Where Employee Ownership Works Best
A publication by Colin Birkhead, Noah Gibson, & Mark C. Hand
Colin Birkhead, Noah Gibson, and Dr. Hand just published their paper, “Where Employee Ownership Works Best.” Their paper examines the complex relationship between EO firms and the kind of communities in which they operate. Their central thesis:
ESO firms can achieve legitimacy by aligning their operational exchange systems with those prevalent in their local environments. Their paper offers practical insights for entrepreneurs and policymakers, suggesting that aligning organizational practices with the dominant exchange systems in their communities can enhance legitimacy and improve survival rates for ESO firms.
Before we dig in, some important vocabulary:
“Direct exchange involves two actors, A and B. Actor A shows generosity to actor B because B will show generosity back to A in the future. In direct negotiated exchange, A and B exchange according to jointly agreed upon terms. In generalized exchange, A shows generosity to B, who is then motivated to show generosity to another actor. Generalised exchange systems could be seen at a school where one teacher covers a missed class for another, with the expectations that some future missed class is likely to be covered by another teacher at the school.”
The Results
By examining ESO firms in California between 2009 and 2019 and using data on volunteering behaviour as a proxy for generalised exchange, their analysis revealed that communities with higher levels of generalised exchange have higher proportions of firms that are ESO. Their study revealed that ESO firms thrive in environments that have high levels of generalized exchange because of trust, unity, and other attributes that are essential for the success of ESO firms. They also find that survival rates for these firms are more resilient in communities with strong generalized exchange practices, especially new ones that are often more susceptible to failure.
Analysis
The results of their study highlight the role community exchange systems play in shaping the legitimacy and survival of EO firms. The benefits associated with EO firms are not universally applicable and tend to concentrated in areas where such behaviors are already prevalent. Therefore, future leaders should prioritize aligning the practices with the values of local communities with their firms to foster something greater.