Comments on: SAIC’s Employee-Ownership Continues to Shift; Blasi Speaks http://www.beyster.com/blog/?p=181 Tue, 07 Sep 2010 14:40:03 +0000 http://wordpress.org/?v=2.5.1 By: Dr. Beyster http://www.beyster.com/blog/?p=181#comment-274095 Dr. Beyster Fri, 29 Jan 2010 14:15:44 +0000 http://www.beyster.com/blog/?p=181#comment-274095 David: I think I understand. By flotation I think you mean taking the company public. If I'm wrong please let me know. I think employees do better in a company that is owned widely by employees than in a company where management tends to distribute the wealth only to other managers. -- Bob David: I think I understand. By flotation I think you mean taking the company public. If I’m wrong please let me know. I think employees do better in a company that is owned widely by employees than in a company where management tends to distribute the wealth only to other managers. — Bob

]]> By: David Erdal http://www.beyster.com/blog/?p=181#comment-272906 David Erdal Fri, 22 Jan 2010 14:59:38 +0000 http://www.beyster.com/blog/?p=181#comment-272906 The conventional arguments in favour of flotation, used with such confidence by fee-seeking Wall Street people (for they are still people, hard though it may be to believe), are bankrupt. They argue that flotation will give access to new capital; but if you look at where business investment comes from (as opposed to capital for acquisitions, which are as likely to destroy value as not) the capital for real investment comes from retained earnings and borrowings. Flotation is not done for that reason. They argue that supervision is key to stimulate good performance: Wall Street supervises the board, the board supervise the managers, the managers supervise the rest. But the data show which works better: supervision of servant-employees, or participation by partner-employee-owners. 'The case is closed' say the economists who look at data rather than theory. Employee owners are more productive. Wall Street argue that employee ownership will never work, because each employee owner only gets 1/N of the extra he or she puts in, so it will make sense to be a 'free rider'. They should not judge others by themselves. You only have to work a short time in an employee-owned firm to realise that people identify with their company, and love making it hum. Anyway, as Loren Rodgers pointed out, in a conventional company the employee who makes an extra contribution gets 0/N, so the employee owner gets infinitely more benefit than the normal employee. No wonder they have to depend on supervision. The real reason why flotation is backed (and then acquisitions) is because of the fees they make. What fees were paid to the brokers and advisers and lawyers when SAIC floated? It's easy to believe in rubbish when it helps make you rich. The conventional arguments in favour of flotation, used with such confidence by fee-seeking Wall Street people (for they are still people, hard though it may be to believe), are bankrupt. They argue that flotation will give access to new capital; but if you look at where business investment comes from (as opposed to capital for acquisitions, which are as likely to destroy value as not) the capital for real investment comes from retained earnings and borrowings. Flotation is not done for that reason.
They argue that supervision is key to stimulate good performance: Wall Street supervises the board, the board supervise the managers, the managers supervise the rest. But the data show which works better: supervision of servant-employees, or participation by partner-employee-owners. ‘The case is closed’ say the economists who look at data rather than theory. Employee owners are more productive.
Wall Street argue that employee ownership will never work, because each employee owner only gets 1/N of the extra he or she puts in, so it will make sense to be a ‘free rider’. They should not judge others by themselves. You only have to work a short time in an employee-owned firm to realise that people identify with their company, and love making it hum. Anyway, as Loren Rodgers pointed out, in a conventional company the employee who makes an extra contribution gets 0/N, so the employee owner gets infinitely more benefit than the normal employee. No wonder they have to depend on supervision.
The real reason why flotation is backed (and then acquisitions) is because of the fees they make. What fees were paid to the brokers and advisers and lawyers when SAIC floated? It’s easy to believe in rubbish when it helps make you rich.

]]> By: Dr. Beyster http://www.beyster.com/blog/?p=181#comment-271297 Dr. Beyster Wed, 13 Jan 2010 14:01:25 +0000 http://www.beyster.com/blog/?p=181#comment-271297 Jacquelyn: I think I'm following your train of thought, and I tend to agree. There was no reason to take the company public because it was self-supporting and there was plenty of cash for acquisitions. It may have been inevitable, however. When it was done, I was not there and my vote didn't count. -- Bob Jacquelyn: I think I’m following your train of thought, and I tend to agree. There was no reason to take the company public because it was self-supporting and there was plenty of cash for acquisitions. It may have been inevitable, however. When it was done, I was not there and my vote didn’t count. — Bob

]]> By: Jacquelyn Yates http://www.beyster.com/blog/?p=181#comment-269312 Jacquelyn Yates Mon, 04 Jan 2010 00:44:40 +0000 http://www.beyster.com/blog/?p=181#comment-269312 Dear Dr. Beyster, In my experience and research, most employee-owned companies that get to majority control eventually move to 100% ownership. The ones that don't usually don't do so because of an impossible obstacle, like a member of the selling family who wants to continue ownership and involvement. Even Procter and Gamble seems to be moving in that direction, albeit very slowly. For a company to move the other way when it's not in distress is a man-bites-dog story. I am wondering, what could have happened to bring about such a development? The comments on your blog post suggest that the employees really wanted the change, which is hard to believe -- they wanted to give up control of their company; or the retirees really wanted it, which makes no sense in such a risky stock market. I can see that people who wanted to sell right away might want the conversion, since the stock market could have dropped instead of rising as it actually has. I'd really like to hear your comments on the above, and tell me what am I missing about this story? Jacquelyn Yates, Editor of Owners at Work Dear Dr. Beyster,

In my experience and research, most employee-owned companies that get to majority control eventually move to 100% ownership. The ones that don’t usually don’t do so because of an impossible obstacle, like a member of the selling family who wants to continue ownership and involvement. Even Procter and Gamble seems to be moving in that direction, albeit very slowly.

For a company to move the other way when it’s not in distress is a man-bites-dog story. I am wondering, what could have happened to bring about such a development?

The comments on your blog post suggest that the employees really wanted the change, which is hard to believe — they wanted to give up control of their company; or the retirees really wanted it, which makes no sense in such a risky stock market.

I can see that people who wanted to sell right away might want the conversion, since the stock market could have dropped instead of rising as it actually has.

I’d really like to hear your comments on the above, and tell me what am I missing about this story?

Jacquelyn Yates, Editor of Owners at Work

]]> By: Dr. Beyster http://www.beyster.com/blog/?p=181#comment-263476 Dr. Beyster Wed, 02 Dec 2009 16:44:12 +0000 http://www.beyster.com/blog/?p=181#comment-263476 David: I read with interest your post, and I must say your observations are generally the same as mine. The stock price isn't changing. Although the debt seems to be manageable overall, it's an anchor that SAIC didn't need, and it could have been avoided. -- Bob David: I read with interest your post, and I must say your observations are generally the same as mine. The stock price isn’t changing. Although the debt seems to be manageable overall, it’s an anchor that SAIC didn’t need, and it could have been avoided. — Bob

]]> By: David http://www.beyster.com/blog/?p=181#comment-260566 David Wed, 18 Nov 2009 15:00:24 +0000 http://www.beyster.com/blog/?p=181#comment-260566 I think getting rid of the preferred stock was the desired outcome all along and was the reason for going public in the first place, which I also voted against. I know of very few actual employees who voted either to go public or to convert our shares to common stock and I keep wondering, other than the board, who actually wanted this and why??? Has the stock price really gone up, has our equity increased? NO Has our ability to attract top talent who wants to profit from their own labors increased? NO Have we actually even gone after any big acquisitions with our cash instead of propping up the stock price, which was one of the reasons for going public? NO We use to have money in the bank and no debt, now we have more debt than cash. How has any of this turned out well for the employee owners? It simply hasn't! I think getting rid of the preferred stock was the desired outcome all along and was the reason for going public in the first place, which I also voted against. I know of very few actual employees who voted either to go public or to convert our shares to common stock and I keep wondering, other than the board, who actually wanted this and why???

Has the stock price really gone up, has our equity increased? NO

Has our ability to attract top talent who wants to profit from their own labors increased? NO

Have we actually even gone after any big acquisitions with our cash instead of propping up the stock price, which was one of the reasons for going public? NO

We use to have money in the bank and no debt, now we have more debt than cash.

How has any of this turned out well for the employee owners? It simply hasn’t!

]]> By: Dr. Beyster http://www.beyster.com/blog/?p=181#comment-235232 Dr. Beyster Tue, 28 Jul 2009 05:01:01 +0000 http://www.beyster.com/blog/?p=181#comment-235232 Paul: Thank you for your response. I'm curious to know what the charter of your new company is. There are a lot of organizations that can help you at little cost to inject employee ownership into your company culture. Specifically, Tony Mathews at the Beyster Institute here in La Jolla would be able to help you. I suggest you visit the Beyster Institute website (http://rady.ucsd.edu/beyster) and start your journey there. -- Bob Paul: Thank you for your response. I’m curious to know what the charter of your new company is. There are a lot of organizations that can help you at little cost to inject employee ownership into your company culture. Specifically, Tony Mathews at the Beyster Institute here in La Jolla would be able to help you. I suggest you visit the Beyster Institute website (http://rady.ucsd.edu/beyster) and start your journey there. — Bob

]]> By: Paul http://www.beyster.com/blog/?p=181#comment-234082 Paul Wed, 22 Jul 2009 21:59:24 +0000 http://www.beyster.com/blog/?p=181#comment-234082 This topic of employee ownership is exactly what I'm dealing with as I start a new company and try and ferret out useful details from the sea of advice from lawyers, mentors, and investors. Although everyone gives lip service to employee ownership, most advice is geared toward limited ownership (save it for the investors). It has been difficult to find practical and detailed information on how to preserve as much as possible for employees (I personally agree that this is critical for the long-term culture and success). I will find your book and see if it helps. Thanks. This topic of employee ownership is exactly what I’m dealing with as I start a new company and try and ferret out useful details from the sea of advice from lawyers, mentors, and investors. Although everyone gives lip service to employee ownership, most advice is geared toward limited ownership (save it for the investors). It has been difficult to find practical and detailed information on how to preserve as much as possible for employees (I personally agree that this is critical for the long-term culture and success). I will find your book and see if it helps. Thanks.

]]> By: Dr. Beyster http://www.beyster.com/blog/?p=181#comment-227153 Dr. Beyster Tue, 30 Jun 2009 14:11:31 +0000 http://www.beyster.com/blog/?p=181#comment-227153 Corey: Thank you for your post on my blog. I appreciate your comments and I agree with most of what you are suggesting. You have seen many employee ownership companies come and go, and have a database of what has worked -- and what hasn't -- that is unequaled anywhere else. I have fears for SAIC in the aftermath of this vote. -- Bob Corey: Thank you for your post on my blog. I appreciate your comments and I agree with most of what you are suggesting. You have seen many employee ownership companies come and go, and have a database of what has worked — and what hasn’t — that is unequaled anywhere else. I have fears for SAIC in the aftermath of this vote. — Bob

]]> By: Damian http://www.beyster.com/blog/?p=181#comment-227131 Damian Tue, 30 Jun 2009 12:28:30 +0000 http://www.beyster.com/blog/?p=181#comment-227131 Dr. Beyster, It would certainly be a welcome change for employees to receive some of the financial rewards. This is a newer business model that perhaps Walt Havenstein could introduce. As far as employment in the Washington DC area – it is difficult to find a good, quality company to work for. The typical environment inside most companies has: - employees supplying their own PCs and software, - no reimbursement for customer directed travel (it affects management’s performance metrics somehow) - the 401k being position & project dependent - the company allowing only the HMO/PPO closest to the customer worksite to be used (contractual obligations) - and when projects end (or clearances are due for renewal) people are laid off It's just how business is done. Dr. Beyster,

It would certainly be a welcome change for employees to receive some of the financial rewards. This is a newer business model that perhaps Walt Havenstein could introduce.

As far as employment in the Washington DC area – it is difficult to find a good, quality company to work for.

The typical environment inside most companies has:
- employees supplying their own PCs and software,
- no reimbursement for customer directed travel (it affects management’s performance metrics somehow)
- the 401k being position & project dependent
- the company allowing only the HMO/PPO closest to the customer worksite to be used (contractual obligations)
- and when projects end (or clearances are due for renewal) people are laid off

It’s just how business is done.

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