Open Book Management at the Springfield Remanufacturing Company

This case description is part of an extented meditation on the relationship between equilibrium in markets, as necessarily conditioned by the existence of equity and distributive justice, in part inspired by Pope Benedicts latest encyclic on the ethical economy, Caritas in Veritate. It’s a recommended read in its full version.

The author, John Medaille, is a Catholic ‘distributist author’, inspired by the social doctrine of the Church.

The American company discussed in this excerpt practices cooperative management and open book accounting.

John Medaille:

“In founding his company, Mr. Stack recognized that the first task was cultural:

– People can accomplish almost anything if they have a common purpose, a higher goal, and they all know what it is, and they’re going after it together. Everybody needs to be going somewhere. People need a destination, or they get lost. It they have one, however, and if it’s really their own, there’s no telling what they can do. They can survive the darkest hours, beat the longest odds, scale the greatest heights.

Building a common purpose, a goal that is owned and shared by all members of the firm, is the primary task in building a company culture, and hence of building the firm. What Mr. Stack especially wished to avoid was what he called “employee thinking,” that is, thinking only about one’s job or at best, one’s department, without considering the common purpose, the good of the whole firm.Yet, this is precisely the kind of thinking that most of us have been taught, both formally and informally. It is the kind of thinking implicit in Milton Friedman’s shareholder model of the firm, which states that the sole purpose of a firm is to improve the stock price. After all, if only the interests of the shareholders count, then there can be no common purpose that involves all members of the firm. But this kind of thinking, Mr. Stack says, is capable of destroying the company from within.

What Stack set out to create was a community of entrepreneurs, rather than just a collection of people with jobs; indeed, Stack wanted to do away with “jobs” and the employee mentality altogether.3 But the primary problem is that people have been trained to see themselves in terms of jobs rather than entrepreneurs; they see themselves as merely performing a function for somebody else, usually somebody very remote. Creating this community meant realizing that the business was not an end in itself, but a means to an end, “a tool that allows us to accomplish the things that matter most to us, and those things must transcend business to have real meaning and value.”4 To accomplish this goal, to create this community, SRC used two means: education and equity-sharing.

To educate the members of the firm (it would be wrong to say “employees”), Stack invented a system of informal but continuous education he called The Great Game of Business. If the workers are going to take responsibility for the firm, they must know the rules of business, and the Great Game was the means of teaching them these rules, from the simplest to the most complex. As Stack evaluates the results of this “game,” he notes that “we’ve had dozens of employees rise from the shop floor…to top management positions, and they’re far better qualified than a lot of MBAs I see.”5 The game required that the firm practice open-book management. If all members of the firm are to be responsible for the firm, then they all must have equal access to the books. Further, you cannot truly educate employees unless they can see how their actions affect the firm, and this is impossible without looking at the books. But the greatest benefit, as Jack Stack notes is that, “When you open your books—really open them—you also open your mind, and neither your mind nor your books will be closed again.”6

Continuous education and open-book management frees the firm from the constraints of the division of labor, which confines each worker to just one task, and from the quasi-militaristic “top-down” management, which confines responsibility to just one group. The results of this culture at SRC have been nothing short of phenomenal. In 20 years, they went from sales of $16 million to $185 million, with similar results for profit and shareholder equity. But it is in the area of shareholder equity that the firm really stands out, because all of the shares are owned by the workers. The company has 727 worker-owners, of whom only five were original members of the firm. The other 722 shareholders own 64% of the firm. This point is crucial, because “owning their work” must involve real ownership, and not just some psychic substitute. Equity-sharing defines the community, a community built on the premise that all the members of the community must share in the wealth that the community creates.

Note how Jack Stack’s experience of the firm aligns with Benedict’s vision of the civilized economy:

– Alongside profit-oriented private enterprise and the various types of public enterprise, there must be room for commercial entities based on mutualist principles and pursuing social ends to take root and express themselves. It is from their reciprocal encounter in the marketplace that one may expect hybrid forms of commercial behaviour to emerge, and hence an attentiveness to ways of civilizing the economy. Charity in truth, in this case, requires that shape and structure be given to those types of economic initiative which, without rejecting profit, aim at a higher goal than the mere logic of the exchange of equivalents, of profit as an end in itself.

What is common to all of these examples is that ownership is shared among the members of the firm; there are no remote and outside owners that can impose the stock price as an alien value, the only one to be respected. The workers who own their firm are more likely to work to a broader range of values; they are more likely to be concerned with the common good, not only of the firm, but of the wider community. Further, distributed ownership solves the problem of distributive justice. Workers who are also owners are more likely in wage negotiations to take account not merely of their own needs, but the needs of the firm, which is to say, the needs of their fellow worker-owners.

We can also note that solving the distributive problem also solves the governmental problem. Where distributive justice is satisfied, there is less need, and indeed less space, for government involvement in the economy. For example, The Mondragón cooperatives provide their own social security networks, unemployment insurance, elementary and high schools, training institutes, research and development centers, and a university, all from their own resources and without government help. Here, then, is a great irony: in order to see laissez-faire in action, you will have to go to the distributists. Libertarian economics is the subject of many a learned tome, but it has no actual examples; distributism, on the other hand, has fewer tomes, but a great many examples.

Hence, I believe that we can state that Benedict’s principle of gratuitousness is not at all alien to business, not some outside requirement imposed on the subject of economics. Rather, it does more to explain why people act than do all of the volumes on “utility” and “self-interest.” Because indeed, people act because they love, and act in the way that they love. It is quite true that in any individual, family, firm or society, love may be reduced wholly to self-love, and hence the precepts of utilitarianism will hold. However, such cases are exceptional, and when we see cases where self-love is the only allowable value, we say that the individual, family, firm, or society is dysfunctional, if not downright pathological.”

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