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United we fall!

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FTdynamo.com In their latest feature for HR Zone, FTdynamo asks whether shareholding employees really do feel that being ‘owners’ of the business affects their work patterns and status.

This is the latest in a series of columns written for HR Zone from management education portal FTdynamo.com.


Business gurus and journalists have this at least in common: both are condemned, on occasion, to see their favourite, most heavily praised companies fail.

There will be that innovative new firm that squared the circle of building profits with minimal cash flow – now bust. Or the gleaming, non-hierarchical, self-managed organisation that collapsed in chaos and acrimony. We have all shared Tom Peters’ and Robert Waterman’s fate, those authors who famously went in search of excellence, but found that a quarter of their excellent firms were in trouble only two years after being so labelled.

It has happened again. United Airlines, the US carrier, a plucky little hero of 1990s management journalism, is in serious trouble. Revenues are falling, strikes are being threatened by pilots, ground staff and cabin crew, and the share price has hit a five-year low. This last detail is more than usually relevant as the employees are, thanks to a landmark deal signed in 1994, the majority shareholders themselves.

United’s employee ownership scheme has been much written about and admired. A happy picture of United staff beamed out from the cover of Business Week magazine in March 1996 under the headline “United we own”.

The US airline had, apparently, cracked one of the most insoluble management problem of them all: how do you get the staff to perform, even when the employees are “owners” themselves?

The employee ownership agreement was hatched in difficult times for the company. United lost nearly $1 billion in 1992. By 1994, it was clear that some sort of major surgery was required to save the patient.

The biggest unions – the pilots and ground crew – together with some non-union workers accepted wage cuts and flexible working practices in return for better job security, and a $4.9 billion loan, which enabled them to purchase 55% of United’s shares. These shares would be distributed to workers over a seven year period as part of their retirement package arrangements. Three of the 12 seats on the United board went to the workers, creating an almost Germanic co-agreement arrangement.

Not all staff were happy with the deal. Cabin crew, for example, did not participate in the shareholding programme, which meant that front-line, customer-facing employees were not part of the action. Pay cuts were also about as popular as you might expect them to be. The pilots’ union leader pushed the deal through without a ballot of his members, and was ousted.

But things looked good at United in the late 1990s. Record profits were achieved every year between 1995 and 1999 with only one exception. 75,000 employees grew to over 100,000. A booming US economy helped support the rapid growth in domestic air travel.

It looks a lot different in gloomy 2001. Middle managers, never happy about the concept of worker ownership, are now unhappier still. The different union groups have failed to speak with one voice. Last summer, the pilots went on an unofficial go-slow which led to thousands of flights being cancelled. Ground crew followed suit in the autumn, and were taken to court by the company.

Last year’s turmoil sent United right to the bottom of the popularity stakes among the flying public. Huge losses have returned to the balance sheet. Now a proposed $4.3 billion takeover of US Airways is opposed by staff. The United dream of employee ownership seems to have come to an unhappy end.

What lessons can be drawn from this turbulent journey? Surely not that employee ownership is in itself a misguided notion. But employee share ownership schemes have proven terribly difficult to manage on both sides of the Atlantic. Worker suspicion about management’s motives has been hard to allay. Schemes have been either too mean (more frequently) or too ambitious (United’s mistake?).

In United’s specific case, according to the New York Times, while “everybody agreed to call workers ‘owners’, they did not act like owners, and management did not treat them like owners.”
This prompts a few more questions. How exactly do you “act like an owner”? Does it involve shouting a lot and throwing tea-cups? And why introduce the word “owner” if managers don’t believe that these new “owners” really are owners at all?

The British newspaper owner (and he was a real owner) Lord Beaverbrook (actually Canadian by birth) had one great question for the people working for him and editing his newspapers: “Who’s in charge of the clattering train?” It remains a good question. Authority, and power, matter. You cannot pretend to be in control if you have no power or authority. And you have to own a truly significant number of shares – way beyond the pockets of ordinary employees – before you will command the attention of senior management.

There is a sentimental myth at work here. It is that owners, managers and employees have uniform and neatly overlapping interests. They don’t, of course. Interests, like liberties, collide. Not every conversation at work is “win-win”. Amazon’s top management, for example, desperate to prevent trade unions getting a foothold in the firm, has said publicly, “We don’t need a union, we’re all owners here.” Sure they are. That must explain why staff, speaking anonymously, continue to bemoan working conditions at the firm.

The problem of fair rewards, and incentives, has still not been solved. Shareholding employees may well prove to be more motivated than their non-shareholding colleagues. And workers who feel they have a financial stake in their business may well show more commitment. But few workers ever woke up and asked how they could create more value for shareholders that day, even when they are shareholders themselves. Daily work, careers even, are not like that.

At the end of Orwell’s Animal Farm, the pigs and the owners have become interchangeable and indistinguishable. The pigs have ceased being mere employees; they have thrown their lot in with the “boss class”. That is one option, but that other timeless question, “What about the workers?”, remains.

Now, what was it Marx said about capital and labour again? Where did I leave my copy of Das Kapital, it was here somewhere…



FTdynamo features writing and research from leading business schools and management consultancies with expert insight and analysis from FTdynamo. A free trial of its services is available at www.ftdynamo.com

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