Employee ownership and corporate governance

To download : Guedri Hollandts 2008

 Xavier Hollandts and Zied Guedri have published a paper in the April 2008 (No. 183) issue of the Revue Française de Gestion entitled “Les salariés capitalistes et la performance de l’entreprise” [For-profit employees and firm performance].
 
The authors investigate the effects of employee ownership on firm performance, asserting that employee representation on decision-making boards is liable to undermine the positive spin-off from employee ownership on firm performance. Their results confirmed this hypothesis holds true for corporate administrators representing employee shareholders, but not for trade-unionist administrators.

In historical terms, the frontline employee representatives on the board of directors at French firms under partial if not full State control were always trade-unionists. A recent trend has seen the board of directors or board of trustees open their doors to employee shareholder representatives from outside trade-union circles when the employee ownership group holds a majority position. French law dated 30 December 2006 sets an automatic cut-off point of 3% capital ownership, after which employee shareholder representation becomes a regulatory requirement. This article takes a fresh look at the wave of business endorsement for employee ownership schemes, and attempts to give an empirical answer to two core questions. Firstly, what is the impact of employee ownership on firm performance? Second, what is the cumulative effect of employee representation on the board of directors or the board of trustees and employee ownership on firm performance?

Both are pivotal questions, since from a conceptual standpoint, employee ownership and the spin-off representationship blurs the conventionally-drawn boundaries of corporate governance, as the effectiveness of corporate governance is supposed to be guaranteed by the fact the senior management is forced to bow to the interests of shareholders, which by definition fall outside the firm’s inner perimeter [Hillman & Dalziel 2003; Aglietta & Réberioux 2004]. This paper therefore provides insight into how employee representation – especially through trade union channels – strengthens or, conversely, undermines the positive effects of employee ownership on firm performance.

Our results, drawing on a study led on a sample population of 150 French firms, demonstrate that employee ownership has a strong positive impact on firm performance. The impact is, however, undermined by the presence of an employee shareholder representative sitting on the board of directors or trustees, particularly when the representative stands for the company’s own employee shareholder association. That said, the presence of trade-unionists on the board of directors or trustees does not affect the positive relationship between employee ownership and firm performance. These results will garner more support from politicians and top executives for employee ownership schemes, but they also illustrate the issues involved in integrating employee shareholders into corporate governance policy [Alanche 2007].