By now you have probably heard that the SAIC vote on conversion of the preferred stock into regular common stock was approved by the company’s shareholders last Friday. Based on an announcement from the company, The San Diego Union-Tribune reported on June 20, 2009, that 85% of stockholders participated and that two-thirds voted for this change. That means that the proposal apparently passed with about 56.6% of shareholder votes.
This vote means based on reasonable estimates that SAIC’s employee-owners now have less than 50 percent of the voting power and that the public shareholders have the majority. Past experience has shown that it is very challenging to maintain majority or even significant employee ownership over time unless this is treated as a top priority.
In my book, The SAIC Solution, I pointed out four key advantages that we enjoyed over our competition because of the kind of employee ownership we practiced at SAIC. These key advantages included:
- Employee ownership allows a focus on long-term goals.
- Employee ownership helps attract and retain a superior workforce for decentralized growth.
- Employee ownership facilitates the alignment of key corporate constituencies.
- Employee ownership at SAIC promotes corporate flexibility and adaptability to maintain customer focus.
Employee ownership is important because it is fair for all employees to share with other investors and top management in the value that all of the workers created as a total team. Research now provides strong evidence that the combination of broad-based incentives like employee ownership with teamwork, performance management, and highly trained employees contributes to corporate performance and innovation. This evidence shows that employee ownership is also very good for non-employee shareholders and investors.
I have heard the theory that minority voting control and ownership by employees will unleash SAIC’s stock price. I hope the stock price does well but I want to make clear that there is nothing magical about employees owning little of a company. I believe that broad-based employee ownership at all levels was a critical factor in making SAIC so successful in the first place. I hope that the four advantages cited above don’t completely evaporate as the company’s employee-ownership culture continues to shift to one that is focused on public ownership and Wall Street. I will watch with great interest.
I was interested to see that Joseph Blasi, a leading expert in employee ownership at Rutgers University who has done much work with us at the FED, has made some recent appearances in the media. He was quoted in an article on CNNMoney.com and he was a guest panelist on Canada’s Business News Network.
The article discusses the topic of the United Auto Workers union and its reluctance to become owner of large stakes in Chrysler and General Motors. I believe the union is not happy about having large ownership stakes in these two companies because it puts them in a conflict of interest position when they negotiate labor rights. It sounds like they will sell off their stock as quickly as possible, going for the paycheck over the equity stake.
This is a typical response of many unions, although sometimes they will agree to ESOPs. The last time I checked, there were about 12,000 companies with ESOPs, with far fewer operating with the SAIC type of ownership model. We’ll have to see what happens.
The SAIC Solution As Textbook
George Otchere visited us last week. George is an SAIC vice president in charge of small business development in Washington D.C., where he manages the company’s nationwide program. He has been using my book, The SAIC Solution, as a textbook, giving it to each of the small businesses he and his team of people mentor. So far, more than 500 books have been given out.
Last Friday I took my usual trip to Oceanside on Solutions. The weather was great, we saw a few whales, and we got there in two hours. On Sunday the family and I had Father’s Day dinner at the Beach and Tennis Club as did many other local fathers. It was great.