ESOP Social and Economic Performance: the Recent Past and the Immediate Future: A Round Table Conversation among Scholars and ESOP Leaders

May 2-3, 2008

Convened at the University of Pennsylvania by Organizational Dynamics, School of Arts and Sciences ……and generously supported by

►        Alliance Holdings, Inc., and

►        The eFoundation

Although many of the academic scholars, researchers, professionals, advocates, CEOs and leaders in the field of Employee Ownership have know of each other’s work and perspectives for many years, this Roundtable/Symposium was the first time they had gathered in one room. Thirty individuals participated in the discussion and exchange of ideas on the recent past and near future of employee ownership and shared capitalism in the United States. 

An explicit purpose of the roundtable/symposium was to identify areas of and questions for future research on employee ownership and its impact on the individual, the firm and society. The need to get Employee Ownership and Shared Capitalism covered in Business School curriculum was also discussed.

The program on May 3 began with a briefing by Joe Blasi and Doug Kruse of their recent National Bureau for Economic Research Study. They highlighted some key findings from their analysis of two datasets:  1) the 2002 and 2006 General Social Surveys with 2,430 respondents from a representative sample of U.S. workers, and 2) NBER surveys of employees in 14 companies with different forms of “shared capitalism” (employee ownership, profit sharing, gain-sharing, and/or broad-based stock options), with 41,206 respondents. The analysis includes a variety of outcomes for firms (e.g., turnover, absenteeism, loyalty, response to shirkers) and employees (e.g., pay, participation, job security, satisfaction, wealth).  The results are being prepared for a book to be published by the NBER and Russell Sage Foundation.

The point of departure for the discussions throughout the day was the 2007 paper, “Effects of ESOP Adoption and Employee Ownership: Thirty Years of Research and Experience” written by Steven F. Freeman. The discussion was structured along the same lines as the paper with sessions on (1) ESOP and the Individual, (2) ESOP and the Firm, and (3) ESOP and Society. Some key themes discussed include: 

ESOP and the Individual 

►      Can we say that all evidence indicates that ownership equity comes in addition to, and not in place of, other compensation? 

No, some evidence points to wage substitution.  

We ought to consider the evidence from the perspective of “efficiency wage theory,” a big topic now among economists. 

►      Other benefits for individuals? 

EO firms provide greater employment stability, which is much more important than is commonly credited.  

EO firms may provide better health insurance coverage for employees 

ESOP and the Firm 

►      How to reconcile ESOP research indicating great gains across the board in productivity, profits, ROI from EO with Economic/Finance skepticism and contrary evidence? 

Financial research methodology is suspect (i.e., Proxy statements are highly inaccurate)   

Research linking poor performance to “labor influence” is disingenuous. Often employees have no influence despite an ESOP. 

The patterns of EO in various types of companies needs to be examined carefully:  Are there clear significant differences between large and small companies? Between privately held or publicly traded companies? 

►      What is the relationship of EO to innovation, creativity and intellectual capital? 

EO --> Greater participation; Greater participation --> innovation; Therefore, EO ought to --> innovation 

►      Other questions: 

Need more research on participation as an intervening variable in performance

Does EO encourage high involvement cultures and persistent/resilient/sustainable organizations?  What is the evidence?

Some companies come to value employee stock ownership early in their history and development; others come to it late.  Are there any distinguishable patterns and contrasts between early and late adoption of EO?

ESOP and Society 

►      Where are we headed? 

Wealth Concentration is increasing in the USA in spite of EO.

►      Does ESOP result in huge tax savings? Is there a big cost to the US Treasury?

Yes, perhaps, but perhaps not a big cost because there are comparable tax savings through alternative mechanisms (Scholes)

       Is there a demonstrable connection between EO and democracy, participation civic engagement?  What has been happening since the 1970s? What kind of research can we conduct?

Carol Pateman: Less stress is good. Parenting style depends on how we’re treated; organizational relations impart understandings about how we ought to relate to each other.

       Other considerations:

A link between EO and lower coronary disease in Italy

Other issues

How is EO knowledge disseminated? Can we get EO materials into MBA curricula?

If EO and ESOPs are so great, why don’t we see more of them?

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