An alternative business model is coming back in favour. The model — one could call it stakeholder capitalism — involves giving employees a stake in the company through share ownership schemes.
Already well more than 150,000 workers are covered by such schemes, says trade, industry & competition minister Ebrahim Patel. The value to them is more than R100bn, according to Business Unity SA vice-president Martin Kingston.
The benefits are obvious. Workers with a stake in the business have a sense of belonging, are more productive and more inclined to find win-win solutions to conflict rather than to embark on value-destroying strikes. Share ownership increases staff loyalty and reduces employee turnover so that the investment in training is preserved.
Of course the model is not new. It was pioneered in Germany in the form of co-determination after World War 1 and has contributed to the stability of labour relations in that country. It has also become entrenched in countries such as the US and UK.
In SA, already in 1987 Anglo American and De Beers offered shares to employees and such schemes have progressively spread. They came to the fore especially as an alternative to BEE equity stakes, which were the dominant form of BEE for nearly two decades and which have been criticised for benefiting only a few, usually politically connected, individuals.
The list of examples of companies that have launched such schemes is long but one can mention Kumba Iron Ore, Sasol, Impala Platinum, Cashbuild, Vodacom and Sanlam. AB InBev, the owner of SAB, plans to launch a R5.4bn BEE scheme in the next few months, with R2.4bn allocated to the group’s 5,500 employees. PepsiCo has invested R1.67bn in its employee ownership scheme, which is to be launched in September, and R600m in a development fund.
Admittedly in SA an added impetus for employee share ownership schemes was the introduction of the concept of broad-based economic empowerment and ownership. The motivation was to gain points under the B-BBEE codes of good practice and thereby increase one’s chances of securing government contracts. But this self-interest aside, they are beginning to be valued for their own sake.
Patel and the Competition Commission have also contributed significantly to the development in demanding employee share ownership as part of the conditions for a merger or takeover.
The next stage in this process of worker participation in an enterprise will be the representation of workers on company boards, a subject under discussion at the National Economic Development and Labour Council (Nedlac).
Worker representation will give trade union representatives the opportunity to make valuable inputs into strategic decisions. Training will be essential so that they can be capable to participate as equals.
Participation on company boards will give workers direct and therefore trusted access to the company’s finances and could incentivise them to make measured decisions about wage demands. Given SA’s tortured past, such a model could also go a long way to mending damaged race relations.
The process of establishing work ownership schemes has not been without its hitches however. Insofar as meeting the requirements of the B-BBEE codes of good practice is concerned, schemes have not followed the rules and have been disqualified by the B-BBEE commission as being non-compliant because they were not regarded as real ownership schemes. Disqualification affects the ability of companies to score on the scorecard.
A criteria for a legitimate employee share ownership scheme under the ownership rules of the codes is that the employee-owner of the shares must have the same right to participate in the affairs of the company as any other shareholder. Ownership through trusts are legitimate.
Another problem is the return for workers. Some of the schemes are vendor financed with the requirement that the loan is paid back through dividends which can take a long time, making the benefit for workers a far-off dream. Share price volatility and declines in the share price can also affect staff morale.
However, the downsides are outweighed by the benefits and we can only hope that the introduction of employee share ownership schemes becomes more widespread.
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