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The Employee Ownership Update

Corey Rosen

August 10, 2001

(Corey Rosen)

Korea Passes New Employee Ownership Legislation

Korea has created the framework for a new employee ownership law. Under existing law, Korea has an employee stock purchase program not unlike those in the U.S. Take-up on the plan, however, is light. Under the new law, companies will be able to make tax-deductible contributions to employee ownership pans, and, like leveraged ESOPs in the U.S., will be able to borrow money to buy shares, repaying the loans in pretax dollars. Employees will also be able to purchase shares on a tax-favored basis. Details of the new law need to be developed before it becomes effective next year. There is still considerable skepticism about the concept of employee ownership, however, from both the corporate and union sides.

Labor Relations Board Clarifies Employee Involvement Rules

In the early 1990s, the National Labor Relations Board issued a series of rulings, most notably in the Electromation case, that created concerns that employee involvement programs could be construed under the National Labor Relations Act (NLRA) as illegal company-dominated unions. In a series of cases, the NLRB concluded that practices such as workplace teams and labor-management committees were acceptable so long as they did not involve "dealing" with management on issues that are normally the purview of labor-management negotiation. These issues broadly include wages and working conditions. Teams that could make their own autonomous decisions were clearly acceptable; teams that could only make recommendations were acceptable as well. It was less clear where to draw the line when teams made decisions that were subject to review by management. In these cases, an argument could be made that the teams were, in effect, negotiating with management and thus were labor organizations subject to the NLRA.

In an important new case, Crown Cork & Seal Company, Inc. and Martin Rodriguez (Case 16-CA-18316), the NLRB has clarified the issue. One of the company plants was organized as a "Socio-Technical System," a management system in which employee committees, which may or may not have management, replace most supervisory functions. Production teams at the plant include one manager and 32 non-managers. They cover training, quality, production, attendance, safety, and other issues. Three additional committees function above these shop-level groups. Made up of representatives from management and shop-floor teams, these committees monitor plant policies, such as hours, layoffs, and smoking, safety issues, and the pay for skills program. The committees at all levels can implement their own decisions, but the plant manager has the ability to overrule them, something that is almost never done.

A compliant was filed that these teams were company-dominated unions because they negotiated with management over workplace issues. The NLRB disagreed, saying that the issue was whether the committees were "dealing" with management. They distinguished between cases where the committees went back and forth on an issue with management and cases like Crown Cork where, in almost all instances, committee decisions are simply accepted and, where they are not, management simply makes a different decision without renegotiating with the committees.

The decision means that the normal forms of employee involvement found at employee ownership companies should not run afoul of the NLRA. Companies concerned about the issue, however, should read the decision itself, which is short and quite clear. It can be found on the NLRB's Web site by searching for Crown Cork & Seal.

FASB Doesn't Plan to Revisit Options

Despite pressure from the International Accounting Standards Board, the Financial Accounting Standards Board (FASB) in the U.S. has no current intention of revisiting the issue of whether stock options should be accounted for on a company's income statement. FASB chair Edmund Jenkins was recently asked if the IASB were to conclude that options should be accounted for differently, whether the FASB would revisit the issue. Jenkins told the Bureau of National Affairs Pension Reporter (7-17-01) that while the FASB would consider the IASB request, it has no plans to revisit stock options and, the newsletter concluded, Jenkins showed no enthusiasm for reopening the contentious issue.

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