Employee ownership – pros and cons – a review

PurposeThe purpose of this paper is to give an updated overview of the research on employee ownership. What does the scientific literature reveal about advantages and disadvantages? What can be learned from different models used in Italy, France, Mondragon (Spain), UK and US with many employee-owned firms in contrast to Denmark.Design/methodology/approachA structured review of the literature on employee. The paper identifies different mechanisms leading to effects on productivity, job stability, distribution, investment etc., and reviews the empirical evidence. The main barriers and drivers are identified and different models for employee ownership in Italy, France, Mondragon (Spain), UK and US are reviewed to identify potential models for a country like Denmark with few employee-owned firms.FindingsThe article gives an overview over the theoretical predictions and the main empirical evidence of the effects of employee ownership. The pros are greater employee identification with the firm and increased productivity reinforced by increased participation. Employee-owned firms have more equal distribution of wages and more stable employment, and they have greater mutual control between employees and fewer middle managers. The motivation effects may be smaller for large firms and lack of capital may lead to lower levels of investments and capital per employee.Originality/valueComprehensive and updated literature review on the effects and successful formats of employee ownership to identify models for implementation in countries with few employee-owned firms.

Race and gender wealth equity and the role of employee share ownership

PurposeThe paper discusses the relationship between systemic inequity and wealth disparity and advocates for expanding employee share ownership as a strategy to address divides in income and wealth by race and gender. It targets diverse actors including policymakers, philanthropic leaders and social investors and presents a set of policy proposals and practice ideas that seek to advance a broader understanding of employee share ownership and build the capacity of key organizations to support employee-owned businesses.Design/methodology/approachThis paper draws on data indicating positive outcomes from employee share ownership programs (ESOPs) related to job quality, economic stability and wealth-building, as well as widespread political support for ESOPs.FindingsThis paper suggests that employee share ownership can help to strengthen job quality and address race and gender income and wealth gaps. It argues that there is both public support and a range of different strategies actors can implement to expand awareness and access to different forms of employee share ownership.Research limitations/implicationsAdditional research focused on other forms of employee share ownership (beyond ESOPs) is needed to deepen understanding of how each form can play a role in addressing racial and gender wealth inequities. The paper acknowledges that despite the potential of employee share ownership to mitigate racial and gender wealth gaps, additional simultaneous strategies are required to address the range of systemic barriers that have disproportionately limited women and people of color's participation in ESOPs.Practical implicationsPolicymakers are actively seeking new proposals, while philanthropic leaders, social investors and others are also eager to build awareness and understanding of employee ownership models and develop the institutional capacity necessary to support strong employee-owned businesses. This paper directly responds to these needs and contributes to a broader collaborative effort to spread employee share ownership policies and practices that support economic recovery and lay the foundation for a more equitable and resilient economy.Social implicationsEmployee share ownership is not yet a strategy that is well understood among policymakers and the public, but it connects to and supports outcomes that are top of mind for many, including increasing local ownership and bolstering local economies, helping small business owners retire in ways that preserve local jobs and businesses, strengthening job quality and workforce development, addressing racial inequity and economic inequality and providing workers greater voice and agency. This paper seeks to connect employee ownership to these high-priority issues and support efforts by a range of organizations to implement policy and practice solutions.Originality/valueThis paper fulfills an identified need to aggregate recent research on the relationship between employee share ownership and wealth inequities on the basis of race and gender. It also offers a timely argument that employee ownership strategies can play an important role in responding to the challenges facing communities and workers – particularly women workers and workers of color – as we rebuild from the COVID-19 pandemic.

When workers matter most: a study of worker cooperatives and the prioritization of workers through COVID-19

PurposeAs a part of the authors’ continued efforts to understand the experience and trends related to small business cooperatives, the US Federation of Worker Cooperatives (USFWC) and the Democracy at Work Institute (DAWI) explored themes around the impact of the COVID-19 pandemic on worker cooperatives and democratic workplaces.Design/methodology/approachThe USFWC and DAWI conduct a biannual Economic Census of worker cooperatives and democratic workplaces. Survey themes this year included questions around the impact of the COVID-19 pandemic on individual firms.FindingsGeneral findings indicate that worker cooperatives experienced financial losses similar to conventional small businesses, but that this varied widely by industry. Although it has been found that BIPOC-owned conventional small businesses have been some of the hardest hit during the pandemic, the authors find that there may be some mitigating protective effects of the worker cooperative form when the authors explore the impacts on worker cooperatives with a majority BIPOC workforce. Additionally, the authors find that worker cooperatives and democratic workplaces strive to ensure the safety and wellbeing of their workers even when facing significant financial challenges throughout the pandemic.Research limitations/implicationsThis research utilizes non-random convenience sampling in data collection. The outreach for our biannual Economic Census is concentrated on a highly connected worker cooperative and democratic workplace network, the experiences of which may not generalize to the larger worker cooperative and democratic workplace landscape. Additionally, outreach efforts were hindered by challenges presented by the pandemic that were not present in prior census years, as was firm bandwidth to respond, which likely affected the sample composition in comparison to prior years.Originality/valueWorker cooperatives have been proven to be a resilient crisis response form of business, but little is known about how the worker cooperative ecosystem in the United States is faring in the face of the continuing COVID-19 crisis.

Case study: Central States Manufacturing, Inc

PurposeThis case study examines employee share ownership at Central States Manufacturing, where the employee stock ownership plan (ESOP) shares stunning sums of wealth with employees. Central States designs its ESOP to allow participants to access a portion of their ownership wealth while they are still employed at the company, through hardship and in-service withdrawals. This may make the “wealth benefit” of employee ownership more meaningful to lower-wage workers navigating economic challenges. The case study adds to the discussion about how employee ownership can benefit low- and moderate-wage workers and close the wealth gap.Design/methodology/approachData were collected via: (1) published accounts, (2) structured qualitative interview with the chief financial officer (CFO), (3) follow-up emails and phone communication with company contact and (4) review of plan document language.FindingsWorkers at Central States Manufacturing – including truck drivers and production workers – build large sums of wealth through the ESOP. Central States innovates in its ESOP by permitting workers to access a portion of their ownership wealth while they are still working through hardship and service withdrawals.Research limitations/implicationsThis is a mini-case study heavily reliant on the information provided by the CFO, in combination with background publications, and plan document language. It does not include employee interviews.Originality/valueThis paper lifts up an innovative company whose success and innovative ESOP plan design benefit frontline workers.

The response of majority employee-owned firms during the pandemic compared to other firms

PurposeThe purpose of this study is to understand how majority employee-owned firms responded to the pandemic compared to firms that were not majority employee-owned. The Employee Ownership Foundation partnered with Rutgers University and the SSRS survey firm to survey ESOP and non-ESOP firms about their responses to the COVID-19 pandemic. A key purpose of the survey was to estimate firm-level changes in employment from mid-January to August (current employment figures were adjusted to August 5 using BLS industry employment trends). The survey also looked at other forms of adjustment and responses to the pandemic as reviewed below. The focus in this study is on the differences between firms that are majority owned by ESOPs and those that are not.Design/methodology/approachThe survey included 247 executives from ESOP Association member companies and 500 executives from an SSRS business panel constructed to be representative of US companies with 50 or more employees. The survey started on August 5 and ended on September 23, 2020.Findings(1) Majority ESOP firms had employment declines from January to August that were on average only one-fourth as large as for other firms. The difference is maintained when controlling for industry membership. (2) Majority ESOP firms were more likely to be declared “essential,” but the lower employment cutbacks among majority ESOP firms remain among essential and non-essential businesses. As essential businesses, majority ESOP firms were more likely receive Paycheck Protection Program or other government pandemic assistance, but both assistance recipients and non-recipients had lower employment cutbacks among majority ESOP firms. (3) The extent of employment cutbacks was higher for non-managers than for managers, but the manager/non-manager gap was higher among other firms than among majority ESOP firms.Research limitations/implicationsThis study supports empirical findings done previously.Practical implicationsThis study suggests to non-EO firms what they can do.Social implicationsThis study suggests strengths of EO firms.Originality/valueA very original and one-of-a-kind dataset.

Does participation in the workplace spill over into political participation? A latent class analysis approach to patterns of political behavior

PurposeThis study examines Pateman's “spillover thesis” that democratic participation in the workplace will “spill over” into political participation. It applies a latent class analysis (LCA) to identify patterns of political behavior and uses workplace participation and political efficacy as predicting variables of political behavior patterns.Design/methodology/approachThis study analyzed the International Social Survey Programme (ISSP) in 2014 General Social Survey (GSS) data. This study applied a LCA to identify distinct patterns in people's political behaviors and did a multinomial regression analysis to predict the patterns with workplace participation and political efficacy.FindingsThe study found partial support for the spillover thesis. Among three distinct political behavior patterns, two active patterns were associated with political efficacy. However, the mediation from workplace participation to political participation through political efficacy was not supported. Respondents involved in workplace units that collectively make work-related decisions were more likely to be active in political behaviors, but only one set of political activities. Higher political efficacy was found to lead to more active overall political participation of both patterns.Originality/valueUnlike the previous studies of democratic spillover, which treated political behaviors either as independent types of behaviors or as a summative index of such binary coded variables, this study addressed such shortcomings of the previous studies by providing a more complex picture of political behavior patterns and their relationship with workplace participation. Future research can build on this unique methodological endeavor to explore a holistic picture of how workplace practices can influence politics and democracy through individual workers.

Member surveys on employee ownership and the COVID-19 pandemic

PurposeTo gather data about how employee-owned companies performed during the COVID-19 pandemic and whether employee ownership was a competitive advantage.Design/methodology/approachSurveys of members of the National Center for Employee Ownership.FindingsEmployee-owned companies were more likely to have positive than negative outcomes and many attribute part of their success to their employee ownership structure.Research limitations/implicationsData was from NCEO member companies and not a representative sample of employee-owned companies.Practical implicationsCompanies should consider employee ownership as a strategy; employee-owned companies should consider employee engagement efforts.Originality/valueThis includes the first data gathered specifically on employee-owned companies during the pandemic.

Survival advantage of worker buyouts over newly created worker-owned firms

PurposeVarious theories predict that firm buyouts survive longer than newly created firms. The study aims to know whether it is the case for worker-owned firms (WOFs), i.e. firms owned and controlled mostly by their workers.Design/methodology/approachThe author conducted a comparative survival analysis of French WOFs distinguished by their entry mode (i.e. newly created, worker buyouts (WBOs) of sound conventional firms, WBOs of conventional firms in difficulty or WBOs of non-profit organizations).FindingsThe hazard of exit is 32% lower for WBOs of sound conventional firms than newly created WOFs, 18% for WBOs of conventional firms in difficulty and 64% for WBOs of non-profit organizations. The current study confirms that WBOs, even of conventional firms in difficulty, have on average a survival advantage over newly created WOFs. Surprisingly, the author also shows that this survival advantage is similar across sectors with different knowledge intensity but is lower in high capital-intensive sectors than in low capital-intensive ones.Research limitations/implicationsEndogeneity issues limit the scope of the results and should be tackled in future research. Overall, these findings show that WOFs are composed of groups with different survival likelihoods that are obscured if one only looks at the aggregate population.Practical implicationsWith caution, support agencies could foster WBOs of firms in difficulty and of non-profit organizations as viable forms of entrepreneurship.Originality/valueThe current study offers the first survival analysis distinguishing four modes of entry among WOFs.

Employee participation, job quality, and inequality

PurposeThe purpose is to review the effects of employee participation (EP) in decision-making, ownership and profit on job quality, worker well-being and productivity, and derive policy recommendations from the findings.Design/methodology/approachThe authors summarise results of “declining labour power”, plus theoretical arguments and empirical evidence for the benefits of EP for job quality, satisfaction and productivity.FindingsWorker well-being and job satisfaction are ignored unless they contribute directly to profitability. EP is needed to remedy this situation when employers have market power and unions are weak. The result can be a rise in both productivity and well-being.Research limitations/implicationsThe chief issue here is that there are data limitations, particularly on the well-being effects of participation.Practical implicationsLots of encouraging examples in many countries need legislative help to multiply.Social implicationsIt is quite possible that there could be major implications for welfare and employment.Originality/valueThe authors make the case for public sector subsidies for employee buyouts and new cooperative start-ups, as well as legislation for works councils and profit sharing.