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π Economics

Developing employee share ownership for the benefit of all

Patrick Artus
Head Economist at Natixis

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 three benefits of employee ownership

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.

Reducing inequalities

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.

What might be the challenges?

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.



Patrick Artus

Head Economist at Natixis

A graduate of Ecole Polytechnique, Ecole Nationale de la Statistique et de l'Administration Economique and the Institut d'Etudes Politiques de Paris, Patrick Artus was Director of Research and Studies at NATIXIS until 2020, then Chief Economist and Member of the Executive Committee. He combines his teaching duties with his research work and is associated with various economic journals and associations. Today Patrick Artus is on Boards of Directors at Total and IPSOS as a Director and Economic Advisor to Natixis.

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