ORC Sightlines

March 2003

Key Success Factors for Employee Ownership Plans

Over the years there have been questions about whether employee stock ownership plans (ESOPs) can be successful in improving company performance. Those who support the use of such plans cite the value of giving employees a real and direct stake in the success or lack of success of the company. Where these plans are well managed, ESOPs can be an immensely effective strategy for consolidating commitment and productivity. But to work, they must be structured so that employees understand how their actions make a real difference in company results. “Success” must be defined in a tangible way that is readily convertible to cash, but cash alone will not motivate the changes needed to achieve higher performance goals. The entire relationship between the company and its employees—now it’s shareholders—needs to reconfigured. The employee ownership plan should include consideration of how the company’s new owners will be treated on the job on a daily basis.

Although most often ESOPs are utilized in non-union companies, they can also be beneficial when applied to an organized workforce. However, the members of ORC’s Labor and Industrial Relations Advisory Group (LIRAG) agreed at a recent meeting, if the plan’s provisions for employee involvement are going to include giving the union a seat on the board of directors, that provision should be very carefully structured so as not to over-empower the union representative. Companies that have ceded union board members undue power to veto decisions or choose senior managers have found it an unworkable arrangement.

Employers Struggle to Control Health Care Costs

At one time, managed health care was thought to be the silver bullet that would save the United States’ health care system. But managed health care is no longer controling health care expenses, and employers’ costs for providing health benefits have spiraled out of control. Some companies have tried to ease the impact of rising health care costs by diverting excess pension money or utilizing accounting maneuvers to find ways to offset expenses. Most, however, are finding that the only way to even temporarily deal with the increases is to transfer more of the costs to employees and retirees. In some cases, this has come to mean cutting off retiree benefits entirely.

The consensus among members of the Labor and Industrial Relations Advisory Group at their February meeting was that if this trend continues and the burden on employees mount further, the government will eventually step in. Even then, however, there will be the threat that unions will view any government plan as a minimum and seek to negotiate richer benefits from employers. Should that happen, the cycle will start all over again.

For more information on these issues or LIRAG, contact Thomas Connors, 212-719-3400, thomas.connors@orcww.com.

ORC Commentary on Safety Abuses at McWane

In February 2003, The New York Times ran a three-part series that chronicled the alleged workplace safety abuses and resulting injuries and deaths occurring over the past several years at industrial facilities operated by McWane Inc. The Times described a culture at some McWane facilities where intense production pressures regularly put workers at risk and resulted on several occasions in severe injuries or death. The articles reported that basic and essential safety and health requirements were frequently ignored and that injury rates at some facilities were extremely high in relation to the average for that industry.

In response, ORC sent the editor of The Times the following letter that reflects ORC’s 30-year involvement with leading global companies through its Occupational Safety and Health and Environmental Practice. The newspaper as yet has printed no letters to the editor on the subject.

To the Editor:

Your three-part series chronicling the reckless disregard for the lives, health, safety and dignity of the workers at Tyler Pipe and other McWane Inc., pipe foundries, is a shocking but valuable reminder to a too-often heedless public of the dangers that millions still face each day in too many American workplaces. Every year or so, it seems, the major media report on some similarly outrageous pattern of behavior by some rogue employer. But, predictably, after a week or so of public indignation about both the tragic consequences of such corporate behavior and the seeming inability or unwillingness of regulators and law enforcement officials to end the lawless conduct, the issue of workplace safety recedes into the background.

It is baffling to many who devote their professional lives to protecting workers that there is not an ongoing and unrelenting sense of public outrage about the 19 workers who, on average, die every day of every year in America from workplace injuries. Before our heightened attention to this issue once again slips away until the next tragic story gets reported, two key points deserve our consideration.

First, as the second Times installment and the Frontline episode too fleetingly point out, it does not have to be this way. Just as Tyler Pipe’s principal competitor, the American Cast Iron Pipe Company, has taken a different path towards worker safety and competitiveness, the vast majority of the most successful companies in America understand that to be competitive and prosperous they must first protect, respect, and value their workers. These companies, their leadership, and the talented and dedicated safety and health professionals who work for them are constantly looking for new ways to improve worker safety.

One of the principal tools businesses use to improve their safety performance is sharing with each other, even with their most fervent corporate rivals in the marketplace, the protective measures and management approaches -- the best practices -- that are proving to be most successful in controlling and eliminating hazards and reducing injuries and illnesses in the workplace. There are many active business forums dedicated to assisting companies in their efforts to make worker safety not just a top corporate priority but a central corporate value. Among the most successful of these are the Occupational Safety and Health Meeting Networks of Organization Resources Counselors, Inc. (ORC), which for thirty years have provided ongoing opportunities for many of the leading global corporations -- now numbering over 150 -- to expand their knowledge and exchange information on how to improve their safety and health programs and performance.

Second, as was suggested in your series, we cannot complacently rely on government regulators and law enforcement to keep the workplace safe. It is certainly true that the federal Occupational Safety and Health Administration has never had, and almost surely never will have, either adequate legal authority or sufficient resources to achieve its lofty mission of assuring so far as possible safe and healthful working conditions for every working man and woman. But even if Congress, in a rare bipartisan effort, found a way to craft narrowly focused revisions to the law that would better enable the agency to more successfully pursue corporate outlaws of the type described in your series, that would only be a start.

What is missing is a relentless, pervasive social intolerance for the kinds of workplace conditions that your series describes. Communities, including local and state law enforcement, the political establishment, the media, and ultimately the citizenry, must make it clear that as part of the “franchise to operate” a business, companies must conform to the same kinds of lawful and “civil” behavior as the everyone else. In short, there must be a fundamental shift away from the willingness of the American people to tolerate the kinds of conditions described so vividly by the Times. Nothing less will really make a lasting difference.

Robert J. Freedman, President & CEO
Frank A. White, Vice President

For more information on this issue or ORC’s Occupational Safety and Health practice, contact Frank White, 202-293-2980, frank.white@orcww.com.


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