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It’s What You Do, Not What You Say:A Practical Guide to Leadership and Creating Culture in an

Employee-Owned Company

Presented by:

Anthony MathewsBeyster Institute at the Rady School of Management, UCSD

Our Agenda

• What is a culture of ownership?

• How is it created?

• It’s a matter of leadership…

First, A Very Important Question

• Is employee ownership:

• A business tactic?

or

• Our shared core value?

Tactics are not Values…• Core values are reflected in

everything we do.

• Tactics must reflect core values, but tactics are not core values or even good intervening objectives.

• ESOP is a tactic – the ESOP is never the objective and it is not even a good tactic unless it works and reflects the core value of the people who adopt it.

A Culture of Ownership Means We Are…

Not Just a great group of hard-working people.We are a community of stakeholders –

- sharing a common vision-with a common goal

• See real value in what our common effort is aimed at producing (pride);

• Communicate to our fellows the larger meaning inherent in what we are doing (shared values); and

• Focus on building a real commitment to our place in the future of the communities we serve (responsibility).

Our Leaders in this Effort:

Ownership Culture is Built on:

• Free-flowing information• “All know what they need to know to make a difference”

• Individual autonomy• “Each owns the right and responsibility to have an effect on

the success of the enterprise”• Opportunity for all

• “The future belongs to all and the responsibility for it is owned by all”

• An atmosphere of trust and respect• “Contributions to success are acknowledged and valued and

the truth is shared by all”• All share a stake in the outcome

• “The end product, both good and bad, is shared fairly”

Free-Flowing Information

• Open information sharing • Includes all employees in operation of the company• Gives people the information they need to successfully

participate in achieving common objectives.• Works best when “critical metrics” are close to the

ground

• The universe of information:• Financial information• Operational processes• Current issues and business priorities• Future plans/strategies• Communication networks

Principles of Information For Employee Ownership Companies…

• Sharing information that is relevant day to day.

• Building employees’ skills for understanding.

• Creating common vision and shared goals.

• Developing communication skills and processes so that employees can have an effect.

• Designing reward systems that reinforce use of information to create business improvements.

• Just say what’s true.

Information Sharing and Ownership Culture

Traditional: The EO Way:

- Delayed - Real-time- Top down - Two-way - Summarized - Specific- From the top - Close to the action- Special event - Routine- Outsiders - Insiders

The Concept of Critical Metrics!

• Critical metrics:• Are simple and observable• Are direct symptoms of success• Are measurable and trackable• Can always be improved• Can be affected by employees at the job site • Are building blocks that focus attention on

what really makes a difference

What are your critical metrics?

Individual Autonomy

• When any problem arises, it is very likely that the person closest to the work will see the problem first.

• The easiest time to fix a problem is as soon as it is noticed. Delay almost always makes problems worse.

• It is never the most effective to notify someone further up the ladder.

• Employee owners, have the right and also the responsibility to fix problems.

• Autonomous people require less management!

Autonomy Requires:

• Clear common vision

• Sufficient Information and training to make good decisions

• Real accountability

Creating a Future of Opportunity

• Growth of the business is linked to growth of employees.

• Giving employees a chance to move up and to share in the outcome engages them in ways that magnify the positive and minimize the negative.

• Every employee should be able to see a clear path to a better future.

• Sometimes, opportunity will give people ambitions beyond our walls – how we react says a lot about culture.

Trust and Respect are Both Cause and Effect!

• Ownership culture requires mutual respect

• Respect means more than just management listening to people or having suggestion boxes or “open door policies”

• Respect is the driving feature of a corporate culture that is open, cooperative, collaborative, multidimensional and dynamic

• Trust is the result!

• Trust is the glue!

Respect Cannot Be Faked…

• Respect cuts both ways – it is to be both given and required and it includes a willingness to communicate both good and not so good without spin or subtext

• Truly respectful relationships are level and founded on a commitment to tell the truth

• Where respect resides, trust is the result.

Sharing a Stake in the Outcome

• A stake in the outcome requires that the stakeholder act like a stakeholder. Our employees have a real stake in the outcome, but often don’t see it that way.

• Studies show that ownership needs to be coupled with a culture that is respectful, open, trusting and participative.

• Culture creates that “sense of ownership” we talk about all the time not the other way around.

• The end product - a better business and a better future for all concerned.

A Sense of Lunch…

A sense of ownership is no more filling!

The Employee Ownership Movement is Unique . . .

A community of stakeholders sharinga culture of ownership

A community driven by values

A Final Word About Sustainability…

The sustainability questions:

• Can our company survive?

• Can our company survive as an ESOP company?

The Body of Research is Compelling:

• Studies conducted by the National Center for Employee Ownership show that employee ownership combined with an inclusive management style results in companies that grow eight percent to 11 percent per year faster than expected otherwise.

• Studies conducted for the National Bureau for Economic Research indicate that the combination of participative management and ownership creates an employee group that is much more self-regulating and motivated than in other corporate settings.

• Several studies have shown that companies that practice employee ownership are less likely to become insolvent.

• Employee owners can be expected to retire with two to four times the retirement accumulation of other similarly situated employees.

• Of over 100 studies done to date, the result is overwhelmingly positive.

Shared equity makes stronger, faster growingcompanies that benefit everyone involved!

Newer Research is Intriguing:

• Current studies of ESOP S-corporations also show that they are:• Growing faster• Adding employees faster• Stabilizing the communities in which

they live• Creating wealth for employees at about

twice the pace of other plans• State and local governments are beginning to

get the word.

So Why Does the Question Linger?

Because no matter how effective a tactic may be, the underlying value is fragile!

In the end, employee ownership will flourish only where we are committed to sustaining it for its own sake.

Who Protects the Fragile Value?

The major vulnerability of the ESOP model is our own leadership.

Without the deep commitment of our management to maintaining it, employee

ownership will not survive.

So, the most important issue for mature ESOP companies has to be assuring succession of committed leadership…

A culture of ownership doesn’t support itself!

What Employees Expect From Leaders…

• Leadership is much more about what you do than:

• What you say

• What you think or plan

• What title you carry

Blah,blah,blah

The First Principle…

The only effective way to Communicate anything is “Just SayWhat’s True.”

Spinning and slanting and obfuscation and euphemismhave no place in the EOleader’s toolbox.

“I gave up Lying Altogether and it Cut What I need to Remember by 90%.”

~Mark Twain

But Knowing What’s True is Not Easy…

• We are all most attracted by our own ideas.

• If we believe that our ideas and understandings are always the best ones, we miss a lot, we get into ruts, but most important…

• If people feel that leadership doesn’t value their opinions then the culture will not develop…period!

• Managing consent is not the same as honoring consensus.

The Second Principle…

Life doesn’t fit templates…

Every Company is Unique…

Every ESOP is Unique…

Experience is useful, but it holds you backor leads you astray as often as it helps you move ahead.

“There are no failures – just experiences and your reactions to them.”

~Tom Krause

A Gentle Brand of Leadership…

Stress is not an effective leadership tool!

Our Leaders Don’t Magnify Stress…

Stress that hits a great leader in an ownershipculture always diminishes before it moves on…

“The real man smiles in trouble, gathers strength from distress, and grows brave

by reflection.” ~Thomas Paine

The Third Principle…

• Respect is Essential and a very Hard Thing to Fake!

• Leading in an Ownership Culture requires an atmosphere of respect and the leader has to create it.

• Respect cuts both ways – it is to be both given and required and it includes a willingness to communicate both good and not so good.

• Trust is the Result

Leadership has to be Firm yet Flexible…

Good Leaders See Multi-Dimensions

“I am a man of fixed and unbending principles, the first of which is to be flexible at all times”

~Everet Dirksen

The Fourth Principle…

Great Leaders Surround Themselves with Leaders

“Pity the leader caught between unloving critics and uncritical lovers.”

~John Gardner

But Ownership Culture Doesn’t Just Happen

• Open doors get very little traffic.

• Real participation requires a structure where employees can meet regularly to share ideas and expectations and, indeed, are expected to do so.

The Fifth Principle…

• Thinking, acting, and being treated like an owner is intrinsically rewarding.

• Economic incentives have less impact on people’s behavior at work than quality of life.

• Ownership behavior is a natural result of an ownership environment.

Ownership is Shared for its own sake because it is the right thing to do!

Example is the Great Leader’s Resource… Leaders walk the talk…

““Setting an example is not the main means of influencing others, it is the only means.”

Albert Einstein

…Being a cheerleader is part of the job…

And a Sense of Humor Doesn’t Hurt…

Your Humble Servant:

Anthony I. MathewsBeyster Institute for Employee Ownership

RADY SCHOOL OF MANAGEMENTUniversity of California, San Diego

9500 Gilman Drive MC 0553La Jolla, CA 92093

Direct Phone: 1-858-822-6010 amathews@ucsd.edu