Leadership Alignment: THE critical factor for closely held businesses

Over the past 6 months, I have witnessed several closely-held businesses struggle with misalignment among the partners and seniors leaders. Working to implement business strategy without alignment is like trying to drive a car without the steering wheel. Here are three recent factors that I’ve observed that can create misalignment:

1. Timing & Partner Age — When do you want to sell? The answer to that question will likely be different for the 40-year-old partner than it is for the 60-year-old partner. Even smaller strategic decisions like opening a new office, launching a new product, refinancing debt, investing in talent, etc. can be affected by the partners’ differing timelines.
2. Compensation — How senior leaders are compensated can be a touchy subject. The reality is that it’s a substantial SG&A expense and has the power to align efforts, but is often only grumbled about in private. Previous M&A activity and grandfathered compensation structures often go unchanged year after year. Linking compensation to both personal and firm performance is key to alignment among leadership.
3. Relationships — Generational businesses are certainly susceptible to the trust-eroding politicking seen in small businesses. But, even if there are no generational ties, relationships can undermine alignment. Pre-merger friendships, neighborhood buddies, etc. – the list of seemingly innocuous relationships goes on. Allowing for these relationships to affect decision making can be devastating.

So what can you do to create better alignment?

Discussing the issues listed above and developing plans and tools to create alignment is not easy. Here’s what I have seen work in many instances:

• Seek a Moderator — A third party facilitator is often a necessity. Even the suggestion of discussing these issues can be misconstrued if coming from someone with a vested interest. A good moderator will understand both the technical aspects of the business and the relational aspects of the partnership.
• Get Away — Leaving the confines of the office to talk through these issues is critical. It limits interruptions and allows for clear thinking.
• Commit to Communication — It is essential for each partner/leader to approach the conversation with an open mind and a clear understanding of what he/she wants. This will allow the moderator to focus on constructive planning rather than spending time drawing out the baseline motivations and background information.

The Result

The result of this process should be clarity. Each partner will understand the company’s strategic direction in light of everyone’s collective and individual desires. Specifically, agreement on improved compensation plans, growth strategies, key personnel decisions, and other internal initiatives should be expected. Follow up meetings are highly recommended so progress can be reviewed and strategies can be tweaked, if necessary.

Jeff Wraley is a Sr. Consultant at The Fahrenheit Group. He helps start-ups and closely-held businesses work through strategic issues as a part of Fahrenheit’s Advisory practice.