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QUESTIONS
& ANSWERS
Your
reaction
16.05.2009
From Marc Mathieu
- Hello from Australia
Be
carefull about a so-called "French model".
They have 50 years effective legislation in France
and every year they add a new one, and it is effective
too.
They have 40 years effective legislation in UK,
with a lot of things.
You cannot summarize all this into one single legislation.
This is what Belgium tried to do in 2001. They thought
taking all the best in French legislation, all the
best in British legislation, they shaked it, and
they got a legislation which nobody understood and
nobody used (4 companies used it from 2001 to 2007
!?)
Employee ownership can be developed in a lot of
different situations. You have to start with small,
easy, well dedicated pieces. What we describe as
a "block building approach".
Now let's compare France and UK for employee ownership
in large companies (Why large companies? - Because
our information here is very good).
Considering employee share plans: 99% of large British
companies have employee share plans in 2008 and
it is 96% in France.
On average, British companies and French companies
as well launched their first employee share plans
in 1995.
13 years ago in 2008 in both cases, this is still
very recent.
Employees' share in French companies capitalisation
was 4.52% in 2008 compared to 2.54% in UK. This
is clearly a difference.
It means that much more French companies have a
"significant" employee ownership or a "strategic"
or a "determining" or a "controlling" one.
As a confirmation: It is a fact that, when looking
at our monthly press review, you get much more information
about such cases in French companies than in UK.
In this sense, French policy appeared to have been
much more effective than British one.
Why? I can see (at least) two reasons:
1. When French employees get share schemes, they
get shares and they are shareholders from the first
day. They buy shares with a discount, or they get
a bonus to buy shares, or they get profit sharing
to buy shares, etc. A lot of schemes. The common
word is "enterprise savings plan" (be carefull that
in France law, a plan is just a scheme, it is not
a law person as it could be in British law). For
all these schemes, each employee can chose: They
can hold these shares as an individual or through
the enterprise savings plan. Most enterprise savings
plans are organised using dedicated investment funds
(which are well law persons), in French "Fonds de
Placements d'Epargne d'Entreprise" (Enterprise Savings
Invetsment Funds). These investment funds can vote
in General Shareholders Meetings. The debate is
growing in France about how these investment funds
decide to vote. Who decides? Employee shareholders?
Trade Unions? etc?
However, they get shares and voting rights from
the first day. When British employees get share
schemes, it is often through SAYE plans. They don't
get shares from the first day. In fact, they get
options. Most of these options are exercisable 3
years later.
As a conclusion:
When French employees get employee share plans,
they get shares and voting rights from the first
day.
When British employees get employee share plans,
(in most cases) they get shares and voting rights
3 years later.
2. French legislation is much more encouraging than
British one. French legislation encourages employees
to take shareholders risks much more than British
one.
First aspect: As you saw before, French people are
shareholders from the first day. In most cases (SAYE
plans) British people have just an option, and they
can decide 3 years later.
Second aspect: We discuss about promoting employee
ownership as a policy decision. Usually such policy
choice uses tax incentives. Those tax incentives
are very different from one country to another.
We drew attention on that point in our recent "Manifesto
for European election 2009". For comparisons, we
used the same number for each European country:
Suppose that an employee can buy shares of his company,
with a 20% discount. Suppose this discount is free
of taxes and social security. How much can you buy
in such free conditions in various European countries?
Here are the numbers for various countries:
France: 22.000 Euro
UK : 12.000 Euro
Austria: 2.500 Euro
Belgium: 1.320 Euro
Norway: 950 Euro
Germany: it was 650 Euro in 2008, it is changed
to 1.800 Euro from April 2009
Our recommendation is: At least 5.000 Euro in each
European country.
As a conclusion: Policy (tax) incentives are higher
in France than it is in UK.
Finally: Do you need other reasons considering France
and UK? I'm not sure.
With best regards
Marc
14.05.2009
From Anthony Jensen
- Hello from Australia
Hi
Marc
Many thanks Marc - Excellent material. Thanks for
the contacts. There is good article in The Economist
this week on the French model. I understand that
they have the highest EO in Europe – the result
of legislated profit sharing. In Australia EO has
just been set back by the latest budget. We need
to look closely at the French model. What are your
thoughts?
Best Anthony
14.05.2009
From Marc Mathieu
- Hello from Australia
Here some info:
1. I think you mean Eiffage.
Essilor produces glasses and employs 30.000 people;
it was former a workers' coop which changed for
a plc years ago, but they maintained a (quite) strong
employee share (9%).
Eiffage has 72.000 employees holding 26% of the
company, in the construction industry.
Stangely, you have a number of such companies in
the engineering and construction industry:
Veidekke - Norway
- 6.000 people, 16% employee-owed
Bouygues - France - 140.000 people, 16% EO
Vinci - France - 160.000, 12% EO
Mott MacDonald - UK
- 12.000, 53% EO
Arup - UK
- 9.000, 100% EO
Arcadis - Netherlands
- 13.000, 34% EO
Halcrow - UK
- 7.000, 30% EO
Spie Battignoles - France
- 8.000, 81% EO
Eiffage fought against Spanish TOB by Sacyr Vallehermoso,
using all possible weapons and protections last
year, a 18 months battle. The take over was finally
rejected, employee owners playing a major role.
2. Maybe you could ask Steve Fitzpatrick, Secretary
General of the CWU who joined the EFES, he is on
info@cwu.ie or
phone +353 1 866 30 00
3. You could ask Pierre Liret who is the spokesperson
for CGSCOP (the French confederation of workers'
coops), Pierre
speaks English, on pliret@scop.coop
See this page http://www.scop.coop/scripts/homeV2/publigen/content/templates/show.asp?P=325
4. You should ask Heinrich Beyer (CEO of AGP, the
main organisation promoting EO in Germany)
on heinrich.beyer@agpev.de
13.05.2009
From Anthony Jensen - Hello from Australia
Hi
Marc
Hope you are well.
Thanks for the continuing updates which we receive
through the AEOA as well. Good stuff.
I have done my quick tour of the USA
and got the data for my case studies comparing EBOs
in Italy,
Spain
and USA.
Sociedades Laborales is a very good model.
I am preparing to speak at the Australian Trade
Union Conference in two weeks. Would you please
give me more information on
1. Essilor wanting employee ownership to block
hostile takeover.
2. Anything more on Aer Lingus employee ownership
and a trade unionist on the board. Key position
for ESOT Trust.
3. I was wanting a contact to find out more about
the buyouts of distressed companies in France
4. IG Metal union promoting employee ownership.
It would be of immense help for my presentation.
06.05.2009
From Marc Mathieu - Detroit, EFES
-
You mean excluding consumer coops, building coops
and the like?
Yes
this is our point.
-
I am trying to distinguish cases in which employees
are majority (or even controlling - except it is
difficult to identify control when it does not involve
majority) owners.
Yes,
this is also our point. Of course it is not easy
to find these cases, it is often by chance. Probably
we miss a number of them due to the lack of information;
all these cases are non-listed companies and you
don't have the good information you get for listed
companies.
06.05.2009
From Mario Nuti - Detroit, EFES
Very
helpful, thanks Marc.
I agree that Mondragon should be counted in, because
they do have a property stake. But when you say
only workers' coops you mean excluding consumer
coops, building coops and the like? Typically coop
members are not full owner, so much so that coops
and mutual societies have been the object of privatisation
(from social property to private property) with
the de-mutualisation promoted by so-called new labour.
"in some cases, many employees or most employees
or even all employees are involved as owners. these
cases are in our databases": fine for most
purposes, but I am trying to distinguish cases in
which employees are majority (or even controlling
- except it is difficult to identify control when
it does not involve majority) owners. I will look
at your dataset, but I fear that is not the question
that had been asked.
I will look at the survey, except I cannot do it
immediately due to pressure of time.
Will be in touch, thanks again, Mario
06.05.2009
From Marc Mathieu - Detroit, EFES
1.
We made a selection in our database, based on two
classes:
- Listed companies: All listed companies whose market
capitalisation is over 200 million Euro
- Non-listed companies: All non-listed companies
majority employee-owned when employing more than
100 employees
2. Not any coop, just workers' coops. Typically:
Mondragon.
3. We make the distinction between MBO and EBO.
In some cases, many employees or most employees
or even all employees are involved as owners; these
cases are in our database.
4. You're rigth, there is a lot to say about that.
Please look first at our Survey 2007. I add the
detailed description of the database.
06.05.2009
From Mario Nuti - Detroit, EFES
Dear
Marc, this is fascinating staff. I will have to
think of something else for my next post, because
it will take time to absorb and process all this,
but I will come back to it. Now, I hope you
can clarify a few points-
1.
"Most large European companies": is large
over 500 employees (usually under 5 for mini, under
50 for small, under 500 for medium) or do you use
a different classification?
2.
Coops: I would not include Coops under employee
ownership, for coops members do not have an interest
which is permanent and transferable, as it must
be in order to be treated as ownership. You seem
to liken coops to employee ownership, when you refer
to bosses salaries and when you say "We may
believe that all workers coops were borned with
a majority EO". If your data includes
cooperatives it represents a highly hetherogeneous
hybrid, which I would not know how to sort out.
3. Are
MEBOS included in your employee ownership data?
MEBOS almost always, I believe, represent dominant
managerial ownership. Managers are not the
same thing as employees because they are not ordinary
wage earners but high-salary-earners-plus-gigantic-bonus-earners-who-decide-or-influence-their-own-incomes.
Managers - in general and especially today - are the
problem not the solution (to paraphrase Ronald Reagan).
4.
Your democratisation index is clearly a relative
index with EU=100. But what is the absolute measurement
of different countries, in definition and value?
and can I work out, from your index or your raw
data, what is the total number of companies with
a sizable (say over 30% or 40%) shareholding by
employee excluding middle and top managers?
5.
I look forward to seeing your "Economic Survey
of Employee Ownership in European Countries";
if your could send me a copy when it is published
- or even better if I could have an electronic preview
of the draft - I should be glad to pay for it.
With
very best wishes, Mario
06.05.2009
From Marc Mathieu - Detroit, EFES
Dear
Mario,
Of course all our information, graphs etc are free
for publication, so feel free to use it, thanks!
Your questions:
1. It is a fact that most large European companies
have now employee share plans (now over 80%). They
all consider that employee ownership brings more
motivation, etc. Of course, most of them, when launching
plans, think at first at their top managers. Later,
they launch plans for middle management, and later
again plans for all employees ("broad based
plans"). Over 50% have now broad based plans.
Thanks to IFRS and corporate governance regulation,
etc, we have now a good information about Executives
(not for all companies, and not for all countries,
in fact we have a good information for 77% of all
large companies). At least this is true for listed
companies. This is not true for non-listed companies;
strangely, you don't find good information about
"bosses" and other people within most
workers coops !?
This way, when analysing employee ownership (at
least in listed companies), we are able to make
a distinction between Executives and others ("common"
employees). On this base, we even defined a democratisation
ratio of employee ownership, see here:
2.
No sectorial bias, with one quite strange exception:
In many countries, you have large companies (each
employing thousands employees), controlled by employees
or at least with a very high share in the building
and engineering industry.
3. No size bias (at least within large companies
= all European companies whose market capitalisation
is over 200 million Euro).
4. We didn't analyse this point, but we have the
whole information in the database. We may believe
that all workers coops were borned with a majority
EO. Same for Spanish sociedades laborales (however,
what is "born" for a company, some of
them were failed companies rescuing as employee
owned). A number of employee owned companies as
the result of employee buy outs (MBO/EBO). Etc...
With best regards
Marc
06.05.2009
From Mario Nuti - Detroit, EFES
many
thanks marc. Google does not allow comments to include
pictures and graphs, but in a main post I can do
it. I will definitely use them, with your permission,
in one of my next posts; it's food for thought.
Before
I do, however I would like to ask you 1) do you
treat managers as employees? For me they are
bosses, not employees, their participation differs
from that of ordinary employees. 2) is there a sectoral
bias in employee participation? 3) and a size bias?
Coren
has put up a comment, I have replied; will look
up the blogs you have suggested. I am very pleased
this discussion is developing.
With
very best wishes, Mario
06.05.2009
From Marc Mathieu - Detroit, EFES
Dear Mario,
I don't know how I can use pictures on your blog,
so I take this way.
Both Corey Rosen and Michael Keeling launched their
blogs recently, they are such experienced men, I
don't miss that, see on http://www.esopassociation.org/blog/default.asp for
Michael (ESOP Foundation) and http://www.nceo.org/blogs/employee_ownership_notes
for Corey
Now I add yours !
I'd like to draw your attention on this picture
of employee ownership in the 2.533 largest European
companies in 2008 (32.4 million employees).
All companies are ranked from 0% held by employees
to 100%:
You
can see that it is a continuum.
No steps.
It means that the nature of employee (share) ownership
is not to be small and it is not to be in minority.
On the other hand, you don't have any magic number
(50%+1 or others). This is all employee ownership.
We analysed employee ownership in European companies
in 6 categories:
Now
here are the numbers, you can see that employee
ownership is in a strategic, determining or controlling
position in 27% of all largest European companies
and these numbers are growing.
So this is not rare at all, it is even usual.
These
are all pictures from our "Economic Survey
of Employee Ownership in European Countries"
which we are going to publish on May 18 in Brussels.
With best regards
Marc
06.05.2009
From Mario Nuti - Detroit, Employee Ownership and
Control
Corey -
Thanks for the good news. I am happy to stand corrected
but I would like to know how many of those 11,400
majority employee owned companies have been born
that way - in which case they would be a form of
workers' entrepreneurship as unsurprising as cooperatives
- and how many have been the result of non-employee
shareholders voluntarily surrendering control. Willingness
to surrender control of a successful company on
such a scale is what I find surprising. Until this
point is clarified I would like to reserve my position.
I have now joined your National Center for Employee
Ownership, so once I get my username and password
I expect I will be able to consult your Database
and find out directly, but perhaps you can let me
know on the blog.
I agree with your proposition that "what is
going in at Chrysler and GM has very little to do
with employee ownership", for many reasons:
because it is an ESOT not an ESOP, because it is
retirees' instead of employees' ownership, because
it is a temporary arrangement (terminated by FIAT
getting a majority stake by 2016, if not sooner
by VEBA declared intention to diversify) and anyway
because VEBA representation on the Chrysler board
is inexplicably constrained to a minority position
in spite of the majority shareholding.
06.05.2009
From Corey Rosen - Detroit, Employee Ownership and
Control
Mario --
I don't know the source of your statement that employee
majority ownership is extremely rare outside of
troubled companies. In fact, there are at least
4,000 ESOPs in the US that a majority owned by the
plan, and the percentage of the total 11,400 ESOPs
that are majority owned continues or rise. All but
perhaps a couple of dozen of these were set in profitable
companies with no employee concessions. So I think
your statement on this comes less from data than
from anecdote. Employees have varying amounts of
actual managerial control in these companies, but
even when they do have a great deal, these companies
run very much like other companies, just better.
The real key is not control of the board but day-to-day
input into how jobs are done, and these companies
tend to have a great deal of that.
I would reiterate that I think what is going in
at Chrysler and GM has very little to do with employee
ownership. In fact, the UAW plans to sell its shares,
according to them, "as soon as possible."
I can't see this as making any long-term difference
in what goes on at either company.
04.05.2009
From Mario Nuti - Detroit, Employee Ownership and
Control
Hallo Marc, I am glad to see that the European Federation
of Employee Stock Ownership is keeping a keen eye
on what is going on also in the US.
Corey Rosen (Executive Director, National Center
for Employee Ownership, http://www.nceo.org/library/not-eo.html)
has published a good article. I concur with his
proposition that the Detroit arrangements, between
GM, Ford, Chrysler and the Voluntary Employees’
Beneficiary Association (VEBA) run by the United
Auto Workers’ Union trustees, are not a standard
form of employee ownership. It is not an Employee
Stock Ownership Plan because shares are never going
to be distributed to employees. They are a kind
of Employee Stock Ownership Trust (that holds shares
for employees without ever distributing them) for
the benefit of current and future retirees rather
than of current employees. It is no more no less
as much of a form of employee ownership as that
of any ESOT.
The $4.59 billion promissory note mentioned by Rosen
covers the other half of Chrysler’s liability towards
the provision of retirees’ health benefits and affects
only the scale not the nature of the arrangement.
There are a few special strings attached, such as
the U.S. Treasury’s entitlement to half the capital
gain if and when the shares are sold, which is beside
the point. “Chrysler's bankruptcy negotiations [might]
undo this arrangement”; so, it’s not in the bag
yet, though Rosen agrees “it’s unlikely” to be undone.
And similar negotiations with GM might involve only
39% of the company in the hands of UAW: not a majority
interest but most probably large enough to involve
control in principle.
All the same, if the VEBA trustees behaved opportunistically,
and took also the interests of current employees
(who after all are future retirees) to heart and
not just those of current retirees, a conflict of
interest with other shareholders would arise. But
in my post I did recognise that trustees were independent
and charged with protecting the interest of retirees;
that they were likely to sell their shares if only
in order to diversify, if not also to provide a
cash flow larger than dividends alone. And I pointed
out that in any case eventually FIAT would end up
holding a majority interest in Chrysler. I should
have added that VEBA trustees will be in a minority
of one in nine members of the Board, which clinches
their inability to behave opportunistically even
if they wanted to.
On the last point made by Corey Rosen there is a
need for an important qualification, namely the
distinction between an employees’ modest share of
company capital, and a controlling interest with
or without majority. Corey writes: “Finally, employee
ownership is very rarely used in troubled companies,
despite all the media attention to companies such
as the Tribune Company and United Airlines. Well
under one percent of all employee ownership plans
are used this way. Plans are typically set up in
healthy businesses as a way to provide an equity
stake to employees and, in the case of ESOPs, very
often to transfer ownership over time to employees
in a way that does not require them to use their
own money to buy shares.”
Yes, employee ownership on a modest scale, or even
on a significant scale as long as it does not amount
to a controlling interest and therefore does not
challenge the company power structure, is “typically
set up in healthy businesses”. But No, a controlling
interest by employees is an extraordinarily rare
event, except for “a troubled company”, precisely
because a “healthy business” has no reason, or incentive,
to surrender company control to employees; indeed
it has every disincentive to give employees the
opportunity to appropriate (“to tunnel”) corporate
wealth to the detriment of other shareholders.
Thus it looks as if employee ownership on a sufficiently
large scale to warrant control will happen only
in a troubled company – apart from the atypical
exceptions exemplified in my post. When it takes
place for whatever reason, a controlling interest
in the hands of employees is unlikely to be stable,
as the changing collective of employees is unlikely,
on departure or retirement, to transfer their shareholdings
to other employees.
I looked up the other link you recommended, John
Torinus, Auto changes will create some strange bedfellows
(http://www.jsonline.com/business/44199832.html).
The article is informative and dwells on the implications
of the Union being “on both sides of the bargaining
table”: advantages like more efficient health plans,
motivation improvement, leaner work practices, but
also disadvantages such as protectionist pressures,
aversion to high managerial salaries, the additional
cost of supporting green and mileage standards,
forcing unionisation on suppliers. The issue of
modest employee shareholding versus a major controlling
interest is not considered.
03.05.2009
From Marc Mathieu - Detroit, Employee Ownership
and Control
Hello Mario,
Interesting blog. So again some pepper in industrial
relations?!
Here some interesting comments on the US auto industry:
From NCEO: "At Chrysler and GM, It's Not Employee
Ownership. The health-care trust arrangements at
General Motors and Chrysler do not really constitute
employee ownership". Corey Rosen has written
a complete article on this. See here:
"As part of their efforts to recover, General
Motors and Chrysler both are pursuing agreements
with the UAW to provide the union with company stock
to help fund retiree health-care trusts. There have
been a number of articles in the press saying that
as a result, the employees will now be owners of
General Motors and Chrysler. In fact, what is being
proposed is not really employee ownership in any
meaningful sense.
Chrysler had agreed with the UAW to give shares
to the union health fund trust valued at 55% of
the company and a promissory note for $4.59 billion
to be paid with interest in installments. But if
the shares can be sold for more than the price at
which they were contributed, the U.S. Treasury gets
the difference. It is still possible, if unlikely,
that Chrysler's bankruptcy negotiations will undo
this arrangement. GM is negotiating for a similar
deal to fund half of its $20.4 billion obligation,
leaving the UAW with 39% of the company.
A VEBA (voluntary employee benefit association)
will hold the shares. United Auto Workers President
Ron Gettelfinger told NPR Friday that "We do
not have the ability [to hold a long-term stake]
because of the cash needed in the VEBA." He
said the VEBA will start selling the shares as soon
as possible.
So how does this compare to conventional employee
ownership through an employee stock ownership plan
(ESOP), broadly distributed stock options, or similar
arrangements? Unlike participants in such plans,
employees involved in one of these VEBA arrangements
do not see personal gains or losses from the share
price other than to the extent that if the shares
do go down enough, the VEBA may not have sufficient
funds for retiree health care programs. Many, and
perhaps most, current employees may never benefit
from these programs, which very well could be reduced
or eliminated in the future if the companies do
not recover quickly. If the stock does perform at
all well, it will be sold as soon as it meets the
VEBA obligation, providing no potential upside.
Second, in actual employee ownership plans, employees
individually have ownership attributed to them;
here, the ownership is held on a short-term basis
by a trust associated with the UAW.
Finally, employee ownership is very rarely used
in troubled companies, despite all the media attention
to companies such as the Tribune Company and United
Airlines. Well under one percent of all employee
ownership plans are used this way. Plans are typically
set up in healthy businesses as a way to provide
an equity stake to employees and, in the case of
ESOPs, very often to transfer ownership over time
to employees in a way that does not require them
to use their own money to buy shares."
See also: Auto changes will create some strange
bedfellows on page http://www.google.com/url?sa=X&q=http://www.jsonline.com/business/44199832.html&ct=ga&cd=zkuKIEpMqnQ&usg=AFQjCNHf2PtsuUM4-sS2GD0sNIhRtEAICg
With best regards
Marc Mathieu - European Federation of Employee Share
Ownership
02.05.2009
From Mario Nuti - Detroit, Employee Ownership and
Control
Dear
Marc,
Greetings. I hope you might remember me. I write
to say that I have posted on my blog http://www.dmarionuti.blogspot.com/ a
post on: "Detroit: Employee Ownership and Control",
which among other things publicises EFES activities
and the four PEPPER Reports.
I am having temporary problems with the Blog. If
you go there and a warning appears please press
"Proceed". Just in case, I am reproducing
the post below.
With warmest regards,
Mario
Professor D. Mario Nuti
Facoltà di Economia, Università di Roma "La
Sapienza"
From: http://www.dmarionuti.blogspot.com/,
1 May 2009
Detroit:
Employee Ownership and Control
The
United Auto Workers’ Union “is likely to emerge
as one of the biggest shareholders in the three
Detroit carmakers: GM, Ford Motor and Chrysler …
It could end up with 55 per cent of Chrysler, 39
per cent of GM and a sizeable stake in Ford if it
accepts shares [which it did on 30 April] rather
than cash for a chunk of the companies’ contribution
to new union-managed healthcare trusts, due to be
set up next year.”... “The prospect of union bosses
in the boardroom has sent shivers down investors’
spines. The main front-page picture in the business
section of Canada’s Globe and Mail newspaper on
Wednesday showed a line of workers in blue jeans
and T-shirts at a Chrysler plant in Detroit under
the headline: “Meet the new board of directors”.”
(Bernard Simon, UAW gears up to join boards of
carmakers, FT 30 April 2009).
Employee stock ownership is not uncommon, whether
in the form of individual ownership through market
purchase or company award; of MEBOs (Managers and
Employee Buy-Outs); of ESOPs (Employee Stock Ownership
Plans whereby shares are eventually transferred
to employees, for instance on leaving the company);
or ESOTs (Employee Stock Ownership Trusts, holding
shares indefinitely for a changing collective of
employees, who only benefit from dividends). Stock
ownership enables employees to participate in enterprise
results, through dividends and (except for ESOTS)
capital gains.
Any form of employee participation in enterprise
results encourages higher labour productivity, not
so much via greater individual effort, for the employee
only gains a fraction of the extra product due to
her greater effort, but through the greater intelligence
and cooperation with which any given effort is exercised,
and through each employee monitoring whether a sufficient
level of effort is exercised by all other employees.
Employee participation in enterprise results also
creates a sense of identity with the company instead
of a split between “us” and “them”, improves channels
of communications and the chances of avoiding and
resolving conflicts within the company. Unlike other
forms of participation in results, like profit-sharing,
the voting power attached to shareholding gives
employees a pro-rata decisional power in company
affairs. The dividends and capital gains attached
to share ownership give a broader and permanent
basis to participation in results, unlike the uncertain
periodical revision of profit sharing parameters
at labour contract renewals. Thus employee ownership
transforms dependent labourers into part-capitalists/entrepreneurs.
Employee ownership is part of both the Thatcherite
“property-owning democracy” and the Blairite “stakeholders’
economy” (workers being the primary category of
stakeholders, above managers, suppliers and creditors,
buyers and debtors, local communities, the environment).
There is a European Federation of Employee Share
Ownership (EFES) acting as “the umbrella organization
of employee owners, companies, trade unions, and
any persons and institutions looking to promote
employee ownership and participation in Europe”,
http://www.efesonline.org/ . There is a
Central Eastern European Network for Employee Ownership
http://www.efesonline.org/CEEEONet/servCEEEONet.htm
and a Manifesto for the 2009 European Parliamentary
Elections http://www.efesonline.org/2009/MANIFESTO/EN.htm
. In the last eighteen years the European Commission
has issued no less than four major Reports on P.E.P.P.E.R.,
an acronym standing for Promotion of Employee Participation
in Enterprise Results, which I happen to have contributed
as part of an EC-funded research project on the
subject, undertaken at the European University Institute
in Florence in 1988-1990. The four Reports specifically
endorse employee stock ownership. [1] The PEPPER Report IV (2008, cited in footnote 1) "presents
conclusive evidence, regardless of data source,
that the past decade has seen a significant expansion
of employee financial participation in Europe. This
is true of both profit-sharing and employee
share ownership, although profit-sharing is more
widespread" (see Ch. II and III).
If employee share ownership is common and desirable,
a total stake sufficient to exercise control over
the company, let alone an absolute majority stake,
is an extremely rare occurrence; MEBOs are no exception,
since there control is bound to be exercised not
by employees but by managers, who have interests
of their own. Sometimes a controlling stake by employees
is the result of a generous benefaction by a successful
tycoon without heirs – or without likeable heirs
– wishing to reward those who have most contributed
to his fortune. In the post-socialist economies
of Central Eastern Europe employee ownership and
control on a large scale has been the unexpected
result of privatisation; for instance in Poland
where MEBOs have been the privatisation form of
the largest number of state enterprises, and in
Russia where about 60 per cent of state enterprises
involved in mass privatisation through the distribution
of vouchers have ended up with a dominant shareholding
by employees and managers.
In a market economy, most frequently, a company
on the verge of bankruptcy may be taken over by
employees at a token price, or in exchange for an
outstanding or forthcoming liability otherwise incurred
by the company towards its employee. This is the
case of the Detroit carmakers. The guarantee of
participating in the future benefits of company
restructuring at a time of crisis makes the associated
sacrifices more palatable to employees. On the other
hand, substantial employee share ownership exposes
them to the double risk of losing both employment
and wealth in case of failure (as demonstrated by
employee losses from Enron’s collapse).
Employee ownership is bound to have a positive impact
on corporate governance, through employees monitoring
directly, as insiders or, better, as members of
the Board, company affairs and the information provided
officially. The acquisition of a controlling
share in company ownership by employees, however,
creates the possibility of their exploitation of
other shareholders, through the choice of strategies
favouring the controlling employees and the appointment
of managers inclined so to favour them. Thus shareholding
employees will be in a position to promote higher
wages and/or higher employment than would be consistent
with the maximisation of share value for the benefit
of all shareholders. This possibility is bound to
occur if a controlling interest is in the hands
of employees who, individually, hold a higher share
of employment than in company stock, for in that
case they will gain more from higher wages and employment,
as employees, than what they lose as shareholders.
[2]
This of course is not a unique problem associated
with employee share ownership, but is common to
all cases of ownership by any stakeholder. Indeed
share ownership by company suppliers or customers
is much more likely to produce such a conflict of
interest between shareholding-stakeholders and other
shareholders. In fact employees are many, while
other stakeholders can be one and act more effectively;
and other stakeholders can be a company exercising
a controlling interest much greater than its ownership
share through “chinese boxes” – a chain of companies
holding a controlling interest in other companies
ultimately controlling with a minimal equity participation
the company in which the stakeholder is trying to
assert its interest to the detriment of other shareholders.
In this case the direct and indirect shareholding
can be sufficient for control, while the direct
interest is lower than, say, the supplier’s share
in some input’s supply to the company, and a conflict
of interest with other shareholders can very easily
arise.
In Detroit the employee share ownership in Chrysler,
Ford and GM will be vested in a single trust, a
Voluntary Employees’ Beneficiary Association (VEBA),
which the three carmakers agreed in 2007 labour
contracts to set up as a way to keep healthcare
costs down. Transferring obligations to the trust,
they will strengthen their balance sheets and transfer
risk to the union and its members, whose future
benefits would depend on performance of the trust’s
investments. In this case by definition the employees
share in company employment (100%) is higher than
their share in company equity, therefore the temptation
of exercising control collectively to the benefit
of employees and the detriment of other shareholders
is present.
The risk of exploitative behaviour by employee representatives
however is mitigated by the VEBA being managed by
independent trustees with a fiduciary responsibility
to protect retirees’ benefits. Moreover, “In keeping
with the low profile that union leaders have maintained
throughout their talks with the carmakers, the UAW
has given no inkling of how it will behave as a
shareholder. But union watchers predict that it
will be less confrontational at the boardroom table
than at the bargaining table.” And “VEBA trustees
in other sectors have made diversification a key
element of their investment strategy. Should the
managers of the GM, Ford and Chrysler trusts follow
suit, they are likely to sell most if not all their
shares when the carmakers are on the road to recovery”.
(John Read, FT 28/04/2009, http://www.ft.com/cms/s/0/be80a37c-3419-11de-9eea-00144feabdc0.html)
. Finally, part of the Chrysler-FIAT deal is a FIAT
share rising from 20% to 51% by 2016, thus eventually
removing control from the AWU.
All’s well that ends well, then. But it goes to
show that corporate governance and stakeholders
interests can have unexpected, disquieting connections.
[1] Milica Uvalic, The
PEPPER [I] Report: Promotion of Employee Participation
in Profits and Enterprise Results in the Member
States, Supplement No. 3/91 to Social Europe,
Luxembourg, Office for Official Publications of
the European Communities, 1991.
Commission of European Communities, Report from
the Commission: PEPPER II – Promotion of participation
by employed persons in profits and enterprise results
(including equity participation) in Member States,
1996, COM (96) 697 Final, Brussels 8 January
1997.
Jens Lowitzsch et al., The PEPPER III
Report: Promotion of participation by employed persons
in profits and enterprise results in the New Members
and Candidate Countries, Inter-University Centre
Split/Berlin, Institute for Eastern European Studies,
Free University of Berlin, Rome-Berlin June 2006
www.efesonline.org/LIBRARY/2006/PEPPER%20III%20Final%20Print.pdf
Jens Lowitzsch et al., The PEPPER IV Report:
Benchmarking of Employee Participation in profits
and enterprise results in the Members and Candidate
Countries of the European Union, (Preliminary
Version for Presentation to the European Parliament
in Strasbourg, May 21 2008), Inter-University Centre
at the Institute for Eastern European Studies, Free
University of Berlin, Berlin May 2008. http://www.efesonline.org/2008/seventh%20european%20meeting/Presentations/Draft%20PEPPER%20IV%20Report%20-%20Strasbourg%20Edition%20-%20Jens%20Lowitzsch%20and%20others.pdf.
[2] Nuti D. Mario, "Employeeism:
corporate governance and employee share ownership
in transition economies", in Mario I. Blejer
and Marko Skreb (Eds) Macroeconomic Stabilisation
in Transition Economies, Cambridge, CUP 1997,
pp. 126-154, in particular the Appendix. Almost
entirely downloadable freely at http://books.google.it/books?id=jTu-4jdiNlAC&pg=PP11&lpg=PP11&dq=nuti+employeeism+skreb&source=bl&ots=lkpNUarX0b&sig=PS4J18l1C9qhqu29dB-MQP3vfPU&hl=it#PPA150,M1
28.04.2009
From Michael Keeling, Employee Ownership Foundation
- Chrysler and Employee Ownership?
For
the first time since the economic challenges hit
the world, official Washington is looking to employee
ownership in a unique form at Chrysler and GM --
employees will have a stake in the company.
This is good news and bad news.
Good news in that it shows a psychological and philosophical
acceptance of employee ownership in some form as
the desired outcome under certain circumstances.
Bad news in that it is not an ESOP. And, like many
of the ownership schemes established in very distressed
companies, the outlook is problematic for those
companies.
ESOP advocates should not break out the champagne,
just yet.
If you would like to read more about the Chrysler
and GM deals, click on the links below.
Bloomberg UAW Said to Get 55% Chrysler Ownership,
Board Seats By John Lippert and Mike Ramsey April
28, 2009 http://www.bloomberg.com/apps/news?pid=20601087&sid=al89RU9gWof8&refer=home
The Wall Street Journal UAW to Get 55% Stake in
Chrysler for Concessions By ALEX P. KELLOGG and
KRIS MAHER April 28, 2009 http://online.wsj.com/article/SB124087751929461535.html
The New York Times G.M.’s Latest Plan Envisions
a Much Smaller Automaker By BILL VLASIC and NICK
BUNKLEY Published: April 27, 2009 http://www.nytimes.com/2009/04/28/business/28auto.html?hp
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