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The Employee Ownership Update

Loren Rodgers

April 15, 2014

(Loren Rodgers)

Supreme Court Hears Oral Arguments on Presumption of Prudence

On April 2, the Supreme Court heard arguments in Fifth Third Bancorp v. Dudenhoeffer, U.S., No. 12-751, concerning the so-called Moench presumption, which has been adopted by several circuit courts and is often used as a basis to dismiss stock-drop suits. The presumption holds that a plan fiduciary is presumed to have acted prudently when it allows certain plans to continue holding employer stock unless plaintiffs can demonstrate the impending collapse of the plan sponsor or other dire circumstances. Much of the focus of the discussion was on how a fiduciary should act when he or she has inside information about the company.

Richard Siegel, a senior associate with Alston & Bird LLP, said in an interview with BNA, "There was substantial discussion of the fact that these [stock-drop] cases typically arise in circumstances in which fiduciaries are in possession of nonpublic information, and the court appeared to struggle with how a fiduciary could have a duty to act on nonpublic information when doing so would violate insider trading laws."

Observers noted that the oral arguments included very little focus on the question of whether the Moench presumption should apply at the motion-to-dismiss stage of litigation.

Definitive Study of ESOP Survival Published

A study that the NCEO has referred to for years has been formally published in a volume of research papers titled Advances in the Economic Analysis of Participatory & Labor-Managed Firms. The article, "Firm Survival and Performance in Privately Held ESOP Companies" by Joseph Blasi, Douglas Kruse, and Dan Weltmann, tracks the entire population of ESOP companies from 1988 to 1999. The researchers conclude "Privately held ESOP companies in 1988 were only half as likely as non-ESOP firms to go bankrupt or close over the 1988 to 1999 period, and only three-fifths as likely to disappear for any reason. The ESOP companies had significantly higher post-adoption annual employment and sales growth, along with higher sales per employee."

New Data on Employee Ownership in Europe

The European Federation of Employee Share Ownership released data showing the increase in employment at employee-owned companies in Europe. A table shows that employment in publicly traded employee-owned businesses increased 23% from 2006 to 2013, while employment at privately held employee-owned businesses increased by 13% over the same time. The data is from the organization's 2013 Economic Survey of Employee Ownership in European Countries in 2013.

Worker Cooperative at Bauen Hotel in Argentina Faces Eviction

After the Bauen Hotel closed its doors in 2001, a group of workers occupied the hotel, invested in repairs, and re-opened the hotel, running it as a worker cooperative and becoming a leading example of Argentinian worker-recuperated enterprises. On March 26, Judge Paula Hualde of the Social Security and Commercial Federal Court gave the worker cooperative until April 18 to vacate the hotel so it can be returned to its original owner.

Annual Employee Ownership Conference Sets Records

Our annual conference in Atlanta last week had 1,200 attendees, making it the largest conference we have ever hosted. The NCEO thanks all of the participants, speakers, and sponsors, and especially the many people who volunteered time to make this conference a wonderful experience and a smashing success. Join us next year in Denver. The conference will be April 21 to 23, with preconference sessions on April 20.

Press Coverage

An April 13 article in the Pittsburgh Post Gazette focused on ESOPs and baby boomers.

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