As an instrument of government policy, employee ownership is economically effective, politically attractive and socially just.
Employee Ownership Australia (EOA) believes that ownership matters, because the way business is owned largely determines its behaviour, its horizons, its values, its longevity and its performance.
Economies benefit from diversity, and that includes diversity in the ownership of business.
Different ownership systems will either diffuse wealth or concentrate wealth, they will connect people to business or disengage them, they will encourage a long term view or short term view that either husbands resources or exploits them.
Ownership determines the nature of stewardship. Some types of owner will care about investment, the well-being of individuals and the impact of their actions on society.
Other types of owner won’t care at all because they won’t be owners for long enough.
Properly structured, employee owned businesses will have the potential to transform our economy.
Just as it influences behaviour, ownership also determines whether wealth is spread widely or is further concentrated. Broadly based ownership creates more vibrant and sustainable economic activity, touches more people’s lives, alleviates the more corrosive effects of status anxiety and leads to a happier, healthier, safer society. Through engagement as owners, people made responsible at work will generally act responsibly in society.
Owner-employees are also productive, and contribute disproportionately to wealth creation: the share prices of public companies for instance which have substantial employee share schemes outperform the market as a whole, as our Employee Ownership Index has shown.
Governments can and should influence the ownership of work. This can be achieved in ways that are perfectly compatible with the incentive and rewards for entrepreneurialism that are vital to fuel growth.
So with little impact on the public purse, employee ownership could make a major contribution to re-balancing the economy, distributing wealth more widely, re-invigorating civic society, re-building trust and re-connecting people with more satisfying, more productive and happier work.
Employee-owned businesses also perform at least as well as other businesses, and in most cases significantly better; employee owners work hard, are more productive and are happier. When employee ownership is introduced with employee involvement in decision-making, the rate of productivity growth is well boosted compared to the position before employee ownership was introduced.
Employee ownership is also associated with greater willingness and ability to contribute innovative ideas, and absenteeism, a strong indicator of employee morale, and labour turnover are lower in employee-owned businesses.
While there has been a 40-year track record of governments promoting tax-efficient employee share schemes in Australia – helped by the strong political consensus for the idea – not enough has been done to make a difference to company behaviour and performance.
How can governments now tilt the field in favour of more extensive broad-based ownership?
There are three policies that could do this: advocacy, regulatory reform and institutional support for the sector.
First, government should champion the employee-owned sector’s contribution to the ‘diversity’ of the Australian economy. For too long, government’s attitude to this sector has been one of benign silence, occasionally broken by tax reliefs for share schemes in large public companies. Advocacy for employee ownership should include explicit aspirations for growth of the co-owned sector and expansion in the number of employee-owners.
Secondly, the tax and regulatory rules should be reviewed to ensure that they promote rather than prevent the development of employee ownership structures – something which we believe can be further achieved without additional corporate or taxation integrity issues.
Thirdly, by supporting organisations to promote employee ownership structures in order to spread the breadth and depth of employee ownership in our economy. Such organisations would work with the ATO and ASIC to facilitate and encourage employee ownership structures, raise public awareness – especially amongst business owners – of the benefits of employee ownership, and publish up-to-date data on the extent of employee ownership in our economy.
Importantly, the legal form of a trust is a key element of these proposals. Trustees have a legal duty to manage the trust’s assets – in this case shares in the business – in the best interests of the beneficiaries. Reference to future beneficiaries in the trust deed encourages a long term view. Distribution of trust assets can be constrained to remove the temptation of winding up or selling businesses for personal gain. The trustees may include independent non-executives as well as elected employees, and will act as a supervisory board to the company’s board of directors, a stable model of corporate governance that has been proven in many different countries and settings.
For more information on these matters, see our submission to the current Parliamentary Inquiry into promoting economic dynamism, competition and business formation on our “EOA Reports” page.
