Lewis Tree Service, Inc. is a 100% employee-owned company, an ESOP, and a pretty good sized one at that. When we were privately held, we had a board of directors composed of four operating executives with me as the sole “outsider.” That changed when we implemented the ESOP; we expanded the board from five to nine, adding four outside directors at the same time, but with staggered three-year terms. A lot changed from that point forward and there have been many lessons learned. Here are a few takeaways.
Bringing so many new directors on at one time made it a bit difficult to “mainline” them into the mix. In retrospect, at least in the first year or so, it seemed as if they were thrust into a situation where it was easier for them to connect and communicate with each other than it was to do so with the executives/inside board members. Add to that that there was some resistance as they each brought to the table their own experiences in other companies and sought to champion protocols and disciplines which they felt were important to our emerging company.
“Reflecting back, for us an outside board was the right thing to do but nine directors was too many.”
Eventually though, we all settled in together and had a good ride for multiple terms. Lesson learned: unless in crisis, add new directors one or two at a time. I was the one addition many years ago and often thought of myself as the Lone Ranger, standing alone on many issues and votes. It’s nice to have a little company when you’re new to the table.
Reflecting back, for us an outside board was the right thing to do, but nine directors was too many. We’ve come a long way since those early days, now almost 20 years ago, and we are more passionate than ever about our responsibility for good governance and shareholder value.
Today, we carry out these responsibilities and others with six directors, targeting seven as opposed to nine. Not necessarily for other companies, but for us, the lesson learned was that six or seven directors, fully engaged, can say all that needs to be said and usually reconcile differences, in the course of quarterly committee and board meetings supplemented by interim discussions with each other and the executive team.
And yet another of the many lessons we’ve learned is refining the process of selecting new directors. Most companies have nominating committees and they in turn have processes to validate the credentials and experiences of director nominees. So do we, and we’ve added a step: Once director candidates have passed “muster,” under the cover of a confidentiality or non-disclosure agreement, we ask them to attend at least two board meetings as paid advisors. During the course of those meetings they can evaluate the board/members in action while the board evaluates them.
Following the two meetings, the board determines if it wants to move forward and if so, the candidates are asked the same. If all are positive, the nominations are made, in our case to the ESOP Trustee, and the new directors are added for three-year terms.