The ESOP Phenomenon and Democracy in the Workplace

The ESOP Phenomenon and Democracy in the Workplace

WORKING DRAFT

March 12

Frances A. Viggiani, PhD.

College of Business

AlfredUniversity, Alfred, NY

917-656-9234

Introduction

brief history of the topic; major studies

Robert Dahl, 1989, Democracy and Its Critics:

“I have no doubt that may people will immediately reject the idea of extending the democratic process to business firms as foolish and unrealistic. It may therefore be helpful to recall that not long ago most people took it as a matter of self-evident good sense that the idea of applying the democratic process to the government of the nation-state was foolish and unrealistic. This foolish and unrealistic idea was rejected on the one hand by antidemocratic elites throughout the world who thought it obvious that wisdom and realism required some form of guardianship; and on the other by many advocates of democracy, a tiny minority at best who contended that democracy on such a large scale was, as had been well known to all right thinking people for several thousand years, flatly impossible” (1989: 328, emphasis added).

organizational systems is my topic – participatory systems

Since the 1960’s in the US, the idea of workplace democracy has been primarily discussed as a bottom-line topic – and without use of the term “democracy”: the point being, in a competitive, capitalist environment, to be able to argue that there is a useful (i.e. profitable) outcome to higher levels of worker “participation” in organizational systems, such that “employees” are able to experience increased control over the conditions of work. Why would companies want this? Social scientists, in the context of business schools since the 1940’s Human Relations school, have attempted to show that that the motivation of employees – and hence their productivity and profitability for the firm – will be positively affected by increased participation in managerial decisions about work processes and conditions (for example, pace of assembly line; schedule of work breaks; application of ideas for improved production processes).

At the same time, since the political activism in the US during the Depression, and the development of labor relations models in the US context, labor-management interactions and systems have generally down-played the idea of democracy in the workplace, except to the extent that labor laws protecting work rights as against employers’ rights, were considered just and equitable. The goal of union take-over, or worker-ownership of a firm, has generally NOT been a part of this model. Indeed, the topics of participatory management and labor-management have generally been avoided.

As a 60’s/70’s thinker, who absorbed the ideological environment of the Port Huron Statement by Students for a Democratic Society, who helped to found and manage grocery coops, lived in and had friends living in residential communes and collectives, I now am searching for a way to communicate about phenomena which are prevalent throughout the globe, and which follow, at least to some extent, ideas specifically about democratizing work. For an American business scholar this requires a definition of terms, and a discussion of organizational systems and behavior, that are generally so far unexplored.

1.Proliferation of employee ownership: major studies & findings in 3 countries

US Blasi, Kruse et al (2002, 2008, 2005; Logue & Yates (2008)

claim: 20% of US workforce owns jobs through several vehicles

UKAndrew Pendleton (2001, 2008)

two main points re: “small group of ESOPs in the UK”: 1) considerable diversity viz: circumstances of creation; reasons for formation; actors involved in conversion; levels of employee ownership; participatory and governance institutions; 2) objectives, philosophies, and interests of key actors have critical influence on level of share holding, and forms of participation and governance.

IrelandD’Art & Turner (2006)

In Ireland profit sharing/employee share ownership has become of interest in context of national wage agreements. Government, employer and trade union support mean Ireland experiences “favourable conjuncture” (Pendleton, 2001).

However, profit sharing instances are not growing in a clear, evolutionary pattern, and are somewhat related to business cycles, but overall (examples: 2002-2004, 41 new share ownership schemes approved; proportion of employees in private sector covered by approved profit sharing schemes declined from 11.7% in 1999 to 5.9% in 2001).

1.2 people/organizations promoting ESOPs

Blasi et alRutgers center

RosenNationalCenter for Employee Ownership, CA

Logue et alOhioEmployeeOwnershipCenter

Oakshott et alJob Ownership Ltd, London, UK

Pendleton et alYork Univ, UK

Turner et alU. of Limerick, Ireland

2.“A Democratic Workplace”: Definitions and considerations

Where is it written? excerpts from:

Magna Carta (Great Charter of Freedom) - 1215

US Declaration of Independence - 1776

Norwegian Work Environment Act – 1977

Selected theoretical topics re democracy:

i)liberty

ii)equality

iii)happiness

Selected technical issues re the firm:

i)ownership

ii)“employer v. employee”; (“capitalist v. worker”; “entrepreneur”v. job

holder; exploiter/oppressor v. wage laborer)

iii)representation; decision-making

3.ESOPs as democratizing force/influence?

i)Pendleton’s four types: re participation and governance in ESOPs and findings:

representative: participation leads to “substantial advances in employee-owner governance”

paternalist: “some innovations in shareholder representation; little impact on governance

risk-sharing: few developments in participation or governance

technical: no innovations

re attitudes: “capacity for employees to participate in decision-making has a critical influence on whether they feel like owners…[and also] the level of individual shareholdings also has an impact on employees’ sense of ownership” (2001 p. 17)

ii)Take an example: Mondragon. Is more democratic? Obviously. But if all we measure is whether more democratic companies are more profitable, we are not answering the question of democratization. Instead, we have to premise the research questions on the condition of citizens at work: are they more free? Are they more equal? Are they more fairly represented? Are they treated more justly? Are they happier?

If we compare Mondragon with Nike in China; with Monsanto in Indonesia; with Toyota in S. Carolina, in all of these cases, Mondragon would likely be found to be more democratic. If we ask about a 25% ESOP in a company, clearly, the answer is: no. However, if, in the aggregate, 20% of American workers own some part of their job, this is an increasing re-definition of employer-employee relationships, structures, laws and constitutes an historical shift. To the extent that this transforms citizens’ rights to control the fruits/products of their work in emancipatory ways, and moves beyond laws that had prevented such control, democracy is expanded. Clearly there are limits, and rejections – as in Norway and Sweden – of legislative changes

4.“Why not?” Why are there not more?

i)ideologies of management

example of HR college textbooks (US) –French (2007), extensive discussion of incentive pay programs, including ESOPs

note: a new Clashing Sides book on HR coming out this year

ii)“reform or revolution”

“emiseration” is not happening in the US, by and large – certainly is not discussed (labor movement?); low impetus for large scale confrontations over ownership issues; however there is a slow change process happening, as more and more companies use, under either “benefits” or “compensation” rubrics, supposedly motivating gain-sharing, profit-sharing or stock ownership schemes. One could argue that these will eventually become important, as the scale increases.

“freedom” for many Americans is related to the narrative of citizens in “the land of the almost rich” in a “free market competitive economy”: individual success is based on efforts of a poor/working class person being able to succeed by building a business and becoming wealthy; legislation supporting group, community, collective, societal goods would be seen as impeding the individual actor’s paths to success.

iii)Dow’s arguments

iv)Chris Mackin’s arguments

v)Julie Graham - new mode of production within capitalism

Selected References

Ackoff, R. (1994) The Democratic Corporation. New York: Wiley.

Blasi, J. and D. Kruse (1992) The New Owners. HarperInformation.

Blasi, J., D. Kruse, and A. Bernstein (2003) In the Company of Owners: The Truth about Stock Options (and Why Every Employee Should Have Them). New York: Basic Books Group.

Blumberg, P. (1968) Industrial Democracy: the Sociology of Participation. London: Constable.

Bowles, S. and H. Gintis (1986) Democracy and Capitalism: Property, Community and the Contradictions of Modern Social Thought. New York: Basic Books.

Brown, L. (1985) ‘Democracy in Organizations: Membership Participation and Organizational Characteristics’, Organization Studies 6:313.

Case, J., C. Rosen, M. Staubus (2005) Equity: Why Employee Ownership is Good for Business. Cambridge: HarvardBusinessSchool Press.

Cloke, K. and J. Goldsmith (2002) The End of Management and the Rise of Organizational Democracy. San Francisco: Jossey-Bass.

Dahl, R. A. (1989) Democracy and Its Critics. New Haven: YaleUniversity Press.

D’Art, D. and T. Turner (2006) ‘Profit Sharing and Employee Share Ownership in Ireland: A New Departure?’ Economic and Industrial Democracy 27(4):543-564.

Dow, G. (2003) Governing the Firm: Workers Control in Theory and Practice. Cambridge: CambridgeUniversity Press.

Ellerman, D. (1999) ‘The Democratic Firm: an Argument Based on Ordinary Jurisprudence’, Journal of Business Ethics 21:111-124.

Erdal, D. (1999) The Psychology of Sharing: an Evolutionary Approach, unpublished doctoral dissertation, St. AndrewsUniversity.

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Greenwood, D., J.L.G. Santos et al (1992) Industrial Democracy as Process. Stockhom: Van Gorcum, Assen/Maastricht.

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Gustavson, B. and G. Hunnius (1982) New Patterns of Work Reform: The Case of Norway. Oslo: Universitetsforlaget.

Hansmann, H. (1996) The Ownership of Enterprise. Cambridge: HarvardUniversity Press.

Harley, B., J. Hyman and P. Thompson, Eds. (2005) Participation and Democracy at Work. New York: Palgrave MacMillan.

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Holmstrom, M. (1989) Industrial Democracy in Italy: Workers Co-ops and the Self Management Debate. Aldershot, UK: Avebury, Gower Publishing Company Limited.

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Kaufman, B. E. (2000) ‘The Early Institutionalists on Industrial Democracy and Union Democracy’, Journal of Labor Research 21(2):

Kruse, D.(2002) ‘Research Evidence on the Prevalence and Effects of Employee Ownership’, Journal of Employee Ownership Law and Finance 14(4): 65-90.

Logue, J. and J. S. Yates (1999) ‘Worker Ownership American Style: Pluralism, Participation and Performance’, Economic and Industrial Democracy, 20:225-252.

Logue, J.(2005/2006) ‘Economics, Cooperatives and Employee Ownership: the Emilia-Romagna Model’, Owners at Work XVII(2):4-9.

Mackin, C. (2008) “Why Not Ownership? Mapping the Resistance”. International Association for the Economics of Participation, HamiltonCollege, Clinton, NY.

Oakeshott, R. (2000) Jobs and Fairness: the Logic and Experience of Employee Ownership. Wilby, Norwich: Michael Russell.

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of the HarvardBusinessSchool and the HumanRelationsSchool’, Academy of Management Review 24(1): 117-131.

Pendleton, A. (2001) Employee Ownership, Participationh and Governance: A Study of ESOPs in the UK. London: Routledge.

Pateman, C. (1970) Participation and Democratic Theory. New York: CambridgeUniversity Press.

Poutsman, E., P. Kalmi and A.D. Pendleton (2006) ‘The Relationship Between Financial Participation and Other Forms of Employee Participation: New Survey Data from Europe’, Economic and Industrial Democracy 27 (4):637-667.

Rosen, C., J.Case and M. Staubus (2005) Equity: Why Employee Ownership is Good For Business. Boston: HarvardBusinessSchool Press.

Sen, A. (2003) Democratic Management: The Path to Total Quality with Total Liberty and Equality. Lanham: University Press of America

Sesil, J. C., D. Kruse and J. Blasi (2003) ‘Sharing Ownership via Employee Stock Ownership’ in L. Sun (ed) Ownership and Governance of Enterprises: Recent Innovations. New York: Palgrave MacMillan.

Vanek, J. (1971) Self-Management: Economic Liberation of Man. Baltimore: Penquin Books, Ltd.

Viggiani, F. A. (1999) ‘Doing the Right Thing: Organizational Structure and

Process for Democratic Governance of the Firm’, Industrial Relations Journal, 30:3

Viggiani, F. A. (1997) ‘Democratic Hierarchies in the Workplace’, Economic and Industrial Democracy 18(2): 231-260.

Viggiani, F. A. (1991) Democratic Hierarchies in the Workplace. Unpublished doctoral dissertation. CornellUniversity.

Whyte, W. F. and K. K. Whyte (1988) The Making of Mondragon. Ithaca, NY: IL Press.