The Employee Ownership Update
April 9, 1996
Suit by United Employees Opposed to ESOP DismissedA lawsuit by a group of employees unhappy with the United Airlines ESOP has been dismissed. In Sommersby v. State Street Bank, the plaintiffs contended that the wage concessions employees made were too large for the amount of stock they got. They did not contend, however, that the price the ESOP paid for the shares was unfair. A federal district court ruled that State Street Bank, the ESOP trustee, is only obligated to evaluate the price the ESOP pays for the shares; negotiations about wage concessions are a separate, and non-ESOP, issue.
The argument by the plaintiffs would have created a novel interpretation of ERISA. A number of ESOP transactions have involved wage concessions, and most of them have involved employees giving up more in wages than they got back in stock. Often, a profit sharing plan is initiated to try to recapture some of the lost wages.
Communists Want Full Employee Ownership in Russia, But Their Motives Are QuestionedThe resurgent Communist Party in Russia is proposing to introduce legislation in the Duma (the legislature) to require that privatized companies become 100% employee owned. Under the existing privatization program, most formerly state-owned enterprises with over 200 employees were sold under methods that provided workers with a majority of the stock, although some firms were sold to investor groups.
The Russian privatization has achieved the fastest and most complete sell-off of state assets in history. Perhaps partly because of this, there has been a great deal of dissatisfaction with the process and its attendant rapid change. Moreover, there is a widespread perception that some of the enterprises have been virtually given away or fallen under the control of criminal elements. The Communists have been very critical of privatization and now argue that some enterprises should be renationalized while the majority should be turned over to worker ownership.
While this may sound appealing to employee ownership advocates, it may not be what it seems. Many people believe the Communists simply want to renationalize all enterprises and are just using this as an opening ploy. Even if the companies do stay 100% employee owned, however, they would have no means of raising outside equity capital. In fact, the Communists plan to subsidize these firms rather than have them rely on outside capital. Moreover, the managers of most of these companies appear interested in employee ownership mostly as a way to avoid having to report to outside investors. Most of these managers are the same people who managed the companies before privatization and want to remain firmly in control of their firms.
The Communists appear to have a good chance of passing the legislation before the June elections, but the outcome of the elections will ultimately decide the issue.