So Harley-Davidson and KKR Walk Into a Boardroom …

Harley-Davidson Inc.’s latest strategy for reversing a multiyear slide in sales and margins included a surprise windfall for employees: The iconic motorcycle maker announced this week that it would issue stock to 4,500 workers, including all of its hourly factory laborers.

The inspiration for the grants came from KKR & Co.’s Pete Stavros, who developed similar employee stock-ownership programs for companies across the private equity firm’s portfolio including capsule manufacturer Capsugel, aerospace hardware company Novaria and the now publicly traded Ingersoll Rand Inc. The idea is that employees who have a financial stake in a company beyond a simple paycheck will be more invested in its success. They will do their jobs in a way that benefits shareholders because those same benefits are more obviously accruing to themselves as well. It’s a small step toward narrowing the gap between the millions pocketed annually by top executives and the average take-home pay of the worker on the factory floor. And it's also a means of restoring a sense of pride to the manufacturing profession after decades of outsourcing, pension reform and other cost-cutting measures. 

What's different about this case is that KKR has no financial interest in Harley and has no plans to take a stake; indeed, Stavros hadn’t even met CEO Jochen Zeitz until recently. A mutual friend who knew of their respective interest in inclusive stakeholder management connected them. “It was out of the blue,” Stavros, co-head of Americas private equity at KKR and also Ingersoll Rand’s chairman, said in an interview. He’s heard from other private equity firms and a couple of public companies interested in learning more about KKR’s experience with employee stock ownership but “Harley was the first who was like, ‘I believe in this. We need to do this,’” Stavros said. He made a presentation to the motorcycle maker’s board and helped Zeitz think through how to structure the program. Zeitz “was so passionate about it, I was willing to spend the time,” he said.

That passion is important. Equity-ownership-for-all programs aren’t as difficult to carry out as they’re often made out to be, but they do require a different approach to training and buy-in from management to be successful. Ingersoll Rand, for example, works with the nonprofit Operation Hope to provide personal-finance education to its employees, and CEO Vicente Reynal himself helps conduct regular sessions to share data and brainstorm ways to improve productivity. But at the risk of flooding Stavros’s inbox, other manufacturers should be following Harley’s lead and seeking guidance on a more expansive approach to equity ownership. There’s no good reason why this practice can’t be more commonplace on the factory floor. 

Zeitz has a personal interest in the cause of employee well-being: He is co-founder of the B Team, a group of business leaders including Inc. CEO Marc Benioff and former PepsiCo Inc. CEO Indra Nooyi that seeks to redefine corporate leadership around goals of sustainability, equality and community. But preaching the benefits of stakeholder management and putting into practice policies that can actually make a difference are two very different things — especially at a company like Harley that’s in reboot mode.

Turnaround attempts by previous Harley CEOs have already faltered and the latest plan — to prioritize the company’s core heavyweight bikes, set up a separate electric motorcycle unit and beef up its identity as a lifestyle brand with refreshed merchandise — was met with skepticism from analysts and investors. Companies in Harley’s position usually aren’t the type to make investments in employee initiatives. Yet it sees broad-based stock ownership as a necessity, not than a luxury. 

Harley is still cutting costs as part of its turnaround plan; Zeitz officially became CEO last May and has announced plans to eliminate more than 10% of the company’s global workforce. Zeitz realized, though, that he wasn’t just dealing with a bloated workforce but a demotivated one. “Everyone contributes to the success of a company,” he said in an interview. “If you don’t have a company culture that’s motivating and positive, you can’t win long term.” Zeitz dismissed concerns about diluting shareholder value by issuing shares to workers as “rubbish.” If the stock price goes up because employees are more engaged, everyone benefits. 

Zeitz noted that many motorcycle customers are also union or factory workers themselves and would rather spend their money with a company that cares about people in those positions. Most major industrial manufacturers no longer have to answer to consumers, having sold off retail-linked products like lightbulbs and thermostats over the past decade. But they do have to answer to investors, many of whom are increasingly fixated on environmental, social and governance matters. Companies have received the message on the first part: In the past few months alone, Rockwell Automation Inc. has set a goal of netting out both direct and indirect carbon emissions by 2030; Johnson Controls International Plc is aiming to be carbon neutral in its own operations before 2040 and wants to help its heating and air-conditioner customers double their emissions reductions; and General Motors Co. has said it will sell only zero-emission cars by 2035. But the rank-and-file employees at those companies are the real key to turning those commitments into a reality, not the C-suite. “In my humble opinion, it’s hard to get someone to really focus on the climate if they are struggling to just live,” Stavros of KKR said.

With the White House and Congress transitioning to Democratic control, the political mood has also shifted. It’s in companies’ interest to be proactive about improving worker relations lest the government decide for them what changes are necessary. Senator Elizabeth Warren, for example, has proposed replicating elements of the German system of labor supervisory boards and making employees responsible for electing 40% of corporate directors at large U.S. companies. There are pros and cons to that idea, but one thing is clear: The logistical legwork required to set up an equity-grants-for-all program is nothing compared with what that kind of system would entail.

“It feels like maybe this is a moment for people to get behind something like this,” Stavros said. Your move, manufacturing CEOs. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.

©2021 Bloomberg L.P.

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