Doing Things Differently

Hey friends 👋,

This week, I'm sharing with you a draft I wrote this morning of a possible opening story for the chapter on ownership. It's about the Scott Bader Commonwealth, a fiberglass and resin company that's been operating for more than 100 years. The story of its founding is amazing and I think it gives us a lot to think about and learn from as entrepreneurs. Let me know what you think!

It's 1951. Scott Bader, the proprietor of one of the largest cellulose and composite materials companies in the UK, is having an identity crisis. He's just realized that he's become the thing he swore he would never be: a boss.

Thirty years earlier, as a disgruntled employee with a disdain for authority, he decided to strike out on his own and start his own company. With no ambition to run a large enterprise, he named it after himself. The Scott Bader Company started as any other scrappy entrepreneurial venture. But unlike any other venture, Bader's business flourished and grew quickly.

Now, he had dozens of employees, a manufacturing facility, and levels of management that trickled power down until it got to the line worker, the disempowering job that had inspired Scott to start his own company in the first place. With a pit in his stomach, Scott "realized that...I was up against the capitalist philosophy of dividing people into the managed on the one hand, and those that manage on the other."

And Scott wouldn't stand for his company being another to fall into that trap. "The real obstacle," Scott understood, "was Company Law, with its provisions for dictatorial powers of shareholders and the hierarchy of management they control." So, he decided right then to introduce "revolutionary changes" into his business "based on a philosophy which attempts to fit industry to human needs".

"The problem was twofold: (1) how to organize or combine a - maximum sense of freedom, happiness and human dignity in our firm without loss of profitability, and (2) to do this by ways and means that could be generally acceptable to the private sector of industry."

Bader knew that the first problem to solve was transforming the ownership structure of the business. He had always shared the profits of his company with his employees, but he felt it was time to do something more radical. So, Bader transferred the entire ownership of his firm into the Scott Bader Commonwealth, a collective employee owned trust.

And now that every employee had the same level of ownership and therefore responsibility of stewardship to the company, they *collectively* could tackle the second, arguably more important problem: governance.

Together, the new partners of the Commonwealth wrote and ratified the Commonwealth's constitution. They co-created a list of operating principles that reflected the type of company they wanted to work for. Among the list included provisions for:

• Limiting the overall size of the company to less than 350 employees. If they felt there was opportunity to grow and serve more customers past that size, they would set up new, independent units in new markets following the same principles.
• Maintaining a salary difference between the lowest and highest paid worker of less than 1:7.
• Limiting the profits that could be taken out each year to less than forty percent. Of the percentage taken, half would be distributed to Commonwealth constituents as bonuses and the other half donated to charitable causes.
• Refusing to sell products of the Scott Bader company to customers who will use them the purposes of war.

At the time, when other industrialists heard that Scott Bader willingly gave up ownership and control of his company to his employees, they were ecstatic. Not because they were persuaded by this revolutionary model, but because they thought the company was doomed and they soon could take some of its business.

But they were disappointed. Because over the next 20 years, the company grew faster than it had ever before. Its annual revenue went from £625,000 in 1951 to over 5 million in 1971, and its annual profits from £72,000 to £300,000.

And they were just getting started.

Last year, according to their annual report, the Scott Bader Commonwealth did over £304M in sales and netted a profit of £2.1M. They've ratified 6 different amendments to their constitution, have helped open new branches of the Commonwealth all over Europe and Asia, and continue to win the UK's "Best Places to Work" award nearly every year.

None of this would have happened if Scott Bader hadn't taken the risk and radical approach of doing business differently. Of pushing back against the traditional approach to business and its "provisions for dictatorial powers of shareholders and the hierarchy of management".

He didn't have a model or set path in front of him just like any other entrepreneur. He was making it up on the fly. What he did differently was bring all the constituents to the table and decide collectively what type of business they wanted to work in. With equal voice, rights, and responsibility of stewardship.

I hope you find this story as fascinating and inspirational as I do. Let me know what you think of the Scott Bader company and their radical governance structure - I'd love to hear your thoughts. Have a great weekend!