3 Ways You Can Assess the Cost of a Bad Hire – Managing Director

By Human Capital Group

1st November 2020

Human Capital’s Group most recent webinars are all about the bad hires. What impact can a bad senior hire have on your business and what is the potential cost of it?

There are seven senior job titles that are critical to business success:

• Managing Director
• Land Director
• Construction Director
• Commercial Director
• Technical Director
• Finance Director
• Sales Director

The topic is massive, so we have broken it down into three webinars where we discuss the different positions and what the ramifications can be if the wrong person is picked for the job.

Leading the analysis with our Managing Director Gerard Ball, are two industry veterans:

First on the bill is Andy Beasley. Holding the position of Regional Chairman for around 10 years at Bellway Central, Andy has a cumulative 40 years’ experience in housebuilding. As a result, he has certainly experienced first-hand the impact a bad hire can have – as well as having the wisdom to advise what to do when things may not go to plan.

Darren Humphreys is our second guest. Having been the CEO at SME Rectory Homes and Divisional MD at McCarthy & Stone (across three regions), Darren has also been a hugely successful MD within big volume businesses such as CALA and David Wilson. He has significant strategic and leadership experience, contributing to boards from an executive perspective in large, complex organisations.

Make sure you watch the whole webinar here, but our first blog on the topic will also give you some powerful information. We are going to delve into what was said about the cost of an ineffective managing director. We will be covering:

• What percentage to the overall profit do the directors contribute?
• How can relationships be a big clue on whether a hire is going well?
• How quickly can you establish whether you’ve got the hire right or wrong?

1. Profit from a good hire

Gerard gave our guests a scenario of a typical PLC or volume business where they are building circa 500 units per annum and have a turnover of £100-125 million. In this example, how much profit would a typical business be making and how much of this can be attributed to a good managing director:

Darren: “You’d always be looking for a 25% growth margin and 20% after overheads. It’s difficult to assign a figure to the Managing Director themselves but a good MD should be making his team look good. If things are going well, they won’t be scrutinised but as soon as things start to go wrong, the MD is the first person who will be looked at. In that way, it’s kind of a thankless task!”

Andy: “I wish that every site came in with 25% margins, unfortunately, some things aren’t as simple as that! If an MD is running a decent team, they should all know what their targets are and what they are aiming towards. If market is ok, then there’s no reason why they shouldn’t deliver what they are expected to do. In terms of the figures that can be related to the MD themselves, it’s easier to flip the question. If you have a bad MD, then profit can easily be wiped out. The true value of a good MD is difficult to quantify but it’s very easy to spot a bad one!”

2. Relationship building

Darren: “The wrong MD in a business can mean that it is quickly put into reverse and the team could easily be destroyed.

“Effective MDs need to be able to talk to people across all levels of the business, from the regional chairman to sales advisers, site forklift drivers and site managers – both internal and external. This means they can gather and collate information from across all sides of the business which then helps them to understand where the challenges and opportunities lie and sense what’s going on. If these relationships aren’t there, then that’s a really telling sign of a bad hire.”

Andy: One bad hire can be a catalyst for many years of issues. Good MDs can attract other high-performing people and create a very effective team. On the other hand, a struggling MD can affect the ability of the whole team, cause bad practices to filter down and lead to valuable team members going elsewhere.”

3. Timeline of effectiveness

Darren: “The timeline for how you assess the effectiveness of a new hire really is situation-dependent, i.e.

“If a new MD is going into a high-performing situation which quickly takes a dip, then that can be quite worrying and an early warning sign that quick action is needed.

“If a new MD is going into a poor performing business, then it takes much longer to assess whether they are doing the right things.  There are certain foundations they need to put in that can take longer to establish themselves and make a difference.”

Andy: “Sometimes it’s just a gut feeling. You can ask questions like; Are they building respect, trust and credibility within the team? Does it feel like they are galvanising the team and are the energy levels rising?

“These kinds of thing can be seen quite quickly, but you often haven’t got facts and figures yet, so it’s based on much more of a subjective basis rather than formal KPIs. During monthly meetings, regional chairmen are often looking for new positive signs and warm vibes from the wider team that things are changing for the better.

“You might not see an immediate impact on figures, and it could take up to two years for their work to have an actual impact on profits and turnover.”

In summary, getting the hire of a Managing Director right is important because of the impact they have on the wider business. Good work can be undone quickly by a bad Managing Director, but the impact a good Managing Director can be slower to come into fruition. For this reason, keeping a close eye on your Managing Director in the first few months can be pivotal in spotting a bad hire faster, and removing them before they do too much damage.

To discover how Human Capital Group can help prevent you from making a bad hire in the recruitment business, get in touch today.