What Might Have Been

The following was written in the fall of 2003. Taken in by promises made by the new ownership -- in retrospect, naively on our parts -- some dared to dream of what a new Ivey might mean. A mere three and one-quarter years later, these ideas seem to be a cruel hoax perpetrated on the (ex-)employees as a form of sadistic malice.

A Proposal For Employee Ownership

Premise

Ivey Imaging, LLC (and to some extent, previous incarnations of same) has tried to balance providing a humane, respectful, creative and fulfilling work environment with a growth-oriented, profitable, customer responsive and locally-owned business model. The success in this balancing act can be seen by its positive reputation in both the regional business and creative arts communities.

The current ownership is made up of a local investment group, who while they see their investment in Ivey Imaging, LLC as a long-term investment, ultimately will in all likelihood relinquish ownership and sell the company for a return on this investment at some point in the distant future.

Issue

By their own admission the current ownership will make the decision to sell the firm to another buying interest in order to recoup their investment and, depending on their decisions, take their profit from growing Ivey as a business. As an investment group, the ownership has little or no interest in staying in an industry that is foreign to their core business of investment capital.

As the recent series of sales of Ivey Seright, Photobition Seattle and Ivey Imaging showed, the company, managers and employees suffered different amounts of confusion, dislocation and insecurity with respect to the long-term prospects of the business. Our customers were left with an impression of rapid changes within a company that had been known for its reliability and quality. Such recent history must have given at least some clients pause and an appearance of instability.

It would be in the long-term interests of all those currently connected with the business either as owner or employee that the future sale of Ivey Imaging, LLC be managed with as much future planning and forethought as possible for the good of all involved.

Solution

If Ivey Imaging organizes itself now to take advantage of the lead time in this long-term investment and growth situation, at the end of this period of whatever length Ivey employees may be in a position to buy the company from the investment group or have a significant say in the ultimate direction that this takes. I would propose supplanting the current profit-sharing and 401-k retirement savings plans with an employee ownership plan where employees can buy shares in Ivey for the future outcome of possible ownership of Ivey Imaging.

Reasoning

Turning this potential solution into reality requires careful attention to two factors: 1) developing a culture that encourages employees to think and act like owners, and 2) designing an equity compensation strategy that meets company objectives and retains employees.

In listening to statements by the new ownership there is a consistent theme of honoring long-term service and loyalty to Ivey, frequently holding up employees who have stayed here well beyond industry average terms of service. The "customer service heroes” awards and supplementing this with a peer-to-peer rewards system are concrete examples of proving that unlike in recent times past, a new emphasis on seeing employees as assets to be rewarded and retained in suitable ways. Smaller scale efforts like providing more frequent company social functions and making healthy drinks available to people throughout the premises also communicates this same belief.

The new ownership and management team at Ivey Imaging emphasize empowering the people who work here to take on more responsibility and play a role in providing an exceptional customer experience for each and every client we serve. They wish to promote the idea of having a creative organization with above average "and constantly aspiring to excellent"– performance.

If we are going to the trouble of developing a company culture that reinforces more of an entrepreneurial approach of exceptional service and solution-seeking, then why not go all the way to countering an us versus them internal company dynamic by making everybody a potential owner of Ivey Imaging?

Ivey currently offers a 401-k retirement plan and profit-sharing as a way to encourage a personal investment by employees and retain the best of the best. Along with a generous health plan, these make up a moderate incentive for staying with the company.

Research results from Joseph Blasi and Douglas Kruse of Rutgers University and other scholars show "the combination of a substantial employee ownership stake and effective program to communicate it and thereby realize the previously untapped imagination and enthusiasm of employees leads to competitive advantages of between 8-11 percent over conventionally structured competition."

The people who work here must figure out how to "own” our work, i.e., to accept responsibility "collectively" for the well-being of Ivey. As those who work for the firm, we become the "insiders” who organize Ivey's contractual relationships, accept this shared responsibility and allocate profits among ourselves. Literally, to own our own work.

Challenges

The major challenge that I can determine right off the bat is that from my reading a standard Employee Stock Ownership Plan (ESOP) is not allowed under law to any business operating as a Limited Liability Corporation (LLC) -– which is what Ivey Imaging, LLC apparently is. While an ESOP is not an option, are there other suitable options for the way Ivey is currently legally structured or does it need to consider reorganizing itself to accommodate an employee ownership model for the future?

There may be a debate about what form a possible restructuring would engender and how much voice Ivey employee-owners might have in management operations of the company. Will they be content to put their money into the company and keep out of the operations, merely have an advisory role or would they want a spot on the board of directors? The specifics of the company structure would need to be carefully crafted to reflect any compact between owners, managers and employees.

A second challenge is determining the current interest or investment level possible from the Ivey employees. There is always the tension between those who wish to be compensated immediately at the highest possible wage (and will make a short-term stay with Ivey and jump at the first available job at a higher wage level) versus those who may be open to accommodate a lower industry wage scale if there is a more long-term financial benefit in investing in the company. In this latter case, there would be a heightened sense of responsibility and incentive in having the overall operations of Ivey Imaging run well and profitably as benefits to Ivey directly benefit the employee-owner.

Related to this, it may not be possible to retain profit-sharing along with employee ownership -– or at least not to the same extent. So another challenge would be changing the institutional mindset within the company of foregoing a short-term profit-sharing plan for a longer term, and possibly more financially rewarding, employee ownership structure of compensation.

"Teamwork is an elusive quality and cannot be faked (nor bought and sold).” (Greider, p. 74)

Needless to say, the specifics need yet to be worked out through negotiation and the form such ownership takes depends on the collective judgement of the people who work here. It is currently a path yet to be taken. This proposal is meant to be a first step if employee ownership is deemed the correct course for Ivey Imaging.

Resources

The Foundation for Enterprise Development including the Beyster Institute for Entrepreneurial Employee Ownership

National Center for Employee Ownership

The ICA Group

William Greider, The Soul of Capitalism, Simon & Schuster (2003)

Jeff Gates, The Ownership Solution: Toward A Shared Capitalism for the 21st Century, Perseus Books (1998)

David Ellerman, "The Democratic Firm,” The World Bank, Washington, DC (1997)