Sayed Darwish, CLO & Head of Corporate Development at Polycom, discusses how to effectively evaluate and lead a team through a strategic alliance transaction.
Can you tell us about your background and how you came into your unique role as both CLO and Head of Corporate Development?
The short answer to how I came into my combined role is that I have been lucky. I have had bosses and colleagues who have given me exposure to and responsibility for both legal and non-legal aspects of corporate development, which includes M&A, business development and strategic alliances. My first significant exposure to corporate development came in the late 1990s, when I was the General Counsel and VP of HR for Forte Software, Inc., which was acquired by Sun Microsystems. Because we were a small company and given my dual role, I was deeply involved in virtually every aspect of that acquisition. I am grateful to the Forte CFO for giving me the opportunity to learn by doing. I actually followed him to Documentum, Inc. As the General Counsel at Documentum, I worked on several major transactions, including our sale to EMC. Documentum had a Chief Strategy Officer, a former lawyer, responsible for corporate development. Working with him, the CEO and CFO, I got significant exposure to the strategic (in addition to the execution) aspects of these significant relationships. The CSO (who is now a CEO) was also the poster child for how to move out of a strictly legal role in corporate development. When I came to Polycom, the CFO was responsible for corporate development and had been very successful. Indeed, he had helped Polycom go from a company with one product (the iconic speakerphone), to a global leader in voice/video/content solutions, largely through acquisitions. I learned a lot working with him on several transactions. We now have a very talented VP of Corporate Development (ironically as a result of an acquisition). When that CFO left in 2012, the CEO agreed to move him and the Corporate Development function under me.
“My leadership team and I are very clear on what we expect and believe that a good Legal Department is a competitive advantage. “
What are the benefits and challenges of managing both roles?
The best part of managing both roles is that we can move quickly and efficiently. I am involved in the formulation and strategy phases of the deal, which helps me understand the full context for a transaction. This is priceless in guiding each of the teams during the execution phase, including due diligence and contract negotiations. As a result, we are able to focus on the areas that are most important to making the transaction a success. This mixture of early stage business context with significant legal knowledge and analytical training has proven a formidable combination. The biggest challenge is the balance between protecting the company while also getting the deal done. There is also some confusion when the “lawyer” shows up for initial business meetings. I find, however, that once I explain the combined role it is generally not a problem.
In your current role at Polycom, what are the main criteria you and your team evaluate when pursuing a strategic alliance with another entity?
We have had a successful history of alliances, including our award-winning partnership with Microsoft. In these situations, we have determined that it is better to partner than pursue a “go-it-alone” approach. When evaluating a strategic alliance, we look at the following factors.
- Capabilities. What is Polycom trying to accomplish in the business/product line and might others be able to do that better?
- Project timing. Does Polycom have time to wait to build our own solution or are we better off partnering to move faster in the market?
- Future profitability. How much value do the desired capabilities create and are we willing to abdicate control of those capabilities to others?
What are the top 3 major issues you consider when evaluating an M&A transaction?
The top three major issues we consider when evaluating M&A are, in order:
- Strategic fit. The acquisition is in an attractive market space related to our core (perhaps an adjacent growth platform), market growth rate and opportunity where Polycom can differentiate and capture meaningful leading position (which generate higher relative margins) using existing distribution or product capabilities in a reasonable period of time (3-5 years).
- Operational viability. Key internal line management are standing behind and owning the acquisition, we can see how to integrate (or perhaps not to integrate) the business and understand key success factors that can be measured and tracked, we can put in place a scorecard to track how we are doing against key acquisition performance metrics.
- Financial soundness. We consider relative value of the transaction vs. what we pay for it, what amount of value is generated in earnings (EPS – short term) as well as discounted cash flow (longer term), are we paying a reasonable price and/or price premium for the transaction (trading and transaction comparable prices relative to Polycom benefit).
“This mixture of early stage business context with significant legal knowledge and analytical training has proven a formidable combination.”
What is some advice you’d give with regards to retaining top in-house talent throughout an M&A transaction?
- Retention bonuses. This is a very valuable short term retention tool (to get through inevitable change management challenges) for talent for a 1-2 year period, must focus on key leaders, meaningful payouts at 1 and 2 year benchmarks. This is not a substitute for longer-term retention below.
- Strategic alignment. Alignment of new company and Polycom interests with in-house manager professional growth – people must be genuinely excited about their business agenda or they ultimately leave, smaller companies can be accustomed to greater autonomy, so provide autonomy that is needed in the business AND clear guidelines/boundaries for what is out of their decision making scope, help them to take advantage of the resources of a larger Polycom organization instead of focusing on potentially narrower decision making scope.
- Visibility and engagement. Ensure these leaders have appropriate representation in the management team
- Intellectual honesty. Regarding alignment of interests and personal agendas – lean into conflict and don’t postpone or ignore it, if you cannot resolve it satisfactorily upfront, have the courage to eliminate that talent before the talent infects the rest of the organization.
In 2013, you were named as a “Top In-House Lawyer” by the Daily Journal. What insights or lessons learned would you share with colleagues looking to succeed in the function?
My leadership team and I are very clear on what we expect and believe that a good Legal Department is a competitive advantage. Some things are just basic requirements such as being a hard worker, ethical, honest and having subject matter expertise. Beyond that I have the following thoughts:
- Be practical.
- Understand the business. This will make you more effective and able to give useful advice. To learn about the business, go to sales training, sit in on forecast calls, customer meetings, etc.
- Be a problem solver not just a problem spotter; someone who others seek out for advice early. Being involved early has the added benefit of being a good way to protect the company.
- Take the emotion out of situations. Many times we get involved when things are heated. It is our job to be level-headed.
- Be able to move quickly, be flexible and focus on material issues. This makes a company easier to do business with and can be a key differentiator.
- Reduce the distraction and burden related to compliance, litigation and being public. This is especially important in smaller public companies, where it has a disproportionate impact.
Sayed Darwish is Polycom’s Chief Legal Officer, Executive Vice President of Corporate Development and Corporate Secretary. He was named a Top In-House Lawyer for 2013 by the Daily Journal. Mr. Darwish’s responsibilities include Polycom Legal, Corporate Governance and Equity Program administration. Mr. Darwish also oversees the company’s corporate development efforts including M&A, Polycom’s developer ecosystem program, and Strategic Alliances, such as the company’s award-winning strategic relationship with Microsoft. Mr. Darwish joined Polycom in August 2005. Prior to Polycom, he served as Vice President and General Counsel for EMC Corporation’s Software Group. Mr. Darwish joined EMC in 2003 after its acquisition of Documentum, Inc., where he was Vice President, General Counsel and Secretary. Mr. Darwish also served as Vice President and General Counsel at Forté Software, Inc., where he helped manage the successful merger of Forté with Sun Microsystems, Inc. Mr. Darwish also worked as corporate counsel at Oracle Corporation and as an associate in the law firm of Brobeck, Phleger & Harrison. Mr. Darwish is a graduate of the University of San Francisco School of Law, J.D. cum laude, and holds a B.S. in mathematics and a B.A. in economics from the University of Illinois, Urbana.