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If United Succeeds, Others May Follow

The airline has become a case study for controversial employee ownership

By James L. TysonStaff writer of The Christian Science Monitor / July 18, 1994



CHICAGO

ALTHOUGH most top executives expect at least some flak from shareholders and employees, they usually can rest assured that both parties will not open fire at once.

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Not so for Gerald Greenwald, the new chairman and chief executive at United Airlines in Chicago. He must satisfy United's staff and stockholders simultaneously; they are one and the same.

Stockholders last week approved the sale of 55 percent of United's parent, UAL Corporation, to employees in return for $4.9 billion in wage and benefit concessions. The deal makes United the biggest and most prominent among about 2,000 United States companies that are majority-owned by employees.

As a huge company in a high-profile, volatile industry, United is widely seen as the touchstone for the controversial corporate structure known as an ESOP (Employee Stock Ownership Plan).

If the plan works at United, other companies could consider an ESOP as an alternative to layoffs and other Draconian restructuring methods that have roiled businesses in recent years, Clinton administration officials say.

Complicated relationship

Chief executives like Greenwald have less leeway in handling workers and stockholders than managers of traditionally structured corporations, experts in employee ownership say.

``Employee ownership could complicate things [for a chief executive] because you can't play off one side against the other,'' says Douglas Kruse, an associate professor and labor economist at Rutgers University's School of Management and Labor Relations in New Brunswick, N.J. Indeed, the success of Greenwald and managers running similarly structured companies depends largely on whether they harmonize the workers' proprietary interests as owners with their pocketbook concerns as employees, the experts say.

Greenwald says he plans to spend half of his time talking business with his employee-owners. His pledge suggests that he knows that in order to make United thrive, he must ensure that its employee-owners know the airline and doggedly help to improve its performance, the experts say.

Studies indicate that employee-ownership plans only invigorate a company when executives keep owner-workers fully informed about the business and encourage them to help make decisions on issues that involve their work.

A worker-owner who helps shape decisions is far more willing than an uninformed one to subordinate his short-term interests to long-term corporate needs, the experts say.

Hidden benefits

These workers often act as an internal check against unsound financial practices, says Christopher Mackin, president of Ownership Associates Inc., an employee-ownership consulting firm in Cambridge, Mass.

``Some critics of an ESOP say the employees will never understand that the most important thing is not the size of the next paycheck,'' says Michael Keeling, president of the ESOP Association, an organization in Washington that advocates employee ownership. ``So the manager of an ESOP must immediately engage employees about being devoted to the long term.''

Greenwald has signaled that he plans to emulate Avis Inc., a successful employee-owned company. Joseph Vittoria, the rental company's chief executive officer, is a member of United's board.

Since employees assumed ownership of Avis in 1988, the value of a share in its privately held stock has surged more than 300 percent.

The task before Greenwald, however, is bigger and knottier than that which confronted Avis managers, experts say.

First, Greenwald must unify United's shareholder-employees behind the buyout plan. Several thousand of the company's 75,500 workers openly opposed the buyout. The plan, backed primarily by pilots, has exacerbated longstanding tensions between white- and blue-collar workers at the airline.

The airline's 17,500 flight attendants - the employees who mix most with customers - still have not endorsed the decision for employee ownership.

``It will be hard to sell employee ownership to the public if the principal people meeting the public aren't involved,'' says Corey Rosen, executive director for the National Center for Employee Ownership in Oakland, Calif.

Still, if Greenwald can bring employees together, coach them in the interests of the company, and inspire them to help make decisions involving their work, the ESOP structure could ultimately smooth his work.

The manager of an employee-owned business ``could be at an advantage because you won't necessarily have one side fighting the other and you will be able to go to the employees and say, `Look, these are our choices, what do you want?' '' says Dr. Kruse, co-author of ``The New Owners,'' a book on employee ownership in public companies.