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Equity: Why Employee Ownership Is Good for Business
by Corey Rosen, John Case, and Martin Staubus
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Is employee ownership a good thing for employers? Or for their employees? Absolutely, say Corey Rosen, John Case, and Martin Staubus in this book, published by Harvard Business School Press. Rosen is the NCEO's cofounder and executive director. Case is a prominent business writer, and Staubus is a business consultant at the Beyster Institute.
Equity makes a strong argument that when companies combine broad-based employee ownership with a high-involvement management culture, companies, employees, and the economy gain substantially. It relies on dozens of cases, including several in-depth examinations of a variety of companies with broad-based ownership plans.
Equity also discusses prominent failures in employee ownership, such as United Airlines, as well as the risks entailed with employee ownership. Rosen, Case, and Staubus conclude, however, that sharing ownership, providing employees with financial information, involving employee-owners in work-level decisions, and treating people with dignity and respect--referred to here as the equity model--is the best way to stimulate business efficiency and fairness.
Equity makes a strong argument that when companies combine broad-based employee ownership with a high-involvement management culture, companies, employees, and the economy gain substantially. It relies on dozens of cases, including several in-depth examinations of a variety of companies with broad-based ownership plans.
Equity also discusses prominent failures in employee ownership, such as United Airlines, as well as the risks entailed with employee ownership. Rosen, Case, and Staubus conclude, however, that sharing ownership, providing employees with financial information, involving employee-owners in work-level decisions, and treating people with dignity and respect--referred to here as the equity model--is the best way to stimulate business efficiency and fairness.
Publication Details
Format: Hardcover, 224 pages
Publication date: May 2005
Status: In stock
Excerpts
Ownership is indispensable because it is what tips the balance of the conventional employment equation.
Traditionally, those who provide the capital to a company own the entire business. Management is accountable to these owners and to nobody else. While owners can lose their money if the business goes south, they have a claim on all the earnings and all the growth in equity value if it succeeds. So their interest in the company's growth and profits is paramount. If you weren't born with the talents of a Michael Jordan or a Madonna, and if you didn't happen to choose wealthy parents, this is how you can get truly rich-by investing in and building a successful business.
If you are a traditional business owner, however-and if your company is larger than a one-person or one-couple operation-you face a time-honored challenge. You must pursue growth and profits through a workforce of employees who do not share your interest in growth and profits. Of course, employees have an interest in seeing that the company fares well enough that it does not close its doors and eliminate their jobs. And if it grows, maybe they can earn more money or get a better position. But the connection between business success and their own is at best tenuous and uncertain. So unless the company is in dire straits, why on earth should they exert themselves unnecessarily to make sure that it succeeds and prospers? Why should they come up with time-saving ideas or productivity improvements? Indeed, why should middle managers listen if they do? As Tom Allison observes, "Someone else is going to be making the money."
Modern management has recognized this divergence of interests and has created a whole kit bag of carrots and sticks to address it. Employees get frequent performance reviews, always backed by the threat of dismissal. They are subjected to motivational speeches and team-building exercises, in hopes that they will be inspired to perform better (and not look for a job somewhere else). They are "incented" with bonuses, merit raises, and prospects of promotion. Readers who serve in corporate human resource departments will recognize themselves as the keepers of these kit bags and no doubt can talk intelligently about how their own company uses a judicious combination of both sanctions and stimulants. But whatever an individual company's mix, the expectation is that employees will not move forward to pursue corporate growth and profits without them. The expectation is often clearest in unionized settings, because of the overtly adversarial system of labor-management relations that has been part of American law since early in the last century. The strike and the lockout are this system's quintessential weapons: Each says, in effect, we on our side are willing to damage the company, where our joint interests lie, in order to further our own interests at the expense of yours.
In principle, employee ownership transforms this dynamic because it gives everyone in the company a direct and visible interest in the longer-term success of the business. From top management to the front lines, the participants in employee-owned companies are partners in enterprise, sharing a single agenda and common goals. But note that we said "in principle." In practice, the traditional assumption of conflicting interests does not disappear overnight. Changing it depends partly on how much equity employees own. Sporadic gifts of one hundred stock options, or a few shares added to 401(k) retirement accounts each year, are unlikely to make the recipients recalculate their economic interests. Substantial holdings, however-holdings that grow significantly from year to year-may do just that. Change also depends on education that helps employees understand the implications of their equity ownership. This is a theme we'll return to repeatedly in this book.
Traditionally, those who provide the capital to a company own the entire business. Management is accountable to these owners and to nobody else. While owners can lose their money if the business goes south, they have a claim on all the earnings and all the growth in equity value if it succeeds. So their interest in the company's growth and profits is paramount. If you weren't born with the talents of a Michael Jordan or a Madonna, and if you didn't happen to choose wealthy parents, this is how you can get truly rich-by investing in and building a successful business.
If you are a traditional business owner, however-and if your company is larger than a one-person or one-couple operation-you face a time-honored challenge. You must pursue growth and profits through a workforce of employees who do not share your interest in growth and profits. Of course, employees have an interest in seeing that the company fares well enough that it does not close its doors and eliminate their jobs. And if it grows, maybe they can earn more money or get a better position. But the connection between business success and their own is at best tenuous and uncertain. So unless the company is in dire straits, why on earth should they exert themselves unnecessarily to make sure that it succeeds and prospers? Why should they come up with time-saving ideas or productivity improvements? Indeed, why should middle managers listen if they do? As Tom Allison observes, "Someone else is going to be making the money."
Modern management has recognized this divergence of interests and has created a whole kit bag of carrots and sticks to address it. Employees get frequent performance reviews, always backed by the threat of dismissal. They are subjected to motivational speeches and team-building exercises, in hopes that they will be inspired to perform better (and not look for a job somewhere else). They are "incented" with bonuses, merit raises, and prospects of promotion. Readers who serve in corporate human resource departments will recognize themselves as the keepers of these kit bags and no doubt can talk intelligently about how their own company uses a judicious combination of both sanctions and stimulants. But whatever an individual company's mix, the expectation is that employees will not move forward to pursue corporate growth and profits without them. The expectation is often clearest in unionized settings, because of the overtly adversarial system of labor-management relations that has been part of American law since early in the last century. The strike and the lockout are this system's quintessential weapons: Each says, in effect, we on our side are willing to damage the company, where our joint interests lie, in order to further our own interests at the expense of yours.
In principle, employee ownership transforms this dynamic because it gives everyone in the company a direct and visible interest in the longer-term success of the business. From top management to the front lines, the participants in employee-owned companies are partners in enterprise, sharing a single agenda and common goals. But note that we said "in principle." In practice, the traditional assumption of conflicting interests does not disappear overnight. Changing it depends partly on how much equity employees own. Sporadic gifts of one hundred stock options, or a few shares added to 401(k) retirement accounts each year, are unlikely to make the recipients recalculate their economic interests. Substantial holdings, however-holdings that grow significantly from year to year-may do just that. Change also depends on education that helps employees understand the implications of their equity ownership. This is a theme we'll return to repeatedly in this book.
