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Sharing profit, knowledge and power: Worker-owned businesses

21 Jan 2015 - {{hitsCtrl.values.hits}}

It has been said very recently that the Regional Plantation Companies (RPCs) have renewed t heir call for alternative worker wage model in the face of unsustainable wage increases in the past. They also admit that the future wage increases cannot be stopped.Therefore, let us look at this subject with an open mind and see as to how this works elsewhere. An International Labour Organisation (ILO) study suggests that employee-owned businesses are both successful in business terms and more widely applicable.

ILO study
The number of employee-owned businesses, where the share capital is held for the benefit of the workforce, remains relatively small. However, a recent ILO study suggests that this form of company structure is both successful in business terms and more widely applicable.
Oxford Street, a world-famous, premier shopping area, is a magnet for locals and tourists alike. This is where many famous British and international retailers have their flagship stores and one of the largest and most popular of these belongs to the department store John Lewis.

John Lewis was recently voted Britain’s most popular store and was praised particularly for its value for money, product range and well-informed staff. It is, however, a rather different sort of business from its neighbouring retailers. With 27 department stores and almost 170 supermarkets throughout Britain, it is the largest business in the UK to operate as a fully employeeowned company. All 63,000 permanent staff are known as ‘partners’ and together they ultimately control the business. There are no external shareholders; all the company’s shares are held i n a specially created employee benefit trust.

John Lewis has traded in Britain for almost 150 years and has been a fully worker co-ownership business since 1950 when the son of the founder transferred ownership of the firm to the employee trust at far below the market value. John Lewis’ constitution now states that the company’s ultimate purpose is “the happiness of all its members, through their worthwhile and satisfying employment in a successful business.” Partners “share the responsibilities of ownership as well as its rewards – profit, knowledge and power.”

The John Lewis Partnership, as t he company is known, also has innovative mechanisms in place to encourage employee participation in the business. Parallel to the normal management structures is a separate system of democratic partnership bodies, one for each main operating unit. All partners are represented through the group-wide Partnership Council, which appoints five non-executive employee directors to the main board and which has the power to sack the Chairman. Day-to-day level staff can also demand responses by the management to anonymous criticisms and comments, via the in-house magazine.

A culture of ownership
The John Lewis Partnership is well known in Britain for its innovative structure but because it was originally created through the philanthropy of its former owner, it has often been disregarded as a relevant model for other businesses.However, a new report from Job Ownership Ltd (JOL), the association of employee-owned businesses in Britain, suggests that employee ownership and participation i mproves productivity and company performance. What is needed to achieve this, the report, ‘Shared Company’ says, is a ‘culture of ownership’.

“A recent ILO study also confirms that the survival rate of worker cooperatives and employee-owned firms i n market economies appears to equal or surpass that of conventional firms and that they also match or exceed the productivity of those conventional firms,” said Jürgen Schwettmann, head of the ILO’s Cooperative Branch.“Cooperatives and employee-owned enterprises deserve greater support because of the many ‘collateral benefits’ that they produce for their members and the community at large.”

According to the ILO study, workers’ cooperatives and employee-owned enterprises generally pay wages that are competitive or better than locally prevailing wages when profit-sharing, bonus and dividends are included. They are less likely to lay off members during economic downturns, preferring to share the work, even accepting a lower price for their product in order to remain in the market and maintain production and employment.

JOL is particularly keen to encourage the idea of employee buy-outs of smaller privately-owned businesses whose owners are looking to withdraw, for example when they retire. JOL’s Executive Director Patrick Burns says that a huge number of business failures are the result of botched successions when a former owner withdraws. He criticises business advisors and accountants for not always appreciating that worker buy-outs are a potential alternative to management buyouts or commercial sale.

For these claimed benefits of employee ownership to apply however, a company must be genuinely in the hands of its workforce. This is a crucial point according to David Erdal, head of Baxi Partnership, a UK capital fund for employee co-ownerships.“Control is very important. If it’s less than 50 percent t hen it’s not control,” he says. In his opinion, majority or fully employee-owned businesses tend to have healthier corporate governance. “Compared with a shareholder-owned company where shareholders are sometimes ignorant of what’s going on, employees know it backwards, who’s good and who isn’t. Directors have to play straight,” he says.

Employee-owned businesses such as John Lewis where the share capital is held for the benefit of the workforce are not the same as worker co-operatives, which tend to have more rigorous democratic structures and which commit themselves to following the seven agreed principles established by the International Co-operative Alliance.However, even taking t he t wo t ypes together the number of companies that are broadly employee-controlled remains relatively small. One difficulty these businesses have is that they cannot always access the full range of equity capital available to other businesses and are therefore limited to using loan capital or retained profits for financing growth.

Trade unions have also often been cautious of schemes to encourage workers to invest financially in their firms. According to the ILO study, some unions have been slow to embrace employee ownership, often viewing it as a threat. Britain’s JOL sees no difficulty here. As its report puts it, “There’s nothing about employee ownership that rules out a strong, positive role for unions,” adding that the idea that employee-owned companies are incompatible with unions is as much a myth as the idea that these businesses aren’t profit-seeking or are content with weak management.

Employee buyout’ model in tea plantations
The success of the Kanan Devan Hills Plantations Company Private Limited, a new venture formed under the `employee buyout’ scheme, is giving new hope to the crisis-ridden tea plantations in Munnar. The company, established in April 2005, has recorded a post-tax surplus of Rs.2.37 crores in the very first year of operation and is set to attain greater heights, in future.

The new model for running the company was evolved at a time when the plantation sector was no longer an attractive proposition. Though the South India Plantation Division of the Tata Tea management had taken a decision to exit from the plantations, it was keen to protect the interests of the employees, according to T.V. Alexander, Managing Director of the new company.A cooperative model was tried, but the employees did not find favour with it. The `employee buyout’ model was explored then. It envisaged the formation of a professional managed company having employees as part owners. The ICICI Bank was chosen as the financial partners.

A voluntary retirement scheme (VRS) was rolled out as part of the scheme. About 3,000 out of the 16,000-odd workers opted for the VRS.In the first stage of transition, the business of the 16 estates in the High Range in the Kanan Devan Hills was transferred to the new company. Over 12,000 employees representing more than 97 percent of the workforce became shareholders in the new company, holding almost 70 percent of the equity stake. Tata Tea holds a 19 percent stake in it.

The new company administers a total of 24,137.51 hectares of land. The company has on its rolls 13,115 employees including 11,996 workers, 322 supervisors and 63 management staff.

“In a radical shift from the past, the company has introduced a bottom-up management plan rather than the top-tobottom hierarchical approach that has been the norm in the plantation industry,” says Joy Joseph, a Director of the company. The company gets a participatory nature because of the inclusion of representatives from workers and staff, points out T. Damu, another Director. The company has inducted Chandra and T.M. Abraham, as Directors representing the workers and staff into the board of directors.

Advisory panel
Divisional Advisory Committees have been set up to advise the company on daily administrative functions as well as welfare and safety aspects. The committee has a representation from the workers. Two men and two women workers and a supervisor are elected from among the shareholderemployees. The committee holds weekly meetings to discuss matters such as manpower deployment and material requirement.

There are advisory committees at the factory level. The Divisional and Factory Advisory Committees liase with consultative committees that hold monthly meetings to advise on matters like cost control and productivity enhancement. There are various sub-committees to advise on functions like marketing and business diversification.

A productivity linked incentive scheme has been introduced by the company. The average productivity has increased from 28-30 kg to 39-40 kg now, according to Alexander.The workers have to be complemented for this, observes Damu. The company expects an increase in turnover to Rs.130 crore this year from Rs.105 crore recorded last year.

The company has ambitious plans t o diversify. Key initiatives have already taken for producing strawberry and a variety of vegetables. It is awaiting a key legislation that permits a small percentage of tea plantations to be converted for other useful purposes. The company is planning to produce organic tea and `white tea’ for export. Initiatives have also been taken to expand plantation tourism. Replantation is also being taken up in phases in a bid to increase the production.

Conclusion
I believe this will give food for thought for the RPCs who are genuinely attempting to diversify their plantations, keeping workers interest in mind. (N. Yogaratnam can be contacted at [email protected])

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Sharing profit, knowledge and power: Worker-owned businesses

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