In Search Of Equity

The passion for ownership is sweeping the country, touching just about every industry and every type of company.

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Crown Service Systems Inc., based in Watertown, Mass., is not what anyone would call a glamorous business, but it is the pride and joy of Arthur Spilios, whose grandfather founded it some 50 years ago. Today, Spilios runs the linen and uniform rental company with his father and his brother. They have 200 employees and annual revenues of about $10 million, with sales growing at a healthy rate. It is, in short, a very respectable family business.

Which does not really explain why Spilios finds himself fending off suitors who want to acquire a piece of it.

The suitors are employees, including one of Spilios's managers. In recent years, they have approached him about becoming shareholders in Crown. Spilios, for his part, is not altogether unsympathetic. "We'd all like to own a nice house, and we'd all like to be our own boss," he says. Still, he finds it a little odd, the whole idea of offering minority shares in a small, privately held uniform rental company. "I don't know what they do at exterminator companies or fire alarm companies, but we don't print up stock and pass it around, and I don't know as we ever will."

Indeed, the situation is not without irony. There was a time, after all, when it would have been hard to give away shares in a company like Crown, even to employees.A computer company, maybe, but a uniform rental business? Not on your life.

All that has changed, however. During the past few years, employee participation in ownership has emerged as an important issue in just about every industry and every type of company -- in die-casting shops, steel foundries, airlines, bakeries, advertising agencies, industrial equipment suppliers, publishing companies, mutual fund organizations, radio stations, and on and on.

As might be expected, the trend is strongest in such places as California's Silicon Valley, where the passion for ownership has reached epidemic proportions. "Out here, everybody, including the janitors, expects to be an owner," says the president of a public relations firm in San Jose. But it can be seen in most other parts of the country as well -- even in the industrial Midwest, where basic manufacturing companies are finding it increasingly difficult to attract experienced managers without offering equity incentives. "I thought I was ambitious when I was in my early thirties and wanted to be president of General Motors," complains the chief executive officer of a manufacturing company in Illinois. "But I didn't expect to own it!"

This new interest in "owning it" comes at a time when the general perception of small, private companies is undergoing a radical transformation. The successes of such companies as Apple Computer Inc. and Federal Express Corp. have shattered the old view of small businesses as acquisition candidates, on the one hand, and quaint repositories of old-fashioned virtue, on the other. Now they are seen more as engines of economic growth and creators of economic wealth. The result is that owners of small companies suddenly find that they have something other people want and want desperately -- equity. And they can use that equity in ways that, a few years ago, they would never have dreamed possible.

Thus, for example, start-ups in San Jose, are able to lease furnishings for their offices, using stock, stock warrants, or stock options to help defray the cost. A young computer company in Mountain View, Calif., gets a reduced rate on its computer casings and its paint jobs by giving stock to suppliers. A medical equipment manufacturer offers stock options as incentives to distributors of its new pain-suppression device. An executive search firm in Cleveland specializes in finding managers for growing companies, and accepts stock as partial payment. The list goes on.

It is almost impossible to exaggerate what a change this represents in the small business environment. Ten years ago, an entrepreneur who offered a supplier stock options instead of cash would have been laughed out onto the street. Today, the supplier is often the one who makes the offer, and -- if a company is willing to spread around its equity -- it can wind up with all sorts of services without paying cash for them: free rent, free legal help, free accounting and public relations, even free operating equipment.

It is in this light some owners see the issue of equity participation by managers and workers.They regard employees as just another group looking for a piece of the hot, new action in small, growing companies. There may be some truth to this view, but the trend is clearly a little more complicated than that. Granted, it draws inspiration from such companies as Apple Computer, where a couple dozen employee-owners are reputed to have become overnight millionaires. Yet it also looks to People Express Airlines Inc., which requires every employee to buy stock in the company as a condition of employment, and to Weirton Steel Corp., in West Virginia, where concessions by the new worker-stockholders have recently helped what had been a moribund division of National Steel Corp. to return to the black. It is reflected in the productivity gains of companies with employee stock ownership plans (ESOPs), wherein an owner sells all or part of a company's stock to an employee trust. And it probably has something to do with the dramatic upsurge in start-up activity over the past two years -- a phenomenon fueled in part by ex-employees who realize that one way to get equity is to launch their own businesses.

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