When former Zale Corp. CEO Theo Killion shared his leadership lessons of turning around Zales at a recent NACD TriCities Chapter program in Austin, Texas, it jogged some childhood retail memories for me.
Growing up in the 1960’s, my small hometown of Marshville, North Carolina, boasted a thriving town square of mom-and-pop stores. Because my family’s home was a hop, skip and a jump from these businesses, they became my playground. I was their frequent visitor, and with those visits came benefits. For example:
Remember when white go-go boots were all the rage? Mr. Gaddy, who owned the shoe store, made sure my sister and I scored pairs from his first shipment.
As a child, I received a personal call from Mr. Creech, the toy store owner, when his long-awaited skateboards arrived.
One spring, I stood with other locals as the Chrysler dealer eagerly removed the drop cloths revealing that year’s beautiful new big-fended models. (The fact the dealership offered up lots of free doughnuts, coffee, and soft drinks didn’t hurt either.)
I was rapt throughout the program as Melissa Fruge interviewed Killion, a modern-day version of my favorite childhood shop-owners, but on a grander scale.
Zales was on the brink of bankruptcy in 2004. Something had to be done. The bold and unvarnished self-assessment undertaken by the company’s senior leadership uncovered the business’s truths. These revelations, combined with sheer perseverance not to fail, brought the national jeweler back from the edge.
Here are some of my top take-aways from Killion about what executives and boards should do to turn around a struggling business:
1. Stay humble. Killion prefaced his remarks by stating that they were his opinion, and that many of the tenets he spoke about originated from great thought leaders. A mark of a strong leader is his or her ability to acknowledge with humility the admired ideas of others.
2. Interim in any title keeps you focused. By the time Killion took the reigns, Zale Corp. had had six CEOs in 10 years. When Killion’s best friend was fired as CEO, the board needed a quick fill. Killion was named interim CEO—leaving him keenly aware that he was considered temporary. He entered the role ready to make the most of the time he had.
3. Follow the money. Zales had six short months before its cash ran out. The company was in desperate need of an equity infusion. From day one, Killion and his finance team were reaching out to possible providers.
4. Dig deep for insight. Over a three-month period, Killion and his two-member strategy team worked 12- and 14-hour days, including weekends, to put a decade of operational decisions under a microscope. They carefully ferreted out what worked, what didn’t work, and why. They then presented these findings to the board. Killion observed and reported that management’s bad decisions were made on the board’s watch. He wanted the board to feel the same deep discomfort that the executive leadership team was feeling.
5. Detail the new strategy. Zales’ new strategy document totaled 150 pages and spelled out in clear, concise details what the company would do going forward—and why. For example, severe cost cutting had reduced the customers’ experience of buying an engagement ring into a commodity. Consider, for instance, that the customer left the store with the ring—which often times is one of the most meaningful, expensive jewelry purchases a person will make—in a plastic bag.
The new strategy brought customer emotion and meaning back to a purchase at Zales. The purchase process was no longer treated as a transaction, and store training ensued to make it a well-crafted, loving, and memorable customer experience.
6. Flip the pyramid. Before Killion stepped in, the leadership philosophy of the company placed management at the top of the pyramid. The pyramid was inverted and a customer-focused culture was born. It looked like this:
Top tier: customers of Zales’ 1,100 stores;
Middle tier: 12,000 employees; and
Bottom tier: corporate management.
7. Think like Jeff Bezos. Bezos has built Amazon.com to be customer-obsessed, keen on technology and analytics, and is always testing new concepts. Killion sees this as a road-map for any retailer succeeding today.
8. The nominating and governance committee is key to matching strategy to board composition. Killion pointed out that Zales needed board directors with skill sets that matched the company’s five-year plan. Retail expertise was a must, and the nominating and governance committee needed to ensure its goals matched those needs. This committee must ask itself what skill sets the business needs. In retail today, Killion advises, a board member with deep literacy in e-commerce is essential.
9. Apply lessons from Vanguard’s 2017 Open Letter. Killion admires Vanguard CEO F. William McNabb’s open letter to public company boards of directors. Vanguard has 20 million investors, and currently is the second largest fund manager in the world. McNabb is keenly aware of the responsibility boards play in the success of the companies that the fund invests in. Here are the highlights of McNabb’s message to directors that especially resounded with Killion:
Sell quality things.
Practice good governance.
Pay close attention to the compensation program crafted for senior management.
Understand the company’s risks, and especially the role of climate risks.
Inclusion of women and other directors from diverse backgrounds on boards is important.
10. Brick-and-mortar retail is not dying. Instead, Killion believes retail is entering its golden age partly because of the many ways today’s retailer can reach a customer and make a sale.
The program is available to view via NACD Texas TriCities Chapter’s YouTube channel. It’s a meaty discussion and well worth your viewing time.
By the way, to this day I’m a recreational bargain shopper. Simply walking into a favorite store lifts my spirits, and I’m glad that Killion and the directors of companies are working to help the retail industry thrive in the twenty-first century marketplace.
“Tone at the top,” a phrase that’s bandied about a lot these days, tends to surface any time a scandal arises. When something goes bump in the night, the tone of the top tier of management—i.e., the CEO and his or her chief lieutenants—suddenly comes under scrutiny. As a long-time corporate executive and member of numerous boards, I would submit that we ought to examine the leadership style and tone set not only by the management team, but also by the board.
Wisdom has it that when it comes to long-term performance, culture beats strategy. I happen to agree, which raises the question, “Are we spending enough time on tone at the top at the board level?”
Below I reflect on some of what it takes for a board to practice oversight with a guiding tone of continuous improvement.
What Does Tone Mean for the Board?
Originally tone at the top was narrowly defined as a company’s internal financial controls, but today it refers more broadly to general corporate culture or ethical climate. It’s a normative system of values that’s very personal to each company. Simply put, “It’s the way we do things around here.”
Every company has a “way,” but what is it? Is it articulated? More narrowly, does your board’s way mirror the same tone that has been identified as the greater tone of the company? Conversely, does the board’s tone set the right tone for the rest of the company? While it can be difficult to articulate tone in words, you know it when you see it. Make time to describe what you observe and commit it to policy or collective memory.
As a lead independent director, the tone set by the board should matter. First and foremost, an ethical, positive culture prevents your company from getting into trouble, but more importantly, it helps the company perform well if the standards, rules, and expectations are cleared understood. The same should stand in your boardroom, and the lead director can help articulate the tone to his or her peers.
Get Tough On the Soft Stuff
The average board spends a lot of time on administrative tasks, firefighting, and worrying about management. Often times the soft stuff gets neglected as a result. There’s a huge emphasis on financial results, to be sure, but how much time in each meeting does the board spend on leading indicators versus trailing indicators? Given how hard it is to develop a strategy that lasts more than a minute and a half in today’s dynamic world, we need to ask what the company is doing to prepare for what’s completely unexpected.
Imagine, for a moment, that you’re leading a mining company in the 1850s. Gold has been discovered, and you know you’ve got to get to California, but because it’s such new territory, you’re not quite sure how to get there. There’s not enough room in the wagon train for all the food, water, and bullets that you think you’ll need along the way to sustain and protect your crew. How do you decide what to take? What bets are you going to make?
Boards do talk about bets and the risk and reward trade-offs related to their business, but does your board talk about who should be on the wagon train? Do they discuss what kind of leadership DNA (not resume or skills) they need as independent directors and how to find them? Do they ask hard and honest questions about the roles, responsibilities, and performance of directors?
The lead director of your board is uniquely positioned to guide his or her peers through tough conversations about performance, whether current directors are embodying the right tone, and how to get tough when hard decisions about staffing have to be made to get to the proverbial gold at the end of the road.
Ours is a rapidly changing world. Boards still may be putting too much emphasis on “knowing the business,” meaning knowing today’s business model and how to provide oversight of that model accordingly. But many (maybe most) of those business models are going to be extinct soon. Consequently, companies would be better served by boards that spend more time on the key business processes that are germane to any business, as well as on—you guessed it—corporate culture.
It is up to the lead director to spearhead this effort by working closely with the board’s individual directors and committee leaders to find the right people and ensure that they work together productively—with each other as well as with management.
How Do You Know You’ve Gotten it Right?
Do research. Very few companies spend time understanding what their “tone at the top” is and then improving it on more than an ad-hoc basis. Tone at the top is not what the board thinks or management thinks. Rather, it’s what employees, customers, and whole communities think about the actions and performance of the whole body of the company—including the board. Companies routinely do 360 reviews of management to “see how we’re doing.” Why not ask the same questions of the board?
This is another place where the lead director can make a difference. He or she should have the courage to measure the performance of the board and its members.
As directors, we wouldn’t dream of neglecting to measure the performance of management. Shouldn’t we be just as rigorous and demanding of ourselves?
Roger O. Goldman is chair of the board of American Express Bank, lead director of Seacoast Bank, and former chair of the board for Lighthouse International. Opinions are his own.
Take a look at the business section of any publication today and it’s clear: discussions of corporate culture have leaped from the pages of academic commentary to the agendas of directors across the world. Between the coverage of misdeeds at Wells Fargo & Co. to reported gender bias and workplace toxicity in the technology sector, the issue of a company’s culture is front and center. Investors, boards, and management teams are seeing direct impacts to shareholder value, which is leading companies to pay attention to their culture without any regulatory mechanism in place encouraging them to do so. They are trying to understand the common current that runs through their organization and whether it creates an environment for value creation or an environment that hinders it.
How companies evolve beliefs and procedures around hiring, retaining, developing, and rewarding a workforce—and how they implement them practically—is what defines a corporate culture at its core.
Thinking about culture in this way does require expanding one’s perspective on the topic. Similarly, when it comes to aligning compensation with that culture, we have to think broadly. Constructing executive pay programs so they support the organization’s long-term business strategy has become a fairly steady drumbeat, but is that executive pay program also in line with company-wide recognition and rewards systems? Ideally, it should be. A productive compensation philosophy is one that is well-known and well-understood at all levels and meets the achievement and recognition needs (both financial and non-financial) of its workforce and management team.
There are two straightforward questions a board can ask to uncover the firm’s true philosophy when it comes to talent development, career progression, and compensation:
how do people move up within the organization; and
what can stall or derail a career?
The answers will point directly to the culture and have tremendous influence on the company’s success.
Operating under the assumption that a “good” culture is the goal, in a positive environment there is always a high level of transparency. Employees up and down the command chain understand the system, believe it is fair, and have a clear idea about how they can advance their careers. There is consistency at all levels in the kinds of behaviors that are compensated in some way and it is clear that actions which run counter to the company’s values are not rewarded.
Accountability is a key part of the system. Personal performance and team and/or business unit achievements are evaluated on the basis of well-established goals and metrics. And finally, a degree of flexibility offers room to evolve strategy or take into account changing business needs or circumstances.
Perhaps what’s most important for boards and management to know is that this scenario is not mythical or unattainable. There are companies well known for their vibrant, performance-based cultures and the long-term value creation that follows. What they share is a company-wide compensation philosophy that carefully tracks to their business and talent strategies. They implement programs that appropriately incentivize, but also more holistically develop talent, understanding that people are at the heart of the company’s success.
As readers of this blog can attest, the role of the board is going to evolve. Today, we are seeing a demonstrated need for greater stewardship over corporate culture. As this and other “soft” issues become increasingly important to investors and impactful to the bottom line, the compensation committee will continue to find itself in a unique and powerful position to effect change and build value for the organizations they serve.
David Swinford is president and CEO of Pearl Meyer.