Thursday, April 26, 2018

The Importance of Employee Ownership

I attended SOCAP 2017--a conference organized around social impact investment--about a week and a half ago. With a series of issues that arose at The Lancaster Food Company related to financing the company, I missed most of the sessions, which was frustrating but necessary.

I don't know if anyone talked about employee ownership, but a search of the agenda shows nothing related terms; it's possible someone discussed it but it wasn't programmed.

But a number of sessions featured discussions about equitable access to capital for new or growing businesses, which is critical for social change (I do wonder if impact is becoming as co=opted and diluted as sustainable and socially responsible (Blackwater had impact, as has Halliburton and Williams Partners; they each frame their destructive and extractive impact as positive).

I believe employee ownership is crucial for social change as part of a set of family-sustaining employee benefits, and while I feel it should be mandatory for any company describing itself as an impact company, but all companies should consider it as part of making their communities and countries stronger.

Here's why.

First, employees should benefit from the value they help to create. Not everybody agrees this should come in the form of ownership, that employees get a wage, sometimes receive raises (largely for retention to the benefit of the company), and whatever other benefits they might receive, like health insurance, which only 45% of companies in the US offer (Kaiser Family Foundation, 2016). 

While wages generally stay flat, the value of a company tends to grow until it reaches the limits of its market. And while not all companies survive, or throw off net cash, the ones that do survive are by nature profitable. Owners take those profits in the form of dividends or increased salaries for themselves, depending on the form of company (S, LLC, etc) and tax implications, and only increase wages to meet labor market requirements.

Too many companies seem to see employees as temporary, as transients there to serve output and productivity until they're either no longer useful or no longer interested. The employee shows up and does her job, and the company gets the benefit of the labor and the employee goes home with a check--it's a transactional relationship, with an annual picnic and holiday party, if they're lucky.

Many employees (likely most) view these jobs as just that--work to get a paycheck to survive, and perhaps as a way of building their resumes to get a better job. Jobs with weak benefits and low pay inspire job hunting, which costs the person time and energy, and their departure costs the company the time and energy of recruiting, hiring, and training a new person, which they rarely quantify.

But the costs of losing an employee are substantial. You lose their experience, knowledge, and personality, as well as your investment in them over time, and the cohesion (or disruption) they contributed to your team.

You then lose your own time, money, and energy recruiting, training, and learning to trust a replacement, filling in for them or paying overtime to others to fill in, and then the hidden costs of the new person and team learning the new interpersonal dynamics.  Employees are people, and people are complicated, as are their interactions and personal dynamics.

The impact of low wages, poor benefits, and the lack of continuity within companies also negatively impacts communities.

Employee ownership--or something that mirrors it--stabilizes families and therefor communities. Help with housing and transportation gives people the ability to spend more time with their families, neighbors, and communities, which strengthens their relationships, benefitting all of us. The stronger our relationships are with each other, the less likely our blocks, neighborhoods, and communities will fall apart from neglect, crime, poor investment in housing stock, lack of consistent, positive supervision and nurturing of children.

This is all to say to other business owners and community leaders to consider employee ownership. To embrace it. It can make the difference between strong neighborhoods and communities and not.

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