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Employee Ownership
                        at the
Herend Porcelainmanufactory Ltd.

    The Impact of Financial Investors on Enterprises
           Employee Financial Participation

                Brussels - 2010 July 5th
Introduction of Herend


      Herend Village

Herend Porcelain Manufactory
Road to political and economic
    independence for Herend & Hungary



•   1956   Revolution in Hungary
•   1968   Economic reforms (gulash communism)
•   1978   FIM Ceramic Holding Co. dissolved
•   1985   License to export independently
•   1987   Enterprise Council (Yugoslav model)
•   1989   East German migration via Hungary
•   1989   Berlin Wall
Idea of employee-s participation in
          Herend’s privatization


Trade Union conference in Budapest (1989)
- Key Figures (Imre Palkovics, Janos Lukacs,
                Robert Oakeshott)


Study visits in England (1990 – 1992)
- Oxford ESOP Conferences
- John Lewis - Baxi - Tullis Russel
- Chesterfield Transport
Preparations and Implementation of
            ESOP at Herend



Hungarian Parliament’s resolution for ESOP
 legislation - Law No. 1992. XLIV

First general meeting of the Herend ESOP Trust
  was convened (1993)
             - constitution accepted
Ownership within ESOP at Herend

                    Share Allocation

• 50 % acquired by employees - individually
  -   cash down payment
  -    transfer of company bonds
  -    ESOP Trust share distribution


• 25 % kept collectively by ESOP Trust

• 25 % remain with the Hungarian State
Primary function of the ESOP Trust


25% of Shares kept together by ESOP Trust
       to ensure that active employees
         own majority of shares, by:

- buying back shares from retired / leaving
  employees
- issue / sell shares to new employees
Structure of the ESOP Trust

         ESOP General Assembly (yearly)
1 500 employee – shareholders decide how the 25% „collective
      shares” should vote on the AGM of the Ltd. Co.

                   Board of Trustees
                      7 elected trustees
        Honorary position (no financial compensation)

                 ESOP Administration
                   2 part-time administrators
Accounting, financial transactions, share transactions, organizing of
           General Assembly, documentation, etc.
Employee-s voice in
           important decisions

• Annual Shareholders Meetings
  (25 % collective + 50 % individual)

• ESOP Forums

• Management by “big coalition”
Employee-s voice in
       important decisions

       Balance of power

– Board of Directors - 1 ESOP delegate
– Supervisory Board - 1 worker delegate
– ESOP Board of Trustees (management and
  independent delegates)
– Works Council (blue collar delegates)
– Trade Union
„Lessons” of employee ownership


• slow & complex decision making

• save company from “predator management”

• ensures worker-friendly management decisions

• laws & by-laws to prevent management buy-
  out
CONCLUSION

    ESOPs - as a form of self governance -
     can offer a good economic model

following - the failures of the centrally-planned
   communist economies
                      &
instead   -   of the stumbling capitalist market
   economy with its current economic crisis
☺


  Thank you
      for
your attention !

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Workshop Employee Financial Participation - Szestay

  • 1. Employee Ownership at the Herend Porcelainmanufactory Ltd. The Impact of Financial Investors on Enterprises Employee Financial Participation Brussels - 2010 July 5th
  • 2. Introduction of Herend Herend Village Herend Porcelain Manufactory
  • 3. Road to political and economic independence for Herend & Hungary • 1956 Revolution in Hungary • 1968 Economic reforms (gulash communism) • 1978 FIM Ceramic Holding Co. dissolved • 1985 License to export independently • 1987 Enterprise Council (Yugoslav model) • 1989 East German migration via Hungary • 1989 Berlin Wall
  • 4. Idea of employee-s participation in Herend’s privatization Trade Union conference in Budapest (1989) - Key Figures (Imre Palkovics, Janos Lukacs, Robert Oakeshott) Study visits in England (1990 – 1992) - Oxford ESOP Conferences - John Lewis - Baxi - Tullis Russel - Chesterfield Transport
  • 5. Preparations and Implementation of ESOP at Herend Hungarian Parliament’s resolution for ESOP legislation - Law No. 1992. XLIV First general meeting of the Herend ESOP Trust was convened (1993) - constitution accepted
  • 6. Ownership within ESOP at Herend Share Allocation • 50 % acquired by employees - individually - cash down payment - transfer of company bonds - ESOP Trust share distribution • 25 % kept collectively by ESOP Trust • 25 % remain with the Hungarian State
  • 7. Primary function of the ESOP Trust 25% of Shares kept together by ESOP Trust to ensure that active employees own majority of shares, by: - buying back shares from retired / leaving employees - issue / sell shares to new employees
  • 8. Structure of the ESOP Trust ESOP General Assembly (yearly) 1 500 employee – shareholders decide how the 25% „collective shares” should vote on the AGM of the Ltd. Co. Board of Trustees 7 elected trustees Honorary position (no financial compensation) ESOP Administration 2 part-time administrators Accounting, financial transactions, share transactions, organizing of General Assembly, documentation, etc.
  • 9. Employee-s voice in important decisions • Annual Shareholders Meetings (25 % collective + 50 % individual) • ESOP Forums • Management by “big coalition”
  • 10. Employee-s voice in important decisions Balance of power – Board of Directors - 1 ESOP delegate – Supervisory Board - 1 worker delegate – ESOP Board of Trustees (management and independent delegates) – Works Council (blue collar delegates) – Trade Union
  • 11. „Lessons” of employee ownership • slow & complex decision making • save company from “predator management” • ensures worker-friendly management decisions • laws & by-laws to prevent management buy- out
  • 12. CONCLUSION ESOPs - as a form of self governance - can offer a good economic model following - the failures of the centrally-planned communist economies & instead - of the stumbling capitalist market economy with its current economic crisis
  • 13. ☺ Thank you for your attention !