Sustainable Finance: Labor Day lesson: workers like $
30/08/2023 17:00
By Ross Kerber
Aug 30 (Reuters) - With the U.S. Labor Day holiday
approaching on Sept 4, it's a good time to take stock of where
workers stand. This week I've flagged stories from our newswire
on topics like strike threats in Australia and France, and a
legal dispute about whether McDonald's franchisees may compete
for each others' workers.
I've also been meaning to take a look at employee stock
ownership plans, or ESOPs, the most popular way for U.S. workers
to own their companies.
The plans sound great in principle but face obstacles in
practice. For one thing they can be victims of their own success
when private equity firms come along to buy them up, giving
workers a windfall. Yes there are proposals in Washington to fix
things up.
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This week's most-read
* Chevron's Australia LNG ops could face daily 10-hr
stoppages as union fight escalates
* Labour unions push to raise retirement age in greying
South Korea
* French air traffic controllers' union calls strike for
Sept 15
A lesson for Labor Day: Workers like money
Advocates of "stakeholder capitalism" often seek ways to
help workers participate in ownership of the companies that
employ them.
But at least under current rules, workers often prefer cash
over equity when it comes to U.S. employee stock ownership
plans, or ESOPs. These are a form of retirement plans that
mainly hold employer stock, giving workers stakes in their
companies and providing business owners a way to exit without
selling out to a competitor.
There were 6,467 ESOPs in 2020 covering some 14 million
participants, according to the latest available data from the
National Center for Employee Ownership. They range in size from
small businesses with a few dozen people to the Publix
supermarket chain, which says it has more than 250,000
employees.
But the total number of ESOPs has declined every year since
2014, when there were 6,717 of them, according to the center,
and industry specialists say the trend has likely continued
since.
Many ESOPs have trouble staying independent because they are
too attractive to buyers, and acquisitions outpace the creation
of new ones. A recent example is the case of Graham Co., a
Philadelphia-based business insurance agency selling to a unit
of Marsh McLennan for an estimated $1 million per worker.
Analysts tell me buyers include competing companies and
other ESOPs, with private equity firms playing a big role. "In
my experience, for every nine ESOPs being created, there are 10
being acquired by PE (private equity) money or unsolicited
strategic offers," said Keith Apton, a managing director in UBS'
The Capital ESOP Group, via e-mail.
Thomas Dudley, CEO of a company that certifies employee
ownership, tells me that "It's bittersweet when an
employee-owned company shuts. I want there to be more of them.
At the same time companies are going to get bought and sold,
that’s part of how our economy works, and it's a great thing
when employee-owners get a liquidity event."
While many workers might appreciate keeping equity in their
companies they often have little say in ESOP sales determined by
company managers, founders or plan trustees.
Christopher Mackin, principal of Ownership Associates, which
advises on ESOP deals, said the bigger problem is how to
encourage creation and continuance of healthy ESOPs. He backs a
bipartisan bill in Washington that would make it easier for the
U.S. Small Business Administration to offer financing guarantees
for family business founders thinking about selling to their
employees through an ESOP.
"The small number of sellers even considering the idea is
the larger problem," Mackin said.
Company News
McDonald's violated federal antitrust law by requiring
franchisees to agree to hire each other's employees away,
according to claims that were revived by a U.S. appeals court in
Chicago.
Top fund managers BlackRock and Vanguard each reported a
sharp drop in the share of shareholder resolutions they backed
on environmental and social issues this year compared to the
prior year, fueling declines in the overall support for such
measures.
A proposed $10.3 billion settlement between 3M and U.S.
public water providers of alleged pollution looks more likely
after states and territories dropped objections to the deal.
On my radar
Institutional Shareholder Services launched an annual
benchmark policy survey, in which it asks institutional
investors, company directors and other market constituents to
weigh in on issues like how to treat companies with multi-class
capital structures and proposals calling for racial equity
audits.
British CEOs got a 16% pay raise to 3.9 million pounds, with
their median pay rising to 118 times that of an individual
workers, up from 108 times last year, new research showed. They
still trail U.S. CEOs, however, who make 272 times the pay of
their median employee.
The Reuters IMPACT conference is a flagship climate summit
set for September 6-7 in London. It will bring together leaders
from business, finance and government for discussions on topics
like sustainability reporting and ESG investing. Information and
registration available here.
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Employee Stock Ownership Plans in slow decline https://tmsnrt.rs/484d7aT
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(Reporting by Ross Kerber, US Sustainable Business
Correspondent; Editing by David Gregorio)
((ross.kerber@thomsonreuters.com; (617) 412 0093;))