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While statistics vary, most human resource professionals would agree that nearly half of all new hires will fail within 18 months of being hired. Of those that do fail, most will fall short of expectations because they lack self awareness, awareness of others, self management and/or interpersonal skills. Using the current vernacular, they will fail because they lack emotional intelligence: EI or EQ.

The cost of a failed hire, measured in dollars, is easily well into the thousands and that includes none of the opportunity cost associated with an employee performing at a substandard level and adversely affecting employee morale, customer relations and/or company programs. Not only is the problem widespread, it is costly.

So what’s to be done? Clearly, no sure-fire recruiting method exists but, as business leaders, shame on us if we don’t strive to improve results. Here’s a suggested approach.

For any truly important position beyond entry-level, the hiring manager and his/her team should identify how the new employee will add value to the organization. What’s more, the team should rank the importance of this role within the department and within the organization, noting that one’s place on the organizational chart may or may not prove indicative. Consider the sales representative who covers the company’s most critical account or the project manager responsible for bringing a game-changing product to market on schedule and on budget. Titles often mislead.

Having determined the importance of a position in terms of the value it adds, the team should turn its attention to the critical performance indicators and, of course, the job description. What must a new hire bring to the table in terms of technical skills and, perhaps more importantly, soft skills… and since the perfect candidate always eludes us, the team should force-rank the needed skills.

The hiring manager with the help of his team must then turn his/her attention to the hiring process and here’s where companies make countless mistakes. Rather than parade candidates through the office and engage them in a series of perfunctory interviews masquerading as due diligence, why not put together a formal, one-day assessment program that would include all top candidates, each of whom would engage in:

1. Individual, one-on-one interviews where the interviewers pose questions from a well vetted list;
2. A case study, introducing a challenging, hypothetical, but realistic, ethical problem and requiring a solution by the day’s end;
3. A writing sample, completed on site, about a personal passion or success story that has relevance to the open position;
4. Individual presentations highlighting the candidate’s greatest professional achievement and summarizing his/her qualifications for the job; and
5. A social outing, e.g., lunch, cocktails and/or dinner where the candidates interact with the hiring team and one another.

Such a program will enable the hiring team to develop a more holistic view of each candidate and to compare the candidates to one another. For example, how did each candidate handle the ethical dilemma presented? What did the team learn about each candidate’s communication skills? Who handled the social setting most effectively? Who was most engaging? Who appeared most genuine?

Putting together a daylong assessment requires the team to develop a robust list of interview questions, a challenging and relevant ethical issue with no clear solution and a schedule free of any conflicts for the assessment team members. Team members must also allocate time in advance to review resumes, LinkedIn pages, social media, etc. and develop their own strategy for questioning.

Done properly, an assessment day will enable the hiring manager/team to sharpen their focus and more effectively evaluate each candidate vis-à-vis the others. Ideally, at the end of the day or evening, the team will reconvene to review the day’s activities, discuss the candidates and determine who, among them, represents the best fit for the open position, the team and the company.

Of course, background and reference checks remain important and here, too, the hiring team should come together and, using information gleaned from the assessment, jointly develop questions for candidate references. This writer believes that the hiring manager should personally conduct the reference checks rather than delegating the task to one for whom the hiring decision has less importance.

Clearly, there is no definitive calculus for hiring professionals but the above approach has proven effective and will doubtless continue to improve new-hire decision-making. For starters, any candidate getting the nod at the end of the day will have demonstrated his/her emotional intelligence and, as suggested above, that’s more than half the battle.

The U.S. Bureau of the Census reports that family-owned and family-controlled companies represent roughly 90% of all U.S. business enterprises. Collectively, these businesses generate 50% of the U.S. Gross National Product and employ nearly two out of every three Americans. In short, family-owned businesses are the backbone of the U.S. economy.

Despite their importance to the general welfare of the country, research shows that two out of three family enterprises will fail to successfully transition from first to second generation ownership. Of those that do succeed, the odds of surviving the second to third generation transition are but 50-50. Why?

A good number of failures result from a lack of leadership. Too frequently, the founder or majority owner steps aside and finds that he/she has failed to develop the necessary bench strength or wrongly assumed another family member would rise to the occasion. Consider Wang Laboratories, the company that pioneered electronic calculators, minicomputers and office automation. Under founder An Wang’s leadership, company revenues grew to more than $3 billion and shareholders had a field day. Then, in 1986, An Wang installed his 36-year-old son, Fred Wang, as president of the company. Fred struggled to lead the company and, for many reasons, it floundered. In 1989, An Wang removed his son and hired professional management but it was too late. The company filed for bankruptcy protection in 1992.

In contrast, Forrest Mars Senior, largely credited with transforming M&M Mars into a global consumer juggernaut, handed the company keys to his sons Forrest Junior and John. Having been determined “not to raise playboys,” he first forced his two sons to learn about business the old-fashioned way, by succeeding and failing on their own, which they did. Then, in 1973, Forrest Senior retired and walked away, having reportedly said to John and Forrest Junior: “Here’s the end of the pool and I gotta kick you in it. Goodbye. I taught you how to swim.” Today, the company has revenues of more than $30 billion and stands as one of the largest and most successful privately held companies in the world. It is managed by a non-family member.

Family businesses seeking to survive a generational transition need to develop a succession plan that includes:

1. A discussion of the company’s strategy to either grow, harvest or divest of its market position;
2. The critical success factors for strategy implementation;
3. An objective assessment the company’s resources and value;
4. A personnel plan that (i) highlights the skills needed for all key roles, and (ii) identifies the post-transition roles of the various family members; and
5. A timeline with milestones to smooth the generational handoff.

Development of a succession plans should involve all family stakeholders as well as the company’s legal counsel, accountants, insurance professionals and business consultants. Good process requires objectivity and external resources afford needed perspective – business owners might be well served to think of third-party fees as investments in the future of their companies’ business, and not as expenses.

For families planning to sell their business, an objective assessment of value will prove pivotal. Here, too, third parties can help keep opinions and emotions at bay while examining the company’s financial health, market position, business opportunity as well as competitive threats and risk. And since a company is ultimately worth only what someone will pay to buy it, the family should identify in advance what it will accept and when it will walk-away.

Most importantly, family-owned businesses should plan for downstream events such as owner/founder retirement or, worse, disability or death. The planning and decision-making process should rely on skills, knowledge of the business and judgment, not lineage, birth date or the family pecking order. Family-owned businesses should plan for the future in the cold light of day.

Acquisitions create excitement. Executives considering the purchase of another company invest long hours thinking about the value of the target company and how it would strategically and financially fit with their own. Across the table, executives considering the sale of company also think about value but they’re often more concerned with cashing out than with future benefits.

Assuming both buyer and seller appear motivated to conclude a transaction, buyers will perform due diligence, devoting time and energy to understanding asset values, free cash flows, markets, key personnel and whatever sources of value they identify. They’ll look for synergies, they’ll value the acquisition and, if all goes well, negotiate a purchase price acceptable to both buyer and seller, and consummate the deal.

Research suggests that only about 50% of all mergers and acquisitions produce the expected benefits so, when considering an acquisition, how can an acquiring company perform more meaningful due diligence? To my mind, buyers must analyze and vet:

1. The opportunity;
2. The people;
3. What can go wrong; and
4. The deal.

Vetting the opportunity means analyzing how both companies create shareholder value and estimating the economic impact of the acquisition, i.e., the value of the new entity vis-à-vis the pre-transaction value of the acquiring company. Will the new entity have greater access to markets, greater capacity, sustainable competitive advantage, new sources of raw materials and products, enhanced skills and know-how? The acquirer’s valuation of the investment will reflect these and other sources of value, requirements for additional downstream investments and the time required to realize the benefits. Offsetting the benefits, of course, is the risk of something going wrong.

The better the acquiring company understands the target company’s business and its ability to create value, the greater the likelihood of realizing the anticipated benefits and creating appreciable wealth for the acquiring company’s shareholders.

An in-depth understanding of the target company’s business also enables sound decision making regarding employees. Will the new entity need to retain a full cohort of employees from both the acquiring and target companies? At a minimum, the acquiring company must identify, retain and keep motivated those individuals employed by the target company who have specific skills, relationships and/or knowledge. Whether you follow Richard Branson, Jim Collins, Peter Drucker or someone else, people make a company and people are, indeed, a company’s greatest asset.

It’s not enough to understand the potential of an acquisition. For the half of mergers and acquisitions that failed to deliver the expected benefits, something went wrong. What? Could it have been avoided? Perhaps, if the acquiring company’s due diligence had included a rigorous debate about potential downstream problems.Acquiring companies must consider what can go wrong and fail to do so at their peril. What assumptions about the target-company’s business, culture and systems underpin the valuation? How do these assumptions allow for market downturns, new competitors or currency fluctuations? Are the assumptions realistic or might they call to mind the following “Dilbert” strip by Scott Adams.Acquiring companies cannot eliminate risk but they can mitigate it. Performing sensitivity analyses and assigning probabilities to potential outcomes will lead to a more robust estimation of future value. Moreover, this effort will help forestall or altogether avoid future problems. At the very least, it will lead to a better understanding of the challenges of forming the new company.

The deal, last on the list, establishes the amount and timing of the acquiring company’s investment. Ideally, it incorporates all potential benefits and known risks, and reflects a shared, fact-based valuation of the target company that appeals to both buyer and seller. However, before consummating the deal, both parties should once more consider the long-term consequences of no-deal. This helps avoid a push for closure because of the time invested to date or, perhaps, the undue influence of commissioned third parties who stand to profit from the deal. At the risk of sounding trite, both companies’ interests are best served when buyer and seller perceive the transaction as win-win.

… and with the documents signed, the real work begins.

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