Board Member and Distillery Owner: Kim Wagner ’85 is a corporate board member and owner of a distillery

[0:00]Hello, the guest today is Kim Wagner, Class of 1985. She is on 2 corporate boards and owns a distillery. So hi, Kim, what is it like to be on the board? Well, it's a lot of work. Being on a company board is very different depending on the company itself, what industry you're in, whether it's publicly traded or private, whether it's in the United States or international, and whether the company is domestic or international. So very much dependent on the the board itself. Everyone is an adventure. What is day-to-day like as a board member? Well, you know, typically a corporate board member in has a quarterly meeting. The quarterly meetings typically last a day or two days when things are running kind of in a normal pace. Usually a couple of weeks before the board meeting, you get a rather thick presentation that you need to read and evaluate and be ready to discuss. Then everybody typically comes together in the corporate headquarters for the board meeting, which usually, like I said, lasts a day or two days. Boards tend to be between 6:00 and 12:00 people. So and, and usually there's one person at least that's also part of management. So we spend a lot of time reviewing materials, thinking about materials, asking questions of management. The board members have a fiduciary responsibility on behalf of the owner to help oversee the running of the company. So the most important thing is to remember that board members don't run the company, Management runs the company, but we oversee the running of the company. And that makes sense. So, so by reading the thick presentation, that's part of the process of overseeing it. Like what do you look for in that thick presentation to oversee the company? Well, it really depends. So there's, if you're publicly traded in the United States right now, each company has to file quarterly documents.

[2:01]And usually ahead of following those quarterly documents, the audit committee will have to get together to review them. And then they're looking at the financials. You know, you're looking at all of the aspects of what you are filing in the United States. It would be to the SEC and making sure, you know, doing the gut check, making sure the numbers are consistent, it makes sense things are being properly disclosed that you know, it's giving investors a solid and and honest oversight of what's happening inside the company. Boards typically have at least three committees. One would be audit. The other would be governance and nominations or nominations and governance. And the other is typically compensation or sometimes they call it human Capital Management. And those three company, those 3 committees are usually required by either NASDAQ or the New York Stock Exchange. Again, if you're in the US, other companies will also add to that. So there might be an innovation committee, there might be a risk committee there, you know, there could be a strategy special purpose committee to do some oversight of maybe a transaction. So it does vary quite a bit company to company. Gotcha. So each company would have these for the audit committee for example, how does it compare to the auditor? When the audit firm looks at the documents, what does the board look at compared to what the auditor would look like? How does it different? Yep. So interestingly, the audit committee, the chair of the audit committee actually hires the auditor, the outside auditor and typically the internal audit person. So the person in management that does internal audit also reports to the chair of audit. And so the internal auditor is going to come in and do checking to make sure that the what's in the financial documents is

[4:04]consistent with all of the documentation within the company. So you know, are the transactions right? Are, are things being reported in the right space? You know, so there's, you know, you can imagine a transaction and say you sold an asset, you know, did it, did the asset account get closed out properly? Did the depreciation get handled properly? Did the, you know, where the asset sale show up in, in revenue, kind of not really revenue, but you know, income, cash flows, you know, did that show up in the right place? So a lot of times what the auditor is doing, well, exactly what they're doing is they're reviewing the financial documents that management puts together the underlying transactions and they're going to be a third party that attests that what management is saying is consistent with what the files say. Basically. I mean, there's a lot of technology. There's there's a reason why people study accountings for years and then have to pass all kinds of, you know, exams and and work in firms. It can get quite complex and there's a lot of things that change industry to industry. So, you know, if you're in a software kind of industry, it's gonna be very different than if you're in a manufacturing industry. So those kinds of things also. So the chair of the audit committee would hire the auditor to do the work. So, so like what comes out of the outside auditor and what does the audit committee do with the information? So the what the audit, So what we'll get as the audit committee is another very thick document that usually has in it say, say it's for a quarterly submission. It'll have the press release that's likely to go out. It'll have the document that is likely to be filed with the SEC.

[6:05]These are all drafts. And it will typically have, you know, reports coming from the auditor that's, that says they've reviewed it, they've checked it, it's consistent. Or sometimes they find something that's not quite right and they'll say, we found this thing that's not quite right. And then it'll say, did management change it and fix it? Or are is management taking a different opinion? And so there's, you know, there's a legitimate opinion difference between management and the auditors. And then so we'll look at all of those documents and it's, it's a lot of reading and it's a lot of detail work. Gotcha. So the outside auditor would create their own like if there's a difference between what the outside auditor has and what the management has, is like the board member, like the judge in deciding which is the right answer. No, not necessarily because a lot of times it's a legitimate difference. Like if you, you know, the, the accounting firm would rather you do X, but you're choosing to do Y and they're gonna say we didn't agree with that. It's not illegal. It's just different, you know, So it's, it's a lot of checking. I mean, we're all working ultimately with the documents that are going to be made public and the documents that are going to be filed to regulators. So we're all working off the same set of documents. The auditors responsibility as a third party is to come in and check, OK, this is what the company's going to say to the SEC. This is what their files say. You know, all and, and files used to be paper files and now they're electronic. And then, you know, they're basically giving everybody confidence that what the documents say is consistent with what really happened in the business. Gotcha. And then the audit committee for like the one day they would review all the documents that came out of the outside auditor. Right. And for all the professional audit people out there, I am giving an extraordinarily simplified version of what

[8:06]actually happens. I realize that I'm kind of making it as general and as baseline as possible because there's a lot of nuance and there's a lot of expertise that goes into it. I mean, there's a reason why they're a necessary piece of the whole. Reporting process like like in general? Like when the audit committee gets together, what kind of discussions do they usually have with each other? We'll discuss what actually happened many times. That's the first time we see what we'll call the final for the quarter. And so we'll be talking about how the business performed, how it's being communicated, and also, you know, is everything our our, we as the company communicating the risks, the realities and what's happening in this, you know, in a faithful and honest manner. So, you know, we're more reviewing. So it's a lot of reviewing. So, so for example, when we get the document, you know, along the way we'll get updates about how we think the quarter is going to come out, what the financials are looking like. And then if there's a material difference between what we thought was going to happen and what's going to happen, that's usually where we discuss it. So it could be something like, well, we thought that you know, there was going to be more revenue say. And then management, typically the CFO and and members of management usually have a very good explanation like we thought that contract was going to be signed this quarter. It actually got signed two days after the quarter ended. So it's going to end up in next quarter's report, not this quarter's report. You know, So it's usually, it's usually when there's big differences, it's usually timing issue and it's usually a completely reasonable timing issue. We might not like it, but it's reasonable. Like a 2 day later. Yeah. Like something happened, a contract, you know, something didn't quite happen so that the

[10:07]revenue could be recognized in that quarter, it's going to be recognized in the next quarter or we expected, you know, because there's cash flow statements in there, there's income statements, there's the balance sheet, you know, something usually the timing is a little off or they'll remind us that actually it got put in the prior quarter and not this quarter. So it's that kind of thing. Thankfully, I've never been in a board situation. I know other people have, but I've never been in a board situation where there's been fraud or abuse or something that actually, you know, was so serious that reports had to be filed about how we made this huge mistake, you know, with the SEC and be made public. And so I'm actually quite thankful that so far, I've served on boards where, you know, we may not have liked the way the number came out. The number may not be what the analysts wanted, you know, and what Wall Street wanted, but they've always been honest and ethical. And there hasn't been an issue of fraud and abuse. And I know that other audit committee members can't say that meeting in other companies. So like the like the difference between expectation and what actually happened? Like who usually sets the expectation? Is it the board members can set the expectation? No, it's, it's the analysts. So it's all the people associated with the stock market that set the expectation. It's, it's oftentimes the the owners, those, the shareholders who set an expectation. So many times when shareholders have an expectation and the company isn't delivering, that's when you tend to get activists involved or other people, you know, writing analyst reports that say, you know, this company is completely dropping the ball. They should be doing something different. And that's when the board has to get involved. So like as a, as a board member, you're, you're supposed to like represent the best interests of the shareholder. Like how do you, how do you is it like through the expectations

[12:08]that you hear their voice and make sure you follow the expectations like how do you listen to the shareholder? Well, the chair of the board speaks directly with the largest shareholders usually, and many of them are big funds, you know, the, the, the kinds of people that you, you know, own big, big positions. You know, it's a little different in a private company. In a private company, it may be family members, it may be employees. You know, the, the way that quote ownership works is, is different. But in public companies, the, the management, so the CEO, the CFO, investor relations person, so the, the, the very senior people in the company regularly talk to major shareholders or other shareholders that just say, hey, I'm a shareholder, I want to talk to you. And in the companies that I've been part of, the board chair also has certain meetings with shareholders. So that's, you know, we get it directly. Analysts, you know, they're working for financial institutions, you know, they'll follow quote, they call it follow the stock, and they'll do their own math based on their understanding of the industry, what they know other competitors in the industry are doing, and they'll publish reports that then shareholders and potential shareholders will read. So when you hear about, you know, somebody put a buy rating on a stock or a hold rating or a sell rating, that's coming from the analysts and those analysts reports set expectation. So probably the most difficult thing is when there's a very high expectation set by analysts and shareholders and the company didn't deliver that quarter, OK, because then you have to explain why there's a gap. Is expectation usually just like a dollar amount? Where is expectation also like more strategic where there's like multiple dimensions that it? It's both. It's both. It's you know what, what the revenue is, what the profit is, what the earnings per share is. If it's a, you know, company that has public shares, it can

[14:09]be. You said you were going to do a merger and you didn't do a merger. What happened Or you said you weren't going to do a merger and now you're announcing A merger. What happened? Unanticipated shifts in strategic direction. You could either be a positive or a negative. But you know, I would say that like in many, many things, investors don't like surprises. They like to be able to anticipate what's going to happen. They like it when companies deliver what they expect in the way they expect it. So, you know, if you think about earnings per share, that could be because you had higher revenue than you expect, right? So, or it could be that you've significantly lowered the cost structure, You know it's a fraction. So you can play with the numerator or the denominator to essentially get to the earnings per share, or you can change the number of shares that are outstanding. You could buy back huge amounts of shares or issue huge amounts of shares. So, you know, there's a lot of, it's just, I mean, it's just math, but if people are expecting that you're going to have a improvement in earnings per share because you earned more revenue and then you deliver earnings per share. But it was on a cost side. Investors typically don't like that either because it's not what they expected. It's not the strategy they thought that was going on. They expected more revenue, you know, so, but as a board member, you realize that what you want and what can be delivered by the company is sometimes very different. For example, recently in the last year, many companies experience very high input costs, especially manufacturing companies because of tariffs. So all of a sudden nobody had on their bingo card three years ago increased tariffs. And then the question is, do you pass that cost on to consumers or on to customers or do you eat it basically and reduce your

[16:10]profitability because you're paying more for your inputs? And you know, in some industries you can move price very quickly, but in many industries for contractual reasons, you may not be able to move price for six months or 12 months depending on the cycle and and contracts. So, you know, you don't expect a tariff increase, a huge tariff increase comes in that impacts your production and you can't do anything about that on the cost side on you know, what you're going to charge your customers for a year because of contracts. So now all these things can can impact what seems like such an obvious simple thing on paper, but in reality, so transportation costs are like that too. You know if if transportation all of a sudden swings high or low, that can be unexpected. Gotcha. So like the expectations and what actually happens will diverge as a result. That makes sense. But like what if like like within the shareholders there's like 30% wants this, another 20% wants that and another 10% wants that and another 30% wants this. Like do you just find like whatever makes 50% or more of them happy that you go with? Like how do you? Yeah, so. Divergent. So the fiduciary responsibility of the board is to ensure the long term success of the shareholder and of the company. So you've got to think out into the future and you have to have, you have to, you know, ensure success. So typically what happens if you know if if say 30% are happy and 30% are unhappy, the unhappy ones will sell the stock. So and the happy ones will buy more stock. So, you know, there's always a a seller and a buyer. And so in a liquid, in a pretty liquid market, you know, shareholders will rotate in and out depending on how they feel about the company. That makes sense and we end up with the people who are happy with the performance. But but our objective as board members is for the company to to

[18:13]help guide the company to be as successful as possible. Yeah, that makes sense. The long term success, that makes sense. So we covered the audit committee already. How about the the nomination and the governance committee? What do they do? So I chair 2 non Gov committees. So that's there's there's a lot of work in non Gov. So nominations is just that it's it's the process of finding new board members and rotating board members on on the board. And so nominations is the committee that starts the process, usually overseas. The process, what's important to understand is for any committee work, it typically has to be then approved by the board before it actually happens. So essentially, you know, it's not unlike the trustees at Cornell, There's a bunch of different committees. They do committee work and then it rolls up to the top before action gets taken. So nominations and governance is going to oversee the governance of the board, the governance of the company and also nominations around board members and board participation, board education reviews. So nominations and governance overseas, the annual board evaluation process, the board, the committee's evaluate themselves, the board evaluates itself. It's a continuous improvement, oversight, responsibility. And then we look at governance. You know, how, how does this run? So you know, what are the policies underpinning the board structure, make up, what are the skills that are needed on the board, how are people allocated to committees, all that kind of stuff. How often are people voted? So I was part of 1 governance refresh where we went from a staggered board where everybody was elected for three-year terms. To the prefer what shareholders prefer now, which is everybody gets elected every year. So you're elected to a one year term and everybody's up for

[20:15]election once a year. So, but that's, that's a non trivial process to go through my being from like, so that's government governance also oftentimes has oversight over sustainability, ESG goals, that kind of thing that takes a takes a very different perspective depending on the industry you're in, the country you're in, what your shareholders are demanding. Some of the shareholders are demanding different approaches to things like sustainability and resilience. So Nam Gov will oversee that. They often also oversee succession planning, so making sure that there's an understanding of what would happen in the event that a senior manager either is incapacitated permanently or temporarily or leaves, You know, everybody could hit the lottery, and then you need to know what happens. Somebody says see you later. So yeah, so there's the rather robust process of understanding in an emergency situation, who would step in if, if a member of senior management was no longer capable either on a temporary basis or a permanent basis. And then how would you replace that person? What's the job description? Who are the potential internal candidates? Would you go outside? You know, so all of those things are, you know, there's there's a lot of activities that a board does to manage any risk that could happen. So it's it's like pre planning. So you're sitting there with the CEO in the room planning what happens if they disappear. It's an interesting conversation. It's important if it's a big company. Even if it's a small company, look, if you could be a $100 million private company, but if the CEO is the center of a hub and spoke situation and they have all of the signing rights and they're the one that's, you know, on the board and making even in a smaller company, if they disappear, that's that could put the whole company at

[22:17]risk. Yes. I think an important way to think about what a board does is you really think about all of the risks of every kind that you could possibly imagine. And some of them are highly likely and some of them are highly unlikely and some are high impact and some are relatively low impact. And then you kind of create a matrix and you decide, OK, which of these do we have to deal with? Deal with could be OK, we have it on the list and we know what the first step is if something happens. Or it could be something like cyber where you actually do tabletop exercises and you you role play. What happens if you had a significant cyber attack? Who is it going to call? Who does what? What's the role of the board? What does every person in management do? You know, Do we have access to our data? How do we ensure we have secondary access to data? Yeah. And so those, you know, some things are so impactful and and reasonably probable that you actually want to role play it before it ever happens. Got you. Well, like a lot of this, like succession planning happens inside the company, like leadership development programs. That's like HR leads a lot of that. But like, like, at what point is it like the board is supposed to be oversight, not like going too deep into the details. Yeah, we're. We're oversight. So you know, when we have those conversations, the CHRO, the head of HR will present to us, you know, all about, you know, for each senior manager, who are their high potential talents, what skills do they have? What are they doing to upskill them? And then what are we doing in an emergency situation? Ultimately the board hires the CEO, the CEO with board input and oversight hires the management team. So we get we are actively involved in hiring the CEO. So the as the chair of NOM, Gov.

[24:20]I hired the search firm was the primary point of contact. There were a lot of activities that the NOM and Gov committee did with the search firm to identify a slate of candidates. Then we did a series of interviews with people and then a subset of those we put in front of the full board. And, you know, it's a constant process. It's, it's just like hiring, you know, president of the university or anything else. You know, it's a, it's a whole process. Everybody gets involved and you know the the responsibility of the board is to hire the CEO. Gotcha. Like earlier we talked about how analysts have expectations, shareholders have expectations. Like how much of that goes into hiring ACEO? And like how do you decide who would be a good CEO? Is it like whoever matches expectations the best? It depends. You have to look at what the strategy is for the company. And so that's why every year, so if you're a non Gov, every year you're looking at the current corporate strategy and saying, if we had to replace the CEO, either because they're leaving, something happens to them or we decide the strategy is so different that the current CEO is not adequate anymore. You know, you kind of create this profile and then every year you review it, refresh it and make it current. And the reason you do that is because if something happens that's unscheduled, you can't, I'll call it, waste a week figuring. Out. What do you need to do? Who do I need to call next? The profile has to be ready. Right. And so part of that, if you're in a public company, part of that job description, we'll talk about whether or not prior leadership in a public company is important. And then what does it mean? Did they have to be ACEO of a private of a publicly traded company? Could they have been like the chief operating officer or the CEO of a country?

[26:24]Oh, yeah, no, Is that enough? So, so for each for each of those roles, you think about all of the skills, you know, what's the background need to be? What's the leadership profile? You know, the skills are experiences, but also personality, behavior, availability, you know all the things you know you actually have the you have to ask the question about does this person need to be at headquarters or would we for the perfect person be willing to have them be remote? That's very rare, by the way, but but it all comes into play depending on, you know, who, what role it needs to be filled and and how many people are available to fill that role. Gotcha, that makes sense. And then so. By the way, we use experts. So if you're in a publicly traded company and you need to replace the CEO for whatever reason, you are going to hire a search firm. You're going to non Gov is going to go through a process of interviewing search firms, selecting the search firm, and then working with that search firm to identify candidates and and take things forward. I like how the audit committee they can hire a third party auditor and then the nom Gov can hire a third party recruiter too. Yep. And we haven't talked about the compensation committee, but and I don't think about the compensation committee. And again, some companies have turned compensation into human capital, in which case some of the, if it's not a pure comp committee, some of the things we talked about around succession planning beyond the CEO, so of the leadership team that might move to a human capital committee rather than being part of non Gov. So, you know, every company is a little different about how they how they divvy up responsibilities, But the compensation committee also has to think about what the comp program is for CEO and

[28:24]management and, and to a certain detail, you know, above, you know, hourly employees. And for that they often hire comp consultants, compensation consultants who are experts and, and they're important because what they do is let you know for your company, in your industry, for your size, in your geography, you know, what are the ranges, what are the normal ranges for compensation? You know, what's the cash range, the, you know, long term stock type compensation, the, the perk package, you know, all of those things. They'll tell you where you sit in the range. So that you decide, you know, am I going to be at 50 per, am I going to be above 50%? Am I going to be at 20%? You know, where, where are you going to go in the range? And that's important because the comp package actually gets voted on in the annual proxy. So if you're a publicly traded company, every year there's a shareholder vote. And the shareholder vote involves, you know, electing new directors. But one of the other elements in there is the compensation package for senior management. Gotcha. And there's a goal for the compensation package to like align incentives, like the incentives of the company with the CEO. Yeah. So the idea is that the compensation package in the way it's structured should encourage CEO and management to behave in a way that improves the well or or optimizes the value of the shares. So shareholder value is, is the ultimate goal, right? You're always trying to increase shareholder value. And so the comp package should encourage the appropriate behavior that management will do the right thing. So you don't want a comp package that's really crazy. And then people start swinging for the fences and the company ends up losing money because they took high risk bets on a whole bunch of stuff that never materialized.

[30:25]At the same time, you don't want management to sit on their hands and say, well, I can't take any risk because if I take any risk, then you know, something might go wrong. And then so you need a comp package that gets you exactly at the right balance. Gotcha. Very interesting. That's why the comp consultants are important, right? Gotcha is like the like to be a like a good board member. Like the art of being a good board member is that like choosing the right comp consultant to choose the right search firm for the like? What's the what makes the board member good? I think the an excellent board member is somebody who understands the fiduciary. So the legal responsibility of being on a board and the role that you're playing, you are advisory, you ask questions, you ask difficult questions, you raise important topics for discussion, but you don't run the company. And so that's very important. Now I should say that in private companies, especially family owned businesses, sometimes the board is actually made-up of many family members and very few people from the outside and then they are running the company. So for a publicly traded board and, and So what does it mean? It means you have to, you have to keep up on what's going on in the industry that a company is in so that you can be a good advisor, you understand what's going on. You need to keep yourself abreast of what's changing in the world. So in the last two or three years, actually for the last five or six years, AI, I'm sorry, cyber has been an important training. Like everybody's gone through cyber training. Everybody's understood what the role is, how we have to encourage the investments so that they're the last two or three years. Everybody's learning about AI. You know, there'll be legal changes, there'll be legal cases. Oftentimes, you know, many companies are driven by Delaware law because they're incorporated in Delaware.

[32:25]So there may be a result that causes a change in the way courts are looking at the role and responsibilities of board members. So you really have to keep up to date and what are the expectations and are you, you know, are you doing the work? Yeah. So, you know, for example, I, as you know, I will listen to the analyst calls and review the SEC filings of the competitors of the companies that I sit on because that's the best way to really understand what's happening in your sector. You know, I also go to a fair number of trainings, webinars and, and in person trainings on topics that are important for board members around governance, around compensation and around audit. You know, the, the, the IRS changes the way something needs to be reported. And that's something that typically our auditor. So in the audit committee, the auditor will often tell you what's what's happening with the IRS in the United States, what do you need to be aware of, how it might change the way filings are being done. And then you might want to go and get even more background on that yourself, just so you fully understand it if it's important to your company. Gotcha. You know, like if you gain knowledge, like gaining knowledge is important, but like acting, like providing oversight, it's more than just knowing. You have to be able to like, like, what levers do you have in play to like to get them to do things like? Well, I mean, the ultimate lever is the board can fire the CEO. OK. So, you know, when you read in the Wall Street Journal that John Doe is stepping down effective immediately and a board search for a new CEO is happening, that was probably, I mean, it can be because somebody had a health issue or a personal issue, but more often than not, the board decided we're done.

[34:25]Gotcha. And the board released the CEO. That's really nuclear though. That's like the nuclear option. It is, it totally is. And and I really hope that I'm not sitting in that room anytime soon. But, but what's in, I'd say the most important thing is, you know, pay attention to what's happening in the company, review the materials that the that management is giving. You have your own perspective and opinion on things. You know, if you know, you kind of go through the thought, if you were running this company, what, what are the questions you would ask? What are the strategies? You know, the, the long term strategy is also an oversight responsibility of the board. And so asking management, you know, I know you're thinking about delivering next quarter, but you know, we anticipate something might happen in two or three years. What are we going to do about that? You know how we deal with that. And that could be, you know, if, if you are in a, in an area that floods all the time and all of a sudden your warehouses keep getting flooded, it's an issue. You know, if you're in, if you have assets in a country that is becoming politically unstable, that could be an issue. If you had a big product recall because of foodborne illness, that could be a big issue. You know, so there are many things. And so you know, you're going to ask about preparedness, you know, are we ready for this? What, what management are you doing to be prepared for this? A well structured board, I believe has people with different experiences and different perspectives. And so the value from management is you have a whole bunch of people who, well, not a whole bunch, you've got between 6:00 and 12:00, people who think differently than you do, who might have an interesting idea, who might spark a conversation that actually impacts the company in a positive way. And so behavior in the boardroom

[36:25]is about listening and being respectful and not assuming you're correct. You know, you're, it's, it's important to be able to have your, to have your own mindset that everybody is learning, everybody is trying to do the right thing for the company and everybody is asking the difficult questions to achieve what's right for the company. And so, you know, it's just important to give people latitude, you know, make sure everybody speaks, make sure you get the opinions of the most quiet person in the room because they probably are thinking something you need to know. So you know, it's, there's a lot of like group dynamics. And so it's important. I mean, it's there's a reason why board members on public companies tend to be senior leaders and have experience in boardrooms before they're actually on a board, because that way they they know what the right behavior is. They know what good looks like. I guess that's what I'd say, yeah. That makes sense. So like how different is like 1 corporate board compared to like another public company corporate board? Like how different to the? Board, they're very different, each one's a different animal, they're different personalities. There's different, often times different industries might be different geographies. And so all of those things change the risk profile. The, you know, how easy is it to grow versus house? You know, what are the, the government risks that might be out there? You know, all kinds of things. So it's, it's each one is different. It's kind of like being in a different company. Yeah. So when you're nominating a new potential board member, how do you look for like fit with like the existing culture? Like what do you look for in a fit? We're, we're looking for people again, similar to ACEO, there's a, there's a skills matrix that we're looking for. So typically it's somebody who sat on a public company board. Often times it's somebody who was ACEO or C-Suite person before.

[38:28]Not always, but often It could be that we're specifically looking for somebody who's been an auditor because we need a new chair of the audit committee. It could be we need somebody who's very good in operations because we're a manufacturer or our customer in a unique and different way. So you know, you, you, you create all these things. Often times what I would say is there's a bit of a behavior personality aspect to it. You know, are they, I'm not going to say are they going to fit in because sometimes you're intentionally bringing a board member in there to shake up the conversation. You have new person, you need somebody, you know, who knows how to operate in a boardroom, I guess somebody who can be persuasive using data because that's how you that's how you move the room in a boardroom. You know, it's not because I feel like it's look at the numbers or this is what other companies in our sector are doing. We should be aware of it. So. That makes sense. That's why you look at the public filings of the other companies and your competitor. So you have numbers to back. Up right and sometimes you know so for example a company that has operations in multiple countries they may be looking for an executive who's from one of those countries OK so if even if it's an American company if you have a huge presence in Europe, you may be looking for a European. If you have a huge presence you know if all of your product is manufactured in Asia, you may be looking for somebody from Asia. So you know, it just it really does depend and then. For many companies, there might be a desire to look for somebody of, you know, to get gender balance on the board or to get an age balance. One of the challenges is that some boards get what they call, they literally call it old. So if, if you've got a company and everybody on the board is over age 70, you have to ask, is that the best advice that the

[40:30]management team is getting? And can we find somebody who's in their 50s or their 40s? Or, you know, there are, there are some AI tech companies that have board members in their 30s because the people who are on the cutting edge right now are younger. You know you're not going to find an 85 year old AI, you know, expert. That makes sense. Yeah. So, so, so to focus on you, your story, like how did you decide? Like, how did you decide to be on boards? Like what about it attracted to you? Well, so I am trained as a scientist and then I went into management consulting and I spent more than 30 years in management consulting where I was working with CEO's and senior management teams and the boards on strategy and operations and innovation and all of these, you know, product development. That's my area of expertise is product development. So when I left consulting, I was like, well, I think I still want to be involved. And the way I thought I could add the most value was as a board member, and I'm grateful that other people thought that I could do that too. And so that's why I get to sit on boards. That's great. So then you'll have more time to spend on your distillery. So tell us about your distillery and why. I mean, sometimes you have more time to spend, but sometimes when companies are in turmoil, you spend a lot of time as a board member. But but yes, my, the distillery and the winery, my husband and I. So my husband is Steven Osborne, class of 84. He was a food scientist at Cornell and then went to Davis. He and I started a vineyard and a winery and then a distillery. And so the, the joke is that I keep us out of jail and he keeps us in business. So he's the, you know, the creative force, you know, he runs manufacturing and sourcing

[42:31]and all that. And I do all of the legally mandated paperwork and government filings. And, and so, you know, it's, it's fun. I I honestly enjoy being in business with my husband. It's a fun thing that it's a lot of work. I'm not gonna say it's all happiness and fun, but it's a great thing to have together and to both be investing in SO. What's the example of like a fun experience that you had running this business together? What's the example of something fun? Wow. Well, you know, it's our customers are a lot of fun. We sell a lot of things direct to consumer. So most people come to our tasting room, they'll buy our product. If you're in New York State, you can order online and we can ship to you. But if you're out of state, you have to come to us. And, and it's fun because both of us are scientists and many of our customers really want to understand how the products get made and why we do what we do. And so it's fun on the weekends, people come and we can, you know, we'll teach them as much as they're willing to learn. You know, so some people just want to come in, do a tasting and leave. But a lot of people come in and they're like, well, but how did you make this wine or how did you make this whiskey? And why did you, why did you make the choices you made? And so we have a lot of fun just telling people what we do and sharing. Like the taste profile, like how it tastes like, it's a very like artistic thing. Like how do you balance the science and the art? Like where does it intersect? Yeah, that's like it intersects in Steve's head. It intersects in his head. What happened? With his head. I don't know, he's he, he has exceptional palate. He's a, he's a flavor guy. He could easily be the nose at a perfume company or you know, one of these kinds of experts. And so he is also, he is a scientist and an artist and he blends the two, which is why our products are unique. So he, he'll come up with ideas, he'll do a test batch, we'll

[44:33]taste it, we'll decide do we like it? Do we not like it? How would we tweak it? And then my job is to work with this federal government to get the formula approved and the labels approved. And then the state once, once it gets approved by the federal government and you're there, then you have to do the state paperwork. So he creates it. I work with the state and the feds so that it's legal and then we can launch it. There is a little bit of a funny story. He is very artistic. And so we did a line of spirits that each one has a poem on the label. So he wrote a poem about the product. Well, that that could be a little risky because when the federal government, it's the TTB, the Tax and Trade Bureau, when they approve a label, they prove every word, every picture, every color, the size of the fonts. You know they do. They do all that regulatory stuff. The poem has the rhyme. Well, no, it's doesn't have to rhyme, but it can't imply something that they say is a no, no. So what are the important rules if you're manufacturing alcohol is you can't say anything about if it's healthy and you can't say anything positive about it. So you can't say it's good for you. You can't say anything that implies good for you. So in his poem about the product, he used the word purity and came back and they rejected the label and they see then they said you can't use the word purity. Like that's a no, no word. So he had to rewrite the poem. Stop that. They would approve it. So, you know, it's it's these are the kind of fun things like around the dinner table. You sit there and you talk about, you know, remember last month when they wouldn't approve your puffery? It's. Fine. Like for the for the distillery, for the wine, the for the business. Like, do you have like a target customer you're targeting? We are very, very super small, so Steve and I are the only full

[46:39]time people. We do everything and unlike many other wineries and distilleries, we don't buy any outside alcohol. So we source grapes, cherries, plums and make wine from those and some of those will turn into Brandy's. And we also source corn, barley and rye from grain growers and everything's New York State. And we don't buy any outside alcohol. We don't even buy malt. So our we do our own malting for our single malts. So one run of malt equals 1 barrel of single malt equals these bottles. So it's single barrel, single bottle. Full control over the whole process. We have control over everything and we do everything, which is why we can tell people about everything that we do. And that seems like it should be normal, but it's not normal. Yeah. And and so everything is very small batch. There are some products that we make literally a case at a time because they're so specialized. But why do we do that? We do that because we direct to consumer distribute. We're not going through distributors. We're in some retailers, we're in some bars and restaurants, but we primarily sell directly to customers. And so for us it's all about the quality. We're trying to give somebody something really special that they can't get anywhere else. So, so they they want to drive to see us because if you want something that anybody else could make, you can go to a store and buy it. So we felt like for our business, we wanted products that we're so special people would drive to get them. Yeah, it's very rare that somebody would control the whole process. Yes, very unique story. It's it, but it's, it's, I mean, that's the way we roll. It's not that's, that's what we want to do and, and, and so it's different. So we give people the opportunity to taste products

[48:41]that are lower manipulation made right here, you know, highly local so. Gotcha. As the alcohol industry goes up and down, well, like is it, is it like being a small advantage? Because then there's always that niche that appreciates the higher quality. It makes us a lot more resilient because we can make changes very quickly. So that's helpful. But you know like you said, the industry is going up and down. We're competing we. And when I say we, it's not just my business. All of alcohol is competing with the legalized THC marijuana sector and also the gambling sector. So in a world where, you know, alcohol is a luxury, drinking's recreational is not required. And so when people don't have disposable income, they have to choose how they're going to spend, what little disposable income they have. And so we're competing against everything that's fun, everything that's not required food, required healthcare, required housing. Yeah, because right now consumers are, you know, they're hurting and we know that. So what we tried to do, one of the things we did was we went from full size bottles to half size bottles. So if somebody wanted to come and taste something and take it home, they could buy a half size bottle. Yep. The other thing is and, and realize that when you just like when you cook at home, it's less expensive. If you make cocktails at home, they're less expensive. So in a full size bottle of alcohol you have about what they call 17 shots. So you can make 17 cocktails from that. Bottle. That's a lot of cocktails. That's a lot of cocktails. So if you have $100 bottle, right, I'm going to do the math. Right now I'm getting my calculator. OK. So I have $100 bottle and I divide it by 17. That's $5.88 a cocktail.

[50:45]Gotcha. What bar can you go to and what RTD can you buy that's going to give you high quality small batch craft cocktail for $5.88? That's great, it's freshly made the 2. Yeah, so we don't make cocktails, we just sell you to make it home. But but when you start thinking about, I'll call it splurging because it is a splurge on on a quality craft beverage, if you do that kind of math, you can justify it, Yeah. That makes sense, and it's a whole experience too. It's a whole experience. Yes, it is. And look out. I'm I'm the first to say, even as a distiller, Steve and I don't drink a lot. Like we'll have two or three cocktails a week maybe. Maybe that would be a big week for us. So we're not encouraging people to drink a lot. We're encouraging them when they choose to drink. Really make it count. Like have good product, have quality flavors, know where it came. From so like the food scientist in him, he's able to get the right smells, the right taste. But like, like what makes it like a high quality smell, a high quality taste? Like what makes it the high quality? Well, what we would say is when you're distilling, so distilling is separating things by boiling point. That's essentially, you know, so if you're in P chem class, it's you're separating by boiling point. OK. The ethanol comes out over a range, so there's a range of boiling points where the ethanol that's in what's the in the mash is is coming out. You can choose to make your cuts. So think of it in three phases. The first thing that comes off our heads, they're highly volatile. It's it's explosive. It smells like gasoline. And if you throw a match in it, it it will go.

[52:47]So that's the heads. You do not drink heads, they're dangerous. They get disposed of. We spend a lot of money to environmentally friendly dispose of those those things. Yep, OK. A truck comes on a regular basis and takes them away. Then there's the heart. The heart is, is, is that's the stuff you drink. That's where the ethanol is, That's where the flavors you want are. And then you get what they call the tails. And the tails are oily. And in some manufacturing processes, those tails get recycled back. And there's all kinds of things you do, but the tails typically don't taste very good. So if you're making high volume, low cost spirits, you typically take, you know, you go from narrow to wide. So you take a little bit of the heads and a lot more of the tails into your batch. If you're making very high quality, you're actually cutting in the heart so the heads come off and then you're like, OK, it's tasting good, I'll start now. So you're in the hearts, and then when it gets close to the end, you'll take your next cut. So you're taking the middle of the middle as opposed to the edges of the middle. That makes sense. And that. Just is that because it's like a big barrel? So so then like parts of it is that the head part, other parts are in the heart part already. So no. No. So the only thing that goes into the barrel is the head is the hearts. Only the hearts would go in, yeah. That's what you drink. Everything else is waste and it's toxic waste because it's got alcohol in it and other things so you have to pay to properly dispose of it. That's why the truck would come and get it. Yeah, that makes sense. Super. So for the closing question, I always ask the guest, what's the kindest thing anyone's ever done for you? Wow, kind. So you know I'm gonna something very early, early in my career. So one of the things that I believe is feedback is a gift, right? So I can't improve unless you tell me what I'm doing

[54:48]incorrectly, poorly, wrong, whatever. So if you're going to give me feedback, even if I don't necessarily want to hear it, it's a gift because I can only improve if I know what I need to change. So very early in my career, when I was a consultant and I was a brand new project leader, I had a client take me aside and tell me two things. Your boss doesn't like you and I defended you. And I'd say that that's probably the kindest thing anybody's ever done, because the most impactful thing you can do for a young person in early in their career is if somebody says something about their performance that you don't believe is true, is defending them and saying, well, that's not my experience. You know, I actually see a lot of positive stuff. What, you know, Are you sure that it was Kim? You know, that kind of thing. So, so this person defended me and then told me about it and told me what it was that this person was complaining about. So that then I had the ability to change, to have a difficult conversation with my boss. And ultimately I think that was one of the things that made me successful long term in consulting. And so I would say that, you know, it was tough love because it wasn't necessarily what I wanted to hear, but they had the they cared enough about me to give me the feedback that I needed in real time when I needed it. So I would call that kind. Super. Thanks for sharing, Kim. Thank you, Tony.