Management: Employee ownership improves business performance

Participants in a recent syposium about employee ownership. (Photo courtesy Mary Ann Beyster)

More than 40 academics recently came together in La Jolla to share findings from research on how employee ownership motivates employees, improves firm performance, advances innovation, and supports economic development.

The event  was the largest academic symposium of scholars involved in interdisciplinary study of employee stock ownership. It was sponsored by the Foundation for Enterprise Development, as part of its Beyster Fellowship program

The scholars were asking tough questions about how corporations should be governed, who should be accountable, and how the interests of shareholders can be better aligned with those of stakeholders.

The questions addressed by this group are important and timely. In the recent economic collapse, we saw how inappropriate organizational incentives can lead to unanticipated problems.

We must regain our footing by re-thinking the fundamentals of our economic system. Society’s innovation, economic growth, and raised standards of living result from people having the freedom to pursue their ideas unencumbered by bureaucracy. And those who create value should be personally rewarded as a result.

Once a firm has the right strategy for its market, it is the power of the individual-the employee-that will get us on solid footing. Firms are re-shaping themselves to be much more decentralized and flexible in how to engage employees so that they can adjust and compete in a very dynamic environment.

Ownership, participation, open-book management, and accountability are all key elements in making these decentralized organizations work.

Companies with significant employee ownership have demonstrated successful models that create benefits for all: employees, shareholders, and customers.

Research findings yield this picture:

• A large proportion of 100 Best Companies to Work For in America have some form of broad-based ownership, profit/gain sharing, and participative management practice according to a report by the National Center for Employee Ownership.

• High technology leaders of Silicon Valley challenged the traditional boss-employee mentality with new collaborative models and broad-based ownership. See In the Company of Owners report.

• Companies with broad-based options have higher levels of productivity. Increases in average productivity appear to counterbalance the dilution effect.

• Employee ownership is found in start-ups and “built to last” corporations, and it harnesses employee motivation at every stage of organizational growth. This is found in case studies from today and the past.

• Employee-owned companies out-perform their peers. See the  research.

We cannot give short-term equity incentives and expect employees to act like owners when the culture, policies, and work practices do not enable this behavior.

Research has determined that bundling ownership and high performance work practices creates the motivation needed for short- and long-term business performance improvement.

Re-emphasizing human capital starts with a mind informed of choices. The first place to seek information are the associations and non-profit organizations focused on employee ownership. These include:

• The Employee Ownership Association

• The National Center for Employee Ownership

• The National Bureau for Economic Research

• The 401k/Profit Sharing 401k Council of America

• The Aspen Institute

Four universities with well established employee-ownership programs include:

• The Beyster Institute for Employee Ownership, at UCSD’s Rady School of Management

• The Rutgers University’s School of Management and Labor Relations

• The Ohio Employee Ownership Center

• The University of Pennsylvania’s Organizational Dynamics
The Beyster Fellowship program was established by the Foundation for Enterprise Development (FED) to support such research and facilitate the dissemination of findings.

Currently, the Beyster Fellowship supports eight university research teams as well as collaborations with numerous academics and non-profit organizations to

Mary Ann Beyster specializes in management issues.

advance understanding, awareness, and practical application of ownership principles through educational institutions.

We expect to have proceedings available in October.

Mary Ann Beyster is president of The Foundation for Enterprise Development, which promotes business principles and practices that encourage free enterprise, advance science and technology innovations.

Tags: company ownership, employee stock options, SDNN

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