The Employee Ownership Update
October 9, 1995
German Multinational Sets Up ESOP-Like ProgramContinental AG, one of the world's largest tire manufacturers, has set up a broad employee stock ownership program. The program could provide a model for other German companies, including former East German companies being privatized.
Continental had started a plan that allowed employees to buy shares at up to a 50% discount, but there were few takers. Unlike Americans, few Germans own stock as investments, and most German firms are capitalized though something more like bonds or preferred stock than common equity. Ownership of common stock is seen as much riskier than it is in other countries. Under the new plan, the company's 20,000 employees will be eligible to buy up to 100 shares at full price, but with an interest-free loan, no transaction fees (which can be very large in Germany), and a guarantee against the stock price falling during the minimum two-year holding period. The plan should put about 5% of the stock in employee hands. If successful, the consultants who developed the plan expect it could become common in larger German firms.
New Survey Shows Employee Participation Slow to Get StartedA report from the University of Southern California shows that only 10% of the Fortune 1000 companies are engaged in sophisticated approaches to participative management. The study was commissioned by the Association for Quality and Participation. According to the study, 37% of all employees have no involvement in any company decisions. Thirty-one percent can make recommendations, but have no power to act and get little information or training to help them. Just 12% of the employees participate in teams, but this group only receives information directly related to its work. Ten percent of the employees participate in broad corporate issues, receive extensive information and training, and have information on how the group processes relate to overall business conditions. The study shows that companies that share power broadly have consistently better financial results. The return on sales, for instance, was 10.3% among high involvement firms and 6.3% among low involvement firms.
...But Not in "Great Game of Business" CompaniesEmployee participation is thriving at some companies, however, as a recent conference demonstrated. The third annual "Great Game of Business" conference was held in St. Louis in September, attracting a sellout crowd of 525 people (and a long waiting list) from companies in every size and business category. The "Great Game of Business" is a system of employee involvement created by employee-owned Springfield ReManufacturing Company (SRC) in Springfield, MO. All of its 850 employees are taught to read and understand detailed financial data on the company, ranging from income statements and balance sheets to production data and "critical numbers" (key performance measures for the company).
The "Game" started in 1983 when SRC was a 119-employee company just bought by its management. With an 89-1 debt to equity ratio, President Jack Stack wanted everyone to understand the numbers -- and to do something with them. So he started educating everyone on business. SRC remanufactures engines, so its work force is typical of manufacturing. Few people knew anything about the numbers. Stack also set up an ESOP to share ownership. Once people had a basic grasp of the numbers, they were used as feedback mechanisms for extensive group meetings throughout the plant to discuss and implement ways to make things better. They did. The value of SRC stock went from ten cents per share in 1983 to $23 in 1995. Over 1200 companies journey to SRC each year to learn how it does what it does (SRC even set up a for-profit subsidiary to teach the process). An annual conference now lets alumni shares results.
Not surprisingly, a large percentage of attendees are from employee-owned companies. In John Case's new book, Open Book Management (a generic name for the SRC approach), half the examples are employee ownership companies.