Civil Horizon
Free Thoughts, Adequately Expressed

I learned so much from the CEO over the years. Today, I’ll describe three of the lessons that proved to be of the utmost importance in my life and the lives of others, and how they did so.

The first relates to negotiating. On three separate occasions, I had the ringside seat from which to watch the CEO walk away from a negotiation with millions more for our company than I ever would have dared to hope for, let alone expect. 

How did he do that? Think of negotiations as a game of poker: the CEO was brilliant at reading the other guy’s hand and revealing nothing of his own. He could smell the other fellow’s particular desire, or his particular weakness. He could ignore the weakness of our cards, and thereby convince the other side that our hand was vastly stronger than it was...

Even after the sun had broken through the clouds, signaling that the typhoon that was the 2007-2008 Great Recession was over, we found ourselves struggling to regain our momentum. Our competitors were fiercer enemies now and the very seas had changed.

Our competitors – who viewed us as pirates, out to steal their treasures – were arming their ships to the gunwales and hoping to find us in some hidden lagoon where, with their new arms and greater numbers, they could blow us out of the water. They were also lobbying – with much success – to change the laws of the sea in ways that would hinder our attacks. These regulatory changes were new headwinds for us; in addition, the tides of underlying demand for our products had begun to ebb.

The whole purpose of our sailing – a dangerous ende...

The CEO and I often had disagreements about business decisions, but few were as clear, fiercely argued or lasted as long as one that took place in 2001. It was a titanic, months-long argument about whether we should radically change our strategy in our second most important business. And neither of us was even the star of the show – that role belonged to the person who we had first met as the young salesman trying to talk us out of buying the company he worked for in Another Story. At best, my role was as Best Supporting Actor.

The company we had purchased back in 1996 in spite of the young salesman’s warnings was, as we had known, a fixer-upper. It had fabulous products and a dominant market share – but at the time of the purchase it had never made an operating profit...

From late, 2002, only five years after the company had been started, we had a board of directors. Nominally, this board had no power – it was actually an advisory board, effectively a group of paid consultants – but that distinction would fade with time. Power, as the CEO once told me, is more often taken than conferred.    

We organized the board because we did an acquisition that was too big to fund entirely with bank debt. In order to pay for the deal, we added $22 million of high-interest mezzanine debt to the bank debt we already had. This mezzanine debt, provided by a private equity (P/E) firm, was very expensive money – in addition to its high rate of interest, the investor received nominal-price warrants to purchase 12% of our equity.

The P/E firm also required that we set ...

Things were different after the war.

We emerged from the Great Recession relieved to still be corporately alive, but shell-shocked in ways that wouldn’t ever really go away. What had begun as an economic shock akin to having heard the news about Pearl Harbor – Lehman’s collapse, in our case – over the radio, had come home to us all in the form of now-missing former colleagues and siege-like starvation rations. Now we knew that a collapse of the company that we were building was within the realm of the possible. Over the course of nearly two years of steep revenue declines, we had stared that possibility in the face.

In the ten years preceding that catastrophe, ending with 2006, the company had grown like Jack’s beanstalk. It had taken a good long while for the other farmers to...

It was to be a showdown at the OK Corral: three companies, maybe a billion dollars’ worth of assets at stake, shots to be fired in plain sight. And it had been preceded by a behind-the-scene knife fight in which I had cut one of the possible gunfighters.

The confrontations that I’m about to describe happened long ago, in the years when it seemed that we could do no wrong. We were growing like wildfire; our ambitions were boundless.

The prize that the shootout was over, a twenty-year contract with the government, had attracted global interest. It might have been the largest such opportunity anywhere in the world. No self-respecting industry participant would even think of not bidding for it – to do so would be an admission of being a third-rate player...

In the beginning of 2007, just before the crash, I bought an expensive second home. I write “I” rather than the more customary “the Beloved Spouse and I” in spite of the fact that she’s on the deed, too, because I did the deal without spousal approval – a sensitive point about which she still reminds me from time to time. About some things, I’m a slow learner.

For some years before then, it had been clear to me that the value of my equity in the partnership I had with the CEO was considerable. Every year, the CEO and I would agree on what my stock was worth, and every year I would go home and tell the Beloved Spouse that, on paper, it was really something...

Across my desk was a young man of whom I was quite fond – whom I had brought into the business, and watched grow and thrive. He was telling me of his intention to quit.

I had met him on a weekend bicycle ride seven or eight years before. At that time, he had been just a kid, fresh out of school and employed by a friend with whom I rode daily. The young man was a Canadian national, born in Cyprus, of Palestinian extraction. At the time when we met, he was new to riding and not such a strong cyclist, but he had an effervescent personality so I liked him right off. He did the annual summertime ride to Maine with my friends and me a couple of times, once almost getting himself arrested by a female cop for peeing by the side of the road...

Our CFO was the quiet hero of the company’s survival during the Great Recession. For you to understand why that’s so, I’ll need to explain how we got through it.

As I mentioned in yesterday’s post, our company had never experienced a decline in demand before that terrible time. We had known that such a catastrophe was a theoretical possibility, of course, but our primary industry had been growing steadily for thirty years, and our company had been growing much more quickly than the industry. Further, by 2007 we felt that we had a deep equity cushion: our assets were worth far more than our debts, so if we did have a severe setback, we could always sell something to lighten the debt load. 

Our businesses were geographically diverse and separable...

It’s not just scrappy, entrepreneurial companies that sometimes play rough. When the Great Recession hit, for eighteen months or so the sense of trust that usually facilitates mutually beneficial commerce between companies wore thin. I saw some of the proudest names in corporate America do things that shocked me. We played rough, too. 

To start with the simplest example: one of the highest-value companies in the land broke a lucrative, multi-year contract with us. Before then, I had seen such contracts as money in the bank.

When they told us that they were breaking the deal, they added that they knew that they were wrong, and that if we sued them we would win – eventually, after having spent years in court and a fortune on lawyers...