The other night, I asked my family what they wanted for dinner. My wife said she wanted “something healthy,” but never mentioned sushi was on her mind. My older daughter loudly insisted on pizza. My younger daughter said nothing at all. I wound up picking up pizza and ordering a couple of sad salads from a local Italian place. My older daughter was happy, but no one else was.
Boards face the same problem when shareholders don’t clearly express their needs, requirements and desires. This challenge is especially acute for private companies. Unlike public companies, where directors can anchor decisions to a broad mandate to maximize shareholder value, private company directors often find themselves in a difficult situation, especially when shareholders are disengaged, divided or want very different things.
This can put boards in a tough spot. Some shareholders may prioritize dividends, while others want reinvestment for growth. Some may see the company primarily as a financial asset, while others view it as a family legacy. Still others may barely engage at all, content to stay on the sidelines until something goes wrong. For directors, trying to interpret or reconcile these different, and perhaps even conflicting, expectations can be challenging.
The healthiest boards are the ones that work hard to deeply understand shareholders’ goals and push for mechanisms that surface those goals before they reach the boardroom. In many private companies, and especially in family businesses, an owners council, family council or formal survey process can help create that clarity and advance toward a workable consensus. These bodies can develop annual shareholder statements of priorities and expectations, reviewed alongside financials. However it’s done, the board’s ability to serve shareholders is only as strong as the shareholders’ ability to give guidance to the board in a coherent voice.
As I’ve noted before, a close relationship to their shareholders is one of the great advantages of private companies. Unlike public company directors, private company board members can and should know their shareholders intimately. They should know not just their financial expectations, but their values, time horizons and aspirations for the business that go beyond the economics. And because private companies are not as short-term-focused as many public companies, directors can encourage shareholders to think in decades, not quarters. That long-term view often leads private companies to better support multiple stakeholders, including employees, customers, suppliers and communities, with investments that may not pay off immediately, but ultimately will build enduring value for the shareholders themselves.
But when shareholders don’t articulate their goals clearly, directors are left guessing. In some cases, they default to serving the most vocal faction, leaving quieter owners feeling alienated. In others, they try to split the difference, pleasing no one and eroding trust. Or they are forced to referee internal disputes. None of these outcomes is sustainable.
The lesson is simple: directors cannot serve shareholders well if they don’t know what shareholders want. That knowledge doesn’t happen by accident. It requires discipline, communication and governance structures like family or owners councils. It requires shareholders to do their own work to make their priorities visible and meld the many shareholder voices into one chorus.
In the end, directors serve the shareholders. But shareholders owe directors clarity. Without it, boards end up like parents fumbling through a dinner order as they try to satisfy the loudest request while disappointing everyone else. With it, directors are freed to govern with confidence, focus on the long term and help enable the business to create lasting value for the owners.