Employee Ownership, Participation and Governance: A Study of ESOPs in the UK

Citation

Marchington, M. (2003), "Employee Ownership, Participation and Governance: A Study of ESOPs in the UK", Employee Relations, Vol. 25 No. 2, pp. 203-204. https://doi.org/10.1108/er.2003.25.2.203.1

Andrew Pendleton’s book on employee ownership, participation and governance is the result of more than five years’ data collection and review. Drawing on data supported by grants from a variety of bodies, it develops a detailed and painstaking account of Employee Share Ownership Plans (ESOPs) in the UK. The result is a systematic and highly informed analysis of the concept and the practice, albeit with the rather depressing conclusion that this form of employee ownership “may well be a transient phenomenon”, interesting but temporary. The rest of the book explains why this might be the case.

Early chapters review the literature on employee ownership, and draw heavily on material from the USA where the concept (and the research data) are rather better established. The specific circumstances surrounding the growth of ESOPs in the UK are considered in depth, and it is noted that this form of employee share ownership has been “used as propaganda by politicians of every hue”. While some sections of the Labour Party might support the notion because it offers the chance for greater worker ownership and control, the Conservatives saw it as a route to increased individual share ownership. Perhaps part of the problem lies in the fact that the concept is capable of being interpreted in such different ways that it ultimately satisfies nobody.

The core of the book focuses on the structures for ownership, the outcomes for participation and employee views of the ESOPs. Andrew Pendleton makes the important point that ESOPs come in different shapes and sizes, and he identifies four dominant sets of firms. The most extensive in his sample was the representative category where employees played a major part in the design and implementation of the new firm. Many of these were bus companies where the proportion of stock held by employees was high (70 per cent). The second group comprised management buy‐outs to which he refers as “risk‐sharing” ESOPs and it included most of the non‐bus company privatisations. Third, there were the paternalist ownership conversions, brought about when the owner decided unilaterally to give shares to employees and put the firm into trust. Finally, there were the “technical” ESOPs – where the incentive behind the changed organisational form was nothing to do with employee ownership in itself – which were introduced to combat difficulties in gaining corporate finance.

Not surprisingly, given these different shaping factors and continuing ownership traditions, the opportunities for participation and governance also varied dramatically across the sample. The author’s hypotheses were supported for the most part, and it became clear that the opportunities for top level influence were greatest in the representative category. Indeed, many of these firms appointed employee directors – such as trade union officials and Members of Parliament – to their boards. On the other hand, the employee survey that was conducted in a small number of the ESOPs showed that employee ownership had achieved only limited impact on their attitudes. One of the most telling bits of information appears in Table 8.3 on p. 163. Just 21 per cent of employees reported that employee ownership had led to “more say in decisions” and the same figure felt that people co‐operated more with one another now. Only 14 per cent felt they were treated as equals, and only a little over one‐third actually believed that employees had been allowed a greater share of the profits. The last perception is particularly surprising, given the context in which these ESOPs were established, and even more depressing for the supporters of employee ownership because five of the six attitude surveys were carried out in the “representative” category of firms. Further analysis revealed that the proportion of shares held influenced feelings of neither ownership nor commitment. In short, as with many of the questionnaire findings, the conclusion is that employee participation appears to have a relatively limited impact on employee attitudes and commitment. In this case, however, it is perhaps not surprising that employees on the shopfloor, the office or on the buses felt so little change because most of the developments had been at higher levels and appeared to impact relatively little on their daily lives.

Apart from the finding that the shift in ownership made little difference to direct EI and that managers retained their prerogatives, the book suggests the experience for unions is moderately encouraging. In the cases where unions were recognised prior to the creation of the ESOP, membership levels held up well and there was little evidence that employee‐owners turned their backs on the unions. In many of the other cases, of course, there was no role for unions before the change in ownership. In one case new structures were used to weaken unions but, for the most part, there was no concerted attempt to eliminate them.

The ultimate conclusion is that ESOPs are basically short‐lived. Several went out of business and, although the vast majority survived, they were turned back into conventional firms within a few years. The average life‐span of an ESOP was under four years, and by the time the book went to print just two (out of 62) remained as employee‐owned firms.

So what about the book’s contribution to employment relations? It is a very tightly‐written research monograph that will appeal to academics who are most likely to engage with Pendleton’s ideas and use his data when designing modules or writing on other aspects of participation. The relative density of the material, and indeed its presentation on the page, are likely to make the book unappealing to a wider audience that may want practical solutions to their problems or to students who are in search of a brief résumé of ESOPs. Overall, though, this is a book that should be in every library and will prove a highly useful source of reference to fellow academics.