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Not surprisingly, according to a PwC report, CEO turnover hit a record high of 17 percent in 2019 and has accelerated during COVID. The report showed a rise in the share of executives who were forced out of their positions for ethical lapses rather than financial performance or board struggles. Ultimately, whatever the reason might be, the replacement or appointment of a senior executive is a costly proposition for an organization, its employees, and the stakeholders. As such, stakeholders and investors need to have a comprehensive understanding of an executive’s past performance metrics, credibility, and conflicts of interest before making crucial investment decisions.
For years, investors and stakeholders have relied on background checks, references, and executive reputations when conducting diligence on executives and key decision-makers who run the world’s largest and most crucial businesses. This process is often complicated, time-consuming, labor-intensive, qualitative –disproportionately dependent on media information, past interviews, self-published data, and unverified information. Yet even after such a heavy-lifting and upfront investment, the investor community is often still in the dark about the capabilities of an executive and how their skill set will impact their company’s returns.
The CEO of Paragon Intel, Ty Popplewell, can attest to this fact from his first-hand experience working in asset management. “I experienced how difficult conducting due diligence on management teams can be,” Popplewell says. “It is embarrassing and costly to make an investment in a company that has problematic or misbehaving leadership.”
Eventually, Popplewell realized the need for software and data that could help understand and predict the performance of management teams. In 2017, he joined with hedge fund and fintech veterans to design a product that could quantify executive performance, leading to the creation of Paragon Intel’s flagship product ManagementTrack.
Today, as a leader in the new field of management analytics, Paragon Intel architects products that help investors, private equity firms, corporate Boards, venture capital, law firms, recruitment firms, and companies themselves understand how an executive can impact a company’s future performance.
Our verification process cannot be replicated by anyone. There is currently no one in the market who is doing it
Demystifying the Executive Assessment Process
At its core, Paragon Intel provides a powerful platform—ManagementTrack—that eliminates guesswork and anecdotal evidence from management analysis and delivers meaningful, digestible information at clients’ fingertips. The platform enables users to instantly access two defining sources of information: comprehensive data on more than 4,000 executives, and a library of industry-best proprietary interviews with former c-suite and board colleagues of hundreds of those executives.
The data includes all professional and personal information on an executive, a process which would otherwise take weeks or months to cobble together. Clients have access to information on an executive’s entire career, including historical performance relative to competitors, how they’ve allocated capital (M&A, buybacks, dividends, capex), and potential criminal or civil red flags.
The SaaS platform then uses a proprietary algorithm to categorize executives based on two criteria—performance and integrity. The performance rating is based on the utilization of a factor model and machine learning capabilities based on historical relative performance. This helps create a predictive model to anticipate how an executive will perform over the next 12 months. To do an integrity rating, the platform scans through an executive’s profile and identifies any red flags, including criminal records, civil, or regulatory issues. The ratings range from 0.1 to 9.9.
Both the data and the ratings hinge on Paragon Intel’s verification process. The company leverages technology, a private investigator, and a professionally trained in-house research teamto aggregate, clean and confirm each data point. “Our verification process is difficult toreplicate. There is currently no one in the market who is doing it” Popplewell prides.
What really differentiates Paragon Intel is its scale. The company currently has almost 4,000 executives on its platform. “No one has done this at such a large scale. We monitor and update information on these executives in real-time. Apart from providing insight on individual executives, we also allow screening and sorting of the data,” Popplewell says. Users can find answers such as the most successful CEO, CFO, or any C-Suite executive of an industry, how executives at the CFO level allocate capital, and how women in the C-suite perform compared to their male counterparts. This means Paragon Intel helps clients screen for ideas along with handling the upfront diligence and monitoring.
The interview library adds depth to their scale. Whenever the company identifies an interesting management situation that will meaningfully affect the future of the company, they employ a team of former hedge fund analysts and former investigative reporters to source key former colleagues of an executive and interview them about skills, weaknesses, successes and failures. Clients then get access to the actual, anonymized transcripts and Paragon’s view on how the company will fare with that manager in the c-suite. “As investors have realized we’re the best at executive interviews, we’ve seen substantial interest in our library, as well as custom projects. Our team does incredible work,” says Popplewell.
A Testament to Dedication, Innovation, and Success
The unique and cutting-edge platform has enabled Paragon Intel to help a legion of clients over the years. When one of the largest companies in the U.S. appointed a new CEO, the market reacted positively, with a 15 percent rise in the stock on the same day. The Paragon Intel platform had complete information on that executive with an integrity rating of 9.9 and a performance rating below one. This helped Paragon Intel’s clients realize that they were conflating integrity with performance. Although the CEO was a good person, he was not a great performer. “We could quickly identify that the market had incorrectly predicted this executive would be successful,” says Popplewell. Paragon Intel recommended investors close out their investment. The stock then dropped 15 percent when the firm announced its plans around acquisitions and capital expenditure, and another 10 percent after a disappointing first earnings report. “Our data flagged the discrepancy and our interviews confirmed what the data was telling us. We see this happen often,” adds Popplewell.
These instances of success give Paragon Intel the impetus to explore new avenues of growth. Currently, the company is adding 10 to 15 executives per week to its platform based on client requests. Its aim is to cover every key public executive in the U.S., as well as crucial private company executives. The company is focused on rapidly growing its asset management business while bring its solutions to headhunters, law firms, and big banks on Wall Street. Further, Paragon Intel is planning to expand its solution to corporate clients so they can quantify the risks and opportunities associated with key executive hiring and firing decisions. “Our goal is to become the rating agency equivalent of corporate executives, helping to put the best people in the most important positions in the marketplace” Popplewell concludes.