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Employee ownership in America: the equity solution.

Employee Ownership in America: The Equity Solution.

Employee Ownership in America: The Equity Solution. Corey Rosen, Katherine J. Klein, Karen M. Young. Lexington, $19.95. "The problem with capitalism is that there aren't enough capitalists,' Senator Russell Long once said. The shortage, say the authors of Employee Ownership in America, reflects only a lack of opportunity. Given the chance to own at least part of the company for which they work, most employees say the best part of helping to run the show is the chance to make more money.

This finding contradicts the prevailing theory that participation in decision-making and improving the quality of work life are the keys to employee satisfaction and commitment. But let's face it, a boring job, no matter how decorated with "input,' is still a boring job, and workers understandably want a little more tangible compensation for the tedium. Nonetheless, the authors are quick to add that without worker participation in management, businesses will not achieve the gains in productivity, growth, and profitability that distinguish the most successful employee-owned companies.

Those companies' stories are often remarkable. For example, employees own one-third of Lowe's Companies, which has grown in only two decades to become the country's largest retail and wholesale hardware chain. Sales per employee are two to three times those of its competitors. A number of workers have retired with stock valued in six figures. W. L. Gore and Associates, maker of the fabric "Gore-Tex,' has no management hierarchy but is growing at 25 percent per year. The lure of that kind of success has not, however, been enough to overcome the reluctance of many companies to share power with their workers. Only when Congress (and some states) made employee-ownership plans more attractive by offering tax advantages in exchange did the idea make boardroom agendas across the country. Those tax breaks are no pittance: the loss to the federal government in 1986 alone will be $2.5 billion. And, indeed, only 7 percent of the companies surveyed for Employee Ownership said they would have set up their employee-ownership plans without the tax breaks. Endorsed by "everyone from Paul Volcker to Tom Hayden, from the New York Stock Exchange to the Teamsters, from Ted Kennedy to Ronald Reagan, and from the Pope to the Chamber of Commerce,' employee-ownership plans, which included only 500,000 workers a decade ago, now cover more than ten million.

Rosen et al focus almost exclusively on employee stock ownership plans (ESOPs), by far the most common form of employer ownership. Their survey of 45 representative companies and 3,700 employees yields valuable statistics supporting employee ownership. Some of the data contradict common assumptions. The size of the share of the company that workers own, for example, and the reason a company sets up an ESOP don't seem to affect worker satisfaction or commitment.

The authors err by not balancing their enthusiasm for employee ownership with more than whispers about its problems. Faced with a takeover bid by Carl C. Icahn in 1983, Dan River, Inc. went private, ending its employees' pension plan and setting up an ESOP that gave workers 70 percent of the company. But those workers got few of the voting rights that usually go with ownership and received little decision-making authority. This, along with continued layoffs and plant closings, has made workers bitter. The authors only hint at the effect such abuses may have on public and congressional support and therefore on the continued growth of employee ownership. This is an important point because the Reagan administration's original tax reform plan would have done away with a number of the ESOP tax benefits. Nor is there much discussion of whether companies can sustain their great leaps in productivity and growth. The authors also fail to examine the risks employees take by depending on one company's continued success for their retirement benefits. If things go poorly, they can lose everything.

But that is, after all, the big risk in being a capitalist. Corporations struggling to remain competitive should recognize the value of spreading that risk among their workers, whose own best interest, unlike that of absentee shareholders, lies in the business's long-term efficiency and productivity. But reaping the reward for everyone depends on workers having not only a real investment in the product of their labor but also a real opportunity to affect that product's success or failure.
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Author:Krause, Kitry
Publication:Washington Monthly
Article Type:Book Review
Date:Dec 1, 1985
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