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The Employee Ownership Update

Corey Rosen

January 13, 2003

(Corey Rosen)

Book Review: In the Company of Owners by Joseph Blasi, Douglas Kruse, and Aaron Bernstein

This important new book (published by Basic Books; list price $27.95) makes a persuasive case that ownership needs to be shared more broadly. According to the authors, "CEOs and a thin layer of other executives and mangers in corporate America own a collective total of about 1.2 billion options today," or about 10% of all outstanding corporate shares, worth $80 billion if exercised. Yet the authors conclude that there is no evidence that this embarrassment of riches for these top executives has paid off for shareholders, their companies, or their employees.

Blasi, Kruse, and Bernstein believe there is a better way, what they call "partnership capitalism," a system in which ownership is disbursed broadly and in significant amounts to all employees through options, ESOPs, or other mechanisms. That equity sharing needs to be joined by sharing decision making about how work is performed. This is not just an ideological argument. The authors looked at every significant study of broad ownership models and found that, summing up all the studies of the last two decades, broad ownership boosts productivity 4%, shareholder return 2%, and profits 14% over what would otherwise have been expected. This is despite the much-feared dilution that ownership sharing creates; shareholders, they say, would be wise to share.

The authors are well positioned to write this book. Joseph Blasi is the dean of academic researchers in employee ownership in the U.S., having been actively involved in the field since the 1970s. Doug Kruse, his colleague at Rutgers is considered one of the leading, if not the leading, researcher on incentive compensation systems of all kinds. Aaron Bernstein is a long-time writer for Business Week on labor issues.

The book presents one of the most comprehensive and compelling arguments to date about why sharing ownership and workplace decision-making are important and productive ideas for the American economy. It deserves a wide readership.

At Least Half of Best 100 Companies to Work for Have Broad Employee Ownership

The "Best 100 Companies to Work For" again show a high overrepresentation of employee ownership companies. Of the 93 companies on the list that could have a stock plan (some are professional partnerships), we identified 46 that we know have broad equity plans. It is very likely that other companies on the list also have broad ownership plans, but we do not have confirmation of that for specific companies. Of the 100 companies, five are majority employee owned American Cast Iron Pipe Company (6), TD Industries (7), W.L. Gore Associates (27), Publix (87), and CH2M Hill (96). The list is compiled for Fortune magazine by the Great Place to Work Institute.

SEC Overrules Division No-Action Letter on Shareholder Votes on Expensing Options

On December 6, the Securities and Exchange Commission overruled a staff letter in the case of National Semiconductor concerning the right of shareholders to request a vote on expensing options. The staff had concluded that choosing a method for accounting for options was an ordinary business matter and, as such, shareholder proposals were excludable. The Commission disagreed. From this point forward, then, companies will only be able to exclude such proposals on other grounds, which may be difficult to find.

Data Show Degree to Which Top Five Executives Gained from Options

In an analysis separate from their book, the authors of In the Company of Owners report that the top five executives at the largest companies (those representing 95% of the market's capitalization) saw their profits on stock options exercises climb from $2.4 billion in 1992 to $4.2 billion in 1996 to $10.7 billion in 1999 and $17.6 billion in 2000. The figure dropped back to $8.85 billion in 2001 (2002 data are not available). In 2001, that would mean that the 7,674 executives generating profits on options exercises that year averaged $1.15 million in profits.

Author biography and other columns in this series

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