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Employee-owned businesses outperform rivals

FINANCIAL PARTICIPATION

Employee-owned businesses outperform rivals

A combination of employee ownership and high levels of employee participation in business decisions helps boost company performance, according to a new report by the Centre for Tomorrow's Company.

The 25-company study found that the majority of employee-owned business outperformed their sector average over a five-year period. But employee share plans on their own do not improve profitability. They need to be coupled with a participative style of management.

A definition of employee-owned businesses

Companies which have a deliberate culture and philosophy of employee ownership and where employees have a significant shareholding, either directly or through a trust, and share in the success of the company. — Centre for Tomorrow's Company.

DOCUMENT EXTRACT

Practical implications for those considering employee ownership

  • Before embarking upon employee ownership, develop a clear vision.
  • Before deciding between individual and collective routes, understand the risks of each and think exit routes for employee owners. Individual ownership can be divisive and lead to dilution. Collective ownership is indirect and can limit the employees’ sense of responsibility for the company. Combining them can be complicated!
  • Recognise that employee ownership in itself does not make a better business employee ownership will not compensate for bad strategy or execution.
  • Leadership is crucial: how will you earn and renew commitment and grow your successors?
  • Participation is crucial not for its own sake, but to capture ideas, promote learning, grow trust and nurture ownership.
  • Psychological ownership is as important as financial ownership. Success comes when employees better understand that they have rights and responsibilities while exercising their voice generally in the furtherance of the success of the company.

Source: Employee Ownership in Tomorrow's Company, by Pat Cleverly and Mark Goyder, Centre for Tomorrow's Company.

A final word

"It is more probable that the impact of employee participation is an indirect one through the influence on employee attitudes and behaviour (and that of management) which in turn has an impact on internal performance, reflected in productivity, quality and innovation and this in turn has an impact on sales and profitability." — Centre for Tomorrow's Company.

Want to now more?

Title: Employee Ownership in Tomorrow's Company, by Pat Cleverly and Mark Goyder, Centre for Tomorrow's Company.

Methodology: The research is based on an analysis of 25 employee-owned companies in the UK.

Availability: To order a copy of the report, contact the Centre for Tomorrow's Company in London, tel: 020 7930 5150, or email: info@tomorrowscompany.com.

You can download a nine-page executive summary of the report in PDF format, free of charge . . .www.tomorrowscompany.com/PubEO.htm

A review of the research, "The paradox of ownership", by John W Hunt, was published in the Financial Times newspaper, 1 March 2002 . . .http://globalarchive.ft.com/globalarchive/article.html?id=020301001695

To find out more about the Centre for Tomorrow's Company visit . . .

www.tomorrowscompany.com

Posted 14 March 2002