Hank 瀚克

The Secret Ingredient of Business Success

Speaker: Pete Stavros

YouTube: https://www.youtube.com/watch?v=wpysFja4zyQ

TED: https://www.ted.com/talks/pete_stavros_the_secret_ingredient_of_business_success/transcript

English Highlights and Transcript

Highlights:

Importance of Employee Stock Ownership

• Lack of stock ownership leads to wealth inequality and disengagement among employees worldwide. 
• Broadening stock ownership could promote more inclusive and sustainable capitalism. Speaker has advocated for this idea since graduate school and implemented it successfully at KKR with 44 companies. 
• Employee stock ownership has the potential to positively impact both the economy and empower employees. 

Importance of free and incremental stock ownership for workers in companies. 

• Lack of communication and transparency leading to employee suspicion and disengagement. 
• Successful example of Chi Overhead Doors granting stock ownership to all employees. Employee ownership extending to decision-making, financial transparency, and workplace investments. 
• Positive impact on productivity and quality because of employee ownership. 

Transformation of the company led to improved quality, decreased scrap, increased productivity, and market share growth. 

• Financial results drastically improved, with the company's value increasing tenfold. 
• Employees received significant payouts based on their tenure, with some earning up to six and a half times their annual income. 
• The community received a $340 million wealth injection, leading to positive economic impacts like increased tax revenue, better schools, and new businesses. 
• The success of this model showcases the potential for widespread economic change if more companies adopted similar practices. 

Overview of Ownership Works and its mission to promote employee ownership. 

• The organization aims to impact a million workers and create wealth for working families. 
• Ownership Works has already made progress, with plans to reach 250,000 workers and create $10 billions of wealth. 
• They are working on passing legislation to make ESOPs easier and faster to form with government support. 
• The goal is to create 30-40 million new employee owners through their efforts.

Transcript:

My first job as an investor was when I was 24 years old, and I'm almost 50 today, so that is half a lifetime ago, but I still clearly remember the first thing I was asked to do: to oversee wire transfers related to the sale of a business, basically to make sure all the shareholders got their money. Any company, large or small, public or private, has shareholders who own the business, and as the value of the company goes up, wealth is created for those who own shares.

Now, at this company, ownership among the employees extended from the very top position, the CEO, to some mid-level roles like assistant Treasurer. When I called the CEO to confirm his wire transfer, it was a very matter of fact conversation: "got the money thanks a lot," click. Now when I called the assistant Treasurer who was making a tiny fraction of what the CEO had made, he was so overcome with emotion he could barely find the words. And he later explained in a tearful voicemail that his ownership payout literally meant college education for his kids. So I wondered, what if everyone in a company had stock ownership? Not just to the assistant Treasurer level, but to the factory floor, distribution centers. How might employees' lives be impacted? And how might the company, and in fact the whole community, be impacted?

These questions were not new to me. My dad had been asking them for decades. My father operated a road grader for a union construction company in Chicago for 45 years. It's actually a picture of my dad in his road grader. And my dad dreamt of worker ownership to address three things he didn't like about his job. First, he couldn't build wealth on $20 an hour. Second, he had no incentive to care about things an owner would focus on, things like productivity, so he felt no sense of alignment. And third, he had no voice. Without the right incentives in place, there was really no reason for management to listen to workers, and they didn't. And my dad's experience is certainly not unique. Only a tiny percentage of workers are granted stock ownership in their companies, and most workers have no wealth. And it is, in fact, stock ownership or the lack of it that is, by a mile, the biggest driver of wealth inequality. Most employees feel their opinions don't count. If you look at Gallup surveys, 77% of employees globally are disengaged on the job, 18% literally hate the company that they work for. They're throwing the wrenches in the machines.

Today, I'm going to try to convince you that broadening Employee Stock ownership is the single most important thing that we can do to lift up workers and to make companies stronger too. It could give us a form of capitalism that is actually inclusive and sustainable. And I believe it could literally change the economy. I've been pursuing this idea most of my adult life. Twenty-five years ago as a graduate school student, I dove into the history of employee ownership and I published a paper on the topic in 2002. Then a handful of years later, I got my first real leadership position at the company I still work for, KKR, and I was put in charge of investing in and improving industrial companies, mostly manufacturing businesses. And that was a great opportunity to start experimenting with different ways of sharing stock ownership with all employees, something we've now done with 44 different companies over the past 15 years. In our early efforts, we had some success but we made a lot of mistakes. The most important thing we got right was making sure that stock ownership was free and incremental for workers, not a trade for wages or other benefits. This could not be about shifting risk onto the workforce.

But we got plenty of things wrong. We didn't communicate well. So if I said something like we'd hope to sell a business in 5 years, that often led to employees literally counting the days or growing suspicious if things took longer. We didn't share our financial information, so people didn't know how the business was doing, nor did we ask them how they would run the business better. You see, ownership is about a lot more than just giving out stock. It's about trying to create a whole different type of culture, an ownership culture.

Now let me share a story of what this can look like when it's done well. In 2015, we invested in a company called Chi Overhead Doors. Chi is based in Central Illinois in Amish Country, and the company makes overhead garage doors like the one you see here in this picture. And Chi was a good business, but from a worker moral standpoint, was very reminiscent of what I saw with my dad. Out of 800 employees, only 18 had stock ownership, so that means when we bought the business, most people got nothing and just went back to work, and a small handful made many millions of dollars. Employee Engagement scores were absolutely dismal. Most people didn't even bother to respond to surveys. And this lack of alignment and engagement, you could see it in the business. It showed up in things like productivity, quality, scrap. People didn't always try to do their best. It took us a long time to change the culture, eight years, and it started with stock ownership. So day one, all 800 employees were granted stock ownership, so they would participate as the value of the company went up through dividends along the way, and then at the end when the business was sold.

When we announced this program, the employees were so excited, they gave me a gift, which was a live chicken. Literally, two guys on the factory floor came up and handed me a chicken. I awkwardly joked that I didn't have a crate and I wasn't sure I could carry a chicken on my flight back to New York. But this was about much more than just stock ownership. Employees were educated about the business. They were kept informed. Once a quarter, we got everyone together and we talked openly about what was working and what was not and where the business was headed. And we shared our financial information transparently. All 800 employee-owners were given a voice. As one example, they were provided with a million-dollar annual budget to invest in their workplace any way they saw fit. They came up with the ideas. They decided where the money went. And over the course of several years, they voted in things like air conditioning for the manufacturing plant. One year, they voted for new break rooms. Another year, they wanted an On-Site Health clinic built, and another, an on-site cafeteria with healthy food options.

We found this was a great way to engage with employees because not only were you giving them a voice, but they could see their voice physically manifested in the workplace. Employees were also provided free financial coaching so that as they received money, they could save and invest effectively. And I want to be very clear: all of this benefited the company too. It's not like this was only good for workers. We saw quality improve, scrap went down, productivity boomed. We became more responsive to customer demands, and we gained market share as a result. In fact, by the end of the journey, the financial results had improved so enormously, the company was worth 10 times what it had been worth in 2015. And to put that in perspective, this was the single best investment for us at KKR since the 1980s. And this is with a company making garage doors. This is not like a high-flying technology business.

When the company was sold, we gathered everyone in our main manufacturing plant in Central Illinois. We told them their jobs were safe and it was time for each of them to learn what they had earned from their ownership. The payouts were scaled based on length of employment, with our most tenured factory workers earning 6 and a half times their annual income, or half a million dollars. We had truck drivers make $800,000. So this was life-impacting amounts of money. And I could talk to you about it all day, but it's... I won't get it across as well as the workers can themselves.

He started out at $20,000 and then he went to the next amount and the next amount and it kept going. I'm like, "whoa, holy smokes, where is this going to lead?" $40,000, $70,000, you and a half times your annual pay, three and a half times, four and a half times your annual, five and a half times your annual pay, six and a half times. I just kept looking around at all the people around me thinking how much this was going to change everyone's lives, 'cause you sit there and you struggle, like, how am I going to pay for this? How am I going to... just think about what this means for this area. We're out here. There's a bunch of lower-income families and stuff that live paycheck to paycheck, and this will absolutely give us some comfort that, you know, the future is going to be okay. And it's just... it's wonderful. I mean, it's like, you know, it's just... it's freedom. I got freedom. This is what we did, and we're proud of it. Every cent that we get back, we earned. Without ownership, it's a job. You clock in, you clock out, you go home. When you have ownership in the business, it changes everything.

Everything they deserve to be applauded, 'cause they earned it. One of my favorite things in that... Alright, try and explain that again. So when Cara said, "we earned this," I love that sentiment because to me, that's ownership. You know, they earned it. This wasn't a gift. It didn't happen by chance. They made it happen. And it did change the community. $340 million of wealth was injected into the community, and that... it's forever changed. I mean, that type of wealth creation, it can fundamentally shift a whole local economy. It means more tax revenue, better schools, new business formations, more restaurants in town. And it means dignified retirement for the employees. So just imagine how different would the economy be if every company operated in this way and included all employees in decision-making and in wealth creation. What a different economy we would have.

When we sold the business, I got a second gift: a chicken, but this time it was with a crate and it had a little tag indicating it had been pre-checked. Back to New York City, I wanted to stay married to my wife, so I did not bring the chicken home. But when I got home, my wife and I started talking about how we could give this idea of employee ownership more scope. And we decided to start a nonprofit called Ownership Works, whose mission is to ignite a movement around employee ownership and to help CEOs and companies who want to go on this journey because it is not easy. Our goal is to reach a million workers over the next 10 years and to create tens of billions of wealth for working families. And we're already well on our way. We've got line of sight to our first 250,000 workers being impacted and our first 10 billion of wealth creation for working families. We've also joined forces with a coalition of employee ownership advocates who have come together to put new energy behind something called an ESOP, or Employee Stock Ownership Plan. The ESOP was created by Congress in the 1970s and it gives companies tax incentives in exchange for sharing stock ownership with workers. Our goal through a new organization called Expanding ESOPs is to pass legislation in the United States to make ESOPs easier to form and faster to form, particularly with larger businesses. It is going to take government support for this idea to really take off. That's how we're going to get not 1 million new employee owners, but 30 million or 40 million.

When I talk about this idea and my passion for it, I always get the same question: what does your dad think of all this? Well, you'd have to know my dad to appreciate this, but he says, what the hell took so long?

Thank you.