I’m reading Beyond the Corporation by David Erdal at the moment and so have been thinking a lot about employee ownership. It’s making me wonder why we accept so little in the way of rights at work than we otherwise enjoy in the free and democratic societies we live in.
In a democratic country we have the right to choose the leadership and hold them to account; we have a right to transparency and information and we have the right to speak our minds, dissent, make our voice heard and participate.
In almost all businesses the employees have no equivalent rights. The rights belong only to the owners of the business – the shareholders. The shareholders are the only people with rights to information, to appointing or removing the management and ultimately deciding what the business does. Further, the shareholders are the only people with the rights to the profit and capital gains that it generates. Shareholders can sell these rights to whoever they choose in spite of any feelings the employees may have about it. The employees in the business create all of the value that it generates, yet they are merely ‘rented’ in return for pay, like a piece of machinery.
Why is it that we accept so little in the way of rights at work that we take for granted in society? Perhaps it’s because life is generally OK and we don’t feel hugely repressed, in spite of the lack of rights. Perhaps it’s because the status quo is so deeply entrenched in our history that we accept it as ‘the way things are’ and it cannot be changed. I wonder if this the same as the burgeoning middle classes in China who have decent jobs and access to consumer goods and perhaps don’t worry too much about the fact they cannot oppose or hold their politicians to account or have access to free information. But surely we can do better than this.
I am convinced that the solution is more than just democratic organisations. It is full ownership of companies by the employees. Only by the transfer of all rights from external shareholders to employees can we have true democracy at work.
Many democratic organisations are not actually true democracies at all. Whilst there are 10 principles of democratic organisations, what sets a true democracy apart is inalienable rights, not just operating principles which can be changed at the whim of the owners.
Most ‘democratic companies’ are actually benevolent dictatorships. The company I co-founded (and have now left but am still a shareholder in), NixonMcInnes, is a classic example. The company truly buys into democracy and has been independently assessed and shown to be living by the 10 principles. There is a huge level of transparency and employee involvement, from fully open financial information to guest seats for employees to attend board meetings. Employees have a say in selecting and evaluating managers, contribute heavily to strategy and planning, and have the right to ‘dissent’ by raising their own ideas, challenging anything that they are not happy with, and know that they will be listened to. There is also a generous profit sharing scheme in place. However, none of these things are actually rights – they are the policies set by the owners and can theoretically be reversed at any time, and the owners still have the right to sell the business to anyone they like who would be free to do as they please.
At NixonMcInnes, the concept of employee ownership has been discussed at length. I remember when we first talked to the employees about the idea and all of the rights that it would give them, they weren’t as excited as I thought they would be. The reason for this was that they felt they were already enjoying a lot of the benefits through the democratic principles, and the only real difference would be a big chunk of debt to pay off the old shareholders. In other words, life was OK under the benevolent dictatorship. I had to agree that this was a fair point, but I think there is something bigger at stake here.
Perhaps I am wrong, but I can’t help thinking that there is something hugely important about concrete rights that are set in stone forever – hopefully hundreds of years in the case of NixonMcInnes and certainly beyond the lifetime of everyone working there today. Rights that cannot be eroded over time or given up to new masters who want to do things differently. I think there is a massive difference between principles and true rights.
This is all sounding very socialist which is not a notion I’m terribly comfortable with to tell you the truth. In talking to socialist friends, they often say that the solution is for workers to unionise and to force (usually begrudging) employers to give them better rights. Personally I think the goal of better rights for employees is spot on, but the further polarisation of the situation into ‘them’ and ‘us’ is incredibly negative. It actually accepts and reinforces the status quo of the shareholder-employee relationship and misses out on huge opportunities to build amazing businesses that benefit the employees as well as society and the planet as a whole.
I would like to see far more employee ownership in order to give people these enduring rights at work. Perhaps unions could work towards raising finance to buy companies outright for the employees. I would also like to see bids for public companies to be taken out of the hands of short-term investors on the stock markets and into the hands of the people who work there.
This is not just social ideology. It is actually great business sense too and this is what gets me excited as an entrepreneur. In Beyond the Corporation, the myths about the supposed flaws in employee ownership (lack of innovation, inability to make tough decisions, bureucracy, short-termism etc) are thoroughly debunked by the reality of employee-owned companies like John Lewis, Arup and Publix who consistently out-perform their peers across all traditional measures of business success. It’s clear that employee owned companies can actually be more agile, innovative and better able to cope with tough times.
There are compelling reasons why employee ownership would be a far better and fairer standard framework for business than the current shareholder model. To test this theory, imagine for a moment that employee ownership was already the standard and employees had parallel rights at work as they do in society. Would any sane person suggest that it would be a good idea to remove all of these rights and give them up to owners who don’t actually create the value within the firm? Would anyone believe that these businesses would perform better? Would anyone think it would be better for society? Of course not. The current model only hangs on by virtue of the fact that it is ‘the way things are.’ But I don’t think it should or even can hold on forever. The day of the employee-owned firm is coming.