Participation Plus Ownership Does Not Yield Higher Stock Prices in Public Companies

Over the period 1991 through 1996, the ACS employee ownership index has measured the shareholder returns in public companies with 10% or more broad employee ownership. The index has substantially outperformed market averages. Other studies of employee ownership and corporate performance indicate that it is the combination of broad ownership and employee participation that accounts for most of the performance gains employee ownership companies demonstrate. It seemed reasonable, therefore, that public companies that combined broad ownership and participation would do even better than those with broad ownership alone.

To assess this, the NCEO first surveyed 315 of the 350 companies in the ACS index to determine which had participative management practices. Results were published in a previous issue of the newsletter, showing that these companies were no more participative than non-employee ownership companies. Then Joseph Blasi and Douglas Kruse of Rutgers, who initially developed the ACS index, analyzed the 82 companies responding to the survey to determine if those with higher levels of participation had greater returns to shareholders than those with lower levels. The results indicated that participation had no effect at all.

There could be several explanations for the findings. The relatively small sample size could be producing skewed data. The participation measures, although standard measures used in major national studies, may not really be getting at the essence of participation. Perhaps more likely, this study may help confirm what other studies of public companies have found: very, very few make any effort to link employee ownership to participation systems, even if they have them, or to take any steps to create an "ownership culture," one that explicitly links employee involvement with financial information sharing and employee involvement in decision making. Few public companies think of themselves as "employee ownership" companies or make much effort to promote the concept to employees. Participation and ownership structures are just ships passing in the night. By contrast, ownership cultures seem common in closely held companies.

The study was partially funded by Legg Mason, a Baltimore brokerage firm. For a detailed summary of the data, contact the NCEO.