Employee Stock Ownership in Economic Transitions: The Case of United Airlines
Jeffrey N. Gordon
Columbia Law School; European Corporate Governance Institute (ECGI)
Bank of America Journal of Applied Corporate Finance, Vol. 63, No. 2, 1998
Employee stock ownership is usually discussed in terms of its normative desirability as a model of workplace relations or its general (in)efficiency properties. This paper considers employee stock ownership transactions as an adjustment mechanism for economic change. The starting point is the "employee stock ownership" is not a self-defining form and that specific institutions of economic participation and governance participation very much affect the viability of any particular transaction. The paper then considers the various rationales for employee stock ownership in situations of economic transition, rejecting claims of "just allocation" but suggesting that such transactions can overcome bargaining pathologies and thereby conserve the value of the firm. One important question is whether employee stock ownership transactions produce a transitional organizational form that quickly reverts to the standard firm or an organizational form that manages economic transitions in a superior way.
These issues are explored in the recent employee acquisition of a majority ownership of United Air Lines. The transaction provided for long-term employee ownership, not simply a transitional form, and so locked up the employee stock in an employee pension plan and provided employees with longterm governance rights. The evidence to date suggests that employee ownership has enhanced UAL's competitive position but that governance pressure from employees when their interests are directly at stake is a potentially destabilizing force.
Date posted: October 2, 1998
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