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By Sarah Ruby

STANFORD GRADUATE SCHOOL OF BUSINESS—Alumni entrepreneurs stepped away from the heady world of running things to discuss that world and compare notes on hiring, firing, and promoting employees during an event at the Graduate School of Business May 9.

It was the Center for Entrepreneurial Studies’ second Alumni Entrepreneur Reunion, during which about two dozen participants headed for a small-group discussion with Irv Grousbeck, consulting professor, co-director of the Center for Entrepreneurial Studies, and exemplar to the mid-career alums gathered around the table to pick his brain. Grousbeck, who has taught at the School for over 20 years, co-founded Continental Cablevision Inc. in 1964 and is managing partner of the Boston Celtics.

The topic was personnel, and Grousbeck shared a few pieces of advice before opening up the discussion for participants’ to exchange questions and ideas. What emerged was a sort of support group for managers in which Grousbeck and the other participants helped each other navigate the always delicate matters of hiring, firing, and promoting.

Here are the highlights, otherwise described as Grousbeck’s Pearls of Personnel Wisdom:

1. Follow the golden rule for bosses: “Everything is fine unless I tell you otherwise”

That means no unspoken messages. If you have something to say to an employee, tell him or her directly.

This was a tough topic for at least one of the entrepreneurs at the table. When he took over a company in crisis four years ago, he hired executives who excelled at squeezing every nickel. They helped steer the company out of danger, but they don’t have the skills to take the company forward.

He doesn’t know how to tell them this, so he has avoided it. “If I went to them now, it would be a complete surprise,” he said.

Level with them, Grousbeck said. Help them understand the company’s changing needs during frequent discussions over the next two to four months. Be fair and financially generous, and recruit new executives in the meantime.

2. Work with employees before firing them

If one of your people isn’t measuring up, put him or her on the watch list. Explain that you want to help him succeed, but that the current path is not leading anywhere good. Meet every two weeks for about two months, and at each meeting review the employee’s progress. Make a list of what you discussed and let the employee sign it. After a few months you’ll either have a record of improvement, or a documented history of performance problems.

“Three out of four [times] I fail” to rehabilitate the employee, Grousbeck said. But “four out of four I tried really hard. I removed all possibility of a lawsuit for wrongful termination. [And] usually it’s a relief. Who wants to get up and go to work in the morning when you’re not succeeding?”

But some at the table wondered if the list method is worthwhile considering its failure rate.

It is worthwhile, Grousbeck said. Not only is it a supervisor’s job to help employees succeed, but taking the time to rehabilitate someone helps build trust throughout the organization. It lets other employees know they won’t be out on their ear without warning.

3. Pay up for the signature

Don’t let an employee leave without signing a general release form promising not to sue. Throw in a few extra months of severance pay if it will get the signature.

Even among employees who resign, “a certain percentage of them are going to wake up and see a lawyer,” Grousbeck said. Wrongful termination suits are a huge headache and incredibly time consuming, and in his view, “What’s a couple months’ salary for a general release?”

4. Never skimp on the background check

Talk to a candidate’s boss from 10 years ago, his third grade teacher, an old neighbor, anyone in a position to tell you the truth about an applicant, Grousbeck said. Tell the candidate you’ll be digging, and invite him or her to do the same to you and your company.

Also, have as many people meet the person as possible, one alum suggested. He was about to hire an applicant three male employees had interviewed and loved. Then a female employee sat down with the candidate and he made her skin crawl. “It was something we all missed,” he said.

5. Ask the $64,000 question, but do it delicately

Instead of asking a reference to dish about a candidate’s weaknesses, try this: “If I were going to supervise this person, what suggestions would you have for me?”

6. Pay more for A people

B players are solid contributors, but they are not as effective in key positions. “They’re soldiers on a team run by A players,” Grousbeck said. He believes in paying 30 percent more for the A candidate.

7. Assume that employees will find out each others’ salaries, and pay accordingly

“There’s more than cash at stake (when it comes to pay disparities),” Grousbeck said. “There’s trust. For $10,000 or $15,000, I don’t want to put my trust at risk.”

Several entrepreneurs balked at the idea that one good negotiator could effectively secure raises for everyone. That’s something to consider in evaluating whether the candidate is too expensive, an alum said.

8. Learn from performance reviews (sigh)

Nobody enjoys them, but almost everyone at the table said they schedule regular performance evaluations.

“It just eats up time [but] it’s amazing what comes out,” said one entrepreneur. His company does 360-degree reviews, which means everyone is evaluated by superiors, peers, and direct reports. During a recent review, a struggling manager’s colleague tipped him off to a problem. The manager, who was an excellent employee, had been promoted beyond her abilities. In the end, the manager was happy to take another position that didn’t require her to be in charge of people.

9. Hire people who already have a job

New hires have a better chance of working out if they aren’t between jobs.

10. Use headhunters, but beware of the unwritten rule

Headhunters generally don’t recruit from companies at which they’ve recently placed people. Ask headhunters who they’ve worked with. You might find huge candidate pools off limits if you choose the wrong headhunter.

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