Digitizing shareholder decision making can help family businesses reap efficiency benefits and accommodate a new generation of board members.
Digital is becoming the default way consumers run their lives. From mobile payments and digital brokerage accounts to same-day deliveries on Amazon, the average consumer doesn’t have much use for paper anymore. Businesses as a whole have leaped forward in their digitization of internal operations by an average of three to four years during the Covid-19 pandemic, according to research from McKinsey. Family businesses, by comparison, have been slower to adapt. That leaves a significant tranche of the U.S. economy – more than 50% of private gross domestic product in the U.S. — vulnerable to technical and process debt.
Family businesses, the lifeblood of the U.S. economy, cover critical sectors such as construction, logistics, food, financial services and other categories. They stand to reap productivity gains by digitizing the way they operate, including how their boards vote and make decisions.
This is especially timely as younger generations, including millennials and Generation Z, move into leadership roles.
The benefits of going digital will accrue over time and ensure a smooth transition across generations. A digital shareholder governance toolset also improves new employee onboarding through better data control and process consistency.
Bridging the digital divide
Many family businesses still conduct operations using spreadsheets and paper-based methods, including corporate governance and shareholder interactions.
The benefits of going paperless are widely known. But spreadsheets are also not optimal because they can reinforce data siloing. This puts a heavy onus on leadership teams to oversee them, tie together information and manage access rights.
Firms can improve the efficiency of operations through a digital toolset that brings together all information in one place, can be easily customized, and has communication capabilities.
Family businesses acknowledge the need to digitize, but there are significant gaps.
In last year’s PricewaterhouseCoopers Family Business Study, for example, 80% of U.S. businesses surveyed said they used technology to drive efficiency, collaboration, and to access data for decision making. Merely a third said they developed a clear roadmap for digital transformation and just 42% said they had strong digital capabilities in place.
Starting at the top: digitizing board-level governance and operations
The pandemic-driven digitization sweeping the business world has often impacted the customer experience, but the digitization of C-level operations and decision making is equally important. Proxy voting, for example, has long been a pain point for family-owned businesses and could benefit from a modernized approach.
Board decisions, for family businesses, are still largely determined by spreadsheets and paper-based processes. Paper adds significant costs, in addition to being unsustainable. One analysis found that physical copies of documents cost on average $6.93 more than electronic dissemination per investor per meeting.
Paper-based proxy voting methods can add time and labor costs, because each new decision document must be mailed to shareholders. And with the complexities of family businesses ownership, a single shareholder could receive multiple mailings. Once voting is completed, the documents need to be physically mailed back, adding time and friction to the process.
Spreadsheets, by comparison, can cause unnecessary duplicative efforts, process misalignment, and information siloing. While spreadsheets eliminate some of the manual review and opportunities for errors that typically get introduced through paper, they lack the flexibility to tie information together in a user-friendly way. They also don’t have built-in communication capabilities, which are critical for smooth shareholder operations.
Long-term benefits of going digital
A comprehensive digital toolset for shareholder governance can help firms standardize how information is stored and shared, and in turn, provide a basis for process modernization. Family businesses, many of which have complex ownership and governance processes, can customize digital solutions where necessary.
The growth of electronic proxy voting tools on the market ensures family-owned businesses can realize their digital transformation objectives by working with a trusted third party instead of having to build a solution themselves.
Asplundh Tree Expert Company, a Willow Grove, Pa.-based family owned and operated corporation employing more than 33,000 employees globally, adopted a digital proxy voting platform earlier this year. The company previously communicated with shareholders through paper mailings that went out to all trustees, advisers, tax professionals and wealth managers. Asplundh now communicates and undertakes proxy voting almost entirely through a digital platform. Each shareholder has a personalized portal with information relevant to their needs.
Beyond the efficiency and cost benefits deriving from the elimination of nearly all paper documents and voting requirements, the company significantly increased its proxy vote participation rate. The firm also saves time reviewing and searching for files because all documents are securely stored in one place.
“There is a complete ‘paper trail’ associated with every communication,” said Ann Hook, Asplundh’s general counsel. “We no longer have to search through filing cabinets to reference what has been sent and received.”
A timely transformation priority
Companies that are committed to the seamless customer experiences that clients demand need to be digital from top to bottom. If board decision makers can’t use digital tools to make their decisions, how can they be trusted to deliver best-in-class digital customer experiences for their clients?
The transition to digital proxy voting is taking place alongside a generational shift in family-business leadership, as millennial and Generation Z board members take more responsibility. These future leaders are likely conducting most of their lives digitally and embracing remote and digital work models. Indeed, family businesses have hit a meaningful inflection point where those who embrace digitization throughout an organization stand to reap significant benefits, while companies resistant to change will be left behind.
“Recent research shows that strong digital capabilities translate to strong financial results for family businesses, but that they are behind the curve on their digital journeys,” wrote John Davis in a recent piece for the Harvard Business Review. “Owners must be strong champions of digitalization, spearheading the development of a digital transformation roadmap that can involve incremental and radical innovations”
Proxy voting is just one area where family-owned businesses can benefit from greater digitization. It’s most effective when paired with other digital tools that facilitate shareholder governance, including ownership value, equity management (including multiple stock classes), and communication across an enterprise.
Digital transformation, however, is an incremental process. Upgrades of legacy infrastructure must be done with proper training, acculturation, and support for team members who come from different generations and have varying comfort levels with new technologies.
About Nth Round
Nth Round helps family businesses—especially those with generations of ownership—manage complex equity structures and unique challenges.
We are a platform you can use and a partner you can trust.