Employees Taking Ownership: A Radical Proposal
The concept of workplace ownership — “taking ownership,” “owning the problem,” “being the owner of the project,” “you’ve got to really own it,” and other phrases have become well-used office jargon – to my mind lacks a certain something: actual ownership.
Smart speeches and articles on management, including this recent Harvard Business Review post by Bain & Co.’s Michael Mankins, instruct managers on the improved productivity and other benefits that result from a workplace environment in which workers feel a sense of ownership:
“If your company’s employees don’t have a sense of ownership and engagement, all the other steps won’t make much difference. By the same token, if you can increase the average level of engagement in your organization, you will likely see the productivity of your entire workforce increase.”
Mankins is right, but nowhere in the post does he mention actual ownership, as in employees holding an equity stake in a business. Sure, you can pursue a sense of ownership using the steps suggested by Mankins and others to motivate your employees; whether employees buy in or view the effort as the latest management campaign to motivate the troops, I’ll leave to you. But there’s nothing quite so powerful in boosting a business’s productivity and unleashing the brainpower of its workforce as the employees having an actual financial stake in the company and its performance.
How do I know? I’ve been advising middle market companies for more than 25 years on Employee Stock Ownership Plans, or ESOPs. And one of the great joys of my work is watching, after the conversion to partial or complete employee ownership, as these companies truly enjoy the benefits of ownership: less friction between managers and line workers; higher productivity; less waste; a self-policing culture in which workers correct each others’ errors; and an unleashing of problem solving and innovation that accelerates growth.
Substantial academic research backs up my observations.
My firm’s own clients make some of the best case studies:
–Central States Manufacturing Co., in Lowell, Ark., where truck driver Aaron King (his ESOP account has grown to more than $1 million during 21 years at the company!) talks about the constructive and money savings culture of employee ownership: “We hold one another accountable. Somebody leaving a bundle of metal where it could be run over – a $3,000 bundle – we go and get the guy and talk to him. It’s going to come out of all our paychecks.”
–S&C Electric in Chicago, a maker of high-value switches and equipment, relies on its engineers and other employees to generate innovative ideas. Pre-ESOP, S&C counted 7,000 implemented employee ideas over a 15-year period. In 2013 alone, S&C counted 8,000. That’s taking ownership.
Many founder/owner/entrepreneur/CEOs initially sell a minority stake in their company to an ESOP and stick around to continue managing their company. A 100% sale can be accomplished in stages or all at once. Either way, the ESOP tax advantages are remarkable – both to the seller and to the ongoing business. That helps makes it the smarter exit strategy.
Those tax advantages mean an ESOP can often support more debt than a similarly-positioned private equity transaction. The seller gets a competitive price; this isn’t a give-away. And rather than watch your business be dismantled by a private equity fund or by a strategic buyer, an ESOP preserves your business legacy, maintains and often leads to growth in employment, and can provide retirement savings for your workers far in excess of competing companies. That’s a competitive advantage in hiring and retaining the best.
So, to realize, for your company, the tangible benefits of employees acting like owners – and to realize the substantial benefits to founders who sell part or all of their company to employees – I recommend getting acquainted with ESOPs.