Dear Stephen,
I seem to remember reading in this column that you quoted Jack Welch (who passed away in 2020), the former chairman and CEO of General Electric, turned author and business guru. He had a policy of firing the bottom 10% of his C-suite executives annually based on their performance reviews.
I’m a partner in private equity, and our firm has recently started investing in the interior furnishings industry. I’m now realizing that the furniture and textile industry is much smaller and very different from many of the industries our fund typically invests in. For one thing, the hiring and firing practices seem very different from what I’ve experienced in other sectors. For example, our firm is encouraging the CEO of one of our interior-industry investments to emulate the Jack Welch theory by sacking those with the poorest performance reviews.
Revenue is an obvious factor, but it’s not the only issue causing problems. We also have challenges in operations, marketing, and even customer service. Is it just me, or is this industry slow to make any personnel changes? And why is that? I’ve also observed very little hiring done “outside the box.”
I’ve been reading your column to learn more about the interiors industry. Your insights have been valuable professionally, but I don’t want to rock the boat with this company unless it’s the right thing to do. After all, firing 10% of the executives is a significant shake-up for any organization.
What are your thoughts about implementing this percentage of change annually?
Signed,
Should the Heads Roll?
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Dear Heads,
My motto is consistent here: you should take a long time to hire and be quick—very quick—to fire.
As for your specific question about quoting the late Jack Welch and his “10% theory,” here’s what I think:
Welch was an executive from another generation—and perhaps even another era—than today’s workplace. However, his advice is still valid. I encourage all my clients in the interior furnishings industry, especially Presidents and CEOs (or in many cases business owners), to fire poor-performing executives at the start of the fiscal year, which is typically a calendar year in this industry.
The 10% figure, to me, is less relevant because it depends on the size of your company. You don’t want to fire indiscriminately. What’s important is to ensure poor-performing executives are dismissed, period. The number is symbolic.
Most companies we recruit for are privately-owned, multi-generational manufacturers where an abrupt firing does not have a negative effect. Instead, it shakes up the remaining executives from top to bottom and signals that you’re serious about performance. If your fund has invested in or purchased one of these companies, don’t let the former owners or senior executives fool you—there are no sacred cows.
By the way, your observation is correct: the interior furnishings industry is very status quo when it comes to hiring. It’s often easier to hire someone from a competitor who already knows the business. Sometimes that’s beneficial; other times, it’s not. Hiring “outside the box,” as you put it, is almost unheard of in this industry.
One of the most important things I’ve learned over the years is that the interiors industry, especially manufacturing, is a very people-centric industry. Many of the largest manufacturers are privately-owned family businesses, which makes firing employees difficult. That’s nice for underperforming employees with bloated salaries, but when outside investors like you enter the picture, we often see significant changes at manufacturers and dealers alike.
This is why I encourage family businesses to bring in outside professional CEOs. A CEO or President who respects the family’s core values can still make executive decisions based on performance while maintaining those values. This includes firing those who don’t make the grade. If your company is publicly traded, it’s even more important, as you must answer to your shareholders.
As you pointed out, it’s not always about revenue issues, and the “10%” concept doesn’t need to apply solely to the C-suite. Underperformers can be found in every department—customer experience, marketing, manufacturing, etc.—and action should be taken.
Private equity investors smart enough to acquire existing manufacturers and merge companies should also be adept at causing heads to roll. Mergers and acquisitions often result in increased overall employee performance. Should you pursue this, you will likely see increased revenue and, ultimately, higher profits. Senior executives reading this should also consider some shake-ups if they have non-performing team members. This applies to CEOs at both publicly traded and private companies, as well as partners in private equity firms overseeing new investments. If you bought it, and it’s broken, fix it.
Don’t fire for the sake of firing; do it because there are legitimate performance issues. You’ll be glad you did.
Signed,
Stephen