Dear Mr. Skapinker,
Thanks for the article in today's FT. You mention that 'if the owners had wanted to keep the company out of the hands of short-term investors, they should not have listed it on the stock market'
Well, what about regulation then? A company is owned by not just the share-holders but but stake-holders viz., employees, customers, society-in which they serve and share-holders ofcourse. It is the job of the government and the regulation to make sure that the rights of the stake-holders are maintained. But unfortunately, it is a jungle-raj out there. There is no regulation at all.
The saddest part is good writers like you rather than pointing out the deficiencies in regulation, say that 'the owners should not have sold if they were so concerned about the short-term investors'
Regards,
Pradeep Kabra
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Staff ownership can save a company’s soul
By Michael Skapinker
Published: February 8 2010 19:38 | Last updated: February 8 2010 19:38 in Financial Times
“Stand up if you hate Manchester United.” This tribal cry from the football club’s enemies doesn’t stir me. I do not hate Manchester United. I am indifferent to them. Adult passion for football clubs has always struck me as slightly ridiculous.
You do not, all the same, have to be a football fan to think that United’s current state is a shabby advertisement for capitalism. The club listed on the London Stock Exchange in 1991. Malcolm Glazer, the US sports tycoon, and his family bought it from its shareholders in 2005, loading it with so much debt that the club has laboured under it ever since.
United refinanced the debt last month with a £500m bond issue, which required the Glazer family to reveal that they had extracted £23m in management fees from the club. The fans think it wrong that outsiders can borrow millions to take over their club, use its takings to pay the interest, and then pay themselves a handsome fee. Who can blame them?
Also feeling cross are descendants of George Cadbury, who built up the UK confectionery company. Last week, Cadbury passed into the hands of Kraft of the US.
Felicity Loudon, George Cadbury’s great-granddaughter, said her ancestors would be “turning in their graves” over the sale to a company that “makes cheese to go on hamburgers”. Peter Cadbury, a great- grandson, said: “It is regrettable that a company which took 186 years to build up has had its future decided by investors whose aims are short term.”
Perhaps, but if the Cadburys had wanted to keep the company out of the hands of short-term investors, they should not have listed it on the stock market.
There are alternatives to a public listing, for both football clubs and companies. The Spanish clubs Barcelona and Real Madrid, as illustrious as United, are owned by club members.
John Lewis, the UK retailer, is owned by its 69,000 employees. I may not be a football supporter, but I am a fan of John Lewis. The mood in its stores is markedly different from any other company. The staff are more attentive and professional. They own the place and it shows.
I am not alone. John Lewis was recently named Britain’s favourite retailer for the third year in succession by Verdict, the research group. Its Christmas sales outstripped those of its rivals and Waitrose, its food arm, was the fastest-growing food retailer.
John Spedan Lewis, the founder’s son, was stricken by the discovery, early in the 20th century, that he, his brother and his father earned more between them than the entire workforce in the two stores they then owned. Rather than saying this was what he needed to stop him becoming a banker, he shortened the working week, set up a staff committee and eventually, after his father’s death, transferred ownership to the staff.
Not all employee-owned companies tell the same happy story. Another attempt at employee ownership, United Airlines of the US, ended up with the mechanics calling a strike, which was only narrowly averted. They, along with their fellow employees, were majority owners of the company and had their own people on the board, which meant they would have been striking against themselves.
United was not a healthy company to start with. Like most old-style airlines, its staff costs and working practices were dragging it down. The staff received their 55 per cent stake in 1994 in return for concessions on pay and benefits. The September 11 2001 attacks led to a sharp downturn in United’s business, exposing the flaws in the company’s setup.
Employee ownership should align employees’ interests with those of the company, but as Jeffrey Gordon of Columbia Law School explained in a 2003 paper, United staff hired after 1997 held no shares, so that half the mechanics had no stake in the company. Even for those who did, their stakes were small and they could not cash them in until they retired or left.
John Lewis’s partnership was set up to avoid these problems. Everyone has a stake, in return for which they receive an annual bonus. Each successful year provides the incentive for the employee-owners to do even better.
Not that the John Lewis tale has been an unbroken idyll. In 1999, encouraged by stories that selling the company could give them a windfall of £100,000 each, some staff members started pressing for John Lewis to go public.
The move came to nothing, but the temptation for the owners of a successful company to cash in is always there. A stock market listing provides advantages, such as ease of raising capital, but it also means the company could fall into the hands of complete strangers. Those who take that risk should not complain when it goes bad.
michael.skapinker@ft.com
More columns at www.ft.com/michaelskapinker
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Dear Pradeep,
Many thanks for your email. The problem is precisely the one you have mentioned: the shareholders do own the company and no regulator can stop them selling their shares, unless there are monopoly issues. That's the situation in the UK, anyway. Most other countries are more protectionist.
Regards,
Michael
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Dear Michael,
Thanks for the reply. I was referring to the context of debt. In the specific case of Cadbury/Kraft, Kraft has a debt of $30 billion. Correct, the regulators can't stop the share-holders from selling the shares. But there can be a regulatory structure vis-a-vis share-holding pattern/division, debt/equity etc., I don't believe in protectionism for the sake of it. What I'm referring is regulation so that all the stake-holders are rewarded fairly.
Regards,
Pradeep
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Pradeep,
Thanks. The question of how much debt acquirers should be allowed to take on is a relevant one which I hope to address.
Michael
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Thank you. I know our debate can only do that much.
The real rules are set by the politicians who are financed and lobbied by the vested powerful interests.
But then, no harm in trying.
Regards,
Pradeep
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