New Study on Why Democratic ESOPs Sometimes Fail

A new study by the Ohio Employee Ownership Center indicates that employee control of companies at the board level does not account for the cases where these companies have failed. The researchers identified 38 companies over the last 25 years that were majority employee owned, had full employee voting rights, and that failed. Interviews were conducted with representatives from labor, management, and consultants at 17 of these companies. The study found that, in general, labor-management relations improved after the buyouts, but that many companies had poor management, failed to fill key positions, or even had illegal dealings. More important, almost all the companies were in serious trouble when acquired. There was no indication, however, that the enhanced worker role at the board level was a cause of failure.

The most difficult problem, the researchers concluded, was that many companies simply had overoptimistic feasibility studies indicating they could survive when, in retrospect, chances for success were very small.