NOBL is Finally Becoming Worker Owned and Controlled
Two years ago, I started NOBL as its sole owner. This month, I am giving all of our full-time employees a piece of the business and greater overall autonomy. In five years, I want to own no more than 10% of my own company. This post is meant to explain my why, illustrate our how, and help you give away your company, too.
Our 2015 financial performance (our very first year): We have a long way to go but we are a very REAL business that generates cash
Reason #1: Greed
Being worker-owned and controlled will create more value for our clients and ourselves. This isn’t an opinion, it’s a fact backed by a growing body of research.
NOBL is a consulting company for now, and at other consulting companies you have to buy-in and/or wait for someone to retire to gain equity in the firm. I know we can better compete for talent by offering an immediate route to ownership. With better talent, we can attract better clients, return more value to those clients, and ultimately extract greater profits for the firm.
Reason #2: Anti-Greed
Being worker-owned and controlled will curb my impulse to use the company as my personal piggy bank.
The hedonic treadmill is real. As a Houstonian by birth, I knew someone that unwittingly operated one of Enron’s shell companies. After the leadership team was indicted for fraud, he refused to take another job if it paid less than his previous Enron gig. Because of his stubbornness, he spent years unemployed and drove his family into economic distress. And before I started NOBL, I worked at a much-adored consulting company that was undone by its founders and partners fighting over their individual stakes in the business. Having money makes you want more money and I never want my increasing appetite to devour the hard work of others. I wanted to establish a set of initial conditions, like Ben & Jerry’s original salary structure, that would limit my potential for personal greed in the future. For the record, I don’t consider myself less prone to greed than anyone else––which is exactly why I’m doing this.
Reason #3: Purpose
Being worker-owned and controlled will better serve our purpose.
I started NOBL with a simple purpose: to expand access to meaningful work. I also started this company with a daunting personal challenge: to make helping others at work my life’s work. An overwhelming majority of people are disengaged at work. Far too many people feel uncertain about their impact, unfairly treated, stalled in their personal growth, and powerless to make things better. And for every disengaged employee, there is a severe economic consequence. If we succeed, we’ll help unlock an enormous wave of productivity, profitability, and well-being in the world.
Yet, all of those good intentions could just be another company using purpose as a misleading candy coating. Our own team engagement and endurance as a business can’t just be something we pay lip-service to: they must have structural consequences to the way we operate in order to be genuine.
Reason #4: Responsiveness
Being worker-owned and controlled will make us more responsive to change.
History tells us that the organizations which thrive amidst market change are those willing to revise their structures to accomplish their strategies. We now live in an era of accelerating change–we need a structure that is fully aligned to our strategy and yet is also adaptive.
Our strategy to expand access to meaningful work is simple, yet challenging:
- Phase One: Build a high-touch, high-margin consulting practice consisting of small, diverse regional teams (think 7–10 person teams in every major city, offering some unique services versus one homogenous and therefore fragile office)
- Phase Two: Use a share of the profits from the consulting practice to develop an online learning platform that can scale far beyond the consulting practice
- Phase Three: Use those profits to build an even more scalable software tool to truly reshape how teams behave and work together
While that strategy might sound straightforward, each phase is dependent on our teams obsessively sensing the world around them (in particular, our clients’ needs) and responding to those changes. We’re turning over control of the firm to our local teams so that they are more immediately capable of making these critical changes.
Although I was personally motivated to expand ownership and control of NOBL, the process of getting there has been a team sport. Together, we set out on a nearly year-long project to evaluate our options and their tradeoffs.This was NOT easy NOR cheap. While we aren’t the first service-based organization to make this transition, there is still far too little written on the topic and far too few companies we could turn to for advice. Much of our motivation in writing this post is to contribute to the body of knowledge. Yet, how we solved for equity and control is surely one way of many––the way that was right for us and may not be right for others.
Before we began this project, we established a loose set of design principles to follow:
- Explicit purpose. Our purpose as an organization must be stated explicitly in our operating agreement and it must drive our decision making during this process.
- Shared ownership. Every employee should have some explicit share in the business, especially if the business were to be sold.
- Local autonomy over teams and profits. Local teams should determine their own destiny and their profits should be theirs to keep.
- Simplicity. We should solve this challenge by respecting its complexity and yet we should resist any solution that creates unnecessary and costly complexity for the business.
- Cohesion. We must design a structure that empowers individual teams but keeps the collective whole and rewards long-term participation in the business.
Throughout our process, we explored many different models of organization including traditional cooperative/collective models and holding company architectures. These solutions easily addressed #1–3 of our design principles, but often they would require an exponential increase in the complexity of operating the business (either by requiring numerous new legal entities, duplicated tax burdens, unreasonable governmental requirements, or complicated governance processes).
We basically had to invent a completely new operating model to satisfy all of our design principles. Thus, we created a new Operating Agreement for our LLC to encode this model and its practices. It cost us an enormous amount of time and money. So, of course, we decided to publish it on Github for anyone to steal.
Yes, that’s right, our Operating Agreement is available on Github.
First, our Operating Agreement lays out two kinds of Ownership Units that the company can issue: Stakes and Padstones.
As the son of a contractor, I love construction metaphors.
Stakes, obviously, are used to define the boundaries of a new building. Stake units are issued to every single full-time employee and they guarantee the employee a right to the profits generated within their team, membership on their local board, and a portion of any future sale of the firm. We want every NOBL employee incentivized to grow the business and expand our possibilities together.
Padstones are less obvious. In construction, a padstone is a simple block that carries the weight of the building above it. It’s a support mechanism. Padstone Units are issued to team/business unit leaders. Padstones come with a significant portion of equity and a seat on the Global Board––but they also come with an expectation that team leaders will put the interest of the team ahead of themselves.
Second, our Operating Agreement lays out how we’ll distribute authority to local teams by defining the potential for many local boards and one global board.
The Global Board is largely toothless. It mandates that teams must have a financial budget (kinda duh) and it makes the final decision on any life-changing financial decisions that would impact ALL teams (such as a sale). The Global Board is made up of every team/business unit lead and one representative elected by each team.
The Local Boards are where the majority of authority in the firm rests. Local Boards basically have any power not explicitly taken by the Global Board, including decision-making powers over their own profits. Local Boards consist of all the Stake Unit holders of that team, but how they make decisions is left up to each team to figure out.
What All of This Means
- Ownership of the company belongs to everyone at the company. If the company grows, everyone will benefit. This isn’t just a promise, it’s a legal agreement.
- Authority and decision making have been distributed to local teams.As we grow, that local power will grow and we will increasingly behave like an adaptive network, not a rigid hierarchy.
- We are now primed to accelerate toward our Purpose. We are seeking co-conspirators committed to expanding access to meaningful work. This challenge is so expansive and the status quo so difficult to overcome, that none of us can really afford to think of one another as competitors. We’ve radically rethought how we can work with others, we hope you do, too. If you want to help us offer new local teams and/or more diverse approaches to the work, please don’t hesitate to reach out.
This post could be much, much longer if it respected all of the decisions and nuances of the model. I know you likely have many unanswered questions, so please respond here on Medium and we’ll add more fidelity to the Wiki on our Github page over time.
Finally, many thanks to …
- Kyle Westaway, our attorney and the primary author of our Operating Agreement
- Our financial advisor, Bruce Phillips, and his whole team at HPC for helping us to understand the financial challenges of this model
Bud Caddell is the founder of NOBL, a consultancy at the forefront of organizational design. We help ambitious leaders do more with their teams. Visit https://nobl.io