How a poor hiring decision can destroy stakeholder value
Have you ever been in a position where you wondered how your boss got the job? What about your colleagues, you the know the ones who do nothing all day and yet they have their boss wrapped around their little finger? You might say that’s just office politics, but is it really?
Making the wrong hiring decision destroys stakeholder value. You might notice I use the word, stakeholder value, not shareholder value. In addition to shareholders who receive dividends from their investment, employees, customers, suppliers and the local community all have a vested interest in ensuring a business succeeds.
Recruiting talent and making great hiring decision is critical to the success of any business. The normal recruitment practice is to advertise a role, make a short list of candidates, interview a select few and then decide on the preferred candidate. The candidate is then referenced checked and the preferred candidate offered the role.
Sounds good on paper, but does it really work?
Here’s an example.
The fish rots from the head
A CEO nails the recruitment process. He is charming, ….. what the recruitment team and board are unaware of is, what he says he can do, and what he actually can do, are two completely different things. On paper, he looks great and he made a good first impression at interview.
The organization is excited with their recruit. The board feel comfortable that this dynamic young man will bring about significant organizational, cultural and generational change in the workplace. After all, some employees have been there for 30 years and in a competitive business environment, they just haven’t adapted to the changing needs of business.
Young, energetic and ready to hit the ground running, he doesn’t have the experience to fill the role. That doesn’t matter, he got the role anyway. Only 30 years old, 12 years in the army in no way reflects the experience needed to manage a $30-million-dollar business with over 350 employees let alone lead change throughout the organization.
First day on the job, puffed up and having landed this very important role, he begins to assert himself without any respect for the experience and intellectual capital that exists within his senior team. It soon becomes apparent his leadership style is singular, autocratic, do as I say – now! This is what served him previously which was fine when in the military where subordinates must do as they are told.
Not willing to learn, his ego gets in the way. He won’t acknowledge there are people in the organization who are more experienced and more qualified than he is. This challenges his ego. He begins to assert his authority based on his title not his ability. He now rarely consults his senior leadership team.
He meets with the senior leadership team and gives them the document, “Here is the new strategic plan and our vision and values” he postures. He didn’t understand that exemplary leaders involve their people in such high-level planning without which, there is no buy-in. He had no experience with developing strategic plans in a commercial environment. He had no idea of how to create shared values or how to consistently communicate a vision that a workforce would aspire to achieve.
As the months go by, he brings in one of his best mates into the organization. He begins to rely on his expertise to help restructure the organization. The problem is, his mate also comes from the same background. Neither of them have change management experience in a commercial environment and together they began to attack the structure. This happened without tapping into the experience and intellectual capital of his leadership team. The only people consulted were lower level staff he could cajole and manipulate to get what he wanted. No one dare challenge him.
His mate is now elevated to a more senior position (not on merit) and the CEO begins to surround himself with others who become yes people. Slowly the experience and intellectual property of the organization is eroded as good people begin to leave or were forced out.
The organization really begins to struggle. Sales had steadily declined since he became CEO. Employee turnover is high. Employees are demoralized and service levels suffer. The board began to get nervous and the CEO knows it. It’s time to move on while his ‘public’ reputation is still intact.
The CEO moved onto to another organization as now he had a better story to sell to recruiters. One that demonstrated how he brought about significant organizational, cultural and generational change omitting the fact that the change management strategy did not work and his leadership skills were abysmal. His new CV looks good and again he nails the interview process. He’s appointed to a new CEO role where the pattern would repeat itself.
Metaphorically speaking, the fish rots from the head. If the leader is inept, the rest of the organization follows suit as performance begins to deteriorate.
Poor leadership was at the root of systemic failure
Sadly, this is a true story. Obviously, names have been omitted to protect the good people who worked for that organization.
No doubt you also have many stories of your own about toxic leaders, incompetent managers and poorly run businesses. You may have even worked for some are or are still working for one.
In his book “Working with Monsters”, Dr John Clarke describes such leaders as organizational psychopath’s. They are individuals who manipulate their way through life. They are self-centred, ruthless and cunning. They are also glib and superficially charming. It’s their ability to charm their way through the interview process that lands them the job.
The problem was with this CEO, as charming as he was throughout the interview process, he was totally inept as a leader. WHY? Because the recruitment process was flawed, they appointed him on personality not on proven skills sets and experience.
How was he recruited?
The recruitment process in this case was fundamentally flawed. The candidate had a great resume (helped of course by a professional resume writer) and he charmed his way through a single interview. The interview panel consisted of three men interviewing a male candidate. The head of the panel was a man’s man therefore this ex-military type appealed to him. The panel failed to conduct second interviews and they also failed to enlist any psychometric or other recruitment tools to assess personality traits or skills. They also failed to thoroughly reference check him and his resume for accuracy.
The appointment was made on personality – he seemed like a great guy at interview.
It’s easy to base a recruitment decision on personality alone or your gut feeling and think that person has what it takes to do the job. If you want to make great hires, you need to delve deeper into the candidate than just personality or first impressions.
Within the first few months of his appointment, the CEO managed to get offside with most his senior leadership team along other senior managers. As an autocratic leader, he didn’t engage or communicate with those more experienced and those more qualified. He didn’t understand the value of creating a shared vision nor did he engage his senior executives in creating the strategic plan. It was very much a case of – here’s the strategic plan, the vision and company values, make it work.
The restructure failed as the CEO had zero experience in change management. There was no change management plan and many employees were left in limbo with managers to report to.
The problem with his approach, was a complete lack of buy-in from the senior leadership team. They didn’t appreciate being shut down in meetings, kept out of decision making or dictated to by an autocratic leader. Their enthusiasm and creativity was stymied and they found themselves resenting their boss.
When the upper echelon of an organization doesn’t buy into the appointed leader’s vision or strategic plan, the senior leadership team will never be committed to organizational goals. If they are not committed, their teams will not be committed either. What develops is a culture of resistance or apathy leading to a fractured and demotivated workforce.
When a workforce is not committed, productively suffers, as does customer service. Employees become disgruntled, good people leave, the mediocre stay begrudgingly. Sales drop off and profitability suffers.
According to a variety of sources including Harvard Business School, Gallup and The Carnegie Foundation, organizations with an engaged workforce consistently outperform those organizations whose workers do not feel an emotional connection in the workplace. The major contributing factor in the level of employee engagement comes down to the style and quality of leadership. In recent years, great organizations put far more emphasis on developing individual leadership skills for this reason.
How did this destroy stakeholder value?
In the scenario above, the wider stakeholder group was the community at large. Being a small town with a population of around 80,000, this company was the largest employer in town and other businesses in the town depended on their output.
Long serving employees became disgruntled and only did what they had to. They were afraid to speak up for fear of losing their job. Being a small town, there weren’t the same opportunities available so it wasn’t easy to leave with families to support and mortgages to pay. This meant employees who didn’t have to courage to resign stuck it out. Their commitment and morale was at an all-time low.
As sales declined, employees were let go, suppliers suffered as did the other local businesses in the community who needed the services this organization offered. It wasn’t just the shareholders who were effected, the other stakeholders were affected as well, all because of a poor hiring decision.
Unfortunately, this type of leadership is all too common because the CEO sold himself in an interview without having the requisite knowledge, experience or leadership skills to run a business in a commercial environment.
The qualities that make great leaders and managers
When you think about leaders you have worked for, both good and bad, there are certain qualities that contribute to great leadership. Knowledge and expertise is a given but this is not what makes them great leaders. It’s their ability to relate to others and make them feel valued that counts.
The traits to look for when recruiting senior leaders are:
- A positive demeanor and attitude
- The ability to communicate effectively
- Interpersonal and relationship skills
- Honesty and integrity
- Confidence in themselves
- A healthy ego
- A good cultural fit
How do you measure this?
Certainly not with a single interview.
Develop a robust recruitment process
One of the most important things you can do when recruiting senior managers is to conduct a thorough interview process, conduct second interviews, and include some kind of formal assessment of potential leadership skills outside the interview process itself. Also consider conducting a 360 degree evaluation of each candidate and be sure to conduct thorough reference checks. In the case of senior executives or CEOs, ask for referees from their direct reports to uncover their true leadership style.
On a final note
When you make good hiring decisions you automatically improve shareholder and stakeholder value
In a nutshell
- The fish rots from the head. Those is leadership positions make or break an organization.
- Poor leadership leads to a poor culture where good people leave and those who stay do so reluctantly.
- Poor leadership brings about systemic failure.
- A committed workforce outperforms organizations where workers don’t feel valued.
- Hire on attitude – fire on attitude.
- When recruiting high level employees, ensure they have the requisite leadership skills for the job. Ensure they are thoroughly reference checked.