as a business owner, I always kind of look, look at this as, as a way for me to um really sleep at night better and, and not to think about the business as much as I, I would have if I had to do everything myself. When I know people are so engaged at work, they're taking care of it, they're compelled to take care of it. It gives me more of a quality of life, if anything, um, of course, I think it strengthens the, the valuation and it strengthens the Um, the profits and everything else from a financial standpoint. But ultimately, I think it gives you a higher quality of life. And as a company moves into this place of becoming an ESOP, I think it's critical, um, that they, they focus on this type of culture. And so, as we think about the Breakfast Club, um, you know, it really ends with this um connection between these kids that were strangers when they came in and now they're, they're friends at the end. And so with that, He had to sacrifice the whole Saturday in detention for whatever it was we did wrong. But we think you're crazy to make us write an essay telling you who we think we are. And you see us as you want to see us. In the simplest terms, the most convenient definitions. Of what we found out. is that each one of us is a brain. And an athlete and a basket case, a princess, and a criminal. Does that answer your question? So cool. So we are all different things and we, as we blend together, we become so much stronger in an organization. So, with that, I want you all to have a wonderful Fourth of July, enjoy yourselves and um if you like this podcast, please share it with a friend and subscribe, and we will look forward to our next episode.