In the 1960s, a group of teachers in West Germany developed a curriculum to teach young children the joys of music before they began any formal instruction.
The program was imported to the United States in the 1980s and renamed Kindermusik. With more than 5,000 licensed Kindermusik instructors teaching classes around the world, the company is one of the leading music education programs globally.
But here’s what really helps the Greensboro-based company stand out: 100 percent of the company is owned by its employees. Twelve years ago, the company’s employees bought out the company from its 96 investors. Simultaneously, they launched an active “open-book management” plan that deeply engages its owner-employees in every aspect of the company’s strategic and financial direction.
Informed by a set of core values that everyone has agreed to, the company works with employee-led committees to set company targets for the next three to five years as well as annual and quarterly outcomes aligned with the strategy.
Core values, long-term strategy and quarterly goals are familiar territory for most organizations. However, given Kindermusik’s employee stock ownership plan (ESOP), the stakes are higher for its employees. If the company does well, so does each employee’s stake in the company.
To enhance buy-in and ownership, the company’s financial numbers and performance goals are transparent. Each employee gets monthly performance coaching and signs an ownership contract listing specific ways the employee can help achieve specific target outcomes. At weekly meetings, all employee-owners gather to review and discuss critical numbers, including income and cash flow statements, and provide updates and recognition.
In this kind of setting, accountability among your peers is paramount. But so is support. In fact, the opportunity to be coached on a regular basis and be part of a supportive, employee-owned culture is reportedly the No. 1 recruitment attraction among new hires.
In addition to enhancing employee recruitment, a Harvard Business School study shows that employee-owned companies increase production and profitability while contributing to employees’ dedication and sense of ownership. “From top management to the front lines, the participants in employee-owned companies are partners in enterprise, sharing a single agenda and common goals employees both learn and drive the business disciplines to help their company do well.”
Another study of ESOP companies during the recession showed they performed better financially than non-ESOP firms, paid their workers higher wages, contributed more to their employees’ retirement, and hired more overall workers.
This management and ownership strategy, though, is not without its challenges. Employees within ESOPs, for example, are sometimes overly dependent on the company’s performance for their retirement. If the company suffers financially, it can have a disproportionate adverse effect on employees – unless they diversify their retirement portfolio. Further, transitioning to an ESOP from a traditional ownership structure can be complex and expensive, although it can have strong tax benefits for a departing owner.
Sharing the wealth
This said, creating strong alignment between a company’s and its employees’ performance seems to pay off. For instance, in 1992 Sundt Construction was headed toward bankruptcy. Substantial losses on key projects, a lack of focus and a dearth of innovation contributed to the company’s tailspin. With new leadership, the company was overhauled. Among the changes: the creation of a 100 percent employee-owned company. Since that time, the employee owners across Sundt’s nine offices, including Cary, have seen a 900 percent increase in the value of the company’s stock.
The manufacturing company Carris Reels is another example. Founded by the Carris family in 1951, the founder’s son, Bill Carris, wrote about his long-term vision for the company in 1994: “The corporate community I (envision) does not exist today, nor has it ever existed. The change from a privately held company to an employee-owned and governed organization is a break with tradition, but it is also a departure from a system which rewards but a few to one in which the rewards are enjoyed by many.”
In 2008, the Carris family realized this vision by selling the company at a significant discount to its employees. This tradition of sharing the wealth has also translated into the company’s tradition of contributing 5 percent of profits to the community. Today, the company has more than 450 employee owners nationwide, including at a manufacturing plant in Statesville.
There are an estimated 112 employee-owned companies across North Carolina, including New Belgium Brewing in Asheville, Salem Distributing in Winston-Salem and Quiktrip in Charlotte. As we look to build more wealth, ownership and personal stakes in our economy, this is a trend we hope continues to grow.
Christopher Gergen is CEO of Forward Impact, a fellow in Innovation and Entrepreneurship at Duke University, and author of “Life Entrepreneurs: Ordinary People Creating Extraordinary Lives.” Stephen Martin, a director at the nonprofit Center for Creative Leadership, blogs at www.messyquest.com. They can be reached at firstname.lastname@example.org and followed on Twitter through @cgergen.