- Shopping Bag ( 0 items )
Psychic Ownership and “Real” Ownership
At this point, you may be wondering, “What about equity? If you can get all these wonderful benefits by having an effective management system, why bother sharing stock at all?”
That’s a good question. In fact, I know a lot of companies that have implemented the Great Game of Business, or something very much like it, without actually giving employees an equity stake in the company. By and large, the results have been excellent. Not only has the company performance improved, often dramatically, but morale and employee retention have risen as well.
When you spend time in one of those companies, you can’t help but be struck by the employees’ spirit, loyalty, and knowledge of the business. They talk and act as if they really are owners. What’s more, they clearly feel that, on some level, the company is theirs, and they’ll tell you so if you ask them.
That’s what I think of as psychic ownership. It comes, I believe, from the sense of community that develops when you treat people as responsible adults, capable of understanding how the business works, looking out for its best interest, and contributing to its success. Just by implementing a well-designed open-book management system, companies demonstrate trust and respect, and then the educational process kicks in, transforming both the culture and the behavior of employees–not all of them–but a certain critical mass. Along the way, they become extremely possessive of, and deeply loyal to, the company and its culture.
Psychic ownership is important. It’s an essential component of an ownership culture. I hold in high regard any company that has earned such trust and devotion from its employees. But psychic ownership doesn’t help a company deal with the biggest issues it faces–like succession. I also believe that businesses miss out on the real potential of ownership if stock is not part of the deal.
Equity is, in fact, a kind of a contract. It defines the terms of a shareholder’s relationship to the company that issues the stock. When people get stock in the company they work for, they have something real in their hands, a guarantee that they’re going to receive a portion of the wealth they help create. What happens to the stock, and what they ultimately get out of it, are different matters, but they do have the promise in writing, and no one can take it away from them.
Out of that contract comes all the wonderful things that equity is capable of providing. It’s one mechanism that can absolutely change people’s lives. It can make their lot easier. It can help them send their children to college. It can enable them to buy a home. It can support the charities they care about. It can give them something to look forward to in retirement. It can significantly enhance their quality of life in many ways.
And yet there’s more to equity than simply the rewards people get from it, because they can receive those rewards only by working together to build something of value. You need a group of people to create a company whose stock can be bought and sold. It’s almost impossible for anyone to do it alone.
So equity-sharing is about defining the community. It’s about what one person can do for another person. It’s not just a set of rewards; it’s a reward system. People come together, struggle together, build something together, and enjoy the benefits together. Yes, there are hardships along the way. Life is full of hardships. But when people are working toward a common goal, they can rise above the hardships. They can put aside the petty issues and think at a higher level. They can realize how important they are to one another, and come together as a team, and create something better than what existed before. Because people have hope. They have something to look forward to in their lives.
In the process, you get a place that more nearly resembles how you’d like the world to be: a nicer place, a place where people are a little more equal, and so you have a little less envy and guilt. It all comes out of this reward system.
I don’t mean to paint too rosy a picture here. Ownership is not all fun and games. You try to have as much fun as possible by creating opportunities to win, but an owner has to learn how to deal with the bad as well as the good. Why? Because being an owner involves responsibility–for making payroll, for protecting jobs, for fulfilling commitments, and so on. You give people ownership in part because you want them to share and accept that responsibility.
The question is Can they handle it? Have you created a culture that enables them to handle it? Any company can do well when times are good. It’s in bad times that we find out what businesses are made of.
SRC is actually at its best in bad times, and I believe it’s because of ownership. We know how to come from behind because we’ve done it so often in the past. Whenever the going has gotten tough, we’ve been able to draw together as a family, figure out what has to be done, and then go out and take care of business.
I doubt that would have happened if a few of us had kept all the stock to ourselves. The other people would have always felt (correctly) that they were working for someone else. By sharing equity, we put everybody in the same boat, and so we could make sure we all were pulling together when the seas grew rough. As a result, we learned we could handle adversity. It tested our mettle and made us stronger.
You miss all that when you settle for psychic ownership or try to get by with phantom equity, which is really just a long-term bonus program. No matter how loyal and motivated psychic owners might be, they aren’t complete owners if they don’t also have an equity stake, and sooner or later the limits of their ownership become apparent. They hit a wall in their education. They may become better employees, but they never encounter the biggest challenges of ownership, and they don’t share in its rewards. In the end, it’s equity that provides the ultimate economic payoff of business. Unless employees are responsible, not just for helping the company make money, but also for building its equity value, there will always be a division between the “real” owners and the psychic owners, and over time that division will undermine the culture, stunting the growth of the business and that of its people.
And no one’s growth will be stunted more than that of the owners who keep the stock to themselves. I speak from experience here. My entire education as a businessperson has come from struggling with the challenges of making employee ownership work. It boggles my mind to think what I would have missed if we hadn’t taken this route.
In the beginning, I knew nothing about business. My partners and I didn’t even know how to define success. We thought it was just a matter of surviving. At one point in our first year, we had $89 million in debt, against just $100,000 in equity, and barely enough cash to scrape by. So we figured out how to make do with what we had. Through the Great Game of Business, we taught everybody in the company what it takes earn a profit and generate cash in an operating business. The result was that we paid down our debt and watched our stock value soar.
But just when we thought we were out of the woods, we discovered a whole side of business we hadn’t known about before. It isn’t enough to create wealth; you also have to be able to pay for it eventually. In our early years, we’d created a lot of wealth–on paper. What were we going to do when it came time to cash the paper in?
So began the next phase of our journey, which proved to be both the most difficult and the most rewarding. By having to come up with a plan for cashing people out, we were forced to change the entire way that we looked at our business. We had to learn how to view it objectively, to see it as an investor would, from the outside in, and we had to develop a long-term perspective. Clearly, we were going going to need a ton of cash in the years ahead to cover our obligations to shareholders. The more successful we became, the more cash we’d need. Somehow we had to figure out how to generate it, not just now, not just this year or next year, but on and on into the future. We had to create a repeatable pattern that would guarantee we’d have money to pay shareholders when they were ready to leave.
It took more than a decade to come up with the pattern. Along the way, a funny thing happened. We learned the fundamentals of good business. We learned what it really takes to succeed under capitalism. We learned how to create new businesses and how to get people ready to run them; how to generate new sources of cash flow; how to do alliances; how to buy and sell companies; how to turn customers into partners; how to increase the price-earnings multiple on our stock; and on and on. Above all, we developed the courage, the character, and the conviction to be able to handle the future. We figured out how to build certain disciplines into the organization that would get people thinking ahead, thinking strategically, thinking as far into the future as we could go. So as expensive as our equity was, having to pay for it turned out to be the best thing that ever happened to us.
Meanwhile, the world was changing around us. When we began our journey, it was considered a radical idea to share ownership and financial information with employees. Now both practices are commonplace. Almost 20 million people are covered by some sort of broad-based equity-sharing program these days–more than 15 percent of the private-sector workforce–and the numbers are still rising fast. As many as half of all private-sector employees could have stock in their companies in the coming years. And even companies that don’t share equity search for ways to instill an ownership mentality in employees, encouraging them to “think and act”like owners,” as the phrase goes on.
At SRC, we’ve come as close as anyone to figuring out how to do that, but it’s taken twenty years. I think back to the pessimistic times at the start of our journey, when we’d get daily reports of factories closing and people losing jobs, communities being devastated, and I realize how far we’ve traveled. We were just a bunch of working stiffs back then. We had only some values we felt we had to live by and a few crazy ideas about how businesses ought to be run. We didn’t understand ownership. We’d never heard of employee stock-ownership plans or open-book management. When we tried those things, we didn’t know how, or even if, they would work.
But we believed we had to give them our best shot. We had to see if it was possible to build a business around the same democratic values we’d grown up with and come to expect in every part of our lives. We had to find out whether or not you could share the rewards of ownership, be open with information, treat people with dignity and respect, educate yourself and everyone else, and still have a successful company.
As it turns out, you can–but it ain’t easy.
From the Hardcover edition.
|1||A Culture of Ownership||1|
|3||The Design of a Business||35|
|4||The Hazards of Employee Thinking||57|
|5||How We Began to Open Our Books and Build Our Ownership Culture||63|
|7||What's in a Game?||93|
|8||You Can't Trust Success||113|
|9||The Little Secret of Ownership||129|
|10||Crossing the Great Divide||145|
|11||The True Profit of Business||165|
|12||A Question of Stewardship||183|
|14||Passing the Baton||233|
|Epilogue: The Long Road||261|
Posted March 25, 2004
While this book does go into details about the author's amazing success with his company, SRC, the advice is tailored to senior executives who are in the position of founding or leading young companies. The author candidly admits that personal experience in leading a company is the only real way to learn, because each company has its own unique challenges, and because situations look quite different in the heat of a tense moment, rather than in the comfort of a book. Nonetheless, this book does give the reader plenty of areas to think more about, and tells a great story in the process.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Posted July 4, 2003
This book deals with the real day to day issues that employee/owner companies have to deal with. The book guides you thru planning the future. Its deals with issues that most people are not willing to face. It's nice to know I'm not the only one going thru these problems. What a great boost of confidence this book gave me.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.