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At Hong Kong Broadband Network (HKBN), employees who hold supervisor and above positions are invited to invest their own savings to acquire shares in the company. The telecom service provider currently has more than 300 co-owners.
Human Resources spoke to CY Chan, HKBN head of talent engagement and corporate social investment, who is also a co-owner of the group.
Where does the concept of co-ownership come from, and how does it reflect HKBN’s character?
Our very first co-ownership came in 2012 when HKBN completed a management buy out (MBO) funded by private equity firm CVC Capital Partners. To ensure alignment between the management team and the private equity firm’s interests, normally a small number of senior executives will be invited to co-invest with preferential terms.
Back then, the management team believed that instead of having just the 10 executives aligned, an alignment among the top 100 executives in the company would improve the chances of success enormously.
Rather than just making the top 10 executives super rich, they decided to open this wealth creation opportunity to around 100 managers by diluting their preferential returns so as to widen the base. Of the 100 managers invited, 80 said yes, and together invested about HK$200 million, which averages to about two years of salary each.
When the top 80 managers aligned to invest 10 years of savings into the company, magic happened. We went from MBO to IPO in just two and a half years, and upon the IPO, the value of shares increased by six-fold, from HK$200 million to HK$1.2 billion, making the majority of the 80 co-owners millionaires. We believe that HKBN has made more millionaires than any other telecom company in the history of Hong Kong.
Upon our IPO, we have extended this co-ownership II plan to our supervisor grade and above talent and now we have over 300 co-owners with an aligned interest in HKBN.
What are the major benefits for HKBN and the employees?
People look at co-ownership as a talent retention strategy, or a way to motivate people to achieve the company’s targets, and our co-owners gain financial return from it. This understates the value of co-ownership, as our main purpose of co-ownership is true skin-in-the-game for a full interest alignment with us.
Instead of achieving “the” company’s targets, we are achieving “our” company’s goals together.
With this mindset, we work in a much more transparent way, and remove our silos, because we are no longer just looking at achieving the KPIs of our own departments, but the entire company.
As a result, even non-co-owners will benefit from company growth, more career growth opportunities, and a less political working environment. We always remind our co-owners that we own the whole HKBN, rather than just our silo function.
What can the co-owners do with their shares, and what will happen if a co-owner decides to leave the company?
When co-owners decide to invest their own money to buy and own the shares in the plan, the shares will sit in a trustee account until our present three-year co-ownership goals are hit. At this point, they will get back their purchased shares as well as the bonus shares other than dividend payouts.
Afterwards, they can do whatever they want with the shares because they own the shares together with any bonus shares. If they leave before the performance period, they still own their original shares they paid for, but will forfeit the potential bonus shares.
Why do co-owners need to contribute part of their salaries at the beginning?
As explained above, co-ownership cannot be given for free, rather it should be bought, so that we can ensure both “skin-in-the-game” for everyone to align their interests and a true sense of “ownership”. Think about when was the last time someone washed a rented car? We only treasure a car that we buy.
What is the next step?
We are now preparing to launch our co-ownership III Plus (CO3+) plan around the end of the year. With the recent acquisition of WTT, and the announced acquisition of JOS, we expect more co-owners from our strengthened team will work together to achieve our CO3+ target by 2021.
What’s more is that we have added a corporate social investment (CSI) element into our CO3+ plan to help achieve our core purpose – “to make our Hong Kong a better place to live”.
Our executive directors will personally contribute four million shares of HKBN stock to seed fund an endowment as part of CO3+.
We expect after CO3+ matures, other co-owners will donate a fraction of their bonus shares to enrich the endowment towards a target CSI Trust holding of 1% of our company. With the semi-annual dividend from these shares, we plan to fund community projects and other NGOs voted by our co-owners from the HKBN Talent CSI Fund.