Mark Leonard Letters

Letter of 2021

Mark is ready for the next level.

CSI historically was focused on small and mid-sized vertical market software (VMS) acquisitions with a high hurdle rate, and would return unused capital to shareholders in the form of dividend.

The company is now pivoting to:

• increase the number of very large VMS acquisitions
• develop a circle of investing competence outside of the VMS sphere

Mark is displaying two of the qualities of an amazing leader:

1. The willingness to change his mind, when the context changes
2. The willingness to go to new territories and start over outside and beyond the current comfort zone

Note: this letter reminded me of the video below

Letter of 2017

Part 1: Mark destroys diversity and inclusion.

Constellation’s Organic Net Revenue growth has averaged only 2% during the last decade. Strong organic growth is not required for strong stock outperformance, as long as ROIC is high.

Directors have two roles: governance (or monitoring) and coaching. Most boards focus on the governance part. But if you are dealing with a high-performance company, I don’t think governance should be the key role of the board.

The coaching side comes from intently studying an industry and a company over a period of many years to acquire relevant expertise. These board members usually are insiders who have mastered the craft of the business through thousands of hours of relevant experience, and have a lot of context, experience and nuance to bring to most board discussions. This is hard to replicate by hiring outside Directors.

When you look for individuals that have both the experience required to be great Directors and are interested enough to serve in this capacity, the result is a tiny number. Limiting further to a particular gender, race or religion, or limiting Director tenure, just exacerbates the situation.

Part 2: Mark wants a meritocracy.

Mark’s answer to “why are we doing this?” and his motivation is to help create a company where worthy people succeed. He wants to support and encourage people who work hard, treat others well, continuously learn and share best practices.

People who are undesirable at Constellation are sycophants (a person who acts obsequiously toward someone important in order to gain advantage), spin-doctors (a spokesperson employed to give a favorable interpretation of events to the media, especially on behalf of a political party), mercanaries, and hidebound managers (unwilling or unable to change because of tradition or convention).

What makes a good leader according to Mark (there’s no magic involved): you are smart, work harder than everyone else around you, treat people fairly, do not ask them to do anything you would not or have not done, share the credit, keep learning and keep teaching.

The full journey at Constellation goes from Craftsman (an expert in a specific vertical) to Compounder (someone who is good at finding acquisitions and has a portfolio of business units that they coach). While many personalities and styles can work for a Craftsman, a Compounder must be hands-off, trusting, curious and driven, but non-directive. They can nurture, goad and suggest, but can’t order.