Is employee ownership counterproductive? A new report reveals that companies with significant levels of employee control systematically underperform.(GOVERNANCE)

Publication: MIT Sloan Management Review

Publication Date: 22-JUN-05

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COPYRIGHT 2005 Sloan Management Review

Turning workers into shareholders improves corporate performance, or so advocates of employee ownership maintain. Their logic is simple: Workers with a stake in their company's future are more likely to take a long-term view, which translates into higher productivity and other gains.

But new research from the National Bureau of Economic Research casts doubt on those claims. In their April 2005 working paper, "When Labor Has a Voice in Corporate Governance," Olubunmi Faleye, an assistant professor of finance and insurance at Northeastern University, and Vikas Mehrotra and Randall Morck, both members of the finance faculty at the University of Alberta, report that companies with significant levels of employee control systematically underperform--in large part because workers can hold management hostage to their short-term concerns.

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These findings are of more than academic interest in the United States, given current levels of employee ownership. According to data...

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