The contradictions of ownership

["Ian Murray" <seamus2001@xxxxxxxx>]

[from the Financial Times]
A question of ownership
Employees who have no equity may still feel that, psychologically, a
business is theirs
Published: August 2 2001 18:41GMT | Last Updated: August 2 2001
18:53GMT



For two months I have been working intermittently with an
owner-managed business. It has sales of £20m ($29m) and employs 145
people.

By any criterion it is a classy business, and a profitable one, too.

My client dominates the company, by virtue of his position and his
personality. He asked me to advise him on how he might reduce this
dominance. As he put it: "I am 65 years old. I want to avoid the
'Margaret Thatcher' problem of succession."

He suggested I talk to some of his employees. He needed them to be
more independent, to envisage a time when he might retire. "I want
them to take ownership of their decisions," were his exact words. I
suspect he has been on a training course.

I have told him that these discussions could be useful. However, his
accountant has told him they would be a mistake. The accountant
believes the only way to redistribute power is to redistribute equity.
That is, the employees must become shareholders.

This is not very helpful for my client. He owns 100 per cent of the
equity. It is his business and he intends to keep it that way. He has
spent every waking minute on it for 25 years.

Furthermore, his employees appear to like it that way. He is the boss
and once they have been recruited, employees stay - some for 20 years.
They do not feel excluded. My client's retirement is something they
would prefer not to consider.

There is a reason for this exceptional performance. Although the
employees may not legally own the business, psychologically they
certainly do. Employees with no legal right to ownership can still
behave as though the company is theirs. They own space, the business,
an idea, a product, a system. It is theirs. The accountant does not
understand this.

There is little research to help decide between the legal and the
psychological views of ownership. The work that has been done focuses
on joint ventures and the problems of divided ownership.

One hundred years ago legal and psychological ownership were fused
through owner-managers. And it is still true of most small businesses.
However, during the past century, directors of large and publicly
listed companies worked hard to divorce legal ownership from
management. They have been struggling with the consequences for
psychological ownership ever since.

Enthusiasts argued that this separation would create more effective
companies. So professional managers, not shareholders, replaced owners
as chief executives. They were doers. Their objectivity would not be
compromised. Rationality became an obsession and emotion had to be
suppressed. Psychological issues were taboo.

So effective was this drive that legal ownership became widely
diffused. Whereas it is a unifying force for my client's company, it
is increasingly divisive in most companies. Corporate financiers and
institutional shareholders acquired the stock. Hidden behind
institutional facades, these faceless investors cared little for their
impact on psychological ownership.

The financiers muddied the relationship between owners and employees.
Imagine a listed company. One investment bank may own 15 per cent,
another 25 per cent, the original founding family 7 per cent and the
ABC pension fund 20 per cent. The remaining 33 per cent is hidden in
nominee companies or in the investment portfolios of that ubiquitous
band of "little old ladies", who pop up whenever one of their
investments is acquired.

Tell me this is progress. Tell me this diffusion has added something
to the relationships between the people who work in this company. What
it has done is raise questions about added value and for whom?

More specifically, it has had two negative effects. First, it
reinforces the accountant's conviction that ownership is about law.
Second, it has forced managers to look for alternative ways to explain
to their staff that a bunch of people, whom none of the employees has
ever met, owns "their" business. That they are, in fact, little more
than tenants.

Look at any company wrestling with these issues - often there is a mad
scramble to throw stock at each and every employee as part of some
belated attempt to reconcile ownership with management.

You will also find a frenetic interest in defining psychological forms
of ownership. How can employees who have no equity really feel the
business is theirs?

The search for an answer has been long and tortuous. What began as
'communication' in the 1960s shifted to 'worker participation' and
'industrial democracy' in the 1970s. By the 1980s it became
'enrichment' and 'organisational development' and, by the 1990s,
'empowerment'.

With the new millennium it changed its packaging again and was
relaunched as 'commitment' or its slightly softer twin, 'involvement'.
Its latest format is 'psychological ownership'.

My client has refused to dilute either form of ownership. His
accountant is right, he will have a big succession problem. But his
stance is at least sincere.

John W. Hunt is professor of organisational behaviour at London
Business School and a consultant to private and public sector clients.
This column appears fortnightly.