S2-E1 | Influence not Shown on the Organization Chart

Transcript

SPEAKER_00 0:02

Hi everyone, I'm Joshua Jahani. Thank you for joining our podcast, The Technical Founder, Advanced Concepts in MA and Investment Banking. I'm your host here with your co-host, Ricardo Oberlander. How are you today, Ricardo? Ranger Rock and Roll, Joshua. And you? Yeah. I'm doing very well. I'm excited about this topic because so we're starting our series about power alignment and communication. And we're gonna we're gonna sort of favor MA in these topics. But as our audience knows, this applies broadly to investment banking in general, such as IPOs and capital placement and brokerage work, etc. Finding the power, influence not shown on the organization chart. So, Ricardo, when you think about how our audience of technical founders need to consider this information, what's kind of, you know, we kind of start a bit with the takeaways, but what's kind of the assumption that people may not understand right out of the gate that they should with regards to finding the power?

SPEAKER_01 1:04

Joshua, as you well know, if one relies on titles to understand power, one will misread the situation inevitably. And in M ⁇ A, misreading influence is one of the fastest ways to lose control of a process, which should be otherwise very disciplined. Because decisions are not made where they appear to be made in general. One has to assume that. Formal authority and actual influence are often very different. You may have CEO with decision rights, a board with approval authority, a founder with emotional ownership, a minority investor with blocking power, an advisor with disproportionate influence. And none of this is fully visible in a normal chart. Effective professionals, therefore, understand that before they negotiate terms, they must understand who actually shapes outcomes.

SPEAKER_00 1:59

And when you think about shaping outcomes, you know, the ultimate successful outcome in an MA setting is a closed transaction. And every player on or off the org chart influences the other in some kind of way. I think it's a natural mistake that I see buyers and sellers make where they assume that the party who is doing the most talking also has the most power. And I think that that's something that people have to second guess when they're working on these transactions, whether it's from the buy side or the sell side, because at the end of the day, power is sort of contractually structured within an operating agreement within a company, but then there are people who rely on other people to make decisions. So, Ricardo, I look at finding power on an org chart, is so there's the CEO, there's the CFO, there are the founders, which can be one of those or separate, and then there's the board. I see the most common mistakes is where people think that the CFO or the CEO are the people who have the most power. And in fact, it's someone who has a material or equal shareholding on the back end, who may be a founder or a board member or just a general shareholder that actually has an equal amount of power, if not sometimes more, and can kill a deal. Have you seen that take place as well?

SPEAKER_01 3:22

You you're hitting a critical point here, Joshua, because not necessarily power is where the titles suggest. I even propose that we we think of power in three layers. First, formal power. We talk about titles, governance, legal authority. Secondly, economic power, who benefits or loses financially with the deal. Thirdly, informal power, relationships, trust, influence, who speaks to whom. And the mistake is to assume that the first layer, formal power, dominates. In practice, the third layer, informal power, often determines the outcome of the deal. Someone without a formal role may influence the founder, shape the board's perception, slow decisions quietly, accelerate them, or having the ear of the CEO or the CFO to your point. And that person or those persons may never appear in a formal document, but they do matter.

SPEAKER_00 4:36

Who's a good example of an informal power player besides a service provider? I mean, you know, and I'll give you an example that I think our audience will appreciate. Most of the founders we work with are male. We do have uh female founders that we work with, but as typical, it's mostly sort of a male-driven population. Um, and the wives. The wives of the owners are hugely important. And they always have some kind of like vague title, like you know, controller or account manager. And they're they're anything but that. I think we we work with a lot of husband-wife groups that are shareholders, equal shareholders. Sometimes the wife owns more. And I see a lot of bankers really do a bad job when they ignore the wife and they ignore the partner because she, you know, women uh generally uh think more deeply than men. And husbands often rely on their wives to articulate what they're thinking and feeling. And I think I've seen that happen on multiple occasions, particularly with legal counsel where they just kind of steamroll or ignore the wives on conference calls, and those those service providers are always struggling to be more effective.

SPEAKER_01 5:52

At the end of the day, from a perspective of a partner or wife or husband in this case, you may have the benefits of an independent third-party observer with a stake involved in the deal, from the personal perspective. And this is a typical situation because if you think about family-owned business, for instance, this is very typical. It happens very frequently, or even in more structured companies, mid-sized or even large companies, where in the solitude of their decisions, I mean, managers, board members, they have to rely and confine to people close to them. Which, even stepping aside from a closer relationship like a partner, uh, you can think about a family-owned business, for instance, an aunt who has who has a particular strong influence on the upbringing of a particular executive. That could happen. And that person actually will seek the advice of that person because they respect them. But overall, there are several categories of people who actually influence uh what we call these hidden stakeholders. There might be the silent board member who rarely speaks but influences others offline, or the early investor who has an emotional attachment to the business, or the senior executive worried about their future, or the legal advisor who becomes risk sensitive late in the process, which is not a good idea, or the key customer whose reaction affects perceived stability. And none of these are always visible at the beginning.

SPEAKER_00 7:40

Yeah. Customers and advisors are another profile that can have that informal, influential power. Ricardo, on some of the larger deals that might be outside of what is traditionally considered kind of a family-owned business, who are some of those political power players that are not necessarily economic that a founder listening to this podcast should consider if they're planning to do their own transaction in the near future, um, that they may want to at least be aware of or consult with when they're doing a transaction.

SPEAKER_01 8:19

My perception is first of all, one has to assume that influence is fluid, it shifts sometimes dramatically over time. During the preparation, the founder and management dominate, usually. During solicitation, advisors and market feedback gain influence. At the indication of interest stage, buyers start shaping the narrative. After the letter of intent, the buyer's influence increases significantly. During due diligence, specialists and legal teams gain weight. By the time you reach closing, power is distributed very differently than at the beginning. And effective professionals track these shifts continuously. Less effective ones operate with out-dated assumptions, which is extremely risky for the success of the business.

SPEAKER_00 9:42

The key takeaways, Ricardo, that we want our listeners to come away with, I think we should move to that. The key takeaway for me is to remind a technical founder on the sell side or even someone that's on the buy side to second guess themselves on how decisions are really made. There's a default that the loudest voice is the most powerful voice, and that's just really wrong most of the time. You really need to think about who is making the decision at this point in the process. How is that decision being made? And then, based on your own objectives, how can you or should you influence that decision? I think if people take that away from this episode, they will come out of this episode with valuable knowledge that they perhaps didn't have as detailed understanding coming in. What do you think about takeaways, Ricardo?

SPEAKER_01 10:31

I fully agree with those. And I would add an overarching concept that's it's I think it's fundamental for people to understand in the process of mapping influence. It teaches one of the most important leadership skills. It's about understanding how decisions are made in real organizations. Early in their careers, people believe decisions follow logic and hierarchy. And over time they realize decisions follow incentives, relationships, risk perception, timing. And professionals who understand this early become much more effective. They do not just present arguments, they position decisions. So the takeaways in general for me are influence rarely follows your arc charts. Title signal authority, but not always impact. Power is multilayered and dynamic. Formal, economic, and informal forces interact and shift over time. And being effective means understanding how decisions are really made, not how they are supposed to be made.

SPEAKER_00 11:39

Thank you everyone for listening to our first episode in the Power Alignment and Communication series Finding the Power, Influence Not Shown on the Organization Chart. We look forward to joining you on our next episode where we talk about aligning founders, board members, and management.