book reviews

BOOK REVIEWS

The United States and the United Kingdom have seen rapid growth of employee ownership over the past decade, but Canada can claim its own share of interest in the employee ownership concept. Evidence of that interest can be found in a new book that looks at the Canadian experience. Employee Ownership: The New Source of Competitive Advantage by Carol Beatty and Harvey Schachter brings to light the successes and struggles of ten companies in a seven-year study of employee ownership in Canada.

Noting that "employee ownership has been somewhat overlooked in a world where stock market ownership and lone entrepreneurs are celebrated," Beatty and Schachter studied employee ownership in Canada by looking at both companies in crisis who used employee ownership as a job-saving strategy and those where employee ownership arose as part of the management philosophy. Their research focuses on companies with significant levels of employee ownership - at least 30% -- in unionized and non-unionized settings, large and small companies, start-ups, spinoffs, privatizations, and threatened closures.

Their research showed that five of the 10 companies in the sample were threatened with imminent closure before turning to employee ownership. All five were in old economy sectors in which a high failure rate and consolidation have been rampant. After their employee buyouts, only one company has not survived to date, and seven of the ten companies have proven to be highly successful in various ways, ending up in stronger financial positions than before. While the authors concede that it is not clear to what extent this turnaround can be attributed to employee ownership as compared to other factors, considering that all five companies were in serious financial trouble before their employees bought them, they suggest that their survival record is impressive, and furthers the case for employee buyouts in struggling companies.

Of the five companies studied that were not in financial crises at the start of employee ownership, four have generated superior returns for their shareholders, and the other is turning in a profitable performance. The authors suggest that employee ownership has helped them avoid the high failure rate typical of small entrepreneurial companies. They retained valuable employees, bootstrapped growth, attracted investors, and expanded rapidly. One of them, Creo, has become an international success story.

In terms of the impact of employee ownership on employee attitudes and behaviors, several of the companies studied succeeded without a great deal of participative management, but the standout company in the study provides employees with extraordinary control of their own jobs, the ability to evaluate their bosses in the annual performance review that determine stock options, and blends socialist notions, empowerment, and free enterprise.

Employee share returns at the five start-ups and spin-offs have fared from good to spectacular. At Creo, the founders and early employees realized 160 times the hypothetical value of their founder shares in the initial public offering. Apart from one firm, results were not as good for employee share returns at the five companies in crisis, and employees accepted wage and benefit rollbacks of their choosing in order to survive and maintain their jobs.

The study also showed that for the three very successful companies: employees owned their shares individually rather than in an employee trust. Those companies also opened up share ownership to the broader market (by creating outside pricing mechanisms and allowing employees to realize profit on their shares), and new employees were allowed into the plan on the same terms as original employee owners. Some level of employee input and control was encouraged in each of those firms.

Beatty and Schachter suggest lessons learned from the "crisis" firms are the importance of retaining experienced senior leaders with both industry and employee ownership experience; the value of encouraging employee investments in stock; the need to work with unions to develop a sensible turnaround strategy, and the importance of rapidly implementing a turnaround strategy that includes significant levels of employee participation.

For the smaller entrepreneurial firms, a commitment to employee ownership philosophy combined with employee investment in direct stock ownership, the development of an effective exit strategy for internal shareholders and the need to maintain good employee relations were all factors contributing to their success

Source: Reviewed by David Binns, Beyster Institute Staff,
Foundation for Enterprise Development
http://www.fed.org/onlinemag/jul02/reviews.htm

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“Benefits of being worker and boss”

Queen’s University business professor Carol Beatty has spent her career studying change management and human behaviour within organizations. But it was not until a chance comment at a meeting in the mill town of Kapuskasing, Ont., that she began to consider how having employees hold an ownership stake in a company could affect that.

During the meeting, a schoolboard chairwomen stressed that the fate of the town was linked to the outcome of the recent employee takeover of the Spruce Falls paper mill. Its success, she said, was far from certain, but at least the workers were no longer stealing toilet paper from the mill.

Was it possible that an ownership model could transform work force behaviour?

Seven years and countless case studies later, Prof. Beatty is convinced that the answer is yes. While employee ownership is not the answer to every problem, and is no substitute for sound strategy, she believes it has the potential to create a great deal of wealth within a company -- and for the workers who hold shares...

Prof. Beatty says the case studies in her book highlight some of the pitfalls of the employee ownership model. The most common, she says, is to not make a clear separation between ownership and management. Even though workers own a stake in the enterprise, they need to stand back and let the leaders make the calls. "Companies can waste a lot of time and energy until they understand this," she says.

Another factor that can add to workers' tension and sense of risk is the absence of an exit strategy. While it's fine to make an investment in a company and to watch that investment grow, if there is no way to realize those gains, workers can feel trapped, rather than motivated by an ownership scheme...

By Elizabeth Church,
writing in The Globe and Mail, Toronto, Feb. 22, 2002

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“Majority Interest: When Employees are Owners, Too”

... After opening the book, I found that I was interested enough to look for opportunities to read it. Each of the first 10 chapters is a case study of one company's experience with employee ownership (EO), but each reads like a separate short story. They are business case studies to be sure, but they're also success stories and tragedies, and more human than a tracking of the rise and fall of cash flow.

Many of the companies were forced by the threat of bankruptcy or at least severe job losses to embrace EO. Others chose the employee-as-shareowner route as a consequence of business philosophy. Sometimes it worked and sometimes it didn't. The purpose of Beatty's and Schachter's book is to identify how and why it worked (or didn't)...

EO is not a panacea. It isn't, as some managers might hope, a cheap way to buy employee loyalty. It might make a bad situation better, but it won't make a hopeless situation work.

On the other hand, as Beatty and Schachter show, as a part of a comprehensive and concerted effort to make employees a genuine part of the team, EO can have its rewards for employees, managers and investors.

by Tim Whitehead, writing for Webfin.com

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“Employee Ownership: The New Source of Competitive Advantage”

... What happens when employees have an ownership stake in the company? Beatty and Schachter carried out a seven year study that focused on 10 Canadian companies with employee ownership plans. This book documents their findings (with a chapter on each of the 10 companies) and presents their conclusion that employee ownership can change employee behaviour for the better...

by the Kitchener Waterloo-Record, Jan. 30, 2002

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