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Employee ownership of Allied Bank - a potential scam.

The Government sold it to the Allied Management group, as perhaps they did not have another buyer on such a high price. Moreover it had to make some political profit by showing, though fallaciously, that they had the interest of the workers nearer to their heat than the opposition who proclaims to be the champion of underdogs.

The euphoria about the selling of the part of stock Allied Bank to its employees has since subsided to some extent. It is, time now that a more sober view of the position is taken and the latent weaknesses in this affair are identified through balanced and more realistic critical analysis. It may be a pessimistic outlook, but fact of the matter is that when in the realm of financial institutions anything with an aura of scam or having a potential of turning into a scam surfaces, it can always be seen through applying average common sense of a layman. Most of the time even the sequence of happenings and the time frame can also be very accurately predicted. It is however seldom that such a premonition is timely committed to the appear or publicised.

Under the social, economic and political objective conditions obtaining in our country, a rat can be distinctly smelt in the ABL affair. The statements issued and sentiments expressed in this behalf by various persons and quarters in the media appear to be mostly superficial and sometime rather ludicrous. First of all the notion that by acquiring a few shares, an employee becomes the owner of an organisation is nothing but fallacious. In theory each shareholder, how small his holding may be is one of the owners of the corporation body. But a corporate body is actually owned, managed and run by the Board of Directors who form its policies and look after its day-to-day affairs. Then in theory aboard of directors is elected by the shareholders, but in practice majority shareholders, manipulators, connivers and powerful always call the shots. As such all the employees of ABL are not the owners of Allied Bank they have just been manipulated and subjected to demagoguery to fall prey to the illusion that all of them have become owners at equal footings with one another.

The persons who formed the Allied Management group exploited their colleagues by playing on their fears of unknown, and the uncertainty about the security of their jobs. The average employee was entrapped and succumbed to the overture due to very feeble job market in the country in general and in the banking industry in particular. As such preference had to be made for purchasing existing job which might be for a short frame of time only ignoring other hazards of this proposition and suppressing genuine fears in this behalf. Those who were not agreeable had to fall in line as they had no option but to do so in face of tactics adopted in the take over campaign against them and finding their very jobs in jeopardy.

In view of foregoing, Allied Bank is not owned by all its employees and most of them have just pressurised and coerced to be the shareholders. The ownership of an average worker can be compared with ownership of an ordinary citizen of any Government run corporation or nationalized bank as there is only difference of scale between the two.

Now let us see from another angle, is this ownership beneficial for an average shareholder? The answer is big NO. Ordinarily in free market economy purpose of each business organisation is to maximise profits for its stock holders and to provided adequate return on the investments made by them. In this case mostly the funds have been raised by allowing liberal advances to the employees, whose liabilities have ballooned disproportionately leading to a large bite in their take-home salaries. Besides making them liable to pay huge amounts of mark-ups. Now a share purchased on such a high rate of Rs. 70 for having face value of Rs. 10/- in no way can produce income commensurating with the investment. While there is not going to be any reasonable return from the investment of employees in the stocks of Allied Bank, there is no market presently where they can sell the same even on loss. Because they are obligated to keep the shares in their own names for atleast five years. If and when its shares will be put on sale in the stock market a steep fall in its value is expected immediately.

The question arises if it was such a bad proposition, why the ABL was purchased in this way and why the Government sold it to that group. The answer is simple, a financial institutional like Bank for those who are at the helm of the affairs provides power to manipulate funds taken from depositors as trustees and the return on equity is considered rather, secondly in their order of priorities. Now if a bank is owned by businessmen or stock holders at large the same will be run like any other business house with the object of maximizing profits, which may be partly paid as dividend and partly ploughed back as reserve or utilized for expansion. While if the same is run and controlled by Board comprising of employees they will be interested mostly in public relationship and enhancements of their perks for small selected group. Its affairs and position will not be just like that of Nationalized Commercial Bank but a lot worse. Eventually everything remaining the same, it will go down the drain in a matter of two to three years at the maximum. As now the regulatory framework of PBC or Ministry of Finance will also be missing and the effectiveness of the outside directors will be minimal.

The Government sold it to the Allied Management group, as perhaps they did not have another buyer on such a high price. Moreover it had to make some political profit by showing, though fallaciously, that they had the interest of the workers nearer to their heart than the opposition who proclaims to be the champion of underdogs.

Another factor which is likely to be responsible for accelerated deterioration of the affairs of ABL is the relationship amongst various cadres of its employees. In order to win the co-operation of all the cadres of employees expectation have been unduly aroused, which could in no way be satisfied. A union office holder or an ordinary junior officer on the Board as promised by group initially is just unthinkable and impracticable. Soon the realities of the situation will crystallize and seen clearly by the junior cadres, who will be at first appeased to certain extent. But eventually in absence of any Government cover or strong-armed force of entrepreneurs the union and association people would create storm of disturbance telling upon the customer service and routine working of its branches. While the depositors would also realize that they have neither the cover of sound and established entrepreneurs or that of the Government which was available to the depositors of Nationalized Commercial Bank. As such ABL would follow the path destined for investment companies of Karachi and or the Cooperatives of Punjab.

When one talks of the potential hazards in the scheme of things obtaining in the case of Allied Bank, one hears from its proponents about successful working of employee's ownership in Japan and some other European countries. There is no doubt that a number of models of success do exist in the world, with employees' ownership of the stock of the firms. But in a developing country like Pakistan, where business ethical standards are at its lowest ebb and value formation process is at the elementary stage, success of such a scheme does not have even remotest chance.

It has experimental value only. As such it will be in fitness of things that no other financial institution is handed over to any of the so-called employees' management group. While we have already so many rip of financial scams, the Government should not continue to add to their numbers. We should just watch and see as to how this one slides on its charted route to doom in a couple of years. These observations are merely meant as a matter of record to be referred when eventuality befells as apprehended.
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Author:Choudhry, Maher Elahi
Publication:Economic Review
Date:Oct 1, 1991
Previous Article:The case against privatisation.
Next Article:Exchange and payments reforms in Pakistan.

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