The Performance Appraisal Myth

Each year, HR departments do their duty and administer the performance appraisal process.  Most folks seem to detest it.

There are good reasons for that.

If you work for company that does not do a good job of training and developing its people*, the performance appraisal process functions about as effectively as a New Years resolution treadmill.  It doesn’t.  It collects dust for a year, then there’s a flurry of activity for a short period and it’s forgotten again for another year.

If you work for a company or boss that does a good job of training and developing  people**, then the performance appraisal process is superfluous.  Good performance feedback occurs regularly.  These are like the fitness people who don’t need a New Years resolution to encourage them to stay in shape.  They have established the behavior and priority to exercise and these companies maintain the the behavior and priority for associate development. So, performance appraisal process becomes one of housekeeping and documentation.

Here’s how to tell which type of company you work for:

*In good economies, other companies tend not to recruit heavily from these companies and the folks who do leave, usually do so out of frustration.

**In good times, other companies actively recruit from your workforce and there’s usually a good number of people who leave through these opportunities, which opens doors for others to advance and replace them.

So, make a point in your next interview to ask your potential new boss whether the company’s talent is recruited away or if they leave on their own accord.  That can tell you a lot about what you may be getting into.

Succession Planning

Economist, author and blogger Steven Landsburg asked today on his blog, The Big Questions, why Hewlett-Packard’s stock dropped due to the unexpected departure of its CEO.   He thought a $10 billion loss of value seemed big for the loss of even a CEO.

That reminded me of some wise advice I read about long ago from successful growth investor Philip Fisher.  It took me awhile to find it, but I had posted on the subject a couple years ago.  In this post, How to Run a Business, I quote from Philip Fisher’s book, Common Stocks and Uncommon Profits.

This passage came from a section of the book called Conservatives Investors Sleep Well (p. 188):

Here is an indication of the heart of the second dimension of a truly conservative investment: a corporate chief executive dedicated to long-range growth who has surrounded himself with and delegated considerable authority to an extremely competent team in charge of the various divisions and functions of the company.  These people must be engaged not in an endless internal struggle for power but instead should be working together toward clearly outlined corporate goals.  One of these goals, which is absolutely essential if an investment is to be a truly successful one, is that top management take the time to identify and train qualified and motivated juniors to succeed senior management whenever a replacement is necessary.  In turn, at each level down through the chain of command, detailed attention should be paid to whether those at this level are doing the same thing for those one level below them.

Businesses I’ve been involved with tend to take a program or project approach to running the business.   Whether it’s in their core value proposition (the business line putting most of the profit on the bottom line) or in developing or finding Continue reading

Questions for Managers

This is another post in my continuing series of good questions to ask managers you may be hiring to run a business.  These come in handy whether you are sitting on a Board of Directors for a business and need to interview executive candidates, running a piece of business or a small shop.

The Question:

We’re strangers sitting next to each other on an airplane.  How would you convince me to give this business a try?

This question gets to the heart of whether this candidate can effectively sell your business.

In the business world, I’ve witnessed many problems that stem from having managers in place that cannot sell the business.  They don’t understand the business’s value proposition, don’t know or seem to care why clients voluntarily part with their money to buy the products or services.

Having such a manager is bad news.  It will very likely destroy value.

What’s even worse is when the manager would not choose to use the product or service if they were not employed by it.  The tendency of such a manager is to remake the business to suit their own preference as customer, while ignoring or changing what it is about the business that makes it valuable to its existing customers.   This also destroys value.

Questions for Managers

In my continuing series, here is another set of questions that, if I were hiring a manager to run a business I either owned or had a fiduciary duty to operate, I would ask.

Can you explain to me how you would estimate the value of this company?  Can you give me an example of how you would do that?

Say you were managing the business and you were evaluating whether to acquire a company or not.  Step me through how you would make the decision and how you would determine how much you would be willing to spend to buy the company.

The purpose of these questions is to determine what the candidate thinks are the key value drivers of the business.  I personally would be looking for a candidate that could explain that the company’s value is the present value of future cash flows and their job is to produce reliable, strong cash flow.

I’d be leery of candidates that veered off explaining how value is based on things like market share, number of transactions and “getting the story out”.

Questions for a Manager

I’d like to know how you behave when you don’t understand something.  Can you give me an example where you didn’t follow what was being discussed in a meeting and what behaviors you used to catch up?  Can you give me an example where you thought you understood something, but didn’t, and you came to realize that and the behavior you used to understand it?

I believe effective managers — whether they’re managing a professional sports team, a big company or a small plumbing shop — are good at understanding what’s going on around them.

Ineffective managers are good at pretending to know.  I’ve seen these managers use intimidating, bullying tactics as a defense mechanism to keep others from recognizing that the manager doesn’t understand.  These managers seek leadership roles to satisfy their own ego and can wreck a place because they rarely get good answers.   Sometimes they Continue reading

New Threads – Questions for Politicians and Questions for Managers

I’ve seen enough clueless elected officials and business managers in my day to make me wonder what questions were asked of these people before they got their jobs.  I thought it would be a good idea to add categories to this blog to list questions to ask political candidates and managers along with answers that I would like to see.  Hopefully some reporters or board members will find these questions valuable and ask them.

Here’s an example of how these categories will work.

Question for Political Candidate for President

If elected President you will take an oath to protect and defend the Constitution of the United States.  Can you briefly explain what that means to you?

An acceptable answer for me to this question would be something like:

The Constitution of the United States defines the powers of each branch of government to maintain checks and balances on power.    The authors of the Constitution were concerned about government power becoming concentrated at the expense of the liberty of our citizens.  As colonists, they saw firsthand the ill effects on liberty of unchecked power by the arbitrary decisions made by the King of England.

To me, protecting and defending the Constitution means ensuring that the powers I exercise as President are those that are specifically defined in Article 2, Section 1 of the Constitution and I will use those powers to ensure that other branches of government only exercise authority in which they are empowered by the respective sections of the Constitution.

Protecting and defending the Constitution means that when my replacement assumes power through the peaceful election process, as defined in the Constitution, that the source of the power of government will still be the consent of the governed and nothing else.