Is Employee Ownership the Key to Transforming Your Business Culture?

Based on insights from the ‘Exit Like a Boss Podcast – 21-Step Challenge‘, this blog covers Step 14 – Employee Ownership.

Let’s look beyond theoretical concepts and into actionable steps, focusing on cultivating an ownership mindset among employees. More than a mere theory, we advocate for a tangible sense of ownership that translates into meaningful actions.

The Core of Employee Ownership: A Psychological Shift

Employee share plans are a prevalent means of achieving this, although the approaches can vary. The crucial focus here is on understanding the psychology of ownership and its transformational potential, rather than getting lost in legal or financial structures. We’re talking about instilling a genuine sense of ownership in employees and all the associated benefits.

Shifting Dynamics: From Employee to Co-Owner

The fundamental shift in this scenario is the transformation of the relationship dynamic within the organization. When employees hold equity in the business, whether through shares or employee share plans, the traditional divide between employee and owner dissipates. Suddenly, we’re all co-owners, sharing in the prosperity of the business. The success of the business now directly impacts each member’s equity value, aligning us all toward a common goal: enhancing the business’s value for mutual financial gain.

The Financial Advantage: Equity and Beyond

Moreover, having a tangible stake alters the financial landscape for employees. They get to experience the dual benefit of an increased business value and a share in the company’s profits through dividends. This dynamic not only enhances individual prosperity but also fosters a shared commitment to the growth and success of the enterprise.

Regardless of the ownership model adopted, the ultimate goal remains a triple win scenario. Employees are empowered, gaining a sense of ownership and reaping tangible benefits, such as building equity and receiving dividends – transforming their relationship with the workplace. Founders and existing shareholders also benefit, despite relinquishing a portion of their ownership. Often, the overall value of their retained equity appreciates, mitigating risks associated with employee turnover.

Advantages for the Business: Stability and Attraction

The business itself experiences significant advantages. Employee turnover, a significant risk in many businesses, is substantially reduced. A business with committed and incentivized employees becomes a more attractive prospect for potential buyers or investors. Employee ownership is about securing the future of the business and fostering a culture of loyalty and dedication among employees.

Strategies for Implementation: Partial or Complete Ownership Transfer

In some cases, businesses opt to sell a portion of the company to employees, gradually transitioning ownership. This strategic move serves as an exit plan, with employees gradually taking over the reins. It’s a testament to the viability of employee ownership as a long-term business strategy, not merely an exit tactic.

Employee ownership can also be a vital component of succession planning, especially in family businesses where the next generation might not be stepping into the family role. By bringing in non-family employees as partial owners, the business ensures alignment of interests and motivates them to protect and grow the business – bridging the gap between family ownership and a new era.

Empowering the Workforce: Beyond Financial Gains

Lastly, beyond the financial benefits, employee ownership empowers the workforce. Educating them about ownership and providing avenues to acquire equity instills a sense of responsibility and commitment. Dispelling myths about employee preferences for ownership and creatively structuring ownership acquisition mechanisms can make this a viable and attractive option for all parties involved.

In conclusion, incorporating employee ownership into your business strategy can be a game-changer. It’s not just about an exit strategy; it’s about instilling a sense of shared ownership, driving growth, and ensuring a prosperous future for both the business and its dedicated workforce.

This article was originally published on capitaliz.com.

Dr Craig West

Founder & Chairman | Succession Plus

Dr Craig West is a strategic accountant who has over 20 years of experience advising business owners.

With a background as an accountant in practice and two master’s degrees, Craig formed a strong view that the majority of business owners (and often their advisers) were unprepared and unaware of the steps required to prepare for exit. He then designed and documented a unique 21-Step Business Succession and Exit Planning process to assist owners and their advisers in navigating this process.

Craig now acts as a strategic business and financial mentor for mid-market business owners. Craig has written four critically acclaimed books educating business owners on employee incentives, succession planning, asset protection, and exit strategies. Additionally, he has completed doctoral research on Employee Share Ownership Plans (ESOPs) for succession.

Craig is a Member of the Forbes Business Council where he leverages his extensive experience to contribute valuable insights on helping business leaders navigate the complexities of growing and exiting their businesses.

In April 2024, the Exit Planning Institute admitted Craig to the International Exit Planning Circle of Excellence.