Workshop Employee Financial Participation - Cilento

1. Restructuring Forum: The Impact of
financial Investors on Entreprises
Brussels 5 July 2010
Widespreading EFP practices: obstacles and
solutions
Marco Cilento - SINDNOVA

2. Why such practices are not
dominant in Europe?
A) company and employees have made a choice: they
don't want to be covered by EFP. What are the reasons
behind that mistrust?
B) they would like to be covered but some obstacles
prevent them from adopting it. We should investigate
what reasons make EFP unaffordable to the concerned
actors.

3. A) Employees don't want to be
covered by EFP
Prejudice:
Trade union reservations often revolve around the fear
that a presumptive conflict of interests can lead to under-
remuneration of the labour factor and favour extra-
profits for the capital factor.

4. A) Employees don't want to be
covered by EFP
4 Objections:
1. Company based collective bargaining is
widely spread and used in Europe
2. Productivity is distributed at company level and
flexible salaries are frequent components of salary
formation.

5. A) Employees don't want to be
covered by EFP
4. Objections:
3. Soaring company profits calls for a further distribution
of wealth. Labour (once it has been fully remunerated) can
still claim for its part of extra-profits that employees have
contributed to.
4. Corporate Governance has evolved. Thanks to EFP,
trade unions would be better equipped to open a dialogue
with investors. It is a new level of social dialogue that
(never replaces but on the contrary) enhances the
traditional ones

6. A) Companies don't want to be
covered by EFP
Prejudices: from the property side
1. Dominant groups of shareholders would be unlikely to alter the
combination of factors that have determined their dominant position.
2. Encouraging a direct involvement of stakeholders in company
ownership has the direct effect of enlarging the composition of the
membership and it would likely induce a lower risk profile in corporate
governance.
3. Employee-ownership makes the company less
mobile and the governance less prone to
speculate.

7. A) Companies don't want to be
covered by EFP
Prejudices: from the management side
1. EFP could raise the cost of labour.
2. EFP often comes along with a stronger involvement of
employees in company decisions.
3. Management’s orthodox cultural background rarely fit
to the demands of non-traditional shareholders.

8. A) Companies don't want to be
covered by EFP
Objections: the world has changed for them too.
1. Short-termism is under attack.
2. Financial speculations can hardly hide inefficiencies in the production
structure. Employees can become allied of far-seeing managers.
3. Luxury remunerations for managers will not be viable anymore.
Employees will claim their part out of the company profits.
4. In SMEs, generational succession will become a serious thread
because of the aging population. Employee buy-out or leveraged buy-out
can be taken up seriously under this perspective.

9. What are the reasons behind that
mistrust?
I am confident that several of the existing prejudices
will finally end up in destroying themselves.
But when?
Each crisis is an opportunity to change for the better.
We have to free energies now

10. Why such practices are not
dominant in Europe?
B) They would like to be covered but some
obstacles prevent them from adopting it.

11. B) Obstacles: profit-sharing, allocation
of shares and saving plans
COSTS
Building an award scheme based on company performances is
something complex
Tax regimes (on profits, allocation of shares, individual incomes, etc.)
do not make it convenient.
There are no ad hoc vehicles to manage resources delivered to the
employees collectively.
EFP is not embodied in a larger strategy that make it meaningful to a
larger extent.

12. B) Obstacles: profit-sharing, allocation
of shares and saving plans
Undermining Motivational Requirements:
For employees, carrying stocks can just appear meaningless.
To perceive all their potential benefits employees must look at
themselves as (co)owners.
Compared to the holder, the owner encloses the
- equity element,
- legal status
- a behavioural attitude.

13. B) Obstacles: profit-sharing, allocation
of shares and saving plans
The willingness to exercise such rights is entirely
subjective. The fact that small shareholders can easily
manage their shares collectively is a strong motivational
element.
Forming associations is a way of making employees'
voice stronger.
The absence of predefined vehicles for employee
shareholders stays as a huge impediment to the diffusion
of EFP in many member states.

14. EFP IN SMEs
In SMEs, EFP can take a shape in the form of employee buy-out or
leveraged-buy-out. But legal obstacles are sometimes impossible to
overtake. Priorities:
Mechanisms allowing share transfers and changing in the property leaving
majority to employees.
Protection against excessive risks
Tax regimes can easily overcome the thresholds imposed by EU
competition law
Recognition of a special status of employee-owned-enterprises to which some advantages
could be connected with: access to credit, access to public procurement, ad hoc
governance measures, etc.