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Decision-Making and Employee Ownership

Loren Rodgers and Noémi Giszpenc

October 2002

When you talk about employee ownership, the first thing many people think of is input in decision-making. Maybe federal law doesn't specify much of anything about employee influence in employee ownership companies, but, psychologically, that doesn't matter: we still expect it. It's part of our culture and our understanding of what the word "ownership" means.

People may know that they expect input, but if you push them, it's not always clear what they mean by it. Decision-making is a complex, multi-dimensional issue. While people may be sure that they expect authority, they may be less clear about what to do with it.

Rights and Responsibilities

Our firm has collected data from 21 firms since 1994 using the Ownership Culture Survey™, or OCS, on various aspects of employee ownership culture. That information suggests that a central feature of decision-making that many people overlook is the specific responsibilities that come with decision-making authority. While ownership often does bring new rights, an ideal ownership culture includes a balance of strong decision-making rights and strong decision-making responsibilities.

The figure below illustrates measures of decision-making from 17 of the companies in the OCS database. Each pair of bars represents one company: the bar on the left represents its "rights score" and the one on the right side is its "responsibilities score." (100 represents the maximum.)

The figure shows that companies with higher rights scores tend to have higher responsibilities scores as well. It also shows some companies that are "out of balance." Some are "rights heavy," and some are "responsibilities heavy." Our experience suggests that such companies are experiencing a particular dissonance that needs to be addressed.

Components of Participative Decision-Making

The OCS separates the decision-making process into a few components--specifically, two types of decision-making responsibilities and three types of decision-making rights.

The first responsibility of decision makers is to take their authority seriously. We call this "active voice." They should invest the time, energy, and thought required to make the best decisions possible. They need to commit to attending meetings, gathering information, and investigating alternatives.

The second responsibility of decision makers is "responsible voice," the key component of which is recognizing other peoples' expertise. With any given decision, it should be clear to all concerned who will make the final call, who will provide input and who will receive information after the fact. Ownership Associates has developed a set of training materials called Frontiers and Boundaries: Managing Ownership Expectations to help managers produce this clarity.

Employee-owners potentially have rights over decision-making in three categories. (For a more detailed approach, see Representative Structures in Employee-Owned Firms.)

Autonomy refers to decisions relating to the performance of day-to-day job activities. Every day, employees make choices about rework, production speed, and prioritization of tasks--this is the area in which they should expect the most freedom to make decisions.
The second category is participation, which refers to input over local decisions. Depending on the company, this might be at the level of work team, division, or shift, and can include activities such as team hiring or planning work flow.
We call influence the right to participate in company-wide decisions, such as acquisitions or strategic direction. Non-managers should generally expect to have the lowest level of input on these issues.

The justification for employees having most control over decisions closest to their own jobs is based on two principles. First, people should contribute to those decisions that they will directly implement. Second, they should contribute to those decisions that they best understand.

The Ownership Culture Survey™ scores do bear out the logic of these principles.

Management Implications

Let's look at a brief case study to see how understanding these components of decision-making can promote effective management.

At responsibilities-heavy company X, employees sensed that, despite their motivation and abilities to contribute to the company's decision-making process, they were largely excluded.

Looking at each component, Participation scores were relatively strong--plant managers had recently involved people in work scheduling. On the other hand, Autonomy and Influence scores were both very low. Supervisors were widely perceived as micromanaging, and the work force felt that strategic decisions "came out of a black box."

Company X took two steps: first, they implemented training to help supervisors adjust to a new "coaching" role; second, they began inviting two employees each quarter to observe board meetings.

Survey results indicate a few general lessons for companies.

Building a participative culture is a multi-stage process. Companies should, in general, provide the opportunities and training needed to strengthen involvement beginning with an emphasis on local decisions and gradually determine if they wish to expand into higher level decisions.

Participative decision-making pays off. When involved in decision-making, employees report higher levels of work effort, customer orientation, and problem-solving. (See Self-Direction and Employee Ownership.)

Rights and responsibilities reinforce one another. They should advance in coordination to ensure that the company maintains balance, so employee-owners accept decision-making responsibilities while they enjoy new opportunities to use their skills and knowledge in improving their company.

This article is adapted and updated from "Participation: Decision-Making and Employee Ownership," The Ownership Culture Report, Vol. 1, No. 2, Cambridge, MA: Ownership Associates, Fall/Winter, 1998.

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