One of the best things we’ve seen at smaller agencies in recent years is the advent of stakeholder programs. These programs engage key agency employees who are not currently stockholders, but are potential successors to the current owners. At some point in their developing agency careers, selected employees are designated as agency stakeholders. This gives the agency a mezzanine category of employee. The first level is employee and the third level, of course, is ownership, or stockholdership.
Level 1: Agency Employee
Level 2: Stakeholder
Level 3: Ownership/stockholder
Stakeholders are very important people in an agency; they hold the agency together on a daily basis. They are the ones who care, who stay and get it done. They are also employees who will probably want to become stockholders at some point in the future.
A stakeholder is someone who:
- Sees beyond daily tasks, anticipates/notices problems and attempts to fix them
- Embraces and promotes change
- Supports company policy even when it’s not popular
- Tries to stop gossip and/or rumors from spreading in the company
- Finds ways to increase revenue and productivity by exploring all avenues
- Eliminates waste
- Leads by example and serves his or her employees in a way that brings them forth to maximize their potential
- Is willing to sacrifice personal time to achieve company and personal goals
- Supports the agency mission and goals outside of work as a loyal ambassador
- Assists in recruiting other high quality people to the agency
- Understands his/her goals and constantly strives for self-improvement
- Understands the agency’s competition and tries to make agency products and services better
- Looks into the future for new ideas to implement and help the agency become a leader rather than a follower
- Constantly focuses on client intimacy
- Demonstrates a contagious, positive attitude while squashing negativity
When putting a stakeholder program together, there are a few thing to consider:
- A stakeholder takes on the title of “principal/director” in addition to their agency title
- A stakeholder is appointed to the agency’s operating management committee
- A stakeholer is involved with impotant decisions about the agency
- A stakeholder has management responsibilities and is responsible for the attainment of specific goals
- A stakeholder receives a carve-out of agency profits which is tied to agency performance or individual goals*
- A stakeholder should be educated about the financial aspects of the agency, including an understanding of the P&L
- A stakeholder should learn about human resources management
- A stakeholder should be introduced to your external support team, including your CPA and lawyer
When Stakeholders Seek Ownership
We have found that certain stakeholders will eventually want to become stockholders. This transition is natural with those who see their futures linked to the agency.
Many agency principals have facilitated their own retirement by offering stakeholders, who want to be stockholders, a portion of the principal’s stock. Often this is sold to stakeholders at a discounted price enabling them to enter into ownership. Since the majority have little capital, plan to finance their purchase by allowing them to sign a note for repayment over time.
But that’s a long way off, and not the subject of this article.
If you have potential successors in-house, let them gain an understanding of what it means to be an agency principal before they officially become stockholders. A stakeholder program is a great way to show them the risk/reward of ownership.
Reach out to laurie@secondwindonine.com if you'd like to discuss creating a stakeholder program for your team.
*The range of this carve-out is generally in the 10-25% of EBIT and is typically distributed among all stakeholders.
