A Competitive Edge: The Financial and Cultural Advantages of Employee Ownership

Purpose Work Culture

Future State’s ESOP model encourages team members to collaborate and participate in building the company’s success.

BY FUTURE STATE

Future State is an Oakland, California-based management consulting firm with 30 years of experience helping world-class organizations manage major transformations such as mergers, acquisitions, growth to scale, tech transformation and more. As a certified B Corp, a certified women-owned business and an employee-owned business, the organization is disrupting the Silicon Valley management consulting industry by operating in an innovative and purpose-driven way — both internally and with clients.

Clients find this way of doing business sets apart Future State and makes working with the company a unique, bespoke experience. CEO Shannon Adkins says the Future State culture is what is most remarkable for clients. “What I hear from clients is, ‘Your teams are different,’ ‘They care more,’ ‘They are having fun’ and ‘They are real,’” she says. “That’s all true, but it’s not by chance — it’s by design.”

Working at Future State is a different experience for most people, too. As an ESOP (employee stock ownership plan), the organizational culture requires transparency and collaboration. And Adkins says that is what gives Future State a competitive advantage in one of the most dynamic business environments in the world. Below, Adkins shares the financial and cultural advantages Future State derives from employee ownership.

What drove Future State to become an ESOP?

Future State CEO Shannon Adkins

Shannon Adkins: I got hired at Future State — then known as TechProse — as my first professional job out of college. After a few years I left and worked in corporate America for a decade. As I moved forward in my career, I decided I wanted to come back here because this was the place where I felt I’d been most able to bring my full self to work, to contribute the most of myself to a shared purpose. And that was what was most important to me: That feeling of being part of a deeply connected team all working toward the same goal.

I wanted that feeling, that essence that drove me back to this culture, to be part of the DNA of our business model. This element of our culture is what I came back for, and it is also what drove the founder, Meryl Natchez, to sell the company to the employees as she moved toward retirement. She wanted to ensure that the legacy and culture of the company that she had built with her team lived on, even as she stepped out of running the business. I hope that as awareness of the benefits of ESOPs increases, more and more founders and owners plan for and execute employee ownership as their exit strategy.

 

It drives our organizational culture to be more collaborative than competitive. One person’s success is everyone’s success — for ESOPs that’s not just a feel-good phrase, it’s literally true.

 

How does being employee-owned benefit Future State as an organization?

SA: It’s really cool to see people’s understanding of what it means grow over time. First you have to work 1,000 hours to become an employee-owner, so new employees understand it theoretically, but they don’t experience it right away. So when someone first starts getting their statements — the value of their company shares — they’re like, “Wow, that’s cool.” Then that value grows over time, so maybe the first statement is $5,000, but the next year, it’s $12,000. Then it’s $30,000. Now this becomes a significant benefit — it’s real money that starts to become integral to their financial planning.

A few of our employee-owners outside of our Oakland headquarters.

So that does a few things for our organization: First, it ensures every person on our team is personally invested in our success. The better we do, the more that value goes up. Second, it makes it less likely that talented people will leave. Employee ownership is a benefit that’s fairly rare, so it’s hard to replace. For talent retention, it becomes a competitive advantage. And third, it drives our organizational culture to be more collaborative than competitive. One person’s success is everyone’s success — for ESOPs that’s not just a feel-good phrase, it’s literally true. And finally, for Future State and all ESOPs, there is a significant tax benefit, which allows us to invest our profits into our team members’ retirement, rather into paying it in corporate tax.

How does being employee-owned affect how you lead?

SA: Employee ownership encourages — perhaps demands — transparent leadership. When people’s financial future depends on the decisions we make as a company, people want to know how and why strategic decisions are being made — and they have a right to. Every employee-owner has access to our financials, they know if we’re hitting goals or not, and we communicate that information freely. It’s a “we’re all in this together” attitude.

We share successes, and we also share failures. Whatever the outcome, we want people to know why we chose the path we chose, why we succeeded or why we didn’t. So we are open about everything. And as the CEO, I have the benefit of complete clarity on who I am here to serve — my shareholders are my team members. This ensures my ability to lead from a place that serves my team and the business, and not have those things be at odds. It supports great clarity around my purpose and my connection to my daily work.

 

Tunnel vision is a good way for smart people to make poor decisions — the wider the range of experience and voices, the more likely we are to consider a problem from many angles and not overlook something crucial.

 

How does being an ESOP affect recruiting?

SA: We recruit in a more holistic manner than many other companies. The people we bring in are our most valuable asset. Amazing teams do amazing things for our clients, but also every person who joins us is going to be our co-owner in the business. That drives a desire to find people who are a fit for us culturally, it drives a desire to hire people whose own career goals are aligned with our business goals, and it drives us to seek a diversity of opinions and experiences. Tunnel vision is a good way for smart people to make poor decisions — the wider the range of experience and voices, the more likely we are to consider a problem from many angles and not overlook something crucial.

How does being an ESOP affect the bottom line?

SA: People talk about these kinds of benefits — being employee-owned, being a B Corp — as things that are just nice to do. They’re sweet, but they’re not driving business success. In fact we often talk about it as if it’s one or the other: Run a business with purpose, or run a business that makes money. I fundamentally disagree with that.

Running a business in a way that considers its overall impact on people — your employees and your clients — as well as on the community and the environment supports business resiliency. It’s a way of ensuring right now that your business is going to be fit for the future. Clients, customers, talent: They all want to work with organizations who work in this way. And by treating our resources — human resources, material resources, natural resources — as precious now, we’re more likely to have those resources available as they become tighter in the future.

It’s a driver of success and a driver of resiliency that provides a competitive advantage that’s only going to increase as time goes on. And the data supports this — Douglas Kruse and Joseph Blasi of Rutgers have found that ESOPs appear to increase sales, employment and sales per employee by about 2.3 percent to 2.4 percent per year over what would have been expected absent an ESOP, and that ESOPs are more likely to stay in business.


This article was originally featured at B the Change.