3 ms·

Employee ownership is overrated

13 points by cwan 15y ago

chrismealy 15y ago
Typical Economist waffle. At least they admit the real problem, the boss says no: "At base, it is unrealistic to expect many bastions of capitalism to turn their shares over to their workforce"
- jiggy2011 15y ago
  I guess it would also become more difficult raising money via the markets without diluting employee stake.
- dmlorenzetti 15y ago
  A friend of mine helps employee-owned companies get set up and running. When I first met him, this was my big question-- how do you get a business owner to just hand things over? Apparently a common model is that somebody builds up a business, and, on deciding to retire, sells the company. The current employees can be the purchasers, and they can, of course, compete with other potential purchasers. This can also happen at larger companies that run into troubles. For example, United Airlines (http://en.wikipedia.org/wiki/United_Airlines http://en.wikipedia.org/wiki/United_Airlines): "The aftermath of the Gulf War and increased competition from low-cost carriers led to losses in 1991 and 1992. In 1994, United's pilots, machinists, bag handlers and non-contract employees agreed to an Employee Stock Ownership Plan (ESOP), acquiring 55% of company stock in exchange for 15% to 25% salary concessions, making the carrier the largest employee-owned corporation in the world." As you might expect, it is not the model that a group of workers agitate to have the company just handed over to them, and it is not the model that the "bastions of capitalism" just turn over shares for nothing.
- pnathan 15y ago
  Ah, the approach I am familiar with is that the bastion of capitalism turns over his shares and, in turn, the trust turns over a hefty sum to the capitalist's bank account. It's definitely not a rule-by-workers-soviet setup. I work at an ESOP company.
bradleyland 15y ago
Please do not editorialize the title.
draggnar 15y ago
They make a good point about how if there is too much employee ownership it could hurt growth because the capital base is not flexible enough and also employees might be less mobile. This does not assert their theory of not giving stock to employees.
maeon3 15y ago
Hands off my hen that laid the golden egg or ill shoot you. No you cant have decision rights on the hen, you don't know what is best, now get back to work servicing the hen for minimum wage. The powerful do what they can and the powerless suffer what they must. Propaganda on fairness, equality, merit and rank are just ruses. Power is the key, and those in power prevent others from getting more. The long winded justification on why this is good or evil is irrelevant.
jsavimbi 15y ago
Ah, the bolshies must be making noise in Great Britain again this week.
johngalt 15y ago
Equity is only useful when combined with some measure of control, and you can't run a successful company by employee consensus.
- neilk 15y ago
  "Can't" is rather absolute. So you are saying there are no successful businesses that work this way?
neilk 15y ago
What a worthless article. One study cited, with patronizing language like "cuddly". Then a torrent of anecdotes and speculation to rubbish the idea. We learn that it's not the solution to everything (what is?); that some firms that use this model have failed (as opposed to traditional firms, which last forever?), and then it degenerates into mere speculation, raising the spectre of Bolshevism. Maybe the Economist has forgotten this, but incentives matter. Anyone who wants to argue against the principle of employee ownership is also arguing against executive bonuses and stock options. Who's the Bolshevik now?
salem 15y ago
There are actually special tax codes for these kinds of organizations in the UK, which helps them minimizes taxes when they share profits with employees/owners. Metaswitch is one such prominent software company organized this way.

13 points by cwan 15y ago

Typical Economist waffle. At least they admit the real problem, the boss says no: "At base, it is unrealistic to expect many bastions of capitalism to turn their shares over to their workforce"

jiggy2011 15y ago
I guess it would also become more difficult raising money via the markets without diluting employee stake.
dmlorenzetti 15y ago
A friend of mine helps employee-owned companies get set up and running. When I first met him, this was my big question-- how do you get a business owner to just hand things over? Apparently a common model is that somebody builds up a business, and, on deciding to retire, sells the company. The current employees can be the purchasers, and they can, of course, compete with other potential purchasers. This can also happen at larger companies that run into troubles. For example, United Airlines (http://en.wikipedia.org/wiki/United_Airlines http://en.wikipedia.org/wiki/United_Airlines): "The aftermath of the Gulf War and increased competition from low-cost carriers led to losses in 1991 and 1992. In 1994, United's pilots, machinists, bag handlers and non-contract employees agreed to an Employee Stock Ownership Plan (ESOP), acquiring 55% of company stock in exchange for 15% to 25% salary concessions, making the carrier the largest employee-owned corporation in the world." As you might expect, it is not the model that a group of workers agitate to have the company just handed over to them, and it is not the model that the "bastions of capitalism" just turn over shares for nothing.
pnathan 15y ago
Ah, the approach I am familiar with is that the bastion of capitalism turns over his shares and, in turn, the trust turns over a hefty sum to the capitalist's bank account. It's definitely not a rule-by-workers-soviet setup. I work at an ESOP company.

bradleyland 15y ago

Please do not editorialize the title.

draggnar 15y ago

They make a good point about how if there is too much employee ownership it could hurt growth because the capital base is not flexible enough and also employees might be less mobile. This does not assert their theory of not giving stock to employees.

maeon3 15y ago

Hands off my hen that laid the golden egg or ill shoot you. No you cant have decision rights on the hen, you don't know what is best, now get back to work servicing the hen for minimum wage. The powerful do what they can and the powerless suffer what they must. Propaganda on fairness, equality, merit and rank are just ruses. Power is the key, and those in power prevent others from getting more. The long winded justification on why this is good or evil is irrelevant.

jsavimbi 15y ago

Ah, the bolshies must be making noise in Great Britain again this week.

johngalt 15y ago

Equity is only useful when combined with some measure of control, and you can't run a successful company by employee consensus.

neilk 15y ago
"Can't" is rather absolute. So you are saying there are no successful businesses that work this way?

neilk 15y ago

What a worthless article. One study cited, with patronizing language like "cuddly". Then a torrent of anecdotes and speculation to rubbish the idea. We learn that it's not the solution to everything (what is?); that some firms that use this model have failed (as opposed to traditional firms, which last forever?), and then it degenerates into mere speculation, raising the spectre of Bolshevism. Maybe the Economist has forgotten this, but incentives matter. Anyone who wants to argue against the principle of employee ownership is also arguing against executive bonuses and stock options. Who's the Bolshevik now?

salem 15y ago

There are actually special tax codes for these kinds of organizations in the UK, which helps them minimizes taxes when they share profits with employees/owners. Metaswitch is one such prominent software company organized this way.