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The Employee Ownership Update

Corey Rosen

May 3, 2002

(Corey Rosen)

New Book Makes the Case for Ownership

Jack Stack and Bo Burlingham, A Stake in the Outcome (Doubleday, 2002, $24.95, 266 pp). Jack Stack is the president and guiding spirit of SRC Holdings Company (formerly Springfield ReManufacturing), an employee owned company in Springfield, Missouri that started off as a remanufacturer of truck and car engines and has now branched out into a variety of different industrial businesses. Bo Burlingham is an editor at large at Inc magazine and a long-time chronicler of the SRC story. SRC has gained worldwide fame for its creation of the Great Game of Business, an innovative strategy that combines open-book management, employee financial education, team-based decision making using critical numbers developed by employees to set performance goals, and, as the book's title implies, a stake in the outcome for all employees. They make a compelling argument that the stake needs to be equity -- real ownership for all employees.

Their first book, The Great Game of Business, became a word-of-mouth business phenomenon, selling over 200,000 copies. The management ideas developed by Stack and his SRC colleagues became so popular that separate subsidiary was set up to train people in their implementation. While that book explored just how employees at SRC became business people, this new book revolves around two themes: ownership and innovation. Stack and Burlingham argue that successful companies are defined by their ability to innovate. That, in turn, requires a "a culture of ownership," one that engages employees to think and act like owners (and actually be owners). The more people a company can get involved in generating ideas, taking responsibility, sharing information, and setting and meeting goals, the more it will innovate.

The book explores these themes through the history of the dramatic turnaround of SRC from a falling subsidiary of International Harvester with 119 soon to be out of work employees to a conglomerate of around 1,000 employees that has, over the years, created 39 different businesses. Most of these businesses came from employee ideas and were staffed and owned by SRC personnel (along with the company). Stack and Burlingham are not just cheerleaders for the SRC way, however. They explore all the bumps, disappointments, and mistakes made along the way.

In fact, the most refreshing thing about this book is that Stack is engagingly self-deprecating about his own contributions. Most books about business heroes (and Stack is certainly is one of these) portray a combination of driving ambition, remarkable insight, and entrepreneurial genius. This book portrays a leader (and his colleagues) who was not just willing to listen to employees, but who set up systems so that they would have to provide him with ideas, feedback, and critiques. Much of the book deals with how SRC developed ideas for its multiple lines of business, creating a kind of entrepreneurial community that has few counterparts in American business. Stack's genius was, at core, that SRC was not just an open-book company, but an "open leader" company, one in which existing top leaders really listened and where anyone, from shop floor on up, could and did become leaders in their own right.

This is a remarkable story. It is one that deserves to be read by anyone serious about making business work.

IASB Develops Tentative Guidelines on Measurement Dates for Stock Options Accounting

The International Accounting Standards Board (IASB) has made further progress in developing proposals on accounting for stock options. The body wants to require that companies show a current cost for options grants on their income statements. The group has agreed that the measurement date for options should be the grant date (they had been considering making it the date options vested), just as under current FASB rules for footnote disclosure of options in the US. In a European-style option (one where the holder cannot exercise until the expiration date), once the present fair value is established, no adjustments would be made for the holder's inability to exercise the option. If the company uses U.S.-style options (where exercise can occur any time after vesting), then the model should account for the inability to exercise only during the vesting period. The board agreed that the value of the options should be recorded as they are earned, but that no adjustments should be made if the options are subsequently forfeited, such as when some or all of the options fail to vest. This approach differs from the model developed in the U.S. by the FASB.

The IASB continues to discuss the issue of options accounting and will issue a final recommendation at a future date.

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