Exploring the Benefits of Outside ESOP Board Members

Thoughtware Alert Published: Apr 05, 2021
A client and an advisor shaking hands

Nearly 75 percent of employee stock ownership plan (ESOP)-owned companies have outside directors on their boards, according to the National Center for Employee Ownership. This hasn’t always been the case in the ESOP community, but the trend to have outside directors has been increasing over the years. Many independent ESOP trustees will negotiate to require one or more independent directors be added to the board, especially if the ESOP is acquiring a controlling interest in the company. 

Adding the right independent director to the board can be a tremendous asset to the company and ESOP. However, it may not always be easy to find a person who will bring value to the company and fit in with the board’s culture. 

An Interview with Tracy Till, Chairperson of the Board of Butler/Till

BKD Partner Cara Benningfield interviewed Tracy Till to learn more about how outside directors can have a positive effect on ESOP companies. Tracy is the co-founder, co-CEO, former vice chair, former nominating chair, and current chairman of the board for Butler/Till Media Services, Inc., a media and communications company providing integrated marketing solutions with heavy use of data and technology. Butler/Till is a 100 percent ESOP, a B Corp, and a WBENC, based in Rochester, New York. 

Cara: Tracy, what advice do you have for ESOP companies that are thinking about expanding their board of directors?

Tracy: As CEO or member of the C-suite, your primary obligation, and value, to your organization as a leader is to “future proof” the firm. And as an ESOP, the obligations and duties of care, loyalty, and fiduciary responsibility to your employee-owners are equally as important, as their “healthy financial future” falls to you and, if you’re lucky, a diverse and committed board of directors. 

A strong board of directors is a team of professionals that brings a unique skill set to the firm, filling in the gaps of your—or the firm’s—weak spots. They will serve alongside you to “future proof” the firm, granting the experience and unique expertise needed to deliver on the organization’s vision. This group of individuals should provide inspiration, assist with any course correction, and always have the backs of the organization and its employees in good times and in bad. 

In short, just like a great employee you trust, they make you better. 

Cara: How do you begin this process of changing your board makeup?

Tracy: Strong firms and leaders see their board as a resource, and they limit granting board seats to internal employees, vendors, or friends. It takes a fearless CEO and often the board chair to push beyond what’s comfortable or easy or what’s been historically done to fill board seats. Your vision for the future, the content within your strategic plan, and your expectation for growth and success tell you the makeup of your board talent needs to match your visionary intent to “future proof” the firm. 

Cara: Why should ESOP companies consider adding independent board members?

Tracy: As you review your firm’s strategic plan with a view that’s anywhere from three to 10 years out, can you get there with the talent within the firm? Can you deliver on the defined vision in the time outlined or earlier? Would someone with a skill set or discipline other than your own and experience about the “road ahead” be of help? I often refer to this exploration of the “who” as a dance, whereby you’re aligning the growth of the firm with board member talent that will boldly, fearlessly provide brainpower, connections, and industry knowledge to help the firm “level up.” They may be individuals you’d love to have on the payroll but whose compensation requirements would be cost prohibitive, or whose skill set is so niche that the hire wouldn’t be justified. And, finally, these are truly independent thinkers who come to the board table without preconceived notions or unbiased opinions. 

Here are a few examples. You can’t afford a chief technology officer but desperately desire technology insights and a road map of what’s happening ahead for your operations, your service or product offering, and your talent. You’d like to work with a mergers and acquisitions guru who can assist with vetting prospective targets and who has the experience to highlight the pitfalls of culture and talent integration. You want the expertise from a global HR strategist whose view of talent and technology will help your team prepare for what’s to come in the years ahead. And as an ESOP, there’s an obvious need to have an experienced financial, legal, or C-suite talent on the board to provide oversight and strategic insight on the complexities of administration and repurchase obligations. These are just a few key examples, and there may be many more depending on your firm’s direction and need. Constructing this “dance card” not only assists you but can be as equally rewarding and opportunistic for your team. Would any of the board members noted here be great mentors for your leadership, managers, or those folks you tap as high potentials? 

Cara: What are the cost considerations of expanding the board?

Tracy: A board that enables you to “level up” and grants new benefits you’ve only dreamed of should cost a bit more than a traditional board (where you’re okay with the status quo). There are a slew of resources out there that profile board compensation, and I’d encourage you to seek them out for review (for example, the NACD, PDA, and the ESOP Association). A great nominating committee chair can assist you or your internal HR team. I encourage you to look beyond the ESOP data and consider both the private and public board insights, customizing options that fit your culture, focus, and vision. (Some specific industries are more expensive than others, but if it’s imperative to tap that talent, don’t shy away from discussions with prospects. You never know.) 

Cara: How do you manage the experience of implementing these types of board changes?

Tracy: Permission. You have permission to create “terms” that work for you, e.g., two-year, three-year, or more. Allow for second terms when talent is incredible and you want continuity. You also have permission to tweak the board mix (by industry, experience, diversity, etc.) based on shifts in your vision or strategic plan. You have led the organization to this point—be brave and never settle. 

Onboarding and relationships are also critical. You must plan for the onboarding. Introducing new faces and talent to your organization is a requirement. Inclusion in an all employee/owner meeting goes far, and sit-downs with key department leaders to create a deeper understanding of the mission and structure within the organization truly make a difference. 

Detailing and showcasing the board operations, e.g., reviewing key content, forms, terminology, or resources such as the board portal or software, is an excellent process to deploy. 

And finally, facilitate connections. We host a dinner at each quarterly board meeting to encourage personal connections among the board members. Humanizing our work and forming bonds are critical to our firm culture. 

Cara: What does the Butler/Till board look like? 

Tracy: Our board consists of independent board members. The board makeup for Butler/Till includes a killer ESOP specialist and business generalist, a former global agency COO, a former global healthcare CMO, and a “new to the board this Q4” marketing technology guru. Our independent directors are paid well, yet fairly. Has it paid off? Well, we will exceed 2020 financial expectations in spite of a global pandemic and economic uncertainty, and we’re “leveling up” our strategic plan given our continued growth. So, yes, these incredibly talented board members make us better. (And, yes, we’ve changed the makeup since inception!) 

If you have further questions regarding board structure or governance within an ESOP-owned company, reach out to your BKD Trusted Advisor™ or use the Contact Us form below.

Kate & Ben — How can we help you? Contact Us!

How can we help you?