In 2012, I made a radical decision. I decided to try open book management at my firm, Cornerstone Wealth Management.
At the time, I wanted my employees to embrace more of an ownership mindset. That is one of our core values. The only way I could see them really thinking like owners was if I shared the financials of the business with them.
To be honest, I was fearful about making this move. Like many CEOs, I viewed keeping the numbers close to my vest as a way of staying in control.
But the business world is changing. People are demanding more transparency in the businesses they work for. Just as I needed certain information to make the right decisions to do my job, so did my team.
We embraced open book management by starting a profit-sharing program. Every quarter, we share our profits among our stakeholders. (We call our employees stakeholders.) Currently, we have six stakeholders, so each of the six get a bonus every quarter. Their bonuses are based on hitting a particular revenue-per- stakeholder goal.
When we introduced the plan, the stakeholders, in turn, took on more responsibility for decision making. Instead of turning to me to make a decision on pricing a particular service, for instance, they had to make their best decision. Some team members were fearful of making a mistake that would hurt our profits, but I understood that if that happened, it would be a learning opportunity for all of us. When they asked me to weigh in on a decision I thought they should make, I told them I trusted them to make the right call.
Since we launched our profit sharing plan, we’ve never looked back. Our revenue has increased by 40% in the past four years.
Our profits are up, too. Before we started the plan, we had nine stakeholders. After we implemented this plan, a couple self-selected out. They were not on board with the ownership mindset. That’s the beauty of following your core values—you don’t have to fire people who are not in sync. They will opt out on their own.
After those stakeholders left, we were down to six people. We could have tried to replace the folks who left. Instead, our team members did the math. They realized they would keep more of the company’s profits if they took on more responsibility—and several people immediately volunteered to do just that. If we hired more people, they would have to divide the profits among a larger group. Their decisions are paying off for them. Last year was the best year for our stakeholders yet. (You can learn more of the details of how we pulled this off in The Sustainable Edge, my new book with Ron Carson).
Open book management isn’t going to fit every company. Some CEOs will look at my system and think I’m crazy. For instance, we have set a goal of doubling our revenue in three years. When we do that, very likely my team will be making double, too. Some entrepreneurs who hear that tell me that my plan is plain dumb. They say I don’t have to pay my team that much.
I disagree. Capitalism is changing. As an owner, I don’t believe I have to keep all of the profits of my business to be successful. I have everything I want and need for my family. I want nothing more than for my team members to do exceptionally well, too, so they are just as invested in the success of my business as I am. They have a big incentive to stay committed to Cornerstone Wealth Management for the long haul. Will my competitors offer an upside that’s even close to what we can? We don’t think so.
If this sounds naïve and simpleminded to you, then I’d say don’t attempt it. As for me, don’t wake me up. I’m enjoying the dream.