The Great Resignation has created a never-before-seen level of difficulty in hiring and retaining top talent. Traditionally long-term-oriented, financially conservative family firms with uniquely loyal workforces now find themselves in the vortex of an unprecedented reshaping of global industries, financial volatility, and employee empowerment. But with change comes opportunity. In today’s unpredictable environment, family firms have a unique chance to leap away from their competitors (both family-owned and public) for decades to come, by sticking to four key imperatives: 1.) think carefully before making changes at the top; 2.) identify, retain, and better develop your high potentials; 3.) check compensation packages for competitiveness; and 4.) decisively launch a focused hiring effort.
The Great Resignation has made it increasingly difficult to retain and hire talent. Companies everywhere need to urgently strengthen their talent management, and family firms are no exception.
A few months ago, more than 100 CEOs from around the world met at Harvard Business School and shared the things that keep them awake at night: 33% said recruitment and retention of talent was by far their biggest challenge, while no other challenge got more than 10% of their votes. In our collective experience of about a century advising or analyzing public and family firms, we have never before seen this level of difficulty in hiring and retaining top talent.
The second — and perhaps even more important — reason why family firms need to refocus their talent management is the dramatic uncertainty ahead. We don’t need to expound upon the seismic changes the world is currently going through from a geopolitical, demographic, regulatory, technological, environmental, and even moral perspective. However, these changes strike at the very core of family firms’ unique essence: Traditionally long-term-oriented, financially conservative, and with uniquely loyal workforces, these firms now find themselves in the vortex of an unprecedented reshaping of global industries, financial volatility, and employee empowerment.
If family firms want to stay loyal to their unique calling of building lasting greatness across generations, they should start by learning from Jim Collins’ master lesson on First Who, Then What, which explains that, particularly in times of great change and uncertainty, enduring greatness does not start with a clear vision about what exactly you will be doing, but by making sure that you have a leadership team that can adapt to whatever comes next, and perform brilliantly.
Four Key Imperatives
With change comes opportunity. In today’s most unpredictable environment, we believe that family firms do have a unique chance to leap away from their competitors (both family-owned and public) for decades to come, by sticking to four key imperatives:
1. Think carefully before making changes at the top
For the last two years, we have carefully analyzed a full decade of CEO successions for the S&P 1500 as well as for the world’s largest family firms. To the credit of family companies, we found that they make much better people decisions at the top than non-family ones, both in terms of process and financial results.
However, family firms are still periodically tempted to use non-family CEOs as scapegoats when results (and particularly family dividends) go down. Take the case of a well-known durable goods company which fired their CEO after a year of being battered by Covid. They replaced a long-serving, culturally suited, safe pair of hands in the belief that an aggressive, hard-driving CEO was the answer to their business challenges. Unfortunately, quite the opposite happened: The new CEO shook the tree so hard that several regrettable talent losses occurred, business faltered, and a very important partner threatened to break the business relationship. The family is presently involved in limiting damage while urgently looking for a new top leader, in a much weaker condition, against a much more difficult talent market.
Since many large family firms typically hold significant financial assets and real estate investments, which have been badly hit recently, the temptation to make changes at the top is huge when they face headwinds. Visionary family leaders should, however, dig their heels in against the pressure to oust their top leaders, carefully analyzing not only their relative performance against their most relevant competitors and benchmarks, but also investing in the proper strategic analyses and advice before implementing major changes at the top.
If, after careful analysis, changes at the top look imperative, firms should take into consideration this major study on “Leadership Lessons from Great Family Businesses,” which found that most exemplary companies follow a clear hierarchy when considering top leadership candidates, giving preference to family first, internal talent second, and external executives third, provided a rigorous and objective assessment has been made.
2. Identify, retain, and better develop your high potentials
Amidst the Great Resignation, having a focus on retention sounds like an obvious piece of advice. However, what is not so obvious is who to retain and how, in the first place.
Regarding the who, in today’s extreme VUCA environment, we argue that potential should be your focus when deciding where to invest your retention and development efforts, much more so than the traditional focus on experience or even current competence, both increasingly irrelevant in today’s so different and rapidly changing world.
Regarding the how, family firms should first use a robust, empirically validated model of potential. This article should help you understand not only why potential has become so critical, but also how to assess it rigorously based on five key indicators: curiosity, insight, engagement, determination, and the right motivation.
Once you have identified your high potentials, remember that knowledge workers are fundamentally motivated by the combination of autonomy, mastery, and purpose. Family firms are typically strong on the purpose dimension, given their traditionally strong values and many noble initiatives. While a special effort should be made to satisfy the autonomy dimension following the shift to remote or hybrid work since the pandemic, we believe that the key to retention will be offering your people the chance to become the great leaders they were always meant to be, based on their unique and personal potential profiles. This article will show you how to do so, with a focus on not just increasing your retention, but also on developing people’s leadership competence in better and faster ways.
3. Check compensation packages for competitiveness
In today’s global environment of high inflation, coupled with increased challenges in hiring and shifting industry attractiveness, a basic check on the overall competitiveness of your compensation packages is a necessary condition just to stay in the game.
To retain top talent, the first thing you need to do is classify leaders into “local,” “national,” or even “global” categories according to the location of their prospective employers, with the last two groups being much more likely to leave for companies in other markets where they could drastically increase their compensation. For the stars in these groups, you’ll want to set up compensation packages with base salaries in line with the local cost of living, but yearly bonuses that will allow them to have a similar saving capacity as they would have elsewhere. With today’s technological advances and global comfort with virtual contributions and remote work, most of your senior leaders have the capacity to work for any company in any location, which completely changes their potential earning capacity, particularly if they’re moving from less developed markets or lower-cost locations to those with a higher cost of living and inherently higher salaries. This is the reality of today’s work-from-anywhere world.
In addition, you should make at least a subjective assessment of each of your key leaders’ strategic importance, by pondering their combination of competence and potential against the criticality of their roles, the ease of replacing them, and the expected market demand for their roles. Once you have identified your most strategic leaders, you should get a basic sense about the competitiveness of their compensation packages. The rapid pay distortions caused by high inflation and the changing dynamics of talent demand can rapidly make your compensation packages unfair for your most strategic talent. While compensation should not be the top motivator for your best talent, research shows that even our primate cousins get seriously offended (and literally quit) when they receive unfair rewards.
4. Decisively launch a focused hiring effort
To be clear, we firmly believe that lasting greatness is built primarily by hiring great people early in their careers and developing them internally. This article on “The High Cost of Poor Succession Planning” shows how for large (family and non-family) public companies, the practice of hiring excessively from outside at the very top (and particularly for the CEO role) is costing global investors a trillion dollars per year. Developing your top leaders internally should therefore be the rule.
However, visionary leaders should not only follow this rule, but also realize when it is time to make an exception. At a memorable partners’ meeting of one of the finest global professional service firms — a company that took pride in never hiring anyone from a competitor or as a partner — the CEO proposed hiring a competitor as a very senior partner to lead their largest global market. One of the partners asked the founder of the firm, who as a non-executive Chair was sitting quietly at the back of the room, what he thought about such a dramatic departure from tradition. He stood up, solemnly, and said: “Stupid people have no rules; clever people have clear rules and follow them with strict discipline; but geniuses know when to make an exception.”
In today’s unprecedented times in the labor markets, when nearly 40% of employees are considering leaving their jobs over the next 3 to 6 months, we believe that — like that founding Chair — visionary family leaders should be open to capturing a unique opportunity for hiring exceptional talent.
While this piece of advice may be difficult to swallow for family firms facing difficult times, it is precisely those firms that might find this recommendation most powerful. Rather than myopically focusing on cutting costs to survive, they should realize that some of the most attractive opportunities for future growth during crises come from selectively hiring stars away from competitors.
Unlike the durable goods company above, another family business we studied used the Covid phase to expand aggressively, even though they were also significantly hurt by the pandemic. Their brave ambition in trying times included multiple acquisitions of businesses and talent in different parts of the world. The family was particularly thoughtful about how to manage talent in existing and acquired businesses. At the very beginning of the pandemic, they internationalized their board, bringing in directors with different skill sets, business, and geographic perspectives. They recrafted their communication strategy by highlighting the importance of their purpose, their care for the environment, their focus on diversity, and — above all — candidly acknowledging the challenges ahead. As a result, they have not only mastered talent retention, but have also successfully integrated their recently acquired talent.
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We live in unprecedented times, when family businesses not only compete against their peers, but also face great uncertainty about the future of many of their traditional businesses and markets. This poses not only a performance and profitability challenge, but even a potential existential threat to their own identities. But it is precisely in these trying times that keeping the family together while preserving (and even capturing) top talent will allow family businesses to leap ahead of their competitors and never look back.