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Uber and Lyft Need To Realize That Stock Is Not A Magic Pill

Mar 11, 2019 by Rich Armstrong 0 Comments

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It’s not always easy to work in the so-called “gig economy,” where millions of Americans find ways to earn money on one-off assignments. Prime examples are the folks who spend their time picking up extra fares in their personal cars driving for gig economy stars like Uber and Lyft. While it’s a great way to earn a few extra dollars, few (if any) of those drivers are going to make enough money to retire on.

That helps explain the recent buzz around the news that the some folks who have been driving for Uber and Lyft will reportedly get the chance to buy shares of those companies prior to their IPOs (initial public offering), which are expected sometime this year. Lyft, for example, is planning to give drivers who have given at least 10,000 rides a $1,000 bonus they can keep or use to purchase shares of the stock.  

While this plan will undoubtedly generate some profitable returns for these drivers, especially after the typical first day “pop” drives up the prices of the stock, it’s not an end in and of itself. Nor will it fully address some of the multitudes of us-and-them regulatory issues that continue to pit drivers against the companies.

That’s because just owning stock or equity in a business doesn’t equate with what Jack Stack calls “psychic ownership.” Having an equity stake in a business is not enough to get people to think and act like owners: that’s something you have to teach them. Or, as one of the Ownership Rules from Stack’s book, A Stake in the Outcome, states: “Stock is not a magic pill.”

As Stack and his co-author Bo Burlingham write in the book: “It’s relatively easy to create an illusion of ownership by handing out stock. It’s far more difficult to give people the business education and the tools they need to realize the rewards that ownership can provide.”

Simply sharing equity isn’t the same thing as empowering your associates to think and act like owners, where they understand how their decisions and actions will directly impact the value of the company. Equity in the absence of financial literacy education, accountability, empowerment, and transparency often become stale. It also can begin to generate a sense of entitlement for associates unless you give people an active role in creating value for themselves.

Here’s a fair warning to Uber and Lift: Equity won’t solve their issues with drivers. You don’t create owners by giving people stock—you create investors. Think about your personal investments in the stock market. Do you feel any accountability to help these companies perform? You want them to be successful, of course, but you probably don’t see any connection between you and their performance or success. Investors hold the company’s management accountable for performance. Owners, on the other hand, hold themselves accountable for performance. 

You could even make the case that providing equity before you’ve created an employee ownership mindset might even be worse than doing nothing at all. If your employees act like investors, they will point at you when performance suffers, rather than themselves. This is not an argument against employee ownership—which still might be the best way to close the gap between the haves and the have nots. We just believe that you reward people like owners when they begin to act like owners. 

To put that another way, we’ve been able to build the value of our company, and deliver significant financial rewards to our associates, not just because our employees own 100% of our business through our employee stock ownership plan, or ESOP. Rather, it was because we first built a business of business people who think and act like owners by teaching them the numbers, holding each other accountable, keeping score, and then sharing a stake in the outcome. And the results speak for themselves.

The value of the shares in our ESOP has grown by an astounding 348,000% over thirty years. For context, if you had invested $1,000 in the people of SRC back in 1983, you’d have $6.1 million today.

While we applaud the efforts of Uber and Lyft to reward the people actually doing the work that drives the value of their companies, it might be worth considering whether handing out stock is really a long-term solution to building a healthy and sustainable company that also rewards the people who invest their time to make the whole thing work.

 


Find out what it takes to build a culture of ownership for the long-term success of your business in Jack Stack and Bo Burlingham's book,  A Stake in the Outcome.

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Topics: Employee Ownership

Rich Armstrong
Written by Rich Armstrong

Rich Armstrong has nearly thirty years of experience in improving business performance and employee engagement through open-book management and employee ownership, with service as a business coach and as a current executive at SRC Holdings Corporation, a thirty-five-year old employee-owned company and one of the United States’s top one hundred largest majority employee-owned companies. Rich has been instrumental in the ongoing development of SRC Holdings’ open-book management and employee-ownership practices through practical, “firsthand” experience leading several of SRC’s business units. This experience has enabled him to successfully apply these practices in both small- and large-scale company implementations around the world. He coauthored the update to The Great Game of Business—20th Anniversary Edition. Rich is a graduate of Pittsburg State University and serves on the board of the National Center for Employee Ownership (NCEO). He cherishes his time with his wife, Alicia, and four children, Ryan, Ethan, Rylee, and Jackson. Rich’s guilty pleasure is making music in his home studio and playing in his ’90s rock tribute band.

About The Great Game of Business

Our approach to running a company was developed to help close one of the biggest gaps in business: the gap between managers and employees. We call our open-book approach The Great Game of Business. What lies at the heart of The Game is a very simple proposition: The best, most efficient, most profitable way to operate a business is to give everybody in the company a voice in saying how the company is run and a stake in the outcome. Let us teach you how to develop a culture of ownership, where employees think, act and feel like owners.