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The Pitfalls of Unspoken Ownership Expectations

Cathy Ivancic

December 1997

In hundreds of sessions across the country, I've heard employees ask about their rights and roles as employee owners. Generally there are two parts to their concerns. First, there is a factual curiosity about how employee ownership works -- questions about stock, how it is valued, and how an employee benefits. Second, there is usually interest in finding out whether ownership will enable employees to influence the way their company performs. Most employees want to make a positive difference and are interested in understanding their new role as owners. Frequently, people already have an image of the new role and they assume that everyone else shares the same image. This is where the trouble begins.

Consider the story of Gina and her co-workers in a small manufacturing company where an ESOP purchased 30% of the stock from family owners. The employees in Gina's department thought they knew what ownership meant. Many of them assumed that employee ownership would mean that they would have input on key management decisions such as the purchase of new machinery in their area. This ESOP thing seemed to be coming at the perfect time because there were some plans to add new equipment and they wanted to have some say on this investment.

The company president, George, also thought he knew what ownership meant. After all, George has been a businessman for over 20 years. He had experience owning stock and dabbling in the stock market now and again. George knew that ownership for employees was an investment opportunity that most employees would never have gotten otherwise; it was a gift. He recognized that if the company continued on the current trend, there would be some fairly large account balances in a matter of ten years. In addition, this particular succession strategy had the advantage of not really changing the way the company was managed. The company has a great track record and George saw no reason for messing with a good thing.

Of course, the retiring family shareholders, John and Fran, also thought they knew what ownership was all about. Why wouldn't they know? This business has been in their family for three generations. This brother and sister team assumed that ownership brought a strong sense of responsibility and a new level of commitment. When they became substantial owners, it was accompanied by a new sense of obligation and occasional sleepless nights. Now that employees are co-owners, they assumed that all 110 employees would be joining them in their commitment. They thought employees would find ways to make the company even more successful. They expected more growth than previous years and that employees would be grateful for getting the opportunity to be owners without risk.

As you might imagine, these conflicting images of ownership led to a series of misunderstandings, unmet expectations, and frustration for everyone. People were mysteriously suspicious of each other and dissatisfied. George was puzzled by this behavior. From his point of view, nothing had changed but for some strange reason everyone was angry.

Clearly, they disagreed about ownership. But who was right? Are John and Fran right, is ownership about commitment? Is Gina right, can she make a difference in this company? Or is George the only one who understands what ownership is really about -- a passive investment that will not affect the operation of the business.

If you were to look strictly at ownership in legal terms, George would be closest to what ESOP ownership looks like on paper. ESOP ownership does not entitle employees to participate in decisions that Gina's department imagined and it cannot require a new sense of commitment that the selling shareholders assumed would take place. For most ESOP participants, the legal rights of ownership are quite limited. They are entitled to vote their shares only on major issues like a merger or liquidation. They do not typically vote for the corporate board, and the company is only required to provide limited information, such as an annual statement of the value of the employee's individual account. The stock is held in a trust, and there are limitations on when participants can sell their shares.

Does that mean Gina and the selling shareholders are wrong about their images of ownership? Not necessarily; each company must decide for themselves what ownership means. The law defines only a minimum role, and the healthiest employee-owned companies make conscious choices to define employee ownership roles beyond that. What was clear with the example above -- and the hundreds like it -- is that unspoken expectations of ownership can wreak havoc on a company and prevent it from enjoying the benefits of shared ownership.

Even though George was technically accurate, he was also very mistaken about the impact of employee ownership on people. While there was no change in the formal role of management, things had changed at his company. George came to realize that the changes had occurred in employee's minds and in the minds of the family owners. With dozens of interpretations about ownership lurking about, it was difficult for anyone to be pleased with the outcomes. Employee ownership became something new to fight about rather than a unifying force.

Once people in this company realized that their own perception of employee ownership was not necessarily shared by others, they could begin to understand other people's expectations and demystify their seemingly irrational behavior. This company eventually created a written shared definition of ownership that guides the whole organization toward success. Speaking the unspoken expectations was the first step.

Cathy Ivancic is a consultant and co-owner at Workplace Development Inc. Since 1985, she has helped more than 100 ESOP companies enhance ESOP communications and develop an ownership culture. She is active in national organizations that promote shared ownership and has served on the NCEO's board of directors and as an officer of the Ohio chapter of the ESOP Association.She can be reached at civancic@workplacedevelopment.com.

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