Employees are doing it …

David Erdal

1st Oct 2010

Doing What?

• Building businesses

• Supporting leaders

• Investing

• Inventing, introducing innovations

• Implementing difficult decisions

• In other words…

Contradicting the Economists

Jensen and Meckling 1979

• Will bleed their companies dry

• Will not maintain the machines

• Will not invest for the long term

• And if you give them influence in a democratic governance system, such as the German co-determination structure …

Jensen and Meckling cntd

• … significant reduction in the country's capital stock, increased unemployment, reduced labor income, and an overall reduction in output and welfare... The final result will be fairly complete, if not total, state ownership of the productive assets in the economy

• [But the deregulation of the banks…]

Will bleed their companies dry

• Arup - Kate Hall– We don’t have to respond to shareholder pressure.

We’re allowed a lot more freedom to do what we want. We’ve got groups who just do stuff called ‘foresight and innovation’. They come up with great ideas, they lead conferences and have all kinds of contacts with researchers outside Arup. And that group doesn’t have to be accountable. How can you have part of a firm doing stuff like that, that isn’t instantly revenue-earning? Their value will be downstream: other people may get work as a result of what they do. It will not be directly attributable back to them.

Will not invest for long term

• UBH– Invested £5,000 each– Licensed technology: earned £millions– INVESTED it in cryogenic skills

• Also, SAIC - $8bn in 2006

• Davey Tree - Ohio to every state, Canada

Will not innovate

• Floturn– Dominates US laser printer cartridge market– Employee engagement –> innovation

• EBO– Each person targeted to produce new ideas– Every quarter– Multiple new product lines, 3 new businesses

Difficult Decisions Impossible

• Tullis Russell– Bought Korean company, closed Stoke plant– 2000s: Real sales flat, sales per head rising

• Inveresk flat: closed 4/5 mills

• Top elected body had veto– Voted 100% in favour

Democracy will Fail

• John Lewis– Chairman sackable by Group Council– All anonymous letters published– ‘Registry’ is a ‘critical faculty’ on managers

• Waitrose and John Lewis nos 1 and 2• Committed to growth• Nearly caught M&S

– Benefit of Capital Market Discipline (P. Green):• Paid £2,300,000,000 to shareholders, and fell to 11th

Con-Dem Coops

• Reason for confidence– Sunderland Home Care– Highland Home Care– Central Surrey Health

• But not panacea– Needs leadership– Needs change from passive to active– Needs different ideology

Why are they doing it?

• Get services off the books

• History of E European privatisations– EO as sugar coating– In reality, sold cheap to managers, politicians,

foreign companies, financial institutions

Employees CAN do it

• With decent structures– Trust holding for longevity– Poss individual holding for participation

• Supportive buyout finance• Truly participative management

– Inform, consult, involve

• And highly motivated leadership– Focused on building strong businesses

Yes we can!