Author: Lee N. Katz, The Turnaround Authority

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Increased Employee Freedom Helps Retain Top Talent

“Adequate performance gets a generous severance package.” That line is from a PowerPoint Deck with 127 slides written by Netflix CEO Reed Hastings and the former Chief Talent Officer Patty McCord that explains the company’s philosophy of talent management.

The deck has been viewed more than five million times, as reported in an article by Patty in the Harvard Business Review, “How Netflix Reinvented HR,” where you can also review this fascinating deck for yourself.

Maybe it’s been viewed so often because companies are looking to emulate the success of Netflix. After all, it is the world’s leading Internet TV network and has 44 million members. Last year its stock more than tripled.

Or maybe people are curious to learn about a company that has an unlimited vacation policy. As one of the slides in the deck reads: “There is no policy or tracking of vacation. There is also no clothing policy at Netflix, but no one comes to work naked. Lesson: you don’t need policies for everything.”

But that is exactly what happens as companies begin to grow. With each problem they encounter, they institute a new policy. More and more policies mean less freedom for their employees. Netflix found that as the most talented employees felt their freedom decreasing, they would leave.

Netflix began developing a philosophy of fewer policies in an effort to keep top employees. Since going public in 2002, traditionally a time when a company would put even more policies into place, it took the opposite approach: Netflix increased the level of talent at the company and increased employee freedom.

As two of the slides read, “Responsible people thrive on freedom, and are worthy of freedom. Our model is to increase employee freedom as we grow, rather than limit it, to continue to attract and nourish innovative people, so we have a better chance of sustained success.”

So unlike many companies that have strict vacation policies with complicated accrual formulas, Netflix has none whatsoever. Top management is encouraged to take several vacations each year, to refresh them and to serve as an example to their staff.

In an article in Businessweek in 2012, “How to Set Your Employees Free: Reed Hastings,” he wrote about Netflix’s “freedom and responsibility culture” and said they focus on what people get done, not how many hours they work. “We want responsible people who are self-motivating and self-disciplined, and we reward them with freedom.”

Patty McCord said in an article on www.fastcompany.com, “Netflix’s Major HR Innovation: Treating Humans Like People,” that she believes in most large companies 97 percent of the employees do great work on their own and don’t need much help from the human resources department. It’s the other 3 percent that takes most of HR’s energy, costing the company money. Netflix’s approach is to not hire those people in the first place.

I’ve seen something similar so many times in my career as the Turnaround Authority. A small percentage of people can sap the majority or resources of HR. It’s good advice for any company to work hard to find the other 97 percent who can thrive in an atmosphere of freedom and responsibility. And if you do hire people who don’t perform as they should, well, perhaps you can use Netflix’s philosophy on that as well. Reward mediocrity with a generous severance check.

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Humility Being Sought in New Hires

“It’s hard to be humble when you’re perfect in every way.”

— Lyrics from “It’s Hard to Be Humble” by Mac Davis

I was reminded of this song when I read an article in Fast Company about the hiring practices of Google. The title of the article is “Why Google Wants New Hires Who are Humble and Argue.”

Google has been notorious for its quirky hiring processes and interview questions that included questions like “How many piano tuners are there in the entire world?” and “How many golf balls can fit in a school bus?”

Over the years, Google has gone back to evaluate how well their hiring practices worked in determining the success of its employees. Turns out, not so well.

In 2009, Peter Norvig, Google’s director of research, wrote in his book, Coders at Work, “One of the interesting things we’ve found, when trying to predict how well somebody we’ve hired is going to perform when we evaluate them a year or two later, is one of the best indicators of success within the company was getting the worst possible score on one of your interviews. We rank people from one to four, and if you got a one on one of your interviews, that was a really good indicator of success.”

In 2013, Vice President of People Operations Laszlo Block told the New York Times that they found those famous brainteasers they had been using as part of the hiring process were a complete waste of time. “They don’t predict anything. They serve primarily to make the interviewer feel smart.”

Academic performance and GPAs had been stressed, even for hires in the 30s and older. The company admitted that their research found that after two to three years, academic performance and grades were unrelated to performance.

So what is Google looking for now? In addition to technical expertise, leadership and ownership, the company sets a high priority on humility.

“Without humility, you are unable to learn,” said Laszlo Bock, again in an interview with the New York Times for the article “How to Get a Job at Google.” They have found that the most successful people at Google are those who are willing to argue for their point of view, but when they learn a new fact or hear an opposing view, are able to be persuaded. “You need a big ego and small ego in the same person at the same time,” Bock said.

Other people have recognized that humble people make the best and most successful employees. Michael Hyatt, a former CEO and New York Times best-selling author wrote in the article “What Should You Look for in the People You Hire” that he has a standard formula for when he is recruiting people: “H3S.” Two of these qualities are being honest and being hungry. By that he means someone who is always setting goals and wishes to exceed expectations. The third quality is being humble.

“A humble person is open to correction and not defensive. He is quick to admit mistakes and apologize … He is conscious of the contributions others have made to his life, his projects, and his career. He is quick to give credit to them and express sincere gratitude,” he wrote.

I’m glad to hear Google has come around to what is really an old-fashioned way of hiring — finding people who are willing to listen to others and learn from them.

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Want to be a CEO? Any Job Can Be a Good Start

A friend told me about attending a school meeting once and telling another woman that her son had a job as a bagger at a grocery store. The woman said, “What is he going to learn from that?” My answer? A lot.

These days I see a lot of people stressing over getting their children a fancy summer internship, thinking that experience is the key to success. While those may be valuable, I’m a firm believer that you can learn many life lessons from any job. Sometimes those first jobs, which may seem menial at the time, can actually teach you lessons that set you off on a successful career path.

As I’ve written before in “Two Ingredients for Success Never Change,” one of my first jobs was selling peanuts at Atlanta Crackers games. The skills I learned there helped lead me to my career as a turnaround authority. I’ve also worked as a bag boy and a paper boy.

404451_f260I’m not alone is parlaying what may seem like menial jobs into a successful career. A recent article in Fast Company, “The Surprising First Jobs of Famous CEOs” reveals some of the jobs the top CEOs in the country once held.

And more than one CEO of a major corporation got their start at a grocery store. The CEO of Costco, Craig Jelinek, started working on the weekends at a store when he was in junior high. His day started at 6:00 AM with cleaning the bathrooms, sweeping the floors and then boxing groceries. Marissa Mayer, CEO of Yahoo, started as a grocery clerk and says she learned a lot about developing a work ethic from that experience.

More than one CEO worked in a restaurant. Dell CEO Michael Dell, motivated to earn money to add to his stamp collection, washed dishes at a Chinese restaurant when he was 12. (Yes, that probably was in violation of child labor laws.) The CEO of Macy’s, Terry Lundgren, shucked oysters at a restaurant during college to pay the bills, after his father discontinued paying because he wasn’t taking his studies seriously.

Clarence Otis, Jr. is the CEO of Darden Restaurants, operators of Red Lobster and Olive Garden. He says he learned how to interact with a variety of people from his first job as a server at a restaurant at Los Angeles International Airport.

Seems I have something in common with Warren Buffet. We both had paper routes when we were children. But Warren was smart enough back then to claim his bicycle as a tax deduction.

The head of Netflix, Reed Hastings, loved his job selling vacuum cleaners door to door so much that he delayed going to college for a year.

A job, any job, can teach you responsibility, efficiency, organization, how to deal with people and how to get ahead. And that’s just for starters. In many cases, working at a menial job can provide the motivation to get educated for a better career. I know of more than one college student that took their studies much more seriously after a summer spent selling popcorn at a movie theater or stocking shelves at a warehouse.

Any job can be valuable for the lessons you can learn. If you’re just willing to learn them.

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No Desire to Retire

A few years ago I sold my company and began transitioning my role with the new ownership. Because I made such a change in my career, friends and clients assumed I was retiring and when I saw or called people, they would ask, “How are you enjoying retirement?”

That’s one question I hope to never answer because I have no plans to retire. Ever. My dad worked until he was 87 and I will follow his example, working even well beyond that age if possible. He never believed people should retire at the then-accepted age of 65. As the comedian George Burns said, “Retirement at sixty-five is ridiculous. When I was sixty-five I still had pimples.”

For some reason even the assumption that I would be retiring bothered me. Perhaps it’s my own issue of feeling like I won’t be interesting at parties any longer if I’m no longer working. My identity seems to be inextricably tied to my career. I also enjoy the stimulation and interaction with other people that I get in a work environment.

I do a lot of volunteer work with non-profits and feel that staying in the working world keeps my skills sharp and better able to contribute to those organizations.

If I even tried to retire, I know I’d be like former NFL player Brett Favre. Although it was speculated for years that he was retiring, he continued to put on those pads and play, year after year. He played well past the time his teammates had hung up their jerseys, becoming the only grandfather in the NFL.

I do know plenty of people who are very happily retired. A friend of mine tells me how much he enjoys watching cartoons with his new grandson. Others play golf, travel and enjoy other activities they never had time to indulge in while managing a career.

The best example of someone blissfully retired is my wife, Arlene, who quit work after 25 years as a successful, award-winning residential real estate broker.

She actually retired at my suggestion. She had received a call from potential clients who were relocating to Atlanta and wanted her to show them homes that weekend. That meant she would have to preview dozens of properties, put together a complicated schedule of showings, alter it based on what they saw the first day, then do it all over again the next. Oh, and there is no guarantee they would buy a home from her.

Somewhat exasperated, she called to tell me we’d have to cancel all our weekend plans, so I said, “Why don’t you just retire? We don’t need your income, and it will give you the flexibility to do all the things you want but don’t have time for.”

After consulting a friend who had run a multi-million dollar company and giving it careful consideration, she took my advice and retired. She has never looked back.

But Arlene remains engaged and as interesting to me as she ever was. She exercises, spends time with our grandchildren, volunteers at the synagogue and plans and prepares healthy meals. She also attends classes on various subjects and handles everything in our lives that doesn’t involve earning money. Arlene jokes that she doesn’t have enough hours in the day to be retired.

The past few years I have cut my working hours down from 60 to a more manageable 45-50. I’m still searching for a better balance but I’m not quite there yet. I wouldn’t mind slowing down a bit more.

So I realize the issue of retirement is a personal one. And for me, retirement is just not in the cards. Maybe my reluctance to retire has to do with what Malcolm Forbes once said, “Retirement kills more people than hard work ever did.” I don’t plan to ever find out.

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Which Diet is Right for Your Business?

I’ve tried a lot of diets over the past 20 years: low carb, South Beach, you name it. I’d lose a few pounds but none of them really helped me keep the weight off. Then last summer I decided to go vegan. More than just a diet, giving up meat and dairy products was really a lifestyle change for me.

This new way of eating worked for me. I lost 35 pounds without suffering and the weight has stayed off.

I didn’t add the extra weight over a few self-indulgent weeks. It was gradual — I added a half-pound here and there, and 10 years later I realized I was uncomfortable with my weight and wanted to make a change.

Companies do the same thing. They get fat gradually just like I did. They add a few employees, buy an additional manufacturing facility and new equipment and find out 10 years down the road that the business has gotten a little out of control and it owes too much money.

With big companies it’s easy to cover up these mistakes. Like I did, you can kind of ignore it for a while, and in my case, just buy a bigger pair of pants.

But you want to do something about the situation before it gets out of control. One of the first things I do as the Turnaround Authority when I’m called in to help struggling companies is put the business on a diet. But the diet will be different for each company — just like different diets to lose weight work for different people, one size does not fit all when it comes to selecting a diet for a company.

First, I need to determine where the fat in the company is by looking at every element. We may need to eliminate product lines that aren’t margin contributors. We need to take a fresh look at all the personnel as some people may no longer be needed or may not be working efficiently. We may need to sell some equipment to reduce expenses. We may need to renegotiate debt.

So while a diet heavy on the grapefruit may work wonders for one person to eliminate fat and feel healthy again, cutting product lines for a company and renegotiating its debt may work to get a company back on its feet again.

Companies are often resistant to my telling them we have to cut back, just like people are when told they may need to slow down on the bread and potatoes. But it’s all about getting the company healthy again and on the right track.

I tell my clients that my goal is to get to somebody before they have a heart attack, or a bank calls a loan. I was once meeting with a potential client and he was flustered and his face was red. I mentioned that he looked stressed and I wanted to save him before he had a heart attack. He told me he would think about it.

A week later he called me and told me that he had been standing in line at the Varsity for a chili dog when he collapsed. Fortunately, two EMTs were standing next to him and rushed him to Emory Crawford Long. You guessed it — he had a heart attack. “I should have hired you last week,” he said, and hired me on the spot.

Every company needs to take a look at reducing waste and cutting fat. The key is to remember that when it comes to putting your company on a diet, it needs to be a customized one that eliminates waste and gets it on a healthy path.

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Valentine’s Day Cards Are Nice, But Here’s How to Improve Your Marriage Every Day

I had returned to my hotel room during a recent business trip to Minnesota. It had been a long, tiring day and I still had a lot of work to do. I knew I’d be up until 3 or 4 in the morning getting it done. But before I started back in, there was one thing I had to do first.

Call my wife.

We spoke for about 15 minutes about what we had done that day, and caught up on anything else that was going on. I hung up the phone and returned to my work, focused.

That phone call was the travel version of an activity that my wife, Arlene, and I engage in every night. We call it Couch Time. Each night, usually right after dinner, we sit down in our living room and spend the next 30-60 minutes discussing things like what happened that day, how the grandkids are doing, where we should go on our next vacation.

We also discuss business, and she knows the names of all my clients and the projects I am working on. Sometimes we drink a glass of wine and often hold hands.

Neither one of us is quite sure how Couch Time got started. It sort of evolved from our first date, and it’s something we have continued religiously during our seven years of marriage.

Last week we went to dinner with some friends and had a lovely time. On the way home we realized we had not had Couch Time yet, so when we returned, we settled in for our nightly discussion.

In my book, How Not to Hire a Guy Like Me: Lessons Learned from CEOs Mistakes, I discuss the 10 C’s of bank relationships for CEOs. One of these is Communication and as I note in the book, nothing is more important to a banker than communication. I’ll go out on a limb here and say communication is also the key to a successful marriage.

As Valentine’s Day approaches and people are encouraged to recognize a loved one on February 14, I thought about how a good relationship cannot be sustained just by buying expensive gifts and flowers on one day a year. It may even be a challenge with just a weekly date night. It takes daily maintenance.

I read about a recent study in an article on CNN.com, “Act Like a Long-Distance Couple Even If You’re Not,” that said long-distance couples can form stronger bonds than couples who live in the same place.

“Long-distance couples try harder than geographically close couples in communicating affection and intimacy, and their efforts do pay back,” says Crystal Jiang, Ph.D., who coauthored the 2013 study, which appeared in the Journal of Communication. “People in long-distance relationships often have stronger bonds from more constant, and deeper, communication than normal relationships.”

The good news is you don’t have to move away from your loved one to form those bonds. You just need to make an effort to strengthen them by incorporating that level of communication into your daily lives.

So go ahead and celebrate Valentine’s Day with a heartfelt card, flowers and a nice dinner out. But to really keep the marriage on track all year long, you don’t need to venture farther than your couch.

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It Takes Finesse to Fire a Family Member

Mitchell Kaneff, the CEO of Arkay Packaging, told the story of firing his father in the article “Why I Fired My Father From the Family Business.” Although his father had made him president, his dad remained as CEO and still made a lot of the decisions.

Their completely different styles of management came to a head one day with the COO claiming he was resigning as he found it impossible to work with two men with such different styles.

So Mitchell called his dad and gave him a choice — he could either buy Mitchell out or Mitchell would fire him. Expecting his father to be angry and hurt, he was stunned when his father instead replied, “I am so proud of you. You’re right. It’s time for me to leave.”

Any kind of situation that involves letting someone go rarely goes that smoothly. Unfortunately, as the turnaround authority, I’ve been in the situation many times of having to fire people. It’s never more difficult than when it’s a family member.

Once you have terminated a regular employee, your ties are severed and both the company and the employee can move on. Not so with a family member, where heated emotions and resentments over the termination can affect the family dynamic for years.

That’s why it’s so critical to handle firing a family member in the correct way, as an article in this week’s Wall Street Journal pointed out, “You’re Fired … But I hope to see you at the next family reunion.”

Because ties with this person are not severed and you will continue to see each other, it takes a lot of planning and delicacy to terminate a family member the right way.

The article quotes Raymond Lucas, senior vice president of financial planning and training for Integrated Financial Partners, who said, “Remember: When all is said and done, you need to be able to sit at the Thanksgiving table together.”

The first step is to work with the family member to see if the situation can improve. Perhaps he or she could be moved to a different position or get more training to be more effective in the job. But when it reaches a point that it’s apparent it is not going to work out, there are a few things to do before meeting with the employee.

First, document the reasons you are taking this step. Then try to get agreement on the termination from other family members working in the business so you have a united front.

When it’s time to terminate the employee, meet with him privately. A crucial step is to let him know that you value his happiness and you realize he is not happy with the current situation. Make it clear you will support his efforts to find another more suitable position. Another important step is to listen to his side and make him feel heard about his situation.

It’s never an easy situation to handle, but doing it the right way can make a huge difference in your family. For more tips on handling this delicate process, please read my column “How to Fire Grandma and Still Get Invited to Sunday Dinner.”

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Take Time to Develop Your Own Leadership Skills

When you’re running a company there are plenty of things to focus on. Sales of your products, marketing strategies, long-term goals just to name a few. You may spend a lot of time and money on training your sales staff. But do you ever take time out to consider your own development?

Some CEOs or business owners get around to themselves last when it comes to improving skills, either due to lack of time or considering it a low priority. But what could be more important? If you’re the head of the show, shouldn’t you keep your own skills sharp?

I recently read an article in INC, “7 Reasons You Can’t Learn Leadership on Your Own,” and two of the reasons in particular struck me.

The first is that observing leadership is not the same as developing leadership. I have found that to be true. There seems to be a prevailing belief that people will just “grow into” being leaders.

The article also pointed out that many board members and investors are not good leaders, although they think they may be.

They also operate with an agenda, which may not include developing your skills as a leader. That would not necessarily work to their benefit as it may interfere with them pushing through those agendas. So you can’t expect your board or your investors to encourage you to develop leadership skills. You’re on your own there.

So how do you do it?

There are courses you can take and plenty of articles available on the Internet. There is no shortage of books on the topic. Here is a list from Forbes.com of leadership books it recommended from 2013. In addition to some new titles, it includes some classics like “The 7 Habits of Highly Effective People: Powerful Lessons in Personal Change,” by Stephen R. Covey and even an 80-year-old classic from Dale Carnegie, “How to Win Friends and Influence People.”

One of the most effective ways I’ve found to improve my business skills is by sharing ideas, problems and concerns with other CEOs and business leaders. If you can find such a group of leaders, you can learn a lot from each other as a lot of the issues you deal with are similar.

For example, the Vistage Chief Executive Program brings in 16 peers from noncompetitive businesses that serve each other in an advisory capacity. They have monthly problem-solving meetings and personal coaching sessions. They can also attend up to eight workshops a year led by a Vistage expert speaker.

If you don’t want to attend a formal group, form your own informal one from your acquaintances, again in noncompetitive businesses. Arrange to meet weekly for coffee and discuss your leadership challenges.

Just like you don’t neglect developing your muscles at the gym for your health, continue to develop your leadership skills as well by whatever method works for you.

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Give Your First impression A Fair Shake

Thomas Jefferson is said to have popularized the handshake in Western culture as a more democratic form of greeting. I, and my back, appreciate that we no longer bow when greeting associates. Sounds like an awful lot of work to me.

Now, extending your right hand for a handshake is an important part of our culture and significant in the first impression you make when meeting someone. I’ve written before about the importance of first impressions. In my column, “The First 15 Seconds,” I listed three things I could tell about a person I am interviewing in just one quarter of a minute.

A demonstration of the Lobster Claw, one of the top 10 bad business handshakes as demonstrated in a video of the same name

A demonstration of the Lobster Claw, one of the top 10 bad business handshakes as demonstrated in a video of the same name

Another crucial aspect of making a good first impression is that handshake. I got a big laugh out of this video I came across, done by an Australian company called “The Top 10 Bad Business Handshakes.” Maybe it’s even funnier because of the droll Australian accent but it does illustrate several handshakes that will definitely not make a good first impression. These include the Lobster Claw, the Fist Bump, the Wrestler and the Phantom.

Watch the video and see if you fall into any of those 10 categories of bad handshakers. If you have the slightest bit of concern that you may, here are a few tips from David Gregory at NBC on the “Today” show.

• Have a firm grip

• Make eye contact

• Shake once of twice from the elbow

• Should last about three seconds.

Those three seconds of contact can really pay off. An interesting study done by the Income Center for Trade Shows found that people are twice as likely to remember you if you shake hands with them. They will also be more open and friendly with you. People whose handshakes are evaluated as good are seen as extroverted and emotionally expressive, according to an article in Forbes.com on “Why Women in Business Should Shake Hands.”

Here are a few of the tips the writer Carol Kinsey Goman shared in the article, which apply for both men and women.

• Be the first to extend your hand.

• Stand when being introduced and extending your hand.

• Say something like “It’s great to meet you,” before you let go.

• When you let go, do not look down. That is a sign of submission.

In another study, researchers Frank Bernieri and Kristen Petty screened 300 students, selecting five men and five women with contrasting personality profiles. Their job was to introduce themselves to people of the same sex, who were playing the role of the interviewers.

The interviewers met with five “candidates” who introduced themselves briefly. Half of the time the greeting involved a handshake. The interviewers then rated the candidates on extroversion, neuroticism, openness, agreeableness and conscientiousness.

The one area where the handshake seemed to really make a difference was in conscientiousness, particularly when men judge other men. The researchers concluded that engaging in a handshake could help you predict whether that person would show up for their next appointment with you.

Hard to believe, isn’t it? How much you can tell about a person in an act that takes three seconds. Make those three seconds count in your favor.

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5 Business Resolutions for 2014

I sometimes jokingly refer to myself as a janitor. In my work as the Turnaround Authority, I go into businesses and clean up their messes. And I have seen some doozies in my career, many of which were caused by poor management or a business owner just not paying attention to what’s happening in his company.

This post is for business owners or CEOs that may be looking for a few ways to improve their business in 2014. Here are my top five resolutions for you to help avoid the troubles I’ve seen and the messes I’ve worked to clean up to get the company on the path to success and profitability again.

1. Leverage the talents of others

Don’t aim to be the smartest guy in the room. Hire people smarter than you, who have skills and experience that you don’t have. Take an honest inventory of your own strengths and weaknesses. We all have areas we aren’t as strong in. Successful business owners and CEOs recognize this fact and hire to compensate for their weak areas. Hire those people to help build a strong team.

2. Know where you are financially and always check on your books

As more layers of management are added to a business, the further away an owner may get from the details of the business’s finances. If you are making payroll and paying your bills, you may have turned your attention to other areas of growing the business. Always know where your business is financially. Have someone double-check your payroll. Poke around your books and ask questions on anything you don’t understand.

3. Be aware of conditions that affect your business

An effective CEO keeps up to date on what is going on in the world or the economy that could affect his business. For example, if you own a distribution company you need to know if shipping costs are expected to rise or if oil prices are going up.

Or is society changing so that the market for your product may be shrinking? In 1990 there was a Blockbuster on every corner and many people made it a weekly ritual to go peruse movies. Then Netflix, streaming video and options to watch movies on the Internet came along. All the Blockbuster stores closed late last year.

4. Ask for help before it’s too late

When you are confronting an issue that is beyond the expertise of you or your staff, don’t hesitate to call a consultant or turnaround manager. One with integrity will tell you if you don’t need them. In an initial meeting, it may become evident that you can handle the problems on your own. But if you do need help, it’s better to call earlier rather than later.

Some of my sadder cases have been where I was called in to help a company that could have been saved if only they had called earlier. Sometimes it was just too late to avoid bankruptcy. With others we were able to save them but they were significantly downsized or had suffered large financial losses.

5. Pick a plan and stick to it

As a leader it’s your job to establish a clear direction and to march that way. I’ve seen so many problems arise when CEOs make a plan and garner resources to accomplish that goal, then change their minds later and start over in a different direction.

This often happens with CEOs who are facing a crisis and are unsure of what to do next. They end up following the advice of the last person they spoke to — immediately acting on everything they hear. Gather the best information you can from all relevant parties and make your best decision on which direction to go in. Then stick to it.

However, you do have to continually monitor the numbers, and if they continue to trend downward, react quickly.

Add your own personal resolutions to this list to help ensure your success in 2014. And as a final resolution, resolve to stick to your resolutions!