Funny, But True: Give a Second Thought to That Second Chance

You have an employee who makes a big mistake, but comes to you to admit it and offers a solution. So, you forgive him and move on. We all mess up sometimes, and this employee handled it correctly. You give him a second chance.

As Warren Buffett said, “I make plenty of mistakes and I’ll make plenty more mistakes, too. You’ve just got to make sure that the right things overcome the wrong ones.”

But some mistakes aren’t forgivable and employees who make them don’t deserve a second chance.

publishing-scamI once worked with a company whose sales manager was running a scheme. He would sell their widgets to a customer who was a partner in his crime. After the sale, the sales manager would issue a credit, reducing the price of each widget by $1 to that customer. The sales manager and the customer split the extra $1.

The scheme went undetected and over time amassed both the sales manager and the accounts receivable manager a lot of money.

The fraud was only detected because the sales manager accidentally sent a credit to the wrong company, which reported the error. The fraud was uncovered and both managers were fired. But they were not prosecuted for their crimes. (I always advise business owners to prosecute thieves. Read more about that in “Why You Should Always Prosecute Fraud”)

And it turns out the sales manager was actually really good at sales, and once he left, sales declined 25 percent. The CEO couldn’t find a suitable replacement in the following year, so what did he do? He hired back the thieving sales manager.

The CEO’s explanation? While the sales manager never paid any of the money back, he said he was sorry. During that past year, he had found God, repented his sins and begged for forgiveness as a friend and long-term employee.

He lasted six months, until he moved. To jail. Where he was sent for stealing again.

Beyond the obvious lessons of prosecuting fraud and not rehiring people who steal, the other lesson is that some people deserve a second chance and some don’t. As a business owner/CEO you need to know the difference.

 

 

 

Great Leaders: Born or Made?

It’s one of the most debated topics in leadership. Are leaders born or made? Judging from the millions of articles and thousands of books written on how to be a good leader, we must all believe on some level good leaders can be made. A Google search on “leadership skills” turns up 491 million results.

Business leader and author Erika Andersen has been interviewed many times about business and said she is asked that question every time. And she says the interviewers already have made up their mind, generally coming down on the side of believing leaders are born. “They assume that some people come into this world with a natural capacity to lead, and everybody else doesn’t, and there’s not much you can do about it,” she said in the article “Are Leaders Born or Made?”

This concept is in line with a leadership theory called The Great Man Theory, which first became popular in the 19th century, spurred by Scottish writer Thomas Carlyle. People believed leaders like Julius Caesar, Abraham Lincoln and Alexander the Great were born to become great leaders.

katzLater that theory declined in popularity, led by the famous European intellectual Herbert Spencer, known for coining the expression “survival of the fittest.” He wrote, “You must admit that the genesis of a great man depends on the long series of complex influences which has produced the race in which he appears, and the social state into which that race has slowly grown …. Before he can remake his society, his society must make him.”

Then we have football coach Vince Lombardi, who knows a thing or two about winning. After all, his Green Bay Packers won five NFL Championships, including two Super Bowls. (But I’m not rooting for them this Sunday. Go Falcons!)

He comes down on the side of leaders being made: “Leaders are made, they are not born. They are made by hard effort, which is the price which all of us pay to achieve any goal that is worthwhile.”

An article in Inc.com that lists 20 traits of born leaders claims that leadership is a skill anyone can develop, but being born with these 20 traits, which include being extroverted, confident and decisive, makes developing that skill a lot easier.

Ronald E. Riggio Ph.D, discusses the topic in the article “Leaders: Born or Made” in Psychology Today. His answer? “To cut to the chase, the answer is: ‘mostly made.’ The best estimates offered by research is that leadership is about one-third born and two-thirds made.”

Past studies have shown that effective leadership is about 30 percent genetic and 70 percent developed. Those percentages were the premise of a study done at University of Illinois by professors Kari Keating, David Rosch, and Lisa Burgoon. They used a scientific approach to teaching leadership in a 15-week introductory course. They claim students made significant gains in their ability to lead, skill levels and motivation to lead. They tracked 165 students and found their progression followed a specific path, based on their being “ready, willing and able.”

“It’s a three-legged stool,” said David Rosch, one of the professors involved with the study. “Students first become ready to learn about being a leader; then they become willing to learn the skills necessary to practice leadership; and finally they’re able to lead because they have the skills and the motivation to do it. You can’t really move on to the other legs of the stool until you’ve achieved a certain amount of this readiness.”

This is all good news for anyone wanting to improve their leadership skills. Maybe you were born with many of the innate skills of a natural leader. But even if you weren’t, research shows you still have 70 percent to work on in becoming a better leader. Sounds like pretty good percentages to me.

The Value of a Successful Failure

A successful failure sounds like an oxymoron, right? Like jumbo shrimp, open secret or one of my favorites, only choice. So, what is a successful failure? It’s an endeavor that did not succeed at its original goal, but its failure taught you lessons that you turned into a success.

Apollo 13 has been referred to as a successful failure. As you may recall from the popular movie about the mission, aptly called “Apollo 13,” the spacecraft launched on April 11, 1970, the third spacecraft destined to land on the moon. But the landing was aborted after an oxygen tank exploded two days after launch. After hearing, “Houston, we have a problem” from the astronauts, NASA then spent several tense days working through multiple problems to return the crew and the spacecraft safely to earth.

Mission Control in Houston dealing with the explosion onboard Apollo 13. (Photo courtesy of NASA.org)

Mission Control in Houston dealing with the explosion onboard Apollo 13. (Photo courtesy of NASA.org)

The mission to get to the moon was a failure. The recovery of the crippled aircraft and saving the lives of three crew members was a success.

“A ‘successful failure’ describes exactly what 13 was – because it was a failure in its initial mission — nothing had really been accomplished,” said Jim Lovell, the commander of Apollo 13 as reported in an interview. But he called it, “a great success in the ability of people to take an almost certain catastrophe and turn it into a successful recovery.”

I have dealt with several successful failures in my turnaround career. By the time I’m called in, many companies are on the verge of total failure, and we are often able to salvage some value out of the company, resulting in a successful failure.

I like to think of the quote from Nelson Mandela who said, “I never lose. I either win or learn.

Read more about Successful Failures in my two-part series, “How to Have a Successful Failure.” You’ll love the story of the college drop-out who started a business and become a millionaire, then bankrupted that company. Using the lessons he learned from that failure, he started another business and became a billionaire. Now, that’s what I call a successful failure.

My book “How Not to Hire a Guy Like Me: Lessons Learned from CEOs’ Mistakes,” is now available as an ebook.

5 Tips for Dealing with Toxic People in the Workplace

About a billion people watched a ball drop in Times Square in New York City this past weekend, with around two million hearty souls shivering in the cold to see it in person. The ball is about 12 feet in diameter, made of crystal triangles crafted by artisans in Waterford City, Ireland. Every year, a portion of the triangles are replaced with new ones reflecting the theme for the upcoming year. 2017 was deemed to be the “gift of kindness.”

I’m all for kindness and respect in the world, and in the workplace. But when some employees continually exhibit negative behavior, resulting in lower productivity and dropping morale of your other employees, the time for kindness and good will toward all is over. It’s time to get deal with the toxic employee.

One of the triangles of the New Year's Eve ball made in Waterford City, Ireland.

One of the triangles of the New Year’s Eve ball made in Waterford City, Ireland.

Take time at the start of a new year to deal with any constantly complaining and negative employees who are poisoning the environment for everyone else. The ones who up the drama in the office while lowering the productivity.

Here are a few tips on how to take control of the situation.

  1. Document the behaviors of the employee.

Once you’ve been made aware of the negative behavior, contact the head of HR immediately so they can oversee the process.

Begin to keep track of it of the behaviors. Be specific: rather than recording the employee is frequently late, write down what days the employee was late and by how much. If the employee is spending hours gossiping with co-workers, have their supervisor keep an eye on them and record the time spent not working.

  1. Document efforts by the company to alert them of these behaviors.

Have the supervisor meet with the employee, along with a member of the HR department to review the behaviors. Again, deal with specifics and make it clear the behavior is unacceptable. Keep copies of all written correspondence between the supervisor and the employee about the negative behaviors.

Shockingly, some employees have no idea of the effect of their behavior on their co-workers. When informed of it, they may become defensive and argumentative. Which is actually more proof of their ability to be toxic.

If these behaviors have appeared suddenly in a previously positive and productive employee, try to determine if there has been a precipitating incident. Did something happen in the workplace? There may be a larger issue you need to deal with. Or perhaps there is a problem at home and just calling attention to the change in behavior is enough to cause it to stop.

  1. Develop a turnaround plan with a timeframe and measurable results.

Have the supervisor create a plan for the employee to improve the behaviors. Have the employee agree to the plan and sign it. Pick a date to meet again to review the plan.

  1. Review the results and make a determination about retaining the employee.

If after the allotted timeframe has passed, the employee has not made any changes in their behavior, consider whether you are ready to terminate the employee. As with any termination, follow the advice of your lawyer and HR department.

As Robert Sher of CEO to CEO Inc. puts it, “My mantra is, ‘Repair or replace,’ as flawed team members cannot be left alone. If they are repairable in a short timeframe, it is worth the effort. But this must be a forced march, with a firm timeline for repair. Otherwise plan to make the replacement quickly, as teams with toxicity are more likely to fail to hit their objectives. That hurts the team, the company and damages the reputation of the team leader.”

  1. Terminate the employee.

If all the efforts from you and other senior management have failed, cut your losses and get rid of the employee immediately. There’s no reason to allow them to stay and spread their toxicity. You can’t concern yourself with the amount of time spent training this person and the fact it may have been an error in judgment to hire them in the first place. Cut your losses and move on.

My book “How Not to Hire a Guy Like Me: Lessons Learned from CEOs’ Mistakes,” is now available as an ebook.

 

 

Leftover Vacation Days and the Impact on Your Business

Americans did not use 658 million vacation days last year. For the first time ever, more than half of Americans (55%) did not use all of their days off, according to a study done by Project: Time Off. We are becoming the “No Vacation Nation.”

While Americans used to average three weeks of vacation a year in 2000, in 2015 they only took 16.2 days. That represents a loss of almost one week in 15 years.

Why would people essentially volunteer a week of their time every year for their company? The two biggest factors cited in the study were fear they would return to a mountain of work (37%) and that no one else can do their job (30%).

Unlike other developed countries, in the U.S. employers are not required to give employees paid time off. Employees in the European Union get a minimum of 20 days a year.

While a business owner or CEO may appreciate that their employees didn’t take their allotted time off, research shows their productivity may actually be lower when they don’t take breaks.

Studies show that when employees take time off, their productivity increases. “There is a lot of research that says we have a limited pool of cognitive resources. When you are constantly draining your resources, you are not being as productive as you can be. If you get depleted, we see performance decline. You’re able to persist less and have trouble solving tasks,” said Allison Gabriel, an assistant professor of management at Virginia Commonwealth University in the article “The Secret to Increased Productivity: Taking Time Off.”

In a Wall Street Journal blog, Dr. Kathleen Potempa wrote, “In addition to mental and physical stressors, long periods of work without vacation can lead to reduced productivity, diminished creativity, and strained relationships. Americans seem to believe that logging more hours leads to increased output, but respite deprivation can actually increase mistakes and workplace animosity—in addition to prompting or exacerbating stress-related illnesses.”

CEOs and business owners should look at their own calendars and clear time for vacation as well. Reed Hastings, the CEO of Netflix, takes six weeks a year. “I take a lot of vacation and I’m hoping that certainly sets an example. It is helpful. You often do your best thinking when you’re off hiking in some mountain or something. You get a different perspective on things.”

COO of Facebook Sheryl Sandberg says she was able to write her best-selling book “Lean In: Women, Work and the Will to Lead” because she took all of her vacation days. (I’ve written a book, and would be on the side of people who argue that’s not quite what I’d call a vacation.)

Tony Schwartz, the president/CEO of The Energy Project and author of “Be Excellent at Anything” says at The Energy Project they teach “the greater the performance demand, the greater the need for recovery.” Feeling burnt out one year, he went on vacation and completely disconnected from digital distractions. “By the end of nine days, I felt empowered and enriched. With my brain quieter, I was able to take back control of my attention. In the process, I rediscovered some deeper part of myself.”

Mark Douglas, CEO of the marketing and advertising company SteelHouse, recognized the need for his employees to take vacation and offered them unlimited vacation when he founded the company in 2010. But perhaps due to the reasons stated above, people weren’t taking much.

So he decided to pay them. To take vacation. He pays his employees $2,000 a year to go anywhere in the world. They can split up the money for more than one trip, or use it all at once. Employees who request the money in the form of a bonus are turned down. They must spend it on a vacation.

As a result, his turnover rate is extremely low. Out of 250 employees, only five people left the company in a three-year period, with three of them leaving for reasons unrelated to the job.

So if you are feeling a bit anxious when you see all the empty desks and email vacation notices at your company over the holidays, think of it this way: they are recharging their batteries and will come back more productive than ever.

Take some time off yourself. And enjoy.

My book “How Not to Hire a Guy Like Me: Lessons Learned from CEOs’ Mistakes,” is now available as an ebook.

 

Funny, But True: When Employees are Naughty, Not Nice

The popular song may claim this as the most wonderful time of the year and the hap-happiest season of all. December is also the least productive, as many workers take time off for the holidays and when they are in the office, they are distracted. And possibly doing their gift shopping online.

Having employees take adequate vacation is important and critical to the well-being of your business. I encourage every company I work with to encourage employees to take time off, and in fact to mandate the CFO take two consecutive weeks off every year. No, I’m not playing Santa Claus here. It’s about uncovering fraud.

In addition to the benefits of having an employee come back refreshed and rested, vacation is the time companies uncover naughty things some employees may have been up to.

Take the example of dear Aunt Tess. She was a payroll clerk at a company I was working with. She was a loyal and dedicated employee of 25 years, who had never missed one single payroll. Not even less than 24 hours after she had her appendix out. See any red flags yet?

I did, and after a bit of investigation, found dear Aunt Tess had been paying fake employees for 25 years, diverting their income to herself, to the tune of $75,000 to $100,000 a year. She had stolen millions of dollars.

So, I may sound a bit Grinch-like, but when your employees take time off during the holidays, make a list of who has access to your books and do a little checking it twice.

Next week, why did Americans leave 658 million vacation days unused last year, and what impact does not taking those vacation days have on your employees?

What Business Are You Really In?

 

He started as a book salesman in the late 1880s. To entice people to buy his books, David H. McConnell gave away free perfume samples. Those proved so popular, he abandoned the books and founded the California Perfume Company in 1886. That company eventually changed its name to Avon in honor of Shakespeare’s hometown. Last year, Avon’s revenue was $1.6 billion.

That’s just one example of successful companies that were founded with one business model, then pivoted to a different business. They thought they were in one business, but the market led them to change their business, either by choice or because their potential for increasing market share vanished.

Nokia started as a paper mill in Finland.

Nokia started as a paper mill in Finland.

Twitter is an example of a forced pivot. It started as Odeo, a network for people to find podcasts. It was a bad day for Odeo when iTunes announced it would include a built-in platform for podcasts in every one of its iPods, pretty much obliterating their business overnight. So, the company got to work, hosting hackathons to come up with a new idea. The concept for a microblogging platform was hatched, and Twitter was created in 2006. It’s now worth over $10 billion.

One of my favorite pivot stories is about the American food company Wrigley. William Wrigley Jr’s father was a soap manufacturer, so as a teenager William became a soap salesman. To encourage shop owners to stock his soap on their shelves, William offered free gifts. Baking powder was the most popular, so he dropped selling the soap to focus on that. In 1892, as an incentive, he began offering two packages of free chewing gum with each can of baking powder. Once again, the giveaway was more popular than the actual product he was selling, and he moved to selling chewing gum. Wrigley sold to Mars in 2008 for $23 billion.

Did you know Nokia started as a paper mill in Finland in 1865? It moved to creating rubber goods and telecommunications devices, and a mobile phone in 1992. That year the company sold off all its other divisions to focus on mobile devices. Sadly, it failed to make a successful transition to the smartphone industry, and sold its devices and services division to Microsoft in 2013.

We associate the name Nintendo with Super Mario Bros, Game Boy and Wii. The company was founded in 1889 in Japan by Fusajiro Yamauchi to sell playing cards. Unsuccessful expansion attempts by his great-grandson in the 1960s included getting in the taxi business and “love hotels.” Then one of their engineers began developing electronic toys, which led to video game development, and its large market share of the mobile gaming space. While profits had been in decline, Nintendo seems to be on the upswing based on the potential of the value of its intellectual property.

In addition to knowing how to maximize profits for your company, knowing what business you are actually in allows you to expand and grow in the right direction.

When you aren’t clear what business you are in, efforts to innovate and expand can go astray. As Ty Montague writes in inc.com, “The lion’s share of innovation mistakes still come from companies funneling their efforts into extending the life of some existing platform, instead of spending time getting clear on what business they are really in and then constantly looking for opportunities to apply that definition to new technologies and new markets. Companies that do this will grow robust businesses that can be hard to describe in conventional terms.”

An example he gives is Tesla, which he says isn’t in the car business, but rather in the electric mobility business, so in addition to building cars, it builds infrastructure to support the mobility of electric vehicles.

Every business goes through a metamorphosis of product lines in response to marketplace pressure and technology, and a smart CEO needs to continue to monitor that so he can remain in business by moving forward.

Take a step back and think about your own business. What business are you really in?

 

Funny, But True: Friendly Fraud

As people began to think about end-of-the-year business expenses for the close of the 2016 tax year, I chuckle when I think about one of my most unusual expenses incurred on the job. I had to pay to get my license plate back.

It started as I was sitting at a red light in Juarez, Mexico, without a car in site for miles. All of a sudden, a motorcycle cop came roaring up and informed me I had been speeding in a school zone and had run a red light. Pretty miraculous, considering my car was at a standstill at the only red light for miles. When I didn’t say anything, he went to the back of my car, stole my license plate and rode off.

I was in Mexico to visit a factory that had a 17 percent a month turnover rate and a huge shrinkage rate. I had been appointed CEO of the factory, which in a case of irony, made switches for signals used in traffic lights.

When I told the plant manager what happened, he told me I’d have to bribe that officer $500 to get my license plate back, which I needed to cross back into the US and return the rental car. But lucky for me, the plant manager knew the cop and said he’d take care of it. What a guy, right?

I did get my plate back. I also learned that the plant manager only gave the cop $100 for it, stealing $400 from me. But that was nothing compared to what he was stealing from the company.

He had created and was paying dozens of fake employees and was getting kickbacks from his cousin, the customs agent, and his uncle, a local freight business owner. He was robbing the company into ruin.

He was helpful in one respect, however. He told me that company had 90 percent market share and the owners could raise the prices. That was one of my first orders of business. After getting rid of him, of course. And getting my plate back.

For more stories like this, read my book “How Not to Hire a Guy Like Me: Lessons Learned from CEOs’ Mistakes,” now available as an ebook.

3 Tips on Enjoying Thanksgiving When You Own a Family Business

Norman Rockwell's "Freedom From Want."

Norman Rockwell’s “Freedom From Want.”

Everyone wants a Norman Rockwell Thanksgiving, the one depicted in his famous 1941 painting “Freedom From Want.” The painting shows a happy family seated around the table waiting for the turkey to be carved.

For many Americans, this is far from reality. Thanksgiving becomes something to dread, more of an endurance test and something to survive rather than to enjoy. And when you own a family business, there are even more topics that can cause conflict and tension.

I saw an ecard recently that read, “My favorite thing about Thanksgiving is when we all pass out and stop talking to each other.” Here are a few tips for how to enjoy Thanksgiving dinner when you run a family business, before you’ve reached that point.

  1. Make your desire to keep family business off the table known prior to dinner.

You can take a lighthearted approach to this if you are the host. When issuing the invitation, say something like, bring your favorite side dish and bottle of wine, but leave business matters at the office for the day. Or you may remind family members during a meeting or through a memo that Thanksgiving is a day off from the business.

  1. Plan an if/then scenario.

This tip comes from the Wall Street Journal article, “How to Have Thanksgiving Dinner Without a Family Blowup.” Author Elizabeth Bernstein recommends you coach yourself on how you might respond should a certain topic come up despite your request to not talk about the business. Let’s say one son blames the other son for thefts from the warehouse, and makes a snide comment as he passes the gravy. How will you handle it? One suggestion may be to quickly table it by saying, “Let’s be sure to address that Monday morning at our weekly meeting.”

  1. Privately enlist the help of the person most likely to start the drama.

Your brother Fred is typically the one to bring the tension, generally by referencing some long-ago conflict. Call Fred before the dinner and tell him, “Fred, I really need your help this year to have a more peaceful gathering. If you see any conflict start to develop, can I count on you to change the subject? Maybe tell us about your last fishing trip.”

Fred will be flattered you asked for his help, and eager to share his story. Problem solved.

If all this fails, there’s always TV. As comedian Craig Ferguson said, “I like football. I find it’s an exciting strategic game. It’s a great way to avoid conversation with your family at Thanksgiving.”
 

 

The Top Trait Every CEO Must Have

You can’t run a successful company without it. I can’t do my job turning companies around without it. And once it’s lost, it can be almost impossible to get it back.

I’m talking about credibility. Every CEO must have that – with his employees, his board, his customers, his investors and his employees. And he must guard and protect it as a valuable asset.

As Warren Buffett said, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

I urge every CEO I work with and every company’s senior management to maintain a high level of credibility. The consequences if they don’t can be catastrophic.

I once replaced a very smart man, who was CEO of a company that manufactured electronics parts. Despite the fact he had a PhD, he wasn’t too smart when it came to running his business. Upon reviewing his numbers one day he found some cost accounting discrepancies and realized he was selling his primary widget under cost. Instead of having a $1 million profit as anticipated, the company actually had a $2 million loss.

Rather than admit his mistakes, he just adjusted his prices. His customers weren’t thrilled with the unexpected and unexplained 50 percent price increase he put on that widget and fled. Faced with more losses, the bank soon noticed he wasn’t able to repay his loans and gave him the boot as well. We were brought in late in the process, and were able to sell the company and repay the lender and creditor. But the business lost $8 million in equity.

Had the CEO come clean about the mistake, been honest with his bank and his customers, he could have avoided the losses his ego cost him. He wasn’t. And he didn’t. His credibility was shot.

Through no action of my own, I almost suffered the same fate at a company I has hired to assess prior to becoming the director of reorganization. The president of that company didn’t like the fact I was doing an assessment of the company and wanted me to keep out of his business. So he decided to destroy my credibility.

How did he do that? The chairman of the board gave me specific people to speak with about certain issues. So the president told senior staff members I had already made up my mind about how I would restructure each of their divisions. That was untrue, of course, as I always speak openly with people and listen to their thoughts before making any decisions. But in their minds I was just wasting their time.

Thankfully, with the help of another senior staff member, I was able to salvage that situation.

An article in Forbes, “The Three Qualities a CEO Must Have to Success” addresses the issue of credibility and how critical it is to success.

“CEOs who lose credibility can never regain it. When you communicate, do people believe that you are telling them the objective truth? If they do, then you have credibility. To maintain credibility, you have to tell the truth 100 percent of the time. Telling the truth 90 percent of the time is not much better than telling the truth 10 percent of the time. It only takes a few instances of delivering non-credible statements to totally lose your credibility. Once you lose your credibility, you cannot lead successfully.”

My book, How Not to Hire a Guy Like Me: Lessons Learned from CEO’s Mistakes, is now available as an ebook.