The Secret Ingredient of Business Success | Pete Stavros | TED

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.

This is 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 dollars 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 percent of employees globally are disengaged on the job.

18 percent 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.

25 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 five 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 morale standpoint,

it 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.

(Laughter)

Literally two guys on the factory floor came up and handed me a chicken.

(Laughter)

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 dollars 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 ten 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 six-and-a-half times their annual income,

or a half a million dollars.

We had truck drivers make 800,000 dollars.

So this was life-impacting amounts of money.

And I could talk to you about it all day,

but I won't get it across as well as the workers can themselves.

(Video) Person 1: He started out at 20,000,

and then he went to the next amount and the next amount,

and he kept going.

Person 2: I'm like, whoa!

Person 3: Holy smokes!

Person 4: Where is this going to lead?

PS: 40,000 dollars, 70,000 dollars.

Two-and-a-half times your annual pay.

Three-and-a-half times, four-and-a-half times,

five-and-a-half times your annual pay.

Six-and-a-half times.

Person 4: I just kept looking around at all the people around me

thinking how much this was going to change everyone's lives.

Person 2: You sit there and you struggle, like, how am I going to pay for this?

Person 6: Just think about what this means for this area.

Person 7: We’re out here, there’s a bunch of lower-income families

that live paycheck to paycheck.

Person 2: This will absolutely give us some comfort that, you know,

the future is going to be OK.

Person 8: It’s wonderful, I mean, it’s just freedom.

I got freedom.

Person 10: This is what we did and we’re proud of it.

Person 11: Every cent that we get back, we earned.

Person 12: Without ownership, it is a job.

You clock in, you clock out, you go home.

When you have ownership in the business, it changes everything.

(Applause)

PS: They deserve to be applauded because they earned it.

One of my favorite things in that ...

Audience: Don’t worry, we’re all crying.

(Laughter)

PS: Alright.

I'll 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 dollars of wealth was injected into the community,

and 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.

(Laughter)

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.

(Laughter)

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 one 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?"

(Laughter)

Thank you.

(Cheers and applause)