There's no "I" in this team: CEO Bob Beyster steers SAIC through recession and terrorist attacks, but it's not easy running an employee-owned company in the wake of Enron's collapse. (Profile).

J. Robert Beyster has led Science Applications International Corp. through many economic vacillations since launching the company 33 years ago. Yet SAIC, the United States' largest employee-owned research and engineering firm, has sustained revenue and earnings growth throughout its remarkable history. A major reason, says its founder and chief executive, is that when times get tough, employee-owned companies get tougher.

"Anybody can manage a company during good times," Beyster says. "But when things are really going well, people get carried away by their own importance. When they're running a little bit scared, it tends to work better."

The 77-year-old executive is considered the country's premier advocate of spread-the-wealth management. He believes employees contribute the smarts and effort that make a corporation survive and grow; therefore, they should reap the rewards of the company's successes. Beyster prefers to have his workers second-guess him than stock market shareholders and New York analysts, who he says force public corporations to focus on short-term profits and the hottest sectors. "They tend to tell companies: The health business is so much better, the dot-com business is so much better, the Internet business is so much better; why are you spending so much time on that?" he says. "In our case, that would be the end of this company. The analysts would kill us."

Few stock analysts would advise giving workers the substantial corporate role Beyster has. Virtually all of SAIC's more than 41,000 employees, no matter what their level or position, own shares in the $5.9 billion enterprise through an elaborate system of stock ownership. Several hundred are millionaires. Many more are likely to become rich.

It's been pointed out that if Beyster kept ownership of SAIC, he'd be a billionaire several times over. Yet he holds only 1.3 percent of the company's stock.

Workers also guide the firm's strategic decisions. Five sit on a board of directors that includes such luminaries as retired Navy Admiral Bobby R. Inman, ATT President David W. Dorman, GEICO's Louis A. Simpson and Dresdner Kleinwort Wasserstein Managing Director Wolfgang H. Demisch.

"Clearly, it's an enterprise that realizes the value is in the employees, in their hearts, souls and minds," says Demisch. "It's as impressive a talent pool as I've seen in the industry. It's a remarkable company that's an outgrowth of a remarkable man."

Over the past decade, the corporation's annual percentage growth has ranged between 7 percent and 53 percent, with a yearly average of 15 percent. SAIC's successful track record demonstrates that employee-ownership creates an environment and incentive for continued success despite economic ups and downs. Last year, it jumped 17 notches on the Fortune 500 list, moving from No. 312 to No. 296.

Beyster, in a rare interview at the corporation's tiny headquarters tucked in a quiet La Jolla, Calif., commercial and residential neighborhood, says, "Having everybody own part of the company is a big step forward. It tells them you're not afraid to have them participate. And it signals your desire to let them be heard."

Since starting SAIC in 1969 in a nearby office next to a ballet school, the nuclear physicist and World War II Navy lieutenant commander has built a workforce of professionals who respond quickly and intelligently to customer needs. They toil in a rare corporate culture in which owners and workers tend to see eye-to-eye, because they are one and the same. Teamwork is an asset and the focus is on building the company for the future.

Business diversity helps in downturn

Beyster claims SAIC's diversity insulates it from the harsh effects of a struggling economy. "What's helped us during downturns is that there is usually some business area that we're in that's doing pretty well," he says. "When the dot-com era took a kind of tailspin," for example, "our defense business with the government picked up considerably. So we've been able to fill in with that." Indeed, government contracts accounted for more than half of SAIC's sales last year.

If SAIC had heeded critics, it would have abandoned its defense activities in the early 1990s when U.S. government budget cuts prompted other companies to refocus or stop operating. But SAIC continued to make significant contributions to government programs. Besides, Beyster says, employees didn't want to forsake such forward-looking projects as those involving high-tech intelligence and responses to biological warfare.

When SAIC provided technical expertise to the investigations of the World Trade Center bombing in 1993, executives believed terrorism probably would be the dominant national security problem of the next generation. In 1997, SAIC formed its own Center for Counterterrorism Technology and Analysis, and named David Kay director. Kay joined the firm that year after serving as one of the United Nations' chief nuclear weapons inspectors following the Gulf War. The center offers preparedness planning in which it can assess the vulnerability of facilities, such as ports or critical government buildings, and provide contingency planning, including recommendations to reduce the threat of nuclear, biological or chemical attack. As a result, when the September 11 terrorist attacks and subsequent anthrax cases occurred, SAIC experienced a business surge.

When staff cuts become a must

Like other companies, however, SAIC has had to take difficult steps to respond to waning business. That includes holding the line on expenditures, shifting attention to short-term projects and chasing even small research projects, cutting back on contractors and--as a last resort--reducing staff. Employee-owned companies are no more vulnerable to staff cuts, but they are also not exempt from them, explains David Binns, vice president of the Foundation for Enterprise Development, which Beyster founded to promote employee ownership. "You still have to meet your bottom-line numbers. Workforce reductions are going to be a part of that," Binns says.

Along with the rest of the country SAIC's telecom activities were hit especially hard this year, Beyster explains. Previously, Telcordia Technologies, purchased as Bell Communications Research, or Bellcore, in 1997, had sent profits soaring. By 1999, the subsidiary was raking in $1.2 billion, but it has since slipped dramatically. The result: "Out of 7,000 to 9,000 people connected with Telcordia, we're taking out 2,000 to 3,000 people," Beyster says. "That's hard to digest."

Because most Telcordia staffers' skills are so specialized, Beyster's been unable to find them other positions within SAIC. In addition to the cuts at Telcordia, the company trimmed 1,000 positions, eliminated mainly through attrition.

Still, Gartner Data Quest senior analyst Allie Young believes SAIC has used its defense heritage to position itself to move forward when the sector recovers. In 2000, the firm ranked No. 19 in worldwide IT services market share. "They're playing in a market sector where clients are looking for innovation and cost savings, and SAIC is well situated there," Young says. "Their challenge is to get ever greater visibility in the marketplace."

Perhaps an even larger challenge is reassuring staff that SAIC's business model remains viable -- despite the collapse of Enron, where staff pensions were heavily invested in company stock. Some people are already looking at the numbers differently. "I'm going to go to all the [shareholder] meetings and make sure nobody in accounting is sweeping anything under the rug," says Bill Scott, 57, a nuclear physicist who, third-ranked in seniority at SAIC, cares "more about my stock than my salary. People hear about employee ownership, and they think it must be like one happy family," he adds. "But like any family, it's never easy."

Indeed, Enron's fate sheds light on the unique challenges facing employee-owned companies. "Clearly, to the extent that your investments and your job are joined at the hip, you are taking on extra risk as an employee," explains board member Demisch. "And the company has extra responsibility. Managing the company so the worth of the investment of the employee is protected is a major criterion in making decisions."

SAIC's participatory workplace and Beyster's commitment to it have survived even tougher times, and that eases some concerns. "From very early on, [Beyster] argued that the little guys ought to get stock. Those dollars were difficult to come by back in those days," says Scott.

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RELATED ARTICLE: Employee-ownership Risks--and Rewards

Bob Beyster may be employee-ownership's biggest fan, but there's a reason why it's not more popular. Managing such a company is much more difficult than running a hierarchical structure with a chain of command, Dresdner Kleinwort Wasserstein Managing Director and SAIC board member Wolfgang Demisch says.

"It's a structure that if you're able to devote a disproportionately large amount of time to you can get disproportionately good results," says Demisch. "It's extremely demanding and, unless it's the top priority of the executive, it's hard to do well enough."

Beyster insists on sharing financial information with all interested employees; indeed, he spends most of his time on staff issues. Every April, the company has bonus rounds and gives recognition to outstanding employees. Some get stock; others get options.

"Recognition is extremely important," says Beyster. "If somebody does something good and I don't know who did it, that bugs me. I ferret down and try to find out who did it." Still, Beyster believes employee-ownership is such a good business strategy that in 1986 he started a nonprofit organization to promote the idea. The Foundation for Enterprise Development in La Jolla, Calif., advises companies on establishing their own equity compensation plans.

Ray Smilor, the foundation's president, says companies nowadays offer employees several types of ownership options, including 401(k)s, stock options and employee stock ownership programs, or ESOPs. In 2000, there were 11,500 ESOP companies covering 8.5 million employees in the U.S., or 8 percent of the private sector workforce, according to The ESOP Association. That's up from only 5,000 in 1987.

Most firms institute the programs to raise capital. But if they devote their efforts to educating workers about the company's objectives and its share value, they will reap added benefits, says association President J. Michael Keeling.

"Employee-ownership can be your best friend in bad times or it can be a hindrance," he says. "There's more sharing the pain in these companies than if senior people are fighting junior people or the administrative staff over who takes the cuts," Keeling adds.

Liquid Stock with Trade Limits

Ownership, let alone employee ownership, never crossed the mind of Bob Beyster when he started SAIC. It wasn't a concept he learned about in jobs at the Los Alamos National Laboratory in New Mexico or General Atomic in San Diego. When Gulf Oil took over General Atomic and shifted its focus away from Beyster's area, accelerator physics research, to more commercial endeavors, Beyster decided to start his own company, taking a handful of researchers with him.

In time, Beyster concluded that using the stock to reward employee contribution was the fairest option. The elaborate company system of retirement, stock purchase and stock incentive plans -- four programs in all -- is among the most sophisticated in the country.

SAIC also is one of the few employee-owned enterprises whose stock is liquid. In 1973, Beyster set up Bull Inc., a wholly owned subsidiary and a registered broker-dealer to provide a market where employees could buy and sell stock. The price is set once per quarter based on the recommendation of an independent appraiser. Employees can buy and sell on four trading days each year.

Employees are encouraged to own shares. First-time buyers get options for more as a bonus. The stock, which recently traded at around $33, has risen 41.4 percent over the past five years. The number of buyers has ebbed and flowed. After a slump in the past year and a half, activity picked up in the latter half of 2001.

The result, says Beyster, is that SAIC generally has higher-caliber people, offers lower costs and will work harder to please its customers, even sacrificing profit at times. But that has a downside, he says, in that SAIC employees, especially in good times, get lulled into thinking that customers won't give their business to another company.

"The very thing that makes us such a good company can make it hard to win because we get overly sold on how unique we are," he says. "So we need to run scared all the time."