There’s no such thing as a good or bad private equity-backed chairman, according to Hamdi Conger – different skills will be required in different companies, so the key is to find a candidate who is “fit for purpose”.
Speaking at the PEI Operating Partners Forum 2013 in London Wednesday, the veteran chairman – who has been involved with 10 private equity-backed companies, including current chairmanships AES Seal and Rototherm Group – said private equity-appointed chairmen should strive to act as agents of change within portfolio companies.
A good chairman will add value in different ways at different stages, he added. He or she can help the firm before it acquires an asset, helping the transaction team identify and assess investment opportunities – possibly even persuading them to buy it, in some cases. He will also have an important role in the last 18 months of ownership, in presenting the business to potential new owners.
An operating partner can be very helpful during the origination and due diligence process. But his role will be most valuable during the asset management phase.
But a chairman’s most significant contribution probably happens in between, he explained. “An operating partner can be very helpful during the origination and due diligence processes. But his role will be most valuable during the asset management phase. Having an independent chairman who’s actively engaged with the company is best.”
The chairman’s first job can be to focus on improving the management team and employees’ interpersonal skills, he said. In particular, he can provide guidance on how to assess people, listen well, run meetings, and – crucially – communicate internationally.
This means building trust with internal teams from day one is vital, he said. “At the end of the day, the bus is driven by the CEO – the chairman is really here to help. Creating relationships, and looking for areas where you can add value, are thus very important to create trust. People often have [entrenched] points of view, but once that trust is built they can be more open.”
That’s even more relevant when private equity firms are minority investors, he noted. “Managing minority positions can come with significant challenges. But if it works, it can bring a lot of value.”
Chairmen shouldn’t try and tell management how to do its job, he said. Rather, the GP should trust its managers. “In some firms, they have a very active way of running a business. And there can be a fine line between running a business and interfering.”
So what’s the key to being a good private equity owner? “The firms I prefer to work with will be the ones who can provide support on a consistent basis. A good owner is present from day one until the last day.” Integral to this role is the capacity to express “positive dissatisfaction” – challenging the management team constructively on why and how it does what it does, and what it intends to do next.
The specific expertise required for a private-equity backed chairman – and his optimal degree of involvement in a portfolio company – would always vary across sector or geographies, Conger added. But the key to success is the ability to be credible from day one, have a general understanding of the issues facing the business, and be very good at influencing.
“Running board meetings is the least value-contributing part of what I do. What is really crucial is to have good listening and mentoring skills.”