Based on my involvement with a number of ESOP boards and my own experience as CEO and chairman of the board of OwnersEdge, a Wisconsin-based ESOP holding company with five affiliates, I’ve noticed an opportunity for more strategic board leadership. Specifically, many ESOPs lack a strategic chair who diligently guides the board and executives to focus on long-term growth and expansion. A strategic board chair can turn the knowledge, expertise, and skills of a talented board into a competitive advantage that benefits the ESOP for years to come.
There are a few different board “iterations” I’ve noticed over the years, and I identify them as either playing defense or offense. Those boards that are playing defense are focused on risk mitigation and survival management—the basic elements of keeping the company operating and functional. Those boards that are playing offense are looking to catapult the ESOP ahead of the competition and enhance shareholder value.
A “Hierarchy of Leadership” pyramid, which an OwnersEdge board member and I recently developed, helps explain how many ESOP boards currently function and how they can ladder up.
Found“er”ation — This term applies to those boards that are led by the company founder. At some point in the company’s evolution, the founder assembles a board of trusted individuals who are typically part of his or her inner circle, be they close business associates or family members. Often these board members are like-minded individuals and, guided by the founder/chair, they act as a sounding board for the founder on a variety of day-to-day elements of the company. This group is focused on providing “daily” assistance to the founder and, in my categorization, is playing limited defense.
Operational Leadership — The next evolutionary step is toward operational leadership. At this stage, the founder begins to tap outside talent—individuals who bring a fresh perspective to the board. The board is now a mix of inside and outside members but remains chaired by the founder. With a more diverse group, this board may start to look a bit further down the road but still retains its focus on operational elements.
Tactical — This group is composed primarily of external board members and can be highly efficient and skilled. The board includes experienced individuals who focus on the tactical fiduciary responsibilities of board work. It’s a board that is filled with horsepower and focused on checking the financial and risk management boxes. Board members convene regularly and go through a series of checks and balances to ensure the company is healthy, sound, and in ESOP compliance. While the board is still in a defensive mode, it is beginning to evolve.
Building Capacity — This is the stage where a board turns from playing defense to taking an offensive position. It is at this level where the board chair and the entire board can become a competitive advantage, encouraging the company to look forward one to three years and focus on growth and expansion. The board continues to maintain its fiduciary responsibilities, but those do not dominate the agenda. Instead, the board looks to harness the talent it has assembled to strategically guide the company with its long-term thinking.
Long Term — These boards are defined and energized by chairs who has been selected for their experience that allows them to effectively lead a diverse group, leverage the skills and competencies of board members, and facilitate annual long-term board planning. To find this type of board chair, there must be compensation, a detailed qualifications criteria, and a written job description. The search committee should source a chair who is highly engaged, productive, ESOP-networked, and committed to being active outside regular board meetings. That activity may be weekly or monthly check-ins with the company president and CEO, coaching and mentoring of the president and CEO, and annual president and CEO performance reviews. Within the board, the chair should develop an authority matrix for board decision making, including acquisition strategy.
To reach this pinnacle where the board becomes a deep resource and competitive advantage, the board must have a five- to ten-year vision, while the CEO and executive group pursue a one- to three-year future that aligns with the board’s longer-term vision.
While identifying, recruiting, and compensating a strategic board chair requires significant time and effort, it is an investment that ensures the continued growth, success, and longevity of the company and returns value to its shareholders.