The appointment of a Chair is often one of the most important pieces in the puzzle of a successful private equity backed business. David Kemp, Portfolio Director at Maven looks at the crucial role they play in acting as the conduit between the investor and the management team and ensuring that interests are aligned.
It may be tempting to believe that finding a Chair for a business is a relatively simple process for an investor or management team, given the well evolved ecosystem that exists to facilitate it. Networking events and online resources, such as LinkedIn, are obvious starting points, and there are numerous specialist recruiters to use if budgets allow. However, the process of identifying a suitable Chair can be very challenging and therefore may take a long time. Therefore, it is critical to be clear minded about the benefits of a good Chair, the parameters of the role you are expecting them to fulfil (and conversely what they will not be expected to provide) as well as what will best suit a given situation.
The right candidate, as for any role, will bring a range of attributes:
Expertise is an obvious requirement, and a common first port of call will be notable high achievers from the same industry. In some industries specialist sector experience is more important than others, such as the specific regulatory environments around healthcare or financial services. Often, however, it is situational expertise that is more relevant. For example, a proven track record of growing and exiting VC or PE backed businesses is highly desirable as is expertise in turnaround or overseas expansion and fund raising even if their experience is in an adjacent industry.
Relevant industry Connections
An accessible, up to date playbook of contacts relevant to the industry sector is most advantageous and often forms a prerequisite selection criteria. Management of VC backed businesses will often lean on the chair to make useful introductions, not to bring in sales opportunities per se, but leverage their connections to raise the profile of the business and management within the industry.
A track record in communicating effectively with different stakeholders is vital as difficult conversations are inevitable at some stage during an investment, albeit this may be harder to discern straight from a CV. Demonstrable independence is a fundamental aspect of the Chair role; providing a balance between the management team, board and investor stakeholders and avoid a bias to one stakeholder over another. As an investor, this is just one reason to cast a wide net rather than bring in a tried-and-tested friend of the firm.
An appetite for challenging
The ability to challenge, listen and encourage the management team, particularly the CEO, as well as raising their focus from the day to day to develop a wider strategic understanding of the business is essential. The Chair’s personal style should be one that builds mutual trust and understanding with the CEO and management team and keeps the business focused on the longer term plan.
Another obvious, but potentially overlooked trait, is time: a Chair needs to be available to a business when it most needs them, not when it suits the Chair’s schedule. Whilst a high-quality Chair will undoubtably have other interests and involvements, even the best may struggle to give the position adequate time if they already have half a dozen other roles to juggle. When the unexpected happens, the CEO may not be able to wait until the next diarised appointment and needs to be sure that the chairman can commit the time required.
Strong corporate governance is going to be an important feature of any successful investment and it is certainly a Chair’s role to take a lead in this area; standards often need to be raised in a company receiving external investment for the first time and this is an area in which an investor should also be adding value. Maintaining appropriate standards of governance should be a relatively simple matter for experienced board members..
Overall, no Chair will be able to prevent industry headwinds or competitive pressures impacting on a business, nor the inevitable growing pains that strike even the more successful companies. However, the right Chair will help to ensure that the company is prepared and can make better decisions when the unexpected does occur. They will wear their experience lightly, listening far more than they talk, and the CEO will find themselves with a trusted partner to lean on. Any investor will also take confidence from this experience. There will typically be no shortage of candidates, but a good candidate for Chair will want to take time to get to know the company, its growth plan and the senior management team. Their valuable input will be more than worth the time and effort invested to find them.