Corporate Governance
How has corporate governance evolved at Austin Industries?
Austin Industries has been a family-owned business for most of its existence. In 1986, the Employee Stock Ownership Plan (ESOP) was formed, marking the beginning of a change in the role of the board of directors. This evolution in composition and scope has taken shape in three distinct phases during the company’s 90 years.
Phase 1
At the time Austin Industries began the move toward employee ownership in 1986, 90 percent of the company was family-owned. Although the board at the time included members of the family, it was also accountable to the family as the owner. At that time, the board functioned primarily as an advisory board, looking to the family for guidance as to how they wanted the board to govern the company.
Phase 2
When the company diversified and started growing the business, Austin Industries was formed in 1974. From a governance standpoint, although the company was still predominantly family-owned, there was a strong change in the direction of positioning the board’s composition and role. With the addition of outside directors, the board began to exercise a more independent and assertive role.
Phase 3
The third phase occurred as Austin Industries began to move toward employee ownership. Upon achieving 100 percent employee ownership in 2000, the board’s accountability to shareholders shifted entirely from family shareholders to the thousands of employee-owners who now own the business through the ESOP.
The shift also included having a majority of independent directors make up the board, strengthening the board’s capacity to act independently on behalf of employee-owners.
What is the difference between public and private company boards, especially with an ESOP?
Boards can range from those that perform a perfunctory or legal function to a fully functional board. We have a fully functional board. About 95 percent of what fully functional boards do is the same, whether the company is privately held or publicly traded, because the principle duties are the same regardless of what group of shareholders the board is accountable to.
Why it is important to have independent directors and what is really meant by governance?
Governance is the structure, policies and practices of the board by which it governs the company. The board’s role is to govern, oversee and exert appropriate control of the company’s strategy, use of capital, assumption of risk and basic culture with respect to issues such as integrity, financial reporting, etc. It is important to have independent directors who play an appropriate role with respect to those issues because those in management may be conflicted when dealing with issues in which personal interests may not always fully coincide with the interests of the greater organization.