We're All the Boss

(2 of 3)
What's even more important to the success of employee-owned companies, says Jack Stack, 53, CEO of Springfield Remanufacturing in Springfield, Mo., is openness of information and decision making. Springfield Remanufacturing started in 1983 when 13 supervisors took on heavy debt to buy a division of International Harvester that rebuilt big-vehicle engines. Stack argued that the company's only chance was for every worker to have a stake in its success and understand its finances.

Employees got shares of stock worth a dime apiece. And every week Stack held "huddles" in which everyone from top managers to janitors pored over financial data. Those who couldn't read the data got training. That helped them make day-to-day decisions such as whether a mechanic should repair an engine's connecting rod or install a new one. He could compare his wage, $26 an hour, with the cost of a new rod, $45, and determine that it was worth repairing the old one only if he could do it in 90 minutes or less. "It's about truly understanding the business," says Stack, the author of two management books. Within three years of its founding, Springfield Remanufacturing was turning a profit, and today its stock is worth $13.60 a share--82% of it owned by the workers.

As at Stack's firm, each worker at Gore enjoys broad discretion to make minor decisions. Bigger ones--hiring and firing, setting compensation--are made by committees whose members constantly shift with the demands of the business. Anyone can start a new project simply by persuading enough people to go along with the idea. Even Bob Gore, 64, chairman and son of the founders, has his compensation set by a committee.

The arrangement has its costs. Above all, workers are forced to devote a lot of time to building relationships. Says process technology manager Michael Jones, 45: "At a traditional company, you have one boss to please. Here, you have everyone to please." And few companies go so far; most of the 3,500 or so American firms in which workers own a majority of the stock are organized as conventional hierarchies. But evidence is growing that the most successful firms are those that find some consistent way of empowering workers.

A 1993 survey of 188 companies conducted by the Washington State Office of Trade and Economic Development found that employee-owned firms grew no faster than conventional companies unless they gave workers a voice in management. Likewise, broader sharing of information and authority with workers didn't boost growth unless that was combined with ownership. But firms that put the three together grew about 12% faster than their competitors.

To see the difference between merely giving stock and letting workers shape their destiny, look at the airline industry. In return for lower wages in 1994, United Airlines pilots and mechanics got more than half the company's stock. But life inside the cockpit and at loading ramps barely changed. By contrast, Southwest Airlines employees own only about 11% of the company's stock, but the company works to encourage and implement workers' suggestions, in part through town hall-style forums with top management. While there are other important differences between the carriers, workplace culture is a big reason United posted record losses last year while Southwest made a healthy profit--as it has for 29 years.