Hiring someone to take one’s place is perhaps the hardest job the owner or chief executive of a retail company ever faces. As difficult as it may be, the person assuming the responsibility often has the equally daunting task of outperforming all historical precedents without actually altering how the company has been operated.
In family-owned businesses, the challenge is even greater. Not only do these retailers expect a superhero who can leap comp-store sales in a single quarter, they need a leader who can tap dance on water to whatever tunes the family members, shareholders and board of directors choose to sing.
At the inaugural Main & Wall Conference hosted by Chain Store Age and David N. Deutsch & Co. of New York City, retailers and financial experts characterized this classic conundrum of management succession as a superhero syndrome.
“There is misplaced emphasis on the silver bullet or superhero strategy,” stated Gary Sugarman, COO of Steve & Barry’s University Sportswear, Port Washington, N.Y. “In many cases, a retail company may recruit super talent, but if the existing management or owners have not embraced moving forward, then it’s not going to be a silver bullet.”
Sugarman, who has more than 16 years experience as a retail executive, including president of Delia’s Retail Corp. and COO of the 100-store chain American Retail Enterprises, was recruited in 2004 by co-founders and co-CEOs, Steve Shore and Barry Prevor, along with company president Andy Todd, to help grow Steve & Barry’s.
The company has since skyrocketed with the opening of more than 170 stores and expansion into 34 states; but Sugarman is quick to acknowledge this resounding success has nothing to do with superpowers, and everything to do with cultural compatibility.
“When businesses are recruiting executive leaders, it is imperative to bring in someone who fits the culture of the existing company,” noted Brian Meany, managing director of New York City-based Herbert Mines Associates and moderator of the Main & Wall session on management succession.
In family-owned businesses and privately held companies led by founding entrepreneurs, Meany asserted, “It is important to have people on the board who can stand apart from the emotion of the business.”
However, another problem with the “superhero syndrome” that evokes strong emotion from both sides of the negotiating table is the affordability factor.
“The cost of buying someone out of an equity position is a real eye-opener for most entrepreneurs,” said Meany.
Saul G. Berkowitz, managing director of New York City-based RSM McGladrey, advised compensation based on a “pay-for-performance” model, whereby executives come in for a base salary, and additionally are paid a percentage of any profits that exceed projected expectations.
Unfortunately for most mid-market retailers, the bottom-line reality is that they cannot approach the competitive compensation packages offered by large, publicly traded corporations. The good news is that recruiting a superhero often means appealing to that person’s core values and desire to affect change. It comes back to issues of cultural compatibility and personal dynamics.
“You’re asking successful executives in comfortable jobs, making a lot of money, to take a big risk,” said Sugarman. “No matter what you do about [compensating for] equity, you are really entering into a marriage with the executive.”
As the price of hiring super executives continues to escalate, mid-market retailers would do well to look for Clark Kent rather than Superman.
“We do search for superheroes, but I challenge myself to look instead for that next-generation superhero—someone who has been exposed to general management but has not made it to superhero status yet,” stated Ron Beegle, principal, Goode Partners, Arcadia, Calif.
The take-away message: Look more diligently for the undiscovered, talented executive who is willing to roll up his or her sleeves, don the cape and tights, and make your business a superpower.