Employee ownership: the solution to the productivity gap in companies?

With income inequality at record highs, employee ownership is a potential solution to distributing wealth more broadly. However, despite strong growth in employee-owned businesses, it remains an uncommon way of operating.

There are many reasons. Contrary to what some might expect, the greed is very small. For the most part, it is due to ignorance of the benefits that employee ownership can offer to founders, employees, the community, and the economy as a whole.

Employee-owned businesses tend to have shown stronger growth, higher valuations, and are more resilient in tough economic conditions. From the perspective of a founder or owner, it can be a route out of business. However, it can also be a way to stay in business, create more wealth for them, and share the wealth created by the business more broadly with the people who help create it. It all comes down to that age old question in business: “Would you rather earn £ 100 from your own work or £ 1 each from the work of 100 people?”

Another hurdle to becoming employee-owned is the investment to get the ball rolling. If employees cannot afford to buy the shares directly (or the goal is to put the shares in trust), financing may be required. The options are limited. Few mutual funds specialize in employee ownership because their goal is, in general, to obtain the highest possible return, while an employee purchase seeks the fairest possible return for everyone.

Businesses and governments around the world are struggling to reverse the decline in productivity in this country. Results for employee-owned businesses suggest that they far outperform their non-employee-owned counterparts. However, employee ownership is not a panacea. It will not change the fortunes of a company if it is done for the wrong reasons (tax benefits, for example) or in a company with the wrong culture.

Similarly, giving employees shares without helping them understand how they can increase the value of those shares and benefit from it will not result in increased engagement and productivity. The attitude of ownership arises when they are committed to the objectives of the organization, know how they can affect them, and know how they will benefit as a result.

Positive cultural engagement, ongoing financial education, and an annual planning cycle that extensively engages employees are critical leadership initiatives necessary to support business owners.

In the right culture and with the right support to develop the owner’s business, employee-owned businesses thrive, increasing wealth throughout the business, its community, and the country as a whole.