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Making Employee Ownership Real: An Interview with Loren Rodgers of Ownership Associates
Published by The Foundation for Enterprise Development [Now the Beyster Institute at the Rady School, UC San Diego]
Leading Company E-Zine, August, 2000
Companies with broad-based equity ownership programs, including stock-option plans, stock purchase programs, ESOPs, and direct share ownership, often face the challenge of how to "make ownership real" to employees. More and more of our clients are asking for advice about "translating" ownership into day-to-day behavior and attitudes.
This month we talk with Loren Rodgers, of Ownership Associates, a consulting firm based in Cambridge, Massachusetts, and Bilbao, Spain. Ownership Associates works exclusively with employee owned companies, and Loren heads their various research efforts, based in part on the Ownership Culture Survey (OCS), an attitude survey designed to measure the extent to which employees feel like owners.
Foundation: Let's start with the obvious question: what is an "ownership culture"?
Rodgers We define ownership culture as a system of beliefs and habits which encourage employees to think and act like owners. Every company will need to work out the specific characteristics they want for their own culture, but we have seen certain characteristics that turn up again and again--both in terms of where companies start, and in terms of what succeeds in getting people engaged in the business.
Foundation That's a rather broad definition. Can you be more specific?
Rodgers Sure. The core of employee ownership culture is the web of expectations and perceptions that employees have about six topics: decision making, information and learning, organizational fairness, accountability, work and pay, and entrepreneurship.
For example, with regard to decision making, ownership culture concerns the level of input employees believe they should have, and also the perceived level of input they believe they do have. But culture is not just about employee expectations for the company. It is also about the company's expectations for employees. If employees are involved, the company should be able to expect good "organizational citizenship"--i.e., employees should take responsibility to ensure that their contributions lead to better decisions. In other words, the cultural beliefs need to be both motivational and business-savvy. People should be excited about their rights at the company, but they should have high standards for themselves and the quality of their own decisions. Similar rights/responsibilities frameworks can be worked out for each of the six core culture areas.
We term this system of interlocking expectations the "rights and responsibilities" of ownership, and the key measure of the health of an ownership culture is whether rights and responsibilities are in balance. Our own research indicates that balance is a sort of natural state--the companies with the highest responsibilities scores also have the highest rights scores, and imbalanced cultures tend to be unstable. [See Participation: Decision Making and Employee Ownership.]
Foundation Does ownership culture matter? Why should a company bother?
Rodgers It's certainly not a legal requirement. Beyond certain minimums, like annual account statements, no law forces employee-owned companies to treat employees much differently than non-employee-owned companies do. So a company should make a decision for itself: is the company and its leadership committed to a long-term process? Are they ready to go beyond what is required by law and invest time and effort to create a widespread sense of ownership?
The upside is pretty clear--research over the last couple decades shows that employee involvement is the key to unlocking the potential of employee ownership. Ownership on its own has little effect on performance, but companies that combine ownership and involvement have an advantage not available to their competitors. Genuine employee involvement is what happens when people think and act like owners--when a company has built a strong ownership culture.
Foundation I know of companies that use performance-based systems to get people to act like owners. Some of them even tie the bonuses to stock price. Why not just use cash incentives instead of an ownership plan?
Rodgers You may have seen companies where "incentivized" employees act like owners, but the only way to get people to think like owners and to feel like owners is to make them owners. And I'm skeptical that cash incentives elicit real ownership behavior. There's a difference between an owner and an investor. Investors generally have a short- or medium-term time horizon, and they're thinking strictly in dollar terms. By contrast, owners are in for the long haul, and they have an emotional attachment to the company that goes beyond dollars. Cash incentives, and even options in some cases, can actively encourage employees to take a short-term, cash-centered view of the company, and to see work through a purely instrumental perspective.
I'm not saying that cash incentives are a bad idea, and we have certainly seen strong cultures in option-based ownership plans. We encourage our clients to have mutually reinforcing compensation schemes, including base pay, short- or medium-term incentives, and long-term ownership plans. Cash, options, and long-term ownership can be a great combination. But cash is not the same as stock, and ownership is more than an incentive plan.
The financial aspect of ownership is important, but it is not the only value people attach to ownership--more likely than not, it's not even the most important. Psychologists studying ownership suggest that the things we own are intimately tied to our sense of self. When employees care about their companies and the community of people who work there, their motivation is far more profound than their own financial well-being. Ownership contributes to an emotional connection with the company, and no cash-bonus program can do that. Basically, it's this simple: ownership matters to people. [See the Ownership Culture Report, Vol. 1, No. 4.]
The following chart shows how the employees in an average employee-owned company respond to one of the questions in the Ownership Culture Survey.
Foundation How should a business owner gauge whether or not employee ownership makes sense for his company from a culture standpoint?
Rodgers Many factors determine how well suited a company is to ownership. For example, it is more difficult to build an ownership culture in companies with scattered locations, poor communications infrastructure, a low-wage structure, etc. Nonetheless, we have seen companies overcome all of these challenges with great success. The one key factor that every company needs is committed leadership. Leaders must be convinced that an ownership culture is the right course for the company. They must be ready with the answers, the vision, and even the body--language to convey repeatedly that they are committed to making ownership work.
Foundation "You're an owner: if the company does well, you do well." In a nutshell, isn't that all employees need to know? It seems like a fairly simple message to convey.
Rodgers The fact that employees will share in company success through an ownership program will not affect their behavior. All that matters is whether employees believe that they'll share the success. The foundation for all future years of work a company will do to build an ownership culture, is people who trust the ownership plan. Not surprisingly, our research indicates that the single biggest factor that promotes trust in ownership is understanding, and building understanding takes time. We've found that the best way to encourage understanding is a systematic and predictable communications program. [See the Ownership Culture Report, Vol. 1, No. 1, "Trust and Ownership."]
We worked with one company to put together a training program that introduced their ownership plan (an ESOP in this case) to all employees. It started with context setting, such as the role of the government in creating and regulating ESOPs to protect the interests of participants. Then we talked about the number of ESOP companies, with a focus on companies familiar to employees: nearby companies, suppliers, and some nationally known ESOPs. Then we talked about why the company was adopting this training--that they hoped everyone would realize a common interest in making the company succeed. Then the bulk of the session was about how the ESOP works: the role of the trust, qualifications for plan participation, vesting schedules, distribution rules, and so on. Finally, we applied all this to the account statement they'd be receiving, as a way to reinforce the mechanics of the ESOP and to tie it to something concrete. This general scheme works well for us, whatever form the ownership plan takes. Once people have the understanding they need to care about the ownership plan and company success, that's a solid basis for future training and culture building. [See The Ownership Incentive.]
Foundation What strategies have you seen that work well for companies wanting to build an effective ownership culture?
Rodgers Let me start with the standard disclaimer: every company is different, and especially companies who have been working at ownership for a while will need their own unique approach to ownership. That said, here are some general steps, in rough order, that we have found to be effective in building ownership culture.
Foundation How far does this go? Business owners are usually not willing to have every decision this company makes be subject to review by the entire work force.
Rodgers Interestingly enough, neither are employees. In company after company, employees say that they know that they need to leave some issues to people with special training. Ownership culture is not about involving everybody in everything: it's about keeping people informed and giving them space and support to be involved where they can contribute. This chart shows the responses of 1,544 employee owners at 15 companies who had responded to the Ownership Culture Survey back in 1998. [See Surveys and Employee Ownership.]
- Plan: Leaders decide where the company is going and what ownership means in specific terms--some companies call this an ownership vision statement. They do not need to work out all the details, but they should have a big picture that the entire senior management team is comfortable with and committed to. The ownership vision should reinforce the company's strategic plans. Having a plan helps avoid the two classic mistakes companies make early in an ownership plan (1) over promising, and (2) not saying anything.
- Prepare the Middle Level: With alarming regularity, we find that middle managers and supervisors are the weak link in making ownership work. They are more likely to be ownership cynics than any other employee group.
In many ways, they have the most difficult job--they are rarely involved in designing the plan, and yet they have to persuade everyone they work with that the plan is a great idea. We strongly suggest that companies meet with middle-managers and supervisors and provide them the support and training they need to actively endorse the program. [See Ownership Cynics.]
- Develop a Communications System: Give a specific person or set of people responsibility for setting up systems to communicate about the ownership plan. Let them map out a long-term strategy and oversee the communications process. This person or group's first task should be to make it easy for anybody at the company to get answers, and supervisors and middle-managers should be especially welcome to use this resource.
- Announce the Plan: We have found that a large-scale announcement with a degree of fanfare is a great way to start off a program. Let people know this is something new and different, and get them ready for the future stream of communications. Here too, avoid the extremes: the announcement should combine both substance and flash. Too much substance, and people may disengage. Too much flash, and the company is inviting cynicism.
- Educate: An ownership culture often changes the way people think about themselves and the company. Education is a key part of this change. We suggest the following steps, which could take between one year and five years, depending on how aggressively a company wants to pursue an ownership culture.
- The Basics: One to four months after launching the ownership plan, begin an introductory course covering participants' legal rights, the "mechanics" of how the plan works, and the company's long-term direction.
- Cultural Literacy: We suggest following the Basics roughly six months later with a series of meetings that address attitude and perception issues head on: talk about what people expect from ownership, where they're disappointed, and build a common vocabulary for discussing ownership issues.
- Participation Skills: People should learn the group-process and decision-making skills needed to contribute effectively.
- Business Literacy: The company should ensure that all employees have the basic business knowledge to understand and act on business information.
- Structure: In order to provide a channel for participation, we recommend that companies put together a clearly defined structure through which an employee voice can be heard.
Of course, figuring out who should decide what is a substantial task requiring careful thought and planning beyond the scope of this article, but we have an article on our webpage, Frontiers and Boundaries: Managing Ownership Expectations.
Foundation Can you share some concrete, hands-on suggestions to promote ownership culture?
Rodgers There are lots of simple steps which companies frequently overlook. For example, make the most of required communications. Companies are required to provide people regular statements about the value of their accounts. Make sure each one of those is clear, easy to read, and an educational experience in its own right.
Companies may want to consider involving non-managers in designing and delivering communications. Peers are often the most effective trainers, especially when they work closely with an expert from HR. One company we saw developed a network of non-managers who received special training, both in the mechanics of the ownership plan and in group skills. They had a specific person in HR they could call to get their questions answered. These people became a resource to everyone in their departments, because they had credibility with their peers, and they either had the answers, or they knew where to get them. Another company had non-managers deliver a business literacy training program to their peers.
We strongly suggest gathering data from employees so that companies can tailor communications programs to best meet employees' needs or concerns. For example, one company we worked with narrowly avoided a training catastrophe when a focus group pointed out that the well-designed program would fall flat on its face. The reason? The designers made the faulty assumption that everyone in the work force understood the concept of a "share of stock."
Another company used a survey to launch structured discussions with the work force about what was working well, and what needed to change. They invested a substantial amount of time and energy into an interlocking structure of task forces, each of which addressed an issue raised in the survey and brought together a cross-functional team to come up with solutions. They presented their ideas to a steering committee made up of board members, managers, and work force representatives. Did it work? The chart below shows their scores on one survey question before and after the intervention.
Another easy idea is to send people to employee-ownership conferences. The chance to meet people from other companies, and to be an ambassador for their own company, generally gets people excited about what their company is doing.
Foundation How do employers know if this is working?
Rodgers Just like any other business process, managing a culture change requires accurate measures. Gather data about the work force and how people feel about ownership, and track that data over time. Focus groups are often the best way to gather feedback on a specific topic, such as a training event or a newsletter. To track culture change more broadly, a survey is generally the best tool. Several key principles apply in making sure companies have the most reliable data possible from a survey.
- Anonymity: Make sure people are confident that their results will be completely confidential in order to ensure honest feedback.
- Pre-test: Test the survey to ensure that people understand the questions and that no major areas of concern have been overlooked.
- Benchmark Employee Ownership: If possible, use pre-written questions that include comparison data from other companies. Since ownership fosters some deep changes in how people feel about themselves, their jobs, and their companies, we strongly recommend that companies use other employee-ownership companies as their benchmark, especially regarding culture.
- Internal Comparisons: Include demographic questions to allow comparisons among different groups of employees. We strongly recommend that companies limit the number of demographic questions in order to preserve respondents' sense of anonymity.
- Track Changes: Repeat the survey to see how attitudes change over time.
Building an ownership culture is a long process and the largest challenge can be finding the patience and commitment to see it through. For the companies we've seen make it work, though, it is worth it.
Foundation Thank you for your time, Loren. Before we close, can you tell us something about your own company?
Rodgers Well, we are employee owned ourselves, so we believe in this idea. Ownership Associates has been in business since 1987, and we only work with employee-owned companies. We support training, communications, organizational design, and culture assessment, and we've worked with companies of all sizes, industries, and types of ownership plans. One thing that I think makes us unique is a rigorous approach to ownership culture--we've invested a lot of time and energy in collecting data, following the academic literature, and trying to build bridges from these abstract ideas to the hands-on, applied tools that managers need to make these ideas work in practice.
You can find out more about Ownership Associates and the type of information they have collected in conducting their extensive research on employee-owned companies. Visit their informative website at www.ownershipassociates.com.
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