Tag Archives: Third Party

How Do You Gain Control of the Company? Three Steps

Situation: A CEO founded his company with a partner. The partner is no longer deeply involved but retains a voice in company strategy and finances. The CEO wants total control. It has become complex trying to run the company with an absent partner. How do you gain control of the company?

Advice from the CEOs:

  • Get a formal company valuation as soon as possible. The expense is paid by the company or split 50/50 between the CEO and founding partner.
    • This exercise will provide the information needed to run the company. It is a much more sophisticated exercise than simply valuing current company assets.
    • It will provide a good third-party valuation upon which the CEO and partner can negotiate a buyout of the partner’s interest or place a value on a silent partnership arrangement.
  • Once the company has a valuation, how is the conversation started?
    • First ask what the partner wants. His response will help frame the discussion.
    • It’s OK to let the partner know that the current arrangement is not working for you.
    • As silent partner, instead of a salary the partner just gets checks – monthly, quarterly or whatever – based on net profits (EBITDA – Earnings before interest, taxes, distributions and adjustments).
    • The CEO’s salary is included in the expenses of the business.
    • If it is too painful to initiate the discussion on your own, hire someone to help you.
  • Once the CEO has control of the company, create an organization chart, including the roles and responsibilities of the key positions in the organization.
    • First, decide what you do as CEO – or want to do.
    • For the other roles, either hire employees or consultants to help.
    • The E-Myth Revisited by Michael E. Gerber includes an example of how Thomas Watson did this as he founded IBM.
  • This process can have surprising results. Another CEO doubled the size of the company after buying out his founding partner’s position. The partner turned out to be one of the top inhibitors to growth.

How Can You Reestablish a Key Partner Relationship? Four Suggestions

Situation: A company has a long-standing relationship with key partner which has become strained for the last 9 months due to a combination of conditions. The partner’s Board recently terminated their CEO and their management is now in flux. Is there an opportunity to reestablish the old relationship by approaching the partner’s Board and how would you go about reestablishing this key partner relationship?

Advice from the CEOs:

  • At this point, the Board of the partner is likely focused on selecting a successor to the CEO, and dealing with internal matters in the interim. It may not be timely to approach them now, as they may dismiss your entreaty as a distraction.
  • If this tactic is to work, you will need a champion within the partner to promote reestablishment of the relationship. Try to identify such a person and approach them individually instead of approaching the full Board. The champion may be a Board member or someone with whom the Board has a strong relationship. This carries less risk than approaching the full Board. If the champion is not receptive, your likelihood of success with the full Board is slim.
  • Is there a past President or senior executive of the partner company with whom you have very good relations? An individual like this can act as a quasi-third party to help you to reestablish relationships with the Board or key management of the partner company.
  • Because of the risk involved, it may be best to do this quietly through a party whom the potential champion will respect and listen to, and take the lead from the champion if this individual is supportive of your cause.