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Past Event  |  05/12/2016  |  New York

Board Meeting Dynamics

How to Drive a Results-Oriented Conversation

Establish a Collaborative Atmosphere Immediately Post Acquisition, Driven By The CEO.

Make sure that the entire board is “operating on the same set of facts.”

The initial meetings after an acquisition are a fragile time between sponsor and management. The transaction process and new ownership stresses established management dynamics and sponsors are eager to implement their investment thesis. This is why, according to a number of sponsors at our most recent Roundtable, it’s crucial to use the early board meetings to “set a level playing field and ensure everyone agrees on where the company stands today.”

Practically, the “company CEO should set the initial agenda and then the sponsor should comment, without giving too much initial direction,” recommended one Partner in attendance. The sponsor’s guidance should mostly revolve around getting the group to a place where everyone is “operating on the same set of facts about the company.” Other agenda items should be left to the CEO in the early meetings.

Handling Bad News

It’s part of the job, but that doesn’t mean it’s easy. Whether it’s related to poor performance, personnel changes, or just plain misfortune, bad news can derail a board meeting and throw off a successful working dynamic. Insulating the boardroom from bad news demands a two-step solution: privately break the news to key stakeholders before the meeting and keep ensuing discussions focused on unbiased sources of information (e.g. KPIs, market data, legal documents). In combination these tactics can help prevent discussions from becoming overly emotional and getting off track. In the long run this will speed the board’s return to normal operations.

Encouraging the CEO to set the agenda will help retain a sense of familiar structure. The goal is to find a balance in the first meetings between a formal collaborative and conversational atmosphere. Most sponsors in attendance agreed this is the most productive environment for early board meetings.

“We tell the entrepreneurs ‘we work for you’”

Plan ahead to set a focused agenda for Board meetings. Whether the board is discussing specific performance metrics or broader strategic goals, the group’s success relies on an organized and achievable agenda.

a) Discuss performance metrics on a recurring weekly/monthly basis. Be conscientious around the flow of information and tactical about who is included in specific discussions. There was broad agreement around how to most effectively review key performance metrics and how to manage the flow of this information. One Partner summed it up, saying “no surprises should be unearthed for the first time at a board meeting” because “metrics and dashboards should be discussed on a weekly/monthly basis between board meetings.” There’s a real sense of urgency around setting up this routine as well. One participant commented, “the best sponsors are thinking pre-close about the best people to have on the team and the best strategy to employ.” Forethought and planning around team make-up and information distribution is a critical part of the sponsor’s job.

b) Sponsors were divided on the ideal focus for preliminary board meetings. While there are advantages on both sides, a slight majority argued in favor of maintaining a near-term focus. Setting an effective agenda for preliminary board meetings proved to be a divisive topic. A number of the participants advocated for a strategic, forward-looking agenda for initial board meetings. One sponsor outlined her firm’s strategy, saying the goal of their early board meetings is “to focus on bigger strategic questions” and “review performance metrics in separate weekly meetings.”

“The first board meeting is a continuum of what happened during deal diligence and is still a bit of a courting phase. Try to set a schedule of deep dives that you, as sponsor, want to cover throughout the year at subsequent board meetings.”

A slim majority of participants argued for a more near-term, immediate focus. A Managing Partner at a lower-middle-market focused private equity firm explained that his firm uses the first board meeting “as an opportunity to reassess the 100-day plan.” To be clear though, a near-term focus does not mean that the board should be focusing on day-to-day operations. Rather, the first board meeting should be spent focusing on reviewing the 100-day plan with a particular focus on the financials. “This then evolves into a series of deep dives for specific topics at each subsequent board meeting,” explained one Partner.

Develop the meeting’s agenda in collaboration with the newly acquired company’s management team.

Although conversations will typically wander at first and the first board meetings may be longer, over time they will become more focused and strategic. Sponsors need to develop the agenda collaboratively with management. The balance of the strategy vs. data conversation will flow from that discussion. By scheduling separate weekly KPI review sessions, sponsors can keep this topic to a minimum during board meetings, and find an organic balance between strategy and review.

Early board meetings will typically run longer and cover a number of different topics. Over time, as the sponsor and management identify the right balance, meetings will become more focused, centering around the previously mentioned “deep dives.” A cardinal rule though: new ideas shouldn’t be introduced at a board meeting. Make sure the management team, and any outside advisors, know that any new ideas should be circulated a few days ahead of time. This helps prevent the conversation from getting rapidly sidetracked with a new topic, a particular concern during the crucial meetings immediately post-acquisition.

A Thoughtfully composed board can smooth the transitional period after closing.

By integrating company executives, members of the deal team, and appropriate outside experts, sponsors can lay the groundwork for a board that is focused on the investment thesis. The goal, as outlined by a number of participants, is to include a number of different constituencies. The possible roster can include, but is not limited to, the CEO/CFO, other senior executives, operations team members, and deal team members. In order to maintain the greatest possible continuity, one Partner shared that her firm even includes the most junior deal team members at the early board meetings.

A crucial component, almost universally agreed upon, is placing an accomplished and tactful board Chairman. A trusted Chairman can help drive strategy and keep the CEO focused. By “making the rounds outside of board meetings a good Chairman can smooth out perspectives before a board meeting.” As one Managing Director said, “a good independent Chairman helps the management team feel there’s not an agenda being pushed by the sponsor.”