Canadian employee ownership

Predictability in your ESOP

Social psychologists say that the root of organizational trust is predictability. Surprise is the opposite of predictability, and although it is impossible to eliminate surprises, company leaders should make it their personal goal to never be the source of an unnecessary surprise. Companies can reduce surprises and be more predictable in a number of ways, all of which have the impact of increasing levels of trust.

Communication cycles: Many employee-owned companies communicate in a series of interlocking cycles. They send weekly (or daily) email updates about the state of the company. They have monthly department meetings, quarterly newsletters, and annual shareholder meetings. They have elections every July for their employee committee, a guess-the-stock-price contest every May, and a state of the company address from the CEO every February! The information itself is useful, but maybe even more important, these cycles become expected, and when people’s expectations are met, trust builds.

Open-book management: The better people understand the business, the less likely they are to be surprised. Teaching business literacy and sharing key financial information not only makes people feel like insiders and helps them manage their day-to-day decisions, it also lets them better see the road ahead.

Anticipate problems: What does a business downturn look like and what can we expect in response? Some ESOP companies have built themselves business contingency plans. Such a plan could describe, for example, a “stage 1” downturn in terms of a specific threshold of revenues, EBITDA, projects “in the pipeline,” or product development. The contingency plan, if business is soft, will let people know what needs to happen to the numbers to get out of stage 1, and the warning signs that the business may be approaching a “stage 2” downturn, or worse. One of our clients called their contingency plan “What happens if Ted gets hit by a bus?”, Ted being the founder and president and the main source of revenue. 

An ESOP alone creates conditions for success, however the routine communication practices are one of the important components of a successful plan because it builds trust.

By Joanna Phillips, CHRL, CVB, Vice President, and Perry Phillips CPA, CA, CBV, President