Employee Ownership: Connecting the Parts

29th August 2012

How does a business with employee shareholders encourage them to think and act like owners?

The Government has said it wants to see more businesses become employee-owned, wholly or partly. This includes encouraging public sector workers to assume control of the delivery of public services through the formation of mutual enterprises owned by employees, and encouraging existing businesses to allow employees to acquire an ownership stake. However, how should a culture of ownership be created among employees? In what ways can employees be educated in how a business operates and how to identify targets and measure performance?

One approach, originally pioneered in the USA, is the concept of “open-book management”. The promoters of this idea take the view that changing the culture requires more than simply granting shares or share options to employees, paying them bonuses or creating some kind of employee benefit trust. What is required is a change in attitude and a process of continuing education. Employees should learn that they have a direct role to play in creating the kind of company they want, and that an ownership culture is built on mutual trust and respect. In order to do this, employees need to be initiated into the ways in which business owners and entrepreneurs think by being guided through a business’s strategic plan and its management accounts.

These ideas are discussed in greater detail in “A Stake in the Outcome” by Jack Stack and Bo Burlingham, published by Currency Books.

The authors advocate providing informal business training to employees throughout the organisation and maintaining a focus on creating the kind of company that its owners want. Their approach is to treat it as what they describe as a “business game” with discussions about targets linked to defined awards, regular progress reviews and business performance reports. An example might be weighing up the relative merits of paying a dividend to shareholders as opposed to making a reinvestment in the business.

What will work in a specific situation will depend on the precise circumstances of a particular business, but the essential ingredients are openness, transparency and mutual trust and respect.

The challenges are significant but, judging by the examples cited in “A Stake in the Outcome”, so are the potential rewards.

It’s all about encouraging employees to behave like owners. If wider employee ownership is to prosper in the UK, these issues, and the ways in which they might be approached, will become familiar challenges to employers, employees and professional advisers alike.