A Simple, Novel and Practical Decision Tool
Authors: Tim Emmitt, Bill Stranberg, and Greg Simsa
Summary
Recruiting into a family or closely held business often presents unique challenges. Many default to a permanent hire, and ignore or fail to understand that other – sometimes better – options exist.
In this article we help answer the question: Is a permanent hire the best solution for our current circumstances?
In addition to the “permanent hire” option, we make the case for at least considering three other options: interim, fractional and consulting. We also provide a simple, practical decision tool for evaluating all options.
The Executive Recruiter’s Default
From our experience, most recruiters will automatically suggest the permanent hire option. This approach is often driven by their business model, which primarily revolves around placing permanent resources. This is one application of Abraham Maslow’s law: “If you only have a hammer, everything looks like a nail.”
Family (and closely held) companies tend to have remarkably long-tenured executives – regardless of whether the individual is a family member or non-family executive (NFE). Indeed, NFEs often work with the same family for a sizable portion of their career. As a result, family businesses often lack experience recruiting external C-suite executives. This inexperience, coupled with infrequent turnover, makes organizations vulnerable – and creates risks that must be addressed before making a permanent hire. Hiring a C-suite executive without a plan to mitigate risks can work out– but is like driving fast without a seat belt.
The Pitfalls of the Permanent Hire Solution
Acquiring executive talent is often a complex and challenging endeavor. Leaders often fail to evaluate all the options, resulting in the risk of sub-optimal results, including:
Poor cultural fit: Public and PE companies operate in a fundamentally unique way, and usually have quite distinct cultures, priorities and goals compared to family-owned companies
Severance costs: Exiting an employment contract with an executive can come at a prohibitive cost – hence the often-cited quote: “hire slow, fire fast”
Poor resource allocation: Hiring a full-time permanent executive when a fractional or part-time employee would suffice results in unnecessary expenditures
Lack of clarity: Poorly defined roles and/or ambiguous decision authority lead to regular conflict
Alternatives to Permanent Hires
Rather than defaulting to a permanent hire solution, we suggest at least considering three alternative options:
Interim
Fractional
Consulting: Advice/Coach/Mentor
The tool below can be used to guide decision-makers as they evaluate their options.
The main considerations presented in the decision matrix are:
Ownership Alignment: When ownership is not aligned, it can be very difficult to recruit or retain a permanent executive. An interim or fractional solution can allow time to resolve conflicts. At times, the interim or fractional leader will collaborate with a consultant with the right skills to help resolve conflicts, creating a more stable environment where a permanent candidate can be more successful.
Known Gap / Pain Point: In the case where talent needs and gaps are not well known, it can be smart to hire a consultant who specializes in executive leadership to help clarify needs, timing, constraints, goals, and performance measures. In the case where the gaps are known and understood, any of the options can be considered.
Example: The 30-year tenured corporate controller of a $40m revenue agriculture business is planning their retirement. In preparation for transition, the family first worked with an experienced, fractional CFO to assess whether upgrading the financial function to CFO would benefit the business. Once the family saw the value, they engaged Stranberg to recruit a permanent CFO, replacing the controller position.
Urgency: When a local recruiter cannot quickly address an urgent need, we lean toward quicker solutions such as fractional and/or interim hires. Ideally you can place someone who has “been there, done that” and can be productive virtually immediately. These candidates tend to be more seasoned and may be recently and/or partially retired. Fractional solutions can be a very cost-effective way to achieve multiple goals.
Strength of Team & Processes: A stronger team often creates enough runway to take the necessary time to find an excellent permanent solution. Weaker teams and processes create more urgency, which, as addressed above, leads to us favoring an interim and/or fractional executive solution.
If a high-potential internal candidate exists, we often recommend that a consultant be hired to mentor or coach the candidate. If the open position must be filled, we normally recommend hiring an interim or fractional leader into the role. This will let the high-potential internal candidate see that the position can be available when they are ready.
Affordability: Many of our clients benefit from the cost-effectiveness of fractional executives, especially when affordability is an issue. Fractional executives can work on an as needed basis (from as little as one day each month or week) and can be a great way to help bridge a company to its profit goal, provide time and mentorship to develop internal candidates, and get through challenging issues while providing time to search for a permanent hire.
Level of Risk Aversion: While the affordability of a fractional or interim executive is attractive, their true (and deeper) value is risk mitigation. When a family is unfamiliar with how a new executive would function within the business, a temporary option allows them to trial run an executive without all-in commitment. While there are transition costs, severance is not usually an issue with either an interim or fractional hire. Terminating a temporary executive also has a much lower impact on culture and morale than terminating a permanent hire.
Stability: When a business is unstable or in distress, a turnaround specialist (normally a consultant, but sometimes interim or fractional hire) may be needed for a period. This turnaround expert may come in as either a consultant or in an interim or fractional role. From our experience, bringing a permanent hire into a turnaround situation rarely works for long – so, a temporary option is often best. If a business is stable, any of the options can be considered.
Succession Plan: Leadership/Ownership Change: If a leadership change is imminent, the “best” solution can be ambiguous – and landing and retaining a strong permanent hire can be challenging. Each option has its pros and cons and should be evaluated. In these situations, we strongly recommend bringing in a consultant. If no changes are imminent, any of the options can be evaluated.
Permanent Candidate Availability: All other things equal, when there is a sufficient supply of local, qualified candidates, we are more likely to recommend hiring a permanent candidate. Conversely, if a geographical move will be involved, hiring an interim executive is a savvy way to buy the time needed to make the right permanent hire.
Looking at it from a different angle:
Solution | Situation |
Consultant |
|
Permanent |
|
Interim |
|
Fractional |
|
In summary, while no single tool or article can give you everything you need to make all executive talent decisions, we hope this article has provided helpful insights into these sometimes-complex decisions.
If you need help evaluating your options, please reach out to us; our contact information can be found below.
About the Authors
Tim Emmitt is a Partner at Bridge Leadership Solutions, an advisory firm focused on optimizing growth and profitability in family and closely held businesses, based in Grand Rapids, Michigan. Mr. Emmitt can be reached at temmitt@bridgeexecs.com, or at 248-807-1164.
Bill Stranberg is the Managing Partner of Stranberg, a Family-Owned Executive Search and Talent Advisory Firm focused on helping Family Companies win the war for talent. Bill can be reached at bill@stranberg.com.
Greg Simsa is a Partner at Bridge Leadership Solutions, an advisory firm focused on optimizing growth and profitability in family and closely held businesses, based in Grand Rapids, Michigan. Mr. Simsa can be reached at gsimsa@bridgeexecs.com, or at 616-401-0789.
