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TOOL Powering the Economy Through Employee Ownership

June 12, 2009
Related Topics: Corporate Culture, Compensation Design and Communication, Career Development, Employee Career Development, Tools
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Organizations today must regain their footing by rethinking the fundamentals of our economic system. This begins with re-emphasizing the power of the individual. It is because of people who have been given the freedom to pursue their ideas, not because of those who have been overly restricted with bureaucracy, that society has innovation, economic growth and new standards of living. The people who create something of value should be personally rewarded as a result. As we know, that does not always happen, but in the free enterprise system, we aspire to a business culture that encourages employees to have a role in creating, building and sharing in the success of a business.

Once a firm has the right strategy for its market, it is the power of the individual—the employee—that will get it on a solid footing. The younger generation already has demonstrated an eagerness to work in flatter, more decentralized organizations where they feel that they can make an impact. Ownership, participation, open-book management and accountability are all key elements in making these decentralized organizations work.

Companies with significant employee ownership have demonstrated that successful models, focused on empowering employees, create benefits for all stakeholders—employees, shareholders and customers. The Workforce Management article “Is There a Link Between ESOPs and Better Company Performance?” by Bridget L. Steinhart highlighted the value created through broad-based employee ownership.

In the recent economic collapse, we have seen how narrow and shortsighted views of interconnectedness can lead to unanticipated problems. This is the same for employee ownership. You can’t give equity ownership and expect employees to act like owners unless they have the culture, policies and work practices to enable them to do so. Research has determined that a bundling of ownership and high-performance work practices creates the motivation needed for short- and long-term business performance improvement.

Many models of significant employee ownership exist in both publicly traded and closely held U.S. companies. For example, many of Fortune’s 100 Best Companies to Work for in America stress employee stock ownership in their organizations. A number of Forbes’ 100 largest closely held corporations are in fact majority employee-owned. Moreover, the Silicon Valley model of the innovative corporation commonly used unique combinations of employee stock ownership, profit sharing and broad-based stock options.

Here are resources for more information on employee ownership:

• The Employee Ownership Association, founded in 1978, was the first nonprofit organization to focus on employee ownership and the only one devoted solely to the promotion of the employee stock ownership plan. The association has grown to serve approximately 2,500 ESOP companies, professional services dedicated to ESOPs and companies considering the implementation of an ESOP. They provide expert educational services and a voice before Congress on enhanced laws and regulations.

• The National Center for Employee Ownership was founded soon after the Employee Ownership Association, in 1981, to provide educational information on employee ownership. It delivers that information in a range of books, articles, mini-case studies, training sessions, conferences, online and outreach venues, and referrals for professional services. Recent publications include The Decision-Maker’s Guide to Equity Compensation, and Dealing With the Downturn: Issues and Strategies for ESOP Companies.

The Foundation for Enterprise Development was founded by my father, J. Robert Beyster, in 1986 to help promote the combined principles and practice of employee ownership and entrepreneurship. With the creation and subsequent spinoff of the Beyster Institute to the University of California, San Diego’s Rady School of Management in 2004, training and education programs and associated materials can be found at the institute. The foundation has refocused efforts on improved research, education and policy for the promotion of broad-based employee ownership and advancement of innovation and entrepreneurial business.

• The National Bureau for Economic Research is a private, nonprofit, nonpartisan research organization dedicated to promoting a greater understanding of how the economy works. At the site, you can read chapters of a forthcoming book, Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-based Stock Options http://www.nber.org/books/krus08-1/ .

The Profit Sharing/401k Council of America is an association of companies that promotes profit sharing. Many of these firms match employee contributions to 401(k) plans in company stock. It also offers conferences, seminars and research.

• The Aspen Institute’s Center for Business Education has recently re-engaged in the topic of employee ownership as part of its dialogue on integrating corporate profitability and social value. The center has built a global network of more than 110 business schools over the past decade to integrate teaching, research and curriculum development on this new management paradigm.

The online Curriculum Library on Employee Ownership (housed at Aspen’s CasePlace.org) is a collaboration between the Aspen Center for Business Education, the Foundation for Enterprise Development and the Employee Ownership Foundation. Caseplace.org is a free online resource for up-to-date company case studies, syllabi and other innovative educational materials on business, corporate responsibility, sustainability and employee ownership. The site offers the largest collection of university teaching materials on employee ownership, addressing such areas as broad-based equity compensation, profit sharing and other forms of shared capitalism.

University resources: Over the past 30 years, academics worldwide have studied various aspects of employee ownership, resulting in research papers, policy papers, business case studies, books and other publications. Much focus has been from the disciplines of economics, accounting and finance, while addressing human resource management issues. This research has broadly demonstrated that the combination of employee ownership and related incentives and high-performance work practices is linked to better corporate performance.

Four universities with well-established programs are:

Rutgers University’s School of Management and Labor Relations has the longest track record of researching employee ownership and integrating the education materials on employee ownership into its curriculum on such topics as corporate governance, human resource management and social science.

The Ohio Employee Ownership Center was the first nonprofit, university-based program—established in 1987 at Kent State University—to provide outreach, information and preliminary technical assistance on employee ownership. The center provides ownership training on a single- and multi-company basis to existing employee-owned firms in Ohio.

The Beyster Institute for Employee Ownership at U.C. San Diego’s Rady School of Management offers an elective course dedicated to employee ownership in its MBA program. “Topics in Corporate Governance: Techniques in Equity Compensation” has consistently received excellent student reviews since its introduction in 2007. It covers the full range of equity incentive and compensation techniques, from synthetic equity programs to leveraged ESOPs. In addition to courses and educational seminars, the Beyster Institute also provides materials and employee ownership consulting services.

The University of Pennsylvania’s Organizational Dynamics Degree Programs have been researching and teaching aspects of employee ownership through organization dynamics courses for undergraduates and graduates.

In addition, faculty members who are increasingly active in research and education programs closely associated with employee ownership can be found at a number of U.S. private and public universities, including:
 
Carnegie Mellon’s Tepper School of Business
Harvard University’s Department of Economics
Salisbury University’s Perdue School of Business
San Diego State University’s College of Business Administration and Entrepreneurship Management Center
Stanford University’s Graduate School of Business
University of Massachusetts
University of San Diego’s School of Business Administration

It will be hard to find entire courses titled “Employee Ownership,” but the idea is certainly being taught within existing courses. I see this increasing and am very pleased with the trend. Universities and their business schools can play a critical role in leading the way in providing a comprehensive understanding about the new realities inside corporations.

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