 |
Turnarounds and the NXC
The Pilot's Log Q&A with Andrew Meehan
|
|
Katherine
Steiner-Dicks chats with non-executive chairman Andrew Meehan, to find
out how private equity backed businesses can get the most out of a
turnaround specialist in a recession and why he thinks being upfront is
often the best medicine.
Andrew is non executive Chairman of PILOTpartners and a number of private equity backed businesses in the retail sector; he is also on the board of Fortnum & Mason and his career has centred on board positions at Burton Group, Sears plc, Storehouse plc and most recently as CEO of Co-Operative Retail Services and Gordon Brothers International.
|
How has the non-executive chairman’s role changed post-Lehman?
The role hasn’t changed. I’m agnostic about changing behaviour on a macro level in a recession. Each company, regardless of a recession, is at their own stage of economic cycle. You have to play the situation based on the level the company is on. However, the recession has made it harder to raise finance, from banks in particular, which means it is not easy to persuade CEOs or MBI teams to take a risk by making a first move into private equity.
What kind of independence or proximity to the company or the stakeholder do you take when things get tough?
One of my specialisms is turnarounds, so in my eyes things are always tough. The number one priority is usually a rapid assessment of issues facing the business followed by regular and open communication with all of the stakeholders.
Can private equity expect a new breed of chairman?
For the most part, yes. I think there used to be a breed of non-executive chairmen that were in it for the nice lunches while not contributing much to the business. They were hoping to buy their 3 per cent stake, make a million and assumed all would go well.
Then there are people such as myself who are prepared to go into difficult situations and not always get an easy return. Plus, the idea of “touching” a business once a month is no longer appropriate. It is very common for the chairman to be much closer to the management team, especially if the team is inexperienced in dealing with private equity investors in difficult situations. This tends to lead to the chairman having more involvement in day to day trading matters.
Given the changing demands and personal indemnity involved for today’s NXCs, can private equity houses expect NXCs to make more demands?
If a private equity house hires an NXC they have to accept that he or she sets the rules with both parties then mutually agreeing to them. That’s why I often do a short piece of consultancy before, so I know what I am getting into. If the private equity guys start getting involved half way through the project they can cause a conflict of interest, confuse the agenda and even cost the company money.
It may also be necessary to reconsider how the chairman is remunerated; by example, straight forward equity participation may not be appropriate.
What should private equity investors expect to be different as a result of the recession?
Operational fire fighting takes the place of grand strategic planning. In a recession, the private equity investors will also have to be more decisive in choosing senior management and strategy.
They should also expect the management to work at a lower level of detail. Management must have a better sense of urgency and get things done today rather than tomorrow.
In the current environment is it best for the chairman to replace a non-executive director or CEO or to mentor them?
Replacing NXDs and CEOs is a major issue in turnarounds. I have had both experiences. You have to make a judgment call as to whether they can handle a refinancing within a turnaround. But sometimes a key part of a bank proposal is to get rid of, for example, the chief executive, so you have little choice. This is a key area where the chairman has to make the independent decision and not be tempted to make change for change’s sake.
Are headhunters any good at selecting chairmen? Or should PE investors use ‘their own man’ by preference?
A headhunter will be more comfortable in putting a generalist turnaround specialist forward as they have a wide skill set. But people in private equity often try to look for exact sector skills. They have a tendency to put you in a box. They also can make the mistake of overlooking an NXC with turnaround experience when the business is doing well. What’s wrong with trying to make a business even stronger?
People can also make the mistake of confusing executive skills with non-executive skills. An NXD can have sector expertise, but if they don’t have chairman experience they will be lost once the sector issues are dealt with.
Specialist headhunters who really understand the private equity investor’s issues and modus operandi do make the difference. That’s why I am happy to be chairman of PILOTpartners.
What is your usual stance when deciding a new strategy for a company: External consultants or internal discussions with senior and mid-level sales staff? When are external consultants worth the cost?
I prefer to solve and create a new strategy internally. But if the company is taking a new direction, then I am all for external consultants for specific and highly focused pieces of work.
What I am against is if banks want to do an independent review and charge the company £50,000 for information that I have already compiled. It seems to be in the banking manual to do a review, even if it unnecessarily costs the company time, resources and money. In my experience negotiating with the bank to avoid these reviews is well worth it.
 In your opinion, how can board meetings become more productive?
Not all directors in a company are statutory and in many cases a company will run meetings under a two tier system with one for management and the other for the board. When I run a board meeting I think everyone should be around the table. It’s also a good way to give people a reality check about the business.
Board meetings are important and everyone should do their homework before they arrive. One of the characteristics in a company in difficulty is that management information in general, and board reporting in particular, is often inadequate. Therefore it is important that this is corrected mainly to run the business properly, but also to have meaningful board discussions.
What message would you like to get out there?
In the area I work in, which is with small to medium sized businesses, most relationship managers in the private equity companies are relatively young people and therefore may not have experience in dealing with recessions in their working lives. Therefore, the role of an independent chairman with a head of grey hair can be particularly productive.
Back to Email
|
|
|
|
|
|
