Meaningful worker participation in management a pipe dream?

Worker ownership was supposed to mean the end of workplace alienation.

By ASHER MEIR
July 29, 2010 21:27
4 minute read.
BetEl Factory

BetEl Factory 311. (photo credit: Ariel Jerozolimski/The Jerusalem Post)

For a long time the Tadiran-Telecom corporation faced financial difficulties, partially as a result of the woes of its parent company, Africa-Israel. Tadiran-Telecom was recently saved from bankruptcy by a buyout led by its workers. The workers, via a fund they had accumulated to weather a transition or bankruptcy, acquired most of the company’s shares together with businessman Moshe Cohen.

Last week the workers finally exercised their power of ownership by appointing Moshe Cohen as CEO. This entire process has lessons for the advantages and limitations of worker ownership.

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The great vision of socialism was an end to class distinctions between boss/owner and employee/subordinate through worker ownership of the means of production. This vision did not turn out to be very practical, but many individuals thought a decentralized solution could solve the same problem: Within the regime of free markets, workers could obtain ownership and control of their workplaces.

This updated vision of worker ownership suggested many advantages, both social and economic. The social advantage was supposed to be a shortcut to the end of class distinctions.

No more would the worker be just a cog in the wheel of industry – one more input in an impersonal production function manipulated by management. He would be a genuine partner in the workplace, share his ideas and wisdom with management and in return obtain a share of the profits.

Worker ownership was supposed to mean the end of workplace alienation. From an economic point of view, the theory was that a worker who is a part owner will be motivated to work harder and better, while a workplace that values the worker’s input will be managed more efficiently.

Many countries legislated laws intended to encourage and empower this vision of attaining the social benefits sought by socialism while still enjoying the benefits of a free society. For example, the United States has tax breaks for ESOPs (Employee Stock Ownership Plans), while the Basque region of Spain has special legislation regulating the unique, gigantic Mondragon cooperative.

However, for a variety of reasons this approach has failed to become a hit. Meaningful worker ownership is rare beyond the sector of small start-ups, where it is really just a system of deferred payment to solve cashflow problems.

Even when workers do acquire a significant ownership stake, they seldom exploit it to influence management. When workers obtain ownership, they usually hurry to return the authority, and often even the ownership itself, to the hands of professional managers.

A prominent example of this was the proposals to give the United Auto Workers a controlling stake in automakers GM and Chrysler as part of the bail-out program.

Even before the proposals were finalized, the UAW rushed to inform the public that they had no intention of keeping the stock and intended to sell it at the first opportunity.

The reason for this is simple: The main reason for the way companies are organized and run has to do with competitive constraints, not class conflict. Good relations with workers and proper appreciation for their contribution are certainly valuable, but worker ownership is not essential for attaining these goals. They are effectively achieved by other means, including promoting from within and worker-participation schemes such as quality circles.

There is some evidence that worker ownership improves motivation, but the effect is small. One reason is that each worker has only a tiny ownership stake, so it won’t have much influence on how his effort affects his bottom line. Another is that even without a formal ownership stake, a worker knows that his continued employment and promotion will be dependent on the employer’s success.

A prominent drawback of worker ownership is lack of diversification. A typical worker has two sources of income: his job and his investment portfolio. If the latter is dependent on the same firm as the former, the worker is dangerously exposed to the vicissitudes of the market. It is much more prudent to diversify by investing retirement funds in other assets. Furthermore, most salaried workers don’t have huge amounts of financial assets in the first place.

The Tadiran-Telecom story illustrates a number of these lessons. The unique knowledge of the workers contributed to saving the company, as their intimate knowledge of the industry helped convince them and an outside investor that the company was worth saving.

One obstacle to worker ownership, availability of resources, was overcome by the existence of the special fund that had been set aside for coping with a crisis.

In addition, far-reaching management changes were not made. The workers are not running the company; instead, they swiftly appointed a professional manager to their liking – a man who will now be their boss and their employee at the same time.

My expectation is that if the gamble succeeds, and the company gets back on its feet, the workers will promptly sell much of their ownership stake so that their financial future is not held hostage to the success of a single firm.

ethics-at-work@besr.org Asher Meir is research director at the Business Ethics Center of Jerusalem, an independent institute in the Jerusalem College of Technology (Machon Lev).


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