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The Employee Ownership Update

Loren Rodgers

June 3, 2019

(Loren Rodgers)

New Data on Employee Ownership from the General Social Survey

The 2018 administration of the General Social Survey (GSS), a long-standing survey of the nation's work force, included a segment on employee ownership. It found that 20% of private-sector workers in the U.S. have some level of ownership in the companies where they work, including 11 million who participate in ESOPs and 25 million with some other form of stock-based compensation. The survey found that among those workers that hold company stock, the average value of that stock was $75,205. Looking only at ESOP participants, the average workers held $134,000.

The study's other author, professor Douglas Kruse, also of Rutgers, noted that employee-owners are "six times less likely to be laid off." The study found that, over the last year, the surveyed non-employee-owners were laid off at a rate of 3.7%, versus 0.6% for the employee-owners. Among companies with employee engagement programs, the study found that companies with generous employee ownership plans had a rate of turnover in general (i.e., including voluntary turnover) of 6%, far less than the 14% rate for those with no stock plan.

For the first time, the GSS included a question asking about preferences for employee-owned companies as employers. Rutgers professor Joseph Blasi, director of the Rutgers Institute for the Study of Employee Ownership and Profit Sharing and author of the report on the GSS data, said, "Democrat or Republican, female or male, black or white, union or non-union, a majority of respondents said they prefer to work for a company with employee share ownership. It is rare to find such a national consensus on anything." Overall, 72% of respondents said they prefer to work for an employee-owned company over an investor-owned or a state-owned company, including majorities of Democrats, Republications, and independents (74%, 72%, and 67%, respectively).

The GSS data also show that ESOP participants are more likely than non-ESOP participants to have had training in the last year (70% versus 48%), participated in an employee involvement group (36% versus 26%), and access to profit sharing (70% versus 35%).

The Employee Ownership Foundation contracted with the National Opinion Research Center at the University of Chicago to administer the survey as part of the GSS.

Supreme Court to Hear Stock-Drop Case and Revisit the Dudenhoeffer Decision

The Supreme Court announced on June 3, 2019, that it would hear an appeal by IBM, which is fighting a claim by participants in its 401(k) plan. The participants claim that the plan's fiduciaries violated their duty of prudence because they had insider information about the health of IBM's business but failed to either make a disclosure or to freeze investment in IBM stock. The Court of Appeals for the Second Circuit allowed the suit, filed in 2015 after IBM's stock dropped 7%, to proceed as a class-action suit.

Plaintiff success in such "stock-drop suits" has been rare since the Supreme Court created new standards for fiduciary prudence in its 2014 ruling in Fifth Third Bancorp v. Dudenhoeffer. IBM argues that the Second Circuit's decision defies the Dudenhoeffer standard and is at odds with rulings in the Fifth and Sixth Circuits.

The Supreme Court's decision to hear the case indicates that it wants to revisit either the standard or the way it has been interpreted by lower courts.

Employee Ownership on the Forbes List of Small Giants

The Forbes magazine list of Small Giants highlights companies that "value greatness over fast growth." Compiled annually by Bo Burlingham (the NCEO's keynote speaker at its 2016 annual conference), the 25 companies on the list include many employee-owned companies. Financial Business Systems, PFSBrands, and Great Lakes Brewing Company all have ESOPs. All employees at Livedata hold stock options. Choice One Engineering has a stock purchase program. Evergreen is a real estate developer and allows its employees to invest in its projects. And Webit Services has employee ownership built into its strategic plan.

Financial Times Strongly Endorses Employee Ownership

The editorial board of The Financial Times, the British equivalent of The Wall Street Journal, gave a ringing endorsement of employee ownership. "It is a unique chance to ensure that capitalism becomes more inclusive," its editors wrote (subscription required).

Davey Tree Celebrates 40 Years of Employee Ownership

Davey Tree, one of the largest tree service companies in the U.S., became employee-owned. Since then, its employee count has grown from 2,800 to nearly 10,000, and its stock from 12 cents to $21, a compound annual growth rate close to 14%. A brief video provides a glimpse into this history.

Vermont Employee Ownership Center Annual Conference

The Vermont Employee Ownership Center Annual Conference: June 12, 2019, Burlington, VT.

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