Queen's University IRC

What’s to Love About Employee Ownership?


Carol A. Beatty
Queen’s Industrial Relations Centre Director

April 1, 2006

Unions often feel uneasy about employee ownership, Dr. Beatty says. But in these cases drawn from her research, they learned to love it, embracing it as a potent strategy for saving jobs, keeping plants open, and building better union-management relationships.

Surprising fact: in 2002, unionized workers made up a larger percentage of U.S. employees holding stock options than non-union workers (General Social Survey for 2002 – Rutgers University).

Surprising fact: U.K. workplaces with employee share ownership have much higher union membership than those without it.

Numerous carefully controlled studies have shown that companies with significant employee ownership grow faster, by about three percent annually. Furthermore, faster growth of eight percent to 11 percent was experienced by companies implementing employee ownership (EO) “well” (Beyster Institute website). For example, UPS, called “the tightest ship in the shipping business,” is majority owned by its 300,000 unionized employees.

So why aren’t unions jumping on EO? It seems that unions become enthusiastic about it only when it provides a way of saving jobs during looming crises. Some union leaders have become suspicious because the term “ESOP” has become associated with union busting during high-profile failures such as United Airlines. Others have a philosophical reluctance to participate in corporate decision-making because of their duty of fair representation. Also, some unionists view minority representation on corporate boards as a waste of time.

But my case studies of five unionized Canadian plants that adopted EO during a threatened closure might convince them otherwise. Two of the five, Great Western Brewery and Algoma Steel, survived as independent entities; and two others, Spruce Falls and Provincial Papers, were turned around and sold to larger companies. EO proved a potent strategy in the union’s struggle to save jobs and keep the plants open.

If we are interested in relationship improvements as well, the contrast between Provincial Papers and Algoma is very instructive. At both, the union-management relationship had long been difficult. But Algoma’s union got behind employee ownership took control of much of the buyout process and co-operated with the company to preserve jobs and union membership.

A key element of the union plan was the framework for governance. It helped the parties anticipate and resolve many future difficulties before they became severe. It also provided a statement of values that the new company had to live by – values which the union strongly endorsed.

After the buyout, union and management officers addressed gatherings of staff together, symbolizing the new way of running the company. Joint committees at all levels were put in place, and much effort went into gaining employee input into decisions. None of this co-operation prevented the difficult decisions to cut wages and jobs at Algoma, and both of the parties had to share in the pain. However, this pain did not poison the new relationship.

At Provincial Papers, by contrast, the unions did not take charge of the process. Management seemed reluctant to share power with the new employee owners, and so union officers felt they had to battle for information and influence. Whereas employee reps on the Algoma board of directors were able to make an important contribution, at Provincial Papers they were not effective. Despite having studied the successful Spruce Falls buyout, Provincial Papers seemed unable to understand or implement any of the joint structures, participative initiatives or a philosophy congruent with employee ownership. They held onto their old adversarial attitudes and beliefs. So it was a blessing when a large firm purchased the company and reinstated a traditional management hierarchy.

When a unionized company is in crisis, employee ownership can help it survive. But beyond survival, the following factors can raise the probability of sustained success and a better relationship:

  • New senior leaders should have expertise in the industry and experience with employee ownership;
  • Employees should make an actual investment in the stock, even if it is not large – and even if wage and benefit concessions are also necessary;
  • Management must work with the union and help the union leaders look good;
  • Implement the turnaround strategy quickly;
  • Work to create and maintain good employee relations;
  • Make a commitment to employee ownership as a philosophy;
  • Encourage employee involvement and participation.

As Canadian unions and companies become more experienced with employee ownership, they will learn how it can create many win-wins for both union and management – beyond saving jobs during a crisis.

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