$112m exit, hugely successful deal: I was just chatting with one of the board members.
As the big sale got closer, the CEO suddenly told the board he wanted a $6m transaction bonus. “If not, I’ll quit,” he threatened, knowing well that it would likely collapse the deal. The buyer was enthusiastic about the CEO and had cited him as one of their key decision factors.
This is peak key people risk.
You can’t exactly tell the buyer that they had it wrong, and the CEO is not a team player. (Or maybe you should, in the name of honesty & disclosure?) As a board member, your fiduciary duty is to the shareholders, and their interests are best preserved by conceding a bonus in order to ensure a smooth closing.
It’s a high stakes game from the CEO, who’d be fired (for cause?) and likely sued if the deal had failed (for any reason).
It’s a toxic and emotional rollercoaster for everyone. The board negotiated him down to $3.5m, which he got on top of his already-strong package with stock options.
As a sponsor or board member, how do you avoid giving any stakeholder this kind of leverage? How to avoid extortion?
• Strong multi-layered team including a bench for each role.
• A go-to-market narrative that isn’t overly reliant on any one person.
• Provisions in the employment agreement that prohibits rogue behavior that misaligns with the company’s interests.
• Confidence to not bend over, but instead use your own leverage. “If you sabotage this deal, then here’s what will likely happen.”
• Ensure alignment with the board and other stakeholders to isolate the person being problematic.
