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Tuesday, February 20, 2007


Laurent GUERBY

This seems to be a vastly under-studied area of economics, thanks for the hightlight!

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Bob Deed

One area of the economy where productivity appears to have failed to keep pace (and maybe even fallen) in recent years is in public services. Employee-owned companies clearly have a role in the NHS and other services alongside the "independent sector" and social enterprises.


NE: "Most policy-makers view the co-ownership sector in the same way as the royal family: a good thing, slightly anachronistic "

It's both old and new.

The new bit is the motivation of staff by means of stock-options, which gives them ownership ... but that is not what motivates them. Equity appreciation is their incentive.

Another, more subtle motivation is employee stock purchase over time that does tend to link people more intimately with their company.

Stock options give ownership rights to workers. Which means, in principle, that they should have a say in the running of a company. Only in Europe is this right acknowledged and worker representatives sit on the board, if only in a minority. But, this also means that there's a lot less hanky-panky.

Frankly, the way Boards are "packed" with cronyism in the US is scandalous. Only will participative ownership, meaning a position on the Board by staff representatives, give a more proper balance.

Does this means that economist need study the matter? Perhaps the relationship of the Board with the corporations ownership should be a part of that study.


BD: "Employee-owned companies clearly have a role in the NHS and other services alongside the "independent sector" and social enterprises"

Frankly, I do not see why people think that certain public services need be provided by civil servants.

These mammoth organizations, often badly run, are costly and all too often sinecures. For non-defense related public services, why not establish a charter of quality (a sort of Terms of Reference) and subcontract to privately owned companies - with a preference to those companies that are employee owned?

Then the public administration need only be concerned with supervising quality control and customer appreciation of the service. When the appreciation dips below an acceptable level, the contract is put out to bidding. This will help companies to meet the charter objectives ... knowing that they might lose the contract. Civil servants could care less about the level of service, which is why it is often inadequate.


NE: "There are certain policies that might help with the cultivation of co-ownership, from changes in tax treatment to better data collection and the provision of advice."

I would seem possible for salaried employees to save otherwise doomed companies, by means of a "probationary bankruptcy". Instead of having them bought out by a venture capitalist, only to be "flipped" after a couple of years, why not give the employees the opportunity to resuscitate the company.

A company that is about to fail typically does so because it cannot meet its debt commitments. Perhaps the state could assume those payments for a maximum probationary period of three/four years, the time to turn the company around.

New management could be found to recenter the company on a workable business strategy, whilst units that do not correlate with that strategy can be divested ... paying off some of the debt. Employees could take a significant pay cut during the probationary 3/4 year period, in return for company ownership via stock options (that become viable once the company debt has been either repaid or settled in some manner).

My point: There is no reason to wait for a venture capitalist to obtain control of the company simply to turn it around. The management competence to turn around a company is obtainable almost anywhere. Even retired corporate directors can be called upon, perhaps, to assist. New management can be offered minimal salaries (again with stock option dated in the future) in order to entice them.

If the company can be saved, then the employees benefit first. (Venture capitalists can stick to new investment funding to make their next millions. They wont be missed.)

There are two major benefits. (1) Probationary bankruptcy avoids unemployment of a considerable number of people (perhaps their pay cut can be augmented by state employment subsidies for the period). (2) When and if the company is turned around, the Board will certainly contain employee Directors - which is more socially responsible than having a bankrupt company flipped by VCs.


NE: "For one thing, it seems that co-owned firms are less likely to award vast salaries to their chief executives, and may act as a brake on runaway wage inequality."

Precisely. And both are goodness.

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If the company can be saved, then the employees benefit first. (Venture capitalists can stick to new investment funding to make their next millions. They wont be missed.)


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