Cultivating High-Growth Private Companies - NACD BoardVision
A strong C-suite and board are necessary in order to cultivate growth in private markets. Christopher Y. Clark, Publisher of NACD Directorship magazine starts the conversation with Sal Melilli, Leader, Private Markets Group, Metro New York for KPMG and Pat LaVecchia, Managing Partner at the LaVecchia Group in this edition of BoardVision.
Christopher Clark: Hi. I'm Christopher Clark, publisher of NACD Directorship Magazine, and this is BoardVision. Today's topic-- we're going to deal with high growth private companies. Luckily, today I'm joined by Sal Melilli of KPMG and Pat LaVecchia of LaVecchia Capital, who is also a private investor. Welcome gentleman.
Pat LaVecchia: Hi Chris.
Sal Melilli: Hi Chris.
Christopher Clark: I want to involve the both of you. So it's time for a little Chris Clark hardball. And I'm going to ask you each a similar question with a different title. And Pat, I'm going to ask you about CEO's. And Sal, I'm going to ask you about whether it's the CFO or someone in the financial C suite. And I think what's critical here is knowing if you have the right CEO in position, but I want to know more than that. I want to know what the signs are that he or she is not the right CEO for you and the tools to progress from a situation.
Pat LaVecchia: What we look for is roll up your sleeves types of directors for high growth companies. So you're dealing with the CEO on a regular basis. The issue that I've always run across is that we tend to offer the CEO a lot of deference. And we give them a bit too much rope. And the reason for that is we run into situation where, in hindsight, we saw the signs.
Christopher Clark: Mm-hmm.
Pat LaVecchia: And often the signs are missing strategic targets, misrepresentation of certain items that may not be glaring at the time but can--
Christopher Clark: Ultimately they become glaring.
Pat LaVecchia: Exactly. Or they accumulate over time. That's an area that we-- I've started monitoring much closer. If you do see a problem, and again it depends on the instance, what is the best way to move ahead? I've done it in a couple of occasions, one not so-- didn't go so well and that was more confronting the CEO.
Christopher Clark: Mm-hmm.
Pat LaVecchia: And without enough warning signs to the CEO of concerns, what I have seen in terms of a better transition-- it's never a smooth transition but a better transition is you raise concerns with the CEO over a period of time. That may be several months. That may be over a year period. And you should have a plan for that CEO rather than just remove themselves from the company. Sometimes with the founder, they're very strong on the strategic side. So maybe it's a shift in role, bringing in a more operational executive.
Christopher Clark: Sal, address that-- whether it's the CFO, the controller, or somebody in that financial C suite.
Sal Melilli: Yeah.
Christopher Clark: You know, how do you know if he or she is the right person? What are the steps? What are the tools?
Sal Melilli: Right. Right.
Christopher Clark: Is it easier?
Sal Melilli: Yeah. Well, through, you know, looking at this through the high growth company lens, I think the traits of a CFO or controller are slightly different than what you would see in a mature company. You often don't hear this mentioned but you do need a controller or let's stick with the CFO, at the moment, who is strategic. A lot of the financial characteristics that you mentioned for a CEO would be the same characteristics I would also like to see in a CFO. And those that are able to morph into that strategic phase when needed are really the ones that I've seen excel in there role of CFO at a high growth company. And what I mean by that is in addition to their day-to-day financial reporting responsibilities, dealing with the investors, and so on, they need to be able to handle, let's say, a fundraising exercise and be able to handle all that comes with that when you have a host of, perhaps, liquidity options that are on the table and being able to strategically evaluate each one of those.
Christopher Clark: Sal, you work with a lot of directors for private companies, particularly high growth ones.
Sal Melilli: Right.
Christopher Clark: Here in New York and across the country. Pat, again, you've got both aspects from being a private investor and being a director. Think about and share with our audience, and again, there are many challenging aspects for being a private company director. Pick a top one that you experienced in 2014, share it, and then look out to 2015.
Sal Melilli: What's top of mine for me is-- just because I live it every day here in New York is the rate of innovation that's occurring in the country, quite frankly, is at levels that we haven't seen in a long time, if ever. And the challenge that not only high growth companies but mature companies have, is really keeping pace with that innovation. Traditional R and D functions within established companies and mature companies, for the most part, aren't cutting it the way they're currently structured. And what I mean by that is you need to look outside the organization, have your finger on the pulse of what's occurring outside of your four walls to really understand whether or not you're keeping pace with technology and so on.
Christopher Clark: 2014, keeping pace.
Sal Melilli: Keeping pace.
Christopher Clark: I'm going to put you right on the hot seat.
Sal Melilli: Keeping pace.
Christopher Clark: Project for me 2015.
Sal Melilli: You've got to stay nimble. You need to be able to be reactionary to the marketplace. Be flexible. Be able to pivot on a dime. You know, if the market is going a certain direction, you need to be able to confidently pull the plug on certain initiatives and activities and divert resources in other directions to really keep yourself above water and succeed in your marketplace.
Christopher Clark: Pat, same question.
Pat LaVecchia: 2013, '14 have been great years in terms of M and A, in terms of capital raise, companies able to get funding in-- especially high growth companies, readily available. What I've noticed over the last several months is as companies have been missing their targets, and I see this both as an investor as well as some of the companies I'm involved with. It is-- I see a more challenging environment going into 2015. I've seen a tremendous opportunity where money was coming from all different areas. But if you've already laid yourself out there, in a way, and you've had a number of discussions, you've raised the capital and then you miss-- and this goes through cycles. We're going through this cycle again. I see 2015 being more challenging for those companies that miss down rounds, whatever it may be.
Christopher Clark: I want to thank you because I put you both on the spot here. On behalf of NACD and KPMG, I want to thank you for viewing today. I'm Chris Clark and this is BoardVision.
View Other NACD BoardVision Episodes by TopicBoard Composition, Evaluation & Director Succession
Strategy & Risk
List all NACD BoardVision Episodes