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Index of articles on employee participation

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Briefing Paper 3 on ESOP Committee Design Parameters


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ESOP Committee Development:

This is part one of a seven-part article.

Published in the ESOP Committee Guide, Oakland: The National Center for Employee Ownership, 2000
by Stephen Clifford, Loren Rodgers and Christopher Mackin,
Ownership Associates, Inc., Cambridge, MA.
ISBN 0-926902-64-4
The full text is available in PDF format and as a multipart webpage.

Contents of this article:


Group Dynamics

Stage 1: "Infancy"

Stage 2: "Adolescence"

Stage 3: "Adult"

Stage 4: "Older Adult"


An ESOP Committee that successfully encourages and shapes the form of ownership and related communication down and up the company management ladder can greatly encourage employee involvement, increase understanding of employees' attitudes toward ownership, contribute to a healthy ownership culture and can contribute to the creation of a high performance work organization. The research is clear that the creation of a culture of ownership within employee-owned companies is positively correlated with company success.

The purpose of this chapter is to help companies with ESOP Committees make them more effective, and for companies that have not yet attempted to create a committee structure, this chapter provides tips to help avoid some common pitfalls. Companies that have already started down the committee path will find ways to "diagnose" the current condition of their committees and find some ideas that might increase their effectiveness.

As has been mentioned before and described elsewhere in this volume, the term ESOP Committee can include a range of different types of committees. Some ESOP Committees are the trustees for the ESOP. This means they hold a fiduciary, legal responsibility to run the ESOP in a fair and consistent manner according to the law. Other ESOP Committees are expected to lead culture change within the organization. In this situation, the committee is charged with monitoring and improving employee morale and performance. Still other ESOP Committees are responsible only for planning activities, events and employee communications that regard employee ownership.

Each committee will develop in its own way according to the interests of the members and the formal responsibility and authority delegated to it. Each will also pass through a series of generally predictable stages of internal development. This article will focus on the development of the ESOP Committee. It will articulate some early concerns, and the developmental stages as well as the challenges that must be met in each stage and some suggestions to help the group through them, so the ESOP Committee can contribute to company success.

The fundamental assumption of this article is that the ideal committee is one in which all participants understand and embrace the group's mission, feel safe as a group, demonstrate a high level of trust in one another and respect for one another's expertise, and exhibit a high level of productivity.i Such productivity is more difficult to measure in ESOP Committees than in production-oriented work teams. Thus it is important for the committee to create "goals," defined as short-term, realistically achievable results of their work together.

Types of Committees

Before we explore the internal development of ESOP Committees generally, some time should be spent on the different types of committees. There are many different types of ESOP Committees. We will put them into two main categories: ESOP Trustee Committees and ESOP Communication Committees. Many committees have both of these responsibilities. Others share a range of other responsibilities only slightly related to the ESOP itself. These two types of committees cannot cover all of the possibilities, but are designed to explain important distinctions between two major responsibilities of ESOP Committees.

A. ESOP Trustee Committees

ESOP Trustee Committees share a legal responsibility to run the ESOP. This responsibility often forces rapid initial growth and clarifies the group's responsibilities. Often, these committees demonstrate few of the symptoms of committee development. However, each group is likely to experience some of the common stages spelled out below.

Formal or informal training is often a fundamental part of the preparation of Trustee Committees. This "training" sometimes occurs during the process of establishing the ESOP. During that process, the committee members learn about the rules and federal regulations that allow for the creation of the ESOP. The committee becomes familiar with the legal limitations of their control and decision making discretion.

The formal need to make decisions about ESOP design rapidly forces the group into a highly productive stage. When the ESOP Trustee Committee has not been involved in this process, formal training is critical so the Trustees fully understand the implications of their decisions, legal limitations, requirements of their decision making process and note-taking needs. For legal reasons, it is particularly important for these committees to maintain careful notes of the decisions made and reasons for those decisions.

Since ESOP Trustee Committees often undergo formal or informal training with the attorneys who establish the ESOP, and since the scope of their decision-making is clear from the start, they often bypass many of the stages of committee development described below. The stages of group development will still take place, but the stages are likely to be expressed in more subtle ways.

B. ESOP Communication Committees

A cultural change-oriented committee is likely to be responsible to encourage and foster a strong sense of "ownership" among company employees and assist in building increased productivity and profitability. Some ESOP Communication Committees are responsible only for planning events, notices, newsletters and other forms of communication. Both of these types of committees can make a significant contribution to building an ownership culture and adding to company success.

A good ESOP Communication Committee can expand communication throughout the organization. Of particular importance in these efforts is the ability of an effective communication committee to inform managers' understanding of employees' perceptions of the meaning of ownership. In short, an effective ESOP Communication Committee helps managers understand what employees really think, rather than what the managers think employees think. Decreased misperceptions in this area are positively correlated with employees' self-identification as owners.ii

The specific success of the ESOP Committee is often correlated with the extent to which its mission and existence is embedded in a company-wide cultural change effort. When the group is part of a larger change in the surrounding social organization, its likelihood of success and high productivity is increased, as is the likelihood of overall improvements in financial performance of the organization.iii Such a range of concurrent efforts at cultural changes are a common feature among many high performance organizations.iv

Early Issues

Clear mission and goals

The first component of a successful committee is a clear mission. It is best clarified at the time of the committee's creation. This mission must, of course, fit with and contribute to the company's overall goals. In fact, it must be closely and directly related to the long-term goal of the company. It must be an important internal organ of the enterprise, rather than an appendage "stuck on" as an afterthought.v Yet, the mission of the team must be unique and specific to it:

"The discipline of teams tells us that for a real team to form, there must be a team purpose that is distinctive and specific to the small group and requires its members to roll up their sleeves and accomplish something beyond individual end products.vi"

A specific mission will allow the committee members to focus their energy and attention on the goal at hand while working through the stages of the group's development.

A mission statement alone, though, is not enough. Additional goals need to be established with which the committee (and management) can measure the success of the ESOP committee. "The best teams invest a tremendous amount of time and effort exploring, shaping and agreeing on a purpose that belongs to them individually and collectively... [and] translate their common purpose into specific performance goals... When purposes and goals build on one another and are combined with team commitment, they become a powerful engine for performance,"vii according to one expert in team building.

Such shorter-term goals are often difficult to measure in ESOP companies, as incremental changes in employees' attitudes tend to be. On the other hand, some basic goals can be to:

  • increase voluntary participation in "ownership" meetings,
  • expand the ways in which the company communicates its success or failure to employees,
  • broaden the means through which employees can contribute to company success.

Short-term goals allow the committee to focus on concrete goals, and measure achievements.


Often the most important factor in helping an ESOP Committee develop rapidly through the stages of group development is training. Such training provides the opportunity to clarify the group mission and specify some goals mentioned above. It can also include a presentation of the anticipated difficulties, some of which are described below, and a model for group development. When committee members can anticipate their early struggles and the process through which the committee will develop and its challenges, they are more able to tolerate the difficult times and move through them more quickly. Further, training can give the committee many of the tools it will need to operate efficiently. Finally, the process of planning the training is likely to force management to clarify its expectations of the committee and the resources that will be allocated to it. ESOP Committee Training can be done by internal management or external experts in group development.

Regardless of how the committee is prepared for its new responsibilities, some critical points and issues need to be explored:

  • The mission of the committee,
  • The ground rules for committee involvement,
  • The process and reasons for inclusion on the committee, removal from it and replacement of members,
  • Communication skills,
  • Tools for facilitating the group process and decision making,
  • The extent and limitations on group authority,
  • The resources at the committee's disposal (including funds, time, access to non-team members), and
  • The group development process.

Appropriate preparation of the ESOP Committee can drastically increase its productivity and facilitate its growth through each of the stages of development.

Advisory or Activist?

ESOP Communication Committees are often set up by management to help increase the effectiveness and credibility of ESOP communication. The committee is created primarily to advise management about how to communicate the ESOP and concept of ownership more effectively to employees. This goal is a valid one, but it must be recognized at the start that this "advisory" responsibility is inherently a form of "upward communication." A common struggle is the extent to which members are also responsible for two-way communication. Should the committee focus exclusively on helping management communicate effectively with employee owners (an advisory role) or will the committee also express the concerns and frustrations of employee owners to management and recommend changes (an activist role)? There are two main questions the committee is likely to struggle with:

  • Is this committee also responsible for telling management about problems such as employee cynicism?
  • Is this to be the primary means through which the employee-owners will communicate their concerns and expectations to management?

The committee's struggle with its "advisory" and "activist" roles is inevitable and needs to be directly addressed if the committee is to understand its mission and develop effectively. ESOP companies that have effective two way communication and initiate meaningful employee participation have employees who more strongly identify themselves as ownersviii and exhibit more features of high performance organizations.ix An ESOP Committee that recognizes this responsibility for two-way communication can be an important component of such companies.

Selection of Membership

The question of how to select representatives for the committee is complex and will influence the effectiveness of the committee at each stage of its development. A committee that is selected through an open and "democratic" process will carry with it the expectations and trust of the employee owners who selected its members. A committee appointed by management is likely to feel responsible only to management and will often act in deference to management ideas and objectives. In many ways, the latter type of committee is more likely to "rubber stamp" management ideas and objectives, offering only "window dressing" changes. x

A range of other important issues needs clarification as the committee is formed. The decisions on each of these issues will influence the behavior and development of the committee. Some of these issues include:

  • What are the formal expectations of the committee, what are its formal responsibilities?
  • What are the informal expectations of the committee?
  • Is it an advisory group only, or does it have some "activist" responsibilities as well? What is the extent of its influence over management decisions?
  • What resources are available to the committee?
  • How much paid time will be allocated for committee meetings?
  • What additional paid time will be provided to committee members to complete their responsibilities?
  • How much money can the committee spend on its projects?
  • When committee members seek additional information, how will it be provided, by whom and to what extent can/should members pursue information on their own?
  • How much time can the committee expect of employees not on the committee: management, supervisors and employees?
  • What are the rules for behavior of committee members? (Perhaps most important is agreement on the confidentiality of committee discussions and an agreement that members will only talk about the decisions to which all members agree.)

These basic questions need to be clearly answered if the committee is to have a sense of its influence and responsibilities. It is also important for all of the committee members to have a common understanding of their goals and the extent of their influence.

Leadership and Facilitation

In any group, the role of leader and facilitator can be critical to its development and success. Leadership in an ESOP Committee is likely to develop over time and change as the goals and current projects of the group change. It is advisable, however, to have a competent and consistent facilitator who can assist the group's development and encourage both involvement and productivity. While a formal leader can act as facilitator, these two responsibilities are often incompatible and it takes a very well trained individual to perform both functions simultaneously.

A good facilitator will help the committee grow through its natural stages, insure that each member is included in its discussions and decision. The facilitator must allow the committee to develop in its own directions and not force the process or take control or responsibility for results from the group. It is, after all, the Committee that will be responsible for implementation and evaluation of its projects. The facilitator must be sure not to undermine that critical sense of responsibility. If he or she makes this common mistake, a sense of dependency is likely to develop, constraining the group's effectiveness.xi

For more information about the ESOP Committee Guide contact the National Center for Employee Ownership.

i Harari, Oren 1995 The Dream Team. Management Review, October, 1995 v84, n10, p20
ii Rodgers, Loren, What do employee owners really think about ownership? National Center for Employee Ownership, 1999.
iii McGrath, JE 1991. Time, interaction and performance: a theory of groups. Small Group Res 22:147-74 and Macy BA, Izumi H. 1993. Organizational change, design and work innovation: a meta-analysis of 131 North American field studies - 1961-1991. In Research in Organizational Change and Development, ed W. Passmore, R Woodman, 7:235-313. Greenwich, CT JAI
iv Kalleberg, Arne L. and Moody, James W. Human resource management and organizational performance. American Behavioral Scientist, June 1994 v37 n7 p948.
v Harari, Oren 1995 The Dream Team. Management Review, October, 1995 v84, n10, p20
vi Katzenback, Jon R. and Smith, Douglas, K. The Discipline of Teams, Harvard Business Review, March-April, 1993, 71:111-20
vii Katzenback, Jon R. and Smith, Douglas, K. The Discipline of Teams, Harvard Business Review, March-April, 1993, 71:111-20
viii Rodgers, Loren, What do employee owners really think about ownership? National Center for Employee Ownership, 1999.
ix Kalleberg, Arne L. and Moody, James W. Human resource management and organizational performance. American Behavioral Scientist, June 1994 v37 n7 p948.
x Mackin, Christopher, Freundlich, Fred, Representative Structures in Employee-Owned Firms, The Journal of Employee Ownership Law and finance, Vol. VII No. 2, Spring, 1995.
xi Taraschi, Rosaria Cutting the ties that bind, Training and Development, Nov 1998, v52 I11 p12.

ESOP Committees: Group Dynamics

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