One of the thorniest and most convoluted issues any leader has to deal with is telling senior-level underperformers that they’d be better off elsewhere. It calls on every skill in the manager’s trick-bag, from financial analysis to subtler cultural and personality judgments, and accurate perspective on the impact on the organization overall of asking a high profile person to leave.
To be honest, it’s also one of the most difficult challenges we deal with in advising firms about their paths forward. Although at times it’s crystal clear what needs to be done, far more often you have no such luxury of being able to shortcut analysis and judgment, and you have to work through all the potential interactions and repercussions to decide with some degree of confidence what to do. Then of course you actually have to do it. You’d be surprised—or maybe you wouldn’t—how often otherwise hard-headed and decisive leaders never quite get around to that part of it.
So it’s rare that you find as pithy and distilled a dose of wisdom about all this, coming from a person with decades of occasionally notorious actual experience in this area, as that provided by former GE CEO Jack Welch a few days ago on the op ed page of The Wall Street Journal. Here’s Welch warming up (emphasis mine):
Every now and again—like just this week, for instance, with the announcement that Microsoft will be changing its performance-appraisal system—some news event unleashes a fresh round of debate about the management practice dubbed “rank-and-yank.” That’s the term used to describe how companies supposedly identify their worst performers once a year and then, boom, fire them.
It makes me want to scream. And I know I’m not alone.
Because most experienced business people know that “rank-and-yank” is a media-invented, politicized, sledgehammer of a pejorative that perpetuates a myth about a powerfully effective real practice called (more appropriately) differentiation.
Unlike “rank-and-yank”—I hate even using that term—differentiation isn’t about corporate plots, secrecy or purges. It’s about building great teams and great companies through consistency, transparency and candor. It’s about aligning performance with the organization’s mission and values. It’s about making sure that all employees know where they stand. Differentiation is nuanced, humane, and occasionally complex, and it has been used successfully by companies for decades. Maybe that’s not as headline-worthy as you-know-what, but reality rarely is.
Welch notes that everything has to begin with relentless (“exhaustive”) communication of the firm’s mission and values—where it’s going and how it will behave in order to get there. Then you have to let everyone, which means everyone, know where they stand at least once and preferably twice or more a year:
First, candor is absolutely essential to make differentiation work. Second, differentiation’s performance appraisals are not—I repeat, are not—just about “the numbers.” Yes, the system does assess quantitative results [but] it also looks just as carefully at behaviors, the qualitative factors. Does this person embrace the company value of sharing ideas? Does the employee relish building leaders? What about going the extra mile to delight customers?
It’s far too easy, and frankly lazy, to assume that everyone instinctively knows where they stand. They don’t. Welch guesses maybe 1 person in 10 feels confident about how their firm perceives them:
[O]ver the past 12 years, I’ve spoken to more than 500,000 people around the world and I always ask audiences, “How many of you know where you stand in your organization?” Typically, no more than 10% raise their hands. That’s criminal! As a manager, you owe candor to your people. They must not be guessing about what the organization thinks of them. My experience is that most employees appreciate this reality check, and today’s “Millennials” practically demand it.
Granted, “the conversation” is easy with your stars. You love them and they know it. With the 70% or so who are loyal troops, you can focus on explicit guidance about how to improve and contribute still more.
But what about the bottom set? The 10%, the “C’s,” or however you want to describe them?
If you accept the torrent of data showing that we as an industry are afflicted with excess capacity – including in the equity partner ranks – this discussion is not exactly academic.
