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.