Transcript Shared Capitalism and Corporate Strategy: A Resource

Shared Capitalism and Corporate Strategy: A
Resource-Based Examination of ESOPs and
Strategic Human Capital Programs
Peter B. Thompson, Mark Shanley, and Abagail McWilliams
University of Illinois at Chicago
Mid-Year Beyster Fellowship Conference
Rutgers University
New Brunswick, New Jersey
February 2011
The authors are grateful for support provided by
the Beyster Institute’s Foundation for Enterprise
Development and the School of Industrial
Relations at Rutgers University.
Shared Capitalism and Corporate Strategy: A Resource-Based Examination
of ESOPs and Strategic Human Capital Programs
Peter B. Thompson
Mark Shanley
Abagail McWilliams
University of Illinois at Chicago
Outline
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Shared Capitalism
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Strategy and Culture
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The Formation of Culture
Changing Culture
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No One Best Culture
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Shared Capitalism is a
Catalyst
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Role of Strategy
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The Growth of Firms
(Penrose)
Shared Capitalism,
Strategy and Growth:
Research Propositions
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Availability of Resources
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Services Provided by
Resources
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Flexibility of Resources
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Growth: Firm-Level
Outcomes
Shared Capitalism
Is shared capitalism a strategic variable whose
effects are firm-specific?
Are the performance effects of shared
capitalism intended or unintended
consequences?
What is the role of ownership culture in the
strategy  performance relationship?
Shared Capitalism
10,000 ESOPs in U. S.
Figure stable for decades
2% to 4% turnover (dynamic equilibrium)
suggests the contingent nature of shared
capitalism
Shared Capitalism
We know that employee ownership is
correlated with superior performance,
especially when combined with employee
participation
Employee ownership
Employee Ownership
+ Participation
$
$$$
Shared Capitalism
Research Findings
Findings are suggestive
of a causal relationship,
but not conclusive.
Research has not ruled
out a spurious
relationship.
E. g., Management skill
may be correlated with
an ownership
philosophy.
Performanc
e
EO
Shared Capitalism
Mechanism is Unknown
Black Box!
EO
Some explanations:
Financial incentive
Psychological ownership
Cooperation, information sharing
Mutual monitoring (solves the shirking problem)
Performance
Shared Capitalism
Some Outcome Variables
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Satisfaction
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Satisfaction with ESOP
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Would take the same job
again
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Desired Influence in Decision
Making
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Organizational Commitment
and Identification
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Perceived Influence in
Decision Making
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Motivation
Shared Capitalism, Strategy and Culture
Formation of Culture
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Changing Culture
“The way we do things here.”
“Everyone knows that.”
Shared Capitalism, Strategy and Culture
No One Best [Ownership] Culture
Shared Capitalism is a Catalyst
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Shapes, but doesn’t radically change culture
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Engages individuals by channeling their perceptions,
attitudes and behavior
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Engenders cooperation, information sharing, and
dispute resolution
Shared Capitalism, Strategy and Culture
No One Best [Ownership] Culture
Culture is firm-specific
The Role of Strategy
We propose that the link between strategy and firm
performance is through corporate culture, enhanced
by shared capitalism .
ESOP or other form of shared capitalism is an
institution that links culture with financial incentives
and thus permits managers to influence—not
determine—firm culture, leading to overall
performance.
The Growth of Firms
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Firm is a
collection of
resources
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Shared Capital
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Attracts and retains
superior, hard-to-imitate
human resources
Penrose Growth Criteria
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Growth is a
function of
the services
resources
provide.
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Shared Capital
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Increases quantity and
quality of human resource
utilization
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(Working harder, yes—but
also working smarter.)
Penrose Growth Criteria
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There will
always
unused
productive
resources.
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Shared Capital
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Increases quantity and
quality of firm-specific
human capital through
retention and training.
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Increases flexibility in
assigning workers to
tasks, equipment, teams.
Shared Capitalism, Strategy and Growth:
Research Propositions
•Availability of
Resources
•Flexibility of
Resources
•Services Provided by
Resources
•Sustainability
Propositions: Availability of Resources
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Employees in ESOP companies possess a
greater proportion of firm-specific skills than
employees in comparable firms.
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Average tenure of employees in ESOP
companies is greater than than that of
employees in comparable conventionallyowned firms.
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ESOP forms supporting an ownership culture
attract a greater proportion of team players
than comparable conventionally-owned firms.
Propositions: Availability of Resources
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ESOP firms supporting an ownership culture
attract a greater proportion of risk seekers than
comparable conventionally-owned firms.
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The rate and extent of information sharing, and
the frequency of diagonal and horizontal
communications are greater in ESOP
companies than in comparable conventionallyowned firms.
Propositions: Services Provided by
Resources
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Changes in employee perceptions, attitudes,
and behaviors occur more rapidly in ESOP
companies than in comparable conventionallyowned firms.
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Individual and group behaviors combine to
produce firm outcomes more rapidly in ESOP
companies than in comparable conventionallyowned firms.
Propositions: Services Provided by
Resources
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Group cohesion, group performance, and
inter-group communications are greater in
ESOP companies than in comparable
conventionally-owned firms.
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The use of integrative conflict resolution
approaches in firms sponsoring shared
capitalism and fostering an ownership culture
is greater than in comparable conventionallyowned firms
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Firms adopting shared capitalism and fostering
an ownership culture experience greater
mutual monitoring, and less social loafing and
shirking than comparable conventionallyowned firms.
Propositions: Flexibility of Resources
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Firms adopting shared capital programs will
display greater flexibility in allocating human
resources than comparable conventionallyowned firms.
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Firms adopting shared capital programs and
nurturing ownership culture will have greater
levels of job sharing, cross training, and job
rotation than comparable conventionallyowned firms.
Propositions: Flexibility of Resources
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Employees in firms adopting shared capitalism
and fostering an ownership culture will
perceive greater effort and productivity on the
part of coworkers than in comparable
conventionally-owned firms.
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The adoption of an ESOP by a firm will be
associated with greater levels of perceived
group performance across relevant groups
than in comparable conventionally-owned
firms.
Propositions: Growth and Firm-Level Outcomes
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Firms adopting ESOPs will outperform their
competitors in market share.
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Firms adopting ESOPs will outperform their
competitors in product quality or product
reputation.
Propositions: Sustainability
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In a given industry, early adopters of shared
capital programs will experience the largest
performance effects, but those effects will
diminish as competitors imitate these
programs.
Conclusion
Shared capitalism, when used
to shape corporate culture, has
the potential to increase
strategic flexibility, and thus
enhance firm performance.
Shared Capitalism is a Catalyst
Strategy
Shared
Capitalis
m
Direct Causation
Organizational
Culture
Performance