Why Employees’ Joint-owned Businesses Make More Profit | Independent Newspapers Limited
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Why Employees’ Joint-owned Businesses Make More Profit

Posted: Sep 20, 2015 at 12:01 am   /   by   /   comments (0)

 By Sylvester Enoghase, Lagos

The question of whether employees should be encouraged to become part-owners of their businesses, and particularly whether they should be encouraged to provide themselves some of the capital needs of a business, has been on the front burner.



The President of Trade Union Congress (TUC), comrade Bobboi Bala Kaigama in an exclusive interview with Daily Independent stated that employee-owned businesses remain an often overlooked option for most companies in the country as a means toward ramping up productivity, profit and morale.

He said an investment study research recently made by TUC showed that the overwhelming success of most public companies is due to innovative mechanisms to encourage employees’ participation and cultivate a culture of ownership.

According to Kaigama, a promising new approach to employee ownership of company yields high performance and good jobs as a result of innovative financial mechanism in place to encourage employee participation in the business.

“Today, employee-owned businesses in the world deliver impressive results, raising the bar for the rest, show greater resilience in a recession, earn loyalty from customers and suppliers as well as move nimbly in tough markets as it governs itself in a way that promotes nimble decisions while staying accountable to the employees who own it”, he said.

“Parallel to normal management structures is a separate system of democratic partnership bodies, one for each main operating unit as all partners are represented through the group-wide board.  And at the day-to-day level, staff can also demand responses by management to anonymous criticisms and comments,” he added.

 Trade Issues

 The labour leader, who argued that trade unions have also often been cautious of schemes to encourage workers to invest financially in their companies, stated that most company model of a fully or majority employee-owned business is not only self-sustaining and successful, but is in fact widely applicable.

“The fear of the employers that direct involvement of employees will change the system of industrial relations in terms of individualism and contrary to conflict, thereby diminishing the protective role they play is the clog on the wheel of progress in this direction,” he says.

“Insights from today’s leading employee-owned businesses in the world can be applied broadly in Nigeria as the necessary way toward a more robust and sustainable economy,” he advised.

He noted that it is quite possible to develop schemes of employee participation in businesses in Nigeria which the National Pension Commission (PenCom), the Nigeria Social Insurance Trust Fund (NSITF), as social partners can embrace.

“It helps, he says, to appreciate the distinction between profit-sharing and real forms of employee ownership”, he said.

“There’s nothing about employee ownership that rules out a strong, positive role for unions,” he added

 Giving Employees Opportunities To Be Part-ownership Of Business

 The labour leader, who argued that employee ownership leads to high performance, said, “We need businesses that innovate and grow with less need for layoffs that consume costly public services and damage long-term competitiveness.

“We need more businesses in Nigeria that operate for the long term, not just the next quarter.

“We need more companies that would eliminate the bad incentives that led some businesses astray so that we can create a better, more sustainable economy.”

Commenting further, Kaigama said: “TUC is particularly keen to encourage the idea of employee buy-outs for smaller, privately owned businesses whose owners are looking to withdraw, typically at the time when they come to retire.

“In fact, selling a business to the current management and workforce may be the most advantageous way of extricating capital while ensuring that a business is able to continue trading.”

On why most businesses fail, the TUC’s President said a huge number of businesses fail because of botched succession planning when a former owner withdraws.

 He criticised business management for not necessarily understanding that worker buy-outs are a potential alternative to management buy-outs, or commercial sales.

“For the claimed benefits of employee ownership to be applicable, a company must be genuinely in the hands of its workforce,” he said.

The labour leader made it clear that his take is not of the common international practice of rewarding staff, especially senior staff, with company shares as a management incentive,  rather, on employee-owned businesses, or companies which are either wholly or majority-owned by their employees.

“My take in this direction is 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 said.

“Employee-owned businesses where the share capital is held for the benefit of the workforce are not synonymous with worker cooperatives, which tend to have more rigorous democratic structures, and which commit themselves to following the agreed principles established by the Co-operative Society,” he added.

 Ways To Create Employee Ownership

Kaigama, in his argument, said companies that reserve equity compensation for executives and leave the rest of the workforce out of ownership plans are bound to suffer in the long run as top managers are not the only ones who make a difference to a business.

On ways to creating employee ownership of business, he said: By selling shares to employees, through schemes that allow employees to buy or own shares when key targets or a fixed date are reached, through governing rules, such as for companies limited by guarantee where all members have equal voting rights.”