Episode 121
Board Meetings that Matter: Strategy, Structure, and Impact
This Karma School of Business feed drop from our sister podcast, Best But Never Final, explores the private equity approach to board meetings. Sean Mooney sits down with Lloyd Metz of ICV Partners and Doug McCormick of HCI Equity Partners to unpack how to turn board meetings into strategic powerhouses that drive real outcomes.
Episode Highlights:
02:24 - Why private equity board meetings focus on strategic impact over routine reporting.
10:33 - The structure of PE boards: Who’s on them, the role of independent directors, and the value of concentrated ownership.
15:25 - How independent board members are chosen to address specific business needs and enhance executive decision-making.
35:55 - Avoiding tactical readouts: Making board meetings a forum for actionable strategy and meaningful discussions.
42:37 - Tactical details: Frequency, in-person vs. virtual meetings, committee structures, and agenda planning.
To listen to more Best But Never Final episodes, go to https://bestbutneverfinal.buzzsprout.com/2247932
For more information on BluWave and this podcast, go to https://www.bluwave.net/podcasts
Episode Highlights:
02:24 - Why private equity board meetings focus on strategic impact over routine reporting.
10:33 - The structure of PE boards: Who’s on them, the role of independent directors, and the value of concentrated ownership.
15:25 - How independent board members are chosen to address specific business needs and enhance executive decision-making.
35:55 - Avoiding tactical readouts: Making board meetings a forum for actionable strategy and meaningful discussions.
42:37 - Tactical details: Frequency, in-person vs. virtual meetings, committee structures, and agenda planning.
To listen to more Best But Never Final episodes, go to https://bestbutneverfinal.buzzsprout.com/2247932
For more information on BluWave and this podcast, go to https://www.bluwave.net/podcasts
EPISODE TRANSCRIPT
[00:00:10] Sean Mooney: Welcome to the Karma School of Business, a podcast about the private equity industry, business best practices, and real time trends. I'm Sean Mooney, blueway, founder, and CEO. Today we have a feed drop. I. In today's episode, we're sharing a really awesome conversation from our sister podcast. Best but never final in this discussion.
[00:00:30] Lloyd Metz from ICV partners, Doug McCormick from HCI Equity, and I unpack the ins and out of private equity board meetings. We're talking about the why, the how, the what, how to set the agenda, build strategy, and drive real value between these sessions. So they're not just readouts, they're something that strategically adds value.
[00:00:48] Whether you're a board member, a portfolio company, CEO, or an investor looking at really make impact on these meetings, you'll walk away with some clear practical tips that make your board meetings more strategically advantageous to you, not just a routine check-in. Enjoy.
[00:01:08] It is great to be back here for another episode with Lloyd and Doug. Doug and Lloyd. How are you guys?
[00:01:15] Lloyd Metz: Good. Good, sir. Good. See, see you.
[00:01:18] Sean Mooney: It's been a while, so we're happy to have the band back again. And Doug Lloyd and I were talking about what would be something that we haven't talked about yet. That's a really a core feature of the private equity industry.
[00:01:30] And one thing we've talked about was board meetings.
[00:01:33] Lloyd Metz: Whoa. That's what we're doing today. Oh goodness.
[00:01:36] Sean Mooney: Like riveting. It's a super important topic. It's one that. I think particularly as like an entrepreneur, you're always wondering like, why do I even need to have 'em? If I do have 'em, how do I make it a good use of my time versus like spending tons of hours putting a hundred page deck together.
[00:01:52] Lloyd Metz: First of all, your deck should not be a hundred pages. Let's
[00:01:55] Sean Mooney: start with that.
[00:01:58] Just wait 'em out. The weight test is easy. Brevity is hard. Yes,
[00:02:04] Lloyd Metz: that is true. We'll get to that. We'll get to that for sure.
[00:02:07] Sean Mooney: Maybe the way we'll structure this, if you guys agree, is we'll talk about kind of why you have 'em. Like who's on them, how do you make 'em valuable? And then for those of our listeners who really want more of like the tactics, like how many do you do a week or a month or a year?
[00:02:24] What are your committees? How long they last? We're gonna do that at the end. So if you want some of the basics first, there'll be timestamped in the notes and I say just jump to the end and then come back. But let's go to, rather than starting with the broccoli, let's go with the broccoli with cheese on it and take the cheese part of it forward.
[00:02:42] And so,
[00:02:43] Doug McCormick: so this is the good part you're telling me? Yeah, the good part. Okay, the good part.
[00:02:47] Sean Mooney: We're gonna start with the cheese part of the meal here. And so let's jump into it, Doug, to get a set up here. What are your objectives for your board meetings? Like why do you have them as private equity folks?
[00:02:59] Don't you really just have your board meetings every week?
[00:03:01] Doug McCormick: So I'm gonna take a step back and go back to some of the other conversations we've had about how private equity is increasingly focused on value creation over the life cycle of their investment. That's 0.1. Point two is by definition, we all say we're getting into these businesses with an expected exit that generally people think about as a five year kind of timeline.
[00:03:22] And so as I think about the purpose of the board meeting it. Some kind of connection between the end state that we think we're striving for and we want to exit around and comparing and contrasting that to like where we are in that journey. Right? So I think the quote board meetings that you have on a weekly basis as a private equity firm, I think that's very focused on execution.
[00:03:44] Like how are we driving the p and l? How are we customers servicing customer? How can that, and when think about the board meeting, I think it's more what is our strategy? Am I making decisions that are consistent with shaping that strategy? Do I have the team in place to execute that strategy? And so I think it's a real opportunity to differentiate between the day-to-day needs of the business versus long-term where we headed.
[00:04:08] Lloyd Metz: I think that's right. Doug and Sean, I've heard some people make the distinction between working in the business and working on the business. A board of directors helps founder, CE. Work on the business and think about this year, next year, two, three years from now, where should we be headed? How should we get there?
[00:04:33] What resources and action do we need to take today or next quarter to set us up for two or three years from now? And then keeping track of all of that. To me, that's a big part of the board of directors. That's big part of their role.
[00:04:49] Doug McCormick: And Sean, maybe I could add one more thing. I think a lot of the value here is often the benefits associated with preparing, and so I think good board meetings.
[00:05:00] The management team comes with the deck they want to present and insights as they've thought about the material, they've thought about the progress, they've thought about the initial plan versus what they're hearing in the marketplace, and they're bringing kind of insights and recommendations on how the plan should change given kind of real market feedback.
[00:05:18] I think there's a real powerful combination in terms of partnership between management teams and investors often because the management team knows the business better than we ever will. I think long experienced private equity executives have seen a lot of reps, and so they can kind of put the progress of the business in context to other things they've seen, and I think that can be a helpful exchange.
[00:05:40] Sean Mooney: It's interesting to hear you say this, and as I'm reflecting on my past eight years and when I was in PE we would have weekly or biweekly meetings with every portco. You kind of know, like you said, the tactics of what's going on, but the quarterly meetings were so good in terms of just pulling the altitude up and thinking and checking in strategically.
[00:05:58] One of the things that I did here at BluWave is I just, I didn't even have a board at the beginning. I, I still don't. Right? And part of the value is I can just continue to PPL along. I know what the vision is, let's just plow through it. And I think one of the things that I've noticed just kind of missing is not having those kind of outside in 35,000 foot, like just check-ins along the way because you're just used to running and at some point you're just like running with like blinders on and you're just going fast, fast, but you don't know what's left and right and there's not someone really putting you in check.
[00:06:27] So we'll be actually putting together a board in the near future. Exactly. For those reasons that you're talking about, it's like how do you pull the altitude up? And then have someone make sure they're along the track of where you wanted to go, and not just running full speed into not knowing at the end of the tunnel that's a light or a train at the end.
[00:06:44] Lloyd Metz: Yeah, that's right. And Doug, I think as you described it, I think it's underestimated the value of that preparation for a leadership team. Sometimes just being able to have to stop thinking about the day to day of the business. And then address some of these issues and just preparing however long that deck turns out to be.
[00:07:05] That exercise for a lot of teams is just valuable.
[00:07:09] Sean Mooney: We were kind of kidding at the beginning when we talked about the hundred page deck, but to your point, Lloyd, I think it's just that idea of like brevity's hard. It forces you to synthesize things in ways that takes thoughtfulness and contemplation. And so I think you're once again pointing out a really good thing.
[00:07:28] You're really giving your teams the opportunity and not making them to kind of like focus.
[00:07:33] Lloyd Metz: In addition to just being thoughtful, the process of skinning down that deck also helps you skinny down your own thought process. So oftentimes a team, an individual's thought process or a team's thought process is scattered all over the place.
[00:07:52] Lots of different issues of dynamics, whether it's accounts. Clients, customers, inputs, suppliers, whatever it is, right? And you can easily lose sight of what are the most important things, what are the most important principles? What are the most important aspects of our business model? What are the most important things that are driving value in our business?
[00:08:13] And being able to distill that down into something shorter, briefer, simpler, actually can drive the value because you're not distracted, you haven't lost sight. That's been some of my experience.
[00:08:27] Doug McCormick: I'll take a little bit of a counter here, which is I often struggle with, I think the job of the team is to do three things, kind of aggregate what is happening so they can tell the cogent story, fully educate the board with all of the relevant details.
[00:08:44] So when you get feedback, it's based on the relevant issues, and then have a recommendation given those first two. And so I often struggle with brevity in terms of. Recommendation, but I wanna be fully educated in all of the details that got people to the recommendation. So sometimes that's a read ahead.
[00:09:02] There's a lot of ways to navigate it, but I find that the preparation is extensive, both for the team preparing it, but also board members to come in fully educated, so we're not spending time level setting to get everybody to the same set of assumptions.
[00:09:17] Lloyd Metz: That's a great point. And Sean, at the risk of messing with the broccoli, even though we're supposed to be in the cheese phase of the conversation, I've seen some good examples in boards where that pre-read that detail, that full informed pool of information or numbers is in a read ahead and or an appendix, and you deal with that separately.
[00:09:40] The expectation is the board members read that in advance of the meeting. So you can go nerd out if you want to and crawl into the details of whatever it is you care about. But the discussion in the board meeting is at a higher level, different level. That's a good way of tackling it, I've found.
[00:09:56] Sean Mooney: I really like that nuance.
[00:09:57] It's a, it's up to the management team to be thoughtful about what matters and also have the ability to go deep on things and be prepared for that. But B, the thing that I think was also a really good point is the other board members have to prepare as well. So that those precious few hours where you're all bringing together are as useful and valuable as possible.
[00:10:16] Doug McCormick: Yeah, and I think you mentioned that a lot of times, so the PE guys are interacting with the team very frequently. Sometimes independents are not. And so the importance of the independents who have not had that daily or weekly interaction to kind of get up to speed, I think critical if they're gonna add value.
[00:10:33] Sean Mooney: Let's talk a little bit about that. So you mentioned independence. So who is typically on your boards? Lloyd Doug. What are the types of people, the seniority levels, the numbers of people that are comprised on the boards? Typically, for a portco,
[00:10:49] Doug McCormick: I'd like to make a comment before we go down into the very specific details.
[00:10:52] So as I think about creating a conversation where collectively we can create a lot of good intellectual capital and conviction about our direction, I think board composition in that light is management team members and it inclusive. It's private equity team members who are actively involved in the business, and then there's an outsider or independent perspective, and that's a pretty broad team.
[00:11:17] That could be 15 people. I differentiate that from governance, right? And the governance is usually kind of five or seven. And what I find is the first part of this conversation is way more important than the governance. And if a board is functioning well, there's a lot of consensus and the governance never really matters.
[00:11:37] Lloyd Metz: I'd agree with that and almost down to the numbers for governance purposes, five or seven. And you hope to never have to exercise that, that board control to get something done. It's just there, I guess, kind of in case you need it, but as Doug said, the first part of what we've started talking about, that's really the important piece.
[00:12:00] Sean Mooney: So I think a lot of people who have been on school boards or community hospital boards. There's 20 people on the board from a governance perspective, and so why is it that in particularly in the PE mode, you might have five to seven people when you say governance, who actually vote on things, but you might have 20 people in those meetings in different phases and stages.
[00:12:22] Why does that matter? What goes right or wrong with the 20 person school board versus the five to seven on things that require a vote?
[00:12:30] Doug McCormick: Personally, I think it's that in some of the other examples you mentioned. Part of the board role is consensus development. And in the private equity context, I think it's less about that and there's a concentrated ownership position that is gonna ultimately make decisions.
[00:12:46] And so the need to bring people along in the governance process, I just think is less the value of having all the informed people and the best minds at the table. Equally important,
[00:12:56] Lloyd Metz: right?
[00:13:04] Majority or through the shareholder vote. Majority we control. Right. But like I said, you don't want to exercise that. So the board discussion is really about improving the outcomes for the business, coaching the leadership team, and getting better outcomes. That's what it's about. You had asked about independent directors.
[00:13:26] We're big independent directors. We have two of them on all of our portfolio. We've had really good experiences with them. As I think about it, we try to identify individuals that are addressing specific needs of the company, the leadership team or the CEO, some combination of those three, what do they need?
[00:13:49] And sometimes it has to do with the industry, but oftentimes it doesn't. It may have to do with what does that CEO need going forward, right? In terms of scaling and growth. Maybe it has to do with them trying to get some doors opened in a customer or client segment, and so maybe you find a board member who has good relationships in that client or customer segment to help open doors.
[00:14:16] It just depends. We, we take an approach where the independent board members we recruit to meet specific needs of the company.
[00:14:23] Sean Mooney: Hi, this is Sean. Wanted to take a quick moment to tell you a little bit why BluWave exists.
[00:14:31] It's based on this whole notion that assessing opportunities and building business is really hard. We all know third party expert service providers can dramatically help, but at the same time, it's hard to know who's good. Usually leaving you like I would do and call friends and ask, do you know someone who does this?
[00:14:50] Just go the square peg round hole route. So, after nearly 20 years in PE, I decided to solve my own problem and created BluWave. Today, many hundreds of PE firms, thousands of portcos, leading public companies, private companies, all call BluWave to instantly get connected with the exact third party service provider they want that's pre credentialed by BluWave and perfectly calibrated for their need.
[00:15:13] Really good. You too can give us a call or visit our website at BluWave. net. We're free to use and you can benefit the same way other top PE firms do. Back to the show.
[00:15:25] I want to go deeper into that, but just to put a finer point on on the last part of our conversation. Doug, if you've got a five person board or a seven person board, is it fair to say on a five person board, you're gonna have three people from the PE firm, so they have the majority votes, you'll have one CEO, and one independent, and if you have seven, maybe it's four people from the PE, or somehow you have the proxy, two independents and one CEO.
[00:15:51] Is that kind of the way to think about it?
[00:15:53] Lloyd Metz: Yeah, that's right.
[00:15:55] Sean Mooney: And who from the PE team usually sits on that?
[00:15:57] Lloyd Metz: It's usually the investment team members in our case, and the portfolio operations partner is in the room. There's no right or wrong to it, but we've decided not to have them be a board member, a voting board member.
[00:16:12] And our model, the portfolio operations partner is a, a liaison between the leadership team and and our team, the investment team. And so having them being a director might muddy that. So they're in the room, they're closely involved with the agenda setting and the preparation and the post board meeting feedback, but they're not officially directors.
[00:16:37] Sean Mooney: And Doug, how about you?
[00:16:39] Doug McCormick: Very similar approach. I've heard that nuance in terms of how to think about the operating partner being on the board or not. And candidly, intellectual to me. But I think it's the demeanor of the executives and like just the interaction that builds trust. And so I've seen it both ways work well.
[00:16:57] One, like slight tangent. We also often consider when somebody sells the business into we do consolidations. If they reinvest a meaningful portion, we consider putting them on a board or at least giving them observer rights. And it's really in the context of, hey, you've got a meaningful investment and we want you to be part of the conversation.
[00:17:20] Often less about governance, more about information and ability to speak their mind.
[00:17:24] Lloyd Metz: Yeah, that's a good point, Doug.
[00:17:26] Sean Mooney: That's another, likewise a really good, if you have a partner that's rolling in, they get a seat at the table, either from a presence or a vote. Maybe pull the onion back a little bit further in terms of deal team versus ops teams on the board, like the way I've always thought about and direct back on track where I'm off.
[00:17:44] The deal teams kind of own the strategic entrance all the way through exit. They're the ones making the decision. Ultimately, do we make this deal? And they're also ultimately the ones held responsible. Should it not turn out well, that outcome gets forever encapsulated in what's called a track record.
[00:18:02] And so I could tell you guys every deal I've done since I was 23 years old in private equity. 'cause that's ultimately the hallmark or the reflection of how well you've done as part of your role at Craft. Whereas the value creation team, and this is changing, but historically and traditionally, it's been how they create value from time zero at entrance to exit.
[00:18:23] And so I think a lot of times you get more deal teams on the boards because of that kind of soup to nuts, cradle to grave relationship that they have in the investment. But they're also what they're held responsible for. Is that a fair way to think about it?
[00:18:38] Doug McCormick: I think it is, but I would say two things. One, I think there's a evolution where firms are pushing hard not to necessarily have like one deal lead and it's multiple team members.
[00:18:50] I think that's a good healthy thing in terms of the personal agendas about who gets deals done, et cetera. So we try to think about it like the teams approving the deals, the investment committees, approving deals, rather than simply one person, but to process around. The ops team is a member of the management team and they're reporting to the board, and therefore they're not on the board because they're more aligned with the management team.
[00:19:16] And I, I think that from a, like a social perspective is an interesting way to look at it.
[00:19:20] Sean Mooney: It's a very good clarification. Thank you, Doug. Let's now move the conversation along. And Lloyd, you talked about independence, and so an independent, just to define this for our listeners is this is someone who is typically not on the staff of the private equity firm, not on the staff of the portfolio company.
[00:19:41] This is a truly independent person who has some sort of value added role in an ecosystem or area of expertise that matters to a p recruit. To be part of this board without explicit ties to either. Is that a fair way to frame it?
[00:19:58] Lloyd Metz: That is spot on. You nailed it
[00:20:01] Sean Mooney: every once in a while. I get it. Lloyd, let's, let's pick back our conversation.
[00:20:06] So you talked about how you bring in two and the roles may vary depending on the use case. So maybe peel that back a little bit. Like how did you get to the like Oh, we're
[00:20:19] do of. Value within the kind of the strategic approach you all take. At I cv,
[00:20:24] Lloyd Metz: I'll use one of our portfolio companies, as an example, a private, small partnership that has aspirations to grow and to expand. That was a big part of their ambitions from our diligence. We also identified the fact that they aren't particularly as well known as they ought to be.
[00:20:45] There's a disconnect between the. Type of work that they do, the quality of the work that they do, and how much awareness there is in the marketplace. So we recruited two types of independent board members. One was the former vice chair of an executive search firm. I was in a leadership position at that executive search firm from when they were a relatively small private partnership through multi-decade growth to ultimately becoming a publicly traded company.
[00:21:16] Understanding what sort of culture change you need to push in advance to go from that private partnership to a larger enterprise. So that board member and our plan is intended to guide and coach the leaders of this company as they talk about expanding globally, expanding the ranks of the partnership.
[00:21:43] What do you need to be mindful of to make sure the culture holds the good parts, and then some of the parts you might wanna move away from? How do you handle that? The other board member we recruited was the chief marketing officer of a company that was sort of, uh, not a direct competitor, but in an adjacent space with a competitive set of products.
[00:22:08] So enough of an understanding of their business. But really understands how do you market in a B2B context. And so that person was brought on the board because that addressed the issue we identified in diligence that they need to address.
[00:22:24] Sean Mooney: So one is kind of your been there, done that River Guide Ghost to Christmas future kind of person for your CEO to kind of say how we're navigate this like transformation.
[00:22:38] Pull forward part of the business, the go to market, that is part of the overall strategy.
[00:22:43] Lloyd Metz: That's right.
[00:22:44] Sean Mooney: So you kind of have something a little more actionable and tactical and something much more strategic. And together they're kind of thunder, lightning.
[00:22:51] Lloyd Metz: Correct. And, and the view is when that leadership team, when that CEO is trying to figure out what the heck is Lloyd saying at the board meeting, or they're like, I know we need to do this, but I don't know where to start.
[00:23:06] You can call that board member who was the former vice chair who's like, been there, done that. Right? That's a resource for you. It's almost like an executive coach is how we intended it to be like, don't be shy. Don't feel like you always have to report out to that person. They're retired. They don't want your job.
[00:23:23] They have grandkids. Use them as a resource and tap into some of that experience and wisdom.
[00:23:30] Sean Mooney: Great. I wanna go little into kind of like role that these. Before we get there, Doug, why don't you walk us through kind of similarly how you think about the roles and how you're using them kind of practically.
[00:23:43] Doug McCormick: I think it's pretty similar to how Lloyd thought about it.
[00:23:46] I mean, we're usually adding an independent for one of three insights. One is the market. The second is similar consolidation in a like market where they're bringing this, the experience of how to put business together, how to think about integrating, how to think about scaling. And then I do think this role of, I've worked with HCI before, I've worked with ICV before, so I understand what they're saying and I can be a bridge to like help the two different organizations get aligned.
[00:24:17] And I think one of the things that, that implies independence, truly is independence, right? Like, so just because we have a history with them doesn't mean that they're not gonna disagree with us, doesn't mean they're not gonna be vocal about their opinions. I think that you've also gotta give them unfettered access to the team.
[00:24:34] So we actually, to make it valuable, we want them to be having a really tight relationship with the team and to be able to feel like they can go wherever they want to go to, to get insights and drive conviction.
[00:24:47] Sean Mooney: And maybe before we get to, for each of you a conversation about how they kind of interact before we go from.
[00:24:54] When you're at the very beginning, how do you frame the roles and kind of set the objectives for each of them in terms of what you want them to accomplish in the role you want them to play?
[00:25:05] Lloyd Metz: I just tell them directly, so in the course of the recruitment of an outside director, you tell them where the company is and the it's in what, think what you see.
[00:25:23] What do you see as the needs or blind spots or areas of weakness or whatever in the strategy? What do you think the team needs from a coaching? What, whatever it is you think you share that with them and you tell 'em directly, I would love for you to join the board and help them tackle A, B, C, and D. Or, I need you to help them develop confidence about X, Y, or Z, or, I need you to be the.
[00:25:52] Counselor coach to the CEO as they are changing out whatever you just tell 'em. I think that's just the, the best way to go about it.
[00:26:03] Sean Mooney: I think it's such an underappreciated process of board formation that you're talking about. It's like, what do you want 'em to do? And be very clear, just like as if you would tell your CEO what you want them to do, being really upfront at the very beginning versus like, Hey, find your way.
[00:26:17] Lloyd Metz: And I just want to underscore something that Doug said. But you also tell 'em that you are independent. We're not paying you. The company does. And if you disagree with me, tell me you think I screwed some up. Tell me this is true. Independence of thought and action here. And you do give them unfettered access to the, to the team.
[00:26:36] Doug, how about you on that top?
[00:26:38] Doug McCormick: Yeah, I'm gonna try to answer that a little bit differently in terms of acknowledging that board roles are not full-time roles. And so like how do you get that balance of having them create real value? Doing it in a very efficient way. So I, I have four areas I guess that I try to push board members in, in terms of expectations.
[00:26:56] One is I need you to do an upfront investment to understand the business and the team so you kind of like know what you're getting into. And once you have made that upfront investment, I need to make sure you actually make it a commitment to participate in the meetings when I've had bad experiences because they're overcommitted and they can't figure out how to get to the board meeting.
[00:27:17] In person or participate and then like they gotta prep because they don't have the constant interaction that we have. So they gotta come kind of loaded with their perceptions and opinions. And then I truly do want them to be the quote honest broker, and that puts them in a position that they can often help the team and the PE team.
[00:27:40] Reconcile differences of opinions. Right? And so like it's a pretty mature person, very confident, experienced person that can do that. 'cause in some ways I'm asking them to address conflict. Right?
[00:27:51] Sean Mooney: I'd love that. That also the concept that you added there, Doug, having them do the work upfront. There's an investment that they're gonna have to make in order to be value added day one.
[00:28:00] And that's another area that's totally slept on. And, and by the way, for both of you, I'm taking a lot of notes.
[00:28:07] Doug McCormick: Yeah. Sean, this. , I wanna be like intellectually honest here. I've had great value from independent board members, but I would say this is one of those positions that the range of outcomes and contributions has been really, really wide.
[00:28:21] And when I find that this hasn't been good, it's never about the person's intellect or capabilities or insights. It's some misalignment on required prep and required participation.
[00:28:34] Sean Mooney: And that's a.
[00:28:39] Practically, if they're not adding value, you're midstream and they're just not showing up. They're not adding value, but they got a really expensive equity package that vests over time, and they're just kind of punching the clock whether it's their fault or not.
[00:28:53] Doug McCormick: Yeah. First of all, I think value can be defined in a lot of different ways.
[00:28:56] Let's acknowledge that, but if they're not providing value, first of all. It's the cheapest termination you're ever gonna have. There's no severance, there's none of the other stuff. So you're just terminating the ongoing incentive package. So I think you're incented to move, and I think you set a really bad expectation and precedent with a team who you're holding accountable at every corner when you're not holding the rest of your team accountable.
[00:29:20] So I think you gotta just acknowledge the miss. Make sure your team feels the same way. Maybe they're providing value to the team that you don't see, but if they're not, I think you gotta find a new independent.
[00:29:30] Lloyd Metz: We've taken an approach where we put a term on the directorship, so there's a two year term, so it gives you an opportunity to not renew just in the natural course.
[00:29:42] So that's how we tackle it.
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[00:30:52] How often do you view these independent directors as potentially playing a role in the management team of the.
[00:31:05] Lloyd Metz: Most of the people we've recruited, and this is part of the recruiting spec, they're tired and or professional board members. And if they're not either of those two and they have a day job, they like their day job, but they have enough flexibility to be able to participate four or five times a year. So that's generally not the expectation that we have when we're recruiting an outside independent board member.
[00:31:34] Doug McCormick: I agree with Lloyd. It's like the job spec for the independent board member is different enough from the CEO spec that we don't expect them to overlap. Well, and the only caveat to that would be if you had an unexpected departure, somebody got sick and you needed somebody to step in for a couple months while you're in search.
[00:31:53] I could see that person having the company context and the time to maybe step in on an interim basis, but it's a pretty rare occurrence for.
[00:32:02] Lloyd Metz: That's the only occasion I can think of is when we had an outside board member that was the former CEO of a industry participant competitor to our portco. They had just left their firm.
[00:32:17] So the CEO was new to the industry, had developed a relationship with this industry, veteran brought them on the board for that reason. And then unfortunately, the CEO passed away. He was able to step in for a few months while we ran a process to to find a successor. That's the only time I can think of when an independent board member has come in to actually run the businesses that we've invested in.
[00:32:43] Sean Mooney: As I'm channeling kind of the deals I did back in the day, and there's probably two times in my career where we did that and one was a carve out where we kind of got put with kind of a line person. We were hoping that person would be able to kind of make the leap into kind of a CEO of a small company rather than a middle manager at a large company.
[00:33:05] But we weren't gonna leave hope to chance. And so we brought in someone who we thought might be able to come in, but that was decidedly our plan B. And the preference was we could wrap resources and coaching just didn't work. And then the was when we had a business where the CE.
[00:33:24] Thought of as almost like a transition plan where we could kind of bring them into the board level and then call in the bullpen a little bit, but that was with the existing CEOs kind of buy-in. And so it's a good way to, I think, frame how these things can happen within the independent. Let's talk about next, this whole concept of independent executive chairman.
[00:33:46] What is that role? Where is it used typically, why do companies use an independent executive chairman?
[00:33:53] Lloyd Metz: Doug, have you guys used executive chairman at all at any of your companies?
[00:33:58] Doug McCormick: I view it as kind of a transitional position, and so generally I find executive chairman implies the current team is incomplete in some capacity.
[00:34:09] So it could be you're navigating a transition and this person is a board member but is spending two to three days a or some kind of relatively active amount of their time. Supervising the initiatives in waiting while you find a team, or for whatever reason, the company's either going through a significant ramp or going through a turnaround where you need incremental capacity and you need the ability to kind of react quickly, real time to banks, et cetera.
[00:34:38] And so I think that can be a role for that kind of position. I find it very rare that we have that role kind of inhouse.
[00:34:46] Sean Mooney: Yeah. Application where you have highly diffused ownership and you need someone to have their hand on the wheel, if you will, and kind of course correct and direct a large board.
[00:35:02] Whereas if you're talking about five or seven people in a private equity capacity where you all have direct ownership and you're gonna be making decisions quite agilely with purposefulness, you don't really need that person in there. In some ways, the private equity firm plays that role.
[00:35:17] Lloyd Metz: But you know what, maybe Sean, Doug, we should invite any of our listeners to weigh in and if they have experience with executive chairs in the lower middle market, drop us a note in LinkedIn and let us know what your experience has been and if we're missing something.
[00:35:33] Sean Mooney: Yeah, and I think it's a great idea. Before we get to kind of the, the last kind of tactical part that we foreshadowed, the last kind of meaty topic, I'd love to. Some people who've been in bad or situations that maybe aren't structured well would say that these can be long tactical readout sessions with the a hundred page deck.
[00:35:55] And it's more about just kind of saying, here's what happened versus having meaningful time spent on serious topics that matter. And so how do you structure your boards to avoid that potential trap where they're not strategic? It's more of a tactical readout.
[00:36:12] Lloyd Metz: I gotta say, Sean, a lot of it, I think falls on the chair of the board to set not only the agenda with the CEO, oftentimes mostly the CEO, but also setting the expectations for what to cover.
[00:36:30] And you kind of have to be vigilant about it and say no report outs. And so we do that on both ends, actually, of our board meeting. So. If I'm chair, I try to get those expectations laid out before the board meeting while we're setting the agenda. And then usually within a week or two after the board meeting, we send feedback from the entire board, bullet points.
[00:36:54] And oftentimes that's where you will say, Hey, can we have less reporting and more discussion? Or don't spend so much time talking about what happened? We read that in the deck. Tell us what does it mean? What does it mean for this current quarter's performance? Or what does it mean for this current year's performance?
[00:37:14] Or what does this mean for next year's performance? Just move beyond the reporting and let's talk about what does this mean and why does it matter, and what do we do about it? You have to keep beating those points regularly.
[00:37:28] Doug McCormick: I agree with Lloyd, so I think it's helpful to have various functional leaders give a State of the Union for their function.
[00:37:36] If you're not careful, that gets into the a hundred page deck and you walk out well informed, but nobody made decisions. And so forcing clarity on like, we're gonna try to give direction and feedback on three or four topics, what are those topics upfront? So they're spelled out and the board chair or the CEO driving conclusion on, did we get to that answer?
[00:37:59] Did we satisfactorily address the points of feedback? And then for me, there are two parts of the board meeting that I think are often neglected that I find really valuable. The first is executive session, which for us means after the board meeting management team clears out, you've got the CEO and the board, and you're talking about people, and you're talking about kind of the human capital in the context of the strategy, which is a very part of this exchange.
[00:38:28] And. The team just presented. And so it's a great opportunity to evaluate the team in the context of that conversation. And then I think it's a real missed opportunity if the board doesn't within a week, communicate amongst themselves and come back with three or four or five things that are the clear takeaways from the meeting.
[00:38:49] And so I think there's a, there's good work that should happen after the meeting amongst the board members to give the CEO clear direction at the conclusion.
[00:38:58] Sean Mooney: What I'm taking away from this and, and I think it's really helpful as I even kind of formulated in my own mind, is the board needs to be managed in the same way that you would manage the company or the organization or an executive within a business.
[00:39:11] You've gotta set the mission, vision, values of what you're trying to achieve over the next five years. Here are the key objectives, here's how we're gonna activate it through tactics and supportive resources. And then as I'm kind of hearing here also is. It's constantly gonna wanna lose calibration. So you gotta just keep on kind of forcing it back to being a productive entity.
[00:39:32] 'cause it's so easy to revert to being kind of a readout if you don't intentionally focus on.
[00:39:38] Lloyd Metz: And I think to be fair to the teams, 'cause it is a lot of work, carving out the time well enough in advance of a board meeting to prepare the deck, as we talked about earlier, it can easily turn into 75 to a hundred pages and then it takes time to boil it down and distill it.
[00:39:55] In all fairness, that's a good amount of time that pulls these executives off of their day jobs. Right? And I think that's often what happens when you wind up with a board meeting that is more of a report out. I usually take that to mean the team just pulled this together relatively recently, and so they're reporting out because this may be the first, second time that they're hearing it themselves talking about their.
[00:40:22] Particular function or the particular part of the business. But that's hard to find that time for the team to do a good job and be successful in preparing for the board meeting. I know it's not easy.
[00:40:35] Doug McCormick: Hey, Sean, I, I know you're getting ready to get into the broccoli here and talk about all the tactics of board meetings, but there's one more element of cheese I think we should highlight, so we can't miss the importance of the relationship opportunities that happen at board meetings.
[00:40:51] And so let's just say there's four a year. Let's just say at least two times a year, you're in person. The opportunity to kind of have dinner with somebody, catch up on their kids, understand socially seeing the team interact together or not get to hear, like sometimes you have one-off conversations and people feel a very different level of comfort in in having that sidebar conversation to dinner than they do in a broad forum.
[00:41:16] And so. You gotta acknowledge this is also a structured opportunity to kind of really connect with the team members. Make sure you're getting like the real story and it sets you up to really understand context and sometimes have hard conversations. 'cause you got the benefit of a relationship and you've reminded yourself, we all want the same thing.
[00:41:36] We just don't necessarily always agree how to get there. So I think that shouldn't be lost on this process.
[00:41:41] Lloyd Metz: Yeah, I'm glad you brought that up, Doug, because the board dinners are a great opportunity to develop that kind of trust between the board and the leadership team.
[00:41:52] Sean Mooney: It's another really great call out on like what's one of the most important features here is just kind of not only knowing people from the key objectives that you're pursuing, but also the humanity part of it, and how it all symbiotically works really well together when it works well together.
[00:42:06] So maybe let's move to some of the more tactical parts. And maybe first what I would suggest is talk about what are the key modules of your board meeting, like what's included in this board session in terms of what you're gonna address. Do you have a formula like we're gonna talk about historical financial results, key objective, readouts, yada yada.
[00:42:29] How do you kind of structure that meeting and.
[00:42:37] Lloyd Metz: Try to minimize the amount of oxygen you give to the, I'll say the current quarter. 'cause you're always roughly a quarter in arrears or a month and a half in arrears. So very little time talking about last quarter, give more oxygen to what is the current outlook or flash for this quarter and the next quarter.
[00:42:59] And then how does the rest of the year look? Are we tracking to budget? Are we tracking to beat budget? And then what about next year? When do we start talking about ideas in June that wind up getting work done to vet those ideas in August, September so that they wind up in the budget come October, November for 2026, right.
[00:43:21] At some point have to start talking about that stuff.
[00:43:25] Doug McCormick: Yeah. I think Lloyd, I probably have similar approach up spending a fair amount on understand my. Really only has implications around how does it accelerate our ability to get to the end state? Or how does it constrain our ability to invest and get into the end state?
[00:43:45] So like if you can force yourself to keep it up at that high level, otherwise like I think you can get really bogged down in the financial detail. So again, it's how does that allow me to accelerate investment or how does that force me to disinvest
[00:44:02] end? And then I think it's like what are the strategic things that are happening in the business that support that? And we generally organize those around functional area. So it's operations, it's commercial, which is some forward facing customer facing function. It's hr, it's it often, and it's m and a.
[00:44:21] And so we think about it in those functional areas in pursuit of the end state that we've articulated
[00:44:27] Lloyd Metz: and.
[00:44:31] Just a different lens, right? We've talked about value creation. A lot of the episodes here to the extent you have strategic initiatives that are driving value creation will organize the topics around those initiatives. So review of the strategic initiatives, how's this coming as it relates to people, talent and development as it relate to an enabling capability.
[00:44:53] So your ERP implementation or whatever that is. Where are we on sales and marketing and go to market initiatives? So we will organize it along the strategic initiatives and make sure those get ample time and oxygen, and again, work for the CEO and chair person. Sometimes you have to block out time. So oftentimes a version I'll send to the CEO will have 10 minutes for this, 15 minutes for this, 45 minutes for this, et cetera.
[00:45:23] Sometimes you have to just be just that explicit.
[00:45:26] Sean Mooney: So playing back what I've heard here and tell me if I've gotten this right. Beginning of the investment you're starting, here's our value creation plan. Here are the strategic things that we wanna achieve. So you all will do check-ins along the way about where you are along that path of the future state.
[00:45:41] Why are we there? Why are we not there? And then you're very detailed looking at your financial performance and less around what happened in the prior quarter and more about what will happen. And then the art of this is how do you then bend space and time such that it's IT meeting or exceeding your plan and hopefully exceeding.
[00:46:01] Is that a fair way to think about it?
[00:46:03] Lloyd Metz: Yeah, absolutely. I think that's the right way to do it.
[00:46:06] Sean Mooney: Do you all do committees as well as part of your board meetings? Audit committee? HR committee? Yeah.
[00:46:12] Doug McCormick: Yet we have them. I think one of the lux of small board concentrate ownership is you can minimize the bureau committees are.
[00:46:22] Risk management tools in the context of a public company environment, but I do think comp and audit in particular, you can take offline and that way a smaller group can deal with it, and then you can kind of give a report out to the board. It can be two minutes and you keep moving.
[00:46:36] Lloyd Metz: Yeah, we have audit committees, but I, I wrestle with that, but it was another conversation for another episode, but it's usually two or three people, including one of the independent.
[00:46:49] And we go through the report out from the auditors, and again, analogous to what Doug said on the executive session with the CEO, and you get the value from the auditors by having the session without the CEO and CFO on the call to ask them about how things have improved or not improved since last year's audit or two years prior audit, et cetera.
[00:47:15] Sean Mooney: That was the way I would always view the audit committee is one, can you have a candid conversation where it's unfiltered? And then two, establish the permission and the encouragement for the audit firm to directly contact the board if they have not seen anything. And those are, those are important elements that should be done, but probably less so in terms of like with a five to seven person board.
[00:47:37] A lot of those topics can be dealt with as part of the group versus having people parcel off.
[00:47:44] Lloyd Metz: That's right. Hey, Doug, can I ask you a question here? You, you had mentioned the executive session with the CEO in the room being undervalued, underappreciated, and really a forum for a discussion about the team.
[00:47:58] Do you also have executive sessions with board only without the CEO?
[00:48:05] Doug McCormick: Yeah, not always, but sometimes, and we try to do it frequently enough that it's not considered a good thing or a bad thing. It's just a free form for people to express. Feel are compelling.
[00:48:17] Sean Mooney: Yeah. Okay, so now we'll move in the final minutes here.
[00:48:20] Just the real nitty gritty, how many board meetings per year and how many in person, how many virtual typically, and is that changing in kind of the post COVID era?
[00:48:27] Lloyd Metz: So four board meetings, sometimes five. If you throw in a budget approval meeting, and sometimes they're based on the cadence of the quarters budgets.
[00:48:40] Budget approvals often don't fall neatly on a board meeting, so it'll get its own special shortened board meeting. So five, four board meetings, one budget approval, usually two to three in person, one to two virtual, and oftentimes it's the summer, so the second quarter board meeting, which will fall in late July the earliest well into August usually.
[00:49:08] That one is often virtual.
[00:49:10] Doug McCormick: How about you, Doug? Very similar. We're a little less rigorous around which one's virtual and which one's not. Just based on like the individual companies, what's going on. And the only thing I would say is if we're doing two live, ideally I'd like to do one on site with them and one on site somewhere back at the mothership at HC, I think makes it efficient for my team to be here.
[00:49:32] Some of the time it. A lot of times we're moving facilities, we're making capital investments, and so that's a real kind of important part of seeing the story as well.
[00:49:45] Sean Mooney: And I like that mix At your place. At ours.
[00:49:48] Lloyd Metz: Yeah. I forgot to mention that because historically we've always gone to visit our companies.
[00:49:55] It was usually during the holidays is when people want to come visit our offices, but we're almost always going to see them.
[00:50:04] Doug McCormick: Look, just, it's kind of funny, right? You think about it. 20 years ago it was four meetings a year and we did most of them on company site. So all in person, there was no such thing as a virtual.
[00:50:15] Sean Mooney: That's right. How long do you meet last? When you show up? How long is the meeting? When do people run back to airports?
[00:50:21] Lloyd Metz: I want to hear your answer, Doug.
[00:50:24] Doug McCormick: Yeah. Well listen, I'm brutal about this. I feel like we said we're gonna do dinner. So generally it's kind of get in the night before, do dinner. And then show up the next morning, call at nine o'clock and I schedule a flight out so I can get back to DC same night, but I'm probably not doing that till five.
[00:50:42] So I wanna leave six or seven hours. And I don't think it needs to take that long, but it probably takes till one or two. So could it be a four or five hour meeting? A couple breaks in between for sure.
[00:50:54] Sean Mooney: So basically fly in, you're there at four o'clock, arrival dinner at six. Nine o'clock, you're maybe done by two, but you're gonna book the four o'clock flight or five o'clock flight, something like that.
[00:51:06] Doug McCormick: Yep. And there's a lot of follow-up conversation and people break off into things that they wanted to learn a little bit more based on the conversation. So that's usually like really, it's fully utilized.
[00:51:17] Lloyd Metz: How about
[00:51:18] Sean Mooney: you
[00:51:18] Lloyd Metz: li? Yeah, about the same, depending. 8, 8, 30, 9 o'clock start and usually wrapping up one.
[00:51:27] Sometimes two, depending on how much there is to, to go through. So four, four to five hours is, is what we're aiming for.
[00:51:34] Sean Mooney: You'll have some form of Panera, like company drop off mixed sandwiches and chips, right?
[00:51:42] Lloyd Metz: Those happen to be some of my favorite food types. So yes, I'm using, not complaining.
[00:51:48] Sean Mooney: The last like tactical question that is only probably interesting to me.
[00:51:53] Do you guys often have your company's corporate attorneys join to keep minutes or do you assign one of your team members to do that? What's the, just the practical approach to do the, the memorialization of what happens?
[00:52:05] Lloyd Metz: Usually our team members do the minutes or sometimes the CFO of the company will do the minutes and our minutes are, are fairly succinct.
[00:52:14] Doug McCormick: Internally done. Minutes less is more.
[00:52:15] Sean Mooney: That's, I very well said. I, a companies lose think it should. There's a whole variety of reasons why that's not necessarily good practice and good use of time, but that's probably for another episode. I think this has been really helpful and selfishly, it's extremely helpful for me as I'm getting to the point of reconstituting a board.
[00:52:36] So I'll probably be calling you guys again after this to get more of this sublines.
[00:52:41] Lloyd Metz: Anytime, Sean, anytime you know how to reach me.
[00:52:45] Sean Mooney: All right, gentlemen. Well this is I think, another great kind of pillar of the private equity way and really appreciate you all kind of pulling back the curtain and showing it.
[00:52:54] Lloyd Metz: Appreciate the time, like the conversation. Thanks, Doug. Thanks, Sean.
[00:52:57] Doug McCormick: My discussion guys. Yep. Thank you.
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[00:53:44] Give us a call or visit our website@bluewave.net. That's B-L-U-W-A-V-E, and we'll support your success onward. The views and opinions expressed in this program are those of the individuals presenting and do not necessarily reflect the views or positions of any other persons or entities, including those referenced herein. No representations, warranties, financial, legal, tax, or other advice made herein. Consult your advisors regarding any topics discussed during this episode.
[00:00:30] Lloyd Metz from ICV partners, Doug McCormick from HCI Equity, and I unpack the ins and out of private equity board meetings. We're talking about the why, the how, the what, how to set the agenda, build strategy, and drive real value between these sessions. So they're not just readouts, they're something that strategically adds value.
[00:00:48] Whether you're a board member, a portfolio company, CEO, or an investor looking at really make impact on these meetings, you'll walk away with some clear practical tips that make your board meetings more strategically advantageous to you, not just a routine check-in. Enjoy.
[00:01:08] It is great to be back here for another episode with Lloyd and Doug. Doug and Lloyd. How are you guys?
[00:01:15] Lloyd Metz: Good. Good, sir. Good. See, see you.
[00:01:18] Sean Mooney: It's been a while, so we're happy to have the band back again. And Doug Lloyd and I were talking about what would be something that we haven't talked about yet. That's a really a core feature of the private equity industry.
[00:01:30] And one thing we've talked about was board meetings.
[00:01:33] Lloyd Metz: Whoa. That's what we're doing today. Oh goodness.
[00:01:36] Sean Mooney: Like riveting. It's a super important topic. It's one that. I think particularly as like an entrepreneur, you're always wondering like, why do I even need to have 'em? If I do have 'em, how do I make it a good use of my time versus like spending tons of hours putting a hundred page deck together.
[00:01:52] Lloyd Metz: First of all, your deck should not be a hundred pages. Let's
[00:01:55] Sean Mooney: start with that.
[00:01:58] Just wait 'em out. The weight test is easy. Brevity is hard. Yes,
[00:02:04] Lloyd Metz: that is true. We'll get to that. We'll get to that for sure.
[00:02:07] Sean Mooney: Maybe the way we'll structure this, if you guys agree, is we'll talk about kind of why you have 'em. Like who's on them, how do you make 'em valuable? And then for those of our listeners who really want more of like the tactics, like how many do you do a week or a month or a year?
[00:02:24] What are your committees? How long they last? We're gonna do that at the end. So if you want some of the basics first, there'll be timestamped in the notes and I say just jump to the end and then come back. But let's go to, rather than starting with the broccoli, let's go with the broccoli with cheese on it and take the cheese part of it forward.
[00:02:42] And so,
[00:02:43] Doug McCormick: so this is the good part you're telling me? Yeah, the good part. Okay, the good part.
[00:02:47] Sean Mooney: We're gonna start with the cheese part of the meal here. And so let's jump into it, Doug, to get a set up here. What are your objectives for your board meetings? Like why do you have them as private equity folks?
[00:02:59] Don't you really just have your board meetings every week?
[00:03:01] Doug McCormick: So I'm gonna take a step back and go back to some of the other conversations we've had about how private equity is increasingly focused on value creation over the life cycle of their investment. That's 0.1. Point two is by definition, we all say we're getting into these businesses with an expected exit that generally people think about as a five year kind of timeline.
[00:03:22] And so as I think about the purpose of the board meeting it. Some kind of connection between the end state that we think we're striving for and we want to exit around and comparing and contrasting that to like where we are in that journey. Right? So I think the quote board meetings that you have on a weekly basis as a private equity firm, I think that's very focused on execution.
[00:03:44] Like how are we driving the p and l? How are we customers servicing customer? How can that, and when think about the board meeting, I think it's more what is our strategy? Am I making decisions that are consistent with shaping that strategy? Do I have the team in place to execute that strategy? And so I think it's a real opportunity to differentiate between the day-to-day needs of the business versus long-term where we headed.
[00:04:08] Lloyd Metz: I think that's right. Doug and Sean, I've heard some people make the distinction between working in the business and working on the business. A board of directors helps founder, CE. Work on the business and think about this year, next year, two, three years from now, where should we be headed? How should we get there?
[00:04:33] What resources and action do we need to take today or next quarter to set us up for two or three years from now? And then keeping track of all of that. To me, that's a big part of the board of directors. That's big part of their role.
[00:04:49] Doug McCormick: And Sean, maybe I could add one more thing. I think a lot of the value here is often the benefits associated with preparing, and so I think good board meetings.
[00:05:00] The management team comes with the deck they want to present and insights as they've thought about the material, they've thought about the progress, they've thought about the initial plan versus what they're hearing in the marketplace, and they're bringing kind of insights and recommendations on how the plan should change given kind of real market feedback.
[00:05:18] I think there's a real powerful combination in terms of partnership between management teams and investors often because the management team knows the business better than we ever will. I think long experienced private equity executives have seen a lot of reps, and so they can kind of put the progress of the business in context to other things they've seen, and I think that can be a helpful exchange.
[00:05:40] Sean Mooney: It's interesting to hear you say this, and as I'm reflecting on my past eight years and when I was in PE we would have weekly or biweekly meetings with every portco. You kind of know, like you said, the tactics of what's going on, but the quarterly meetings were so good in terms of just pulling the altitude up and thinking and checking in strategically.
[00:05:58] One of the things that I did here at BluWave is I just, I didn't even have a board at the beginning. I, I still don't. Right? And part of the value is I can just continue to PPL along. I know what the vision is, let's just plow through it. And I think one of the things that I've noticed just kind of missing is not having those kind of outside in 35,000 foot, like just check-ins along the way because you're just used to running and at some point you're just like running with like blinders on and you're just going fast, fast, but you don't know what's left and right and there's not someone really putting you in check.
[00:06:27] So we'll be actually putting together a board in the near future. Exactly. For those reasons that you're talking about, it's like how do you pull the altitude up? And then have someone make sure they're along the track of where you wanted to go, and not just running full speed into not knowing at the end of the tunnel that's a light or a train at the end.
[00:06:44] Lloyd Metz: Yeah, that's right. And Doug, I think as you described it, I think it's underestimated the value of that preparation for a leadership team. Sometimes just being able to have to stop thinking about the day to day of the business. And then address some of these issues and just preparing however long that deck turns out to be.
[00:07:05] That exercise for a lot of teams is just valuable.
[00:07:09] Sean Mooney: We were kind of kidding at the beginning when we talked about the hundred page deck, but to your point, Lloyd, I think it's just that idea of like brevity's hard. It forces you to synthesize things in ways that takes thoughtfulness and contemplation. And so I think you're once again pointing out a really good thing.
[00:07:28] You're really giving your teams the opportunity and not making them to kind of like focus.
[00:07:33] Lloyd Metz: In addition to just being thoughtful, the process of skinning down that deck also helps you skinny down your own thought process. So oftentimes a team, an individual's thought process or a team's thought process is scattered all over the place.
[00:07:52] Lots of different issues of dynamics, whether it's accounts. Clients, customers, inputs, suppliers, whatever it is, right? And you can easily lose sight of what are the most important things, what are the most important principles? What are the most important aspects of our business model? What are the most important things that are driving value in our business?
[00:08:13] And being able to distill that down into something shorter, briefer, simpler, actually can drive the value because you're not distracted, you haven't lost sight. That's been some of my experience.
[00:08:27] Doug McCormick: I'll take a little bit of a counter here, which is I often struggle with, I think the job of the team is to do three things, kind of aggregate what is happening so they can tell the cogent story, fully educate the board with all of the relevant details.
[00:08:44] So when you get feedback, it's based on the relevant issues, and then have a recommendation given those first two. And so I often struggle with brevity in terms of. Recommendation, but I wanna be fully educated in all of the details that got people to the recommendation. So sometimes that's a read ahead.
[00:09:02] There's a lot of ways to navigate it, but I find that the preparation is extensive, both for the team preparing it, but also board members to come in fully educated, so we're not spending time level setting to get everybody to the same set of assumptions.
[00:09:17] Lloyd Metz: That's a great point. And Sean, at the risk of messing with the broccoli, even though we're supposed to be in the cheese phase of the conversation, I've seen some good examples in boards where that pre-read that detail, that full informed pool of information or numbers is in a read ahead and or an appendix, and you deal with that separately.
[00:09:40] The expectation is the board members read that in advance of the meeting. So you can go nerd out if you want to and crawl into the details of whatever it is you care about. But the discussion in the board meeting is at a higher level, different level. That's a good way of tackling it, I've found.
[00:09:56] Sean Mooney: I really like that nuance.
[00:09:57] It's a, it's up to the management team to be thoughtful about what matters and also have the ability to go deep on things and be prepared for that. But B, the thing that I think was also a really good point is the other board members have to prepare as well. So that those precious few hours where you're all bringing together are as useful and valuable as possible.
[00:10:16] Doug McCormick: Yeah, and I think you mentioned that a lot of times, so the PE guys are interacting with the team very frequently. Sometimes independents are not. And so the importance of the independents who have not had that daily or weekly interaction to kind of get up to speed, I think critical if they're gonna add value.
[00:10:33] Sean Mooney: Let's talk a little bit about that. So you mentioned independence. So who is typically on your boards? Lloyd Doug. What are the types of people, the seniority levels, the numbers of people that are comprised on the boards? Typically, for a portco,
[00:10:49] Doug McCormick: I'd like to make a comment before we go down into the very specific details.
[00:10:52] So as I think about creating a conversation where collectively we can create a lot of good intellectual capital and conviction about our direction, I think board composition in that light is management team members and it inclusive. It's private equity team members who are actively involved in the business, and then there's an outsider or independent perspective, and that's a pretty broad team.
[00:11:17] That could be 15 people. I differentiate that from governance, right? And the governance is usually kind of five or seven. And what I find is the first part of this conversation is way more important than the governance. And if a board is functioning well, there's a lot of consensus and the governance never really matters.
[00:11:37] Lloyd Metz: I'd agree with that and almost down to the numbers for governance purposes, five or seven. And you hope to never have to exercise that, that board control to get something done. It's just there, I guess, kind of in case you need it, but as Doug said, the first part of what we've started talking about, that's really the important piece.
[00:12:00] Sean Mooney: So I think a lot of people who have been on school boards or community hospital boards. There's 20 people on the board from a governance perspective, and so why is it that in particularly in the PE mode, you might have five to seven people when you say governance, who actually vote on things, but you might have 20 people in those meetings in different phases and stages.
[00:12:22] Why does that matter? What goes right or wrong with the 20 person school board versus the five to seven on things that require a vote?
[00:12:30] Doug McCormick: Personally, I think it's that in some of the other examples you mentioned. Part of the board role is consensus development. And in the private equity context, I think it's less about that and there's a concentrated ownership position that is gonna ultimately make decisions.
[00:12:46] And so the need to bring people along in the governance process, I just think is less the value of having all the informed people and the best minds at the table. Equally important,
[00:12:56] Lloyd Metz: right?
[00:13:04] Majority or through the shareholder vote. Majority we control. Right. But like I said, you don't want to exercise that. So the board discussion is really about improving the outcomes for the business, coaching the leadership team, and getting better outcomes. That's what it's about. You had asked about independent directors.
[00:13:26] We're big independent directors. We have two of them on all of our portfolio. We've had really good experiences with them. As I think about it, we try to identify individuals that are addressing specific needs of the company, the leadership team or the CEO, some combination of those three, what do they need?
[00:13:49] And sometimes it has to do with the industry, but oftentimes it doesn't. It may have to do with what does that CEO need going forward, right? In terms of scaling and growth. Maybe it has to do with them trying to get some doors opened in a customer or client segment, and so maybe you find a board member who has good relationships in that client or customer segment to help open doors.
[00:14:16] It just depends. We, we take an approach where the independent board members we recruit to meet specific needs of the company.
[00:14:23] Sean Mooney: Hi, this is Sean. Wanted to take a quick moment to tell you a little bit why BluWave exists.
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[00:14:50] Just go the square peg round hole route. So, after nearly 20 years in PE, I decided to solve my own problem and created BluWave. Today, many hundreds of PE firms, thousands of portcos, leading public companies, private companies, all call BluWave to instantly get connected with the exact third party service provider they want that's pre credentialed by BluWave and perfectly calibrated for their need.
[00:15:13] Really good. You too can give us a call or visit our website at BluWave. net. We're free to use and you can benefit the same way other top PE firms do. Back to the show.
[00:15:25] I want to go deeper into that, but just to put a finer point on on the last part of our conversation. Doug, if you've got a five person board or a seven person board, is it fair to say on a five person board, you're gonna have three people from the PE firm, so they have the majority votes, you'll have one CEO, and one independent, and if you have seven, maybe it's four people from the PE, or somehow you have the proxy, two independents and one CEO.
[00:15:51] Is that kind of the way to think about it?
[00:15:53] Lloyd Metz: Yeah, that's right.
[00:15:55] Sean Mooney: And who from the PE team usually sits on that?
[00:15:57] Lloyd Metz: It's usually the investment team members in our case, and the portfolio operations partner is in the room. There's no right or wrong to it, but we've decided not to have them be a board member, a voting board member.
[00:16:12] And our model, the portfolio operations partner is a, a liaison between the leadership team and and our team, the investment team. And so having them being a director might muddy that. So they're in the room, they're closely involved with the agenda setting and the preparation and the post board meeting feedback, but they're not officially directors.
[00:16:37] Sean Mooney: And Doug, how about you?
[00:16:39] Doug McCormick: Very similar approach. I've heard that nuance in terms of how to think about the operating partner being on the board or not. And candidly, intellectual to me. But I think it's the demeanor of the executives and like just the interaction that builds trust. And so I've seen it both ways work well.
[00:16:57] One, like slight tangent. We also often consider when somebody sells the business into we do consolidations. If they reinvest a meaningful portion, we consider putting them on a board or at least giving them observer rights. And it's really in the context of, hey, you've got a meaningful investment and we want you to be part of the conversation.
[00:17:20] Often less about governance, more about information and ability to speak their mind.
[00:17:24] Lloyd Metz: Yeah, that's a good point, Doug.
[00:17:26] Sean Mooney: That's another, likewise a really good, if you have a partner that's rolling in, they get a seat at the table, either from a presence or a vote. Maybe pull the onion back a little bit further in terms of deal team versus ops teams on the board, like the way I've always thought about and direct back on track where I'm off.
[00:17:44] The deal teams kind of own the strategic entrance all the way through exit. They're the ones making the decision. Ultimately, do we make this deal? And they're also ultimately the ones held responsible. Should it not turn out well, that outcome gets forever encapsulated in what's called a track record.
[00:18:02] And so I could tell you guys every deal I've done since I was 23 years old in private equity. 'cause that's ultimately the hallmark or the reflection of how well you've done as part of your role at Craft. Whereas the value creation team, and this is changing, but historically and traditionally, it's been how they create value from time zero at entrance to exit.
[00:18:23] And so I think a lot of times you get more deal teams on the boards because of that kind of soup to nuts, cradle to grave relationship that they have in the investment. But they're also what they're held responsible for. Is that a fair way to think about it?
[00:18:38] Doug McCormick: I think it is, but I would say two things. One, I think there's a evolution where firms are pushing hard not to necessarily have like one deal lead and it's multiple team members.
[00:18:50] I think that's a good healthy thing in terms of the personal agendas about who gets deals done, et cetera. So we try to think about it like the teams approving the deals, the investment committees, approving deals, rather than simply one person, but to process around. The ops team is a member of the management team and they're reporting to the board, and therefore they're not on the board because they're more aligned with the management team.
[00:19:16] And I, I think that from a, like a social perspective is an interesting way to look at it.
[00:19:20] Sean Mooney: It's a very good clarification. Thank you, Doug. Let's now move the conversation along. And Lloyd, you talked about independence, and so an independent, just to define this for our listeners is this is someone who is typically not on the staff of the private equity firm, not on the staff of the portfolio company.
[00:19:41] This is a truly independent person who has some sort of value added role in an ecosystem or area of expertise that matters to a p recruit. To be part of this board without explicit ties to either. Is that a fair way to frame it?
[00:19:58] Lloyd Metz: That is spot on. You nailed it
[00:20:01] Sean Mooney: every once in a while. I get it. Lloyd, let's, let's pick back our conversation.
[00:20:06] So you talked about how you bring in two and the roles may vary depending on the use case. So maybe peel that back a little bit. Like how did you get to the like Oh, we're
[00:20:19] do of. Value within the kind of the strategic approach you all take. At I cv,
[00:20:24] Lloyd Metz: I'll use one of our portfolio companies, as an example, a private, small partnership that has aspirations to grow and to expand. That was a big part of their ambitions from our diligence. We also identified the fact that they aren't particularly as well known as they ought to be.
[00:20:45] There's a disconnect between the. Type of work that they do, the quality of the work that they do, and how much awareness there is in the marketplace. So we recruited two types of independent board members. One was the former vice chair of an executive search firm. I was in a leadership position at that executive search firm from when they were a relatively small private partnership through multi-decade growth to ultimately becoming a publicly traded company.
[00:21:16] Understanding what sort of culture change you need to push in advance to go from that private partnership to a larger enterprise. So that board member and our plan is intended to guide and coach the leaders of this company as they talk about expanding globally, expanding the ranks of the partnership.
[00:21:43] What do you need to be mindful of to make sure the culture holds the good parts, and then some of the parts you might wanna move away from? How do you handle that? The other board member we recruited was the chief marketing officer of a company that was sort of, uh, not a direct competitor, but in an adjacent space with a competitive set of products.
[00:22:08] So enough of an understanding of their business. But really understands how do you market in a B2B context. And so that person was brought on the board because that addressed the issue we identified in diligence that they need to address.
[00:22:24] Sean Mooney: So one is kind of your been there, done that River Guide Ghost to Christmas future kind of person for your CEO to kind of say how we're navigate this like transformation.
[00:22:38] Pull forward part of the business, the go to market, that is part of the overall strategy.
[00:22:43] Lloyd Metz: That's right.
[00:22:44] Sean Mooney: So you kind of have something a little more actionable and tactical and something much more strategic. And together they're kind of thunder, lightning.
[00:22:51] Lloyd Metz: Correct. And, and the view is when that leadership team, when that CEO is trying to figure out what the heck is Lloyd saying at the board meeting, or they're like, I know we need to do this, but I don't know where to start.
[00:23:06] You can call that board member who was the former vice chair who's like, been there, done that. Right? That's a resource for you. It's almost like an executive coach is how we intended it to be like, don't be shy. Don't feel like you always have to report out to that person. They're retired. They don't want your job.
[00:23:23] They have grandkids. Use them as a resource and tap into some of that experience and wisdom.
[00:23:30] Sean Mooney: Great. I wanna go little into kind of like role that these. Before we get there, Doug, why don't you walk us through kind of similarly how you think about the roles and how you're using them kind of practically.
[00:23:43] Doug McCormick: I think it's pretty similar to how Lloyd thought about it.
[00:23:46] I mean, we're usually adding an independent for one of three insights. One is the market. The second is similar consolidation in a like market where they're bringing this, the experience of how to put business together, how to think about integrating, how to think about scaling. And then I do think this role of, I've worked with HCI before, I've worked with ICV before, so I understand what they're saying and I can be a bridge to like help the two different organizations get aligned.
[00:24:17] And I think one of the things that, that implies independence, truly is independence, right? Like, so just because we have a history with them doesn't mean that they're not gonna disagree with us, doesn't mean they're not gonna be vocal about their opinions. I think that you've also gotta give them unfettered access to the team.
[00:24:34] So we actually, to make it valuable, we want them to be having a really tight relationship with the team and to be able to feel like they can go wherever they want to go to, to get insights and drive conviction.
[00:24:47] Sean Mooney: And maybe before we get to, for each of you a conversation about how they kind of interact before we go from.
[00:24:54] When you're at the very beginning, how do you frame the roles and kind of set the objectives for each of them in terms of what you want them to accomplish in the role you want them to play?
[00:25:05] Lloyd Metz: I just tell them directly, so in the course of the recruitment of an outside director, you tell them where the company is and the it's in what, think what you see.
[00:25:23] What do you see as the needs or blind spots or areas of weakness or whatever in the strategy? What do you think the team needs from a coaching? What, whatever it is you think you share that with them and you tell 'em directly, I would love for you to join the board and help them tackle A, B, C, and D. Or, I need you to help them develop confidence about X, Y, or Z, or, I need you to be the.
[00:25:52] Counselor coach to the CEO as they are changing out whatever you just tell 'em. I think that's just the, the best way to go about it.
[00:26:03] Sean Mooney: I think it's such an underappreciated process of board formation that you're talking about. It's like, what do you want 'em to do? And be very clear, just like as if you would tell your CEO what you want them to do, being really upfront at the very beginning versus like, Hey, find your way.
[00:26:17] Lloyd Metz: And I just want to underscore something that Doug said. But you also tell 'em that you are independent. We're not paying you. The company does. And if you disagree with me, tell me you think I screwed some up. Tell me this is true. Independence of thought and action here. And you do give them unfettered access to the, to the team.
[00:26:36] Doug, how about you on that top?
[00:26:38] Doug McCormick: Yeah, I'm gonna try to answer that a little bit differently in terms of acknowledging that board roles are not full-time roles. And so like how do you get that balance of having them create real value? Doing it in a very efficient way. So I, I have four areas I guess that I try to push board members in, in terms of expectations.
[00:26:56] One is I need you to do an upfront investment to understand the business and the team so you kind of like know what you're getting into. And once you have made that upfront investment, I need to make sure you actually make it a commitment to participate in the meetings when I've had bad experiences because they're overcommitted and they can't figure out how to get to the board meeting.
[00:27:17] In person or participate and then like they gotta prep because they don't have the constant interaction that we have. So they gotta come kind of loaded with their perceptions and opinions. And then I truly do want them to be the quote honest broker, and that puts them in a position that they can often help the team and the PE team.
[00:27:40] Reconcile differences of opinions. Right? And so like it's a pretty mature person, very confident, experienced person that can do that. 'cause in some ways I'm asking them to address conflict. Right?
[00:27:51] Sean Mooney: I'd love that. That also the concept that you added there, Doug, having them do the work upfront. There's an investment that they're gonna have to make in order to be value added day one.
[00:28:00] And that's another area that's totally slept on. And, and by the way, for both of you, I'm taking a lot of notes.
[00:28:07] Doug McCormick: Yeah. Sean, this. , I wanna be like intellectually honest here. I've had great value from independent board members, but I would say this is one of those positions that the range of outcomes and contributions has been really, really wide.
[00:28:21] And when I find that this hasn't been good, it's never about the person's intellect or capabilities or insights. It's some misalignment on required prep and required participation.
[00:28:34] Sean Mooney: And that's a.
[00:28:39] Practically, if they're not adding value, you're midstream and they're just not showing up. They're not adding value, but they got a really expensive equity package that vests over time, and they're just kind of punching the clock whether it's their fault or not.
[00:28:53] Doug McCormick: Yeah. First of all, I think value can be defined in a lot of different ways.
[00:28:56] Let's acknowledge that, but if they're not providing value, first of all. It's the cheapest termination you're ever gonna have. There's no severance, there's none of the other stuff. So you're just terminating the ongoing incentive package. So I think you're incented to move, and I think you set a really bad expectation and precedent with a team who you're holding accountable at every corner when you're not holding the rest of your team accountable.
[00:29:20] So I think you gotta just acknowledge the miss. Make sure your team feels the same way. Maybe they're providing value to the team that you don't see, but if they're not, I think you gotta find a new independent.
[00:29:30] Lloyd Metz: We've taken an approach where we put a term on the directorship, so there's a two year term, so it gives you an opportunity to not renew just in the natural course.
[00:29:42] So that's how we tackle it.
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[00:30:52] How often do you view these independent directors as potentially playing a role in the management team of the.
[00:31:05] Lloyd Metz: Most of the people we've recruited, and this is part of the recruiting spec, they're tired and or professional board members. And if they're not either of those two and they have a day job, they like their day job, but they have enough flexibility to be able to participate four or five times a year. So that's generally not the expectation that we have when we're recruiting an outside independent board member.
[00:31:34] Doug McCormick: I agree with Lloyd. It's like the job spec for the independent board member is different enough from the CEO spec that we don't expect them to overlap. Well, and the only caveat to that would be if you had an unexpected departure, somebody got sick and you needed somebody to step in for a couple months while you're in search.
[00:31:53] I could see that person having the company context and the time to maybe step in on an interim basis, but it's a pretty rare occurrence for.
[00:32:02] Lloyd Metz: That's the only occasion I can think of is when we had an outside board member that was the former CEO of a industry participant competitor to our portco. They had just left their firm.
[00:32:17] So the CEO was new to the industry, had developed a relationship with this industry, veteran brought them on the board for that reason. And then unfortunately, the CEO passed away. He was able to step in for a few months while we ran a process to to find a successor. That's the only time I can think of when an independent board member has come in to actually run the businesses that we've invested in.
[00:32:43] Sean Mooney: As I'm channeling kind of the deals I did back in the day, and there's probably two times in my career where we did that and one was a carve out where we kind of got put with kind of a line person. We were hoping that person would be able to kind of make the leap into kind of a CEO of a small company rather than a middle manager at a large company.
[00:33:05] But we weren't gonna leave hope to chance. And so we brought in someone who we thought might be able to come in, but that was decidedly our plan B. And the preference was we could wrap resources and coaching just didn't work. And then the was when we had a business where the CE.
[00:33:24] Thought of as almost like a transition plan where we could kind of bring them into the board level and then call in the bullpen a little bit, but that was with the existing CEOs kind of buy-in. And so it's a good way to, I think, frame how these things can happen within the independent. Let's talk about next, this whole concept of independent executive chairman.
[00:33:46] What is that role? Where is it used typically, why do companies use an independent executive chairman?
[00:33:53] Lloyd Metz: Doug, have you guys used executive chairman at all at any of your companies?
[00:33:58] Doug McCormick: I view it as kind of a transitional position, and so generally I find executive chairman implies the current team is incomplete in some capacity.
[00:34:09] So it could be you're navigating a transition and this person is a board member but is spending two to three days a or some kind of relatively active amount of their time. Supervising the initiatives in waiting while you find a team, or for whatever reason, the company's either going through a significant ramp or going through a turnaround where you need incremental capacity and you need the ability to kind of react quickly, real time to banks, et cetera.
[00:34:38] And so I think that can be a role for that kind of position. I find it very rare that we have that role kind of inhouse.
[00:34:46] Sean Mooney: Yeah. Application where you have highly diffused ownership and you need someone to have their hand on the wheel, if you will, and kind of course correct and direct a large board.
[00:35:02] Whereas if you're talking about five or seven people in a private equity capacity where you all have direct ownership and you're gonna be making decisions quite agilely with purposefulness, you don't really need that person in there. In some ways, the private equity firm plays that role.
[00:35:17] Lloyd Metz: But you know what, maybe Sean, Doug, we should invite any of our listeners to weigh in and if they have experience with executive chairs in the lower middle market, drop us a note in LinkedIn and let us know what your experience has been and if we're missing something.
[00:35:33] Sean Mooney: Yeah, and I think it's a great idea. Before we get to kind of the, the last kind of tactical part that we foreshadowed, the last kind of meaty topic, I'd love to. Some people who've been in bad or situations that maybe aren't structured well would say that these can be long tactical readout sessions with the a hundred page deck.
[00:35:55] And it's more about just kind of saying, here's what happened versus having meaningful time spent on serious topics that matter. And so how do you structure your boards to avoid that potential trap where they're not strategic? It's more of a tactical readout.
[00:36:12] Lloyd Metz: I gotta say, Sean, a lot of it, I think falls on the chair of the board to set not only the agenda with the CEO, oftentimes mostly the CEO, but also setting the expectations for what to cover.
[00:36:30] And you kind of have to be vigilant about it and say no report outs. And so we do that on both ends, actually, of our board meeting. So. If I'm chair, I try to get those expectations laid out before the board meeting while we're setting the agenda. And then usually within a week or two after the board meeting, we send feedback from the entire board, bullet points.
[00:36:54] And oftentimes that's where you will say, Hey, can we have less reporting and more discussion? Or don't spend so much time talking about what happened? We read that in the deck. Tell us what does it mean? What does it mean for this current quarter's performance? Or what does it mean for this current year's performance?
[00:37:14] Or what does this mean for next year's performance? Just move beyond the reporting and let's talk about what does this mean and why does it matter, and what do we do about it? You have to keep beating those points regularly.
[00:37:28] Doug McCormick: I agree with Lloyd, so I think it's helpful to have various functional leaders give a State of the Union for their function.
[00:37:36] If you're not careful, that gets into the a hundred page deck and you walk out well informed, but nobody made decisions. And so forcing clarity on like, we're gonna try to give direction and feedback on three or four topics, what are those topics upfront? So they're spelled out and the board chair or the CEO driving conclusion on, did we get to that answer?
[00:37:59] Did we satisfactorily address the points of feedback? And then for me, there are two parts of the board meeting that I think are often neglected that I find really valuable. The first is executive session, which for us means after the board meeting management team clears out, you've got the CEO and the board, and you're talking about people, and you're talking about kind of the human capital in the context of the strategy, which is a very part of this exchange.
[00:38:28] And. The team just presented. And so it's a great opportunity to evaluate the team in the context of that conversation. And then I think it's a real missed opportunity if the board doesn't within a week, communicate amongst themselves and come back with three or four or five things that are the clear takeaways from the meeting.
[00:38:49] And so I think there's a, there's good work that should happen after the meeting amongst the board members to give the CEO clear direction at the conclusion.
[00:38:58] Sean Mooney: What I'm taking away from this and, and I think it's really helpful as I even kind of formulated in my own mind, is the board needs to be managed in the same way that you would manage the company or the organization or an executive within a business.
[00:39:11] You've gotta set the mission, vision, values of what you're trying to achieve over the next five years. Here are the key objectives, here's how we're gonna activate it through tactics and supportive resources. And then as I'm kind of hearing here also is. It's constantly gonna wanna lose calibration. So you gotta just keep on kind of forcing it back to being a productive entity.
[00:39:32] 'cause it's so easy to revert to being kind of a readout if you don't intentionally focus on.
[00:39:38] Lloyd Metz: And I think to be fair to the teams, 'cause it is a lot of work, carving out the time well enough in advance of a board meeting to prepare the deck, as we talked about earlier, it can easily turn into 75 to a hundred pages and then it takes time to boil it down and distill it.
[00:39:55] In all fairness, that's a good amount of time that pulls these executives off of their day jobs. Right? And I think that's often what happens when you wind up with a board meeting that is more of a report out. I usually take that to mean the team just pulled this together relatively recently, and so they're reporting out because this may be the first, second time that they're hearing it themselves talking about their.
[00:40:22] Particular function or the particular part of the business. But that's hard to find that time for the team to do a good job and be successful in preparing for the board meeting. I know it's not easy.
[00:40:35] Doug McCormick: Hey, Sean, I, I know you're getting ready to get into the broccoli here and talk about all the tactics of board meetings, but there's one more element of cheese I think we should highlight, so we can't miss the importance of the relationship opportunities that happen at board meetings.
[00:40:51] And so let's just say there's four a year. Let's just say at least two times a year, you're in person. The opportunity to kind of have dinner with somebody, catch up on their kids, understand socially seeing the team interact together or not get to hear, like sometimes you have one-off conversations and people feel a very different level of comfort in in having that sidebar conversation to dinner than they do in a broad forum.
[00:41:16] And so. You gotta acknowledge this is also a structured opportunity to kind of really connect with the team members. Make sure you're getting like the real story and it sets you up to really understand context and sometimes have hard conversations. 'cause you got the benefit of a relationship and you've reminded yourself, we all want the same thing.
[00:41:36] We just don't necessarily always agree how to get there. So I think that shouldn't be lost on this process.
[00:41:41] Lloyd Metz: Yeah, I'm glad you brought that up, Doug, because the board dinners are a great opportunity to develop that kind of trust between the board and the leadership team.
[00:41:52] Sean Mooney: It's another really great call out on like what's one of the most important features here is just kind of not only knowing people from the key objectives that you're pursuing, but also the humanity part of it, and how it all symbiotically works really well together when it works well together.
[00:42:06] So maybe let's move to some of the more tactical parts. And maybe first what I would suggest is talk about what are the key modules of your board meeting, like what's included in this board session in terms of what you're gonna address. Do you have a formula like we're gonna talk about historical financial results, key objective, readouts, yada yada.
[00:42:29] How do you kind of structure that meeting and.
[00:42:37] Lloyd Metz: Try to minimize the amount of oxygen you give to the, I'll say the current quarter. 'cause you're always roughly a quarter in arrears or a month and a half in arrears. So very little time talking about last quarter, give more oxygen to what is the current outlook or flash for this quarter and the next quarter.
[00:42:59] And then how does the rest of the year look? Are we tracking to budget? Are we tracking to beat budget? And then what about next year? When do we start talking about ideas in June that wind up getting work done to vet those ideas in August, September so that they wind up in the budget come October, November for 2026, right.
[00:43:21] At some point have to start talking about that stuff.
[00:43:25] Doug McCormick: Yeah. I think Lloyd, I probably have similar approach up spending a fair amount on understand my. Really only has implications around how does it accelerate our ability to get to the end state? Or how does it constrain our ability to invest and get into the end state?
[00:43:45] So like if you can force yourself to keep it up at that high level, otherwise like I think you can get really bogged down in the financial detail. So again, it's how does that allow me to accelerate investment or how does that force me to disinvest
[00:44:02] end? And then I think it's like what are the strategic things that are happening in the business that support that? And we generally organize those around functional area. So it's operations, it's commercial, which is some forward facing customer facing function. It's hr, it's it often, and it's m and a.
[00:44:21] And so we think about it in those functional areas in pursuit of the end state that we've articulated
[00:44:27] Lloyd Metz: and.
[00:44:31] Just a different lens, right? We've talked about value creation. A lot of the episodes here to the extent you have strategic initiatives that are driving value creation will organize the topics around those initiatives. So review of the strategic initiatives, how's this coming as it relates to people, talent and development as it relate to an enabling capability.
[00:44:53] So your ERP implementation or whatever that is. Where are we on sales and marketing and go to market initiatives? So we will organize it along the strategic initiatives and make sure those get ample time and oxygen, and again, work for the CEO and chair person. Sometimes you have to block out time. So oftentimes a version I'll send to the CEO will have 10 minutes for this, 15 minutes for this, 45 minutes for this, et cetera.
[00:45:23] Sometimes you have to just be just that explicit.
[00:45:26] Sean Mooney: So playing back what I've heard here and tell me if I've gotten this right. Beginning of the investment you're starting, here's our value creation plan. Here are the strategic things that we wanna achieve. So you all will do check-ins along the way about where you are along that path of the future state.
[00:45:41] Why are we there? Why are we not there? And then you're very detailed looking at your financial performance and less around what happened in the prior quarter and more about what will happen. And then the art of this is how do you then bend space and time such that it's IT meeting or exceeding your plan and hopefully exceeding.
[00:46:01] Is that a fair way to think about it?
[00:46:03] Lloyd Metz: Yeah, absolutely. I think that's the right way to do it.
[00:46:06] Sean Mooney: Do you all do committees as well as part of your board meetings? Audit committee? HR committee? Yeah.
[00:46:12] Doug McCormick: Yet we have them. I think one of the lux of small board concentrate ownership is you can minimize the bureau committees are.
[00:46:22] Risk management tools in the context of a public company environment, but I do think comp and audit in particular, you can take offline and that way a smaller group can deal with it, and then you can kind of give a report out to the board. It can be two minutes and you keep moving.
[00:46:36] Lloyd Metz: Yeah, we have audit committees, but I, I wrestle with that, but it was another conversation for another episode, but it's usually two or three people, including one of the independent.
[00:46:49] And we go through the report out from the auditors, and again, analogous to what Doug said on the executive session with the CEO, and you get the value from the auditors by having the session without the CEO and CFO on the call to ask them about how things have improved or not improved since last year's audit or two years prior audit, et cetera.
[00:47:15] Sean Mooney: That was the way I would always view the audit committee is one, can you have a candid conversation where it's unfiltered? And then two, establish the permission and the encouragement for the audit firm to directly contact the board if they have not seen anything. And those are, those are important elements that should be done, but probably less so in terms of like with a five to seven person board.
[00:47:37] A lot of those topics can be dealt with as part of the group versus having people parcel off.
[00:47:44] Lloyd Metz: That's right. Hey, Doug, can I ask you a question here? You, you had mentioned the executive session with the CEO in the room being undervalued, underappreciated, and really a forum for a discussion about the team.
[00:47:58] Do you also have executive sessions with board only without the CEO?
[00:48:05] Doug McCormick: Yeah, not always, but sometimes, and we try to do it frequently enough that it's not considered a good thing or a bad thing. It's just a free form for people to express. Feel are compelling.
[00:48:17] Sean Mooney: Yeah. Okay, so now we'll move in the final minutes here.
[00:48:20] Just the real nitty gritty, how many board meetings per year and how many in person, how many virtual typically, and is that changing in kind of the post COVID era?
[00:48:27] Lloyd Metz: So four board meetings, sometimes five. If you throw in a budget approval meeting, and sometimes they're based on the cadence of the quarters budgets.
[00:48:40] Budget approvals often don't fall neatly on a board meeting, so it'll get its own special shortened board meeting. So five, four board meetings, one budget approval, usually two to three in person, one to two virtual, and oftentimes it's the summer, so the second quarter board meeting, which will fall in late July the earliest well into August usually.
[00:49:08] That one is often virtual.
[00:49:10] Doug McCormick: How about you, Doug? Very similar. We're a little less rigorous around which one's virtual and which one's not. Just based on like the individual companies, what's going on. And the only thing I would say is if we're doing two live, ideally I'd like to do one on site with them and one on site somewhere back at the mothership at HC, I think makes it efficient for my team to be here.
[00:49:32] Some of the time it. A lot of times we're moving facilities, we're making capital investments, and so that's a real kind of important part of seeing the story as well.
[00:49:45] Sean Mooney: And I like that mix At your place. At ours.
[00:49:48] Lloyd Metz: Yeah. I forgot to mention that because historically we've always gone to visit our companies.
[00:49:55] It was usually during the holidays is when people want to come visit our offices, but we're almost always going to see them.
[00:50:04] Doug McCormick: Look, just, it's kind of funny, right? You think about it. 20 years ago it was four meetings a year and we did most of them on company site. So all in person, there was no such thing as a virtual.
[00:50:15] Sean Mooney: That's right. How long do you meet last? When you show up? How long is the meeting? When do people run back to airports?
[00:50:21] Lloyd Metz: I want to hear your answer, Doug.
[00:50:24] Doug McCormick: Yeah. Well listen, I'm brutal about this. I feel like we said we're gonna do dinner. So generally it's kind of get in the night before, do dinner. And then show up the next morning, call at nine o'clock and I schedule a flight out so I can get back to DC same night, but I'm probably not doing that till five.
[00:50:42] So I wanna leave six or seven hours. And I don't think it needs to take that long, but it probably takes till one or two. So could it be a four or five hour meeting? A couple breaks in between for sure.
[00:50:54] Sean Mooney: So basically fly in, you're there at four o'clock, arrival dinner at six. Nine o'clock, you're maybe done by two, but you're gonna book the four o'clock flight or five o'clock flight, something like that.
[00:51:06] Doug McCormick: Yep. And there's a lot of follow-up conversation and people break off into things that they wanted to learn a little bit more based on the conversation. So that's usually like really, it's fully utilized.
[00:51:17] Lloyd Metz: How about
[00:51:18] Sean Mooney: you
[00:51:18] Lloyd Metz: li? Yeah, about the same, depending. 8, 8, 30, 9 o'clock start and usually wrapping up one.
[00:51:27] Sometimes two, depending on how much there is to, to go through. So four, four to five hours is, is what we're aiming for.
[00:51:34] Sean Mooney: You'll have some form of Panera, like company drop off mixed sandwiches and chips, right?
[00:51:42] Lloyd Metz: Those happen to be some of my favorite food types. So yes, I'm using, not complaining.
[00:51:48] Sean Mooney: The last like tactical question that is only probably interesting to me.
[00:51:53] Do you guys often have your company's corporate attorneys join to keep minutes or do you assign one of your team members to do that? What's the, just the practical approach to do the, the memorialization of what happens?
[00:52:05] Lloyd Metz: Usually our team members do the minutes or sometimes the CFO of the company will do the minutes and our minutes are, are fairly succinct.
[00:52:14] Doug McCormick: Internally done. Minutes less is more.
[00:52:15] Sean Mooney: That's, I very well said. I, a companies lose think it should. There's a whole variety of reasons why that's not necessarily good practice and good use of time, but that's probably for another episode. I think this has been really helpful and selfishly, it's extremely helpful for me as I'm getting to the point of reconstituting a board.
[00:52:36] So I'll probably be calling you guys again after this to get more of this sublines.
[00:52:41] Lloyd Metz: Anytime, Sean, anytime you know how to reach me.
[00:52:45] Sean Mooney: All right, gentlemen. Well this is I think, another great kind of pillar of the private equity way and really appreciate you all kind of pulling back the curtain and showing it.
[00:52:54] Lloyd Metz: Appreciate the time, like the conversation. Thanks, Doug. Thanks, Sean.
[00:52:57] Doug McCormick: My discussion guys. Yep. Thank you.
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THE BUSINESS BUILDER’S PODCAST
Private equity insights for and with top business builders, including investors, operators, executives and industry thought leaders. The Karma School of Business Podcast goes behind the scenes of PE, talking about business best practices and real-time industry trends. You'll learn from leading professionals and visionary business executives who will help you take action and enhance your life, whether you’re at a PE firm, a portco or a private or public company.
BluWave Founder & CEO Sean Mooney hosts the Private Equity Karma School of Business Podcast. BluWave is the business builders’ network for private equity grade due diligence and value creation needs.
BluWave Founder & CEO Sean Mooney hosts the Private Equity Karma School of Business Podcast. BluWave is the business builders’ network for private equity grade due diligence and value creation needs.
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