What happens when employees own a company?

In most scenarios, workers become “emotionally entangled” in their jobs.

And sometimes, they become moderately wealthy, says Carol Beatty, director of the School of Industrial Relations at Queen’s University.

Ernie Sparks photo
Carol Beatty studied 10 Canadian firms using ownership model.

“Employee ownership can be a powerful tool for survival, profit and growth.”

These are some of the conclusions made by Beatty and freelance journalist Harvey Schachter, who have co-authored a book based on the experiences of 10 Canadian firms that chose employee ownership as a business model.

The case studies were conducted between 1994 and 2001 and describe the successes and failures companies experienced. The research found common themes including: Who is the boss when employees own the business? Who sits on the board of directors? And is employee ownership a scam to make employees work for lower wages?

The basic conclusion in Employee Ownership: The Source of Competitive Advantage (Wiley; December 2001) is that when done properly, employee ownership provides competitive advantages that increase productivity and loyalty.

“I think it gives employees much more control over their own destiny,” says Beatty. “If I believed in a company, and I thought there was good management, a good structure, and a way of contributing my ideas and my work, I’d jump at the chance to be part of that kind of scenario.”

The 10 case studies highlighted a grab-bag of large and small companies across Canada. In all cases, including Calgary-based Revolve Technologies and Integra Geoservices, employees initially were offered at least 30 per cent stock ownership.

Some organizations, including Algoma Steel and Spruce Falls Inc., offered employee ownership in a crisis. They struck deals with unions that saved the companies. Others, including Revolve, believed in employee ownership from a philosophical basis.

“I think they were patriots at Revolve,” says Beatty. “They wanted to create something that was Canadian, that would not fall into the hands of the U.S. They had a philosophy that they could do this together.”

The authors describe the pitfalls firms face. Revolve initially rang a bell that called its 20-plus members to a meeting each time a big decision had to be made, says Beatty.

“They almost paralyzed the operation, before changing that (policy).”

The Revolve example illustrates a critical issue for companies. Workers must continue to do their jobs and managers must manage. But to succeed the company structure must allow employee input at the management level (i.e. through representation on the board of directors) and at the operations level where a worker’s creativity and energy benefits productivity.

“The companies that didn’t follow this philosophy of employee involvement eventually sold out to other companies and the employee ownership plan was reduced.”

Beatty cites the case of Spruce Falls Inc., an Ontario mill. Employees who initially purchased shares for $10,000 in 1991 to keep the mill alive were able to get back $145,000 in 1997 when the company launched an initial public offering.

The company had a philosophy that encouraged employee involvement, says Beatty. Employees bought stock (52 per cent of outstanding shares), and were also offered a profit-sharing plan. They were put on the board of directors and committees to improve the workplace. Meetings were held on a regular basis because the company believed good communication established trust and mutual respect.

The authors found that education is a key component for success.

Employees – especially at the board level – must understand finances. Otherwise, workers may be confused and feel that management is lying, or using smoke and mirrors to get their own way. (Some boards of directors ran into trouble precisely because employees lacked financial sophistication, says Beatty.)

Research also found that not all companies had exit strategies for employees who eventually wanted to cash in their investment.

Private firms, unless they offer an IPO or sell the company, can leave employees discouraged, especially those “holding money on paper, but needing to pay the mortgage.”

Creo Products in Vancouver created an internal stock exchange program where people could tender their shares.

Eventually, Creo went public, says Beatty, and employees with initial shares enjoyed a large windfall.

Creo Products, adds Beatty, strongly encourages and values employee involvement. Every employee has a company credit card for his or her work needs. Staff are taught economic decision-making and each person is considered a unit president.

Employees elect a co-worker to sit on the board of directors and each Friday afternoon the company provides a large buffet to say thanks.

The sense of empowerment, participation, recognition and fun has led to a creative and innovative culture, say the authors.

The book also discusses the emotional effects of being a company “owner,” and underscores the mood swings that occur when stocks (if publicly traded) rise or fall.

The biggest surprise, says Beatty, was the commitment workers make.

“One person said that the day he signed on to the company plan was the day he sealed his divorce,” says Beatty. “The commitment is so strong that people can neglect the other parts of their lives.”

Employee ownership is considered only a minor phenomenon in Canada. It hasn’t been embraced because companies don’t know a lot about it and managers fear losing control, says Beatty. At the same time government rules don’t encourage the model, which is the opposite of the U.S. where tax advantages exist.

But Beatty is impressed by its potential.

“I think this is one way of resolving what we think is an interminable war between employees and management.”

When it works, she says, everyone feels a sense of control – that in a sense, they are the boss.