Worker ownership -- often a good cure for ailing firm
When about to be fired, consider buying the company. A growing number of union locals, whose financially troubled employers have threatened members with layoffs or reduced wages, are finding that option increasingly attractive.Skip to next paragraph
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The current recession and some expected help from Washington are fueling the fresh surge of interest in the idea, which dates back to the producer-cooperatives of the 19th century.
Congress recently passed legislation, now in conference committee, that will provide as much as $100 million a year in low-interest loans, guarantees, and technical assistance to workers and communities who want to buy out their employers -- as long as the project is judged economically feasible.
There is no question about the idea's appeal -- particularly in the main manufacturing centers of the Midwest and the Northeast. These areas have lost 1 .4 million jobs since the mid-1960s.
Proponents of the worker ownership say that in addition to saving jobs, the community keeps a stable tax base, and the taxpayer saves on unemployment, welfare, and other income transfer payments.
Other benefits, however, are considerably more debatable. For example, research to date shows a close tie between worker participation and productivity gains.
But one of the problems found with the 50 or 60 companies bought by employees over the last decade is a failure to think through the role of worker-owners in decisionmaking.
"There's often an initial fallback into the traditional adversary relationship," observes Prof. William Whyte, a specialist in this field who heads up a related research project at Cornell University's School of Industrial and Labor Relations.
"Our finding has been that, in general, workers are so happy to save their jobs that they don't expect [any further changes] and that management does not realize the potential benefits of shared ownership. The degree of promise offered depends . . . on whether management and workers have the potential for cooperative problem-solving once the ownership transfer takes place," he says.
"A worker-owned firm is a new organizational animal," adds Dr. Joseph Blasi, a lecturer in social studies at Harvard University and an adviser on social policy to Rep. Peter H. Kostmayer (D) of Pennsylvania. Mr. Kostmayer sponsored the low-income loan legislation in the House. It's not just switching the names on the shares."
Thus, the expected transfer of ownership in June of the Rath Packing Company, headquartered in Waterloo, Iowa, to some 2,000 of its employees is being watched with particularly keen interest.
The Rath experiment is important because of its size, and the degree of worker participation in policy decisions.
"Rath has the opportunity to really become the flagship model of worker ownership," Dr. Blasi insists.
Workers will acquire 60 percent of the stock and vote it as a bloc, controlling the selection of a majority of the board of directors and the company's top management. Management and labor will make join policy decisions in every area from profit improvement to new product development.
The Midwest is also the home of what is considered economically the most successful worker-ownership experiment so far.
In the first four years after the 500 employees at South Bend (Ind.) Lathe, a machine tool factory, took on ownership in 1975, sales went up 53 percent. Some employees now want a stronger decisionmaking role and seats on the board, and the company's management has been making some structural changes accordingly.
Sometimes the shift to worker ownership is stopped before it starts -- and should be. Before making any loans, as two or three federal agencies already have, Washington requires an economic feasibility study.
Many of the ailing companies bought out by workers have been owned by conglomerates, which often demand higher profit rates than local owners find necessary. Other potential candidates for employee ownership, according to Dr. Blasi, include firms that are profitable but may have incompetent management or labor-management tension.
In general, if the company is a conglomerate subsidiary, the past local management stays on, as does the union. Indeed, researchers have found no case of worker ownership yet in which the labor contract has been scrapped.
Propoents point out that all worker-owned companies are still operating. Some have been so successful that other firms have bought them out. Most have been conventionally financed. Where the government has helped, proponents say it is on the same terms as any small business and is not a special subsidy.