Harvard Research Shows Employee Ownership Works Only With the Right Management Practices

A Conversation with Professor Ethan Rouen, Harvard Business School

 

Ethan Rouen is an assistant professor at Harvard Business School and the faculty co-chair of the Impact-Weighted Accounts Project. In February 2026, Professor Rouen and Leigh M. Weiss published The Management Practices That Make Employee Ownership Pay Off in the Harvard Business Review. Weiss is an executive advisor to KKR, a senior advisor to Ownership Works, and a former senior advisor at McKinsey & Company. Their four-year research examined companies that extended equity to all employees and identified the management practices that determine whether employee ownership delivers results.

Since 2022, more than $1.3 billion has been distributed to 41,000 non-executive employees through broad-based ownership programmes, with projections exceeding $20 billion in the coming decade. Deals with ownership programmes achieved a multiple on invested capital 1.6 times higher than the market median. But the research makes clear that equity alone does not drive performance. Three management practices determine whether ownership translates into real outcomes: financial transparency, empathy, and rigorous culture measurement.

For sustainability professionals and investors, this raises a question the field does not ask often enough. Most ESG frameworks focus heavily on environmental metrics. The social dimension remains underweight in reporting and in boardroom conversations: how companies structure ownership, engage their workforce, and measure human capital. Rouen and Weiss’s research suggests it should not be.

 

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Q1: Your research with Leigh Weiss found that most companies trying to build an “ownership culture” leave out the most important ingredient: actual ownership. With more than two thirds of US workers disengaged, why do you think so many leaders still default to abstract culture initiatives rather than extending real equity?

Ethan Rouen: Because real ownership is costly and abstract culture can be cheap. A values statement or an engagement survey carries no dilution. Handing over equity means giving up a claim on future value, which most leaders and most capital structures resist. There's also a comforting assumption baked into a lot of management thinking, that you can manufacture the feeling of ownership through language and recognition without the underlying economics. Our research suggests that's mostly wishful thinking. When we looked at firms that talked about an "ownership mindset" but never extended a stake, the mindset rarely showed up. I don't want to be dogmatic. We did find that the practices around ownership do real work even without equity. But leaders default to culture initiatives because they're easier, and because the link between equity and engagement is something they intuit rather than something they've seen proven. Part of what we're trying to do is make that link visible enough that the cost starts to look like an investment.

 

Q2: One of the most striking findings in your research was the experiment at building materials supply companies. Employees who received concrete behavioural norms were 13 percentage points less likely to leave than those who received abstract values messaging. That gap widened further during Hurricane Helene. What does this tell leaders about how they should be communicating with their workforce?

Ethan Rouen: The headline lesson is that specificity is a retention tool, particularly for frontline employees. We sent workers shareholder letters that framed ownership either through abstract values—something like "make room for everyone"—or through concrete norms, like "prioritize safety." The people who got the concrete version were 13 percentage points less likely to leave and identified more strongly with the culture. What I find most telling is Hurricane Helene. When operations shut down and conditions got genuinely stressful, turnover spiked among employees who'd received the abstract messaging but stayed stable for those grounded in specific norms. For someone whose job is operational rather than strategic, lofty ideals create ambiguity, but they don't tell you what to do at 6 a.m. on a hard day. "Act like an owner" means nothing until you translate it into actual decisions a person can make in their role. Leaders tend to assume inspiration scales down from the C-suite. It doesn't. The further you get from the strategy, the more concrete your communication has to be.

 

Q3: Your research found that CEOs with higher empathy in KKR’s portfolio achieved 2.4 times higher retention and 1.9 times higher engagement. You also found that empathic leaders are often better at holding people accountable. That is counterintuitive for many executives. Can you explain why that works?

Ethan Rouen: The counterintuitive part dissolves once you stop treating empathy as softness. Executives often hear "empathy" and think it means avoiding hard conversations. We found closer to the opposite. When employees trust that feedback comes from goodwill rather than as a threat, they're far more receptive to it. They don't get defensive, they course-correct, and they surface problems early instead of hiding them. So the empathic leader actually holds people to a higher standard, because the standard is heard as help. The numbers in KKR's portfolio aren't about being nice. They're about building an environment where people feel safe enough to speak honestly and accept correction. The other thing I'd stress is that this is trainable. We saw companies deliberately develop empathy through perspective-taking and immersive experiences, like having executives spend time in frontline roles or navigate grocery shopping on a SNAP budget. It's a leadership capability, not a fixed personality trait.

 

Q4: The Charter Next Generation case in your research is remarkable: voluntary turnover down 55%, engagement moving from the 32nd to the 90th percentile, EBITDA growth exceeding 40%, and share value up more than 70% since launching employee ownership. How much of that do you attribute to the ownership stake itself versus the management practices that the leadership team built around it?

Ethan Rouen: I'd resist any clean percentage split, because the whole argument of the research is that the two are complementary. They interact, and pulling them apart is artificial. The equity creates the stakes, and the practices convert those stakes into daily behavior. At CNG, leadership was explicit that ownership was a dual shift, financial participation plus a change in how people think and act. The 55 percent drop in voluntary turnover came largely from the work Lisa Alteri and Kathy Bolhous did: dashboards, monthly people-data reviews, redesigned onboarding, actually acting on what exit interviews revealed. Equity alone wouldn't have produced that. Plenty of companies grant shares and see nothing change. But the practices wouldn't have been as durable without the stake, which gave everyone a shared financial reason to care about what the data surfaced. So my honest framing is that equity is necessary but not sufficient. It's the foundation that makes the management work pay off, and the management work is what turns the foundation into performance. CNG is compelling precisely because they did both.

 

Q5: Your research is heavily based on private equity-backed companies where there is a clear exit event and a payout moment that makes ownership tangible. Do these practices work the same way in publicly listed companies or founder-led businesses where that event doesn’t exist?

Ethan Rouen:

The exit is a genuinely useful forcing function, a concrete date and a concrete number, which makes ownership tangible in a way that's hard to replicate. So I won't pretend context doesn't matter. But the underlying mechanisms don't depend on a liquidity event. What drives the results is line of sight, employees understanding how their decisions affect outcomes and seeing themselves benefit when the business does better. A public company has that too, it's just more continuous and more diffuse than a single payout. The harder case is a founder-led business with no liquidity on the horizon, where the link between effort and reward can feel abstract. There you have to manufacture the tangibility deliberately—through profit sharing, phantom equity, well-designed bonuses, or visible reinvestment people can actually see. One of our findings is that companies with no equity at all can still capture some of the gain if they apply the same discipline to whatever mechanism they do have. Equity makes everything stickier, but transparency, empathy, and rigorous measurement are portable. They're not a private-equity trick. They're good management that PE happened to systematize.

 

Q6: There are critics who argue that broad-based ownership in private equity is still ultimately about maximising returns for the fund, not for workers. Your research shows deals with ownership programmes achieved 1.6 times higher MOIC than the market median. How do you respond to the view that this is a performance tool dressed up as a social good?

Ethan Rouen: I'd push back on the premise that it has to be one or the other. The critique assumes a zero-sum frame. If the fund makes money, workers must be getting exploited. The data point the other way. Yes, deals with ownership programs delivered 1.6 times the market-median MOIC. But the same arrangements distributed more than $1.3 billion to 41,000 non-executive employees, with projections above $20 billion this decade. Workers helped generate the returns and shared in them. I do take the skepticism seriously, and the right test is empirical: do workers actually receive meaningful payouts, or is "ownership" just rhetoric attached to options that never vest? Where it's real money, I'm comfortable defending it. And frankly, I'd rather have a performance tool that also moves a billion dollars to frontline workers than a feel-good program that distributes nothing. Motive interests me less than outcome. If aligning workers' financial interests with the firm's is both profitable and good for people, that's not a contradiction to expose. Instead, it's a feasible model to scale.

 

Q7: You formerly co-chaired the Impact-Weighted Accounts Project and your research argues that culture metrics should be treated with the same rigour as financial results. But most companies still don’t know what to measure or how to report on the value they create for their people. What should they actually be tracking, and do current ESG and sustainability reporting frameworks capture any of this?

Ethan Rouen: Start with the basics, done seriously: voluntary turnover broken out by tenure and segment, engagement measured with enough specificity to act on, internal mobility, and a strong hypothesis about the relation between those people metrics and financial performance. The firms that get this right, like CNG, put people metrics and business metrics on the same scorecard and review them with equal rigor. That's the real shift, treating human capital as an asset you're trying to understand and grow, not a cost line to minimize. As for whether existing frameworks capture this, largely, no. ESG reporting has been dominated by the environmental dimension, where metrics are more standardized. The social dimension is still thin and inconsistent, easily reduced to headcount and a diversity table. We don't have a shared language for the value a company creates for its workforce. This is a huge challenge, though, given that there’s so much variation in how companies’ employees create human capital. One area I continue to work on is building measures rigorous enough for investors and boards to use. Until human capital is legible, it will keep being underweighted, in reporting and in valuation.

 

About This Feature

This Q&A is based on the research published in The Management Practices That Make Employee Ownership Pay Off by Ethan Rouen and Leigh M. Weiss, Harvard Business Review, February 2026.

Professor Rouen’s published research and case studies can be found at hbs.edu/faculty.