STANFORD GRADUATE SCHOOL OF BUSINESS Ctsn: E279 DtrB: 10/19/07 JsuNmER GASToN You're only as good as the people you hire. Croc, Founder of McDonald's Ray INrnooucrroN Jennifer Gaston, founder and CEO of midsized luxury jewelry company Aquamarine, examined the necklace she was designing after hours in the company's Los Angeles worlshop. Creating new pieces ofjewelry always cleared her head something she needed while thinking through a couple of key hiring issues that had recently cropped up. In just six months, Gaston had brought in a new COO and was about to frnalize a multimonth search for a CFO. Although she had nearly completed the transfonnation of her executive team, she still needed to thoroughly check references on the CFO candidate and extend a formal offer. A lot was riding on this position and, despite the help of an executive search firm, hiring for it had not been easy. Then again, Gaston thought as she flipped her soldering mask down over her eyes, she had not become an entrepreneur in order to take the easy route. Tm Aquaumnvn Srony Gaston started Aquamarine in 1995, after matriculating through the Penland School, a prestigious fine crafts institution, as well as Stanford Business School. Her company grew modestly for the first three years until she hit upon Aquamarine's trademark aesthetic: thick intertwining cables of silver and yellow gold studded with a range of large precious and semi precious stones. Of her colorful designs, Gaston noted, like things that are mildty exaggerated. What is the point of jewelry if no one notices it?" Fashion industy insiders and top celebrity stylists agreed with her and Aquamarine designs began showing up on models and actresses. By 2003, the company hit $150 million in sales. At that point, the organization had 200 employees who focused specifically on a highend line of rings, bracelets, earrings and necklaces for women. The eightyearold company had seminational distribution via ten freestanding stores throughout Califomia, New York and Florida and also sold its collection through department stores including Neiman Marcus and Saks Fifth Avenue. "I Bethany Coates prepared this case under the supervision of Jim Ellis, Lecturer in Strategic Management, as fhe basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright @ 2007 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or request permission to reproduce materials, email the Case Writing Office at: cwo@gsb.stanford.edu or write: Case Writing Office, Stanford Graduate School of Business, 518 Memorial Way, Stanford University, Stanford, CA 94305'5015. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in anyform or by any means electronic, mechanical, photocopying, recording, or School of Business. othertvisewithout thepermission of the Stanford Graduate rhis document is authorized ncr use onrY bY,Heather j#ga=r$ffi*eblrJ,T""g:3',illl[1S,;.J1;);S"Hi:ffi,ff:lHJisel: "o"n"'ent or copvrisht. prease contacr Jennifer Gaston E279 p. 2 Aquamarine's impressive growth showed no sign of plateauing. By the end of 2004, revenue reached $200 million. In the ensuing eighteen months, Gaston's team had broken ground on five additional locations (including stores in Atlanta, Aspen and Houston), hired another 225 people and started a men's line of rings, cuff links and money clips. The wholesale channel had broadened to include luxury boutiques within wellknown shopping districts such as Rodeo Drive in Los Angeles and Madison Avenue in New York City. By mid2005, Gaston had ambitious plans to extend Aquamarine's lines for women to include handbags as well as perfume. She also wanted the company to break into the international market, where brand awareness was currently low. "Business is accelerating," Gaston commented. "We would be remiss not to exploit every opporfunity to get closer to our customers." In order to fund the expansion she had in mind, Gaston realized she needed to raise growth capital. The company's success had attracted a number of venture firms over the years, but Skyline Capital stood out from the pack. With $100 million under management, Skyline was small. However, its founder, Scott Craft, had over fifteen years of directly relevant investing experience in luxury goods and retail. He originally struck up a professional relationship with Gaston in 2001. By the time Aquamarine needed capital four years later, Craft knew the business inside and out and Gaston valued his counsel. In November 2005, Skyline invested $12.5 million to acquire a minority stake and the company's fourth outside board seat. Srnncr Wpn n rHE IRoN rs Hor By October 2006, Gaston realized that Aquamarine needed a President and COO. The business had become both large and complex enough to warrant adding a sophisticated executive to the team. Gaston envisioned carving out a key set of roles and responsibilities for this position. The COO would likely be accountable for managing supplier and retailer partnerships, overseeing quality control (a critical contributing factor to brand loyalty) and supervising the entrance into new markets outside of the United States. Gaston wanted most back office functions to report into this person as well so that she could focus on what she loved doing design and strategy. Only an executive with at least ten yeaxs of experience managing a luxury brand would be capable of taking on such a wide purview. Yet, a strong resume would not be enough. Perhaps especially because Gaston still considered Aquamarine to be her "baby," a solid cultural fit was also extremely important. She had asked a tremendous amount of her employees over the last several years and she wanted to ensure that her top managers felt comfortable with the new hire. Gaston noted, "From the outside, most luxury goods companies are sparkling and glittery. On the inside, they tend to be highly political and emotionally charged. Aquamarine is no exception. It will take a special manager to motivate and get the best out of what is, admittedly, a quirky team." Gaston expected to write a thorough position description before starting a formal search for candidates. However, that plan changed during a casual lunch with Bob Hall, a trusted advisor and former professor of hers from the GSB. When she mentioned the type of person she was looking for, Hall exclaimed, "I have the perfect fit for you. Her name is Olivia DeCarlo." He went on to explain that DeCarlo had helped run Isla Stark, a publiclyheld high end clothing and accessories company with $600 million in sales and 700 employees, for the last ten years. She was currently serving as the VP of Operations. Hall had done some consulting work for DeCarlo five years ago and had stayed close with her ever since. He gave her his strongest This document is authorized for use only by Heather Jimenez (heatheliimenez@redlands.edu). Coplng or posting is an inftingement of copyright. please contac{ customerservice@harvardbusiness.org or 8009880886 br additional copies. recommendation, saying, "Jennifer trust me. Olivia is a superstar. She knows how to manage and grow a business like yours she will help you take Aquamarine to the next level." He also told Gaston that she needed to act immediately if she was interested. DeCarlo had been looking for an exit opportunity from Isla Stark and was days away from accepting an offer to help run thI beauty and fragrance company Clarins Group USA. Later that afternoon, Hall forwarded DeCarlo's resume to Gaston, along with an admonition to "Call her today. She is too good to let slip away. I told her to expect io hear from you." Her offer from Clarins expired in the next 48 hours. As Gaston quickly glanced through DeCarlo,s b"i"g C.V., she agreed that it was impressive. In fact, it was close to perfect. DeCarlo had worked in her own family's accessories business for five years beforrlf *ur acquired by Isla Stark in 1994. Since joining the larger company, she had quickly moved up the ranks and ultimately oversaw the management of operations, sales and marketing as well as the development of Isla Stark's online store. She had also spearheaded the company,s launch into Europe, opening stores on the same day in Paris, Rome, Geneva and London. According to Hall, DeCarlo was tired of constantly trying to appease Wall St. and wanted a change. Gaston picked up the phone to call her. It furned out that DeCarlo was in LA on business and she agreed to meet Gaston for an interview over dinner that night. The meeting lasted for three hours and gave Gaston the chance to question DeCarlo about her professional results, her thoughts and early recommendations on Aquamarine's expansion and her future professional goals. At the end of the conversation, she phoned Hall back and said, "f owe you one. Olivia has the right experience and drive for the role. She would be a terrific addition to the team." fn order to get a second opinion on this important decision, Gaston asked Marcy Redding, Aquamarine's lead designer, to have a onehour follow up phone call with the candidate the neit day. Redding, who managed over 50 designers, emailed Gaston afterwards, saying, ',The "perfect" candidate never exists (at least when you want her to). But Olivia is a pretty great fit. Only question mark will she be an effective team player?,, The same question had popped into Gaston's mind, and made the need to rush through the decision somewhat troubling. The time pressure prevented her from digging deeper into a iew of DeCarlo's explanations about how she had achieved some of her results while at Isla Staxk. Without being too obvious, Gaston had given DeCarlo multiple openings to mention her team's contributions. For example, she had asked about the expansion into Europe and their successful exploitation of a new channel things no one person could complete in isolation. yet, DeCarlo's answers to such questions typically included comments like, "There is no magic speli for this it's about rolling up your sleeves. I just set aggressive interim and longterm goals and worked extremely hard to reach them." Although Gaston's gut instinct was still to snatch DeCarlo up before another company did, she had made the mistake of bringing in "goitalone" people before. Nine months ago, she had hired Emily Knauss, a new sales director, after one terrific interview. Gaston recalled: Emily felt like a younger sister to me and she was a gogetter. She wasn,t a natural team player, but I thought I could mentor her. Unfortunately, she did not This document is authorized ficr use only by Heather Jimenez (heath.erjimenez@redlands.edu) copying or posting is an intringement of copyright. please contacl customerservice@harvardbusiness.org or g009gg0gg6 fo r additionar dpies. click with the designers they felt she constantly stole the limelight. I had to fire her after two quarters and never should have waited that long. Nonetheless, Gaston decided that, for having no warning or preparation time for the interview, DeCarlo was remarkably wellspoken and thoughtful. At the end of the dinner, DeCarlo had said, "This is exactly the kind of opportunity I was hoping for at this stage in my career. Ideally, we'd have more time to get to know each other, but I'm willing to take a chance on you if you;li take a chance on me." Aside from some quick emails keeping them apprised of the situation, there was no time to heavily involve her sevenmember board in the decision. Gaston noted, "For one reason or another, there will always be tough calls that CEOs have to make alone." Thfuty six hours later, Gaston offered the position of President and COO to DeCarlo. Given the rush to come to a decision, it had not been possible to sort out all of the details ahead of time. The offer letter stated that 'Job responsibilities will be fully enumerated during the frst month of employment." Unphased, DeCarlo said, "Look, yomg, fastgrowing businesses have to do things bythe seat of theirpants all the time. It just goes with the territory." She happily accepted the offer. Nunannn CnuNcrmlc In November 2006, it became clear that Aquamarine's Finance team was underresourced and lacked strong leadership. Scott Craft had been asking for detailed reports on same store profitability as well as the financial cases for breaking into the European and Asian markets. At the same time, DeCarlo, who had been with the company for a month, voiced a need for better data with which to analyze business and accountJevel growth and profitability. All of the requests were perfectly appropriate, but the information was not readily available and the finance team was too stretched to take on additional projects. Gaston concluded that the company needed a seasoned CFO to fill the gap, but no internal candidates seemed to quite fit the bill. Aquamarine's Controller, Albert Johnson, came closest. Johnson was a strong accountant and more than willing to accept direction and execute. He had been with the company for six years, starting as a financial associate, and Gaston thought of him as a solid member of the division. However, she wanted an executive who would takJproactive ownership of the finance division and provide a strategic perspective to her management team. Unfortunately, Johnson did not have the requisite level of experience yet. Nonetheless, upon hearing nrmors that the company was going to hire a CFO, he scheduled time on Gaston's calendar and asked ifhe could be considered. During their meeting, Gaston explained: Albert, in the interest of finding the best possible fit for this position, I have decided to open the process to outside candidates. You are doing a terrific job as Controller and I value having you on the team. However, it is important for the company is to look at a range of people both experienced candidates and those with very strong potential. This document is authorized for use onty by Heather Jimenez (hsatherjimenez@redlands.edu). Copying or posting is an inftingement of copyright. please contact customerservice@harvardbusiness.org or g009gg_0gg6 for additional copies. Later that day, Gaston began thinking through how to source a qualified pool of contenders. She noted, "Finding tlre right managers for key roles is really tough. Frankly, I'm wrong about my hires almost as often as I am right." Gaston figrred that she should retain a search firm to run the process for her, but she was not sure how to interview firms or select a short list. Skyline Capital had worked with Search Right (SR), a regional firm with a sole, large office right in Los Angeles. Scott Craft said, "We have sourced some of our strongest executives through SR. In this case, using a smaller firm is smart because they will view Aquamarine as a largelfient and devote a lot of personalaed attention to you." Marcy Redding had connections at a firm called Morgenstem Summers (MS), but recommended doing some additional due diligence on them first since they had "migrated away from luxury goods companies in favor of intemet ventures.n, Gaston had also seen a recent Business Week article entitled: Want Results? Work With These Top Ten Executive Recruiters. The piece listed a large international firm called Smart Fit (SF) in the top spot due to their "unparalleled access to top professionals in the retail, cons'mer gooar, banking and telecommunications industries as well as their evident mission to 'provide unrivated client support from ince_ption through successful completion of the executive search ptrocess.,,, Gaston did not know of anyone who had worked with SF before and realized that she would have to cold call their general number for more information. She was tempted to settle on SR because Craft had already worked with them, but hesitated in case there realiy was a meaningful difference between firms. As a starting point, Gaston asked Jen Noble, the HR director, to call S& MS and SF, as well as a few of the other the firms listed in the Business Week article. Noble agreed to ask each outfit to send pitch books within the week. Gaston also emailed Jeff Lindley, a former GSB classmate who had briefly worked as an executive recruiter in Europe. She typed out a list of questions she wanted to pose to any firm in the running and then asked him, "should these be edited? Am I missing anything?" A Fnw Goon Mnu Gaston ultimately hired Search Right in December 2006. By the end of February 2007,David McCallum, her lead contact at SR, had presented her with 20 possibilities for the CFO of Aquamarine. They used a twostep process over the next week to narrow down the field. First, they focused on tangible results listed within resumes and cover letters (e.g. a ren percent year overyear cost reduction in General and Administrative expenses). Secondly, they looked fot compelling rationale regarding why the candidate wanted the position Aquamarine did not want to become negotiating leverage for someone targeting the CFO position at another company. Other factors had some subjective impact, including the number of years in one's current role, the size of the otganization managed and the quality of the companies for which one had worked. At the end of this preliminary process, Gaston and McCallum had narrowed the field down to 12 applicants. McCallum then screened out an additional 6 candidates during telephone interviews. He crossed most of those off the list due to the level of perceived interest they indicated in the role, whether they exhibited what he called "executive presence" during the conversation (e.g. a confident, highly professional leadership style), and his take on their ability and inclination to work in a chaotic, constantly evolving youngcompany environment. This document is authorized firr use onty by Heather Jimenez (heathelimenez@redlands.edu). copying or posting is an infiingement of copyright. please contact customerservi@@harvardbusiness.org or g00ggg0gg6 for additional copies. Gaston and McCallum then set up secondround inperson interviews with the remaining slate of executives. Gaston asked Redding, the design director, and Noble, the HR director, to jiin them for these' The team of four planned to conduct structured interviews each candidate would meet with every interviewer. Gaston, McCallum, Redding and Noble had unique lists of questions that they would ask each candidate (with the intention of comparirrg rr r.rs later). The list of questions included: t Why were you selected over other candidates for your current role? o The CFo position at Aquamarine requires both high energy and delicate interpersonal r skills how strong af,e you on those dimensions? What are you best at? What would your subordinates say you are best at? Superiors? After the secondround interview, Gaston and her colleagues narrowed the slate down to three professionals. Each was asked to retum for a final interview. This third session was designed to be free form and informal, so that they could get a "better sense of fi1." Gaston, DeCailo and Craft, from Skyline Capital, did the interviewing. After later comparing notes, they limited the field to two high potential possibilities: Warren Chang and Steven Phillips. The two men had outstanding bui very difierent credentials to recommend them. Chang, currently the CFO of Decathlon, a $1 billion public sporting goods company, was in his mid50's (see Exhibit 1). He had been CFO duringa 4yen pe.ioawnen the company's sales doubled. He had also orchestrated its successru IpO lstrares jumped 12 percent during the first day of trading). At first glance, it seemed clear that he was wellrs arded amongst his colleagues and counterparts who worked in casual lifestyle retail establishments. As a case in point, he was invited to give an annual address at the prestigious "Retail in America,' conference a meeting that drew thousands of merchants every year. Chang appeared to understand the value he would bring to the role he had already tried to anchor Gaston and, Craft on a compensation package significantly above Aquamarin!'s upper range. In addition, he commented that his teams had always been a critical part of his succlss and, in the event that he was selected for the position, he wanted his current bontroller to come with him to Aquamarine. Putting some of the details aside, Gaston liked the fact that Chang would hit the ground running as a CFO. He had already been through the types of growing paini that Aquamarine was experiencing and would, she felt confident, be ableio predict and handle the relevant challenges sure to arise as the company continued to grow over the next several yeaxs. Yet, Gaston was also impressed with Steven Phillips. Phillips was in his mid30s, but already had a successful professional track record (see Exhibit 2). He started a business while attending Princeton University, ffid then graduated Phi Beta Kappa in Chemical Engineering. H; subsequently joined the analyst program at Goldman Sachs and was ranked uith. topof his class. After three years, he left to attend the Stanford Business School and then went on to join Morris Phelps (MP), a prestigious private equity firm. While at MP, he stepped into a few portfolio companies to straighten out their finance departments and also once served as the interim CFO of a luxury apparel company called Siena for eight months. Despite the glowing resume, Gaston knew that Phillips had less relevant experience and would require morE This document is authorized fi'r use only by Heather Jimenez (heatheliimenez@redlands.edu). copying or posting is an infrangement of copyright. please contact customerservice@harvardbusiness.org or 9009gg0gg6 br additionar cooies. handholding initially. On the other hand, he was still early in his career and clearly hungry for success. She wondered if his drive was enough to tip the balance in his favor. Lasr Oxr Srlxnrnc When Gaston decided which candidate seemed best for Aquamarine, she immediately called Jim Stinson, the first of four references provided. When she identified herself to Stinson, he launched into a five minute monologue about how outstanding his former colleague was. Stinson expounded, "I simply can't say enough about him. He's the best of the best, a smart, thoughtful visionary...a modest, friendly team player...a goaloriented doer. He will literally transform your company." Gaston attempted to get more texfure on the candidate by saying, "We're pretty impressed with him. But there must be something he needs to work on. Could you give me some color on his weaker professional skills?" Hbwever, Stinson responded ..I wish I could. He's a guy I'd love to hate if he weren't such a nice person. He isincredibly talented I really can't think of a 'fiouble' areafor him.', Whqr Gaston hung up the phone, she felt a twinge of concern about the objectivity of the candidate's references. After she mentioned this to McCallum, he offered to hllp hei call the other people on the list before finalizrngany decisions about the candidates. Jen Noble also said she would be happy to help make a call or two. Gaston wondered how she should proceed in checking references. Just as she sat down to her computer to formulate a plan, she received an email from Albert Johnson with the subject line: CFO position. It read: I expect that you have been quite busy with the CFO search process. I am just checking in to see when the two of us can sit down to continue discussing my candidacy. This document is authorized br use only by Heather Jimenez (heatheljimenez@redlands.edu). copying or posting is an infringement of copyright. please contact customerservice@harvardbusiness.org or 9009ggogg6 ior additionar copies. Exhibit I Highlights from Warren Chang's Resume WARREN R. CHANG 520Lexington Avenue, New york, Ny l l22l Mobile: 917.651.2030 wchang@gmail.com Experience: 2000Present Decathlon New York, NY Chief Financial Officer Senior operating executive of the 3'd largest sporting goods company in the world. Brought Decathlon through to completion of a successful Ipo; priced at the high end of the range and traded up 20 percent in the first year Developed and executed business pran for acquiring the competitor, Kicklt; completed merger generates an additional $10 million in EBITDA Directly responsible for turning around unprofitable operations of the men's outerwear division; currently generating an g percent profit margin Consistently interface with the board of directors on financial results, projections and corporate expansion plans Built constructive working relationships between marketing and finance departments o r r r o 19952000 Decathlon Vice President of Finance New York. NY o : 19851995 Decathlon Held positions of Manager and Director of Finance New York. NY Levi Strauss New York. NY a 19781985 Held positions of Analyst and Associate Education: r9761978 MBA, Duke University o Financeconcentration r972t976 BA in Economics, University of California, Los Angeles This document is authorized ficr use only by Heather Jimenez (heatheljimenez@redlands.edu) copying or posting is an infringement of copyright. please contact customerservice@har'ardbusiness.org or 9009gaoggo fo r adoitional doies. Exhibit 2 Highlights from Steven Phillips' Resume Steven K. Phillips 2025 Santa Monica Blvd, Santa Monica, CA90404 Mobile: 323.555.8888 skphillips@hotmail. com Experience: 2001Present Morris Phelps, Associate Partner Los Angeles, CA Senior investment professional in a S2 bitlionfund. Led the firm's investment in seven highgrowth companies, representing a total of $800 million of invested equity As part of the above fransactions, raised $2.4 billion in debt financing from thirdparty lenders Of seven completed investments, five have been sold for a blended return surpassing 250 percent Stepped in as interim CFO of troubled luxury apparcIcompany, Siena Inc.; reestablished company profitability in eight months currently serve as a director on the boards of five companies, including Siena Inc., Green Mountain Telecommunications and HealthWest Parhrers Promoted on an accelerated schedule (three times in five years) o r o . r r 19961999 Goldman Sachs, Analyst San Francisco. CA Conducted a variety of detailed valuation analyses Advised on the completion of five sell side transactions, three Ipos and two buyside M&A deals Ranked second in analyst class for three consecutive years o o o Education: 19992001 MBA, Stanford Graduate School of Business o Arjay Miller Scholar o President of the Private Equity club 19921996 BSE, Princeton University o Phi Beta Kappa o Ranked number one in the Chemical Engineering department o Started a successful tutoring company; profits paid for university education o President of the Tiger Inn social club Additional: 2004200s Treasurer of the National Venture Capital Association This document is authorized fur use only by Heather Jimenez (heatheriimenez@redlands.edu). Copying or posting is an infringement of copyright. please contact customerservice@harvardbusinss.org or 8009gg0g96 fu r additional cooiEs