Employee Ownership Leads to Big Rewards

When the economic crisis struck in 2008, many companies reacted by slashing payrolls and reducing benefits. Some companies, like D&H Distributing, took another route—they invested more in both their organization and their employees.

“We hired additional sales people, we increased the 401(k) match by 50 percent for all of our employee co-owners, and we picked up a larger portion of their health-care costs,” said Dan Schwab, W’91, co-president of the technology distributor “We decided it was our responsibility to help rebuild their nest egg; when they were worried about their 401(k) dwindling, we stood up and said, ‘We want to help you build it.’”

As the overall IT distribution channel shrank 10 percent in 2009, D&H’s business grew in double digits. Beyond a strong leadership structure and 94-year history, this success, in part, could be attributed to the company’s employee ownership program.

According to the National Council on Employee Ownership, companies that have an employee ownership program when combined with strong leadership tend to experience increased sales and employment growth when similarly sized, comparable companies don’t. Employee ownership can lead to greater loyalty, lower turnover, higher rates of production and better communication between leadership and staff.

Virginia Vanderslice, affiliated faculty with Penn’s Organizational Dynamics Program and president of Praxis Consulting Group, refers to employee ownership as one of the country’s best-kept secrets.

“Not a lot of people know about it, they don’t teach about it in business school, except, perhaps, as a bad example because there are some bad examples,” she said. “But there are some great examples of really progressive and interesting examples of companies that are doing wonderful things with employee ownership, like King Arthur Flour and Eileen Fisher.”

Michael, W’85, and Dan Schwab, W’91

D&H stands as one such example. About 36 percent of the company is owned by its employees, who are therefore vested in its outcome.

“What that provides us is a conduit through which we have constant communication, both corporately through the employees and the reverse; we sit down and ask the employees what they would do, what their recommendations are,” said Co-President Michael Schwab, W’85. “We are very much in tune with what is happening in our company and how various departments work, from the front level of our sales organization to the front level of our warehousing organization. We are getting constant  feedback as to what [our employees] need to succeed in their role, almost as though they’re running their own enterprise within our business.”

(Editor’s note: The Schwab brothers also shared insight for a more in-depth article about privately owned companies, “Brick by Brick, King by King,” which was just released in our spring 2012 issue of Wharton Magazine.)

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