Developing an Effective ESOP Ownership Culture

48 Walkley Road,
West Hartford, CT

phone: 860.232.9858
fax: 860.232.9438

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ESOP / Culture
by Jack Veale

A recent study by students at Boston College, reported self-employed people are the happiest of employed workers, and yet, they have less stable income, more stressful jobs, and work longer hours than people who work for established companies as employees.  Stress comes from dealing with the unknown or ambiguity, dealing with cashflow issues, finding new customers and products, while developing people to execute.  Of interest, corporate execs are lower in happiness than the self-employed.  In another study across the Atlantic Ocean, Andrew Oswold, professor of economics at the University of Warwick in England, concluded that for people to be happy in their jobs, they needed autonomy, control, and fellowship.   So how do we connect these facts with an employee ownership culture?

In most cases, the ESOP’s founder or “self-employed” took all the risks, signed personal guarantees, worked the long hours, and enjoyed control over the company, which then resulted in some level of happiness or fulfillment.   In many cases, they also appreciated their employees so much, they were willing to sell their shares to an ESOP trust at lower multiples than selling their company into the open market.  An ownership culture, to be effective, must have the attributes of being self-employed: “Autonomy, control, and fellowship.”  The beneficiaries must also demonstrate their ability to manage and succeed with risk, long hours, under stress to meet performance expectations.

We measure a company’s culture under four words, Produce, Administer, Entrepreneur and Integrate.   We describe the meanings of these four words in our business life cycle article.   Our processes determine where the company is on Ichak Adizes’ Business life cycle model, so we can customize the next level of activities to facilitate change.  An effective ownership culture deals with change successfully.   We use employee surveys to uncover their observations and conduct management retreats to align people to manage risk, while increasing their autonomy, control and fellowship.  We develop and use action planning teams to develop the company’s next generation of leaders with the expectation their new leadership skills will give more autonomy, control and fellowship throughout other parts of the company. 

Our experience with ESOP communication programs has been mixed, as these intiatives don’t build autonomy, control and fellowship,  as well as raise their beneficiaries commitment to taking risks, working longer hours, and dealing with stress to meet expectations.  If the company’s culture is not an effective ownership culture, any communication program will not be sustainable, as resistance to change rises with time.  Action planning teams should address the company’s top issues, not improve happiness.  Only when ESOP beneficiaries commit to the above self-employed characteristics, will they then understand what an effective ownership culture means.

If you are interested in learning more, please feel free to contact us!

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