This article is based on the recent Family Business webinar, “The Cost of Waiting: Lessons from Families Who Modernized Too Late.” Watch the replay here.
Family businesses are known for their deep traditions and patient capital, but those same strengths can become liabilities when legacy systems go unexamined for too long. The spreadsheets multiply, emails pile up and once-simple processes — like dividend payments or proxy votes — start to feel like fire drills.
For Graham McConnell, co-founder and CEO of Nth Round, that pattern has become all too familiar. His company helps family-owned and privately held organizations modernize their shareholder management systems — an unglamorous but essential backbone of family governance. “We’ve heard so many times these administrators say, ‘I wish we had done this years ago. Why did it take us so long to do this?’” McConnell says “We had an admin tell us that she used to stay up all night the night before a payment went out. It’s understandable — the bar is really high for getting these things right the first time. Going back and trying to fix an error like that is incredibly challenging.”
Early Warning Signs of Aging Systems
McConnell has worked with dozens of multigenerational companies, some dating back more than a century. Across industries — from manufacturing to real estate to agriculture — he sees the same red flags emerge before a family finally admits its systems are failing. The first and most obvious warning, he says, is “over-reliance on a single administrator.” “If crafting an out-of-office auto reply starts to feel really impossible or challenging because it’s got to go to five different people, that’s definitely an indicator.”
A second sign is shareholder friction. “If you’re hearing things like, ‘How much do I own?’ [or] ‘Where is my dividend check?’ and if that’s starting to take days to resolve — if you feel like you’re not being quite as responsive as you would like to be with shareholders — that’s another signal to look for,” McConnell says.
A third sign is spreadsheet overload. “Spreadsheets are great. We love spreadsheets, but they always tend to get more complex over time,” McConnell says. “Obviously, you want a single source of truth for the cap table and who owns what. But inevitably, you’re going to end up with multiple versions of that cap table, and often with good reason.”
He’s also seen administrators juggling communication across half a dozen platforms: email, text, paper mailings, even social messaging apps. “Shareholders will use every mode of communication that’s available to them to get in touch with the company, and as you can imagine, it’s hard to keep of those various modes of communication.”
Finally, McConnell notes, there’s the creeping drop-off in engagement in “proxy voting or any kind of communication where you are expecting a reply from shareholders or input from shareholders.” “If it feels like you’re starting to have to pull teeth, then that’s a sign that might be time to start looking at ways to make that more engaging for shareholders.”
The Breaking Point
At some point, McConnell says, those small pain points coalesce into crisis, often during tax season in the form of “K-1 distribution that takes weeks, errors that have a ripple effect and lead to frustrated shareholders or strained accountants, proxy voting headaches, [difficulty] reaching a quorum, chasing signatures, etc.”
Dividend payments can also become a source of chaos. “We’ve had a client even tell us that they were running into issues with check fraud,” McConnell says. “Maybe it’s not always that serious, but like with check cashing: we definitely have clients that spend an inordinate amount of time tracking what’s been cashed and what hasn’t and, ‘Why hasn’t this one person cashed that check in two months? Did they get that check or not?’ That can definitely be an inflection point.”
He recalls one long-standing family company that relied on physical stock certificates and an antiquated Microsoft Access database. “They still, to this day, have a typewriter in the office that’s meant to fill out stock certificates,” McConnell says. “They have an embosser in the office to fill out these certificates and mail them. Everything is also going through one administrator. And that one administrator is also chief legal [officer].”
At the time those processes were initially implemented, McConnell admits, “it probably was a really good decision to say, ‘Hey, let’s create a database to manage all of this.’ But it had gotten to the point where it was so antiquated that things started breaking and they didn’t know how to fix them. The administrator felt like she couldn’t go on vacation — especially not during those important periods — and it ended up in delays. So, there was a lot of manual effort in tracking the progress of proxy voting, getting K-1s out, and it ended up eroding trust a little bit, honestly, both for the administrator and for the shareholders.”
In another case, a century-old family company struggled to complete a stock buyback using paper and email. “They were trying to aggregate responses through email and through physical mail and requests started slipping through the cracks,” McConnell says. “You can imagine that a shareholder would be upset that their buyback request wasn’t received. And fixing something like that is very painful.”
By year-end, the process “ended up stretching into months, which really was just untenable for them. Administrators were exhausted, shareholders were frustrated,” McConnell recalls. “Requests are now submitted and organized in one place, no matter what the mode of communication is. And now they have a much more clear, unified process to manage buybacks, which is great.”
Shifting Mindsets and Building Momentum
Once families decide to act, McConnell says, success depends less on technology and more on mindset. He outlines a three-step approach to addressing administrative issues: 1) identify the problems; 2) fix the problems and 3) prevent future problems by “finding systems that are future-proof, that are built to grow with your company and as governance gets more complicated.”
McConnell also recommends what he calls a “stress test.” “It may sound a little extreme, but let’s just imagine that the lead administrator retires unexpectedly. What breaks when that happens?” he says. “Is there someone that backs them up and can they pick up that process without issue?” He suggests auditing spreadsheets, mapping shareholder questions and looking at communication cadence to catch small inefficiencies early. “Start small,” McConnell says. “I think it can seem very daunting to try and do a full digital transformation all at once. I would say look for low-hanging fruit, for quick wins, and focus on those.”
The Role of Technology — and the Limits of AI
Asked about the use of artificial intelligence in shareholder management, McConnell offers cautious optimism. “There’s probably no information more sensitive than your shareholder data,” he says. “So, you want to make sure that if you are going to utilize an AI platform that you’re doing it with, at the very least, anonymized data.”
He does, however, see potential in specific use cases, such as for “basic tracking.” “Especially for an S Corp, that can get really, really complicated,” McConnell says. He also notes that the task AI is probably best at is crafting communications. “So, if you’re a shareholder administrator, or even an executive at the company and you want to figure out how to create really professionalized and understandable communications with shareholders, I think that’s another area where AI can be super helpful.”
When Complexity Demands a System
So, when should a family business consider adopting a formal shareholder management platform? According to McConnell, a general threshold is 30 or more shareholders. But, he adds, the number of entities often matters more than the number of owners. “We’ve seen companies where there’s a parent company and then there’s seven subsidiaries,” he says. “That can have a multiplying effect on the complexity.”
Ultimately, McConnell says, the test for whether an administrative process has become outmoded is relatively straightforward: “If it’s a process that’s painful, no matter how many times you do it, that’s real ripe for modernization.”