Beacons of Hope

Employee-ownership is not the most obvious of subjects to set one's spirits soaring  - but two books I’ve just been reading on this subject are positively inspirational and probably the best guides available for those of us who have been searching for a plausible challenge to the amoral corporate power tearing our societies and planet apart. The  books are -
Beyond the Corporation: Humanity Working by David Erdal (2011); and 
Owning Our Future: The Emerging Ownership Revolution by Marjorie Kelly  (2012)

Each complements the other beautifully - Erdal’s book uses the story of the employee buy-out he led in the 1980s of his family’s Fife-based paper business (Tullis Russell) as an introduction to employee-owned businesses the world over (amongst many others, the John Lewis Partnership in the UK, the Mondragón group in Spain and the US supermarket chain, Publix) – and then examines the history of the legal structures that underpin modern capitalism and convincingly exposes the gross errors in the conventional models economists use to describe people and businesses (which he labels ‘just-so stories’) - showing how and why employee-owned businesses are superior to publicly listed companies in every way.

Marjorie Kelly’s book helps us understand the “financialisation” which has overtaken companies in the last thirty years – I was able to download the first draft of the book (minus a couple of the chapters) by simply tapping the title and author’s name and the preface and first chapter can be read here   

The first section of Erdal’s book demolishes the predictions made by traditional economists about the supposed efficiency of the Market (a word that Erdal capitalises) and the supposed flaws of employee-owned concerns: 

Very little of the money raised by public shares is invested in strategically building businesses – most of it is used for (often destructive) acquisitions and lining the pockets of shareholders and top management.For companies to flourish in the long term, employees must have a real sense of ownership. No management techniques can substitute for the rights and benefits of genuine ownership, but even the managers of employee-owned concerns need to work hard to ensure workers feel involved.

Communication is key: managers must make information fully and openly available, must listen, and must allow employees to make contributions to improving how things are done.Although employee-owners need leaders, given the same quality of leadership employee-owned businesses always outperform those owned by outsiders. The former are more productive, they survive better in bad times, they have lower employee turnover and absenteeism and they give better service (the top-rated companies for service in both the UK and the USA are employee-owned).

Employees in employee-owned companies learn more participation skills, they are better trained, they contribute more innovative ideas, they implement change quicker, and they are wealthier, with communities in which they live benefiting from both money and skills.Many economists are blind to all the above, repeatedly citing old papers based on nothing but theory, and falsely claiming that such organisations will be overwhelmed by free-riders, that decision-making will be impracticably slow, and that employee-owners will forever be falling out with each other. These unevidenced views of economists place significant obstacles in the way of those hoping to set up employee-owned concerns.

As he ironically puts it -

‘Ironically, capitalism itself is built on the idea that owners will work more energetically and creatively, and with greater commitment, than people who are employed by others. Instead of following through [this] logic […], the owners of capital […] have built company structures in which employees have none of the participation of ownership: they have no right to influence the choice of leader or the policies set, and no right to participate in the wealth that they create together. The vast majority of people are systematically deprived of any ownership stake. It is as if they are seen as coming from a different species, insensitive to the galvanising effect of ownership.’

The second section describes the horror of working for publicly traded companies subject to so-called ‘market discipline’ and contrasts this with the experience of employee-owners, and shows why ‘market discipline’ is powerless to curb excessive executive pay and does nothing to promote stability and innovation. It also relates the jaw-dropping history of the employee contract (which Erdal contends violates what should be inalienable rights) and of the present economic system – rigged from the outset in the favour of the rich and powerful.

The impact of asset-stripping by private equity investors on the employees and customers of Debenham’s, as well as its suppliers, is powerfully conveyed. After all but destroying staff morale, delaying payment for suppliers, decreasing investment in new stores and the refurbishment of old ones, and making various cut-backs and redundancies, investors left the company nearly £1 billion in debt. 

.........Crucial to the success of all employee-owned businesses are consultation and keeping employees informed: ‘If it feels to the managers like overkill – as if they are giving out too much information – then they may be close to giving out enough’. People must also be allowed to make a difference, and increased efficiency should not result in people being sacked – they can be redeployed or given further training. Although hierarchies do exist in employee-owned concerns, their purpose is simply ‘to enable the front-line workers to be wholly effective’.

Sustaining employee ownership requires some thought: ‘The structuring of the ownership is of crucial importance in ensuring longevity. When all the shares are held by the individual employees a substantial ‘repurchase liability’ – the need eventually to find the cash to buy back the shares – builds up.’ Erdal discusses this topic in some depth, suggesting various alternatives and criticising US ESOPs (Employee Stock Ownership Plans, where shareholding trusts take the form of pension funds) as being ‘vulnerable to Wall Street types’. He champions the capital account system used by Spain’s Mondragón group, and urges tax concessions to support this.
However employee-owned businesses are structured, Erdal believes that in the end they can ‘be made effective only through the courage, energy and personal ethics of those involved’. Nonetheless, he maintains that they are certainly less vulnerable to abuse of power by CEOs than public corporations where ‘CEOs are running away with the loot’.......

.......Contrary to economists’ predictions, reinvestment is not a problem for employee-owned concerns as people generally ‘want to keep the company strong for their own sakes and they want to pass it on strong to the next generation’. As Erdal says, ‘They are much more than the money-grubbing automata of economists’ models’.

If by this stage you are still not persuaded of the virtues of employee-ownership, perhaps you will find Erdal’s measurement of the wider effects of employee ownership on communities in Italy convincing. Erdal compared three similar towns, differing only with regard to the proportion of their residents working for employee-owned concerns. He found that where many people worked for such businesses, residents lived a lot longer, they enjoyed larger and more supportive social networks, they perceived political authorities as being more on their side, more voted, they believed that domestic violence was less prevalent, they donated more blood, their children stayed at school longer and did better, and, ‘to a radically greater extent’, they continued being trained and educated throughout their lives. Most intriguingly, they apparently didn’t bother buying big cars to show off their wealth, despite having higher disposable incomes! Employee-ownership kills conspicuous consumption?