by Paul Kelliher
Market Managing Partner
Every corporation has a board of directors, but not every board functions in the same manner. Board members of large publicly held companies are elected by the shareholders and are charged with representing their interests and overseeing management. In small privately held firms, the board is hand-picked by the sole stockholder (the business owner) usually from among management or family members, and it normally convenes only to transact regally required tasks, such as the annual meeting or the opening of a new company bank account.
Few entrepreneurs have attempted to broaden the business talents and scope of activities of their boards. They tend to be extremely self-reliant and hesitate to go outside when it comes to seeking advice. Indeed, this may not be necessary in the formative stages of a business.
But as a business develops, and such complex issues as plant expansion, acquisitions, or public offerings begin to surface, entrepreneurs may discover they need outside help in key areas. Specialized knowledge may be needed (or just broad-based business wisdom) with nobody at hand to provide it. It’s at this point that the entrepreneur may want to consider expanding the company’s board to make it less of a formality and more of a vehicle for business planning (in other words, a brain trust). More…
Dividends Play an Important Role in Rewarding Shareholders, but Must be Viewed in the Broader
Context of the Varying Liquidity Needs of Shareholders and their Vision of the Company’s Future.
by François M. de Visscher
For many family firms, the lack of a dividend policy is a serious omission at best, and a recipe for a shareholder-relations disaster-or a family feud-at worst. At the same time, a dividend policy formulated without consideration of other liquidity options, and outside the context of the company’s overall capital needs, is also a serious mistake. There are many ways to slake the thirst of shareholders, particularly inactive shareholders, for liquidity. Dividends are but one.
Lack of liquidity is one of the most common sources of discontent voiced by the shareholders of family firms. As the family and the business grow, the disparity in the financial and economic goals of shareholders increases. The shareholders active in management want the business to grow and the stock to appreciate. They prefer to see “excess” cash reinvested in the business, rather than frittered away on dividends. But the inactive shareholders tend to see their equity as an investment on which they are entitled to a return comparable with other investments. Oftentimes they view the business more as a cash cow than a long-term family enterprise, especially if they do not have other sources of income. More…