‘I wish there were a button’ … that’s a statement that needs some context – doesn’t it? asks David Hammond, the Executive Search Lead at Tribe Leadership Executive Search.
I was at the 2024 LG conference and I know there were many people who wish there could have been an ‘off’ button on the Prime Minister’s opening talk.
Why couldn’t he have started with, “Well done to local government on the way you helped pull communities through Cyclone Gabrielle. You really came through. What we are seeing in Government at the moment is tough times for years ahead, economically. That’s why we are bringing a more direct message to you today that for the good of the economy and our people we are wanting you to focus more heavily on infrastructure priorities for the next few years.” How hard is it to write a speech starting with this sentiment?
However, I listened to the Prime Minister’s speech, and he sounded like a lot of the people I work with across the commercial sector. With this article I want to bring you leadership structure insight from another sector that is also important to our economy – Small to Medium Enterprises (SMEs).
The statement “I wish there were an ‘off’ button!” actually came from an unnamed Government Minister this year when he was talking to a company about founders. There is growing frustration across communities and inside companies about ageing company founders acting as a handbrake to allowing their companies to fly. I work with company founders on the journey of structuring and activating the next phase of their company growth journey.
Our country is an SME paradise. Some 97 percent of our companies are SMEs, which in our small islands in the Pacific means about 546,000 businesses. If you are a founder of a company that has survived the Global Financial Crisis and Covid then we at Tribe Leadership Executive Search salute you and have nothing but respect for the blood, sweat and tears you poured into that company to survive.
The hard lessons coming out of these economic shocks has led founders to be much more risk averse. My dad was a child born in the Depression era, and he didn’t spend a cent. I see this same impact coming through SMEs and their founders today.
A growing theme in my work is strategic advisory to help founders with transition. Usually, the transition is not out of the business – most would stay into their 90s if they could because they love it so much. That’s good and bad. The founders I deal with know that to grow the company and look after loyal staff, they need to change the model that worked for them as a small, small business and add in more structure without losing the values that got them this far.
The founder dilemma is to sell or invest. If they want to sell they may keep costs down to show better net profit and hurt the capabilities of their company. If they invest more for the next stage of growth they worry about the impact of expenditure on their retained earnings and crashing the dividend payout to shareholders. It is a dilemma.
I want to give three areas of Focus in this article in where I help founders’ thinking about transition and talent:
1. Shareholding: Many may find it odd that in a conversation about leadership succession, I would start with shareholding. Companies use shareholding as a retention and succession strategy. Dividends are often a replacement-renumeration for staff who are underpaid compared to their market competitors. Shareholding is usually issued to attract investment and retain top talent. Shareholding is a value that founders consistently internalise to build loyalty in their company amongst staff. My tip is that regarding staff and shareholding, shareholding is the ‘end of the rainbow’. There is (1) market-based remuneration, then (2) bonusing performance on KPI achievement, and then later on (3) an equity conversation for high performers. If the strategy of the company is revolving around the dividend impact, I see a massive handbrake coming onto company growth.
2. Board and Executive: Many Founders are both Managing Director (MD) plus Board Chair. The next stage of growth for the company as it grows in full-time equivalents, national footprint, risk, revenue and expenditure is to restructure leadership. Board and senior leadership teams have very different roles. In my experience ‘Board’ meetings with the founder, MD and perhaps another two senior staff turn into an ‘operations meeting’ which is highly frustrating for staff. The company needs focussed strategic governance. I advocate an Independent Board Chair who is a person that has taken a company through to the next phase of growth already. Shareholders should NOT be on a Board as of right. That leads to weak strategic governance.
3. Future role of the Founder: Should the Founder also be the MD? In many cases, no. The next stage of growth may well require a professional executive team. The next MD has either been nurtured through the company (hopefully) or brought in from outside. There are different professional skills needed of an executive to grow the company to its next stage than are often found in the founder. However, in my view the founder – even if now a minority shareholder – should have a specific Job Description in the company. I develop bespoke ‘founder’ Job Descriptions. At all costs the company should avoid disenfranchising a founder even if they are only a minority shareholder.
Founders I support in strategy are across commercial and non-commercial sectors. I have found that there is an ‘off’ button but that comes after a lot of trust-building in the advice and in the leadership structures I put in-place. Founders are to be treated with utmost respect on this journey. But for those who refuse to do the best by their company and allow it to fly, there is another more direct ‘off’ button that may need to be activated legally after all else is tried. But only then.