Michael Calvey, Co-Managing Partner of Baring Vostok Capital Partners, claims that passion and energy are the most important qualities a successful manager should possess and also mentions the capacity to motivate and inspire other people.
1. What is your strongest leadership quality?
Baring Vostok is a private equity investment company. It's not an operating management company but we are holding that manager capital and manager underlying portfolio companies. My role as one of the co-managing partners is to be the main decision-maker within the partnership but it's a kind of partnership that has very autonomous partners. You have brought responsibility for their industries and their underlying projects. So I'm more like the coach of a team or the trainer of a team than I am the lead player on the field. For me, I think, the key requirements or responsibilities are to manage interaction of very strong-willed different partners who sometimes have very different ideas about what to do, and to cultivate talent within the organization. It is also important to be able to make hard decisions from time to time about people that need to go or changes that need to be made. But I think it's very different from an operating management company which is more about managing a daily routine. My role is more strategic and coaching.
2. Is it difficult to build partnership relations in Russia?
It's more difficult but it's much more empowering and it gives you much more capability. Baring Vostok itself is a very small company, there are only about 60 people who work here but we manage and control seventeen businesses with 15 000 employees doing different things ranging from Internet and media businesses to oil and gas production businesses and manufacturing companies. It will be very difficult to manage this with a corporate structure, while a partner structure where you have individuals with deep experience within different industries but with common economic interests is a very powerful model. It gives us the capability to manage much more diverse group of businesses than it would be possible in any other type of organizational format.
3. Do you have any trouble in keeping people together?
I guess it is a challenge for a lot of private equity firms. We had been lucky in some ways because our early funds were very successful and profitable. We had a very significant pool of equity which had real value to be able to allocate to people. There is a very strong reward mechanism and very severe penalties if you leave. As a result, the problem that we've had is that no one wants to leave. In the history of 15 years of Baring Vostok we've never had someone leave and go work for a competing firm. We have people who've grown complacent or some people who really just wanted to retire. So we've dealt with transitions in this sense and it has always been a very positive thing. When one person has left under those circumstances, we've been able to bring in one or two or three new people that are hungry and that want to grow. These kinds of changes are necessary if you want to be a firm which provides opportunity to young and ambitious people and not just old guys who've been around for the longest time.
4. Can you name some day-to-day things which help you maintain discipline?
Inside the seventeen businesses that we own, the operating businesses that we own there are intense daily decisions and intense daily disciplines that need to take place and which are definitely being reinforced. I think that most of the companies that we own are market leaders but even some of the market leaders grew complacent in recent years; they were able to grow at 50 percent annual growth rates even with inefficiencies and even with sloppy behaviour. So, this is an environment where no inefficiencies can be permitted or allowed. Change is more possible than it would be in normal economic times here. You can implement restructure, you can implement costs, changes, you can renegotiate contracts, you can renegotiate the regulatory environment for your businesses - all these things are possible today. They were not possible a year ago and they probably won't be possible one or two years from now. So even if you are market leading business that's got a dead free balance sheet and you are still profitable - if you fail to seize the moment right now, you' re going to regret it a year or two from now. So that does require daily and detailed involvement and decision-making today.
5. You mentioned that you work more as a coach to your team. What does this word mean to you?
I guess it's like if you have a football team or a basketball team - you have to decide which players are on which positions. Some of the players are obvious and natural on the positions that they have. There should be someone who is in role of the oversight to be able to see when problems are happening on specific projects or investments or businesses, when we need to change, when we need to take someone off of something, out someone else on. Also, there should be someone to be in the position to make decisions among partners about priorities where we're allocating the capital. So that's historically the role that I've played for different reasons. But I don't think there are knowledge transfers, probably the other way around because many of my partners are much more experienced than I am. But there has to be someone who plays that role.
6. Is it more about keeping people together and putting right people onto right places?
Yes, and also I think decisions about allocation of resources and priorities, allocation of economics and compensation, decision-making, I guess, within the firm of a partnership. There are two other senior partners, who have the same seniorities, same ownership and economic interests as I do, and also seven other partners. There are certain things which can't be decided by committee but most other things we do by consensus. Whenever we make an investment or sell something it should be decided by consensus of all the partners. Once we made an investment though, the partner who takes ownership for this investment has broad responsibility for implementing our plans, for making decisions, because you can't make ongoing operating decisions by consensus. You have to have someone who is broadly and deeply empowered to do that.
7. What can you say about the human aspect of your business?
Most important things are energy and passion. It has to be somebody who wakes up early in the morning with a burning desire to make his business a success and who has difficult time separating his business from his life. It has to be someone who has the capacity to motivate and inspire other people. We have grown the businesses which can really be run by one man as a dictator no matter how talented he could be. There are a lot of businesses that we buy or we invest in which need to institutionalize the business and broaden the management team if they want to go from where they are when we buy them to the stage they can be. That is the path Baring Vostok has gone down many times, we have a lot of experience doing that. It doesn't mean we know all the answers but that's something we see as part of the way we create values. How can you institutionalize the business without destroying its spirit and its decisive energy? Besides that, the ability to make tough decisions and to tell people what they don't want to hear and to face reality is nowhere more important than in Russia. You know, here on Monday you can be deeply excited, on Tuesday you can be totally depressed. So being able to relentlessly face reality and manage through these periods is crucial.
8. Can you provide an example of solving problems as a coach?
There were one or two times when we made big strategic decisions. They were based on a conviction but without having any idea of how it is going to work out. For example, at the time of the last big crisis we considered that we were one of the best private equity firms in Russia. But we were very much of a foreign firm at the time. We realized that in order to be successful we had to completely transform the business into a Russian company with a majority of Russian partners. And we basically decided to team up and merge with the team of one of our leading Russian competitors Alfa Capital. Three other partners joined at the same time. We had to let a couple of people go in order to make room. We didn't know how this would work out with the existing sponsors of Baring Vostok. But I had the conviction that it was the only way how we could be successful here in Russia in the long run. We dramatically expanded the horizon of opportunities that we could address instead of just investing through minority stakes. We have more capacity to own an extra-size control of businesses as well. Now we have a dual strategy or hybrid strategy and it's been very successful.
9. You used to be one of the most successful foreigners in private equity business in Russia. Why did you decide to rebuild the structure of the company and take Russian partners?
It was partly a pessimistic or cynical view about the Russian market. We didn't expect that the stock market would ever recover in Russia. We figured that the only way we could generate a decent return for our investors was to take control of the underlying operating businesses and to be able to properly extra size control that required much more depth in operating management skills and also much more capability to interface with Russian government authorities, agencies, legal system, courts and the whole infrastructure which very few foreign investors really have. That's what this merge gave us the capability to do. We fought a number of bitter wars and battles to protect our portfolio companies against the long list of names that I won't mention. We always won and we were able to protect our interests, we learned a lot as well and developed a tremendous experience and knowledge base and how to be able to do it. For us it is a tremendous resource and asset today. I like to think that when entrepreneurs or CEOs of companies decide to work with us as a partner, they think that we bring something beside just money. Hopefully we can help support the business and not just in terms of the organization and additional recruitment of management but also helping to sort out some of the issues and the noise which can distract management teams.
