As the year winds down, majority owners can hit the ground running in the new year if they adopt business resolutions that motivate their executive group and create the potential for the company to reach new heights. The benefits of these resolutions include achieving more efficient operations, establishing better teamwork, and instilling a renewed sense of purpose that will position the business for greater success. It won’t happen by accident, however, and will take both thoughtful analysis and a definite action plan to complete. This post identifies key areas in which New Year’s resolutions – if they are actually carried out – can create positive impacts for the business not just in the next 12 months, but for years to come.
Open the Window – Improve Transparency
Smaller companies tend to operate in a more siloed fashion than larger businesses. The majority owner makes decisions that may not be explained or fully understood by others, which can include minority partners in the business. This lack of clarity can be addressed by creating more transparency in the management and operation of the business. This will require more formality in the way the business is governed, including by holding regularly scheduled meetings of the leadership team, as well as meetings with all owners and more written communication being provided to managers and the ownership group.
This is referred to as good business hygiene. Formal meetings — with agendas issued in advance — should be held regularly, at least monthly, by the management team. Meetings also need to be held with the ownership group on a quarterly or semi-annual basis. In addition, the majority owner should arrange for the company to distribute quarterly financial reports to all managers and owners, along with a year-end summary report and a projection of the company’s anticipated financial performance for the year ahead.
The majority owner’s reaction to providing this level of transparency may be that it will create new burdens that are significant and unnecessary. That response is understandable, and more transparency will require more planning and more effort. But the important upside is that the owner is likely to receive greater buy-in from other stakeholders in the business when they are permitted to participate more actively. Further, other stakeholders may have valuable input to share with the owner, including constructive feedback, that would otherwise be missed.
Fix the Gutters — Improve the Company’s Foundation
In addition to creating transparency, the owner should evaluate the business to improve its foundation. In this regard, it may be time to update the existing governance documents – the bylaws or the LLC company agreement – which have become stale and/or outdated. Similarly, if the owners in the business do not already have a buy-sell agreement in place, that is an important missing piece that can be addressed to provide the majority owner with a redemption right and to enable the minority partners to secure a future buyout of their ownership interest when they choose to depart. Buy-sell agreements were the subject of a previous post, which can be reviewed here.
Why should the company’s governance documents be updated? If these documents were created five to 10 years ago, they may no longer fit the business or the manner in which it is currently governed. As just a few examples, the LLC agreement may not reflect the current size of the board, it may include provisions that are not being followed by management, the amendment provisions may be unwieldy, and the governance documents may no longer fit the business or the manner in which it is being governed. This governance review is therefore a step in positioning the company for streamlined operations and for future growth.
In addition to reviewing the governance documents, the owner should evaluate whether the company’s location is ideal, or whether a move to another state or another office location would unleash more potential. Similarly, if the company does not already have any incentive stock option plan in place to incentivize employees, that should be considered. These plans do not have to provide the employees with equity, i.e., there are ways to create “phantom” stock that provides considerable motivation to employees as it allows for additional compensation to be earned but does not create a new class of ownership in the business.
Finally, the company may also want to adopt a formal dividend or distribution plan that calls for distributing some portion of the company’s profits to owners. This will be a flexible plan that does not constrain the growth of the business. The plan would provide the owner with discretion to retain most of the earnings for reinvestment, if desired, but allow the ownership group the opportunity to participate to some extent in the company’s success on a current basis.
Clean Out the Attic – Address Lingering Personnel Problems
The last area involves making hard decisions about personnel changes. This may require the owner to remove dysfunctional board members, managers, employees or minority partners. Personnel problems rarely improve over time, and instead, they tend to become more dire. As a result, it may be challenging to take the difficult, but essential, step of engaging in addition by subtraction by removing people from the business who do not share the owner’s vision, who are blocking the company’s ability to grow, or who take too much of the owner’s time.
While this removal process can be arduous, it will likely open the door to some new possibilities. With the removal of management personnel or minority partners, this may permit the owner to expand the board or management group to add new enthusiastic members who have different skill sets and approaches and/or or allow for investment in the company by new owners who can contribute both financial and knowledge capital to the business.
As a final note in this area, company owners who are not already involved in leadership groups may want to consider hiring an executive coach for one-on-one strategy sessions or join a leadership forum with other business owners such as YPO, EO or Vistage. These groups provide business owners with support and valuable feedback.
A strong leader knows how to motivate others. In Inc. Magazine, Jim Tobin discussed leadership lessons he had picked up from spending time with “Coach K” – Mike Krzyzewski — Duke’s renowned basketball coach. One of these was to “motivate with the why.” As Tobin explains:
. . . it may be tempting to jump into the minutiae, to attack the meeting
agenda, make decisions and move on to the next thing. One of Coach K’s
strengths is his ability to step back, help the group see the big picture and
remind everyone of what we’re all working to achieve. It’s quite motivating
. . . Periodically reminding people of the “why” is a skill any leader can use
to motivate others.
A majority owner who evaluates and then implements the resolutions discussed in this post will explain the why, motivate others at the company, and energize the business for success.