Dear Reader

Business Development is a complex topic. In such case the questions raised are more important than potential answers. Therefore, this blog will focus on presenting questions. There will be answers, full or partial, to be supplamented by links presented when relevant. The answers from my experience will be clearer once the questions are clearer.

While this is not a discussion forum, readers are invited to comment, and the comments will help determine the topics and current issues to be explained in the future.


Sunday, October 17, 2010

Employees receive company control

Calcalist published that Advasense venture capital owners have transferred their holdings for free to the 30 employees of the company. As the newspaper quotes, this is a rare case in the High-Tech sector. Since than the employees managed to raise funds to continue the R&D of their chip, from a major potential customer (with no equity transfer).
While the rare occurrence may seem logical closer scrutiny raises some questions as to the rate of occurrence of such an action.
The high-tech industry prides itself on being based on human capital. It no longer refers to the workers as such, but as human resources. The source of pride and the basis for economic growth. It promotes the managers from the ranks of employees, as they understand the technology, the market, and the needs of the customers. But it rarely gives them ownership. The human resources are not trusted to be able to guide the companies on behalf of the capital owners. It is the capital owners, normally by definition with less understanding of the market and the technologies then their Human resources who retain control of the companies, and ownership.
The importance of the loyalty and devotion to the company have been analyzed without end in managerial literature. Every educated manager knows that employee loyalty is important. High-tech managers know that, as they know that they need to demand from their workers 24/7 availability, long hours and constant performance. The pay is high, but is based more and more on issues of offer and demand than on companionship of the road.
The option plans for stock sharing with employees are part of a financial incentive, they are not meant to give them control. Even if that control could bring more economic gains than other possibilities.
So, while in other sectors managers and stockholders have understood that involving the workers (not all are human resources) in the control of the company increases commitment to the firms actions, enthusiasm and loyalty, and therefore increase the chances of success, venture capital funds have not absorbed that lesson, in spite of slowdowns and losses.
Will the realize that a change is needed? That they stand to gain more, by relinquishing control? Time will tell.