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Chapter 17: Developing a Business Plan

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JULY 7, 2003

ASK THE CEO
By David Liss

How to Right a Shaky Ship

When called in to turn around a troubled company, a new CEO has to be decisive and set the right example. Here are tips from a veteran

"Ask the CEO" reader Srinivasan Ganesh of India poses this question: "Imagine you are taking over as CEO of a new company. How do you align your vision with the company's?"

Ganesh's inquiry highlights an increasingly common corporate challenge. CEO tenures have shrunk in recent years. On average, today's top exec at a publicly traded mid- or large-cap company will serve for five to six years, according to John Challenger, CEO of Challenger, Gray, & Christmas, a Chicago outplacement firm. Ten years ago, the typical term was 10 to 12 years.

You need look no further than the headlines to understand why that has changed: a recession, a volatile stock market, and a slew of corporate scandals -- including many high-profile captains of industry under investigation or indictment -- have put the spotlight at the top. And with companies struggling with weak economies, turnarounds, or putting scandals behind them, bringing in a new CEO with a vision and the ability to achieve objectives is critical for success or even survival.

To address our reader's question, I asked Suzanne Hopgood to explain how a CEO can instill a company with his or her vision and lead the organization to achieve key goals. Hopgood is former CEO and board member for privately held Houlihan's Restaurant Group. She also was installed as chairman of the board and interim CEO of publicly traded Furr's Restaurant Group (FRG), a chain based in Lubbock , Tex. , following a shareholder action led by TIAA-CREF in 1995.

Here are edited excerpts from our discussion. Please note that in some cases, I asked Hopgood to provide multiple-part answers, which are presented in bold print:

Q: What must a new CEO do to articulate a vision to managers and employees?
A: CEOs can't be effective without establishing clear goals and objectives. Determining a vision has to do with defining up-front what success means. In a stable company the sense of mission and vision of a prospective CEO would've been established during the hiring process and would be reflective of the company's existing mission and vision statement. There's time to become fully knowledgeable about the corporation and to consider its culture, structure, and operations to determine the best way for the CEO to add value.

For a CEO at a company in crisis, the existing mission statement is completely irrelevant. A new mission statement, goals, and objectives must be developed immediately. All action steps must be measured against achieving those goals and directives. When taking on a company in crisis, something is broken. As CEO, you have to determine what needs to be changed and determine a path to fix it immediately.

For a company in crisis, the job of CEO is about making dramatic change very quickly. [Otherwise] the company may go out of business. Financial skills are among the most important ones for a "workout" CEO...because those skills may not exist in the company.

Q: What are the most important steps toward achieving an effective alignment between a CEO and an organization?
A:If it ain't broke, don't fix it. I don't want to change more than I absolutely have to. I've got to look for where the trouble is. If a division is running fine, then I'm going to be there to give them an "attaboy," make sure that they have the resources they need, do what I can to boost their morale, get employee feedback, and then place my attention elsewhere.

Focus and prioritize. You have to focus on where you need to be spending your time and where you can have the greatest impact. If a company is in crisis, you need to be considering only those issues relative to the company's survival. You have to sort through situations quickly, establish priorities, and empower people to make decisions. If you're brought in to lead a stable company, you're there to add value as opposed to ensuring survival.

Make a top five list. I always have a list of the company's top five [priorities] in front of me no matter what I am doing. For any task I do or consider doing, I ask myself, does this task fit within the context of these five items? If as CEO you allow yourself to get sucked into things that don't [protect] the company from tanking or add value, you aren't spending your time wisely.

Place a dollar value on your time. If you were a consultant or an attorney, you would have a specifically ascribed a value for your time. Determining this value helps in determining priorities. If you as CEO or your senior management team get involved in a situation for a couple of hours, you know how much that activity is going to cost. There must be a reason that you give of yourself, why you are spending time on something.

Establish financial goals for 1 month, 3 months, 6 months, 12 months, 18 months. It is critical to be realistic. This allows everyone to measure progress.

Underpromise and overdeliver. It'll be difficult in the beginning. You won't have enough information, and too much optimism can lead to a credibility gap if you can't follow through.

Deliver on your word. Your staff has to trust you. The same goes for your vendors, employees, shareholders, and customers. A promise made to a customer should be considered no differently than giving your word on anything else. Tell shareholders what they can expect.

No surprises. People don't like to be surprised regardless of whether the surprise is good or bad. A strong relationship is built on making certain all parties are informed.

Hire the right people. Workouts are particularly hard on employees. Getting the right people into the right job quickly is critical. I've had to let a lot of people go during the workout process. It's not their fault. Most people were hired to do a certain job in a stable environment, not in a failing company. Employees they will judge the company based on the competence of their immediate supervisor.

Q: How do you know you've succeeded?
A: Success is defined by increase in shareholder value. Also, have you as a company determined whether the workplace meets the needs of your employees beyond just a paycheck? Have you built an organization with integrity that respects your employees, your vendors, your shareholders, and your customers?

I believe that people want to work for people who have strong values and in an environment where people have respect for others. I've fired people who don't show respect for others. People want to be proud of themselves. If people steal or cheat the company, they can't feel good about themselves. It's the CEO's responsibility to change this dynamic.

Finally, you have to be able to determine whether you're providing a product that your customers want, buy, and are satisfied with.

Q: What failings have you seen in the ways that CEOs and corporations have addressed these issues?
A: The biggest failures come in corporations where CEOs don't understand that employees know how the CEO behaves and that his or her behavior is a model for the behavior of every employee in the company.

People know exactly what you do: how many hours you work, how many relatives you have on the payroll, what expenses you're reimbursed for that you're not entitled to, what your compensation and bonus package is relative to their own, and the level of respect you have for shareholders, employees, and customers. They adjust their behavior accordingly.

CEOs are hired to set the stage. CEOs can't tell people to behave differently than they behave. You have to define what "ethical behavior" is and hold yourself and your staff accountable. Your actions as CEO must clearly say to every employee that you're not behaving unethically and that you won't tolerate unethical behavior by others.

Designating a compliance officer who oversees ethics for the CEO and other staff is key. In workouts, I give my contract and the phone number for the chair of the compensation committee to the accounting staff, in case there's ever any question related to my income or my expenses.

I ran a company where the travel budget went down 50%. I never issued a policy, wrote a memo, or said a word. I flew on Southwest Air and stayed in the Marriott Courtyard. What happened was that employees asked the company travel agent where the CEO is staying and how I was flying. The impact was significant and immediate, and the message was clear.

It's pretty funny to learn what people say about you. Any time I go in as CEO of a company, I want someone who will give me the lowdown on what people are saying and what they are unhappy about. Especially in workout situations, you need this kind of information. Senior managers won't tell you, but the guy that's 10 levels down will.

Sometimes I say something that I know is stupid just to see if the senior staff will object or disagree. Once a guy told me that I had said the most dumb-ass thing he had ever heard. That was the answer I was looking for. You can't have people who will yes you right off the cliff, knowing that you're making fatal mistakes while telling you how smart you are.

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