"The board of directors is the director's sidekick. He's on his own for a lot of decisions. The board helps him by discussing the decision. But at the same time, it controls him, holds up a mirror to him and approves important decisions."
Libor Mertl and his partners founded ComAp in the 1990s. The boys, who graduated from cybernetics in 1989, started their business right after the Velvet Revolution. All they knew was that they were into electronics and that they really knew how to do it.
And so they went around to companies and asked. Asking if they needed to manage anything. They got an affirmative answer from CKD. We've got a big engine here, it produces electricity and heat, and we need a control system. They supplied. And they kept asking.
They built a company from zero to a billion dollar business. ComAp is a world leader in the energy management market. Simply put, automation and control technology for decentralized power generation. A very narrow B2B market.
Libor has been with the company for over 30 years. He just changed chairs. From founder to CEO to board member. He realized early on that he was holding the company back, that he was approaching his limits to move the company forward, so he handed over the reins. He hired a new CEO and moved to the board. He didn't even visit the company for a while. Now boards are his hobby and he advises companies on how to implement them.
In Zážeh we will discuss what are the limits of Czech directors and directors, and why and how they looked for ComAp abroad. I also ask...
🔸 What led to the establishment of the Board of Directors?
🔸 What is it like to leave an executive position?
🔸 What are the advantages of the advisory board role for small and medium-sized companies?
🔸 When does an informal advisory board turn into a formal board of directors?
🔸 How to promote owners' interests on the board?
BONUS
8 points why have a board (Bonus code: SPRAVNIRADA8)
TRANSCRIPT OF THE INTERVIEW
Martin Hurych
Hello. I'm Martin Hurych and this is Zahžeh. Today's Ignition will be with Libor Mertl, who is the co-founder and co-owner of ComAp. Hello, Libor.
Libor Mertl
Hello, Martin.
What was the path to global hegemony in electricity resource management?
Martin Hurych
ComAp is a world leader in energy management. We're going to focus on that in just a moment. However, I would like to treat today's Ignition with Libor as a kind of indirect continuation of the episode with Pavel Klein, which was about building management. Libor has been through it all. From three friends starting a company to the board of directors. I'd like to dig into that a little bit today with Libor. Libor, I would like to anchor the listeners in some way in the perspective from which we will comment on everything. Can you tell us about the journey from a cyber student after the Velvet Revolution to a billion dollar company and global market hegemon in your field?
Libor Mertl
I was lucky enough to graduate in cybernetics in '89, so I quit and jumped right in. The other luck was that I met Ales and Martin, two friends who were also studying cybernetics. We met and decided to start a company. At the beginning we didn't know what we were going to do, but we knew that what we were passionate about and what we could do was electronics. So we went around to different companies and asked them if they wanted to run something. And then CKD said they had a big engine that they needed to drive. It was generating electricity, it was generating heat, and they needed a control system. So we supplied control system number 1, 2, 3, 4.
Then we started looking at who else might want a similar control system that manages decentralised power generation. We started going around to companies and saying we could run motors. We actually did that for 30 years. So our area is B2B and it's automation and control technology for decentralized power generation. It's a narrow part of the market that we've managed to be a world leader in.
I don't know what would have happened if we had been told no by CKD, but I'm not worried about it at all. I think we'd be doing something similar. For example, we developed the circuit emulators that we needed in order to do our control systems, so we started selling circuit emulators. At some point, we decided we needed to focus on something. At the time, we were very hesitant about whether it was going to be control systems or circuit emulators. The decision was in the balance, and we were sitting with Ales and Martin over a beer at the time, figuring out what to do next. In the end we decided on control systems. If we had done circuit emulators, we would have ended up somehow differently, but I believe it was a good thing.
What stages and pitfalls did ComAp go through?
Martin Hurych
You have gone through virtually all the stages of building a company. For you personally, or for the three of you, where were the pitfalls that you had to go through at each stage? There were three of you, you were building a team, the first management, you were getting out of the Czech Republic and going international. Those are the critical points that someone following in your footsteps has to watch out for.
Libor Mertl
I think that there were several critical decisions, and that, paradoxically, they only appear as critical many years later. The first one I think was the decision when we actually began to realise that we had two options. Either we were going to do a lot of different control systems in the Czech Republic, or we were going to be the best at something and globally. That was a very important decision for us, and the fact that we decided to be the best globally led to the fact that we wanted to travel and we wanted to see how other places were doing it. So we said, let's leave a lot of what we're doing and start focusing on something narrow and be the best at that. That was one decision that, from today's perspective, seems right. The second was that we focused again only primarily on development, sales and marketing and completely abandoned production. We sold all the production machines, we laid off 10 or 20 people at that time.
We said to ourselves, we want to do something proper, proper can't be production, marketing and development at the same time. So we abandoned production. Another good decision was that we decided to go to ISA. There were about 30 of us at the time and yet we said we had to be ISO certified, we had to be quality, we had to have some structures and processes. That again got us somewhere. The whole thing was accompanied by our motto, death to DIY, where we hated doing things by halves. In short, when we do something, we do it properly. That's been with us right up to the building of the board.
Martin Hurych
This means that you did not take ISO as a sticker and as a certificate that is needed, but as a real chance to put your company in order and write processes properly. What I often see is that ISO, on the contrary, preserves the disorder in the company. I have to have it for some reason, the customer wants me to have it, and I preserve what I have in the company. That's why I like your approach.
What were the first steps into the international market?
Martin Hurych
You've built the company into a global hegemon. How did you actually start to turn the fact that you wanted to be the best in something globally into the first international business? Did you do it alone, did you do it with a partner?
Libor Mertl
We did it on our own and then in some countries we had a partner. It led to the decision that if we wanted to be good at something we had to be global, we had to start going to the world. That led to us splitting up roles a lot. I was the one who drove the world in a single-engine Goliath. seats to the other and then later by plane. Martin was a brilliant organizer. He says with exaggeration that he did and implemented everything Libor promised. Ales was a brilliant technologist and technician. He told us which processor, which operating system and how the whole thing would be built. Each of us was a little different and at some point we sat down and agreed on who was going to do what.
What led to the establishment of the Board of Directors?
Martin Hurych
Now we're a few years down the road. You have pushed the company together to a size that not many people here in the Czech Republic can manage. Very few people, at least in my bubble, can take the step of saying they are at their limits and need someone to push it further. In retrospect, what was going through your head, or on what basis was this decision made? That the owners would go a bit sideways and take on more professional management for the next phase of the company's development.
Libor Mertl
For us, it had two phases. The first phase was building the board. Unfortunately, we were greatly affected by an unfortunate event when one of the three of us, Ales, died suddenly. That was very unpleasant. Suddenly we had to deal with how Ales' family would become part of ComAp and it started to become apparent that there was a significant separation of the roles of owners and directors. Up until now, Ales and Martin and I had been owners and directors and we hadn't really addressed it too much. We talked for a while from the owner's position, for a while from the director's position, and for a while we programmed and cleaned. But suddenly it started to become apparent that there was a need. We wanted to pull a lot of capable people into management roles, but they rightly said that some decisions are the owner's decisions and some decisions are our decisions. We started working a lot with England, where we saw something called the board. We became interested in it and started asking around. The whole situation accelerated it. So we created an owners' structure, a general meeting, a board of directors structure, which the English helped us create, and a management executive. We learned to distinguish these three levels and to separate the decisions of the owners, the decisions of the board and the decisions of the directors, the executive. It took us a while. Then there was a moment when Martin and I sat down and thought that if we wanted to move the company forward, I would have to leave the director level. So we had to find someone who had run a much bigger company and who could take the company from one billion to, say, five billion. I saw that I was approaching the limits of where I could push the company. So we agreed that I would step down as CEO and that we would start looking for a CEO who could take it further. This whole process, both in thought and execution, took about two to three years. I was leaving, we communicated it to the company, we looked for a director, we found a director. The director came, I went to the board, and Martin repeated a similar process two years later. Because Martin was paradoxically in two roles. He was in the role of chairman, chairman of the board, and he was in the role of HR director. So he was subordinate to the CEO for a while, he was superior for a while, but it worked. They switched hats and I have to say it worked out well.
What is it like to leave an executive position?
Martin Hurych
That generates a bunch of questions in me. That it worked between the two of them, I can understand that. I'm more interested in how it worked between Martin and Martin's subordinates when one is the CEO's subordinate and one is his supervisor. In a lot of companies that I see, it's a schizophrenic situation that those rank and file or middle management have a hard time breathing.
Libor Mertl
I do think it took a lot of discipline to remember what hat I was wearing at any given moment during discussions. It worked. Speaking for myself, I was stepping down from my role as a director and I really had to leave the company completely for a period of time and give space for Peter, the incoming director from Sweden, to take the reins and be able to run the company. I didn't have an office in the company, I didn't go there, in fact I disappeared completely and only came to the board meetings, which was once a quarter. That helped. It was hard, but it was hard before I left. The mental process by the time I left was already complete and I was rather looking forward to getting out and doing something else. It was very difficult before. It was hard to communicate and tell myself I was leaving. But by building the board and seeing in the surrounding companies in Europe how it doesn't work and how the CEO, who is also the owner, is holding it back, I knew it was the right move. At some point you just have to leave without knowing if you left too early or too late.
What are the advantages of international management?
Martin Hurych
I found out from open sources that you have a lot of international management today. What makes you do that? Because my experience in corporate is that if you don't have the right color passport, you don't get to that level. The English put English people in these positions, the Germans put Germans in these positions, after all, you can see it in Skoda. You've put a lot of international management in the company. What led you to do that?
Libor Mertl
It was a gradual process. There are capable directors in the Czech Republic, but statistically there are few of them. It is simply difficult to find a capable person with a global view, with an overview of our industry in the Czech Republic. The first step was that we invited Nigel, our director of the Australian office, to join the management some 10 years ago. He took the bold step of moving to the Czech Republic with his family, living here for three years and leading ComAp's strategic marketing. The whole company saw what a huge benefit it was to have someone from another country. When we were looking for director Peter, we knew we didn't want a Czech. We wanted someone from Europe, someone who had experience running a technology company, had a global perspective and experience running a company that was at least 10 times bigger than ComAp. Statistically, it was very unlikely that we would get a Czech. There really wasn't one on the shortlist. We had a bit of a preference for Scandinavian and Nordic culture, so it wasn't entirely a coincidence that a Swede came in. We have the English in the boardroom, and that's because England has the biggest boardroom culture in Europe, so it was only logical to reach out to England. There are 30 or 50,000 non- executive directors in England who have experience of running a company at board level, so it's easier to find them there than anywhere else in Europe.
Was a board of directors necessary? And how to build it?
Martin Hurych
Before we move on to advice building, I'll back up a bit. If it hadn't been for the unfortunate event of the co-founders and co-owners, do you think you would have made it to that board anyway?
Libor Mertl
I think so. It would have sped up the discussion, it would have got things started faster, but we would have got there all the same. We had already started to address some of the steps before because we saw that we needed to separate the executive from the owner's decisions. We had a lot of friends in England, acquaintances, colleagues, and distributors who were sort of working out something like a board of directors, so I think we would have gotten there. For three years we had it as an advisory board, i.e. an informal board of directors. We said we would all behave as if it were a formal board. We were basically playing the board from a legal standpoint, but the legal responsibility wasn't there. That allowed us to de facto learn faster because we didn't have to take into account any legal constraints at the beginning, but we were still learning. That is the standard procedure that I am proposing. Play the board at the beginning, act as if it were a board with all the legal responsibilities, but push those legal issues aside and after two years of playing, move to a formal model. Formally have it either as a supervisory board, a supervisory board in an LLC, or in a joint stock company.
What are the advantages of the advisory board role for small and medium-sized companies?
Martin Hurych
You have learned a lot in the Anglo-American world. You've said in some of the past podcasts that you were very interested in that and that you went out in that direction for education, for courses and other things. I worked for an Anglo-American corporation for almost 25 years, so I'm interested in that structure. My target is smaller and medium-sized companies. In England, between the legal status and the advisory board, there's what you might call an advisory body. Have you ever had that? It's very popular out there today, even with startups, that if you want to do something with yourself and you suspect you don't have the competence, you get a coach, a mentor, lecturer and so on. My experience is that often the owner or owners of companies are ambitious and want to do several things with the company at the same time. So those mentors often pull that company apart in different pillars, areas, because everybody is doing what they can do, but they're not coordinating with each other. What I see in the Anglo-American world, for example, is that by the time we get to the stage where we have some form of non-executive director, board and so on, there is more or less an informal advisory body. That tries to advise the owners without legal status on where to go with the company in some coordinated way.
Libor Mertl
This is seen in startups. When I look at every sensible startup, they have a supervisory board and an advisory board. The supervisory board is 3, 4 people from formal institutions like banks or consulting firms or larger investors. Then there's an advisory board, which is a composition of mentors and maybe some investors and things like that. Those two bodies work and I definitely recommend it. I feel that almost every company, regardless of size, should have a board of directors. Two people should have a board because it moves the CEO, the founder, the owner tremendously and he's not alone. I would basically never invest in a company that doesn't have a board of directors or an advisory board, because that basically means that the owner doesn't want to learn and doesn't want to be told. The moment the owner says that, it's an uninvestable company to me.
Martin Hurych
A lot of people today can already accept that if you have one mentor, they know you'll move faster. However, having a body around me that often openly tells me I'm doing it wrong takes a certain amount of maturity and getting over your own ego.
Libor Mertl
It's worse than that. They're not saying I'm doing it wrong, they're saying I'm definitely not going to do it. It's not a parent-child relationship, it's a relationship between two equal individuals or groups. But I think it's absolutely necessary, it moves people. That I, as a director, founder, owner, sometimes don't like it, that's exactly what moves me. I can't just do things that I like.
Why build a board and how to get started?
Martin Hurych
So what would be your recommendation on why to build something like this in your company and how to start within the informal structures?
Libor Mertl
Bata said if you want to build a company, build yourself. It's all about developing me as an individual. So what I would recommend is to surround myself with a few people that I respect, who are similar in values to me and who push me in some way. They can do something more than I can, and I respect them. Surround yourself with such a group of people, give them time, energy, money, because learning is not cheap, but it's still much cheaper than learning from mistakes. That's what I would recommend.
Who do you want on the board?
Martin Hurych
Is it a good idea to bring friends into the advisory body, or should I rather recruit people, experts, with whom I have no emotional ties and from whom I can better receive criticism?
Libor Mertl
I think it depends on what kind of person I am. However, if a friend is able to tell me what to do differently, and have an open conversation with me, then it's no problem to put friends there. Because a friend like that can move me along. Maybe it's a combination. Having friends there who are critical and can push me further, and at the same time people who bring expertise, I don't know them, they're new to me because they can push me as well. The most important thing is to be value aligned.
When does an informal advisory board turn into a formal board of directors?
Martin Hurych
Today you are helping companies build boards of directors that already have legal personality. So what is the point at which I should consider turning that informal body of advisors into something more?
Libor Mertl
I think that should always be the goal. If I say that I'm happy with an advisory board, I'm again to some extent sending the signal that I want to do it my way at some point, which is wrong. My goal should be, I don't want to tinker, I want to do it properly. The goal is to have a board of directors with legal personality so that both sides take it seriously. How long before that happens? Generally, I think the sooner the better. A year, two years, three years, but I think that's where we need to be heading.
How to promote owners' interests in the board?
Martin Hurych
A lot of owners want to have a freer hand, so they hire their first CEO or even COO and trust that he'll do all the work, create a vision and they won't have to worry about anything. I don't agree with that because I'm still an owner who once started a company with a why, and I very likely want that company to go on, have a legacy of what I built it on and so forth. So within those levels that we've talked about, how does that owner's why get passed on? As an owner, I want the business to go somewhere, and that direction shouldn't go against my beliefs.
Libor Mertl
I think it's very important why I'm leaving. When I say I want to be free, the question is what for. Of course there are perfectly legitimate reasons. I'm leaving because I want to spend more time with my family, I'm leaving because I want to do philanthropic work, or because someone more capable needs to come in. Those are legitimate reasons. If I hand over the company to someone new, I have to give him enough authority, enough mandate, to be able to dispose of the company to a certain extent as he sees fit. The boundaries are more value-based or long-term strategic. Certain boundaries of what I have an idea of where the company should go are necessary, that's what I'm the owner for, but the narrower they are, the more I limit the scope of that person. The more capable the person I want, the broader the mandate that person wants, and I give it to them. That discussion of mandate is the most important discussion in hiring a director. We have what I would call an owner's assignment. We're working on it right now. We want ComAp to be part of the transformation of the company in terms of environmental sustainability. ComAp is currently facing a journey to move to full sustainable resource management, which is a huge mental change that is starting to be reflected in the terms of reference for what we want from the CEO. We
want ComAp to lead a global shift in decentralised power generation and has become a leader in this change, moving from unsustainable to sustainable sources. Then there are some other things like, we want to be a role model in the way the company is run, managed, we want the people in the company to feel good. We have some expectations of growth and profit, we have some expectations of debt in the company. That brief is relatively general, it fits on one page and is part of the negotiation with the CEO. Then it's purely up to him whether or not he accepts the brief.
What is the final recommendation?
Martin Hurych
So you could say that the owner's assignment is actually the vision of the company, the azimuth of where to go, and the means of transport is then up to the executive management. In three or five sentences, try to summarize the board's advice into some kind of recommendation for those who will follow you. What should they put on the monitor, carve in stone, write on the reception desk?
Libor Mertl
Boards are surprisingly relatively complex structures. They require a relationship between the director and the board, with the board assisting the director. He is on his own for a lot of decisions and needs to have a partner to discuss those decisions with. For example, there may be a replacement of one of the members of the executive team. But at the same time, he is checking up on him and asking a systematic question about whether he is the right director for our vision. It holds a mirror up to the CEO on key decisions and approves those decisions. It assesses whether the director's arguments are sound. This makes those decisions better because they are well debated, but it also makes them more complex and bureaucratic. So, to some extent, it is a bureaucratically complex body that slows things down. The board therefore helps, controls, monitors, but at the same time must give the director enough freedom and competence. On the other hand, the board of directors must not become a boardroom where people just get together and pat the director on the back. This balance is relatively difficult and needs to be learned, both from the point of view of the director, who suddenly has somebody above him, and from the point of view of the board, to give space and be alert at the same time. What would I recommend to companies? Start learning about it, start taking some courses, read some books, talk to someone about it, start trying it out and gradually find out what it brings me before I jump into the water.
Martin Hurych
Is there any statistic in the Anglo-American world that companies that have this body are more successful in the long run? Because there must be a reason for the bodies.
Libor Mertl
It doesn't exist because everyone in the Anglo-Saxon world has a board of directors. It's just a legal requirement that there has to be one. As it is only with foundations here, so it is with all companies in the Anglo-Saxon world. The question is whether the Anglo-Saxon world is more successful than the other world. I think it is, but I haven't read any such statistics.
Martin Hurych
As we said, you help companies build these bodies. If any of our listeners and viewers would like to get more information from you, or to build one, where can we find you?
Libor Mertl
I'm happy to talk to anyone about it. I'm on LinkedIn, so anyone can contact me. Boards are my hobby. However, environmental sustainability is increasingly important to me, so I prefer companies that have it directly embedded in their program in some way. It's close to my heart and I think it's needed.
Martin Hurych
Thank you so much for the nice chat.
Libor Mertl
Thank you too, Martin.
Martin Hurych
That was Libor Mertl. If we've got you excited and you've started thinking about a board of directors, or any recommending body to begin with, we've done our job well. If you let your friends and acquaintances know about us, we'll be even happier. You guys be sure to give us likes and subscriptions, either in your podcast apps or on YouTube, because otherwise the world won't know about us. I promise I'll definitely get some kind of bonus from Libor after this episode. If you want to get to it, be sure to check out my website www.martinhurych.com/zazeh. All I can do is keep my fingers crossed and wish you success, thanks.