Grünbeck Wasseraufbereitung, Germany: Make work pay – make work attractive
Grünbeck, a medium-sized company producing water treatment devices, developed a system of employee co-ownership in several stages, starting from a profit-sharing scheme. Financial participation is embedded in the organisational culture and philosophy of social partnership. The majority of the employees are direct shareholders or silent partners of the company. The employees hold 46% of the company.
Grünbeck was founded in 1949 as a single company by Loni and Josef Grünbeck. The company develops and produces water treatment devices for private households, industrial installations and medical water treatment. Innovative research and development helped the company to grow very fast. Some of the company’s outstanding breakthroughs include a system to fight legionella, standardised membrane processes and alternative anti-scaling systems. Grünbeck won many awards for innovation and quality and is well-known for its innovative know-how.
The Grünbeck group operates worldwide and employs 700 employees and sales representatives. In Germany, the company has 385 employees, of whom 65% are male. The majority of the workforce are highly skilled employees with a high percentage of technical professions. Absenteeism and staff turnover is low.
The works council was established in 1966. As a member of parliament for the Liberal Democratic Party (FDP) in the German Federal Government, Josef Grünbeck was an advocate for capital sharing by employees. He has used the company as a platform for his political ideals on social partnership and employee participation.
Description of the initiative
The initiative for a profit-sharing scheme stems from the founders. Social partnership with the employees is a cornerstone of the entrepreneurial philosophy. A partnership committee, comprised of Josef Grünbeck, one management representative, the works council and elected members from the workforce was established. The committee developed the scheme with support of a tax consultant.
Stage 1, a profit-sharing scheme – based on a partnership contract with the employees – was in operation from 1970 to 1979. Employees received up to 50% of the company’s profit. The distributed amounts remained in the company as a loan, for which interest at a maximum of 2% above the discount rate was paid. The partnership committee comprised two members of the management, two members of the works councils and one delegate from each of the sales, technology and administration departments.
The second stage began on 1 January 1980 with the transformation of the single company into a limited liability company. A parallel limited liability company for employee participation (Grünbeck Mitarbeiter-Beteiliungs GmbH) was founded which had the task to enable the indirect partnership of the 71 employees and distribute the dividends. The shareholders of the new umbrella limited liability company were the founders, Grünbeck Mitarbeiter-Beteiligungs GmbH, and twelve commercial representatives. All shareholders elected an advisory board, which consulted with the board of the company and looked after the company’s interests in the long run. Profit-sharing was abolished.
For stage 3 in 1984, management and the works council, in agreement with Josef Grünbeck, created the opportunity of a silent partnership for all employees. The partnership was based on the fourth amendment of the law on capital-forming payments. For the maximum amount of 312 German Marks saved and paid in by the employees, the company paid an additional premium, exempt from tax and social security benefits. In 1986, 120, and in 1998, 180 employees used this opportunity and became silent partners. The shareholders comprised the founders, the Grünbeck Mitarbeiter-Beteiligungs GmbH, twelve commercial representatives and 183 silent partners in the workforce. In 1988, the advisory board and all shareholders decided on a merger of all shareholders into the limited liability company, Grünbeck Wasseraufbereitung GmbH.
Stage 4 began with fusion and an increase of the registered capital. All employees could participate in the increase of capital. The new issue price of a share was 1:2. The founders refrained from the capital increase to boost the relative share of the employees and reinforce participation and responsibility. Employees became real shareholders of the limited liability company. On 12 February 1988, the company had 70 direct shareholders and 180 silent partners. All direct shareholders elect the advisory board, which consults and supervises the executive management.
Of the current 385 employees, about 120 employees are direct shareholders with all entitlements and all obligations. Decisions at the share holder meeting can only be taken with a 75% majority. The Advisory Board is elected every five years. Currently it comprises seven members: Loni Grünbeck, two commercial representatives, two employees, one managing director of a subsidiary and one external consultant.
About 180 employees are silent shareholders who have legal information rights and are not concerned by any losses of the companies. Silent partners receive an annual profit, guaranteed to be 5% of the investment. All employees with an indefinite contract and commercial representatives are entitled to participate. Employees are free to sell their share within the company. A few former employees are still direct shareholders of the company.
With the changeover to the euro, the shares were transferred one to one based on capital reserves. In this way, the investment of all shareholders and entitlement to dividends doubled. In addition, the Grünbeck founders decided that in the case of inheritance, all their shares will be transferred to the direct shareholders and all silent partners according to their percentages of shares in the company. The only precondition for silent partners is that they transfer their silent share into a direct share of the company. With this regulation, the founders settled the succession of the company and opened the way for the employees to continue the process of the company.
The management has a very cooperative relationship with the works council, which was closely involved in the development of the scheme and was considered an addition to the workforce. Financial participation is embedded in the leadership culture and the social partnership philosophy. The company has a formula that one-third of recruitments for the management levels must be external in order to facilitate innovation and new ideas from the outside. Further training and personnel development is seen as an essential fundamental for innovation and further development of the company. Autonomous teams have been implemented in some areas of production and will eventually be implemented in all other areas.
Grünbeck developed financial participation from a profit-sharing scheme to co-ownership and silent partnership open to all employees. The vast majority of the workforce participates. Social partnership, commitment, innovation and working atmosphere are key values in the company’s philosophy.
Management emphasises ethical management beyond maximising profits. A secure and good quality workplace has a high value. In difficult years, financial participation was the crucial factor for the company’s survival. A stronger commitment of employees, correspondence with the leadership culture and a stronger recognition of contributions by employees was encouraged.
The structure of shareholders is not related to hierarchical or functional structure of the workforce. Management is aware that there should not be any distinction between employees who participate as shareholders or silent partners and those who do not. The partnership is an offer, not an obligation. As the founding family refrained from various capital increases, their relative share decreased. This resulted in the workforce holding 46% of the shares of the company.
The company benefits from the increase of the equity to capital ratio to 26%. As the company is involved in huge projects, it faces large investments and is dependent on loans from the bank to realise the projects. For each share, irrespective of the amount, a notary must be involved. Barriers to selling the shares beyond the company avoid hostile takeovers. Independent of the stage of the scheme, the maxim was to keep the capital in the company.
Exemplary and contextual factors
Exemplary factors are the evolution of the model in the four stages, combined with an approach of social partnership, the possibility for all employees to become shareholders and silent partners, the continuous release of company shares from the founding family to the workforce and the legal regulation in the case of the death of the company founders.
Anni Weiler, AWWW GmbH, Göttingen