Considerations for adding key leaders to your ownership team

Q&A with Scott Danger and Leah Davis

When it comes to succession planning, having family members who work in your business may give you an obvious solution. If you don’t—or if your family members aren’t interested in taking the reins—you may look to your key leaders as potential owners.

While this could be a reasonable course of action, it should not be done without careful consideration.

To help you weigh the implications of adding key leaders to your ownership team, we sat down with Abdo succession planning and business valuation partner Scott Danger and HR and payroll solutions advisory partner Leah Davis.

Here are their thoughts on the topic.

Abdo: Why would you want to add key leaders to your ownership team?

Scott: It certainly could be a way to continue your company legacy, especially if you don’t have family members within your business or if you want to step back in your business but aren’t ready to sell—but only if it aligns with your goals and the goals of your key leaders.

For instance, let’s say you’re planning to sell your business in 3–4 years. In this case, you might not want to bring in additional owners. Or, if a key leader is 60 years old and wants to retire in 2 years, they probably wouldn’t be interested in ownership.

Leah: Transitioning your business to key leaders can also give you peace of mind that you’re leaving your employees in trusted hands. But yes, to Scott’s point about goals: If your goal is to retain key leaders, offering ownership may not be your best solution.

Abdo: Do key employees typically consider ownership an incentive?

Leah: Offering ownership is one way to retain key leaders but it’s not for everyone. Not because it’s a negative, but because not everyone wants it. Buying into a company involves a certain level of risk and upfront investment that some individuals aren’t capable of or interested in accepting. And there are so many other ways to retain an employee, such as cash, deferred compensation payouts, and bonus programs, to name a few.

It’s worth noting that members of the incoming workforce demographic aren’t always interested in doing the same job for their entire careers, although there are exceptions!

If you’re seeking to retain a key leader, start by having the right conversations and listening to what they value. Then you can explore options based on their response. You may have five key leaders and each will want something different; it’s important to be open to this.

Abdo: If you did have a key leader who expressed interest in ownership, how do you know if they’ll be a good fit?

Scott: First and foremost, they need to be someone you could sit around the conference table and get along with. You can have leaders who are terrific in their roles, but they may rub the rest of the ownership team the wrong way. For key leaders to become owners, they need to be able to fit into the culture of the ownership group.

Leah: Any key leader considered for ownership needs to truly be a leader. Do they embody organizational culture in a meaningful way? Are they an individual who employees already see as a leader? Ideally, they should already be acting like owners. You need demonstrated experience to ensure they’ll be a good fit. You can’t fix problems or expect negative behaviors to change once they get ownership.

Abdo: How do you start a conversation about ownership with key leaders?

Leah: Make it a point to sit down with key leaders and talk strategically about the organization and where it’s going. Be as transparent as reasonably possible, and ask where they see themselves with the company and in the long term, personally and financially.

If you see them as someone you need to retain in your business, tell them! “We need you here and retention is something we’d like to focus on. What would your role look like to make you feel like you want to be here for the next 15 to 20 (or however many) years?”

Scott: Notice this is a conversation that doesn’t bring up ownership; it’s focused on retention. As soon as someone hears talk of “ownership,” it’s possible they might interpret this as “I can be an owner someday.” This might not be a possibility, so it’s important to avoid mentioning ownership until you know with certainty it’s something you want to offer.

Abdo: Finally, what are some cons of adding key leaders to your ownership team?

Leah: Remember that bringing in multiple owners will dilute your decision-making process. If you choose this route, you’ll need to think hard about how decisions will be made with new partners around the table. And if you do intend to retain full control, it’s important to share this with key leaders before they buy in.

Scott: There can be several, which is why it’s so critical to think this through. One thing to keep in mind throughout the process: It can be more difficult to divorce yourself from a business partner than a spouse. So, you really want to be certain any potential new owner will be a good fit.

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To learn how the Abdo team can help you map out the future of your business, contact us today.