Just as in other types of companies, the Board of Directors in an employee owned company has both legal and fiduciary obligation to their shareholders (in an ESOP, the employee owners). Clearly, the duty of care (avoid harm to the corporation), duty of loyalty (do not put personal interests ahead of the shareholders) and the duty to act in good faith and follow the law are critical tenets for ESOP Directors.
However, avoiding liability in and of itself is not what leads a company to grow and ultimately be successful. The best Boards of Directors can and should also play a key role in achieving overall organizational success.
Organizational Success and Employee Engagement
Of course, every company has a different definition of success. For some, it is simply monetary. For others, it may be exclusively mission-based (like renewable energy) or making a difference in some manner. However, in my experience, most companies (and most ESOPs) have goals relating to both mission and profitability/growth.
In the last 10 years, there has been a lot of attention paid to employee engagement as a critical factor in business success. In the Harvard Business Review's 2013 article "The Impact of Employee Engagement on Performance," a large-scale study found that 71% of executives ranked employee engagement as very important in achieving overall organizational success. Yet, only 24% of these same executives say that employees in their organization are highly engaged!
Why the discrepancy? Probably because creating strong engagement takes attention and flat out hard work. It strikes me that given this driving engagement is an area where a strong Board of Directors can make real impact.
The Role of the ESOP Board
It is believed that true engagement is driven primarily through consistency: consistency in communication, consistency in goal setting, performance expectations, compensation plans etc. More broadly, you could say it’s driven by a consistency of living and behaving according to your core values as a company.
While directors should not be conducting the tactical activities above with staff, they can be driving engagement through their interaction with the CEO.
One of the key responsibilities of the board is to set expectations and evaluate the performance of the President/CEO. A fundamental tenet of management is that things which get measured and rewarded tend to get done. Is the board insisting that there are programs and systems in place to drive employee engagement? Is it made clear that the President/CEO is responsible for employee engagement? Is a portion of his/her annual bonus based upon fulfilling these objectives or some other measure of employee engagement?
The great thing in an ESOP is there exists an inherent reason for employees to become engaged…they own the place! Of course, simply being an owner doesn’t automatically mean every employee is aligned and engaged, but it creates a very nice start!
The CEO, senior leadership team and the Board of Directors can (and should) be taking advantage of this to the fullest. After all it’s a tough world out there, any business needs to leverage every advantage to the fullest to compete and win. And of course, in the ESOP world, when the company wins, so do the all the employee owners!