Criticism of modern corporate capitalism in the wake of the current economic crisis is reawakening interest in alternative ownership and governance models such as employee owned businesses (EOBs). EOBs are well suited for knowledge intensive firms where their combination of ownership and employee participation in decision-making fosters initiative and commitment. However, the relationship between ownership and employee participation that is central to the EOB advantage is potentially undermined by growth and complexity. This article reports on the results of a survey and archival study on UK-based EOBs that examines this issue. Taking advantage of the economic crisis, the study also examines EOB performance under adverse business conditions. Analysis of the archival data shows that EOBs lose their performance advantage over non-EOBs as they grow larger. EOBs, however, performed better over the entire business cycle, including the onset of the current economic crisis, demonstrating resilience and business sustainability relative to non-EOBs.
1.Introduction
A stream of corporate scandals followed by a financial crisis has ignited a debate on the potential pitfalls of modern corporate capitalism.1,2 In wake of this debate, increasing attention is being paid to ownership and governance models that represent an alternative to the publicly listed corporation. One model in particular is attracting renewed interest: Employee Owned Businesses (EOBs). EOBs have been part of the economic landscape since the industrial revolution. Until recently, however, they were viewed as an interesting governance model with certain advantages, but also with intrinsic limitations when compared to the growth and dynamism of publicly listed corporations...
About the authors
Joseph Lampel is Professor in Strategy and Innovation at Cass Business School. His current research explores (a) impact of ownership structure on strategic decision-making and performance in employee-owned business (b) how organizations boost creativity under constraints, and (c) how organizations learn through rare events. He is the author with Henry Mintzberg and Bruce Ahlstrand of the one of the best selling strategy books: “Strategy Safari“, Free Press, and has published in top journals such as Strategic Management Journal, Organization Science, Journal of Management, Journal of Management Studies and Sloan Management Review.
Ajay Bhalla is Professor of Global Innovation Management at Cass Business School. He has specific research interest in (a) How Ownership & Governance Structure influences strategic decision making, with specific focus on Employee Owned and Family Businesses, and (b) What makes firms innovate better and what are the implications of pursuing innovation across boundaries for firm configuration. He has published in journals such as Academy of Management Perspectives, Journal of Operations Management, and Journal of World Business.
Pushkar P. Jha is a lecturer in strategy at the Newcastle University Business School. He has contributed to leading journals like Academy of Management Perspectives and International Journal of Project Management. He has also published in practitioner-oriented books like the Project Management Handbook of Knowledge and the Evolution of Business Knowledge. He has a keen interest in the areas of project-based learning, innovation and employee ownership models. The interest stems from his work on design and monitoring studies on cooperatives and enterprise development in some major funding initiatives of the World Bank and the UNFPA.
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