Ed. note: This is the latest installment in a series from Bruce MacEwen and Janet Stanton of Adam Smith Esq. and JDMatch. “Across the Desk” takes a thoughtful look at recruiting, career paths, professional development, human capital, and related issues. Some of these pieces have previously appeared, in slightly different form, on AdamSmithEsq.com.

One of the thorniest 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 bag of tricks, 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 on the op-ed page of the Wall Street Journal (sub. req.). 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.

I have news for you, and I speak from personal experience of having once found myself, through unexpected executive changes one level above me, suddenly in an organization where I felt unwelcome and knew I would not and could not do my best: When “the conversation” finally happens (if the poor-fit individual doesn’t act first), it’s actually welcome. It’s a relief to hear the truth and to know one is on the path to more productive and happier days.

[T]he bottom 10% is never surprised when the conversation sometimes turns, after a year of candid appraisals, to moving on. Nor are they summarily shown the door. When differentiation is done right, their manager helps them find their next job with compassion and respect.

Differentiation is not something to be feared, dumbed down or politicized, but instead needs to be understood and implemented. Cruel? No way. Harsh? Just the opposite. With its candor and transparency, differentiation provides dignity, develops future leaders, and creates winning companies.

So there you have it: “Differentiation” 101.

Now of course it’s up to you:

  • Be clear-eyed.
  • Speak candidly.
  • Act from courage, not cowardice.
  • And remember every individual should be putting the firm’s interests ahead of his or her own. Yes, this includes you.

Jack Welch: ‘Rank-and-Yank’? That’s Not How It’s Done [Wall Street Journal (sub. req.)]

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