OWNERSHIP RULE #7 of 14: “The BIG Benefits of Psychic and Actual Employee Ownership”

Selling equity to an employee can offer valuable learning experiences in ownership. Still, it won’t automatically turn them into entrepreneurs or have them fully grasp the responsibilities that come with it. Those bumps and bruises, the hard knocks, and all else you learned by trial and error are all part of the education that needs to be passed on. Simply put, “Ownership Needs to be Taught.”

I remember conversing with a good friend about wanting out of the green industry and how I might bring two employees in as partners as part of an exit plan. We debated the potential pros and cons of doing so when he said something I’ll never forget. “Making them owners won’t turn them into entrepreneurs.”  It took me off guard momentarily, so I asked him what he meant by that. From his experience of helping many business owners at their start-up stage, he replied that some people didn’t have the character or drive to put everything they had into growing a successful business. You know, the type of dedicated, stays up late, sleeps in the car, makes the hosts of Shark Tank cry-type,  whose answer to how is “yes” every time! 

Okay, so maybe the new “employee owners” wouldn’t magically be the risk-bearing driven types, but so what? Seeing that the business already had over 20 years of what we considered reasonable success, how vital was the role of the entrepreneur? Was the decade of us running the company using Open Book Management and all that comes with doing so enough to bridge the gap and have us continue to win?  The answer, it turned out, was a resounding yes. Although I recognize the lasting value of a spirited personality in a growing business, the stage of the business cycle we were in—what I had come to learn as “operating in prime”—rendered the entrepreneur less critical than the easily learnable skills we had imparted, accessible to anyone with the desire to acquire them.

The words I had read many times from the book A Stake in the Outcome were starting to connect with me.

Just giving someone stock doesn’t mean they understand what they have.  Stock won’t produce a company of owners or a culture of ownership all by itself.  If people don’t recognize the opportunity they have to create some financial security for themselves and one another, they won’t be motivated by it. ~ Jack Stack

The benefit of having an exit strategy worked right into employee ownership is a beautiful thing!

Now that I have  brought five employees into the circle of ownership, I’m often asked, “Isn’t running a company with that many in charge challenging?” My answer, without hesitation, is that NOT ONCE – knock on wood – have we had an issue. The follow-up question is always, “What is the secret?” While I am sure that many factors go into making this sort of “organizational ecosystem” work, I’d have to say that the most important “secret” is that we treat the Company As The Product, knowing that if we are collectively focused on feeding the “Goose that Lays the Golden Egg,” there is a pretty good chance we will all eat well. See, although there are “people in charge” on paper, we make decisions using the method of consensus. I honestly say we can 100% attribute our success with doing this to having operated for almost twenty years in an Open Book Management way. The transparency, education, shared purpose to Help People Grow, High Involvement Planning, long-term Vision of Greatness, the way we Communicate and Keep Score, Profit Sharing, and more all play a role in building mutual respect and all equal parts of our recipe!

Proven Success: Studies Validate the Power of Ownership – From Employee Shares to Psychic Ownership.

I’ll add from my experience that even psychic ownership is achievable and can make a difference if you are not ready to share the ownership pie quite yet. Over the years, we have seen many employees who don’t have actual ownership show their willingness to think and act like an owner.

According to the National Center for Employee Ownership (NCEO) there are currently 6,257 U.S. companies offering an ESOP; over 1.5 million workers are in private company ESOPs alone. The infographic below highlights some of the key statistics about ESOPs.

Image Credit: National Center for Employee Ownership

Before you venture down the path of employee ownership, if you ever decide to go that route, consider the benefits and importance of how Open Book Management can increase employee engagement and create substantial and positive changes within your company.

Consider this for a moment:

  • Employee engagement is linked to better company performance on average.
  • Companies with a higher level of engaged employees have more stability, higher survival rates, and fewer layoffs in recessions, potentially leading to lower unemployment in the overall economy.
  • Creating an environment where broader sharing of economic rewards may help reduce economic inequality.

In a series of articles I’ve written this year, I cover my take on the “Godfather of Open Book Management,” Jack Stack’s 14 Ownership Rules. The parts that make up this organizational whole connect employees to the company’s mission, vision, values, and financial performance to their jobs. If you find this in any way intriguing, I encourage you to read through the first six “Ownership Rules”: 

  1. The Company IS The Product

  2. A Company Isn’t Worth ANYTHING If Nobody Wants To Own It

  3. The Bigger The Pie, The Bigger The Individual Slices

  4. Stock Is NOT A Magic Pill

  5. It Takes a TEAM To Create Equity

  6. Failures Are Fine As Long As They STRENGTHEN The Company

I’ll conclude that doing part or all of the above-mentioned has not come without its knocks and lessons. That said, and without a doubt, it has worked out far better than I initially could have imagined. If you want to optimize the potential of human capital in your employees, I’d seriously consider opening the books and looking toward a future of employee ownership.

About Me

Through my experiences, I have been fascinated by business and all it offers to improve people’s lives. From working on the shovel, business visioning and everything in between, to sharing my experiences through personalized coaching services, my goal is to help other owners work on their businesses, increase profits, and have more time for themselves while finding enjoyment.

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