Gritty US Employee Owned Initiative

This link takes you to a 10 minute PBS film about the likely rebirth of a shipyard, through an employee owned start-up, together with a great up-to-date commentary by Chris Mackin, who appears in the film in a flashback to 1987. It makes the case well that properly democratic structures and processes are essential if employee-owned companies are to work well. The fact that the majority of ESOPs in the US do not give the employee-owners the right to vote their shares, while it may have encouraged conservative owners to take the ESOP route, ultimately disappoints the employee-owners and misses the performance gains that democratic ESOPs characteristically experience.

I’ve worked with many employee-owned companies, and have always found that employee-owners, when they are treated and trusted as the partners that they actually are, with full rights to information, influence and a share of the profits, take a highly responsible view of the big strategic questions. In particular, they normally wish to ensure first that enough is invested to keep the company strong, giving it a far higher priority than taking money out in distributions.

By contrast, private equity so-called ‘investors’ characteristically set out to extract as much cash as possible as quickly as possible. So the responsible investors are the employee-owners who set out to build strong businesses,  not the private equity people who try to cash out.

For the film and article by Chris Mackin, click here.

Loch Fyne Oysters: its history and liberation into employee ownership

Local Heroes PoDThe wonders of technology have made available the inspiring story of Loch Fyne Oysters again in printed form. Originally published by Viking, then in Paperback by Penguin and electronically in Kindle, it can now be bought on Amazon in an elegant new printed edition – printed only when you order it. When I looked today the book could be ordered for next day delivery. The quality is indistinguishable from ‘normal’ books printed in quantity to be held in stock.

The book discusses the precarious founding of the business, wracked by the kind of bad luck that plagues entrepreneurs; follows the inspiration and dedication of the two very different founders through the tough early seven years, and then on into the uplands of success, including the founding and early development of ‘Loch Fyne Restaurants’.

When one of the founders died, the other helped organise the transfer of the business into employee ownership, and for nine years productivity and happiness soared at the head of the loch. Read this book to see why and how this happened.

Subsequently poor strategic decisions made by senior managers came home to roost, and the company was forced to sell out to a local salmon farm. But not before the experience of everyone being partners in the business had produced its glorious effect for business performance and for the people involved.

Isobel Dixon of the agency Blake Friedmann inspired me to write the book in the first place; her colleague Victoria Innell worked tirelessly to see this print-on-demand edition come out, and Andrew Smith followed up his spectacular Kindle cover design with the elegant simplicity of this one. I am very grateful to them all.

Rewarding Stars in Employee-owned companies

15_sf_ballet_pairHow do we reward people who do great things? We have to reward them well. Their special contributions need to be acknowledged. Often that means giving them lots of money, much more than the average.

At the same time, they need to acknowledge – and they may not want to recognise it at the time – that their work is hugely supported by the work of the others, the work of their partner employee-owners. They could not achieve all they do without that support.

Different groups of employee-owners come up with different systems for rewarding their stars. Some companies are very happy to see big differences in cash bonuses, while keeping the share distribution equal, building up through equal allocations every year. Others devise systems to share the ownership more with the people whose work contributes more in the way of growth or profit. Some reward the individuals, others have team bonuses, with the team itself or the team leader deciding how the bonus is divided among the team members.

In companies where a few stars make a really big difference – such as in a literary agency or a ballet company – there will usually need to be a system for addressing this question.

It is important for the people involved to have a say in designing the original system, and in reviewing it and perhaps tuning it from time to time. Employee ownership is never about imposing a ‘one size fits all’ solution.

But there are common elements. The clearest lesson is that there needs to be a significant part of the ownership held in common, and managed democratically. Otherwise the system will be open to opportunist abuse by people who are influential, people who don’t care about future generations. We need to be vigilant about selfish opportunists – the most dangerous being the ones who have not got beyond the current model, the people who think that those at the top do everything that is important, and deserve all the rewards.

Most employee owners want to pass on their company strong, so that future generations can enjoy the same excitement and freedom as they have. And they recognise that the big contributors should be well rewarded.