Human Capital Best Practices: Real World Challenges When Creating Value in Private Equity Funded Companies
White Papers | November, 2014
Real World Challenges when Creating Value in Private Equity Funded Companies,” explored the impact that human capital and organizational decisions and issues have in facilitating value creation and investment success of private equity sponsored companies. The goal of the conference was to provide a forum for approximately 50 investment and operating partners to explore value creation challenges and corresponding human capital issues encountered by their portfolio companies. Keith Giarman, Global Leader of DHR’s Private Equity Practice, oversaw the event with support from key members of the firm’s PE practice who served as moderators of the panels. Like the conference itself, panels consisted of investment and operating partners from various PE firms, as well as successful operating executives with significant experience working with PE firms.
“This was my first time attending [the DHR Conference} and it was well worth the trip. The speakers were extremely informative and the networking opportunities were excellent. A first class event put on by a first class organization.”
Senior Managing Director
Republic Financial Corporation
The conference consisted of a keynote presentation, three panels that addressed specific issues, and a lunch workshop. The daylong agenda included the following:
Keynote - State of the Union in Private Equity: Key Findings and Trends from Bain & Company’s Ongoing Research and 2014 Report
Read Simmons, Partner, Private Equity Practice, Bain & Company
Read Simmons, Partner in the Private Equity Practice at Bain & Company, discussed key findings from Bain & Company’s recently published 2014 report, notably the importance of human capital in achieving value creation improvements inside portfolio companies. Does an explicit correlation exist between better investment returns and the discipline applied by funds regarding human capital and portfolio support more generally? As funds strive to meet their investment return thresholds, what are they doing to better assess management – before and after making an acquisition – to ensure they secure the best executives with proven abilities to drive value and financial results?
If you would like to learn more about Read’s presentation or Bain & Company’s services, please contact him at 646.562.8773 or firstname.lastname@example.org
“The keynote speaker was phenomenal and the data very helpful in a discussion about potential liquidity for a privately owned technology business. In our portfolio companies, the insights of panelists on outside board members and appropriate compensation prompted my fellow board members of a private equity owned firm to revise our thinking, recruit several new outside members and compensate them appropriately. I hope those changes bring benefits for many years to come.”
JAMF Software and Reliable Property Services
Tolomatic, Braas Company, Sign Zone
The View from the Board Room
Jay Millen, Global Leader, Board & CEO Practice
Jim Hansen, non-executive chairman, JAMF holdings
Charlie Kittredge, non-executive chairman, Crane & Co.
Tom Penney, Chief Executive Officer, LS3P
Jim Twining, former Chief Executive Officer, Southern Tide
Our last conference addressed issues regarding the leadership and functional attributes of CEOs and management teams working with investors in private equity sponsored companies. Invariably, the discussion turned to the critical role the Board plays (and the Chairman in particular) working with the CEO and his or her team to stimulate real value creation. Without the right people on the Board, however, how can it effectively coach and guide a company’s team in pursuit of strategic objectives? Similarly, even with an optimized Board “architecture” that aligns with business imperatives, a productive working relationship between the Board, the CEO and the management team is essential in seeing the strategic imperatives established at a Board level “operationalized” to produce true business impact. This panel addressed the intersection of Board structure and the need for effective bi-directional relationship management between the Board and management in order to realize investment objectives. Specific topics included:
- The technical or functional advisory model – purpose built for business support
- The liquidity event board model – creating a pre IPO board positioned for short and long term success as a public company
- Compensation and equity participation for private board members – alignment with value creation objectives
"I would say that the May 2014 DHR Private Equity conference gave me a unique opportunity to meet with practitioners from virtually all segments of the mid-market PE/Buyout realm—portfolio and corporate managers, operating partners, fund administrative executives and fund principals. Networking with this group, along with the DHR panels and presentations, gave me a clear picture of the opportunities and challenges the PE sector faces today."
Easton Capital Investment Group
The View from the Executive Lens: Chief Executive Officers
Craig Randall, Managing Director, Chicago (DHR Headquarters)
Tony Armand, Chief Executive Officer, Shock Doctor Sports
Bob Tangredi, Chief Executive Officer, Pure Health Solutions
When considering their career options, CEO level candidates carefully scrutinize opportunities when engaging with private equity firms and their partners. The quality of the role from a business and financial perspective is obviously important, but executives are also very conscious of their “fit” with the Board, the Partner on the Board and the PE firm more generally. Different firms and their partners have different working styles in how they manage the day-to-day working with their companies. Unless they have worked with PE firms in the past, executives will go through a learning process as they map their style to the needs of the owners and vice versa. What is the CEO’s perspective before he or she accepts a position? How do they size up PE firms and their partners? What do they perceive to be the challenges and benefits working with PE firms? How did they manage the situation and personally develop as a leader and manager? This panel consisted of proven CEOs of PE sponsored companies and addressed these issues from the viewpoint of seasoned operating executives.
"Everyone in the PE industry understands the importance of human capital in achieving targeted returns and mitigating risk. It is encouraging to see firms like DHR that understand the difference in the mindset of PE firms when it comes to portfolio company management and have built a practice that specializes in that thinking. Participating in the conference with other PE firms as well as PE-backed operating companies was a good forum for exchanging ideas and sharing best practices."
Olympus Capital Asia
The View from the Executive Lens: Cheif Financial Officers
Ron Woessner, Global Leader, Financial Officers Practice
Tony Abate, Chief Operating Officer and Chief Financial Officer, Echo360
Janet Caldwell, former Chief Financial Officer, Kronos Foods Inc.
Steve Gray, EVP and Chief Financial Officer, WestPoint Home
Brian Marley, Chief Financial Officer (retired), Belk
Besides the CEO, the effectiveness of the CFO is potentially most critical as investors strive for accelerated value creation. There seems to be broad agreement that the CFO should be fluent in more than accounting, systems, reporting, process and control. Effective CFOs are strategic and operational in their capabilities, team well with the CEO as a business partner and know how to engrain the analytic engine of finance into the fabric of the business working with their peers. Moreover, as a strategic leader on the team, CFOs interact often and closely with investors on the Board. The need for more granular and forward-looking analysis based on Key Performance Indicators (KPIs) is pronounced in an environment where cash flow is king and effective relationship management working with banks and capital market players is essential. This panel of proven CFOs of PE sponsored companies discussed their experience working with investors. They offered advice on the best way to partner with a CEO and the Board to achieve as much alignment as possible in pursuit of strategic and financial objectives.
“Great event in a great location. DHR provided the opportunity for all of us to share best practices. While many of the attendees directly compete on deals and opportunities, we all have unique views on talent acquisition and development. It was extremely helpful to see what leading firms are doing as it relates to finding, attracting and retaining top-tier talent.”
Greenbriar Equity Group
Effective Executive-Level Selection and Succession Planning: Art, Science, Both?
Barry Conchie, Founder & President, Conchie Associates
Mr. Conchie discussed a research-based approach to improving executive talent identification, selection and development. His interactive presentation specifically introduced the audience to research studies in cognitive bias and explained how these can affect the functioning of leadership teams. Specifically, Mr. Conchie addressed:
- Current approaches to succession planning and why most of them fail.
- Identifying and quantifying the talents that truly predict executive leadership performance.
- Does experience matter?
- The limits of human cognition and how this influences self-management and team composition.
- How a scientific approach to succession planning influences culture and performance.
If you would like to learn more about Mr. Conchie’s presentation or the services of Conchie Associates, please contact him at 720.508.4335 or email@example.com
"Leadership assessment is tricky under the best of circumstances as we search for executives who really understand the value creation component of what we do. Barry Conchie's presentation was especially insightful. It helped me understand how truly biased everyone is when they are assessing candidates and how critical it is to use a more data-driven process where possible."
Overall Summary & Findings
As noted in Exhibit 1 below from Bain & Company, the fundamental underpinning in a private equity firm’s goal to ensure sustained wealth creation for itself and its partners is the quality of its “talent, organization and culture.” The importance of this underpinning is just as true inside the multiple portfolio companies that comprise the short and long-term wealth creation potential sought after by these same investors. More and more, investors understand that they can only meet return objectives with a highly disciplined approach that emphasizes human capital. This approach to human capital transcends the partners themselves, fund support staff, operating partners, and Board members and necessarily must include the C level executives and management teams that work inside portfolio companies every day in support of business and investor objectives.
State of the PE Industry and Human Capital
The private equity industry is more competitive than ever and, as it matures, the need to institutionalize best practices that result in the acquisition, deployment and development of top talent is crucial. As noted by Read Simmons in his keynote address, research on the part of Bain & Company has proven that high performing teams can help portfolio companies significantly improve their results. Please see Exhibit 2 below.
Indeed, PE investors are increasingly aware of the importance of their management teams in driving investor returns (as evidenced in Exhibit 3 below), but the process leading to improved results offers many potential stumbling blocks along the way.
The stumbling blocks that may interfere with an organization’s difficulty in meeting investor expectations are numerous. As noted in Exhibit 4, “People & Performance” are specifically noted as one of six primary areas that should be considered across a range of organizational, leadership and communication issues that can negatively impact PE funded company performance.
Private Equity and The War for Talent
Private equity funds must recognize that they are in a war for talent. CEOs and others will carefully scrutinize opportunities from a business perspective (is the plan achievable?) and evaluate the investment thesis in terms of potential wealth creation. They will also assess their new partners in terms of fit with their style and the kind of working relationship they want to establish with their Boards. Some executives will fit better with certain types of firms and vice versa. This fit should be explored during the interview process on both sides and firms should be transparent about their culture and expectations.
Given this competitive market for talent, firms are constantly exploring creative ways to keep the pool of talent as broad as possible in order to find top talent. There seems to be a willingness to consider a candidate’s “potential” versus “proof points” but such thinking is quite situational depending on the issues and opportunities confronting the business at a particular inflection point. On the other hand, firms have gotten much more diligent about specifying the leadership and behavioral attributes as well as operational competencies required in their key executives – especially an ability to fully embrace and succeed in a business model where disciplined value creation is required – and position specifications are generally much more prescribed in the key attributes they seek.
While there is general agreement about the need to deploy the best executive talent possible to yield better returns, firms will have different approaches to securing that talent depending on the structure of the firm, their market focus and the investment thesis they employ. Effective talent acquisition is one of the foundational elements in accelerating value creation as firms seek to meet investor returns in a market flush with capital chasing too few high quality deals. The effectiveness of management – and the kind of culture that is established inside a company -- really do make or break the deal. Trends suggest an ever-increasing emphasis on talent management, including:
- Human capital expertise inside the funds – As firms have built out their portfolio support function, more and more firms are hiring specific individuals to focus on the talent function working with portfolio companies. There is wide variation in the type of models used and the background of the individuals selected for these internal roles. Techniques and structures employed by smaller funds are obviously different than the larger ones.
- More interest on part of LPs regarding human capital – Limited partners are now more exposed to the deeper human capital thinking utilized inside some funds versus others given how it has been engrained into the operational fabric of their fund portfolio operations. Certain LPs look at the human capital approach employed by firms as a potential differentiator.
- Even greater focus on leadership assessment - Large or small, there would seem to be a majority of firms today who are employing more data-driven techniques to increase objectivity when making hiring decisions. In some cases, firms are standardizing on a particular “score card” approach or set of psychometric testing tools when working with executives inside portfolio companies.
Human Capital Evolution Related to Private Equity Boards
Based on the panel discussions, it would appear that private equity firms are more carefully monitoring the capacity of their internal staff to handle board responsibilities throughout the portfolio. How many boards do operating partners and investment partners sit on; do they have adequate capacity to sit on so many Boards and still be effective in those roles; is there a lack of bandwidth that may be affecting the Board’s effectiveness working with the CEO and the management team?
Given potential bandwidth issues facing many private equity firms, outside independent directors are becoming more prevalent in a blended board model. Perhaps more importantly, board members are being recruited to provide specific domain or functional expertise and the “position player” acumen that will allow better coaching of key executives in various functional areas. Firms are getting more “surgical” in addressing their Board needs. This is a bit of a change from past practice where firms often looked for and embraced more generalized leadership and / or industry-specific domain experience. These type of Board members often emerged through existing relationships within the firm (informal process) versus a more proactive formal outreach to senior level executives who fit a certain set of well-defined criteria. Most of the time, Operating Partner or Advisors attached to the firm fill these Board seats.
More boards are being developed to look and function like a public or pre-IPO board with governance structured around what the board can do to assist the company in its mission to realize the value creation plan that has been established by the private equity sponsors. It is more common now to see boards of PE funded companies employing outside resources as opposed to attempting to handle duties only with internal staff. While perhaps not a radical change versus the boards in prior years, those trends seem to have crystallized over the last 36 to 48 months in the PE community. There is ample anecdotal evidence that Boards are rethinking the role and structure of their boards as they own assets for longer periods of time in pursuit of investor returns.
The capability and functional insight of a company’s advisory board members or those in a more formal governance capacity has become increasingly important as portfolio companies seek to stimulate business improvements. PE firms are recognizing the benefits associated with a more focused and functionally or domain literate Board regardless of: the nature of their product or service; specific markets or geographies served; stage of growth and expansion aspirations; legacy and history as a business; or other factors.
Trends in Leadership Assessment & Performance Evaluation
In short, there is a massive disconnect between how executives feel about their success in picking great people as opposed to how great those people actually turn out to be. How people view their effectiveness in executing hiring decisions -- a crucial area of management responsibility -- does not align with how in fact executives actually perform that task (that is, hiring great leaders).
Barry Conchie from the leadership assessment firm Conchie & Associates described a longitudinal study in which every single new hire made by a representative sample of 100 executives was evaluated against performance for seven years. The executives were asked to rate themselves in terms of their success at hiring great leaders from one to five with five being the highest. “Great” was intentionally left undefined to be interpreted by the subject. Significant findings included:
- 73% gave themselves a five, the highest score possible, thus indicating they believed they were extremely successful at hiring great executives. No one gave themselves a score below three.
- 11% of those executives claimed to pick top performers 100% of the time. In reality, only 3% of the executives pick top quartile performers.
- According to the subjects, 68% of their hires turned out to be top performers. However, analysis of the data revealed that the actual number was actually 12% based on business performance and other factors.
Therefore, given this rather weak performance from the hiring managers, it is not surprising to see the following findings of current research on the effectiveness of executive leadership:
- Leaders show more consistent progress managing profitability than they do growth at a time when they need to and want to expand their businesses.
- Most executive leadership teams have self-replicated their dominant leadership capabilities in their selection of leaders beneath them.
- Related to the last point, many leadership teams lack talent diversity and are exposed to a whole series of covert biases influencing their choices and priorities.
- Many executive teams are systemically challenged in terms of strategic capabilities, unable to identify or exploit key strategic imperatives.
- Many systems and processes designed to improve leadership effectiveness are either failing or are, at best, sub-optimized, lacking rigor, objectivity and predictive validity.
While they may not appreciate the following characterization, executives are really no different than the general population. They tend to be biased in their assessment of people and generally risk averse. Mr. Conchie notes: “People are massively conservative on the upside and will gamble the house on the downside consistently, time and time and time again.” The natural tendency is for people to attack negative variance rather than get excited about the potential for positive growth on things that lie outside their comfort level. Those are the very areas, however, which contain the most opportunity for growth.
Cultural fit is often seen as a predictor of success within an organization, and that was addressed in the same research involving the 100 leaders discussed earlier. Out of the 2,681 candidates studied, 88% or 2,359 were identified as having a strong cultural fit. However, 37% of these individuals were terminated or voluntarily left within three years; more often than not, this was due to performance issues. Only 7% of the 2,359 candidates became top quartile performers. Companies tend to emphasize cultural fit over other factors in determining the success of employees, but the data suggests that either (a) their process for determining fit is flawed (using typical interview techniques without a data-driven approach) or (b) they are not assessing well enough for other factors that are critical in determining how these employees will generate business performance.
Interestingly, while people in the private equity space tend to be highly analytical and data-driven, it does not necessarily follow that they are applying an appropriate and consistent data-driven approach when evaluating their people. There could be many reasons for this:
- From an executive’s perspective, experience with the hiring process has been subjective over the years (“I’ll know it when I see it”) and they have accepted that such subjectivity will always underpin the process.
- Even when people start to embrace a more data-driven approach, the market for such services and different methodologies is confusing at best.
- There are a number of assessment methodologies that focus on the wrong factors and therefore are not predictive of success in the work place. Once someone has had a bad experience with certain tools or a particular approach, they may reject them entirely.
- There is a perception that a more data-driven approach adds time to an already time-consuming and mysterious process and, often, hiring managers are in a hurry to make the hiring decision.
- People do not want to believe the data generated by tools -- even when the data is correct in pinpointing attributes that may increase or decrease potential business performance in a particular candidate. High performers, in sales, for instance, have personality traits that make them more difficult to manage. Those traits are often the very ones that contribute significantly to their success; yet they are also the ones that may result in a negative assessment if a subjective process is employed.
In summary, no matter how smart or successful, all hiring managers are inherently biased when it comes to assessing talent. This bias cannot be overcome without a more data-driven approach (and even then the process is not perfect). Companies and their investors can and should focus on developing objective systems around evaluating people and their performance in an effort to increase effectiveness in bringing the right people into an organization and increasing the responsibilities of those individuals who deliver. It is critical to track and refine those measures, ensure hiring managers are held accountable for employing a more disciplined data-driven process, so organizational performance can improve over time.
The View from the Executive Lens: Chief Executive Officers
Private equity groups and their partners obviously have their own individual personalities and styles dealing with their portfolio companies. When considering an opportunity inside a particular PE funded company, CEOs look for personal and professional career upside based on a deal’s attractiveness and the opportunities for personal wealth creation. Just as importantly, these same executives see the “partnering” aspect of the arrangement as critical to their personal success as well as the overall business and financial performance of the company:
- Are these partners who share our vision and will stay the course?
- Are they in a hurry to exit or will they work to optimize value working with us?
- How do they evaluate the CEO and others on the management team?
- How much time do they invest in the assessment process?
- Will they support the CEO and the team even during more difficult times?
Once employed, CEOs prefer a more flexible environment where there is give and take on both sides, but they are realistic about the need to deal with investor expectations:
- Can we maintain comfortable boundaries in how we report and communicate on a routine basis?
- When and in what situations can and should we talk outside of a formal quarterly board process to stay in touch as issues arise?
- When should a CEO pick up the phone and talk about an issue that may not be a board related issue, but is certainly an issue that the private equity firm may have an interest in?
“I think what has made me successful as a CEO, running the board, making my team successful and managing private equity relationships,” said Tony Armand, CEO, Shock Doctor Sports, “is being sensitive to the key drivers that they [the private equity firm] are really interested in. We may have different views on strategy from time to time, but you have to agree on the metrics – the metrics that make them tick. Then, you have to build a process around those metrics and that will sometimes require flexibility on the part of the CEO.”
Executives being approached for a CEO position and with no experience with private equity are often concerned about the relationship with the private equity group. How involved are they? How autonomous will the CEO be in running the business? The answer is that it is different with every private equity group; it varies based on the needs of that particular board, the personality of the firm and the investors and the situation facing the company. In general, however:
- Mega funds tend to behave differently than those that have just raised their first fund. Mega funds can be less involved with the daily operations and, if the business is performing well, tend to be more hands-off.
- Independent directors may be asked to provide advice or coaching during key milestones or decision points. The advice of these directors can be extremely valuable during these times and it is important that the CEO take the advice seriously, but ultimately the CEO needs to set and drive the course of the business.
- M&A strategy may involve more interaction with the private equity firm, but the strategic direction of the business should originate internally with occasional input from counsel that the independent directors may provide.
Again, a successful relationship with private equity often comes down to the dynamics of the relationship itself. “It’s all about who you work with,” says Bob Tangredi, CEO of Pure Health Solutions. “You get to a point in your life where you know what you’re good at. Your quality of life is important and that’s got to do with the relationships that you’ve built and the ones you step into when you take a CEO role. It is really important to ask … is this going to be a good fit for me? Because you can have a great PE partner and you can have a great company, but if your style and disposition don’t match, maybe it isn’t something that you're really going to enjoy.”
Even with the heavy demand for senior level talent in PE funded companies, it is a very competitive job market for executives seeking opportunities in these companies. C level executives need to be fully informed on key issues so they are prepared to make the best possible presentation as a candidate in terms of their ability to truly drive value creation. This means they must have purposeful and well-crafted resumes that show clearly the deeper quantitative and / or measurable aspects of the results achieved under their leadership. They need to be prepared for a line of questioning during the interview process that seeks to uncover, at a granular level, the results achieved across various dimensions – development and deployment of key performance indicators, specific initiatives implemented to improve business performance, management techniques that created true followership in their organizations and so forth. Finally, they must be prepared for a rigorous score card or testing process that generates supplemental data useful to the firm as it finalizes a hiring decision; this kind of process is being institutionalized much more often in many firms.
Chief Financial Officers in Private Equity Sponsored Companies
Today’s CFO needs to be a true strategic and operational partner with the CEO where the CFO is focused on the factors that drive a profitable business model. Communication with peers outside the financial organization, and in such a way that conveys the sense of the CFO as a fellow player and not a “policeman,” impacts the company in a positive and productive direction. Tactics that facilitate this integration of the finance function into the business include:
- Determine with the CEO the most effective and appropriate method for communication, including participation in staff meetings and development of an inclusive strategic planning process. Finance should not be “hidden in the back” but viewed as a fully present team member, working with everyone for the larger, well-articulated and agreed upon common organizational and performance objectives. With such an approach, operations are then fully transparent; changes can be made and actions taken as needed and more quickly.
- Implement a reporting process in which every functional area -- sales and marketing, operations, R&D, etc. -- actually present their numbers for the month and the reasons behind them to the executive team. Coaching those teams prior to presentation imparts and reinforces the message that the relationship with the CFO is a true partnership. Hearing data from every department allows the team to run the business versus each executive running their individual silos.
- Be clear what the structure is around the governance processes, but don’t be overly structured. Develop and utilize metrics, but not too many. Though it may require significant training and conversation, putting the metrics in the hands of operations allows them to handle forecasting themselves. Educating those stakeholders around the key metrics and how they can be changed and managed, if incentive compensation is aligned, usually results in productive, positive conversations because their success is being supported and encouraged.
Optimization of the CEO relationship enhances the CFO role. Areas in which this relationship can be fostered, improved and fully maximized include:
- Mutual respect and trust is critical and powerful in terms of developing a productive dynamic. Understand that working together to accomplish respective goals is imperative but, “Ultimately, the CFO is serving the CEO so you've got to make them look good in everything that they do,” says Tony Abate, COO and CFO, Echo360. “The key is to quickly get in alignment as to where you're going as a business and then make the CEO shine as a result of your great work. That would be my advice.”
- Aspects of the CFO role involve performance in areas in which CEOs cannot. Even if they are former CFOs themselves, the CEO does not have the time to drill into the more granular elements of the business from a finance perspective. Understanding the division of labor is important and should be clear between the two parties.
- Establish an open and honest relationship immediately and determine what respective skill sets and experience complement the other. “You can't avoid the tough conversations,” says Janet Caldwell, CFO of several PE funded companies. “You may not like what you have to say to the CEO, you may think it will be difficult for him or her to absorb, but you have to say it. It is your fiduciary responsibility to say it. And don’t just bring problems, bring solutions.”
Creating value for the organization is an ongoing responsibility that takes many forms and the implementation of a wide variety of initiatives that lead to an effective platform for growth, including:
- Effective CFOs are not just reporting on the numbers. They are determining the most profitable business model available to the entity. This involves thinking regarding price models and price strategy, for example, that will lead more consistent top growth and bottom line margin expansion.
- From a business model perspective, the cost of acquiring customers is always something worth examining. Sometimes, you need to transition to a new model where you will need to win over customers who realize the higher cost they are going to experience over the life cycle of your product. You will also likely have a sales force that will see their commission impacted. It is imperative that everyone understand the value of making certain changes to the revenue model from a corporate perspective. Once that is achieved, you will need to work with operational and sales teams in transitioning legacy customers in terms of pricing initiatives and developing a new commissioning incentive.
- If M&A is part of the strategy, the CFO needs to facilitate by building or enhancing IT infrastructure needed to acquire and integrate companies and report the details of finding and assessing acquisition targets. The finance team should lead the integration process and determine how to take out cost once companies are assimilated. Where possible, drive to achieve synergy above and beyond the original return on investment.
- Forecasting can be difficult, so thoroughly preparing a company for all possibilities can relieve uncertainty and, in a worst-case scenario, provide a plan for dealing with what had previously been the unexpected. In such circumstances ongoing, regular communication among all stakeholders is the key.
The CFO position in a PE funded company is critical in achieving the value creation objectives established by the PE firm. In working to achieve these objectives, it is critical that the CFO built a tight and trusting relationship with the CEO. It is equally important that the CFO establish a communication style working with the management team and other leaders of the business where constructive and transparent communication is the mantra. The CFO must be aligned with the CEO in terms of the profit drivers of the business and, when issues arise that may affect projections, he or she must be willing and able to engage in difficult conversations that lead to proper resolution.