Lead Independent Directors: The Evolution

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Lead Independent Directors (LIDs) not only bring deep operational experience to Shore Capital Boards of Directors but their role grows and evolves with the executive team. In this episode, we talk about this evolution and the key role the LID plays in various stages of the company. This episode features interviews with Michael Burcham, Sean McEnroe, Jim Forrest, Dylan Bates, Bill Clendenen, and Kevin Offel.

Transcript

Introduction and Setting the Compass

Anderson Williams: Welcome to Bigger. Stronger. Faster., the podcast exploring how Shore Capital Partners brings billion dollar resources to the Microcap space. In this episode, we continue our exploration of the Lead Independent Director and the role they play in the success of Shore Capital portfolio companies. This time, we talk about the evolution of the business, the growth of the CEO, and the ways the role of the Lead Independent Director changes during a company's five-year holding period.

I'm joined by Michael Burcham, three-time private equity backed entrepreneur and Lead Independent Director for four companies at Shore Capital. To start us off, Bill Clindenen describes the importance of having a solid strategic plan and specifically a growth plan. Because being just a few degrees off on direction early can mean a company ends up significantly off down the road.

Bill Clendenen: During the strategic planning process, Michael Burcham talks about the compass and if you're two degrees off on your strategy over five years, you're gonna be not where you wanna be. And so understanding your direction as an organization, driving the success of that through your team, with your board, with your partners, optimizes your chance for success.

Anderson Williams: Michael, you lead strategic planning for Shore Capital Partners and have done close to 50 plans just within the portfolio, not to mention your own companies and those you've supported or consulted with. With this perspective, walk us through the typical stages of the business during the Shore Capital holding period and how the strategy evolves along that journey.

Michael Burcham: When we begin year one, you have to recognize that it's about 75 to 80% assumptions and about 20 to 25% facts. So Bill's comment is right on. We need a team who can adapt not only to a changing marketplace, but as we transition from assumption to facts, the plan will change a bit. So year one is really about formation.

It's about setting the compass in a direction we believe to be true, and getting team members on board who can really execute a plan, but also adapt when they see the market shift or the things we believe to be true, pointing in a slightly different direction, either a few degrees to the left or a few degrees to the right. By the second year, we're ready then to go into rapid growth. The rapid growth can only happen after we've tested that first year to make sure that we have the right acquisition strategy, the right team, and we've allocated the right resources. By year three, we are heavily focused on organic growth and maximizing everything within the same store. And by year four, it's really optimizing the business.

Anderson Williams: Lead Independent Directors are Lead Independent Directors, because they have broad experience across these phases of the company. Not only as CEOs, but also as board members. This gives them the insight into some of the blind spots, particularly a first time CEO can have.

Sean McEnroe emphasizes that the biggest challenge to early scaling is often underestimating the need for talent surrounding the CEO and making sure they have the right talent in the right role.

The Need for Talent

Sean McEnroe: I would say the management team frequently underestimates the level of aptitude and talent they need one or two levels below them. Because they're at a place where they probably could do the work themselves.

They probably could go out and arm wrestle this thing and make good things happen, but we can't do that and grow as fast as we need to. And so asking the management team to really look up and think about people who are as capable as they are, or even better in those more narrow work streams, and then aligning those people with the job function and getting them going in a place where you look back and think, wow, I never thought someone could do that better than we were doing it yesterday.

And yet we can go find those kinds of people because those kinds of people want to work in these kinds of companies. And you know, these are high growth, high aptitude people who want a future. And if we present the right way to those people who are one or two levels below our C level, we can get some real superstars who can move the ball.

Anderson Williams: Jim Forrest sums up the importance of having the right talent about as clearly as you can.

Jim Forrest: You could take a great company, give it to an average management team, and you'll fail. You can take an average company, give it to a great management team, and they'll find a way to make it a success.

Anderson Williams: Bill further articulates the roles and critical skill sets the business needs to thrive early, but emphasizes how those must remain aligned with the business strategy as it evolves.

He speaks from his own experience as a CEO about having to shift his growth strategy and then reassess his talent strategy accordingly.

Bill Clendenen: In that forming stage, I think one of the biggest challenges is understanding the talent that you need around the table. What type of CFO do I need? Do I need somebody who's gonna be really good at integrations?

Do I need maybe an operationally strong or maybe a revenue cycle strong CFO? So really understanding what the team you need around you to be successful at the initial stages of that investment. And so then I think the first thing after you've kind of realized who and what the team you need around you is. I think the thing to understand is what is the strategy for growth.

There are multiple levers to grow. You can do organic growth with some of our companies. You can do acquisitions. In the case of Nova, we initially started out the strategy was gonna be a de novo play, or we would open up one a month when we got, when we got to the peak, we'd open up 12 a year. By probably a year, two and a half. And then we would run that out through five years and then sell it.

What we realized though, is that acquisitions were a greater opportunity for the company. So we shifted our strategy and now it's a blend of both de novo and acquisition. So the skill sets on the team had to change. And so as you think about the challenges, starting from the forming stage of the organization, getting your right team in place, then okay, what is our growth strategy and what do we need to deploy those strategies?

What are the tactics we're gonna use? Who are the people we need to accelerate that growth? That's when it gets obviously exciting, but at the same time, the skill sets change. And so as you scale the business, the people sometimes need to change because what you needed in year one is maybe now what you need in year three.

Anderson Williams: In addition to focusing on talent, Dylan Bates talks about moving beyond what he calls the ability to arm wrestle an early stage company. And shifting the focus toward building processes, that can actually scale with the company.

Dylan Bates: You try to scale something in a real way, you need to document and you need to have checks and balances.

You need to have checklists, and you need to have a master meeting calendar and a cadence of communication to cascade information out there and make sure people feel informed and maintain and actually get better as you get bigger in terms of culture. And so I think you can just kind of arm wrestle it when you're small.

But then you have to really rely on process, and you have to make sure that you're thinking down the field in terms of the talent that you're surrounding yourself with. And your n minus one and twos, they have to be stars.

People, Processes, and Technology

Anderson Williams: Kevin Offel summarizes that scaling comes down to people, processes, and technology.

Kevin Offel: Because if you grow extremely quickly, you can potentially outpace your people, processes and technology to support that. So that's, I think where things start to break down is people, processes, and technology for the size of the organization as you're rapidly growing and accelerating through that.

Anderson Williams: So, Michael, when you hear Kevin summarize how important it is to make sure the company doesn't outgrow its people, processes, and technologies it seems pretty straightforward.

But those are also pretty massive categories and three areas that if they do break, can be calamitous for the company. Given all of the competing demands on a CEO, can you talk a little bit more about how you prioritize or sequence your investments in order to scale successfully?

Because they can't all be priority, right? Or none of them is.

Michael Burcham: You're so right. Anderson, I think of this in phases. We talked earlier about year one and being driven by assumption and leading to scale with the right team. So I think people resources are really the first priority. One of the most important hires early on is the right Chief People Officer or Chief Human Resource Officer.

Not only are we acquiring companies whose teams will really need support, but we need someone leading that effort for us to make absolutely sure that the mission, vision, values and the culture of the company doesn't get lost while we're growing. And that is an important resource at the side of the CEO to make sure that doesn't happen.

By year two and three when we're getting into rapid growth, we've actually acquired enough to really see best practices across the platform. By then having a Chief Operating Officer or someone in who can really help us operationalize the business and the way we see best practices becomes very important.

That's quickly followed by the right technology and data resources, but they typically fall in that order. Also, remember, this is a bit of an iterative process. We may cycle through each of those two or three times over the five year period. Bringing a higher order of support and talent and processes in place as we learn more and scale more and the business grows.

Anderson Williams: So it is a sequence, but it's really about knowing where the company is in terms of stage. And you as an LID helping the CEO fact pattern that to say, this is where you are. So this is why this hire or this process or this technology is so critical at this time.

Michael Burcham: Exactly, and it allows us to be the most adaptive, not only to the changes in the market, but as the organization has grown, the needs will adjust a bit. As we learn more facts and we no longer rely on assumptions, we may find, for instance, that digital marketing becomes extremely important by year two. Though when we started, we thought it wasn't that important, for example.

So a really tight relationship between the Lead Independent Director and the CEO allows both parties to think about those things and make the right decisions on people, process, and technology through that five-year journey.

Anderson Williams: Growing and scaling the company and building a talented team around you isn't just about who you hire. It's also about who you retain. And that has a lot to do with who you acquire and how you thoughtfully integrate the sellers and their teams and their processes into the larger platform.

Integration is one of the critical scaling experiences the LID brings to the executive team in helping them think strategically about what bringing a new company onto the platform looks like. What needs to be integrated, what doesn't, what the impact of integrating or not could be. Here again is Sean.

The Integration Process

Sean McEnroe: When I work with my teams, we get on the whiteboard and scale out all the different functions that we want to potentially integrate, and then we rank them based on things like our version of importance, our version of need for speed, our thoughts on value. But then we also try and think through that potential partner, the people who are joining our team, and think through their lens, what's most important to them.

What do they want to do fast? What will they tell us is difficult, what will actually cause them pain?

Anderson Williams: Bill speaks to the varying degrees of integration that can be considered and can unfold over time as the business matures. For him, it starts with understanding your non-negotiables.

Bill Clendenen: I think one of the first things you have to agree upon with your board, with your investment partner Shore, is what is the degree of integration, right?

And so if you look at integration as a scale, maybe from 100 to zero, understanding what your non-negotiables are. Are we gonna ensure that everybody has to be on the same EMR? Are we gonna require everybody to use Salesforce, if you're in the food and beverage fund, or if you're in business services. Are we gonna have one payroll system across the company?

What is our communication platform gonna be? Both internally and externally? Here are three buckets. One, these are the things that every company is gonna integrate. Here's some that we're going to suggest that we integrate, and here's ones that really we do not care how we integrate.

Anderson Williams: So Michael, when you hear Bill talk about non-negotiables, you've been in that CEO seat multiple times, you've worked with your board.

How do you define when you're thinking about integration, what those non-negotiables are and how non-negotiable they really are?

Michael Burcham: Anderson, if we are thoughtful, we will look at what we are trying to define as our points of difference for this business, and look at the failures of others in this space because they did not integrate things they perhaps should have.

And from that list of points of difference, and failures of others, I think then we can make really informed decisions of what non-negotiables are. It shouldn't be my opinion or another board member's opinion or really anyone's opinion around the table. It should be rooted in really key, thoughtful discussion about how do we want to be seen different in this industry than everyone else, and what lessons can we learn from the failures of others so that we choose the right non-negotiables rather than just a group of opinions.

Anderson Williams: Michael, when you think about this conversation around integration more generally, and then you go back to the evolution of the business as you described over the holding period, how and maybe when does the process of integration give way to or shift to a focus on optimization, not only of the acquired companies, but of the platform as a whole. So when should you be thinking about beyond integration, about optimization, and then maybe when shouldn't you be thinking about optimization?

Michael Burcham: It's a fantastic question. I think when any partner is joining us through an acquisition, they have core, basic needs that they've expressed, and they're usually one of the few reasons they want to join us.

Those things should be addressed first because that business owner has really identified those as key needs they have for their business to grow. It's only logical we help them address them. Outside of that, early on integration begins when a new acquisition joins one of our companies. But a key thing to remember is integration never really ends because as you think about the fourth business partner to join us versus the 40th, through that period of time, we're gonna learn some new best practices.

We're gonna see new ways of doing things. We're gonna discover a technology in maybe acquisition number 20 that we didn't even know existed at acquisition number four. It would be foolish to say integration is done and then find great best practices later. So our philosophy is we begin an integration when an acquisition joins us, but it really never ends because there's likely always something better to be done.

There's a bigger opportunity. There is a more clever way to integrate data. And why ignore those things, simply because we say, we have finished integration. Now, to your point about optimization, that typically for us begins about year three or near the end of year three because by then we have enough partners who've joined through acquisition to the business that we can clearly identify some best practices and get the organizational leadership together to really think about what optimization looks like.

The last part of your question had to do about when maybe you should not think about optimization. And from my own area of expertise in healthcare, I would say that's largely has to do with the clinical side of the business. We try very carefully to leave the practice of medicine and clinical decisions to our doctor partners who've joined us, and medicine is quite different market to market and region to region.

And we focus our optimization around business processes. But rarely do we interject ourselves in the clinical processes. We usually ask the physicians to form their own advisory board and to make those decisions together as a team.

Ready to Exit

Anderson Williams: By the time a company is ready to exit or at least start that process, the CEO has grown and evolved toward being more of a peer of the Lead Independent Director.

Many have become seasoned CEOs in their own right. So naturally the role of LID in supporting the CEO changes as well. But even at this later stage, Kevin comes back to the value the Lead Independent Director brings cause they've been there before.

Their ability to identify any blind spots or to help prioritize the things that are going to maximize the value of the company as it approaches exit. Things that would be hard to know unless you've specifically had that prior experience.

Kevin Offel: Being able to relate my experiences on some of the data that they think, you know, why are we tracking this?

Well, I've had experiences during an exit process where that information was requested and helped us maximize value of the enterprise upon exit.

Anderson Williams: And here again is Bill.

Bill Clendenen: When you're exiting a business, it's like landing a plane and I think the CEO is the captain with their hands on the controls. I think the partner in Shore is, and sometimes the CFO is sitting in the co-pilot's chair.

Then you've got somebody in the jump seat and I think. The LID is sitting there in the jump seat, just really there more for moral support and helping them along that journey, because when you exit a business, there's just a lot of pressure, lots of diligence questions. What's the right outcome gonna be?

You really care about your team and the outcome for them. And so you have a lot of pressure and so you are the person, the CEO's in the seat. And so I viewed my role as the person in the jump seat really being their moral support, helping them navigate landing the plane because when you land this plane, you got pitch, you got altitude and lots of variables.

And so it's how you navigate those variables as you're trying to land this plane that makes a huge difference in the outcome.

Anderson Williams: And Jim reminds us of the key role the LID plays regardless of the stage of the company, in ensuring the CEO and executive team have what they need to succeed.

Jim Forrest: My job is to make it efficient for the partner, have them understand where the company needs resources, where it needs attention, and getting those resources from the partner.

Anderson Williams: Michael, as you listen to Kevin, talk about having been there before and Bill's analogy of landing the plane, and Jim's reminder of the continuing role of the LID. Can you just summarize how your role as a Lead Independent Director evolves with the business and with the CEO. And is there an example with one of your CEOs that captures this evolution, this change in your role and relationship along with the business?

Summarizing the LID

Michael Burcham: Anderson, I think a great example would be the CEO of our orthodontic business. Early on, the CEO had been a previous Chief Operating Officer, but was a first time CEO. So our conversations were mostly about not trying to be the operating officer and the CEO. But really thinking and leading from the front, building the team, really assisting in the acquisition process. And part of my work was to ensure that the Shore partner was fully informed of the work we were doing day to day so that that message could get reinforced.

That was largely the work of year one. I would say by year two and three, we really thought more about operational enhancements, which was in his sweet spot already. So my role shifted a bit and my conversations were much more about insights, following board meetings, when to engage the partner when you needed the help.

And because we were doing so well, how might we upgrade and optimize our overall strategic plan? Because we're going to hit our entire five year goal in three years. Today, we really are simply partners. Our conversations are much more like two colleagues talking about the business. And while I still see myself in a mentorship role, I really see us much more as two friends who have enjoyed a journey together, thinking about the business and looking for ways to make sure that people, process and technology are actually optimized across the business. And that's a long way from where we started.

Anderson Williams: Just as a company grows, so must its people and so must the relationships they have with each other. We can't afford to let our companies outgrow us. Because Lead Independent Directors have experienced that growth. They know it personally. They know the challenges and the opportunities.

They can help CEOs and their teams avoid common pitfalls on their growth journey. They do this by continuing to grow themselves as well as continuing to evolve their relationship with the CEO and his or her team, because ultimately we will all win, together.

This podcast was produced by Shore Capital Partners with story and narration by Anderson Williams. Recording and editing by Andrew Malone. Editing by Reel Audiobooks. Sound design, mixing and mastering by Mark Galup of Reel Audiobooks.

Special thanks to Sean McEnroe, Jim Forrest, Dylan Bates, Bill Clendenen, Kevin Offel and Michael Burcham.

This podcast is the property of Shore Capital Partners, LLC. None of the content herein is investment advice, an offer of investment advisory services, or a recommendation or offer relating to any security. See the terms of use page on the Shore Capital website for other important inform.