Developing employee share ownership for the benefit of all

Today, employ­ees own 3.2% of CAC40 com­pan­ies, com­pared to 1.7% in oth­er European coun­tries, with vari­ation depend­ing on the com­pany – any­where between 0% and 13%. Sig­ni­fic­antly increas­ing employ­ee own­er­ship (to 10% on aver­age or even more, which is the highest level observed in CAC com­pan­ies) could be bene­fi­cial to the com­munity for microe­co­nom­ic, mac­roe­co­nom­ic, fin­an­cial, and social reasons.

The first bene­fit is that of gov­ernance and social rela­tions in the com­pany. These can often be con­flic­tu­al in France, where­as in Ger­many for example they are based on com­prom­ise between employ­ees (trade uni­ons) and employ­ers. A high­er share­hold­ing by employ­ees would work towards this com­prom­ise in gov­ernance. Employ­ees would have an incent­ive to bet­ter under­stand the object­ives of top man­age­ment through their pos­i­tion as share­hold­ers and they would also have more influ­ence on com­pany decisions through board­room influ­ence. By adding employ­ee dir­ect­ors rep­res­ent­ing trade uni­ons and dir­ect­ors rep­res­ent­ing employ­ees in their own right, pres­ence could reach at least one third amongst boards of directors.

The second bene­fit is that of cre­at­ing of a European mod­el of cap­it­al­ism that is dif­fer­ent from the Anglo-Sax­on mod­el centred on max­im­ising share­hold­er value alone. It would be a more inclus­ive mod­el that takes an interest in all stake­hold­ers and accepts a more mod­est object­ive of return on cap­it­al for share­hold­ers in return for more assured long-term value cre­at­in. To achieve this, we need to increase the weight of share­hold­ers who share this con­vic­tion. Such as, fam­ily share­hold­ers in medi­um-sized com­pan­ies, pub­lic pen­sion funds (as in North­ern European coun­tries), and employ­ee share­hold­ers. A more power­ful employ­ee share­hold­ing is there­fore one of the con­di­tions for the appear­ance of a more autonom­ous, less fin­an­cial­ised mod­el of capitalism.

The third issue is that of inequal­ity. In France, unlike most oth­er OECD coun­tries, income inequal­ity is quite low, and has improved thanks to redis­tributive pub­lic (pro­gress­ive taxes, activ­ity bonus) and private (profit-shar­ing and par­ti­cip­a­tion in com­pan­ies) policies. As such, when we talk about the fight against inequal­ity, in France, we must focus on wealth inequal­ity and not income inequal­ity. Income inequal­ity has ris­en sharply since the 1990s due to the upward trend in asset prices, i.e. stock mar­ket prices, prop­erty prices and com­pany values.

Cur­rent inequal­ity is linked to the increas­ing num­ber of expan­sion­ary mon­et­ary policies in the euro zone, which have led to neg­at­ive interest rates (when adjus­ted for infla­tion). This has led to what can be called a “mon­et­ary rent”, a sharp rise in the value of vari­ous assets and inequal­it­ies in wealth that is not due to the rise in the intrins­ic, fun­da­ment­al value of those assets.

This has neg­at­ive eco­nom­ic, social, and polit­ic­al con­sequences. It leads, for example, to a strong dif­fi­culty in access to hous­ing for the middle and work­ing classes and for young people. It incites high social ten­sion, with pub­lic opin­ion react­ing to an enrich­ment that is only due to money. It is import­ant to under­stand that expan­sion­ary mon­et­ary policies designed to reduce inequal­ity – such as help­ing com­pan­ies to invest and cre­ate jobs or by help­ing states to fin­ance pub­lic defi­cits – actu­ally res­ults in the oppos­ite. The devel­op­ment of employ­ee share own­er­ship would make it pos­sible to dis­trib­ute this pro­gres­sion of col­lect­ive wealth more widely. So, we see that there are sev­er­al pos­sible reas­ons for devel­op­ing employ­ee own­er­ship: to improve cor­por­ate gov­ernance and social dia­logue, to devel­op a European cap­it­al­ism dif­fer­ent from the Anglo-Sax­on mod­el and to reduce wealth inequality.

If the aim is to move to a high level of employ­ee own­er­ship of com­pan­ies (10%, for example, or more, com­pared to an aver­age of just over 3% today), there would neces­sar­ily be dilu­tion of the old share­hold­ers with the cre­ation of new shares. It would there­fore be neces­sary to make pre-exist­ing share­hold­ers accept this dilu­tion with the argu­ment that they only give back a frac­tion of the enrich­ment due to the rise in stock mar­ket prices and the value of com­pan­ies when they are not limited.

In smal­ler com­pan­ies and fam­ily busi­nesses, the reluct­ance of own­ers to allow new people into the busi­ness will have to be over­come. This can be done with non-vot­ing shares, and pos­sibly with an oblig­a­tion to resell when the employ­ee leaves the company.

Finally, it will also be neces­sary to over­come the reluct­ance of trade uni­ons, which most often con­sider that this hybrid employ­ee who is also a share­hold­er and is there­fore in pos­i­tion of a con­flict of interest. As such, they can be opposed to it as, for them, the pri­or­ity is to increase salar­ies on the whole rather than par­ti­cip­at­ing in the res­ults or enrich­ing the com­pany. It is also import­ant to avoid strong employ­ee own­er­ship lead­ing to excess­ive con­ser­vat­ism in the gov­ernance of the com­pany. This includes absence of man­age­ment inquir­ies, rejec­tion of mer­gers with oth­er com­pan­ies, and strong stra­tegic or tech­no­lo­gic­al evolutions.

In spite of these dif­fi­culties, one can be con­vinced that a much lar­ger employ­ee own­er­ship would improve the func­tion­ing of com­pan­ies and soci­ety, and would avoid the extreme con­cen­tra­tion of wealth that we see today in the United States (where 1% of people hold more than 25% of the nation­al wealth) or in China. This extreme con­cen­tra­tion of wealth is unfa­vour­able from an equity point of view but also from an eco­nom­ic effi­ciency point of view, because when few people hold the cap­it­al, since they do not have access to all the invest­ment pro­jects, a sig­ni­fic­ant part of these pro­jects is not financed.