10 Reasons to Sell a Company to the Employees and 2 Employee Ownership Analogies

Sharing the Reins: 10 Reasons To Sell Your Company To Your Employees contains an article by John Abrams, the former owner of South Mountain Co., that discusses 10 reasons to consider selling a company to the employees:

1. Maturity. Once the entrepreneurial leap of starting a new business has been achieved without constraints, and a viable company has been established, restructuring to employee ownership can be a natural part of the maturation process.

2. Commitment. Employee ownership encourages a sense of empowerment and promises deeper connections and greater commitment (and length of employment) among the employee owners.

3. Freedom. The potential loss of control for the founder is more than balanced by the new-found freedom that comes with shared responsibility.

4. Participation. If you keep the entry fee low enough (we keep ours to "the price of a good used car") full participation will be encouraged.

5. Equity. By using a system of internal capital accounts through which the profit is shared and equity is measured, employee owners can track their stake in the company and accumulate a nest egg that they take with them when they depart.

6. Effectiveness. Over 11,000 companies nationally, with 8.5 million employees (and $400 billion in assets held by these employees) have some form of employee ownership. Maybe these companies know something.

7. Legacy. Employee ownership is the ticket to good legacy and smooth transitions. By sharing ownership early on, the difficult question that comes when founders are ready to retire - what to do with this business - is avoided.

8. Justice. The inherent injustice of our current economic system (all wealth goes to the shareholders) can be tackled, through employee ownership, by shifting wealth to the real stakeholders, those who actually create it.

9. Productivity. A democratic workplace gives meaning to our work lives and encourages good performance. A happy workforce is a productive one.

10. Accountability. If the people who make the decisions are the people who will also bear the consequences of those decisions, better decisions are likely to result.

The article also shares two employee ownership analogies. First, he uses the popular car analogy: "In the history of mankind, nobody has ever washed a rented car." He also compared the dynamics of employee ownership to how the Roman army rationed food:

Rations were in the form of large loaves of bread, each sufficient to feed two soldiers. This presented a problem, since when the soldiers had little to do, they tended to fight among themselves, particularly over who got the bigger half of the loaf. The Romans developed a nifty solution. They passed a regulation that one soldier had to divide the loaf and the other chose which half to take. Employee ownership is a similarly self-enforcing system. Each owner's actions on behalf of the others, and the company, are actions on his or her own behalf at the same time.

We also discussed the South Mountain Co. in In the News: More Responsibility and Better Decision-Making and In the News: Employee Ownership Success Stories.