Extensive empirical research regularly confirms the benefits of broad-based ownership. Although employee ownership is proven to lead to higher productivity, better worker engagement, higher profits, and lower employee turnover, it is not a magical tool for improving business performance – and a lot of effort is needed to implement it in the right way.
Success factors when transferring to EO
According to an article by Corey Rosen, John Case, and Martin Staubus, there are four crucial success factors when it comes to employee ownership:
- Percentage of the workforce involved in the ownership scheme (generally, a large majority of employees should hold equity to reach the potential behind EO).
- Perception by employees regarding the amount of equity held (employees must feel the percentage owned by them is significant enough to make a change in their perspective and, hence, business performance).
- Managerial support (managers on senior positions should implement certain policies and practices to reinforce employee ownership with soft factors).
- A true sense of ownership (employees must be educated about what it means to be an owner and provided with training programs on business-literacy).
What does the practice show?
Like with any other model of ownership in a company, there are some unsuccessful attempts with employee ownership. By analysing both, good and bad examples, we learn that there are certain rules of practices that make employee ownership successful.
For instance, the CEO and their team sincerely believe in employee ownership and continuously work hard on making it a reality. A common problem is that the CEO does not stay long enough with the company to fully implement the change.
Furthermore, senior managers should regularly communicate the importance of ownership to all their employees, whether it may be banners, bulletins, or websites. Namely, they constantly remind the employees that they are owners and explain what that actually means.
Since genuine owners are entitled to information regarding the financial success (or losses) of the company, employee-owners must be provided with financial reports. According to the article by NCEO directors Corey Rosen and John Case, as well as the director of employee-ownership consulting for the Beyster Institute at the Rady School of Management, Martin Staubus,
“Leaders at successful employee-ownership firms continually educate workers about the company’s financials, explaining where profits come from and how they affect the value of the stock.”
Holding equity will make no significant difference if the employees are not given any decision-making power, they lack meaningful influence, or their ideas and proposals are not seriously considered.
“The cluster of practices known as “participatory management”—self-managing teams, ad hoc task forces, quality circles, and so on—are common at successful employee-ownership companies.”
The general point is that ownership should be always accompanied by a change in corporate culture. Taking into account that creating ownership culture and engaging employees into participatory management is often a time-consuming and ambitious process helps understand why there are not as many employee-owned companies as one would expect given the proven benefits.
Experience shows that sometimes it takes more than a year before the people involved understand the importance of the change. But once they do, the workforce becomes more collaborative, reliable, and willing to go the extra mile for the organization.
“Employee-owners are trusted to do what is best for the company.”
When there is an alignment between personal and organizational goals, employees will feel an internal obligation to do a high-quality job, even if that means some sacrifices on their part.