2005 - Employee ownership and The Royal Mail
The Royal Mail was seeking to
play down this week reports that its chairman,
Allan Leighton, has been seeking to place a majority
stake of the state-owned business in a trust held
on behalf of employees.
It stressed that any decision
about future ownership was a matter for the Government.
But there is no doubt that Mr Leighton is anxious
to build on a spectacular turn-around of the business
that has allowed the return of more than £200m
of profits to employees through an incentive scheme
installed at the beginning of his tenure three
Trust-based employee share ownership
should be a serious consideration. Even if it
does not reflect the kind of state ownership pursued
by Labour governments in the past, the employee
trust comes as close as any state-run system to
the original clause four of the Labour Party constitution.
This was the clause that pledged to secure for
workers the fruits of their industry on the basis
of common ownership of the means of the production.
There is no reason why Labour
should persist with the tradition that common
ownership means state ownership. A fairer system
is one that places ownership in the hands of those
who work for a business. Placing shares in trust
is the best way of ensuring continuity, preventing
the kind of short-termist investment strategies
that have undermined the management of so many
businesses in the private sector.
It is not as if the Royal Mail
needs to needs to invent some novel ownership
system. A blueprint was established in the 1920s
when John Spedan Lewis drew up a trust-based constitution
for the family company established by his father.
Lewis and his brother sold their shares in the
company to the trust that continues to hold the
shares on behalf of employees.
The secret of its success is
that the shares are ring-fenced from employees
and management. Ownership is vested in employees,
called partners, through their work. When they
leave the company that relationship ceases. But,
as employees, they are able to share in profits
and in many other benefits that have been acquired
over the years. These benefits include all kinds
of perks, such as cut-price theatre tickets, membership
of sailing and fishing clubs and access to holiday
A concentration on the well-being
and happiness of employees linked to what the
constitution termed “gainful” work
was revolutionary at the time and attracted few
imitators. Yet today the success of the John Lewis
Partnership that includes Waitrose, the supermarket
chain, is a testament to the long-term benefits
of this kind of organisation.
Employee share ownership remains
comparatively rare in the UK, led by John Lewis
and a few other well-known examples such as Scott
Bader, a manufacturer of polymers and Tullis Russell,
a Scottish paper company. In the US, however,
about 11,000 employee share ownership plans (ESOPs)
now cover an estimated 8.8m employees amounting
to some 6 per cent of the private sector workforce.
Of these, between two and three million people
are working in companies that are wholly or majority
owned by employees.
Beyond these companies, thousands
more offer pension plans that are substantially
invested in the companies’ shares (an arrangement
that is forbidden in UK pensions law to protect
the use of funds from concentrated speculative
investment and the kind of plundering carried
out by Robert Maxwell when head of Mirror Newspapers).
Millions more US employees have benefited from
share option plans, share handouts and discounted
share purchase plans.
This means, say Corey Rosen,
John Case and Martin Staubus, co-authors of a
new book, Equity, Why Employee Ownership is Good
for Business, that about 23m Americans now own
shares in their employer.
What the book makes clear, however,
is that employee ownership alone is not sufficient
to guarantee a successful enterprise. This became
apparent in the United Airlines ESOP, formed in
1995, giving employees a 55 per cent stake in
the company. Seven years later the experiment
had failed when the business filed for bankruptcy
The regime started well with
a big drop in grievances and sickness absences,
a 10 per cent rise in revenue per employee and
a $4bn increase in shareholder value during its
first year. Team-working was strong. Mechanics,
for example, were allowed to inspect and sign-off
on their own repair work.
A year later, however, teams
had been disbanded and the spirit of employee
co-operation had dissolved. Pilots seeking a new
wage deal had embarked on a go-slow, deliberately
flying low to burn more fuel and disrupting schedules
by refusing to work over-time. Passenger traffic
declined dramatically. It seemed extraordinary,
but the pilots were prepared to sabotage a business
in which they had a 25 per cent stake.
There were other reasons for
the decline. The end of the dotcom boom had led
to a drastic reduction in traffic to and from
California and the catastrophe of September 11,
2001, when the company lost two of its planes,
led to a steep fall in passenger demand across
But prior to these blows - the
kind of events that represent commercial reality
for all businesses - the heavily unionised United
employees had grown disillusioned with the responsibilities
that go along with employee ownership. The unions
had pushed for wage rises that gave the airline
one of the costliest wage bills in the industry.
The business, ultimately, proved
unsustainable. The reason for this, say the authors,
is that the old-style adversarial management-employee
relationship was too entrenched to allow lasting
change. The most idealistic union leaders who
had championed employee ownership retired or were
voted out and a rump of “old-guard”
managers who had resisted the ESOP in the first
place began to gain strength. The structure of
the ESOP that did not award shares to new employees,
was also divisive.
failure has given the system a bad name when thousands
of other employee-owned businesses continue to
thrive. The authors of Equity stress that employee
ownership alone is insufficient to transform the
fortunes of a business. It works best, they say,
when combined with participatory or open-book
management that invests a strong employee-understanding
of the way their work relates to the aims of the
business. They cite a Harvard study in the 1980s
that found high-employee involvement companies,
growing between eight and 11 per cent faster than
would otherwise be expected under traditional
This kind of management, say
the authors, has been installed successfully at
SouthWest Airlines where employees not only benefit
from extensive stock-ownership programmes and
generous profit-sharing, but where front-line
employees are furnished with detailed performance
information about the company that they need to
digest in order to do their jobs more effectively.
This kind of root and branch
ownership/performance relationship is something
that requires a continual visible and intellectual
commitment at all levels. Most importantly, management
must listen to employees. This is why John Lewis
needs to heed any complaints by employees against
the “loss of office” payments totalling
more than £1m awarded to Luke Mayhew, the
former managing director of its department store
division. If the board establishes that the payments
were merited it should have nothing to fear. Justification
is everything for the success of employee involvement.
Where management strives to be transparent, employees
are always watching.
* Equity, Why Employee Ownership
is Good For Business, by Corey Rosen, John Case
and Martin Staubus, is published by Harvard Business
School Press, price $27.50.
as a pdf file