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Sunday, May 21, 2006

Workers as Owners

When workers are also the owners, are they more productive? If so, do barriers to entry from limited access to capital and organizational difficulties prevent these types of firms from using their productivity advantage to drive firms with traditional ownership out of the marketplace? Is there a solution to this problem?:

These Workers Act Like Owners (Because They Are), by William C. Taylor, NY Times: Unlike so many other chief executives, Cecil Ursprung will never be accused of losing sight of his shareholders. He sees them every day ... That's because, as chief executive of the Reflexite Corporation, he runs an enterprise largely owned by the people who work there: 500 employees...  "My bosses are all around me," Mr. Ursprung said... "Three-quarters of the equity of this company is in the hands of people who have a direct impact on the business. We attract people who want to be in business for themselves, just not by themselves."

Business at Reflexite has been good. It has annual sales of roughly $100 million, up substantially over the last few years, and major facilities in Connecticut and in Rochester, as well as 14 sites outside the United States. ... Reflexite's operations are decidedly high tech. ("We believe in full employment for scientists and engineers," Mr. Ursprung said.) The main reason his company has held its own against giant rivals like 3M, he asserts, is that its employees are so invested in the success of the company — literally.

Once a year, based on the performance of their business unit or site, workers get shares in the employee stock ownership plan that are worth 6 to 18 percent of their salaries. That includes 60 workers in a factory in the former East Germany and, starting next year, 110 workers in China. Workers can buy more shares and stock options for their personal accounts, and many do.

The shares have performed well. Reflexite's ESOP took shape in 1985, with an initial contribution of $150,000. By 1995, the ESOP shares were worth $20 million. Today, it's $40 million. "People are at their best when they're in a constant state of mild dissatisfaction, when they're always looking to make things a little better," Mr. Ursprung said. "That's what ownership does. It's remarkable what gets unleashed when people share in the wealth they help create."

Corey Rosen, executive director of the National Center for Employee Ownership, ... believes that employee ownership has the potential to reverse two worrisome trends: the concentration of wealth in fewer and fewer hands, and disappointing corporate performance.

One obvious way to spread the benefits of capitalism is to invite employees to share ownership of the businesses that employ them. Back in 1981, when Mr. Rosen helped to found his organization, perhaps four million Americans owned shares in the companies where they worked. Today, the number may be as high as 30 million. "There are literally millions of people who are accumulating more assets through employee ownership than any other form of wealth outside the value of their home," he said.

Employees who own a big share of their company are more likely to innovate, stay focused on quality and hold management accountable. ... Richard J. Resch, the chief executive of KI, an office furniture maker in Green Bay, Wis., has seen firsthand the power of an engaged work force. He took charge of the company in the early 1980's, when it was a tiny manufacturer of standard-issue products like metal folding chairs. Today, KI makes stylish furniture for Microsoft and other clients. The company has 3,000 employees and annual revenue of $600 million.

"When I joined the company there were just three shareholders..." Mr. Resch said. "Today, everyone is an owner, and I have tried to teach every person, right down to the technicians on the shop floor, how to think like a businessperson."

Every month, for example, Mr. Resch and a delegation of managers ... scrutinize results by region, customer segment, factory and other variables. These managers then share the data with their teams or departments, so that by the end of the process the company's marketers, designers, accountants and factory workers alike know which product lines are behind or ahead of plan, which operations are struggling and what they can do to help the company meet its targets.

This organizational transparency has paid huge dividends for KI's owners. ... Back in 1990, the appraisal valued its shares at $3.80 each. By the end of 2004, even after the dot-com bust that unraveled many of KI's high-tech markets, the shares were worth $27 apiece.

"There are no secrets here," Mr. Resch said. "Everyone has access to the data they need to help run the business. The power of an entrepreneurial company, owned by its employees, with total freedom of information — it's a phenomenal competitive engine."...

    Posted by on Sunday, May 21, 2006 at 01:02 AM in Economics, Income Distribution | Permalink  TrackBack (0)  Comments (31)


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