Report to the German Marshall Fund
European-American Working Group
Meeting
on Broadening Employee Ownership
October 6-8, 2002
Held at the National Cooperative
Business Association,
1401 New York Ave., Washington,
D.C.
Prepared by
Jacquelyn Yates, John Logue and
Deborah Groban Olson
Capital Ownership Group
Ohio Employee Ownership Center
Kent State University
November 1, 2002
Report on European-American Working
Group Meeting
on Broadening Employee Ownership
Executive Summary
The initial meeting of the
European-American Working Group on Broadening Employee Ownership was conducted
successfully on October 6-8, 2002, in Washington, D.C. There were twenty-seven participants
including nine Europeans; they included leaders of employee ownership
organizations, academic and think tank researchers, and business and labor
leaders from both sides of the Atlantic.
Interest in employee ownership and
employee shareholding continues to grow on both sides of the Atlantic, despite
problems associated with the current stock market collapse and recession. Governmental reasons for promoting ownership
include a desire that it will result in broadening wealth distribution, faster
economic growth, stabilized employment and reduced labor-management conflict. Employers are interested in aligning the
interests of workers and shareholders in large firms and in solving problems of
ownership succession in small and medium-sized firms. Labor is interested in preserving jobs and gaining a voice in
management and governance of enterprises.
The shape of political support for employee ownership is highly variable
from country to country. In some cases,
support comes mainly from the left; in others, mainly from the right. Modest progress toward consensus among the
social partners has occurred in Belgium, Netherlands and U.K.
There are model employee-owned
companies in several countries. These successful firms tend to practice
transparency in accounting and production information, participative governance
and management, and networking among individual enterprises.
Law and policy on employee
ownership varies enormously among countries on both sides of the Atlantic. The differences are profound and rooted in
differing ideas of the role of the individual and the government in
society. Countries that offer tax
benefits and institutional support have more ownership than countries that do
not. Within the European Union, there
is a real need for
dialogue and identification of
possibilities for common policies to facilitate business expansion and mobility
of employees across national borders.
Financing for employee buyouts and
capital investment in employee-owned companies is more available than a few
years ago, but the population of investment firms with an interest in employee
ownership is small. Increased levels
of financing could be offered through special banks or pension fund
investments.
New points of departure for
additional initiatives are offered by the new European Commission Communication
“On a framework for the promotion of employee financial participation, ”
adopted in July 2002, and the International Labor Organization’s new
recommendation on cooperatives, adopted
in June 2002.
The working group concluded by
developing an extensive list of joint research topics which have clear policy implications and issues
for the agenda of future meetings.
Report on the European-American
Working Group Meeting
on Broadening Employee Ownership
Introduction
The first meeting of the
European-American Working Group on Broadening Employee Ownership started with
dinner with all the European participants and the American participants from
outside the Washington area on Sunday, October 6. The sessions on Monday, October 7, and Tuesday, October 8,
included numerous local participants and were hosted by the National
Cooperative Business Association, the umbrella organization for American
agricultural, consumer, and worker cooperatives.
The working group assembled an
exceptionally strong, representative group of 27 European and American
participants which included leaders of
major employee ownership associations in both the European Union and the
United States, leading academic and think tank researchers, business
consultants, and trade union and business leaders. (The fact that the group was a little larger than that
anticipated in the proposal reflects increased participation from
Washington-area experts.) Their common denominator: a strong interest in
exploring joint European and American collaboration around research and policy
development on broadening the ownership of productive assets.
The agenda, list of participants,
and papers and power point presentations developed for the working group
meeting and for the subsequent international conference are attached.
The purpose of the meeting was to
develop a close, collaborative relationship among European and American
employee ownership experts and organizations.
That was, we believe, significantly achieved. What rapidly became clear was that none of the participants had
anything like a complete overview of both the European and American situations;
indeed, many of the Europeans found themselves learning as much from their
European counterparts from other countries as from their American counterparts.
While the papers and formal
presentations were very informative, the dynamism of the group’s discussions
was remarkable. The group explored ways to utilize the assembled talent to
develop more sophisticated strategies to expand participative employee
ownership on both continents.
The European-American dialogue will
continue through significant American participation in the European Federation
of Employee Shareownership’s 4th European conference in Bilbao,
Spain, on November 20-22, 2002.
The working group meeting was
followed by the international policy conference of the Capital Ownership Group
(COG) “Fix Globalization: Make it more inclusive, democratic, accountable and
sustainable.” Practically all the
participants in the European-American working group meeting took part in this
broader forum on October 9-11 that was kicked off with a legislative briefing
in the Hart Senate Office Building.
What follows is a summary of the
major themes of the working group discussion, results of brainstorming of
collaborative research topics and future meeting agenda items, and a list of
participants. Written materials
prepared by working group participants for the working group session and for
the subsequent COG conference are attached in the appendix.
1. Major themes of Working Group
discussions
Interest in employee share
ownership
Interest in employee share
ownership continues to slowly grow among governments, enterprises,
practitioners and academics on both sides of the Atlantic. In the U.S., a very large increase in the
use of stock options as part of compensation and employer contributions of
stock to 401(k) plans has more than doubled the number of employee shareholders
in ten years, but the impact of the recession is still uncertain, as stock
options lose their appeal in a declining stock market and some 401(k) holdings
have been pummeled by the effect of corporate financial accounting
scandals. In Europe, shareholding has
also increased, and the European Union continues to allocate modest resources
for studying and encouraging employee share ownership and other forms of
financial participation. In the U.K.,
there is new law and new organizational support for employee ownership. Belgium passed an employee share ownership
law in 2001. A new association of employee
shareholders, the European Federation of Employee Stockownership (EFES), has
been established in the European Union, and the European Commission has issued
a new communication on financial participation of employees which may have
substantial impact in the future. By contrast, in Spain legislation on worker
ownership through cooperatives takes place on a provincial and/or regional
level, so there is substantial legal diversity within the country. In Eastern
Europe, a large number of employee-owned firms were created in the process of
privatization; some are doing well, but overall, numbers of employee-owned
firms there are dwindling, and there is little encouragement from government in
the form of support organizations or tax incentives.
Sharing recent national
developments seemed to be a high priority item for the participants and was
listed as a subject for continued discussion at future working group meetings.
Attitudes of the social partners
Typically, but not universally,
trade unions have resisted employee ownership, but now seem to be reassessing
their position, more in some countries than others, as they seek new tools to
deal with global concentration of capital.
Labor is concerned with job security and a desire to participate in the
management and governance of the firm.
In the U.S., the United Steel Workers of America have been at the
forefront of encouraging employee ownership, even establishing a
Worker-Ownership Institute to advise and support their members in worker-owned
firms; the AFL-CIO was represented in the working group meeting and in the
subsequent COG conference. In Europe as
well, labor’s attitude toward worker ownership varies greatly. Swedish labor
has long been among the most hostile to employee ownership, but has recently
begun to take a second look. In the
Netherlands, labor has long been opposed, but has recently moved toward
consensus with the employers’ organizations, seeing potential benefits and
understanding that employee ownership rightly structured is not a threat to
established labor organizations or their individual members. In some states, opposition has come from
employers’ organizations. When
employers’ organizations are supportive, they tend to advocate a completely
voluntary policy, tax incentives, low reporting and regulatory requirements,
broad freedom to structure the firm, including the ability to deny employees a
share in governance, even when they are owners. Where employers take an interest, they focus on using employee
ownership to solve problems of succession and aligning the interests of
employees and shareholders to gain a competitive advantage in the market.
The role of unions was judged to be
very important in moving broadened ownership forward, and the crucial role of
the unions in the new International Labour Organization recommendation on
cooperatives was noted.
Models for employee ownership
While employee owned companies may
be structured in a variety of ways, research has shown that certain practices
and structures are especially helpful for encouraging economic growth. These include participative management,
shared governance including worker-owner representation on the board of
directors, a flat management structure, and training and information for all
members of the firm from the boardroom to the shopfloor to develop
understanding of the business and its industry. The weight of accumulating evidence strongly supports the
conclusion that employee-owned firms that follow a strong regimen of
participation and training will benefit from more rapid growth and steadier
demand than comparable traditional firms in their industry. The Mondragon
Cooperative Corporation in Spain is most widely admired and cited in this
regard. Today the Mondragon co-ops have more than 60,000 employee owners and
rank among Spain’s top ten industrial companies, retail chains, financial
institutions, and exporters.
Employee ownership and public
policy
National law and policy on employee
ownership varies hugely among North American and European states. The very conceptualization of purposes and
structure of employee ownership differs from country to country. Some countries approach employee ownership
strictly as an option for current owners, while others find an interest of the
state in stabilizing employment, redistributing wealth, or encouraging economic
growth. Some states willingly
encourage it with a variety of tax incentives and organizational support, while
others provide nothing at all. Recent research has clarified the extent of
variation, but study of the costs and benefits of different approaches is in
its infancy. It appears that there are benefits to be identified in several
national approaches, and much work remains to explore the possibilities for
developing consensus on a model approach.
A minimum common approach is desirable because the present variation
sometimes imposes heavy costs on the growth of firms and movement of
individuals across international boundaries.
Investment in employee ownership
While it is clear that national
policy can encourage broader employee ownership through tax policy and support
organizations, employees can have difficulty raising the initial capital to
make buyouts and obtaining favorable credit terms for expansion, particularly
during the early years of life as an employee-owned company. There are only a small number of investment
firms interested in investing in employee owned companies. One successful
solution to this challenge can be seen in the model of the Mondragon
Cooperative Corporation, which established a bank for its member
cooperatives. Another solution is
unfolding within the labor movement, which has become increasingly concerned
with investing labor pension funds consistent with the interests of its members
and retirees. In Canada, this has taken
the form of provincial labor-sponsored investment funds that focus on
investments in the provincial economy, with a preference for employee
ownership. In the U.S., labor pension
funds have led other pension funds in developing proxy voting guidelines for
professional fund managers, including accounting and governance standards, use
of responsible contractors, neutrality to unions in placing private equity
investments, and ethical investment in emerging markets. Organized labor is becoming interested in
investing in employee-owned companies, particularly within regions hard-hit by
recession and deindustrialization.
New European and international
initiatives
In summer 2002, both the Commission
of the European Union and the International Labour Organization (ILO) undertook
new policy initiatives which will affect employee ownership.
The new European Commission
Communication “On a framework for the promotion of employee financial
participation, ” adopted in July 2002, offers significant new points of
departure for additional European initiatives.
It calls for the establishment of a new expert commission, which will
build on ten years worth of European Union-sponsored research in this area, and
for a major program of input at the national level from the social partners and
from others in all the European Union member states.
The ILO has taken an interest in
cooperatives since its founding in 1919.
Its cooperative technical service was established in 1920. Its
Cooperative Branch, which provides technical support for cooperatives, sets
standards and encourages support for all kinds of cooperatives, including those
that are worker-owned. Its 176 member states send delegations from government,
employers and labor to an annual conference.
The June 2002 conference adopted a new Recommendation (No. 193)
concerning the promotion of cooperatives.
This Recommendation expanded the ILO’s focus on cooperatives as an
important tool for workers in developed countries. (The prior ILO cooperative
recommendation from the 1960s had focused on the use of cooperatives as a tool
for developing countries.) Thus, Recommendation No. 193 expands the mission of
the ILO Cooperative Branch in a way that dovetails with the growth of employee
ownership in Europe and the US. The Recommendation is not binding on members,
but sets goals which members may work toward.
The new recommendation on cooperatives urges that they have legal
standing, equal treatment with other enterprises, support from government and
employers’ and workers’ organizations, and the ability to participate in
international communication and economic exchange with other cooperatives.
Joint research and future meeting
topics
The group spent much of the final
afternoon brainstorming and discussing possible collaborative research and
policy development ideas as well as topics worthy of focus at future meetings.
Research topics ran the gamut from
basic research (how does broadened ownership impact the micro level, such as
rates of reinvestment; the community, such as health and civic participation;
and the macro level, such as rates of growth) to comparative policy analysis
and development. Several of the topics discussed at the working group meeting
have been added to the agenda for a European-American issue of the Swedish
journal Economic and Industrial Democracy to be edited by Nijmegen
University professor Erik Poutsma.
The discussion of future meeting
topics generated enough subjects for several additional meetings, and there
seemed to be a strong interest in continuing the trans-Atlantic dialogue on
broadening ownership of productive assets.
The results of the brainstorming of
possible collaborative research topics and future meeting agenda topics follow
in sections 2 & 3.
Brainstorming is an excellent
method to put ideas on the table, not to flesh them out. This brainstorming list of research ideas is presented with that
caveat.
Theory
Create a discussion framework on
theoretical and practical approaches to empowerment of ordinary working men and
women: what is the utility of the ownership-based approach compared and
contrasted to a democracy-based approach?
How does broadened ownership impact
macro-economic performance?
This would include
1) a cross national analysis that
uses
* the University of Texas
“inequality project” data
* the Australian report on
inequality
* the study funded by the MacArthur
Foundation on the impact of inequality on growth
2) new data collection as necessary
The inverse – the impact of the mal
distribution of wealth on growth – is also worthy of study. As part of this area of research, effects of
merger and acquisition activity leading to increased absentee ownership deserve
analysis. In particular, what happens
to technology companies when control passes from local to absentee ownership?
How does employee ownership affect
communities?
* Replicate findings of David Erdal
with additional studies of the impact of cooperatives on community health –
physical and emotional. Compare matched
communities with and without cooperatives/employee ownership.
* Analysis of the impact of where
decisions are made, especially through broadened, locally anchored ownership,
on the community: on measures of community economic performance and social
indicators.
Corporate governance
* What can Americans in the
post-Enron debate on corporate governance learn from German corporate
governance and co-determination?
* From other European countries’
experience?
* From the recent EU decisions on
worker representation in corporate governance in the European corporations?
Economic development
* Study Canadian regional
development for lessons for Europe and the U.S.
* Compare use and impact of company
networks among cooperatives and other employee-owned companies
* Explore trends in new economic
institutional development/employee ownership and develop policies to encourage
ownership
* Compare national policies on what
governments get in return for providing
subsidies and supports to private companies
* Local economic development
agencies’ involvement with cooperatives and employee ownership
Training and education
* Compare management training
designed for cooperatives, employee-owned companies and participative
management. Examples: Mondragon
University (Spain); Nijmegen University (Netherlands) School of Business
Conference on Social Responsibility; College of Notre Dame of Maryland (US);
University of Manitoba (Canada). Develop model program.
* Develop and promote training for
worker directors
* What do we know about the impact
of school programs that teach principles of cooperatives, sometimes as early
(as in rural Ohio) as the 4th grade curriculum?
Trade unions
* Compare trade-union experiences
in worker-owned companies
* Bring the trade union leaderships
together for education and exchange of experience on employee ownership (EFES)
* Comparative union experience with
participation systems and corporate governance
Investment issues
* Identify mechanisms that
facilitate savings (and funnel them into worker ownership)
* What is the impact of tight money
policies on financing employee ownership across nations?
* Investment of trade union pension
funds in the U.S. and Europe: focusing them more on employee ownership
* Compare investment patterns in
worker-owned and conventionally-owned companies
* Are there successful asset
building systems that work in advanced industrial democracies? How do they work? Can they be replicated?
* Can Individual Development
Accounts (IDAs) be successfully linked to employee ownership?
3.
Possible topics for future meetings
Here is the list of topics
brainstormed for future working group meetings.
Continuing mutual national updates
There was general agreement that
the national updates were extremely useful.
Identify and explore central
theoretical issues
* What is the role of employee
ownership in system change?
* What are effective strategies for
spreading employee ownership?
* Why is it important to promote
employee ownership?
* Identify distinctive cultural
approaches, for example French-German style vs. Spanish vs. Anglo-Dutch vs.
U.S.
Develop standards for
* ownership impact statements
* reporting employee ownership in
public companies which could be applied in both North America and Europe
Cooperatives and Mondragon
* What are the limits of the
Mondragon model?
* Consolidate and compare what we
know about the economic performance of worker-owned and cooperative companies
* Comparative law on cooperatives
and worker ownership
Discussion of employee ownership in
privatization and deregulation
Trade unions
* What local trade unions can do
with worker ownership
* Education of senior trade union
leaders in employee ownership basics, perhaps with visits to unionized
employee-owned firms
Discussion of new openings in the
public debate for broadening ownership
* The failure of Enron, etc.,
demonstrates failure of current approach to corporate governance.
* Collapse of Argentina’s economy
and elections in Brazil raise issues of the viability of Washington consensus
policies.
* Employee pension funds were among
the primary groups which lost out. How
should they invest instead?
* Short-term thinking has
failed. What are the alternatives?
* The expansion of the European
Union to include as many as ten new member states offers impressive
opportunities as well as challenges (Cyprus)
* Rethinking privatization and
deregulation
Sustaining local economies in
economic globalization
* Responding to dislocations caused
by plant shutdowns
* Reconstructing local financial
institutions
* What is the impact of local vs.
absentee ownership?
* Creating new institutions for
community economic development
Continuing the dialogue between
meetings
* How do we best share experience
on an ongoing basis (the web?)
* How can we assist each other and
on what issues?
4. Conclusion
The European-American working group
meeting was successful beyond our expectations.
(1) The group of participants was
larger and more centrally placed than we expected. The only major group not represented was the European
cooperatives (although some of the individuals present were involved in the
European cooperative federation); the reason was the fact that the
International Cooperative Alliance was holding a meeting at the same time.
(2) The discussions were lively
throughout; it was clear that they could have continued usefully.
(3) The research agenda generated
by the meeting could shape the research work of a generation of scholars in
this area. Likewise, the discussion
topics proposed for future agendas could fill several working group
meetings.
(4) The discussions have already
impacted the development of at least two new joint projects: a special issue of
the Swedish journal Economic and Industrial Democracy, to appear next
year, and a small volume that is likely to be published and distributed by the
International Labour Organization.
This initial working group meeting
suggests that there is sufficient interest to continue such working group
discussions, especially if they can be coupled reports of individual and joint
research.
Attachments
List of participants
Agenda for meeting
Papers for working group meeting
& subsequent COG meeting
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Participants
Per Aahlstroem, longtime labor journalist, now
consulting in business training, Sweden
Gar Alperovitz, Professor of Economics,
University of Maryland, and Democracy Collaborative, US
Dan Bell, International Program
Coordinator, Ohio Employee Ownership Center, US
David Binns, Vice President of Beyster
Institute (formerly Foundation for Enterprise Development), Washington, D.C.,
US
Ray Boshara, New America Foundation, promoting
means for poor people to develop assets, US
Adrian Celaya, General Secretary, Mondragon
Cooperative Corporation, Spain
Steve Clem, Ohio Employee Ownership Center,
US
Tom Croft, executive director Steel Valley
Authority in western Pennsylvania, a regional development fund promoting
redevelopment and employee ownership, US
Carla Dickstein, Coastal Enterprises, Maine, US
Richard Dines, National Cooperative Business
Association, Washington, US
David Ellerman, economist and founder of the
Industrial Cooperative Association in Boston, former speechwriter and advisor
to Joseph Stiglitz, at the World Bank since 1992, US
David Erdal, Director of Baxi Partnership
Limited, an investment company owned by employees of companies seeking to
convert their firms to 100% employee ownership, UK
Juan Guillermo Espinosa, Economist, external advisor, UN
Economic Commission for Latin America and the Caribbean, Chile
Paul Hazen, President, National Cooperative
Business Association, Washington DC, US
Mary Landry, Board Member at Maryland Brush
Company, an employee-owned firm, US
Matthew Lea, Director of International
Research, National Center for Employee Ownership, Oakland, California, US
Mark Levin, Director, International Labor
Organization’s cooperative division, Switzerland
John Logue, Director, Ohio Employee Ownership
Center, Kent State University, US
Leta Mach, National Cooperative Business
Association, Director of Cooperative Education, US
Mark Mathieu, economist and executive director
of European Federation of Employee Shareownership, Belgium
Deborah Olson, Executive Director, Capital
Ownership Group, Detroit, Michigan, US
Eric Poutsma, Associate Professor, Nijmegen
University, Department of Business Administration, Human Resource Management
and researcher on employee financial participation in Europe, Netherlands
Carl Rist, Corporation for Enterprise
Development, Washington DC, US
Joel Solomon, Assistant Director, Center for
Working Capital, AFL-CIO, US
Vic Thorpe, principal of Just Solutions, a
consultant network for labor unions and worker-friendly initiatives and former
general secretary of International Chemical, Energy, Mine and General Workers
Union, Belgium
Pierre Vanrijkel, president of European Federation
of Employee Shareownership, Belgium
David Wheatcroft, Job Ownership Ltd., and
employee-owner, Chesterfield Bus Company, UK
jl.admin16.GMF meeting report
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