Creating an Ownership Culture

1
Creating an Ownership Culture Corey Rosen, NCEO
2
What Is an Ownership Culture?

• A company of businesspeople
• People have a financial ownership stake in the
  company through ESOPs, options, or other forms of
  equity. A sense of ownership is not enough!
• Information about financial, quality,
  productivity, and other corporate goals is widely
  shared
• Employees have meaningful and regular
  opportunities to share their ideas and
  information about how to make the company better
• Core company values guide employee behavior

3
What Is Your Corporate Story

• Different from a mission statement or vision
  statement it is the story you would tell about
  your company to describe it to other people.
• Is this a story employees will buy into?
• Are they just bit players or integral pieces?
  What role do they see themselves playing in the
  story?

4
An Ownership Tale

• This is our company everyone really does have an
  ownership stake
• Because it is our company, we need you to think
  and act like owners every day
• Because we expect you to think and act like
  owners, well give you the information and the
  authority to make good decisions.
• Because we expect you to think and act like
  owners, we will actually make you owners.

5
Creating a Sticky Message

• Simple, but not simplistic
• Unexpected
• Credible
• Concrete
• Emotional
• Stories
• From Messages That Stick, Chip and Dan Heath

6
OBM You Want Me to Tell Them What?

• Money is the most sensitive of topics people are
  reluctant to share financial information about
  themselves or their companies
• Owners and managers fear information will leak to
  competitors and suppliers
• Management doesnt think employees will
  understand anyway, and, even if they do, what
  will they do with this information?

7
OBM II You Want Me to Learn What?

• Its so boring! Its so complicated! Its so
  irrelevant!
• I know theyre hiding something anyway.
• Theyre just trying to make use work harder and
  accept less pay.
• What else?

8
OBM III Actually, This is Kind of Fun

• Numbers can and should be broken down in ways
  employees can actually use, such as critical
  numbers. Income statements and balance sheets are
  useful symbolically, but rarely have day-do-day
  practical applications.
• Numbers create a game, and the game is motivating
  and fun.
• If employees are involved in crafting critical
  numbers, they come to own them.

9
But Information Is Not Enough

• Its not just that you want people to think like
  owners. You want them to act like owners.
• Having a stock plan and knowing how it can pay
  off (because you now understand the numbers) can
  be motivating, but
• There have to be specific, structured
  opportunities to share ideas and information

10
And Neither Is Telling People They Are Your Most
Important Assets

• Do any CEOs not say this?
• Do any employees believe it? Not according to a
  2007study of 90,000 workers worldwide by Towers
  Perrin. Only 10 said they were actually treated
  as the companys most important assets. Just 21
  said they were fully engaged at work, while 38
  were wholly or partly disengaged.
• So, surprise, you actually have to a) mean it and
  b) do it.

11
Open Doors and Other Fairly Useless Things to Do

• Allowing participation is just not enough.
• When do I do it?
• What if I dont feel confident to express my
  idea?
• What if the boss doesnt give me any feedback or
  puts me off?
• What if someone else takes credit?
• What if I get credit?

12
Participation Needs Structure

• It creates a safe place to share ideas and
  information
• It creates an expectation that people will share
  ideas and information
• It provides something concrete to tweak and
  change
• Attitudes tend to follow behaviors, which tend to
  follow structures
• So how do we get to these new, participative
  structures?

13
It Aint Easy

• Hierarchies are well entrenched
• They work well when the key is efficiency and
  repetition
• They give people a clear career path
• They provide a lot of certainty

14
But Hierarchies Dont Work So Well Today

• Information flow too critical
• Innovation requires more flexibility and freedom
• Decisions need to be made more quickly
• Its ideas that matter

15
The Resisters The CEO

• Fears giving up control
• Used to telling people what to do
• Been doing it this way for a long time, and its
  worked so far
• Absent the CEOs active involvement, progress
  will be very difficult

16
The Resisters Middle Management

• They are required to change the most, and
  possibly give up the most
• Their situation is the most ambiguous in the new
  corporate order
• They didnt get to where they are by being
  coaches and facilitators they got there by being
  good at their job and being decisive

17
The Resisters Non-Management Employees

• Some dont want new responsibilities
• Some resist ambiguity
• Some are cynical about any changes
• Some just dont like change

18
Teams Are Great, But

• Many efforts to get employee teams more involved
  dont work well at first or ever
• Teams may tackle problems that they dont have
  adequate information or skills to handle
• Team authority may be too limited or uncertain

19
You Never Get There

• As people develop new skills, they will want to
  do more and can do more
• The same old same old will get routine
• Management will expect more
• So there keeps moving

20
Sorry, Sense of Ownership Is Not Enough Either

• A sense of ownership without real ownership is
  not very satisfying.

21
Ways to Provide Real Ownership

• ESOPs
• Stock options
• Synthetic equity
• Restricted stock

22
ESOPs

• Qualified employee benefit plan, similar to
  401(k) and profit sharing, so plan benefits must
  be equitably allocated
• Company funds plan through tax-deductible
  employer contributions ESOP can also borrow
  money the company repays in pre-tax dollars
• Certain sellers can defer gain on the sales of
  stock to an ESOP
• 100 S ESOPs pay no federal income tax
• Often used to create a market in closely held
  companies.

23
Options

• Right to buy stock at a price determined today
  for some number of years into the future
• Most options are taxed as income when exercised,
  but some options can qualify for capital gains
  treatment at sale
• Most often used for key people or more broadly in
  pre-sale or pre-IPO companies

24
Synthetic equity

• Phantom stock is a bonus paid out after a right
  vest that is based on a hypothetical number of
  shares
• Stock appreciation rights are a bonus paid out
  based on the increase in the value of a
  hypothetical number of shares
• Both are taxed as bonuses

25
Restricted stock

• Generally, a grant of stock that can only be
  exercised subject to restrictions lapsing, most
  commonly meeting certain service or performance
  goals
• Employee can choose to pay tax at grant, then pay
  capital gains at ultimate sale (but risk
  forfeiting shares and taxes if they never vest)
  or pay ordinary income tax when restrictions
  lapse.

26
Questions ?

• Corey Rosen
• National Center for Employee Ownership
• 1736 Franklin Street, 8th Floor
• Oakland, CA 94612
• 510-208-1300
• crosen_at_nceo.org