“The great thing about a partnership and having a sounding board is you may not have tunnel vision completely go away, but at least your ‘tunnel’ is expanded from a few other points of view,” says Stacy Sheldon, Managing Partner at POMIET, a company that provides customized web and mobile solutions in the healthcare space.
“[With multiple owners,] hopefully we’re now seeing the landscape a little broader, a little differently, so that we can navigate it as smart as possible,” she adds.
As Stacy describes, there can be many benefits to having multiple owners or shareholders in a private business.
But what are the best ways for multiple owners to take advantage of those benefits, and also make decisions that are best for the business? Here we introduce 3 common ways multiple owners (across ownership structures) can improve their decision-making.
- Get overt about the differences between ownership and management roles.
The dynamics that exist between a business with multiple owners/shareholders, its outside board, and management can be complex.
“There can be confusion and dysfunction when shareholders or owners of the business are also employees and/or managers within the business. There can be a temptation to attempt to use one’s status as an owner to override management decisions with which the employee owner does not agree,” explains Mark Thompson, an Aileron Business Advisor.
In these circumstances, it becomes very important to both understand and practice corporate governance as it is formally defined within the organization’s corporate governance documents (such as Codes of Regulations, Operating Agreements, Shareholders Agreements, etc.).
Often in traditional corporate governance, the shareholders elect a board of directors to represent the interests of the shareholders. This is done at an annual meeting of shareholders. “The shareholders usually elect officers as well—CEO, secretary, treasurer, and vice presidents,” says Mark. “The annual meeting of shareholders is strictly an ownership meeting to conduct the very limited duties of the shareholders.”
The CEO reports to the board of directors. The board and CEO usually meet formally at quarterly board meetings. These are board meetings to represent the interests of the shareholders (owners), and to communicate these interests to the CEO.
While the CEO and executives are involved, these are board meetings, not management meetings, which is important for parties involved to recognize. “There can also be board committee meetings, such as finance, compensation, governance, etc., in which the CEO and board meet. Usually the primary communication is between the Chair of the Board and the CEO if they are not the same person,” explains Mark.
The CEO then hires and manages the executive management team. The CEO conducts meetings of the management team—often weekly or twice monthly. These are management meetings. There are usually departmental and/or team meetings as well. “These are all management meetings in which status as an owner should technically be irrelevant,” explains Mark.
In privately held companies where ownership often starts out as highly concentrated among one or a few owners, the level of formality above is often unnecessary. However, as ownership transfers and broadens to include multiple owners, it is critical to treat ownership and management discretely to avoid confusion and dysfunction.
- Proactively communicate
Rick Pavlak, President of Heapy Engineering, has seen Heapy go from a partnership structure to a corporation with 20 owners at present. Over that time, the way owners make decisions together has changed, shares Rick. “Back when it was a partnership, decisions could be made when partners got together, and gave their input. The managing partner made a decision and then everybody went back to work.”
Now, with 20 owners, they strive to be more disciplined in how they share and communicate key information to make strategic decisions that are best for the business. “We find communication is absolutely the hardest thing to get right. You can’t over-communicate,” says Rick, which is why Heapy emphasizes proactive communication across its shareholders (and the entire organization).
A business owner himself who has served multiple private boards, Mark agrees, pointing out the importance of depoliticizing this communication. “One of my favorite mantras is, ‘The clearest thought wins,’ and the reason is that clear thought is not a political thought,” explains Mark.
“The organization doesn’t care where the thought came from—whether it came from an owner, a manager, or a front line employee—the business doesn’t care. The business only cares that this thought helped create value for customers,” explains Mark.
“If somebody comes up with an idea that’s brilliant, it doesn’t matter whether it was the President or the newest owner who is buying in,” agrees Rick.
“For that ‘clear thought’ to come out, you have to work to get your topic and situations all defined well enough so that people can get an understanding of what the situation is, and how we plan to deal with it, and how they can participate,” adds Rick.
- Become conscious of what’s driving you
Rick says Heapy ownership is finding that they make better decisions when they are more self aware and more conscious of each others’ biases and values.
“Our shareholders have completely different goals and objectives based on where they are in their careers, for example,” explains Rick. While younger shareholders may be more risk tolerant and hungry for growth, older shareholders may have a different degree of caution. “We try to recognize what those biases and differences are. They are not good or bad; they help us to see and to know where we are and where others are coming from.”
Learning to have greater perspective about other owners, including their communication styles, has helped communication flow better and faster.
“We are owner-operators. That makes it different: we work in the business and we own the business. Our opinions don’t come without bias and conflict, and we know that,” says Rick.
An Outside Board Can Take Your Business to the Next Level
An outside board is one source of added accuntability that can help you clarify and define the differences between ownership and management roles. You need the tools and the right mindset to be able to best utilize your board so that it best serves you, and the organization—which is what you’ll learn at the High Performing Boards program.
Are you considering creating a board? Or do you have a board and you want to get more out of it? Learn more about the program below.