Tuesday, February 18, 2014

The Way Forward: Corporate Culture or Employee-Owned Business?

by Nomad

Isn't  there any better alternative to the classic corporate business model? With union membership in free-fall, where can the America worker turn to find a decent standard of living, job satisfaction and a more equal voice in the capitalist system? Could the Employee-owned business model be an answer? 

Everybody- except perhaps the 1%- would probably agree that the Capitalist structure is in need of an overhaul or at least a serious reconsideration. Unions- which have in the past provided a bulwark against corporate exploitation of labor and yet, a political power, a return of a influential organized labor  movement seems fairly unlikely. We all owe a lot to the existence of the unions. As The Nation pointed out:
Capitalism was “civilized” thanks to the unrelenting pressure of gritty working-class movements and the ever-present threat of strikes and even revolutions.
However, that may all be in the past.  That system has broken down. 

As the New York Times noted last year,  the long decline in the number of American workers belonging to labor unions accelerated sharply last year, sending the unionization rate to its lowest level in close to a century. States like Wisconsin, Indiana and others, with the help of corporate-funded ALEC enacted new laws that rolled back the power of unions. 
While it may be a bit soon to announce the deaths of labor union movement altogether, some would say this decline might be passed the point of no return. But there are reasons why of the unions haven't magically dissolved. If anything the original reasons for unions- low pay, poor working conditions, profits above all other considerations- are nearly as bad as the time before the rise of unions.

What then are the alternatives to union labor- besides throwing up one hands and leaving it to overpaid CEOs? Progressives often seem paralyzed. and Conservatives appear intend on pacifying the outrage of an imbalanced system where economic inequality and entitlements for the upper crust is the norm.

One possibility is a completely different model based not on union-company confrontation but on a model of participation between workers and the company. No, not a Kumbaya moment by the campfire with workers and management and owners all holding hands. 
I am speaking of employee-owned business model.

A Proven Model for Success
According to the book, Equity: Why Employee Ownership is good for Business, the Employee-owned business model is widespread and enjoys considerable support:
Yet many business people regard it as an oddity or as a potential disaster. It typically boosts a company's growth and profitability, yet the myth persists that it can not work or that it somehow hurts employees. When it is taken seriously... ownership can literally make a difference between going under and surviving, or between just barely getting by and dominating a market niche.
And, the advocates warn, the model cannot be in name only or limited to the top few. To qualify as a true employee owned business(EOB), at least 50% of the shares of a company must be owned by the workers. Anything less will only be a headache without any of the advantages.
But are there any real advantages of this business model?

Last month, Forbes' highlighted a recent book The Citizen’s Share, about an American study conducted by Harvard and Rutgers professors. The study provided "a thoughtful review of the history and analysis of the benefits of encouraging greater employee ownership of businesses" (especially Employee Stock Ownership Plans (ESOPs). 
Key findings of the research in The Citizen’s Share include – “strong evidence that employee stock ownership and profit sharing have meaningful impacts on workers’ wealth. Workers with profit sharing or employee stock ownership are higher paid and have more benefits than other workers.”
It gets even better.
Greater employee ownership is not just good for workers, it’s good for shareholders as well. Employees who have ownership interests are stating that they are willing to work harder, are more loyal, will make more suggestions to improve the company and are willing to stay with the company.
There's one important point the professors reported: It has to be done across the board. The model cannot be limited to management but to all employees.
Most worker shares are generally too small to make a big contribution to income or to reduce economic inequality for a large segment of the population at this time.”
Independent research outside of the US has shown that not only is this percentage important equally important is how the shares are divided up among the employees, how many employees participate. The percentage of employees that own shares has an impact on whether a  business regards itself as employee owned. The higher the percentage, the better. It makes sense. Employees are more likely to feel they have a stake in the company's success, its direction and image.)Therefor the EOB model cannot be a applied superficially- or as a show - for it to be effective. It requires commitment.

Other Studies, Same Findings
According to a UK government study, employee owned business offer a number of clear advantages to companies. From the point of view of efficiency, for example: 
EOBs in professional services tend to have stronger customer orientation than other sectors. In other words, these companies are more likely to implement policies support its sales and service staff aiming at satisfying the client needs
And the study found that in the technical services sector, such companies also appear  to be better at drawing upon process improvement, cost cutting, streamlining  or identifying methods to improve quality.  Given that, companies that use the employee owned model certainly have competitive advantages.

Another obvious advantage, cited in the study, is that EOBs tend to invest more in training and therefore would be less likely to see their employees as disposable commodities. Clearly this would have a impact on employee satisfaction in the long term. Well-trained employees would be an investment for the company as well and could not be so easily replaced by an low-paying entry level worker.

Employees with a voice in the company also made important contributions to the growth of the company. According to research, nearly half the EOBs strongly encouraged employees to build skills in new product development as opposed to only 5 per cent of the non-EOBs in the study sample.

In addition, there were possible advantages not mentioned in the UK study. Since shares in the company are owned by employees (and cannot be privately traded)  there is much less chance that a company will fall victim to vulture capitalism by equity companies. Additionally, privately traded shares might not be as easily influenced by stock market fluctuations, since outsiders could not trade large chunks of the company's stock.   
It could also e argued that the disastrous Citizens United Supreme Court decision would have much less influence on elections if a larger percentage of companies were employee-owned. Why? Because the political views that campaign dollars from EOBs  would tend to represent the working class and not merely the wealthiest Americans. 

On the whole, the study found, EOBs have a more positive media image than non-EOBs. The difference is particularly striking when we compare EOBs and non-EOBs in the manufacturing and processing sector. Can corporate America has any worse a public image than it does at the moment?

Given these points, companies that use the employee owned model certainly have competitive advantages. But there are a few disadvantages too, according to researchers. Anecdotal evidence in the UK suggested that  the employee-owned businesses encounter greater difficulties raising capital in the form of loans from banks. Furthermore there were more problems with government regulations than non-EOBs. That's particularly true when it came to tax laws.

A Golden Opportunity for a Party in Decline
This is where government can do the thing they do best. Encourage the implementation of a better model instead of directing, micro-managing and interfering.

If that sounds vaguely familiar, then it should. It is what the Republicans have supposedly been advocating for the last  50 years. (Instead,  we have is a party advocating a business world without any laws at all and an aristocratic class that feels too good to pay taxes.)

For the Republican party, the endorsement of the EOB business model  could be the cause that could rally the party back to life. As the Forbes article points out:
Washington should be thinking hard about how to expand and encourage greater employee ownership and/or revenue sharing. Expanding employee ownership is a doable path for helping working families and, quite frankly, expanding employee ownership would go far to adding some much-needed sizzle to tax reform.
There's only one problem with this advice. If the Republicans seize this opportunity, what will happen to its usual source of campaign funding, corporations and the super-wealthy? It is much easier to do nothing but obstruct the president's policies- however enlightened or flawed they might be. Thoughtful legislation aimed at encouraging employee-owned business models could be one cure to the nation's economic ills. 

If, on the other hand, Republican politicians really think that American workers are somehow less productive, too greedy or lazy,  or just less deserving than Asian workers, then perhaps they ought to take up politics in Indonesia or Bangladesh. 

The life of the GOP- which at the moment seems perilously close to complete breakdown- might just depend on it. If the Republican Party is to survive as political force, it will have to have offer the nation a reasonable option. At the moment, under the influence of a corporate- funded extremist minority, the GOP is unsustainable.  
By now leaders of the party should have recognized something that's been obvious to the rest of the country. Supporting the 1% come hell or high water, cutting all government spending, cutting taxes is simply not an intelligent platform to win elections.

However, if the Republican party choose to  throw its support behind policies which would encourage employee-owned businesses- and not simply give weak lip-service to the idea- it would go a long way to the rehabilitation to a party in decline.