Why do businesses exist? According to the business schools, the purpose of the business is to maximise shareholder value and I don’t disagree with that. What I do disagree with is that this ‘value” is interpreted purely in financial terms. What do shareholders value?
In the world of employee ownership, shareholders value many elements. it is important that the business runs well; serving customers, engaging employees and making a profit. Indeed, employee owned businesses tend to excel at this. Research carried out by Cass Business School in 2010 found that firms owned by their employees tended to be more resilient, more productive and profitable and more innovative than similar businesses with more conventional ownership models. So yes, to employee owners, the usual business metrics are important.
Within these conventional businesses, the measure of success tends to be in the share value. And as we all know, what gets measured, gets attention. If the focus is on the quarterly share value, then this drives business decisions. Will the investment deliver a return? How quickly will we see that return? When will we see a financial benefit from that training? Things are looking tough, what’s our biggest cost? Cut it. Sadly, the response to this last question is often staff losses.
However, what makes employee owned businesses more successful lies in the value placed on the long term sustainability of the business. Employees are driven to ensure the business lasts and maintains employment. Access to information means that employee owners understand the business better, and know what effects the bottom line. Employee owners know how precious customers are, and why the products and services must be better than the competitors. Leaders of these businesses recognise the importance of the workforce, and strive to ensure a happy, productive working environment . The robust and transparent governance that is often a feature of employee owned companies means that leaders are sharper, employee relations are healthier, and we don’t see the disproportionate executive pay levels seen in external shareholder business models.
The value of a business does not merely lie in its balance sheet. Businesses have a social purpose; providing rewarding employment, contributing to the community, creating long term wealth for society. The external shareholder model and its focus on short term financial value is not good for the health of our economy. We need to see more plurality of business models, and the ownership dispersed to those who have a real interest in sustainable success of enterprises.