Patricia M. Cloherty, Chairman and CEO of DeltaPrivateEquityPartners, tells us about the peculiarities of developing a partnership based organization, about her opinion on mistakes, and about her way of dealing with her team.
1. Do you have any specific skills of developing partnership based organization?
It contrasts very much with the hieratical corporate form where there is a final decision maker who is reviewed by his or her board, a chief executive who then delegates authority and hopefully responsibility in full measure to different ones; a partnership is a flatter form and everyone here is expected to pull his or her own way and indeed arrive at a decision "yes" or "no" on a transaction and propose it to the partnership. The way it works is called "a carried on interest" - across the general partnership people will have a percentage of the net capital gain on a transaction so you want everybody moving to the point of full responsibility for each transaction and ability to recommend it, indeed fight for it in the partnership to bring partners to agree: "Yes, it's a good place to put money in because we will all benefit".
2. What is the greatest difficulty in partnership?
It's a hard model for some people to live with because frankly a lot of people prefer not to have to make an ultimate decision because then, it's really your responsibility, and not everybody wants to take that responsibility. I don't know if it's positive or negative, it's just important to know it about yourself if you're going to go in a partnership form. I think in Russia, to be specific here, there certainly is much more of a tendency to have one very strong dominant leader, and then everyone else sort of asks what her or his opinion. Here you have to enable people, give them confidence. One of the younger partners here did a deal that has never been of interest to me but we all learn that this deal is going to come out fine. If I weren't sort of honoring people to do things by themselves I probably would've said "no". On the other hand it's a partnership and that person has to learn by doing and the deal will come out fine, not great but fine.
3. What is your point of view to the possibility of making mistakes?
I think, again, with all the understanding of business in which you are you will make mistakes. I think I've been involved since late 1969 in probably over a hundred different kinds of businesses. And did I make some mistakes? Of course I make mistakes. Sometimes you either don't understand the magnitude of the risk you're taking or it's an exogenous event over which you have no control. Example of the latter President Nixon in 70s introduced price controls - catastrophic for some businesses. Who would've thought? Another example we had a steel mill in a Lower Mississippi basin that had a competitive advantage using the Mississippi river for shipping the steel bars to distribution points but the Mississippi river dried up. We did not think that the river was going to dry up. Those are exogenous events but other things happen. In one wonderful company we backed critical part was its CEO who was in a plane crush a week after closing. Businesses are dramas and each one has its issues the most important of which are back to the human factor.
4. And what about your team?
A good management team can do extremely well with a second rate idea. A poor management team can screw up the best idea in the world. I was talking with someone here last week about an opportunity; it's a small retail service business, and he was saying: "Ah, we could never make anything in this kind of business", I said: "Remember the Time Warner. Time Warner was built from parking lots in Brooklyn". Good management team can take the cash-flow from a simple service business and convert it into... - "a sow's ear into a silk purse" if you know what you're doing. The human brain is wonderful.
5. What type of a team do you prefer?
To have a small team but highly productive, this is not a volume business. Here is my rule: every senior investment professional does two new deals a year and exits as warranted by market conditions. We have seven investment professionals and in four years we've done 59 transactions, 30 exits and 29 new deals and follow ons - hugely productive. Is it better to have seven people and do 59 deals or have twenty people and do 6 deals? I know which formula I prefer. We will be adding as we organize our third fund which is under way right now but not a lot, this is not something you throw people at.
6. How is this principle realized within your company?
With our team it may seem that having more cadre we would've preferred because we could relax a little bit more. But a fact of having a few working intensively on deals has had a benefit engaging the respective professionals in the innards of a business. Private business is new to an economy as it is in Russia. There is a tendency to have businesses that are sort of assembled loosely if I can put it that way. They are not bench marked to international standards; they are not highly productive, and when we are a little team we can work very closely with a companies making sure that all of the operating ratios are as good as they can be.
