Paul is Managing Partner at Beech Tree Private Equity, a leading mid-market private equity firm. Before setting up Beech Tree in October 2014, Paul was Head of the Birmingham office of Gresham Private Equity and a member of the Gresham board. Paul currently sits on the boards of RS Connect, Wavenet, and Redstor.
How much of a role do portfolio company boards play in value creation?
Without board oversight, returns would be lower.
A good board helps to create discipline and focus. The board can help to lift management above the day-to-day, to think about their priorities and reset them if necessary, and make sure that the decisions taken fit with the overall value creation strategy.
Without that, management can lose sight of the end game; they can make decisions in an opportunistic fashion, based on what’s in front of them rather than what’s important for value creation.
And what about the board pack; is there a correlation between the quality of the board pack and returns?
There is a high correlation between businesses with strong board packs, good board meetings, and strong outcomes. If the rigour isn’t there at the top, it’s highly unlikely to be there lower down.
What are the ingredients for an effective board meeting?
Board meetings have two objectives:
- To make sure everyone understands the status of the business and feels ownership of that;
- And to make sure we are making the right calls — and making them in the right way.
This is heavily impacted by the quality of preparation that board members and management put in, and the quality of the information that is presented. You therefore need a management team who view the board meeting as a helpful, productive forum — something that makes a material difference to the quality of decision-making in the business — and not an event to keep your investors off your back for the next month. In my experience, around a third of management teams don’t approach board meetings in the right way and therefore don’t get value from them.
The CEO’s report is the most important one in the pack, and the CEO should spend at least half a day preparing for the board meeting. I don’t think you can do the thinking in less time than this, if you’re doing it properly.
The non-executives also need to exercise restraint. If you go in with too many little things to discuss, and don’t learn to shut up, you become the person creating a lack of focus rather than strengthening it. So I try to limit myself to three or four key points each meeting.
What frustrates you about portfolio company board packs?
Information overload. The best reports are punchy; individual reports within the board pack should be two pages at most. If you are rambling on, you miss the point of what the board is there for. I like to see objectivity within the narrative, calling out the negatives as well as the positives.
I also dislike it when management fail to present a point of view and a clear recommendation. It shows a lack of leadership.
Do you give management any guidance when it comes to writing their board papers?
I always ask management to state in their papers what their top priorities for the next 3 months are. Not only does this get them thinking about the future, driving a forward-looking conversation, it also gives you something to hold them accountable to.
You soon see who does (and doesn’t) take this seriously, so it’s a helpful marker for assessing the top team.
What do you think other organisations could learn from PE-backed boards?
Firstly, rigour — everyone arrives well-prepared and knows what questions they are going to ask and answer.
And secondly, tempo — having the ambition and appetite to go faster, challenging and asking “what is stopping us from going faster?” Good PE investors demonstrate both.
What is the best piece of advice you have ever received?
A former colleague and mentor told me to “be a sponge” — to learn from everything you experience and are exposed to.
You see this when you hire people; some seem to think they need to look like they know it all. Others are visibly hungry to learn and lap up every opportunity to do so… and they are the keepers.