| Leading Companies Online Magazine
Employee Ownership: Today's Alternative Corporate Structure
By Anthony I. Mathews, Beyster Institute Staff
  People often ask me what new directions I see in my work with employee ownership companies, and I have to say that in the last few years, the most important change in direction, for ESOP companies especially, is the evolution of attitude from viewing employee ownership as a transitional structure (e.g. ESOP as a placeholder pending a real buyer or public offering) to seeing employee ownership as the viable and preferred permanent structure under which to operate the company (e.g. We’re an ESOP and plan to stay that way!). I think that bodes well for the development of employee ownership as a legitimate capital structure taking a place beside “private equity” as an alternative to the traditional public and private corporate structures. For my money, the employee ownership model has the most to offer in that it is the only one that, as a function of its nature, distributes capital ownership widely. It makes a difference in the world. The other forms of ownership have the effect of concentrating wealth in the hands of a few which, notwithstanding the vague potential for “trickling down,” does little or nothing for the health of the overall body politic. (It’s been hard for me to have confidence in something designed to trickle anyway.) But more on that later…
As some of you may recall, a couple of years ago, in the Principal’s ESOP Edge magazine, I started examining some of the features of an employee ownership culture that set successful companies in our community apart from the rest of the world. At that time, I started from a number of questions including:
- What is the real nature of an employee-owned company?
- How can we advance the cause to create a flood of new converts?
- What is the future face of the employee-owned company?
- How do we make a lasting, repeatable model out of the progress we have made over the last 25 years?
- I would add today: How do we implement operating styles and practices that fit both the practical needs and the philosophical underpinnings of a company that is substantially owned by the employees who work there and, more importantly, intends to stay that way indefinitely?
Those are still good questions, and I think we are getting closer to the answers every day. New research is in the works examining everything from the effect of employee ownership on some very basic job-related attitudes to research projects designed to help identify the extent to which that capital redistribution works to create long-term wealth for the individuals it affects. In fact, the reason I started thinking about those old articles is because at that time, I realized that I was perhaps missing a significant point closer to home. That point is: No matter what the change in profitability of the company or the eventual financial outcome for employees, if being an employee-owned company doesn’t make a real difference in the day-to-day lives of its employee-owners, can it last? Or should it? Then and now, I still think, “maybe not.”
Years ago, in graduate school, I studied a branch of psychology related to child development, and I vividly remember an intense discussion with a professor over whether a particular research model I wanted to use was more appropriate than a model she insisted I use instead. I wished to interview a large group of 2-year-old and 3-year-old children; she demanded a long-term observation of a group of children as they developed to adulthood. Her point was we could only validate our theory by observing what sorts of adults our little “lab rats” became. My point was that the experience of being age 2 or 3 had to have some meaning and value on its own — and the child’s path in adulthood, whatever it turned out to be, wouldn’t change that.
It was a heated debate and, while my present vocation suggests I lost the point, the experience formed an idea that has persisted over the years of raising my own children. It came to mind again recently in a totally different context: If being an employee-owner doesn’t change the day-to-day course of my life, perhaps the long-term prospect of financial security will never be enough to make employee ownership succeed in becoming all it should.
We could, of course, devote a book to a topic like this (and maybe we will) without really coming to a definite answer. But, we do know enough from the experiences of thousands of employee ownership companies to make a few suggestions as to how employee ownership can and does make a day-to-day difference in the lives of the people who practice it. And we have, in much of the research that has been done, the suggestion, at least, that these differences are as important to the success of the model as the eventual financial outcomes.
In addition to financial success, a successful employee-owned company demonstrates a pattern of working that exhibits many features. Important among them are:
Information
In an employee ownership environment, there is a free flow of information in every direction. Employee owners know what’s going on and where the company’s headed. This does not necessarily include every detail of the business plan, but it does include enough to know the direction the company is taking and, most importantly, how those employee-owners contribute to getting it there. Information flows in constant circles in these companies with as much information going up the ladder as down. That is, information is not just “telling” employees what management thinks they need to know; it is listening to what employees know and incorporating that into the operation on a routine basis.
Autonomy
In an employee ownership environment, employee owners are empowered to do many things independently that are in the best interest of the company they own. Autonomy means that employee owners have the right and the ability to use the information they have to make the outcome better for the whole. They tend to have, at least, some discretion in how the job is done. In fact, it is often expected that they will use that discretion to improve the process.
Opportunity
In employee ownership companies, employees are paid fairly for what they do and are encouraged to grow and develop into whatever they can become. Employee ownership companies generally identify clear paths for growth and not only allow growth to occur, they expect it.
Respect
Finally, employee ownership companies operate with an overall aura of respect. Employee-owners have a right to express themselves and expect that expression to be honored. And, though it may not be implemented exactly and certainly won’t be implemented immediately, ideas will always be respected. That means ideas are heard and considered and contributions valued (not just acknowledged or noted).
In the next few issues of Leading Companies online magazine, we’ll spend some time thinking about these characteristics and others that reflect the best of employee ownership. As we do, I’m very interested in hearing your thoughts as well. Send your email to: amathews@beysterinstitute.ucsd.edu
©2006. The Beyster Institute and its authors and their entities. All rights reserved.
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