Top Ten Reasons Why It's Better To Stick It Out At A Big Company Instead of Leave for a Start-Up

Although the grass always looks greener, sometimes you're better off sticking it out at a big company over a start-up.

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Top Ten Keys to Building a Talent Firewall In Your Organization

It's hard to keep your best talent in your organization.  Here are some suggestions on how to do it.

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Top Ten Reasons Why Large Companies Fail To Keep Their Best Talent

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Why Most Companies are Terrible at Selecting, Retaining and Motivating their Talent

Over the long weekend, I was chatting with someone from a very successful Internet-based company (not Yahoo!). He asked me a little about my consulting business. I explained that we worked with companies who wanted to build programs to increase their ability to select, retain and motivate their top talent.

I didn't have to say any more: "God, do we need your help! We're constantly developing our people and our competitors will swoop in and poach them. We're growing so fast, so we haven't had time to really focus on it. However, I keep telling the folks in HR that they need to get a better plan to stop our bleeding there."

It reminded me of something I read in the most recent 10-Q for Yahoo!. Under the "risk factors" facing their ability to continue to grow the business, they cite the risk: "If we are unable to retain our existing senior management and key personnel and hire new highly skilled personnel, we may not be able to execute our business plan."

Then, they go on to explain that: "Many of our management and key personnel have reached or will soon reach the four year anniversary of their Yahoo! hiring date and, as a result, have become or will shortly become fully vested in their initial stock option grants. Although employees receive additional grants, an employee may be more likely to leave Yahoo! upon completion of the vesting period for the initial option grant, which is generally the largest option grant an employee receives. If we do not succeed in retaining and motivating our existing key employees and in attracting new key personnel, we may be unable to meet our business plan and as a result, our stock price may decline."

So, here are two examples of highly successful companies, who realize that their continued success depends on being able to select, retain, and motivate great people. Yet, at least in the first example (and I would guess the 2nd), they acknowledge that they don't really know what to do.

They're not alone. I can't tell you how many companies I'll go into and hear the refrain: "Our people drive the business" or "Our most important assets go down the elevator at night" or some variation of those. I'm sure you've heard them.

The problem is that most companies stop at this superficial level. They don't actually develop sophisticated programs to actually address the problem of keeping their best people and finding more to further accelerate their growth. And, by the way, the demographics are irrefutable that this problem is just going to become worse in the next 5 years.

As in the first example above, the reference to HR is typical. Many of the 'top talent' executives in our clients rely on HR to solve this problem -- and it certainly is in its domain. However, at many companies (especially the fastest growing ones), HR is chronically under-staffed and having difficulty keeping up with the more nuts-and-bolts aspects of their jobs (i.e., getting payroll out the door, doing basic hiring/promotion, and generally keeping the business moving ahead). True, some of the best companies have HR experts in leadership development who are building and implementing some great programs for talent selection, retention, and motivation. However, this is more the exception than the norm. This is where subject matter expert consultants like Jackson Leadership come in.

In the 2nd example, the reference to stock option vesting is interesting. Many people believe more compensation will solve the "talent problem." However, this rarely happens -- or it's only a quick-fix for problems that will recur. I don't want to be Pollyanna-ish. Money is a factor. But it's usually 4 or 5 on the list -- not 1, 2, or even 3.

So, what is the solution? There are some suggestions here, here, here, and here. But, to net it out: you need to meet regularly with your best people and build an actionable and measureable leadership development plan aligned with their career ambitions. If they feel that you're investing in them and they understand where they want to go in their careers and how that aligns with the company's goals, they will feel attached to the company and likely stay.

Growth can mask a lot of problems. However, you shouldn't neglect the issue of talent selection, retention, and motivation in your company for too long. You only have to go through the experience of trying to replace a "star" once to know what I mean.

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What Leadership Means and What Makes a Good Leader? Podcast from the CIPD in the UK

The Chartered Institute of Personnel and Development has been a leading light on HR issues in the UK for a number of years. In this podcast, they tackle the difficult questions of "what leadership means" and "how you find the leaders you need?"

In it, they interview Jackson Leadership Special Consultant and Dartmouth Tuck School Professor Sydney Finkelstein.

To listen to the podcast, go here.

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Top Ten Keys to Building a Talent Firewall in Your Organization

It's been 100 days since I launched the Breakout Performance blog. And so far, one of my blog posts has been more popular than any other: Top Ten Reasons Why Large Companies Fail to Keep their Top Talent.

This post came about after I read on GigaOM about how a team at Yahoo! (led by Flickr founder Catherine Fake) was working at building a brickhouse around their top talent. Since that story was published in mid-September 2006, Yahoo's stock has trended down from $29 to $26 amid luke-warm results and calls by some for a larger player to snap-up Yahoo! or for Terry Semel to enact changes (inlcuding on this site). There's no question that uncertainty swirling around an organization's future makes it a difficult environment in which to keep top talent around. However, there are solutions.

The truth is that Yahoo! is not all that different from thousands of organizations who are desperately trying to think of strategies for keeping their talent. No matter your industry, you know that it's much more difficult and costly to find and train new talent than keep them (just as it's more costly to get a new customer than keep one happy). And the demographics are only going to make this more difficult in the next 5 - 10 years -- over 50% of C-level execs will be leaving their posts in the next 5 years.

There are many strategies for building a "talent firewall" in your organization. Here are ten of the most effective:

1. Set up a Leadership Development Program in your Organization. Most but not all organizations have some kind of leadership development program. Most include some kind of executive training -- either in-house or additionally through B-Schools. The best ones also include some formalized assessment on an executive's strengths and weaknesses at the front-end, some coaching over a significant time period, and a later follow-up measurement of an executive's improvement.
2. Set Developmental Goals for the Executive and Track it. An assessment of an executive is only as good as an action plan that gets devised to address the points that come out of it. The action plan should key in on the developmental areas identified in the assessment. It should be complementary to a regular performance review plan. It's not simply a list of job tasks that need to be done. A developmental plan zeroes in on competencies such as strategic thinking, coaching and team development, and delegation. Once set, the action plan then needs to be tracked regularly -- which leads to the next point.
3. Use Executive Coaches. Executive coaches serve a couple of purposes. They are the gel that often helps ensure a Developmental Action Plan gets followed up on. We suggest they meet once a quarter with an executive to review and update the plan. They are not there to chastise the executive if they don't achieve their previously set goals, but they do ensure accountability in a positive way. They also help keep the momentum going. Another major goal they serve is by giving the executive ideas on how to improve, which they have utilized with talent at other organizations. This broader perspective helps supplement the internal HR resources that are available to top talent. We often find that this wider organizational experience also gives the talent some additional perspective on where they rank in the universe of other executives with whom the coaches have interacted. (What makes for the best executive coach? There are many out there to choose from. However, we strongly believe in 3 things: (1) academic training at the graduate level in a related field like organizational behavior, strategy, or organizational psychology, (2) senior-level executive coaching experience, and (3) real-world executive-level experience to better relate to the exeperiences that the executives are going through.)
4. Use Internal Coaches and Mentors. Although external coaches are helpful, the best organizations don't think of leadership development as an outsourced activity. Beyond support from HR, senior leaders should be an active part of the process, as coaches and mentors. For every executive going through a leadership development program, he/she should have an internal coach and mentor. We define a coach as the executive's boss; a mentor should be one-level above the executive's boss. There is critical knowledge that can only be passed on to executives from those inside the organization. Both the coach and the mentor should be aware of the Developmental Plan that the executive is working on. The boss should chat with the executive quarterly about their development plan; the mentor only needs to speak to the executive annually or semi-annually. A final point about mentors: they should never be assigned to an executive, nor should the executive be given free reigns to select the mentor. Our suggestion is that the boss and executive meet to chat about a possible short list of candidates. When they agree on who would make the best fit, the boss should be the one to approach the prospective mentor. This match-making approach seems to work best in pairing up the best possible mentors to executives.
5. Discuss Long-Term Career Goals and build an Action Plan. In many cases, top talent has not worked out a clear long-term career path. For those in HR, this is a major opportunity. The best organizations are arranging "career planning" discussions with all their key people, in order to open the dialogue. Quite often, the executives appreciate the conversation (which happens first with their boss and then, if they are comfortable, expanded to include HR as well). Engaging talent on where they want to go helps to make them understand where they are going.
6. Eliminate Extraneous Meetings and other Bureaucratic Tendencies. In a recent poll, asking for why top talent leaves larger organizations, the #1 response was "big company bureaucracy." Some bureaucracy is inevitable as a company grows. You can't run Google like a start-up. Processes and structure add value, when done well. However, we've all lived through Dilbert-type large company bureaucracy. As someone concerned about keeping your talent, you've got to wage a war against these tendencies. Eliminating extraneous meetings is a great place to start.
7. Never Promote on Potential -- only on Performance. We sometimes get blinded by potential. Certain up-and-coming employees acquire a halo around them and are quickly promoted past their current performance level -- classic "peter principle." Peter Drucker correctly advised, decades ago, that organizations should never promote on potential, only performance. That means, an executive must demonstrate success in his/her current role before moving up to the next rung on the ladder. Many talent, promoted too quickly, will end up failing and leaving the organization under a cloud due to poor HR practices.
8. Eliminate "Deadwood" acting as "Blockers" in your Organization. Too many organizations have important leadership positions filled with "blockers" -- taking up slots that could be more ably filled by other talented people reporting to them. Organizations might be reluctant to let them go because of the cost of letting them go or a thought that "the-devil-you-know-is-better-than-the-devil-you-don't." Yet, top talent won't suffer fools gladly. Organizations need to remove poor performers clogging the talent system or find a different spot for them that plays to their strengths but lets others take over key positions and do a better job.
9. Use a Talent Management software system. You can't change something unless you measure it. There has been a lack of easy software systems to track talent management and development in organization until recently. We have worked with some of our clients on manual systems of tracking talent on an annual basis and it is a labor-intensive effort. It no longer needs to be painful. There are many new software packages available that can do this and integrate with your existing Oracle/SAP/PeopleSoft systems. One I like particularly is Sonar 6, because of its highly intuitive approach to presenting its results.
10. Reward and Recognize, while also Giving Constructive Feedback. There are some bosses who never reward or recognize their talent; others who do it too much with never a negative word. If you treat your talent with kid-gloves -- only praising, never providing constructive feedback -- they will not be getting a balanced view of their strengths and weaknesses. You need to do both on a regular basis.

A talent firewall is not built over night, it reguires a series of steps. These 10 will make a significant difference in your organization. Good luck. The effort will be well worth it.

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The Best Advice I've Ever Received About Hiring Talent

About 8 years ago, I met Glenn Fuhrman of MSD Capital in New York. At the time, I was in the midst of writing my dissertation at Columbia on what drives pre-IPO and post-IPO success in venture-backed firms (the tome is here if you are interested). I was getting a little glazy-eyed from reading all the academic papers on the topic in the Columbia stacks, so I set out to sit down and chat with as many NY VCs and managers from VC-backed firms as I could. I find the best research and writing on business combines facts with relevant color commentary from subject matter experts.

Glenn has a unique background for a hedge fund manager. He’s got the requisite Wharton and Goldman pedigree. What makes him unusual is that he was an Art History minor at Wharton and remains an active patron and supporter of the arts in New York. (He serves on the board of MOMA’s Junior Associates.) Now, he runs MSD Capital with his partners and they have one very important client: Michael Dell.

Every VC you meet will tell you the importance of management in the success of a start-up. I heard lots of comments during my interviews like “In real estate, it’s ‘location, location, location,’ here it’s ‘management, management, management’” or “We’ll only do the deal if we like management; all our failed deals were when the market and product was great but the management sucked.” These days, it’s become almost cliché in business circles to utter a variation of Jim Collins’ aphorism: “Get the right people on the bus.” However, these comments fail to provide much guidance on exactly how to do this.

Glenn gave me what I think is the best advice I’ve ever heard about hiring new people into an organization. It’s about as good as a few sentences can get. Here it is:

“I only ever hire ‘A’ players for me and my companies. If I hire ‘A’ players, they will hire ‘A+’ people below them. If I hire ‘B’ players, they will hire ‘C’ players below them. ‘A’ players don’t get threatened by better people below them; ‘B’ players do.”

Whether you’re building a VC-backed firm or filling one of the 1000 daily open jobs at Yahoo! (as Libby Sartain talks about here with Guy Kawasaki), you would do well to heed this advice. A bad hire today can lead to a legacy of bad hires for that particular company, function or group. Something not easy to undo down the line.

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Picking 'Partner Managing Directors' at Goldman Sachs

Very interesting Page One article in today's WSJ here about the process followed by the venerated Goldman Sachs in picking the highest level of Partner in their firm: the "Partner Managing Director." In the Wall Street world where "stars" rule, Goldman has done a masterful job of keeping its tight-knit team culture.

The article drives home the point that the highest-potential talent are driven by counting themselves among the "best-of-the-best" rather than money alone.

Here is the full text of the article from Susanne Craig:

In June, top executives at Goldman Sachs Group Inc. began compiling lists of candidates for one of Wall Street's most exclusive clubs -- the 300 or so "partners" who take home a big chunk of the firm's profits.

Candidates were divided by letter grade into three categories -- A's, B's and C's. The C's were the long shots. "I can tell you that for anyone who is a B or a C in this process, it's the first time in their lives they've ever been ranked that," says Gary Cohn, Goldman's co-president, who oversees the process.

It's one of the business world's most lucrative and secret sweepstakes: Goldman's selection of its elite "partner managing directors," or PMDs. It dates back to Goldman's roots as a private partnership, in the days when that's how big Wall Street firms were run. Goldman went public in 1999. But every two years, in an effort to retain the clubby culture of old, Goldman anoints about 100 PMDs. Being inducted is considered a ticket to huge riches.

"On Wall Street, this club is the endgame and it is the best corporate motivation tool I have ever seen," says Glenn Schorr, an analyst who covers Goldman for UBS AG.

Goldman will announce on Oct. 25 its new class of partners, who will join the 287 who currently hold that title. Last year, that group shared more than $2 billion, or about 20% of the total compensation Goldman paid to its more than 25,000 employees world-wide, according to people familiar with the matter. That averages out to about $7 million per partner.

Goldman's partners also are offered opportunities to invest beside the firm when it buys stakes in other companies, which can be lucrative. Such offers aren't typically available to other Goldman executives. They can buy Goldman shares at a 25% discount. The firm prepares their taxes. Goldman will even book tables for them at hot New York restaurants such as Babbo and Spice Market.

Some receive bigger paychecks than their bosses. Mark McGoldrick, who became a partner in 2000 and heads a group that invests the firm's own money, earned about $40 million last year, according to people familiar with the matter, eclipsing his boss, Goldman Chairman and Chief Executive Lloyd Blankfein, a partner who earned $30.8 million in 2005.

NATURAL SELECTION

How Goldman Sachs is picking this year's class of "partners":

April 3: Division heads begin selecting people who may vet potential partner candidates.June: Division heads list their top choices for candidates; current partners from each division discuss candidates.

July 10: The partner nomination process starts.

Aug. 14: The vetting begins.

Oct. 2: Goldman senior management meets with vetting captains for status report.

Oct. 19: CEO Lloyd Blankfein is scheduled to meet with firm presidents Gary Cohn and Jon Winkelried to review the final list of candidates.

Oct. 23: Senior management meets to review the candidates.

Oct. 24: Mr. Blankfein finalizes the list.

Oct. 25: New partners are announced.

Goldman's partners have the best of two worlds. As a public company, Goldman can raise large amounts of cash easily. Yet in some ways, it still takes care of its top people as if it were a private firm.

Goldman's top money-makers, referred to within the firm as "commercial killers," have the best shot at making partner. In 2004, just four of those selected came from divisions that don't produce revenue, such as the legal department.

The firm won't discuss this year's candidates or comment on partner compensation. In 2004, 237 people were nominated, 174 were vetted by partners, and just 99 were selected, including only 14 women.

The seven-month selection process, which started this year on April 3, has long been the subject of Wall Street speculation -- about those in line to make the cut and about those who fall short. Eight of the 23 members of Goldman's management committee agreed to talk about what goes on behind the scenes, as did a number of current and former partners.

Top executives who vet candidates never interview the up-and-comers under consideration, opting instead to discuss them with other partners. When final decisions are made, Mr. Blankfein is likely to break the good news to the new partners. Those who don't make it get the bad news from division heads. Few candidates ever find out why they made or missed the cut.
"My entire goal when I was up for partner was to not step on any land mines, keep my head down and continue to perform," says Michael Daffey, co-head of Goldman's European stocks group, who made partner in 2002.

The also-rans are sometimes reconsidered two years later, but often their Goldman's careers are effectively over. The winners who don't subsequently perform up to expectations are sometimes quietly asked to leave.

Investment banker George Foussianes was turned down at least twice. He had worked in various departments at Goldman, leaving him with no single partner to champion him, which hurt his chances, people familiar with the process say. He left Goldman last year for a top post at HSBC Holdings PLC. Mr. Foussianes says he was disappointed by the outcome, but viewed the process as valuable.

Mark Slaughter, a Harvard-educated lawyer who worked in the investment-banking division, was passed over more than once before he left Goldman in 2005 for a senior post at Citigroup Inc. He declined to comment. Robert Hottensen, a highly ranked Goldman stock analyst, also twice missed the cut and left. Mr. Hottensen says he was "extremely disappointed" but that the possibility of making the club motivated him to work harder.

This week, Joseph Stevens, a top Goldman banker in China, caused a stir within the firm when he quit to join Standard Chartered PLC, taking himself out of the running for partner amid rumors he wouldn't make the cut. Mr. Stevens heard the rumors, he says, but was told he had a "strong shot" at making partner. He says he left because he wanted Goldman's top job in China, a position currently held by someone else. Goldman declined to comment on Mr. Stevens's decision.

For years since Goldman's founding in 1869, anyone who joined the firm and showed promise had a good shot of becoming partner. Until a couple of decades ago, the firm was much smaller and kept the number of partners to a minimum; in 1982 there were just 70.

The stakes for this year's class are high. In recent quarters, Goldman has been posting impressive quarterly profits -- $1.59 billion in the third quarter -- and its stock is up 40% so far this year, eclipsing the 17% gain for the Dow Jones Wilshire U.S. Financial Services Index. As some other large securities firms have pushed to become global financial supermarkets, Goldman, the world's No. 1 merger-advisory firm, has moved deeper into trading and investment banking. It has put more of its own money on the line both to trade and to invest in other companies, a move that has increased risk but beefed up profits.

Goldman's partners have always viewed their firm as a cut above the rest of Wall Street. Mr. Blankfein, a hard-driving former gold salesman who took the top job at Goldman in June, likes to refer to an intangible secret sauce that makes Goldman smarter and savvier than its competitors. Although Goldman is known for the fat pay partners receive, Mr. Blankfein bristles at the suggestion that money-making is all that drives his partners and the firm's selection process.

Successful partner candidates are expected to be "culture carriers," he says. The firm encourages public service by partners, he says, and many partners have pursued that path, including former Chief Executive Officer Henry Paulson Jr., who is now Treasury Secretary. "Sure, Goldman partners make a lot," Mr. Blankfein says. "But I can pay people a lot of money without going through this process."

At other Wall Street firms, executives typically aspire to become managing directors, a title that often comes with perks ranging from the right to buy firm stock at a discount to membership at the corporate gym. Goldman has 950 managing directors, who are referred to internally as "MD light," because that position is viewed as a stepping stone to becoming a partner, or PMD. Goldman Co-President Jon Winkelried, who oversees the selection process with Mr. Cohn, says making partner is viewed as the real beginning of a career at the firm.

The selection process is managed by a partnership committee chaired by senior partners Kevin Kennedy and Eric Schwartz. Messrs. Cohn and Winkelried oversee the process, and Mr. Blankfein gets the final say. Candidates often are sponsored by a partner. But lobbying is frowned upon, and can actually work against candidates.

In the mid-1990s, then senior partners Stephen Friedman and Robert Rubin, who have since joined other companies, developed a system to vet candidates. They dubbed the process "cross-ruffing," a reference to a complex bridge maneuver. At Goldman, it is the process by which partners review candidates from other departments. Investment-banking partners, for example, will review candidates from asset management.

This June, after grades were assigned to candidates on the preliminary list, partners in each division met to narrow the field. About 25% of the candidates are almost assured partnership, accords to Messrs. Cohn and Winkelried. Candidates who got C's were deemed unlikely to make it this time around, although some might have a shot down the road.

Goldman puts together teams of partners who cross-ruff the candidates. Team members are trained in what the firm is looking for and how to question their fellow partners about candidates in a consistent way. Among other things, they are told to ask about performance on specific assignments and about contributions outside of their departments.

Questioners are provided with a white binder containing the candidate's color photo, his or her performance review -- which includes feedback from peers, subordinates and bosses -- and a list of partners who know the candidate. Often, the questioner has never even met the prospective partner.

During the last selection process, in 2004, research strategist Abby Joseph Cohen led the cross-ruffing group for Goldman's asset-management division. One candidate, Tom Kenny, was a stranger to her. She interviewed more than a dozen partners before coming to a decision about him.

"He hasn't been here long, but his numbers are great and he is respected as a leader," Ms. Cohen says she said during a meeting with the firm's top brass just before they voted to make Mr. Kenny a partner.

Soon, Goldman's partnership committee and partners in each division will meet to hash out the names one last time. Messrs. Blankfein, Cohn and Winkelried plan to confer next week to review the final choices. Those selections will be voted on by the management committee on Oct. 23.
Turning hotshots into partners is no guarantee that they'll stick around. George H. Walker, a second cousin of President Bush and a rising star on Wall Street, became a partner in 1998 but left Goldman earlier this year to join rival Lehman Brothers Holdings Inc. He will run the firm's investment-management group and join the firm's executive committee. Mr. Walker, 37, might have had to wait years for this type of promotion at Goldman. Mr. Walker didn't return calls for comment.

Nevertheless, Goldman hopes the partnership process will help it retain talent in the face of competition from hedge funds, which have been paying top dollar for star traders. Increasingly, Goldman has tied partner compensation to individual performance rather than to the firm's performance. These days, about half of the partner compensation pool is discretionary, according to people familiar with the matter, allowing the firm to reward big producers.

"There are plenty of firms who would like to hire our people, but the pull of the partnership is still a very powerful incentive to stay," says Mr. Cohn.

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