Certified with Gazelles International Rick has generated results in the millions of dollars for his clients using Four Decisions TM tools like the One Page Strategic Plan, the Rockefeller Habits checklist, the Power of One and many others.
Rick provides Strategic Planning and executive coaching services for executives who are ready to drive positive organizational change. Rick serves his clients from Calgary and coaches across Western Canada.
equal ownership shares to pay themselves the same amount of salary. Although perhaps a well-intentioned attempt to be fair, it’ s never fair to all partners as invariably, one has a greater impact on the business than the others. The fair thing to do is to treat partners as employees and benchmark each partner’ s salary to those performing a comparable role in an external company. You can adjust the salaries annually according to the partner’ s performance in the role, just like you would with any employee.
The principle is that when you are in a management or leadership role, you get paid a salary for the results you produce. When you’ re an owner, you’ ll receive a dividend based on what you own. The two shouldn’ t be confused but often are. Also, paying market-level salaries has the additional benefit of removing an all-toocommon financial distortion from your results. Many owners pay themselves a below-market salary which only distorts the reality of their business. With a market-level salary, you’ ll be better able to interpret and use your financials for good decision making.
ISSUE: CONFUSING ORGANISATIONAL STRUCTURE. Often the partners share roles or, even worse, reverse roles on an ad hoc basis. This leads to employee confusion over who the boss is and whether a partner who is not officially the boss must be consulted or listened to when the partner voices an opinion. It’ s hard to be an effective employee when your boss has trained you to do things a specific way and a minority partner who is normally not involved in your work weighs in with a differing opinion. If this is the issue, the solution is to have clear functional accountability, understood by both partners and employees, that clarifies who is in charge of what function. Each partner must accept that ownership doesn’ t entitle the partner to a vote on every management decision. Partners need to wear their ownership hat the same way shareholders of public companies do. Their job is to measure management’ s effectiveness and work to support and enhance it or, if necessary, have management removed following proper governance procedures.
ISSUE: POOR DECISION MAKING. Frequently the partners haven’ t mapped out how decisions will be made amongst
“ Partners need to wear their ownership hat the same way shareholders of public companies do.”
themselves. This is often a source of frustration for employees, particularly when there is no managing partner who is empowered to lead the firm dayto-day on behalf of the partners. An unclear decision-making process slows things to a crawl and looks like gridlock at the operational level as everyone stands around waiting for a decision. It disempowers employees. Top performers won’ t accept it for long.
The solution is to clarify functional leaders’ decision-making authority with the goal of developing them and delegating increasingly important decisions to them.
Doing this will leave only partnership decisions at issue; these can be dealt with at regular directors’ meetings.
ISSUE: ATTITUDE OF ENTITLEMENT This arises from a partner’ s attitude of“ I’ m an owner, therefore, I no longer have to work hard and I can’ t be fired.” I’ ve found this attitude to be very prevalent, and it’ s certainly very damaging. It hurts the credibility of the leadership team and undermines those who are working hard at trying to build the success of the company. It leads to lower personal effort and more inequality between owners and non-owners. I believe minority owners must hold themselves to a higher standard than others. They must model the culture and the work ethic of the company. To avoid experiencing this issue, the partners need to agree on the culture they want and agree to be held accountable for being a role model to such a culture.
ISSUE: DIVERGING GOALS At a certain point in time, owners’ interests always seem to diverge. Sometimes some have enough money and become risk averse while others want to keep growing the business. Sometimes there’ s an age gap and those close to retirement are opposed to reinvesting in the growth of the business that younger partners want to pursue. The theory of loss aversion is alive and well in companies, and success seems to create more caution. Clearly the solution to diverging goals is to plan for it as a certainty. Professional advisors like lawyers and accountants recommend entering a partnership only when there’ s a clear method of dissolving it or allowing for the fair exit of each partner. A good shareholder’ s agreement will contain this method and is an extremely important document for all partners. u
SPRING 2017 | 9