BEE Partner, South Africa Economy Watch

Does international evidence suggest who the best empowerment partner might be? The answer is that the present employees of the company are in many cases the best bet. After all, from CEO down to the gatekeeper, they run the company every working day.

Evidence from the USA and UK suggests that democratic employee- owned firms, with all employees owning from (typically) 20% to 1000% of the company, outperform comparable conventional firms by considerable margins.’ Moreover, their shares that are still traded sell for large premiums.’ On average, they grow capital, market share and employment by from 3% to 11⁰/o faster per annum. Because they pay dividends inside the ‘family’ of the firm, their benefit plans are two to three times better and more diverse – and little money travels abroad! Democratic employee-owned firms are some 40% more stable and lead to employee information, education, and participation, which alters management in progressive ways.

Principles of the employee ownership trust (EOT):

• Achieving BEE in terms of ownership and achieving a proper racial and gender balance can be done within the firm.

If employee ownership secures a better-performing company, then the old owners do not have to/will not want to leave. They will face a decline year by year in their percentage ownership, but the value of their holding will likely rise ahead of that relative decline. Employee ownership should grow mainly by using the expansion of the firm to issue new shares that are taken up by the EOT.

• The limitations of an EOT in relation to the BEE scorecard will be the speed at which an EOT can acquire shares, and the BEE composition of employee/owners and management.
• Our national cultural heritage supports a collective view of ownership.

How an employee ownership trust works

In employee-owned firms, all employees vote their common ownership through an EOT, in which employee owners enjoy equal voting rights. This move separates the firm as a ‘command’ organisation from the `democratic/cooperative’ mode of the trust. Benefit flows match each employee’s contribution – best measured by salary. This two-part structure – company and EOT – preserves the right of the board and of management to set policy and to manage day by day, while it provides the vehicle for employee participation and commitment. In fact, it adds agility to the whole decision-making system, as all ‘members’ of the company are more knowledgeable and become party to all crucial decisions.

The structure of the firm and the EOT

Essentially the structure of the EOT is a circle in which employees are able to raise issues through the EOT and from there to the board via the trustees. Equally, the board or management can use the EOT to provide information and open debate on important issues, particularly those that require employee support – such as new directions.

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