The Chicago meeting & a (late) answer to Per Aahlstrom's questions

[John Logue <jlogue@kent.edu>]

The annual COG meeting in conjunction with the NCEO annual conference was
held last week in Chicago.  

In my view, it was a real success.  We had a very good discussion,
including discussions of the 6 draft papers underway reporting on working
group electronic discussions.  There was also an exciting presentation on
RORAC, a Mexican community development organization in the eastern part of
the Valley of Mexico, and an employee owned glass producer associated with it.

Over the next several weeks -- BUT AFTER our conference on April 28 -- I
will start posting portions of the draft paper on employee ownership at the
subnational level to the list serve for discussion.  There's a lot of input
from the COG meeting which will be included as well.

Several weeks ago Per Aahlstrom posed several provocative questions that
are of immense interest to anyone working with employee ownership in a
local or regional area.  They were: 

>1. Can employee ownership be an attractive alternative to the stock option
>programs which flourish these days, especially in the so called knowledge
>industries, to tie key personnel to the companies?

>2. What is the optional proportion of employee ownership? It seems to me
>that when the employees become majority owners companies tend to stagnate,
>which often is the beginning of the end. Is there an optional mix of
>ownership which would provide some healthy risk taking with desired long
>term stability?

>3. What are the most effective barriers we can set up to prevent desperate
>employee buyouts of failing companies?

The stock option issue is, I think, different from employee ownership (at
least in its American form) while compatible with it.  Options are an
employee retention strategy, especially in start up companies which trade
equity and upside potential for current low wages.  They don't capitalize
the company the same way that ESOPs do.  In many cases, employees exercise
options in order to sell the shares, turning the options into deferred
compensation, not ownership.

On the other hand, some companies like Science Applications International
Corp., which has about 20,000 employees but remains closely held, combine
options with a flourish internal stock market and with an ESOP plan.  Here
options reward performance and complement longer term ownership.

I've seen the NCEO's dramatic figures on the growth in stock option
programs.  I'd be very interested, however, what portion of options are
ultimately exercised and whether they lead to longer term ownership. 

Has anyone seen a study on this?

Per's second question, whether majority employee ownership leads to
stagnation, is empirically testable.  Our Ohio data suggest that it does
not -- but that may be for other reasons, such as strong management, which
overrides a tendency toward conservatism in e-o firms. 

Do the rest of you see a tendency toward stagnation in the majority e-o
firms you are familiar with?

Avoiding purchases of hopeless enterprises is important.  My sense is that
good feasibility studies are necessary and that a certain hard heartedness
among lenders and equity investors (and Framtid i Norr) is appropriate.

>From a political standpoint, its clearly better for conventional
capitalists to shut hopeless plants, rather than the employees ending up
doing so.

Our strategy here is to focus on outreach to owners nearing retirement of
viable businesses.





John Logue
Ohio Employee Ownership Center
Kent State University
Kent, OH 44242
(330) 672-3028
(330) 672-4063 fax
jlogue@kent.edu
http://www.kent.edu/oeoc/