No. 20: Being a Good Steward of Ownership

01/28/2025|David Grau Sr., JD|, , ,
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A properly structured business can theoretically last forever, or certainly well beyond the founding owner’s career. The concept of being a good steward of ownership is that founding owners can use their businesses to accomplish good and to take care of all its stakeholders – clients, owners, employees, and the surrounding community. A well-managed business and purposeful leadership are agents of positive change – this is an opportunity, not an obligation.

Starting at a very basic level, being an equity steward is about setting up a business’s documentation to support a culture of continuity–specifically addressing when and how founding owners must offer to sell their equity at specific, predetermined intervals. This functionality supports next generation investment and long-term involvement in the business. As an overarching philosophy, stewardship emphasizes that owning equity comes with responsibilities beyond, or at least in addition to, profit and value maximization. Blending the short-term goals of a business with the long-term goals of the stakeholders is how one becomes a good steward of ownership.

Many successful family businesses have been built on a foundation of long-term stewardship, with owners prioritizing the generational health and sustainability of the business over short-term gains. There is absolutely no reason, however, that family-like businesses and professional service businesses with unrelated owners or leaders cannot do the same. Equity stewardship in a private business is an important philosophy that supports a powerful set of tools to reshape today’s business landscape, and includes:

  1. Attracting and Retaining Talent: In a competitive job market, employees are increasingly seeking ownership and a stake in the businesses they work for. Equity stewardship allows private businesses to attract and retain top talent by offering them a share of the company’s success.  
  2. Alignment of Interests: Equity stewardship aligns the interests of employees with those of the business owners. When employees have a financial stake in the company, they are more likely to be invested in its long-term growth and profitability.
  3. Motivation and Productivity: Equity can be a powerful motivator for key employees. Knowing that their efforts directly contribute to the value of their stake in the company can boost morale, engagement, and productivity.  
  4. Succession Planning: Equity stewardship can be an effective tool used through a formal Succession Plan in a privately held, Professional Services Business. By gradually transferring ownership to key employees, business owners can ensure a smooth transition and continuity of leadership.
  5. Tax Advantages: Depending on the specific plan design, equity stewardship can offer tax advantages for both the business and its owners.
  6. Increased Business Value: Companies with strong equity stewardship programs tend to have higher employee retention, productivity, and overall business value. This can make the business more attractive to potential investors (G2s and G3s) or acquirers.

…and that is the short list.

By embracing these principles, you can become a good steward of ownership in a privately held business, creating a company that is not only profitable but also sustainable, responsible, and one that contributes positively to your community. Practically, this is a business that can serve the children and grandchildren of the current client base and in more ways than one.

Read Lesson No. 23. in Building With the End in Mind for additional, specific stewardship rules you might consider for your business.

One final thought, too many owners make the mistake of thinking that their business is somehow different or unique and that such stewardship rules best apply to everyone else, but just don’t fit them…I don’t agree and I don’t believe that. There are far more similarities between privately held professional service businesses than differences. Being good stewards of ownership and leadership has to start someplace – why not with you?

Thanks for reading,

David Sr.