At Chenmark, we try to maintain a bias for action. This means we attempt to drive toward decisions with an eye toward championing those initiatives that will earn a return (make things better), while trying to identify and eliminate those things which will result in a tax either now or in the future. Importantly, we don’t necessarily mean ‘return’ or ‘tax’ in the traditional finance sense of the word, as benefits or costs can manifest themselves in many forms across many time frames.
For instance, some of our companies have under-invested in vehicles for prolonged periods. While we knew about this during diligence, we underestimated the impact of fleet neglect on morale and business continuity and are currently in the process of paying down what we think of as an ‘under-investment tax’ by implementing comprehensive fleet management plans across the board. We have also had experience with a company that suffered from a lack of leadership and investment in its people, the consequence of which was an employee base whose morale was battered and beaten, resulting in apathy and turnover. Consequently, new leadership has spent considerable time and money putting in place new training systems, operational processes, and recognition programs in what we think of as working off a ‘culture tax’ associated with the old regime.
Conversely, ahead of a snowstorm, some of our companies will prepay subcontractors as a show of good faith. Although not contractually required, and not the best way to manage working capital, optimizing for a “return on happy vendors” increases subcontractor loyalty and job performance during times of extreme weather. Another one of our companies has spent the majority of the last six months grinding through the implementation of an ERP system and a Food Safety program both of which, while painstaking to execute, will create returns related to business intelligence, consistency, and scalability.
For the Chenmark team, the tax and return framework allows us to process the various events that occur while managing a growing portfolio of operating companies. As we use this framework, the key is to hold each other accountable for making the decisions that will lead to long-term positive results, while also making sure we can manage our way through the various taxes we will inevitably have to pay whether the currency is monetary, emotional, or sleep-related.