The Executive Brief

ESOP Culture: Can there be too much of a good thing?

Mike Frommelt Leadership, ESOP

The great majority of ESOPs I’ve encountered are pretty special places, employee focused cultures filled with hard working, collaborative and loyal employee-owners. In most cases, these strong cultures result in performance that beats the competition, and creates growth for the benefit of all in the ESOP.

However, I’ve also been witness to a handful of ESOPs who have maybe gotten too much of a good thing and ultimately became victims of their own culture. Some were able to recognize the problem and course correct, while a few others actually went out of business because they didn’t deal with the problem.

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Because ESOP cultures tend to have such loyal employees and low turnover, they can at times become very inwardly focused; The company begins to spend too much time with what “we” are doing and fails to see the world is changing around them. Said another way, the company becomes overly averse to change. For some employee owners the ESOP may even start to become the excuse; “I don’t have to change, I’m an owner”. Of course, no one does this with any sinister intent, change is just hard – for everyone. And, as we get older it tends to get harder. So, as your employee owners get more and more tenured, keeping up with the outside world becomes more and more difficult.

But, as Blockbuster, Polaroid, Blackberry and countless other companies would tell you, ignoring change can be deadly

So how do you fend this off without damaging all the great things about your ESOP culture?

First, let me point out, tackling this issue rests squarely on the shoulders of the CEO and the Senior Leadership Team. The leadership team in particular must resist falling into the “no change” trap themselves and must create the mechanisms to ensure the company is not losing touch.

IMHO, one of the best mechanisms is ensuring you have a strong Board of Directors with at least some (preferably more than one) outside Directors. Retired or active senior leaders from other organizations provide great perspective on the market. Even better if they come from different industries than your own to provide a fresh perspective on your products/services.

Ironically, I’ve heard some reticence from some ESOP CEOs to bringing in outside Directors. When I’ve pressed as to why, the answer is a concern those Directors may drive change! Of course, its important you get the RIGHT Directors for your Board, ones who appreciate the ESOP culture and will take time to learn your business/team before making suggestions…but helping to create positive change is exactly why they are there!

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Secondly, senior leaders in ESOPs must ensure employee owners at all levels are developing and growing their skillsets to match what is happening in the greater market. Other types of companies actually rely on turnover to bring fresh ideas into the company, but ESOPs can get the same effect (without the cost of high turnover) by building strong development programs. These programs should give employee owners exposure to cutting edge skills and best practices from both inside and outside your industry. When employee owners are encouraged to participate and are communicated with on why this is so important, this fear of change can be dramatically reduced. How amazing if an ESOP can build not only a collaborative, loyal and dedicated culture, but also one that is innovative and forward thinking. Unstoppable!