CHAPTER 2
HOW TO GROW THE COMPENSATION PIE: THE LEADERSHIP FACTOR
“A leader takes people where they want to go. A great leader takes people where they don’t necessarily want to go, but ought to be.”
—Rosalynn Carter
Do not bemoan the fact there is shortage of future leaders in your firm. In fact, there is a shortage of leaders not only in the accounting profession, but in corporate America as well. The shortage is not going away, so it will be up to you to identify and develop new leaders.
You may be wondering what it takes to be a successful leader in today’s rapidly changing, often confusing, and intensely competitive environment. To that end, you may want to throw out what you currently believe about leadership and what you currently believe leaders do. A challenge for most accounting firm leaders, however, is they have a lot invested in the past. They got to their current positions because they did incredibly well at yesterday’s activities. One common characteristic of unsuccessful leaders is that they are often committed to outdated strategies and ideas. “Anyone who believes that anything they have done in the last 20 years makes any sense at all compared to the next 20 years should not even be in a position of leadership,” argues management guru Tom Peters.
Take a minute or so and ask yourself the following questions to determine your readiness to become a more effective leader:
▮ Am I operating based on new beliefs?
▮ Am I moving the firm’s strategic vision ahead?
▮ Do I challenge the status quo?
▮ Am I willing to let go of the past?
▮ Do I rethink my basic assumptions about the firm, its competitors, and the market?
▮ Do I understand what makes a good leader?
▮ Do my fellow owners challenge my leadership techniques?
▮ Have I changed my leadership beliefs in the last five years?
If you answered no to three or more of the above questions, you are likely committed to old beliefs. The first step in growing the compensation pie is becoming a real leader in the firm.
This chapter discusses what it takes to be a leader, what leaders do, and how to be a leader.
WHAT IT TAKES TO BE A LEADER
There has been much research on what it takes to be a leader, and you will find countless sources to support any one of the many positions. There are those who argue that great leaders are born (the personality theorists), and there are those who observe leaders in terms of task-orientation and relation-orientation (the behavioral theorists). Strong leadership has also been seen to depend on adjusting one’s style to the styles of others. Most recently, principle-centered leadership has become the hallmark of sound leadership.1 Peter Drucker perhaps captured the essence of leadership when he wrote, “Management is doing things right; leadership is doing the right things.”
Robert W. Terry, the author of Authentic Leadership: Courage in Action, notes, “Leadership is not to be reduced to techniques, quick fixes, or heroics. It is to be viewed as a particular mode of engagement with life, requiring a lifelong commitment to growing toward human fulfillment.”
WHAT LEADERS DO
The day of the autocratic and hierarchical leadership styles and methods no longer work in today’s professional environment. While there are countless things that leaders do every day, we have identified, based on our work with hundreds of firms, seven key activities that make for successful leadership.
Leaders Create a Shared Vision
No matter where you want to go in life, you need a vision, a point of arrival. In Alice’s Adventures in Wonderland, Alice asked the Cheshire Cat, “Would you tell me please which way I ought to go from here?” The Cat responded, “That depends on where you want to get to.” Alice then said, “I don’t much care where.” And as the Cat told Alice, “Then it doesn’t matter which way you go.”
There should be little debate about the significance of vision. It is virtually impossible for any firm or business to operate without one. Joanne G. Sujansky, Ph.D., the founder of KEYGroup® and the author of six books, including The Keys to Mastering Leadership, observes in “Keys to Unlocking Leadership in Your Organization” that “Dynamic leaders consistently develop, articulate and reverberate from a clear, concrete and inspiring vision. They draw out natural desire and build unity and momentum through an exciting and colorful picture of possibility.”2
Vision is not just for the leader. Employees need to know where the firm is headed. Does the firm want to win the championship or perform well in the race, or does it just want to be a mediocre player? Without clear direction, firm leaders and employees surely flounder. They must see the big picture. If they cannot, there is little motivation and congruence. Employees are motivated by a vivid sense of the future. They like to work for what could be, not what is. Sam Allred, founder of Upstream Academy, helps firms capture the essence of vision when he asks firm leaders to paint a picture of what the future would look like to owners, employees, and clients over time. It is when people can see and are committed to the vision that they are able to accomplish great things. Perhaps the greatest national vision during the past 100 years was created on May 25, 1961, by President John F. Kennedy in a speech to a Joint Session of Congress about his vision of landing a man on the moon and returning him safely to earth.
I believe we possess all the resources and talents necessary. But the facts of the matter are that we have never made the national decisions or marshaled the national resources required for such leadership. We have never specified long-range goals on an urgent time schedule, or managed our resources and our time as to insure their fulfillment. . . .
This decision demands a major national commitment of scientific and technical manpower, material and facilities, and the possibility of their diversion from other important activities where they are already thinly spread. It means a degree of dedication, organization, and discipline which have not always characterized our research and development efforts.
Before we leave the topic of leaders creating a shared vision, we invite you to consider the following questions:
▮ What is your personal guiding vision?
▮ What is the guiding vision for your firm?
▮ How do you describe that vision to others?
▮ Will everyone be able to tell when you reach it?
▮ What will it mean to you and other owners if and when you reach it?
▮ What will it mean to employees?
▮ What will it mean to clients?
Certainly, President Kennedy’s vision of space exploration created an exciting and colorful picture of possibility. Does your firm’s current vision articulate a clear and inspiring future?
Leaders Make Things Happen
Peter Drucker, in The Leader of the Future, observes that “An effective leader is not someone who is loved or admired. He or she is someone whose followers do the right thing. Popularity is not leadership. Results are.”3 Essentially, a leader is someone others choose to follow. To get results and to influence people to choose to follow, successful leaders often take risks, and they do so with visibility and vulnerability. Vulnerability permits them to be open about their weaknesses, fears, and behavior. Leaders grow and develop through action.
Leaders Take Ownership
True leaders understand the firm must continue to evolve—to grow and change—and the journey from where they are to where they want to be is often as daunting as a trip to the moon. Hence, effective leaders lead change initiatives by taking overall ownership of the desired changes and managing both the barriers that get in the way and the stress that accompanies any change initiative. Good leaders also take complete responsibility for their own decisions and actions. When things go wrong, they do not blame others and excuse themselves. When things go right, they share credit with others rather than taking it themselves.
This is especially true when changing or modifying a compensation system.
Leaders Build Teams
Leaders realize they cannot do it by themselves. And one can only be a positional leader if he or she has followers. Effective leaders surround themselves with owners and team members with different perspectives, talents, and interests. This diversity of talent and perspective is necessary to drive change in an organization.
Building teams is one way of unlocking your leadership potential. Your firm is certainly a team, but you may also have niche teams, service teams, engagement teams, and specialty teams, among others.
This is where the well-known practice of using mistakes as learning opportunities provides a key to unlocking talent. Winning leaders encourage team members to take calculated risks, to pick themselves up when these risks don’t “pan out,” and to use mistakes as learning opportunities. When people know that mistakes are understood as a part of our experience, they will be more creative, take more risks, and become stronger and more adept in the process.
We believe effective leaders also become masterful coaches. They not only endeavor to develop and improve their coaching skills, but they also benefit from being coached. They become masterful listeners to ensure they understand others and become keen observers to ensure they catch people succeeding and openly praise them.
Leaders Motivate by Modeling
Leaders must first learn to lead themselves before they can lead others. They must model to motivate. Successful leaders motivate others not only by communicating shared vision but also by their own consistent behavior and principles.
While successful leaders often exhibit a high degree of integrity, authenticity, courage, and curiosity, they create trust. We prefer Patrick Lencioni’s definition of trust as found in his work Overcoming the Five Dysfunctions of a Team: “Trust is not the ability of team members to predict one another’s behaviors because they’ve known each other for a long time.” He adds, “Trust is all about vulnerability. . . . Vulnerability-based trust is predicated on the simple and practical idea that people who aren’t afraid to admit the truth about themselves are not going to engage in the kind of political behavior that wastes everyone’s time and energy, and more important, makes the accomplishment of results an unlikely scenario.”4
Leaders Look Behind the Numbers
Don’t get us wrong. The numbers are important. They serve as a reality check; they allow you to see if you are on course. And while your fellow owners may judge you by the numbers you deliver, leaders realize there is more to running a firm than simply looking at the numbers from time to time.
Numbers alone may measure a firm’s short-term success, but they are not a true measure of the firm’s long-term success. Many examples prove this, and the grand-daddy of all is Enron. In his 2003 article entitled, “Rethinking the Leadership Agenda,” author Rowan Gibson cites noted strategist Al Ries as saying, “A company being run by the numbers is a company being run into the ground.”
Instead of creating genuine growth by developing a meaningful and sustainable strategy for wealth creation, many leaders do everything they can to create an illusion of growth. They may reduce staff, cut costs, and look for efficiencies in business processes. Almost no one, however, has built a sustainable business by cutting costs.
Today’s general business culture suggests a fanatic obsession with financial results, but a leader’s focus should be on, as Stephen R. Covey put it, “Focusing on results today in a way that helps us get even better results in the future.” It should be on creating a brilliant and differentiated competitive strategy for the firm—one that has well-aligned systems, structures, and processes to support it.
Leaders Observe and Listen
Leaders watch what is going on in the environment. Leaders also listen to anyone and everyone, including fellow owners and employees, clients, competitors, and leaders in other industries. They know this informal feedback system is critical for long-term success and effectiveness. By listening, they often make better decisions because they learn more about those things that drive results (driving forces) and those things that get in the way of goal accomplishment (restraining forces).
HOW TO BE A LEADER
In its workshop The 4 Roles of Leadership, the FranklinCovey Company categorizes many of the activities previously described into four key roles that leaders play: pathfinding, aligning, empowering, and modeling.
In pathfinding, the leader helps all members of the firm understand the internal and external environment; identify and prioritize client, employee, and other stakeholder needs; and execute strategies to meet those needs.
In aligning, the leader develops organizational work processes, structures, and enabling systems to support effective strategies.
In empowering, the leader creates conditions that enable and support all employees in contributing their maximum potential to fulfilling the mission. Great leaders recognize gender differences and generational differences in the workforce and realize they must allow the future workforce to be involved in painting the new picture of accounting firm leadership.
In modeling, the leader establishes trust by walking the talk; setting the example of character and competence; and living the firm’s mission, vision, and values.
Another key to successful and enduring leadership is resilience—the ability to bounce back from crises, sudden or continuous changes, and the intense demands of today’s organizations. One of the most important things you can do to improve resilience is to have good physical health. There is nothing new about the importance of good nutrition, sufficient rest, and meaningful playtime. Leaders live with great challenges and demands; the ones that ride the whitewater of today’s business world with composure maintain their reserves and make energy withdrawals without breaking the bank.
You do not need to be a rocket scientist to develop leadership skills. And while it is a fairly straightforward undertaking, it is not easy. It requires true commitment and real effort every day. In “Five Steps to Becoming a Stronger Leader: A Challenge for 2004,” Morrie Shechtman noted, “As you may have come to suspect, embracing the hard work required to become a better leader will not just affect your life at the office. The changes wrought by following these principles will ‘spill over’ into your personal relationships as well. That’s a good thing. What you do for a living is an organic extension of who you are, and vice versa. If you compartmentalize, you compromise your core values.”5
FINAL THOUGHTS
Not many consultants relate firm leadership and execution with owner compensation. But without effective leadership there would be no profits to distribute. One of management’s overriding responsibilities is to increase owner value.
If you do not grow as a leader, you are choosing to settle for mediocrity. That may get you by for a short time, but it will not carry you through the whitewater that lies ahead. Real leaders constantly diagnose the situation, then design, develop, and implement solutions. This includes how compensation is determined. Today’s leaders focus on both the now (current production) and the future (building production capacity) and reward accordingly.
To drive above average results, successful leaders clarify expectations and tasks, and build strong and trusting relationships with other owners. There is no more powerful way for gaining commitment, building loyalty, and strengthening the firm. Yet, as with vision, it is not enough to simply clarify and articulate expectations. It is necessary to set goals and specific targets so that success can be easily identified, measured and rewarded.