One For All, All For One Leads to More Profit
By Bernice Hurst, Contributing Editor, RetailWire
There is every likelihood
that sole proprietors of American retail chains would regard Toby Blackwell’s
succession plans with skepticism. His determination to ensure that the family’s
name remains “above the door” has led the
81-year-old book retailer to devise plans for giving the business to his employees.
Founded
in the 19th century, and passed on since then through the Blackwell family,
the original bookshop in Oxford expanded its reach to London and the World Wide
Web. For a time, there was also a publishing division but this was sold in 2007.
According to The Guardian, Mr. Blackwell “is determined that the
company founded by his great-grandfather remains independent” and wants
to harness the “unrivalled specialist knowledge” of his booksellers
to ensure its future.
The new business format will keep “voting shares,
which have no dividends attached” in a trust. “The wealth shares
will go into another, employee, trust. … There will be an annual bonus,
paid out of profits, and the chairman will get the same percentage [payout]
as the part-time lady on the till in a store.”
There is method to what
some — including the aforementioned American proprietors — may
consider madness. Research by the Cass business school says there is evidence
that staff-owned firms perform far better than shareholder-owned firms. Joseph
Lampel, a Cass professor, said they were also “more stable in a downturn
and should be encouraged. In the current economic conditions, business leaders
and policymakers should be looking again at the resilience associated with
the employee ownership model and how it could benefit the economy as
a whole.”
Mr. Blackwell’s plans are based on good practice as demonstrated
by department store chain John Lewis, which owns supermarket Waitrose and is
reportedly the largest employee-owned business in the U.K. They have proved
far more resilient than many other businesses through the recession, and have
outperformed most of their high-street rivals, says the newspaper.
Discussion Questions: What are the advantages as well as disadvantages of
employee-owned retailers? What do you think of employee-ownership as a succession
strategy?
Nice idea and it sure sounds warm and fuzzy. But, the traditional book business is in dire straights and I think it may be tough for a collection of employee owners to make tough decisions and come up with a revised vision for the business that they will ultimately need.
Great business practice, but I am wondering how it performs when tough decisions need to be made that are in the interest of the company but not the employee. Example–laying of employees or cutting hours in a downturn.
Employee owned companies have strengths and weaknesses. They are not a cure all for bad management. The advantage is the employees have skin in the game. They care and thus work harder. These companies also have much lower turnover, which reduces cost. Publix is a great example. The weakness is selecting management. Unless management has a good vision and strategy, the company will not do well. Not all managers want to work for a company where associates own the company and are therefore the boss. Just like with Cooperative Wholesalers, those with good management have survived and those without have passed on. Just being a member of the club does not guarantee success.
Managers are always talking about workers taking ownership of what they do. What better way to accomplish that than by actually making them part owners as a term of employment? Seems to work pretty well for Hy-Vee and Publix in grocery. STS Tire and Auto is the largest service and tire chain in New Jersey and Pennsylvania, if memory serves, and it has done pretty well also.
I agree with the comments here. Publix is a prime example, but so are Hy-Vee, Houchens Industries and PDQ Food Stores, all of which are doing really well, with lower-than-normal retail industry turnover. It comes down to having strong leadership. Employee-owned doesn’t mean “Lou from the stockroom” is going to be negotiating contracts and making key business decisions. Even in these companies, leadership starts at the top and will dictate the direction of the company.
This sounds good in theory. I am wondering how difficult it is to pull it off? Who determines the business practices and approves plans for either growth or recovery? There appears to be too many “what ifs” in an employee owned and managed business. Make the retail business a book retailer and another group of problems enters the fray. It will be interesting to remember to return to this in a year and see how it is working or if they are still around.
At the high level, it is hard to imagine how employee owned organizations would not be more motivated and productive than ones where the employees are basically paid support. However, in my experience, the issue becomes somewhat more complex and nuanced.
In organizations where there is extensive employee ownership, I have discovered that it is difficult for the organization to agree on the balance between short-term revenue and long-term business growth. Since everyone has a stake in the results, everyone feels obligated to voice their opinion. What ends up happening is that the company becomes more risk-averse over time, as employees become more leery of potential threats to the value of their equity.
In the book business, given the fundamental changes facing the industry at this moment, the only solutions that will be successful will involve at least a moderate amount of risk and some significant investment. I am not sure if employee ownership is optimized to take that sort of dynamic steps forward. If they don’t, they won’t be around within five years.