Notes on chairing a private board where shareholders and management overlap

There is a class of private board where the shareholders and the management team are the same people, or close to it. Founder-led groups, family-owned holding structures, partnerships that have institutionalised. These boards have a specific problem, which is that the conventional separation between governance and management has to be invented rather than inherited. It is harder than it sounds.

In a public-company board, the separation is given by law and by the share register. The shareholders are a diffuse group. The board represents them. The management runs the business. The lines are written down. In a private board where the shareholders sit in the room, the lines have to be drawn by the chair, and they have to be drawn in a way that the same people can switch between roles without confusion.

The discipline I have seen work is to chair the meeting as two meetings. The first part is the board meeting. The directors, including the directors who happen also to be shareholders, are sitting as directors. The questions are governance questions. The fiduciary duty is to the company. The second part is the shareholder conversation, sometimes formally minuted as a shareholder discussion, sometimes informally noted in the chair's file. The questions are shareholder questions. The interest is the shareholder's interest, which may not be identical to the company's. Separating the two parts of the meeting is artificial, and it works.

The hardest moment in this kind of board is the moment where the shareholder interest and the company interest diverge. Dividend policy is the obvious example. So is the question of when to take new capital and how. So is the question of how to handle a buy-out request from a departing shareholder. In each case, the chair has a small but important job, which is to insist that the board hat is being worn when the board is being asked the question, and the shareholder hat is being worn when the shareholders are being asked. The same person can wear either hat. They cannot wear both at the same time.

There is also a softer issue, which is that founder-shareholders often experience the board as an obligation. They built the business. They know it from the inside. The board is sometimes felt as something that has been imposed on them by professionalisation. The chair has to make the board feel useful to the founder, not because the founder needs to be persuaded, but because a board that the founder does not value is a board that the rest of the executive team will quietly route around. The chair's job is to make sure the founder leaves the meeting feeling that the board asked a question worth answering.

The other side of the same problem is the non-shareholder director. The independent non-executive who has been brought onto a founder board is often the most important director in the room and the most fragile. They are independent by definition. They are also new. They do not have the share interest. They do not have the operational history. They have only their judgement and the chair's protection. A chair who does not protect the independent voice, especially when it disagrees with the founder, is running a board that will lose the independent within two years.

My working test for whether a private-shareholder board is functional is to ask whether the independent non-executive feels permitted to chair a difficult conversation when the chair leaves the room. If the answer is yes, the board has developed the working norms it needs. If the answer is no, the chair still has work to do, and the work is in the spaces between the meetings rather than in the meetings themselves.