CASE: E-279

DATE: 10/19/07

JENNIFER GASTON
Youre only as good as the people you hire.
Ray Croc, Founder of McDonalds

INTRODUCTION
Jennifer Gaston, founder and CEO of mid-sized luxury jewelry company Aquamarine, examined
the necklace she was designing after hours in the companys Los Angeles workshop. Creating
new pieces of jewelry always cleared her head something she needed while thinking through a
couple of key hiring issues that had recently cropped up. In just six months, Gaston had brought
in a new COO and was about to finalize a multi-month search for a CFO. Although she had
nearly completed the transformation of her executive team, she still needed to thoroughly check
references on the CFO candidate and extend a formal offer. A lot was riding on this position
and, despite the help of an executive search firm, hiring for it had not been easy. Then again,
Gaston thought as she flipped her soldering mask down over her eyes, she had not become an
entrepreneur in order to take the easy route.
THE AQUAMARINE STORY
Gaston started Aquamarine in 1995, after matriculating through the Penland School, a
prestigious fine crafts institution, as well as Stanford Business School. Her company grew
modestly for the first three years until she hit upon Aquamarines trademark aesthetic: thick
intertwining cables of silver and yellow gold studded with a range of large precious and semiprecious stones. Of her colorful designs, Gaston noted, I like things that are mildly
exaggerated. What is the point of jewelry if no one notices it? Fashion industry insiders and
top celebrity stylists agreed with her and Aquamarine designs began showing up on models and
actresses. By 2003, the company hit $150 million in sales. At that point, the organization had
200 employees who focused specifically on a high-end line of rings, bracelets, earrings and
necklaces for women. The eight-year-old company had semi-national distribution via ten
freestanding stores throughout California, New York and Florida and also sold its collection
through department stores including Neiman Marcus and Saks Fifth Avenue.
Bethany Coates prepared this case under the supervision of Jim Ellis, Lecturer in Strategic Management, as the basis
for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
Copyright 2007 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order
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p. 2

Aquamarines impressive growth showed no sign of plateauing. By the end of 2004, revenue
reached $200 million. In the ensuing eighteen months, Gastons team had broken ground on five
additional locations (including stores in Atlanta, Aspen and Houston), hired another 225 people
and started a mens line of rings, cuff links and money clips. The wholesale channel had
broadened to include luxury boutiques within well-known shopping districts such as Rodeo
Drive in Los Angeles and Madison Avenue in New York City. By mid-2005, Gaston had
ambitious plans to extend Aquamarines lines for women to include handbags as well as
perfume. She also wanted the company to break into the international market, where brand
awareness was currently low. Business is accelerating, Gaston commented. We would be
remiss not to exploit every opportunity to get closer to our customers.
In order to fund the expansion she had in mind, Gaston realized she needed to raise growth
capital. The companys success had attracted a number of venture firms over the years, but
Skyline Capital stood out from the pack. With $100 million under management, Skyline was
small. However, its founder, Scott Craft, had over fifteen years of directly relevant investing
experience in luxury goods and retail. He originally struck up a professional relationship with
Gaston in 2001. By the time Aquamarine needed capital four years later, Craft knew the
business inside and out and Gaston valued his counsel. In November 2005, Skyline invested
$12.5 million to acquire a minority stake and the companys fourth outside board seat.
STRIKE WHILE THE IRON IS HOT
By October 2006, Gaston realized that Aquamarine needed a President and COO. The business
had become both large and complex enough to warrant adding a sophisticated executive to the
team. Gaston envisioned carving out a key set of roles and responsibilities for this position. The
COO would likely be accountable for managing supplier and retailer partnerships, overseeing
quality control (a critical contributing factor to brand loyalty) and supervising the entrance into
new markets outside of the United States. Gaston wanted most back office functions to report
into this person as well so that she could focus on what she loved doing design and strategy.
Only an executive with at least ten years of experience managing a luxury brand would be
capable of taking on such a wide purview. Yet, a strong resume would not be enough. Perhaps
especially because Gaston still considered Aquamarine to be her baby, a solid cultural fit was
also extremely important. She had asked a tremendous amount of her employees over the last
several years and she wanted to ensure that her top managers felt comfortable with the new hire.
Gaston noted, From the outside, most luxury goods companies are sparkling and glittery. On
the inside, they tend to be highly political and emotionally charged. Aquamarine is no exception.
It will take a special manager to motivate and get the best out of what is, admittedly, a quirky
team.
Gaston expected to write a thorough position description before starting a formal search for
candidates. However, that plan changed during a casual lunch with Bob Hall, a trusted advisor
and former professor of hers from the GSB. When she mentioned the type of person she was
looking for, Hall exclaimed, I have the perfect fit for you. Her name is Olivia DeCarlo. He
went on to explain that DeCarlo had helped run Isla Stark, a publicly-held high end clothing and
accessories company with $600 million in sales and 700 employees, for the last ten years. She
was currently serving as the VP of Operations. Hall had done some consulting work for DeCarlo
five years ago and had stayed close with her ever since. He gave her his strongest

Jennifer Gaston E-279

p. 3

recommendation, saying, Jennifer trust me. Olivia is a superstar. She knows how to manage
and grow a business like yours she will help you take Aquamarine to the next level. He also
told Gaston that she needed to act immediately if she was interested. DeCarlo had been looking
for an exit opportunity from Isla Stark and was days away from accepting an offer to help run the
beauty and fragrance company Clarins Group USA.
Later that afternoon, Hall forwarded DeCarlos resume to Gaston, along with an admonition to
Call her today. She is too good to let slip away. I told her to expect to hear from you. Her
offer from Clarins expired in the next 48 hours. As Gaston quickly glanced through DeCarlos
C.V., she agreed that it was impressive. In fact, it was close to being perfect. DeCarlo had
worked in her own familys accessories business for five years before it was acquired by Isla
Stark in 1994. Since joining the larger company, she had quickly moved up the ranks and
ultimately oversaw the management of operations, sales and marketing as well as the
development of Isla Starks online store. She had also spearheaded the companys launch into
Europe, opening stores on the same day in Paris, Rome, Geneva and London. According to Hall,
DeCarlo was tired of constantly trying to appease Wall St. and wanted a change.
Gaston picked up the phone to call her. It turned out that DeCarlo was in LA on business and
she agreed to meet Gaston for an interview over dinner that night. The meeting lasted for three
hours and gave Gaston the chance to question DeCarlo about her professional results, her
thoughts and early recommendations on Aquamarines expansion and her future professional
goals. At the end of the conversation, she phoned Hall back and said, I owe you one. Olivia
has the right experience and drive for the role. She would be a terrific addition to the team. In
order to get a second opinion on this important decision, Gaston asked Marcy Redding,
Aquamarines lead designer, to have a one-hour follow up phone call with the candidate the next
day. Redding, who managed over 50 designers, emailed Gaston afterwards, saying, The
perfect candidate never exists (at least when you want her to). But Olivia is a pretty great fit.
Only question mark will she be an effective team player?
The same question had popped into Gastons mind, and made the need to rush through the
decision somewhat troubling. The time pressure prevented her from digging deeper into a few of
DeCarlos explanations about how she had achieved some of her results while at Isla Stark.
Without being too obvious, Gaston had given DeCarlo multiple openings to mention her teams
contributions. For example, she had asked about the expansion into Europe and their successful
exploitation of a new channel things no one person could complete in isolation. Yet,
DeCarlos answers to such questions typically included comments like, There is no magic spell
for this its about rolling up your sleeves. I just set aggressive interim and long-term goals and
worked extremely hard to reach them.
Although Gastons gut instinct was still to snatch DeCarlo up before another company did, she
had made the mistake of bringing in go-it-alone people before. Nine months ago, she had hired
Emily Knauss, a new sales director, after one terrific interview. Gaston recalled:
Emily felt like a younger sister to me and she was a go-getter. She wasnt a
natural team player, but I thought I could mentor her. Unfortunately, she did not

Jennifer Gaston E-279

p. 4

click with the designers they felt she constantly stole the limelight. I had to fire
her after two quarters and never should have waited that long.
Nonetheless, Gaston decided that, for having no warning or preparation time for the interview,
DeCarlo was remarkably well-spoken and thoughtful. At the end of the dinner, DeCarlo had
said, This is exactly the kind of opportunity I was hoping for at this stage in my career. Ideally,
wed have more time to get to know each other, but Im willing to take a chance on you if youll
take a chance on me.
Aside from some quick emails keeping them apprised of the situation, there was no time to
heavily involve her seven-member board in the decision. Gaston noted, For one reason or
another, there will always be tough calls that CEOs have to make alone. Thirty six hours later,
Gaston offered the position of President and COO to DeCarlo. Given the rush to come to a
decision, it had not been possible to sort out all of the details ahead of time. The offer letter
stated that job responsibilities will be fully enumerated during the first month of employment.
Unphased, DeCarlo said, Look, young, fast-growing businesses have to do things by the seat of
their pants all the time. It just goes with the territory. She happily accepted the offer.
NUMBER CRUNCHING
In November 2006, it became clear that Aquamarines Finance team was under-resourced and
lacked strong leadership. Scott Craft had been asking for detailed reports on same store
profitability as well as the financial cases for breaking into the European and Asian markets. At
the same time, DeCarlo, who had been with the company for a month, voiced a need for better
data with which to analyze business and account-level growth and profitability. All of the
requests were perfectly appropriate, but the information was not readily available and the finance
team was too stretched to take on additional projects.
Gaston concluded that the company needed a seasoned CFO to fill the gap, but no internal
candidates seemed to quite fit the bill. Aquamarines Controller, Albert Johnson, came closest.
Johnson was a strong accountant and more than willing to accept direction and execute. He had
been with the company for six years, starting as a financial associate, and Gaston thought of him
as a solid member of the division. However, she wanted an executive who would take proactive
ownership of the finance division and provide a strategic perspective to her management team.
Unfortunately, Johnson did not have the requisite level of experience yet. Nonetheless, upon
hearing rumors that the company was going to hire a CFO, he scheduled time on Gastons
calendar and asked if he could be considered.
During their meeting, Gaston explained:
Albert, in the interest of finding the best possible fit for this position, I have
decided to open the process to outside candidates. You are doing a terrific job as
Controller and I value having you on the team. However, it is important for the
company is to look at a range of people both experienced candidates and those
with very strong potential.

Jennifer Gaston E-279

p. 5

Later that day, Gaston began thinking through how to source a qualified pool of contenders. She
noted, Finding the right managers for key roles is really tough. Frankly, Im wrong about my
hires almost as often as I am right. Gaston figured that she should retain a search firm to run
the process for her, but she was not sure how to interview firms or select a short list. Skyline
Capital had worked with Search Right (SR), a regional firm with a sole, large office right in Los
Angeles. Scott Craft said, We have sourced some of our strongest executives through SR. In
this case, using a smaller firm is smart because they will view Aquamarine as a large client and
devote a lot of personalized attention to you. Marcy Redding had connections at a firm called
Morgenstern Summers (MS), but recommended doing some additional due diligence on them
first since they had migrated away from luxury goods companies in favor of internet ventures.
Gaston had also seen a recent Business Week article entitled: Want Results? Work With These
Top Ten Executive Recruiters. The piece listed a large international firm called Smart Fit (SF) in
the top spot due to their unparalleled access to top professionals in the retail, consumer goods,
banking and telecommunications industries as well as their evident mission to provide unrivaled
client support from inception through successful completion of the executive search process.
Gaston did not know of anyone who had worked with SF before and realized that she would
have to cold call their general number for more information. She was tempted to settle on SR
because Craft had already worked with them, but hesitated in case there really was a meaningful
difference between firms.
As a starting point, Gaston asked Jen Noble, the HR director, to call SR, MS and SF, as well as a
few of the other the firms listed in the Business Week article. Noble agreed to ask each outfit to
send pitch books within the week. Gaston also emailed Jeff Lindley, a former GSB classmate
who had briefly worked as an executive recruiter in Europe. She typed out a list of questions she
wanted to pose to any firm in the running and then asked him, Should these be edited? Am I
missing anything?
A FEW GOOD MEN
Gaston ultimately hired Search Right in December 2006. By the end of February 2007, David
McCallum, her lead contact at SR, had presented her with 20 possibilities for the CFO of
Aquamarine. They used a two-step process over the next week to narrow down the field. First,
they focused on tangible results listed within resumes and cover letters (e.g. a ten percent yearover-year cost reduction in General and Administrative expenses). Secondly, they looked for
compelling rationale regarding why the candidate wanted the position Aquamarine did not
want to become negotiating leverage for someone targeting the CFO position at another
company. Other factors had some subjective impact, including the number of years in ones
current role, the size of the organization managed and the quality of the companies for which one
had worked.
At the end of this preliminary process, Gaston and McCallum had narrowed the field down to 12
applicants. McCallum then screened out an additional 6 candidates during telephone interviews.
He crossed most of those off the list due to the level of perceived interest they indicated in the
role, whether they exhibited what he called executive presence during the conversation (e.g. a
confident, highly professional leadership style), and his take on their ability and inclination to
work in a chaotic, constantly evolving young-company environment.

Jennifer Gaston E-279

p. 6

Gaston and McCallum then set up second-round in-person interviews with the remaining slate of
executives. Gaston asked Redding, the design director, and Noble, the HR director, to join them
for these. The team of four planned to conduct structured interviews each candidate would
meet with every interviewer. Gaston, McCallum, Redding and Noble had unique lists of
questions that they would ask each candidate (with the intention of comparing answers later).
The list of questions included:

Why were you selected over other candidates for your current role?
The CFO position at Aquamarine requires both high energy and delicate interpersonal
skills how strong are you on those dimensions?
What are you best at? What would your subordinates say you are best at? Superiors?

After the second-round interview, Gaston and her colleagues narrowed the slate down to three
professionals. Each was asked to return for a final interview. This third session was designed to
be free form and informal, so that they could get a better sense of fit. Gaston, DeCarlo and
Craft, from Skyline Capital, did the interviewing.
After later comparing notes, they limited the field to two high potential possibilities: Warren
Chang and Steven Phillips. The two men had outstanding but very different credentials to
recommend them. Chang, currently the CFO of Decathlon, a $1 billion public sporting goods
company, was in his mid-50s (see Exhibit 1). He had been CFO during a 4-year period when
the companys sales doubled. He had also orchestrated its successful IPO (shares jumped 12
percent during the first day of trading). At first glance, it seemed clear that he was well-regarded
amongst his colleagues and counterparts who worked in casual lifestyle retail establishments. As
a case in point, he was invited to give an annual address at the prestigious Retail in America
conference a meeting that drew thousands of merchants every year.
Chang appeared to understand the value he would bring to the role he had already tried to
anchor Gaston and Craft on a compensation package significantly above Aquamarines upper
range. In addition, he commented that his teams had always been a critical part of his success
and, in the event that he was selected for the position, he wanted his current Controller to come
with him to Aquamarine. Putting some of the details aside, Gaston liked the fact that Chang
would hit the ground running as a CFO. He had already been through the types of growing pains
that Aquamarine was experiencing and would, she felt confident, be able to predict and handle
the relevant challenges sure to arise as the company continued to grow over the next several
years.
Yet, Gaston was also impressed with Steven Phillips. Phillips was in his mid-30s, but already
had a successful professional track record (see Exhibit 2). He started a business while attending
Princeton University, and then graduated Phi Beta Kappa in Chemical Engineering. He
subsequently joined the analyst program at Goldman Sachs and was ranked at the top of his
class. After three years, he left to attend the Stanford Business School and then went on to join
Morris Phelps (MP), a prestigious private equity firm. While at MP, he stepped into a few
portfolio companies to straighten out their finance departments and also once served as the
interim CFO of a luxury apparel company called Siena for eight months. Despite the glowing
resume, Gaston knew that Phillips had less relevant experience and would require more

Jennifer Gaston E-279

p. 7

handholding initially. On the other hand, he was still early in his career and clearly hungry for
success. She wondered if his drive was enough to tip the balance in his favor.
LAST ONE STANDING
When Gaston decided which candidate seemed best for Aquamarine, she immediately called Jim
Stinson, the first of four references provided. When she identified herself to Stinson, he
launched into a five minute monologue about how outstanding his former colleague was.
Stinson expounded, I simply cant say enough about him. Hes the best of the best, a smart,
thoughtful visionarya modest, friendly team playera goal-oriented do-er. He will literally
transform your company. Gaston attempted to get more texture on the candidate by saying,
Were pretty impressed with him. But there must be something he needs to work on. Could
you give me some color on his weaker professional skills? However, Stinson responded, I
wish I could. Hes a guy Id love to hate if he werent such a nice person. He is incredibly
talented I really cant think of a trouble area for him.
When Gaston hung up the phone, she felt a twinge of concern about the objectivity of the
candidates references. After she mentioned this to McCallum, he offered to help her call the
other people on the list before finalizing any decisions about the candidates. Jen Noble also said
she would be happy to help make a call or two.
Gaston wondered how she should proceed in checking references. Just as she sat down to her
computer to formulate a plan, she received an email from Albert Johnson with the subject line:
CFO position. It read:
I expect that you have been quite busy with the CFO search process. I am just
checking in to see when the two of us can sit down to continue discussing my
candidacy.

Jennifer Gaston E-279

p. 8

Exhibit 1
Highlights from Warren Changs Resume

WARREN R. CHANG
520 Lexington Avenue, New York, NY 11221
Mobile: 917.651.2030
wchang@gmail.com
Experience:
2000-Present Decathlon
New York, NY
Chief Financial Officer
Senior operating executive of the 3rd largest sporting goods company in the world.
Brought Decathlon through to completion of a successful IPO; priced at
the high end of the range and traded up 20 percent in the first year
Developed and executed business plan for acquiring the competitor,
KickIt; completed merger generates an additional $20 million in EBITDA
Directly responsible for turning around unprofitable operations of the
mens outerwear division; currently generating an 8 percent profit margin
Consistently interface with the board of directors on financial results,
projections and corporate expansion plans
Built constructive working relationships between marketing and finance
departments
1995-2000

Decathlon
Vice President of Finance

New York, NY

1985-1995

Decathlon
Held positions of Manager and Director of Finance

New York, NY

1978-1985

Levi Strauss
Held positions of Analyst and Associate

New York, NY

Education:
1976-1978

MBA, Duke University

Finance concentration

1972-1976

BA in Economics, University of California, Los Angeles

Jennifer Gaston E-279

p. 9

Exhibit 2
Highlights from Steven Phillips Resume

Steven K. Phillips
2025 Santa Monica Blvd, Santa Monica, CA 90404
Mobile: 323.555.8888
skphillips@hotmail.com
Experience:
2001-Present Morris Phelps, Associate Partner
Los Angeles, CA
Senior investment professional in a $2 billion fund.
Led the firms investment in seven high-growth companies, representing a
total of $800 million of invested equity
As part of the above transactions, raised $2.4 billion in debt financing
from third-party lenders
Of seven completed investments, five have been sold for a blended return
surpassing 250 percent
Stepped in as interim CFO of troubled luxury apparel company, Siena
Inc.; re-established company profitability in eight months
Currently serve as a director on the boards of five companies, including
Siena Inc., Green Mountain Telecommunications and HealthWest Partners
Promoted on an accelerated schedule (three times in five years)
1996-1999

Goldman Sachs, Analyst

San Francisco, CA
Conducted a variety of detailed valuation analyses
Advised on the completion of five sell side transactions, three IPOs and
two buy-side M&A deals
Ranked second in analyst class for three consecutive years

Education:
1999-2001

MBA, Stanford Graduate School of Business

Arjay Miller Scholar
President of the Private Equity club

1992-1996

BSE, Princeton University

Phi Beta Kappa
Ranked number one in the Chemical Engineering department
Started a successful tutoring company; profits paid for university education
President of the Tiger Inn social club

Additional:
2004-2005

Treasurer of the National Venture Capital Association