The Six Biggest Challenges in a Working Shareholder Model

A working shareholder model, in which shareholders are actively involved in the business, offers unique strengths by combining hands-on expertise with a shared vision for growth. However, this approach also brings specific challenges, such as balancing dual roles, managing conflicts of interest, and establishing clear governance structures. For companies looking to develop a sustainable and equitable structure, it’s essential to understand these complexities. We’ll explore the six biggest challenges businesses must address to fully leverage the potential of a working shareholder model. 

1. Balancing Dual Roles 

In a working shareholder model, individuals are both employees and owners, which can create a difficult balancing act. Shareholders may find it challenging to manage their roles as business leaders with the added responsibility of steering the organisation’s direction. This dual role can complicate decision-making, as shareholder-employees may feel torn between the company’s immediate operational needs and long-term strategic goals. 

Creating distinct, clearly defined roles within the company is essential to maintaining balance and ensuring both short-term and long-term objectives are met. 

2. Potential for Conflict of Interest 

With shareholders also operating as employees, personal interests can sometimes clash with those of the company. For instance, if a shareholder's department is underperforming, addressing the issue can be challenging. Personal biases may interfere with making unbiased, objective decisions. 

Implementing a governance framework that outlines processes for resolving conflicts is vital. This framework can ensure that decisions are made based on the company's best interests rather than individual agendas. 

3. Difficulty in Setting Clear Performance Metrics 

Evaluating performance can become complicated in a working shareholder model. Performance metrics for shareholder-employees must be fair and reflect both their ownership stakes and their operational roles. However, it can be challenging to define clear criteria that evaluate both aspects equally without creating friction. 

Regular performance reviews based on transparent metrics are essential for fostering accountability. Ideally, these metrics should align with both the shareholder’s responsibilities as an employee and the company's broader strategic goals. 

4. Impact on Team Dynamics 

A working shareholder model can impact overall team dynamics, particularly if some employees feel that shareholder-employees receive preferential treatment. When shareholders hold leadership positions, non-shareholder employees may feel their voices are less valued, which can affect morale and lead to a lack of engagement across the organisation. 

Maintaining a culture of inclusion and open communication can help mitigate these issues. Providing all team members with clear opportunities for growth and input helps maintain a balanced and motivated workforce. 

5. Challenges in Compensation Structures 

Compensating shareholder-employees fairly can be complex, especially if profits are tied to ownership. Striking a balance between salary and dividends can create tension, as shareholders often expect both stable pay and returns on their investment. 

Developing a transparent compensation structure that considers both employees and owners can foster trust and fairness. Regular reviews of compensation policies ensure alignment with market standards and maintain equity among all stakeholders. 

6. Planning for Succession 

Succession planning is vital in a working shareholder model, as shareholder-employees eventually move on or retire. Determining who will fill their roles and how ownership stakes are managed can become complicated without a clear succession plan in place. 

A robust succession plan addresses both operational roles and ownership stakes, providing continuity for the business and minimising disruptions. 

While a working shareholder model can foster strong ownership and commitment, it also presents unique challenges that require a thoughtful and structured approach. Businesses that invest in clear governance, transparent performance metrics, and effective conflict resolution will be better positioned to leverage the strengths of a working shareholder model while addressing its potential pitfalls. 

Thinking about setting up or refining a working shareholder model in your business? Our advisory team can help you build a balanced framework that supports sustainable growth and effective governance. Get in touch today to explore how we can assist.