Despite long and successful European and Canadian traditions, American experiments in worker ownership had been on the fringes of the economy until the late 1970s. With a few notable exceptions, employee-owned businesses fell within the "sandals and candles" category--small craft cooperatives. The labor movement had no compelling reason to understand the dynamics, dangers, or possibilities of worker ownership.
Since then, however, interest in employee ownership has grown dramatically, along with an increase in the number of employee-owned companies. The potential for growth in the field is enormous. More important is the potential for employee owners in concert and collaborating with other socially-minded entrepreneurs to provide leadership and vision for the management of the entire economy as it stumbles and decays under its more parochial owners and managers. Linked to this potential is the opportunity to extend the growing demand for greater democracy into the economy.
This is the time for us to "think big." To do so requires a critical evaluation of the last decade and a careful and candid dissection of what was positive and negative as a foundation for new visions and programs. Worker ownership needs to be examined as more than a clever way for motivated managers, workers, and consultants to establish a niche in a system filled with cracks. It has to be seen for its power to create new leadership in driving the creation of wealth.
With the recent tremendous changes in the international and national economy, employee ownership has become an option that labor cannot afford to ignore.
Passage of Employee Stock Ownership Plan (ESOP) legislation in 1974 allowed both pro-labor and anti-labor strategies to come masked in the concepts of employee ownership. Local unions and groups of employees saw it as an alternative to closing a company after a change in corporate strategy or mismanagement. The press was filled with stories about ESOPs: Rath Packing, South Bend Lathe, and other local examples. Employee ownership quickly became a very complicated issue. In this setting, increasing numbers of labor leaders and activists who were committed to building the labor movement began to look critically at this concept. They knew that to be uninformed increased the chance of either becoming a victim of employee ownership or being denied a possible labor weapon, and it was a time when labor's traditional box of tactical tools needed some new equipment. From the beginning, union skepticism or hostility was high, for obvious reasons--most early efforts at employee ownership often were contrary to labor's interests.
Under the populist-sounding legislation that gave rise to ESOPs, corporations and financial institutions secured significant tax breaks, were able to refinance their companies and fend off takeovers, and secured other benefits that could stabilize and strengthen them. But they weren't required to do anything, despite the rhetoric surrounding the law, to advance labor's interests in exchange. In the most cynical situations, ESOPs were used as a means to secure labor concessions and to isolate and weaken the union.
The corporate character of many ESOPs is graphically demonstrated by the number of them that represent majority ownership by the employees, that permit real voting power with ownership shares, or that are organized on a democratic basis where employees have real influence in management. According to Jeff Gates, an architect of the ESOP, only "about a dozen publicly traded companies are majority employee-owned, while 125 listed companies have at least 20% employee ownership. A majority of listed ESOP firms (62%) have less than 10% employee ownership."34
In recent years, there have been many conferences around the country on ESOPs, and my experience at one several years ago was typical. Among more than a hundred people, only one other person had any ties with labor. The attendees were attorneys, bankers, accountants, managers, and CEOs. One company owner recounted how relieved he was when he found out that establishing an ESOP and receiving its benefits had nothing to do with giving employees any say in running the company. The audience applauded. Another attendee expressed concern at "letting the monkeys run the zoo."
In meetings like these, still being held all across the country, thousands of bankers, accountants, and attorneys gather, looking for new niches in a competitive economy. They become advocates of and specialists in the field of employee ownership but have no real interest in labor, except as it represents a new valuable commodity called "employee owners".
Not only was labor legitimately cynical in the 1980s about this development, but others, including members of Congress concerned about declining tax revenues and an enormous federal deficit, could see a program was, in fact, one more corporate income tax break. This important ESOP legislation therefore remains vulnerable to assault in the name of tax reform and deficit reduction due to the early misuse of its provisions.
Employee ownership was touted and extolled by the corporate community and its apologists as the pinnacle of labor management cooperation, or "worker capitalism." It was rarely defined in light of labor's unique capacities and interests. Ownership was advanced as different from the militant tradition of labor rather than as an extension of that tradition. The early stances of the Knights of Labor, William Silvis of the National Labor Union, and others who were militant labor leaders and who supported employee ownership were ignored.
Labor's internal weaknesses contributed to its ambivalence towards employee ownership. While the American economy was expanding from World War II to the mid 1970's, labor leadership did not need a sophisticated analysis of the business and financial aspects of a company in order to secure a good contract or settle grievances. In large-scale industry, better wages and benefits were provided in exchange for labor peace and for labor distance from management--hence the all-inclusive "management rights" clauses that are a standard feature in union contracts. But employee ownership requires a very sophisticated corporate analysis even in its preliminary stages. As a result, many labor leaders were not prepared to grapple with the various aspects of acquisitions and management of production.
This insecurity produced at least three responses. One was to recoil from opportunity, where labor did not engage the issues actively, and became ineffective in bargaining over details. This resulted companies that failed or agreements that were imposed on the workforce contrary to labor's interests. One early example was South Bend Lathe, represented by the Steelworkers Union before the USWA became the most sophisticated union at negotiating buyouts. At South Bend Lathe, anti-labor policies in an employee-owned company resulted in a strike by "worker owners" against their own company. Production was quickly shipped overseas. In other situations, union leaders--often with militant leftist rhetoric--condemned the approach and missed important opportunities to protect and expand labor's interests.
A second response by labor was to move ahead, but turn over key analytical work and decisions to a variety of "expert" consultants or technicians who did not necessarily share or understand real labor interests. In an interview with the local president and the chief steward of United Food and Commercial Workers Local 46, representing the workers at Rath Packing Company,35 the officers identified the union's abdication of control over the Board of Directors as one the main reasons for the failure of the company. Union leaders were intimidated by the supposed "complexity" of the buyout and turned over majority control to outside experts who did not share their interests.
A third reaction to insecurity was passivity--failure to get training to keep pace with and sort out the decisions and analytical problems that the fast-moving acquisition process required. How adequate is the feasibility study and how solid are the options it presents? What are the key issues in the negotiations to finance the company, or to write its by-laws, or in the sale? What is the new role for a union in a company where the dues payers are also the owners? How do you use consultants yet retain control of the process? How do you raise the level of understanding and engagement of the employees during the sometimes chaotic process of transfer of ownership? Lack of training on these issues has caused well-intentioned, labor-initiated buy-out efforts to stumble.
This void in direction was partially filled by emerging consulting organizations and individuals like CLCR, The ICA Group, the Philadelphia Association of Cooperative Enterprises, Locker Associates, American Capital Strategies, and others, but the new capacity was not enough to meet the demand.
During the 1980's, factory closings became part of the harsh reality of industrial America. Some companies, trying to avoid the huge costs of closing a plant, sought to sell the assets and liabilities to workers. As reported in the Wall Street Journal, the proposal for workers to buy Weirton Steel in Weirton, W. Va., was initiated by the president of National Steel as one way to avoid the huge costs of a closing and to sell off the risk of continued operation. Fortunately, Wierton became a success, but that was not always the case.
Other companies doomed to collapse were bought by workers in desperate efforts to save their jobs. Their decisions in the marketplace were guided by emotion and fear rather than effective analysis, and as a result, some of the early buyouts failed. This deepened labor's suspicion of employee ownership instead of increasing labor sophistication on the variables essential for success. The media often focused on these failures, characterizing them as the only examples of worker ownership, reinforcing the notion that workers do not have what it takes to manage production effectively.
In situations where business variables were favorable and labor had control, worker managers and directors were often ill-prepared to use their new power to run the company in new ways. In the post-World War II period, many unions became bureaucratized and lost their character as training schools for democracy. Leadership frequently became alienated from the rank and file. Internal education and training became an unknown in many locals.
When employees took over a company, they lacked skills for effective participatory management. Their model was frequently the inept management team they were replacing. Many problems of the old company, including internal divisions in the workforce, were therefore recycled into the new company and contributed to failed employee buyouts. That was clearly the reason for the collapse of Bankers Print, an employee-owned printing company in Chicago whose conversion was assisted by CLCR.
A final factor in the difficulties faced by employee buyouts, particularly in the early days, was lack of support from the labor movement. Groups of workers, in the main, were left to their own resources and wisdom if they pursued an employee buyout. If they made the purchase and had problems, they were left, in some cases, to "twist in the wind." Union critics predicted that declines in wage rates in a buyout package would lower bargaining standards, but then silently accepted the loss of jobs in companies that could have been saved by informed buyout efforts. This "hands-off" stance encouraged anti-union sentiment in employee owners, left them with no choice but traditional attorneys and consultants during the acquisition, and made them and the companies they purchased unnecessarily vulnerable. As a result, a common question raised by a dues-paying union member in a shop that is considering a buyout is, "Why do we have to pay union dues and stay in the union, when we own the company?"
An insidious by-product of this attitude is that some employee-owned companies see themselves as standing alone and "minding their own business" rather than linked in solidarity and collaboration with other workers and the broader community. Unfortunately, this was a slogan naively adopted by a network assisting employee buyouts. In one situation, the employee owners of a company turned a deaf ear on a request for assistance from a group of employees seeking to buy another firm out of the fear in their own management that the new company could become a competitor. Rather than grapple with the challenges of competition, they saw the world in zero-sum terms and took the short-sighted and narrow view. In Chicago, a small employee-owned company tried to defend its actions in securing sub-contracts from larger companies as a way to avoid union wages. It went out of business.
We need to challenge the view that labor's interest in employee ownership is merely as a last resort in keeping a company open, or that it is only an opportunity for a few workers and managers to have a good job and a good investment. These reasons are important, but to limit our reasons to these leaves us vulnerable to the consequences of the "hollowing" American economy--capital flight, de-industrialization, out-sourcing, etc. We also fall victim to the anarchy of our economy that permits thousands of companies to fail, only because they don't have an owner to step in when the current owner retires. If we do not develop a more aggressive stance towards these issues, we will miss an opportunity to give specific definition to the growing movement for greater democracy in our country (and around the world). We will also fail to demonstrate the potential for an economy that places recognition and respect for labor at the heart of its values. Labor and its friends must continue to develop a comprehensive approach to ownership that combines an aggressive policy with practical capacity to use the skills and creativity of the rank and file.
We need to affirm by example that ownership is more than a stock certificate or profit sharing. We need to take up the issue of democratic management with enthusiasm and commitment. We need to show how this makes companies more productive and efficient. We need to demonstrate how companies become places that transform and develop employees in positive and dynamic ways. We must fight the deeply-held view that workers do not have the ability to manage complex enterprises, much less manage in a democratic way.
We have paid a lot of attention to deals and legal structures. Greater attention needs to go to shop floor education, to pro-labor participatory management models, to the use of technology, and to the culture of cooperative ownership. Some of this experimental work is developing in cooperatives and other employee-owned companies and needs to be expanded.
We must confront the issue of employee-owned companies "minding their own business," or what is called by some, "enterprise consciousness." Of course, they must succeed if they can solve the problems within their walls, make all the hard but necessary decisions, and benefit from what they have accomplished. But it is critical that employee owners come to see themselves as part of a broader movement where they can benefit from the experience and resources of others, where they can contribute to solving problems that others face, and where they can weave together the threads of a broader economy based on principles they uphold within their own walls.
A company based on a spirit of solidarity--collective action, reciprocity, unity--in short, a labor vision-- can be both a dynamic producer of wealth and can be an economic institution with a powerful positive social impact. This spirit has to be extended beyond the single firm, and the labor movement with its existing organizations, is in the best position to facilitate this development.
In this way, the union preserves its distinct functions and responsibilities. It's important that the labor movement not allow workers to "twist in the wind" or be forced to turn to consultants, financiers, and others who promote a narrow vision of employee ownership at labor's expense. The initial steps have been taken for this type of collaboration. They must expand as quickly as possible.
In this context, we should point to worker ownership as a model with much broader implications for how our economy is managed. We should challenge a narrowness and defensiveness that has reduced the power of this approach. Of equal importance is the exposure of instances where the concept of "worker ownership" is being used to mask a Low Road development agenda.