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Things became much easier after that. The issue was a delicate one. The balance between her prior role at a CEO and current one as an investor was at the core of the problem. In the past, her investors had set performance metrics and insisted on their use in determining both compensation and levels of interest in the company. Then she was the focus of those metrics and had to live by them. If she succeeded, her compensation and equity interest in the company increased, If she and her team did not meet them, they suffered a loss. But now things were different. If the metrics were met, she suffered a loss – two losses actually. The increased compensation resulted in lower returns – she had to make sure that the additional payments were justified and did not dilute her returns. Secondly, meeting the metrics cost her in the form of dilution of her equity stake in the company. suddenly the behavior made a weird kind of sense to her. “I know why I have been acting this way,” she said. “My whole experience has been on the other side of the metrics and I have always gamed the system to maximize my and my team’s interests. Now, I am on the other side. Every metric that is met, cost me. So I have avoided metrics and the costs.” For the first time she began to appreciated the position of her prior investors and the role they had played in helping her succeed. She began to appreciate how their role differed from hers and how the two combined to make for success.
“So you sabotaged your own interests to keep from being in opposition to the people who were playing the role you used to play”, I suggested.
We sat in the bar for a long time without either of us saying anything. I turned my attention to a particularly well made martini and a fine Dominican cigar while she sipped and thought. Finally she look up and said, “I need to learn how to be an investor, don’t I?”
“Yes,” I said quietly. “You need to fill that new role as well as you did your other ones. It is a different role. You are a parent now and have children of your own to see to. They will do better if you supply the proper adult supervision.” She made a face and sipped her drink.
“I’m not sure I’m ready to be an adult,” she offered. “But one thing is clear to me now. If I am going to be an investor, there is no way to avoid it.”
We both agreed that enough heavy lifting had been done for the day. She left me to finish my cigar and martini. I left her to finish the thoughts that had started during our conversation. It was a fair trade.
Next Time – To Be Or Not To Be
© Dr. Earl R. Smith II
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Related Articles:
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Turnaround Engagement – Part I
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Turnaround Engagement – Part II
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Turnaround Management – Cash Flow
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Turnaround Management – the Income Statement
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Turnaround Management – the Balance Sheet
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Turnaround Management – Initial Steps
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