Should All Organisations Make their Employees Shareholders?

Shareholders invest in an organisations future, some for the short and others for the long term – but don’t employees also ‘invest’ in an organisation? They invest their time, talent and most importantly their future; though admittedly get paid for that commitment. Common sense would seem to suggest that if employees were also shareholders, there might be a greater commitment to ‘the future’ – something that should benefit the employees and the shareholders.

Nick Clegg, UK Deputy Prime Minister, said on 4th July 2012 that "more employees should be in the driving seat and own a share of the comapny they work for." This was after a new report by government adviser Graeme Nuttall found the main barriers to increasing employee owned companies were a lack of awareness, lack of resources and concerns about how complex it was to set up this kind of business. Businesses like the John Lewis Partnership, which is owned by its workers and distributes its profits between them, are seen by Nick Clegg as a key way to improve productivity and unlock economic growth.

Maybe more organisations should consider employee ownership?

There are numerous employee owned organisations in the UK and US, including companies like; Alliance Holdings (13,300 employees); Brookshire Brothers (6,000 employees); John Lewis Partnership (81,000 employees); Parsons (11,500 employees); Savant Limited (40 employees); Tullis Russell Group(800 employees); WinCo Foods (14,000 employees), for example.

David Brodwin recently wrote that “the words ‘employee-owned business’ once evoked an image of small shops with lofty ideals but sloppy business practices. But today, employee-owned businesses like the John Lewis Partnership deliver impressive results, raising the bar for the rest. They show greater resilience in a recession. They earn loyalty from customers and suppliers. They move nimbly in tough markets. Insights from today's leading employee-owned businesses can be applied broadly, pointing the way toward a more robust and sustainable economy.”

Marjorie Kelly writes in her book “that the John Lewis Partnership is part of a paradigm shift from ‘extractive ownership’ to ‘generative ownership.’ - where extractive ownership puts short-term financial gain above all else and generative ownership returns economies to their original purpose, which is to advance human well-being.” Marjorie highlights how the John Lewis Partnership certainly fits the generative model; where its stated purpose is the ‘happiness’ of its staff, which results from worthwhile and satisfying employment in a successful business.

There are three basic models of employee ownership:

1. All the shares are held permanently by the trustees of an employee benefit trust, as in the case of the John Lewis Partnership.

2. All the shares are owned by the employees individually.

3. A combination of the two.

In practice "the 100 per cent EBT shareholding is a popular option," says Graeme Nuttall, head of equity incentives at Field Fisher Waterhouse. "The structure is easier to administer and there is no need to keep buying and selling shares as and when staff join or leave the company."

So is it time for a radical change in business ownership with a significant shift towards employee owned organisations and might such a move help organisations minimise short-term risk and global fluctuations; as well as give greater support to long-term sustainable growth.

If, as is often stated, employees are the life-blood of an organisation, then surely it’s time to genuinely recognise that and ‘reward’ them accordingly – where reward isn’t just basic financial reward, but the ability to proactively contribute to the day-to-day organisational trade-offs between short and long term decisions; as well as risks and rewards.

There are dedicated centres that promote employee ownership; in the US you have the National Centre for Employee Ownership and in the UK the Employee Ownership Association.

When shareholders pressurise organisations to achieve short-term profits that aren’t in the interests of the other stakeholders, (especially the employees), pressures that can hinder sustainable future growth; you have to ask if the basic shareholder model isn’t partially responsible for the global economic mess the world has found itself in. Maybe it’s time for a more employee-centric approach to organisational ownership where the stewardship resides with those who ultimately decide the future of an organisation – the employee.

References:

Brodwin, D. (2012). Why we need more employee-owned business. Economic Intelligence. [On-line].

Coleman, A. (2007). There’s no place like own. Director Magazine. [On-line].

Kelly, M. Owning Our Future: The Emerging Ownership Revolution.