Corporate videos generally should be taken with a pinch of salt, but this one carries the ring of truth. WinCo is a supermarket chain that is owned by its 15,000 employees, many of whom have become millionaires. See the article at http://www.ryot.org/winco-foods-grocery-employees-millionaires-walmart/883593, which says “according to Forbes, WinCo has more than 400 front-line employees — cashiers, shelf-stockers, clerks, and others — who are already millionaires.” Employee ownership is one of the very few avenues to address the accelerating growth in inequality. And at the same time it transforms the working lives of ordinary people, and the experience of their customers.
Here is a good succinct summary by Tom Schuller of the research on the fact that while men tend to rise to a level beyond their competence – the Peter Principle – women tend to rise only to a level below their competence. Tom has christened this the Paula Principle.
I worked for some years with the FI Group when they were employee owned. The company was founded in the 1960s by Steve Shirley, a woman who called herself Steve rather than Stephanie to counter the prejudice against women that was so powerful then. She stopped work to have kids, and realised that there were many young women with great programming skills who had done the same. So she designed the business for them: working part time, and from home. That was pioneering stuff in the 1960s. At the time I worked with them, the board was still all-female, and the joke was that although they employed men, none of them had shown to talent to make it to the top. Dining with the CEO, Hilary Cropper, and her family one evening, I heard another jest, by her daughter, one that illustrated some of the costs for women who get to the top. ‘Actually,’ Hilary’s daughter said (perfectly warmly and affectionately), ‘I don’t have a mum: I have two dads’.
In FI Group gradually the board positions were taken over by men. Then the employee ownership began to be given up, the company lost its crusading drive, and eventually it was taken over. So when the men dominated the board, the company declined. Coincidence – or cause?
Papermaking is a male-dominated, substantially blue-collar industry. In employee-owned papermaker Tullis Russell, which has outperformed the industry for years, the top elected council, which represents all the employees (including the managers) as the owners of the company, recently chose a new chair: a young woman called Kirsty Grant. They also elected her to be a trustee of the employee ownership trust that controls the company.
Employee ownership, in which the work and the fruits are shared, suits women. It also suits men. In a study in Italy employee-ownership was shown to have very positive effects on the cardiovascular health of both men and women. But the effect on men was greater. Perhaps it is something to do with the fact that when men are given the chance NOT to compete so hard with each other, they feel a lot less stressed. Cooperation where the fruits are shared is fun for human beings of any gender.
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.
The first of four workshops was held recently in Glasgow, in the Scottish Universities Insight Institute, on the theme of Strengthening Democracy. The key topic was to look at the ways that employee ownership strengthens democracy in the communities around the employee owned firms. David Ellerman opened, with a survey of his search, when he was a young philosopher, for the intellectual basis on which capitalism is founded. He was at that time (1960s) convinced that capitalism was by far the best system in the world, and so set off on his quest for its philosophical foundations with some confidence. However, what he discovered was that there is no valid basis for the key relationship on which our current system depends: employment. Examined dispassionately, the employment contract is a fraud – a way to remove from people the wealth that they create through voluntary cooperation with their work-mates; and to force them into a subservient role instead of acknowledging their autonomy. By contrast, when a company is owned by its employees the business consistently outperforms similar businesses conventionally structured. Why? Because people cannot give up their autonomy, and when they are forced in the conventional employment relationship to pretend to do so, they perform less well: they don’t identify with the business to anything like the same extent, and so they don’t think about it, they don’t feel so confident, nor so cooperative, they end up competing with their colleagues for hierarchical position instead of cooperating to innovate. There is overwhelming evidence that employee-owned companies are more productive, and the reason is that they treat people as the partners they actually are, whatever contracts they have to sign to get a conventional job.
Getting a job is a good thing – it helps you stand on your own feet. Those who don’t have jobs tend to have worse health, higher divorce rates, earlier deaths. But in the US, the world’s strongest economy, those who have jobs have been getting less and less of the pie they have created. The chart shows the strong declining trend, from about 1970 to now, in how much of the pie employees get. If today employees got the 53% of GDP they did in 1970 instead of the 44% they actually get now, they would receive in their pay packets $1,350 billion more than they do get. That is very nearly $10,000 per person employed. That would alter the ability to pay mortgages and look after children.
Where has the money gone? Over a third of it has gone to company owners. Dividends, shown in this graph, stayed between 2% and 3% of GDP from the 1940s to the late 1980s. Then the owners pushed them up to nearly 6% of GDP before the crash. In today’s terms, the owners took from each employee an extra $3,600 every year. Today, they still take $2,600 more from each employee than they would have in the 40s, 50s, 60s, 70s or most of the 80s. And it is rising.
How has this happened? The owners have simply been exercising their rights. Employees cooperate voluntarily to create the wealth, but have no right to participate in the wealth they create. The owners can legally take all the wealth for themselves, and in one way and another they have been exercising that right. Private equity leveraged buyouts, for example, are simply the ruthless exercising of the rights of owners, at the expense of everyone else, whether employee, supplier, customer or taxpayer.
It is different in employee-owned companies. The next blog will be about who shared in the profits of two major British retailers: Marks and Spencer, owned mainly by the financial institutions, and the John Lewis Partnership, owned since 1929 by a trust for its employees.
Suppose you are employed by Mr Jackal. According to the dominant economic theory, you have sold him your labour. Since you have sold it to him, he controls it: it is up to him how that labour is used. Mr Jackal tells you to go and assassinate the French President. So, since you are his employee and your labour now belongs to him, you go and assassinate the French President.
Download the ‘TR-Inveresk’ pdf file to read the case study:
This case study tells the fate of two paper manufacturers in Scotland. They were similar in every way except one: their ownership strategies. Inveresk carried out an MBO – Management Buy Out – and then floated their shares on the stock exchange. Tullis Russell chose an EBO – an All-Employee Buy Out. Inveresk, which started well ahead in terms of productivity, slowly declined and eventually went bust. Tullis Russell’s employees – who all together had control of the company – increased their productivity dramatically year after year after year, as shown in the graph. Yet again, employee ownership showed itself to be better for all concerned than the plc-Stock Exchange route, which extracts wealth instead of building it.
There is a new, cheaper version of the book originally published by Penguin as ‘Local Heroes: How Loch Fyne Oysters Embraced Employee Ownership and business success’. The new version looks like this, and is renamed ‘Local Heroes: The Liberation of Loch Fyne Oysters’.
The book tells the exciting entrepreneurial story of how this sustainable seafood company was founded and built, against the odds, in the wilds of Scotland. On the death of one of the two founders, the employees won control of the company in the teeth of other potential buyers. The employee-owners then worked to make a success of their business, and achieved huge uplifts in productivity.
When financiers take over businesses, customers need to watch out. Look at Southern Cross. Rather than improving the care of the elderly residents of their care homes, Blackstone manipulated the financial structures and arrangements to extract over £1,000,000,000 – a billion pounds – in cash. The result? Suffering for the old people.
By contrast, when employees take over the company where they work, they strengthen the services, and invest. Sunderland Home Care, Highland Home Carers, Stewartry Care and several others are among the top rated carers for old people. In each case, the care is delivered by people who share in the ownership of the business. And in child care, the same story: by far the best provider of children’s nurseries in England is Childbase Partnership – owned by its employees.