Wednesday, December 3, 2008

Richard Gilbert Biernacki, 1934-2008

Our friend and counselor Rich Biernacki, retired CEO of the world-renowned, 100% worker-owned Fastener Industries of Berea, Ohio, died Friday, November 28, 2008. We'll leave it to the major media to give Rich his just due with respect to his multi-faceted career. This being a blog of the Just Third Way, we'd like to expand on the significance of what his obituary briefly described as "his dedication to employee ownership."

As others have noted, Rich Biernacki served as president of the ESOP Association and on the board of the National Cooperative Bank of Washington, DC. Under his leadership, Fastener Industries became the focus of much attention and the recipient of many awards, including CESJ's "Global Award for Value-Based Management" (renamed "Justice-Based Management"). In 1991 Rich received this award on behalf of Fastener Industries during a series of seminars at the Vatican. Along with the CEOs of two other ESOP companies receiving the award, he met His Holiness John Paul II during the weekly public audience. To the credit of Rich Biernacki's persistent vision, Fastener is the only company in that original group of awardees that still embodies essential principles of Justice-Based Management.

To describe Rich's accomplishment simply as being the former head of an employee-owned company says nothing about what made Rich Biernacki unique as a leader. When the family that owned Fastener Industries decided to sell, they offered Rich, the Chief Financial Officer, the opportunity to become sole owner of the company. The family probably had not even considered selling the company to the workers that had helped make the company a success.

Rich declined the original offer, insisting on giving every Fastener employee an opportunity to become an owner in the company. As a Certified Public Accountant, Rich was aware of a relatively new financial technology, the Employee Stock Ownership Plan (ESOP) invented by Louis O. Kelso. By setting up an ESOP trust, Rich and Fastener's management- and non-management workers were able to borrow enough money (capital credit repayable with the earnings of the company) to purchase Fastener Industries at the fair market value.

Rich then did something that runs counter to the top-down management philosophy practiced today in most companies, including ESOP companies. He made sure that the worker-shareholders were permitted under the ESOP to vote their shares. Rich believed "it's not ownership if you can't vote your shares." The worker-shareholders (management and non-management) nominated and elected the board of directors and Rich Biernacki was appointed CEO. Every year Rich put his job up to a vote; he won approval every year until he chose to retire. After he retired, Rich kept his shares in the company, rather than "cashing out" as is typical, demonstrating his continuing confidence in the company, its worker-owners and its Justice-Based Management culture.

The ESOP, as it now exists in the law, allows upper management to keep their fellow workers powerless. Ownership through an ESOP is considered "beneficial ownership," meaning that the legal ownership resides in the ESOP trust, and the trustees (who are usually upper management or a bank selected by management) pass through only as many of the rights of ownership as they see fit. The trustees of an ESOP often hold back many of the rights of ownership from other workers paternalistically "for their own good." It takes a rare leader, confident in his ability to educate, empower and enrich others to work for their common interest as owners, to use the ESOP as it was intended — to get the full rights, powers and responsibilities of ownership to working people.

Before Rich instituted a participatory ESOP, Fastener was probably like many family-owned companies that make every effort to treat their employees "like family." They set up programs and incentives to make their people "feel like owners." The problem with such an arrangement, however, is that it relies far too much on the goodwill of the small number of people in power. Non-family employees, well aware that ownership usually remains exclusively with family members, can become alienated when they see promotions and good assignments go to owning relatives with fewer qualifications than non-owning employees.

Such companies frequently hold back the final — and strongest — link in the chain that turns employees who merely "feel like owners" into genuine co-worker-owners with the property rights of ownership. Rich Biernacki did not simply create the appearance of participation at Fastener Industries. He did something far more meaningful. He instituted democratic governance and ownership participation by workers within a corporation.

In Fastener Industries, Rich Biernacki offered an example that other ESOP companies would do well to emulate — a successful and profitable approach to sharing power. Trustees can make certain that worker-owners have as many of the rights of real ownership as the law allows. They can reject the semi-honest "escape routes" the law offers trustees and upper management. These are ostensibly to protect workers from making "bad" decisions in their own interest as owners, but actually keep real control concentrated at the top. Like Rich, corporate executives can follow a justice-based leadership philosophy and start instituting justice-based management.

Rich Biernacki's life accomplishment was thus not to become a great man himself, but to assist his fellow workers in becoming great by working effectively with others. He was not the more-or-less wise and benevolent father figure, carefully shepherding his children through the vicissitudes of fortune and building a great company "single-handedly." No, Rich Biernacki was the quiet servant-leader, who gave working people the opportunity and the means to own, develop and succeed together. In the process, Rich Biernacki became great, not because he sought greatness for himself, but because he helped others to seek it in themselves.

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