Monday, April 11, 2011

Beyond the Deal: Michael Eisenson Goes the Distance

April 4, 2011
Link (available to non-subscribers as a PDF here)

Editor's Note: This is the second of six profiles of this year’s Outstanding Directors. The Outstanding Directors Program, a sister program to Agenda, awards recognition to a select group of directors annually. These directors are nominated by fellow board members for making a valuable contribution to their boardrooms and are selected by the Outstanding Directors Editorial Board.
In a field more often associated with short-term deal making, Michael Eisenson has developed a track record of adding long-term value.
The CEO, managing director and co-founder of Boston-based private equity firm Charlesbank Capital Partners has held seats on almost 20 public company boards, typically stepping down upon divestment. At Penske Automotive Group, however, Eisenson has not only stayed on – seven years and counting since his firm completed its exit – he has made an extraordinary contribution to the company’s success, say board colleagues. They laud the PAG audit committee chair’s tireless commitment to transparency, his formidable business acumen and his sensitivity to the needs of all stakeholders.
“Mike is a jewel and the best financial asset we have on the Penske board,” says fellow PAG director and former General Motors executive Bill Lovejoy. “He has an intellect that’s off the charts but uses it in a quiet, unassuming, real-world way.”
PAG takes its name from racecar legend Roger Penske, the company’s chairman and CEO since 1999. But Eisenson got involved closer to the starting line, in 1993, when his private equity firm invested in the company then known as United Automotive Group. Founded by New York investor Marshall Cogan, UAG expanded its share of the auto dealership market through acquisitions and went public in 1996. Within a year, the company was the second-biggest U.S. auto retailer, a position it holds to this day.
Cogan foresaw that trends pointed toward consolidation, but the execution of this vision left room for improvement. In 1997 and 1998, UAG posted a combined loss of almost $11 million, according to the Detroit Free Press. In search of both capital and leadership, Eisenson approached Penske, whose auto-dealership experience dated back to 1965.
“Roger is a talented negotiator, and he proposed a set of terms for his investment in the company that were reasonably aggressive,” Eisenson recalls. After consulting with the UAG board, Eisenson says, he agreed to Penske’s terms for an initial $83 million capital injection on the condition that Penske serve as CEO of the company for at least three years for a salary of one dollar a year. “We got the CEO that we most wanted at a very reasonable price, although the capital was a little expensive,” says Eisenson.
Penske got something else out of the bargain: He got Eisenson to promise to remain on the board beyond his firm’s investment period, which was expected to be around five years. “One of Roger’s concerns was that private equity guys tend to be short-term, and he felt that I might be helpful to him in the long term,” Eisenson recalls. Together, they saw profits surge 245% in slightly more than a year after Penske took the reins.
Twelve years on, Penske and Eisenson may not hang out together at the Indianapolis 500, but they are very close, says PAG lead director H. Brian Thompson. “The glue set early and quickly between them,” Thompson explains. “I don’t think there’s a move – at least of a financial nature – Roger would make without Mike’s input.”
Lovejoy adds that the whole board places tremendous confidence in Eisenson’s judgment. “Mike’s fingerprints are all over every deal we do,” he says. “If he and Roger say a deal won’t pencil, we know it isn’t right.”
Independent Overseer
Beyond insights into the financing of companies and the movements of financial markets, Eisenson’s oversight as independent director wins him plaudits from fellow board members. “Mike heads the audit committee better than anyone I’ve seen in the 20-plus public boards on which I’ve served in my career,” Thompson observes. “He is brilliant, thorough and understands completely the role of director in today’s environment.”
Inside director Rob Kurnick, who in 2008 succeeded Penske as company president, adds, “Mike’s focus on detail and understanding complexities is really the best I’ve ever seen. But at the same time he has a very practical approach to advising us as a director.”
As audit chair at PAG, Eisenson has made transparency a top priority. “Michael is mindful to a fault about disclosing anything and everything that might look like a third-party transaction, whether material or not,” Thompson says. “This is one of the many ways he represents minority shareholders.”
Attention to minority interests takes on particular significance at PAG, where the chairman and CEO controls about 35% of the company’s outstanding shares. Eisenson says openness in such a situation only makes sense, and he lives by the saying —attributed to Depression-era U.S. Supreme Court Justice Louis Brandeis — “Sunlight is the best of disinfectants.”
“I think that, if interactions are public and visible, you have a much greater chance of people making the right choices at critical times,” Eisenson says. “When things are done in secrecy, people will assume the worst.”
Private Equity Director
Eisenson represents a type of director whose numbers are on the rise in U.S. boardrooms: the private equity fund manager. A prominent example is General Motors, where three of five new board members appointed by the Obama administration in 2009 hail from major private equity firms. (One, Dan Akerson, is now CEO of GM.)
By all accounts, Eisenson has all of the strengths and none of the shortcomings often attributed to a private equity director. Those who have seen his work from both sides say the differing roles of private equity fund manager and public company director raise no conflict-of-interest concerns whatsoever.
Fellow PAG director Ron Steinhart, former chairman and CEO of Bank One’s commercial banking group, has known Eisenson for more than 20 years. “I don’t know that I see him any differently as an investor than I do as a board member,” says Steinhart, who serves on the audit committee under Eisenson. “He’s just someone you want to have on your side.” Steinhart praises Eisenson’s ability to combine top-notch strategic thinking with an attention to granular details.
Another PAG board colleague, Kim McWaters, has seen Eisenson in two lights. McWaters is CEO of Universal Technical Institute, a former Charlesbank portfolio company where Eisenson served on the board until 2006. Speaking of his four years on the UTI board, McWaters says, “Michael exemplified every characteristic of the ideal director. He was committed to our organization’s success and devoted the time necessary to understand business issues and opportunities.” McWaters says both management and fellow board members appreciated Eisenson’s knowledge, expertise and ethical leadership as he helped them prepare the company to go public in December of 2003 and to successfully operate in this new arena.
The soft-spoken Eisenson isn’t one to trumpet his own accomplishments. But he acknowledges that, in his case, the roles of private equity investor and public company director are “very compatible.”
“In our firm, we focus the vast bulk of our energy on building long-term shareholder value, which is exactly the same thing that I focus on as a public company director,” Eisenson explains. “Given our relatively long holding periods, I’ve rarely found a conflict, if ever, between what I would do as a private equity investor and what I would do as an independent director.”
Of course, while a private equity perspective may sometimes raise questions in a corporate board context, that background also brings with it highly relevant expertise. “No one understands Wall Street and all its implications for companies and shareholders better than he does,” Lovejoy says of Eisenson. “He has been inside so many companies and seen so many deals as a private equity investor.”
For his part, Eisenson says his experiences as a private equity investor are “absolutely essential” to the knowledge base he brings to the PAG board. “Judgments about corporate strategy, about business practices, compensation systems, capital markets, capital structure — all of those get informed by all of the companies that I’ve been involved in,” Eisenson explains.
Among his proudest achievements as a Penske director, Eisenson cites his oversight of the growth of Penske’s internal audit department from one person to almost 20 people and how the company has grown without taking undue risk. Indeed, for all the deals the company has made in acquiring its current 323 retail automotive franchises, Eisenson says the deals it hasn’t made have been just as important.
“There have been many, many opportunities presented to the company that would not have been accretive except in terms of size,” he says. “As much as PAG has grown thoughtfully through acquisitions, PAG has avoided being derailed by inopportune acquisitions.”
A high-profile instance is PAG’s 2009 decision to walk away from its plans to acquire GM’s Saturn unit. In a statement at the time, PAG said it ended talks with GM after a needed agreement with another manufacturer could not be reached.
As for what the future might hold, including a possible board exit for Eisenson or Penske, PAG’s lead director Thompson feels the entire board is thrilled to be where it is. “It’s such a vibrant and viable time for the company, I don’t think any of us want to leave it,” he says. “Roger has visible pride in what this business has become. And Michael is clearly a major part of its success.”
Michael Eisenson will share his experiences at ODX in October. Please visit for details.

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