Magazine article Management Today

Whose Company Is It Anyway?

Magazine article Management Today

Whose Company Is It Anyway?

Article excerpt

Democracy and co-ownership are no way to run a business, say hardline capitalists, pointing to the United Airlines bankruptcy and the St Luke's bust-up. Could they be mistaken? David Butcher reports.

When employees own the company, strange things happen. At Aberdeen-based specialist engineers Woollard & Henry, for instance, workers on the shop floor, off their own bat and without being asked, managed to figure out a way to raise a machine off the floor so it could turn out larger components and the company could bid for better contracts Remarkable.

Or take John Lewis Partnership: recently, the employees' parliament voted to allocate pounds 70 million a year in pensions contributions where rival groups set aside nearer pounds 5 million. Impressive. Then again, workers at the advertising agency St Luke's once spent several days debating whether they should keep a parrot in reception or not. Barmy.

The parrot had to go in the end. But it engendered hours of heated discussion along the way, the kind of thing that people from St Luke's describe as 'empowering' or 'inclusive' but which managers in most firms would see as a ludicrous waste of time.

How you feel about employee-owned companies is rather like which football team or political party you support - it's an instinctive, tribal thing.

If you're by instinct a red-blooded capitalist then having the workers owning the show and calling the board to account whenever they feel like it looks like a travesty of the natural order of things. Your business sense tells you that everything from raising capital to making redundancies would become a minefield.

On the other hand, to many people, the idea that a company's capital should serve its workforce rather than the other way round has an irresistible logic. Surely you must get better productivity if everyone has a stake in the firm - why wouldn't you?

Testing either view isn't easy. It's like setting out to establish whether Labour or the Tories govern the country better. It's not really a question of evidence so much as a matter of faith. For advocates of co-ownership, the idea of a new alternative to capitalism has the force almost of a religion. One St Luke's executive described the agency in its early years as having a 'cultish feel to it', and a sense of evangelism, of wanting to spread the word, comes with the territory.

However, ammunition for the sceptics has come from two recent high-profile news stories. In December, United Airlines filed for bankruptcy, spelling the end of what was described in press reports as 'an ill-fated experiment in employee ownership'. And in March, the charismatic chairman of St Luke's, Andy Law, walked out after an almighty row with his fellow managers, prompting self-satisfied chuckles all over adland that the poster child of the '90s was finally getting its knees scraped.

It might look as though these failures signal a weakness in the model: employee-owned companies are fine in the boom times, but in a downturn they come apart at the seams. That's unfair: both incidents were arguably the result of setting up the scheme badly.

In United's case, the airline management did an unusual deal with its workers in 1994. Desperate to control its bloated cost base, it gave pilots and mechanics a 55% share in the company in exchange for huge concessions in pay and conditions. In the fraught world of labour relations at US carriers, this may have seemed like an enlightened move, but in retrospect it looks like a marriage of convenience founded on greed (once the pay deal ended, pilots got a 29% salary hike) and mistrust (managers worried that if they criticised workers, their cards would be marked by the union).

Worst of all, cabin crew weren't even included in the deal, so a large group within the company was excluded from the word go. If you're going to condemn the employee-ownership model on the basis of the United example, you might as well write off capitalism because Enron failed. …

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