What is the Future of Employee Ownership in the 21st Century?

By J. Michael Keeling

Picturing the Future

The practice of arranging for employees to have an equity stake in the company where they work is as old as the organization of business enterprises in the U.S. Since the mid-1970s, laws sanctioning and promoting employee-stock-ownership plans, referred to as ESOPs, have been the predominant form of having employees share ownership in the companies where they work.

In the past 40 or so years, many casual observers wonder why a seemingly feel-good concept is not more widespread. A common reaction to the words “employee ownership” by someone not familiar with ESOP is, “Wow, what a great idea.” Clearly the word employee conjures up positive thoughts, for everyone is someone’s employee. Even CEOs work for their boards and their companies’ customers. And the word ownership carries positive connotations. Who can be against ownership? So put the two together and who would say, “I am against employee ownership.”

But surprisingly, there are many in the U.S. who are cynical about employee ownership and especially about the ESOP model of employee ownership. Why?

One, there are people who just flat believe that employee ownership does not work. They think making employees owners is a prescription for a misallocation of resources and constipated decision making.

Two, ESOP cynics claim the tax benefits for employee ownership through ESOPs are wasted taxpayer dollars since so few taxpayers benefit.

Three, ESOP cynics claim ESOPs are not real owners.

Four, ESOP cynics claim the law making ESOPs part of the private retirement savings system is bad since ESOPs’ assets are not diversified.

There are retorts to all criticisms that are as valid as the criticisms.

In this mix, how have ESOPs fared in the political decision-making process? Have the presidents and congresses since the mid-70s embraced the what’s wrong with employee ownership bias or have they listened to the cynics? The answer is both.

Do the elections of 2008 and 2010 make any difference in how ESOPs are viewed? Does the economic crisis make a difference? Does the research on ESOP company performance make a difference? Does the negativism prevalent in today’s media world make a difference?

And after answering these questions, are there trends in decision-makers’ views about ESOPs that can change current policies to benefit the ESOP model of employee ownership?

And finally, with the best answers or predictions in hand, is it worth it to become more knowledgeable about employee ownership and the ESOP model as a young entrepreneur, a student of business practices, or a current business owner, as the 21st century unfolds?

The answer may be surprising, but satisfactory.

J. Michael Keeling

J. Michael Keeling, is president of the ESOP Association, the largest trade association in the U.S. dedicated to promoting employee stock ownership plans (ESOPs), with more than 30 years of experience with issues related to employee ownership. As guest speaker, Keeling will deliver a talk presented by the Beyster Institute at the Rady School of Management as part of the Executive Speakers series. During his lecture, Keeling will review the history of the ESOP model of employee ownership to provide more background on the points made in this article.

Date: Thursday, Feb. 10, 2010
Time: 5:00 p.m. – 6:30 p.m.
Location: Executive Education Classroom, 4E106, Otterson Hall

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