Over 97% of the nation's ESOPs are in successful private companies. While press accounts naturally focus on exciting stories of companies trying to use employee ownership as a tool to stave off failure, such dramatic rescues are rare. Nevertheless, they do occur.

Weirton Steel Company was transformed from an unwanted subsidiary of a major national steel conglomerate into the most profitable specialty steel company in the country as a result of the employee buyout which preserved the economy of an entire West Virginia County.

At the other end of the country, Oregon Steel Company went from near bankruptcy in the early '80s to making millionaires out of many of its employee-owners. According to the Wall Street Journal, its productivity rate after a 100% employee buyout climbed to double the industry average.5 Even the unflappable editors of the National Enquirer were impressed: "Company gave them worthless stock years ago--now it's worth a fortune."6

The survival issues confronting the average private company are no less crucial for its shareholders and employees. With luck, management will recognize developing problems and institute remedial steps such as an employee ownership plan before current owners and employees confront the stark alternative of collapse versus a 100% buyout.

If a well-conceived employee ownership program is introduced during a period of reduced profitability, the employees have a strong incentive to salvage the company before it needs to be sold or liquidated. As a turnaround tool, employee ownership can help retain experienced, productive employees at a time when the company cannot provide increased cash compensation. By funding the ESOP with convertible preferred stock, the company guarantees the employees some current return and preference if the company is forced into liquidation. After the company returns to profitability, the employees who helped it survive the tough times will own a preestablished percentage of the common shares upon conversion of their original preferred stock.

Even thriving U.S. companies, however, confront survival issues in a long-term global sense. The collapse of Communism-which strove for 70 years to destroy individual economic incentives for higher productivity, and succeeded quite well in this objective has not been followed by a renaissance of the capitalist economies. Many American business owners quietly acknowledge a disconcerting lack of entrepreneurial energy among their employees nowadays. Who will carry on in the next generation?

Productivity was no problem one or two hundred years ago, when virtually every American was an independent entrepreneurs farmer, a shopkeeper, or a craftsman. In only a few generations, however, we have transformed ourselves from a nation of entrepreneurs into a nation of employees as larger and larger enterprises became the necessary norm. If we are to reassert ourselves economically, we must reactivate the entrepreneurial enthusiasm of working Americans.

Given our modern corporate economy, the most feasible way to unleash those energies is through employee stock ownership.

Employee ownership can transform us again into a nation of entrepreneurs.

In Japan, 91% of listed companies and 60% of all companies have employee ownership plans.

The average employee account value, $16,000, equals 95% of the employee's total stock investments and about 1/3rd of total household net assets.7

"Where the average number of improvement ideas per worker in Japan was 4 in 1974, it had increased to 24 in 1987. That same year the average for the American worker was 0.14"8

-- John Simmons

Can this be the reason that the lights burn late in the office towers of Tokyo?

Over the past decade, much has been written about American productivity, total quality management, and competitiveness. All these concepts are different aspects of the same fundamental economic need: the value added by each individual employee must increase so that Americans can maintain a world-class standard of living. We have no future in the global bidding for low-wage, low value-added jobs. Perceptive analysts recognize that productivity growth is the key to success for the nation as a whole.9

While U.S. output per unit of labor is still high by international standards, our slow rate of productivity growth may soon leave us staring at the wake of international competitors. The battle to maintain a high-earning, consumer-driven economy is waged on the productivity front. In the decades to come, success will follow nations which learn to excel at magnifying employee productivity.

Even if this global perspective seems far flung, smaller private companies cannot afford to ignore the lessons taught by stumbling giants like General Motors, IBM, and Sears.

Flexibility, responsiveness to fluid consumer demand, consolidation of the decision hierarchy and bottom-up information flow are no longer optional enhancements to success.

Unless all employees are trained to accept more responsibility and exercise greater autonomy, even the apparently lithe and limber smaller company will be inadequate to the rapid pace of change. The startling transmogrification of the personal computer from toy to indispensable tool in less than a decade stands as an emblem of the flux that all businesses must cope with from now on. Precisely because careers are fluid and companies must change rapidly to remain viable, it is necessary to tie compensation more closely to the risk and reward of the enterprise. Employees whose only vested interest is in the status quo are no longer an asset for companies in the 1990s, if ever they were. For the last several generations, the rational goal of labor has been to seek guarantees from management. For good or ill, guarantees are no longer valid. Fairness therefore requires that employees share some of the upside potential of the business, since they know they are not protected from the downside risk. Unless some balance is restored to the employment compact, it is hard to see why an employee should plumb the depths of his energy for a company.

The goal of employee ownership is to align the self-interest of all stakeholders in the business so that everyone shares the same motivation to achieve higher profits. Back to the Index
Next Section: Satisfaction