In the early 1980’s , when Jack Stack led a management buyout of his Springfield, Missouri, factory, he faced steep odds: the economy was in the tank, profits were uncertain, and the 116-employee engine remanufacturer had 89 times more debt than equity. To fight for survival, he made the unusual move of opening the company’s books to his employees. At the Inc. 500/5000 conference, Stack sat down with Inc. editor at large Bo Burlingham to talk about the audacious maneuver.
“I thought, my god, if we could teach our people the metrics of the company, couldn’t we create better products, and better service?” said Stack. The company didn’t just survive, it flourished: today Stack’s company, SRC Holdings, has 1,400 employees worldwide, $584 million in annual revene, and 31 subsidiary companies--all of which employ the same transparent management style.
During the conversation, Stack spoke about how open-book management didn’t just improve the company’s top and bottom lines--it had some unexpected benefits as well. Here are a few:
The Team Discovers Its Value. To bring financial statements to life for employees, Stack had them go through each line item, and put down the name of the person responsible. “It clicks for them,” said Stack. “They see the relation between operations and balance sheets.” Not only did his people understand what they contributed, they understood how their coworkers helped them, too. The team became more tight-knit.
Leaders Are Born Once the stakes of the game are clear and everyone understands the company’s ambtions, there will be employees who spot new ways to seize those goals. “We’re educating people to make a difference,” said Stack. “If you don’t have the desire to create leaders, you miss opportunities.”
Sharp Questions Improve Financial Statements As his people’s financial knowledge got more sophisticated, they started asking more detailed questions. That forced the finance dept. to step up its game, too. “We started building a higher level of thinking,” said Stack. “We changed how we reported the financials to answer the questions they had.”
Employees Bring Know-How Home. “If you teach people economic literacy, it doesn’t stop with the business. It goes into their house, and into their community,” he said. Financially stable employees are happier and more effective back on the job.
The Entire Community Benefits Stack has a policy of doing outreach to community not-for-profits, helping them improve the workings of their own business. As an example, he told the story of how he helped a local community theater recover. He helped them develop “mini games,” like generating cash flow with children’s plays (the easy productions brought paying parents), and later renting out costumes from previous productions to other theaters. “Get them thinking about it as a business, and then they get it.”
Ultimately, Stack believes, better financial literacy could help close the gap between rich and poor. “The gap…won’t be solved by increasing the minimum wage,” said Stack. “It’s going to come from showing the have-nots how the haves did it.”