Employee Ownership: An Innovation in Management Strategy

By Kathy Lin (Full-Time ’09)

Beyster Institute intern and Rady MBA student Kathy Lin shares insights on innovation, employee ownership and how CEO Jack Stack makes the most of this winning combination.

As a second-year MBA student at the Rady School of Management, talk of innovation surrounds me. On my very first day of school, Dean Sullivan spoke to us about the need for innovation-driven success. I continue to hear it in our Lab to Market class as we attempt to make the challenging journey from idea generation to business formation. Entrepreneurs who visit the school to talk to us about their experiences speak of San Diego as an innovation economy. Despite all of this enthusiasm over innovation, I have to confess that it has remained a nebulous, hard-to-pin-down concept for me.

That is, until I had the fortune to meet Jack Stack, a man who lives and breathes innovation. Stack visited the Rady School of Management last month to share his company’s story at the 2009 Employee Ownership Executive Briefing. He is the founder and CEO of SRC Holdings, an employee-owned company which he has built based on the open-book management strategy. Stack believes strongly in empowering each of SRC’s employee-owners to become financially literate and personally invested in making the company grow.

In a time when unemployment figures crawl across the bottom of the screen on all the major cable news outlets, and the numbers of individuals laid off by companies (Amylin: 340 , Microsoft: 5,000 , NEC: 20,000 ) are stacking up, it is easy to become detached from the personal. What’s the significance of 10 more layoffs when so many are already jobless? As depression hits the economy, depression seeps into us as individuals as well. The numbers numb us into apathy and it is easy for us to lose sight of the human aspect of the situation.

But in an employee-owned company, or at least in Stack’s company, the employees have never been and will never be figures in an expense column. The employees are the most precious assets at SRC Holdings and Stack is wise enough — and dare I say innovative enough — to realize that, more than ever, he must hold onto and protect his investment in people. You won’t find many CEOs who say with frankness, “We’re trying to figure out how to hold onto everyone. If it means losing $4 million this year, then it means losing $4 million.” Stack understands that cutting employees from the company census is not a sustainable solution. In fact, that is hard to do when the employees are owners of the company. Rather, the solution lies in innovation: the truly innovative companies bring employees together during this time to figure out how to weather and overcome the crisis.

These kinds of innovations are easier in an employee-owned company, where human capital is recognized, nurtured and rewarded. As an impending graduation during these challenging times has relegated me and many of my classmates into a constant state of low-grade anxiety, I know that I will be paying close attention to the employee-owned companies. Innovation is certainly a driver of research and development in high-tech, biotech and clean tech firms, but management also demands innovation. Employee ownership is the trailblazer on this frontier.