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By Chris Mackin

ESOPs in Silicon Valley?

Chris Mackin

(EOA contributing editor Christopher Mackin writes on “Silicon Valley and the Quest for a Utopian Workplace” in the New Republic here. Among other points, Mackin examines how to ensure a voice in the workplace for employees–and identifies a huge opportunity for tech company founders. A brief excerpt:)

Skeptics might ask: Why insist upon new platforms to mediate the conversation between employers and employees, between leaders and led? Why not rely upon good old-fashioned union representation for these companies? Isn’t that sufficient workplace democracy?

To begin with, collective bargaining rules were adopted in the 1930s for an industrial workforce, and these rules make little sense in the current environment. Engineers and other management personnel were very likely signers of the recent Google petition, along with others lower in the corporate hierarchy. Traditional oppositional unionism that draws lines based upon organizational roles blunts the ability for healthy internal debate based upon the merits of a point of view. Employee perspectives are not necessarily dictated by their functional roles.

Furthermore, many employees who want a voice, and who want to debate about what is going on at their company, do not necessarily wish to demonize their bosses or their company. They reject the idea of working in an environment of perpetual organizational cynicism where the “other side” is always presumed wrong or less than honorable. The legal requirement placed upon unions to strictly follow the interests of a narrow bargaining unit is particularly corrosive to the cause of providing a collective voice at work.

So what alternatives exist? The answer ultimately lies in the law, and in structures for voice that allow for differences of opinion to be shared without fear or favor….

[One] approach would be the creation of legal trusts at the individual enterprise level that would give employees a collective seat at the ownership table. One of the largest employers in the U.K., the John Lewis Partnership and its Waitrose division, employs roughly 95,000 people and is entirely owned by such a trust. A number of British engineering and consulting firms, such as Arup Group, also operate under trust ownership. In the United States, 7,000 companies are owned in full or in part by Employee Stock Ownership Trusts, better known as Employee Stock Ownership Plans or ESOPs. Though mostly privately held, these include some large companies.

Large publicly-traded employers like Google or Tesla could grant employees significant shareholding stakes through these trusts, with or without federal tax assistance. In order for this to happen, however, leading shareholders, and especially company founders, will have to be persuaded, either from within or without, on both practical and moral grounds that employees at these companies need a permanent and independent voice, i.e. a “seat at the table,” and that these structures are the best route to achieving that end. Such trusts should hold a permanent percentage of stock that puts them in the ranks of major shareholders. Founders could signal their seriousness by committing to a right of first refusal on the future sale of their personal stock to these trusts.

Employee stock ownership is not a new idea in modern corporate settings. Where it is used, however, holdings are often extremely modest and employee voice is usually not encouraged or even contemplated. Commonly used stock option plans are presented and perceived by employees as mere compensation, not a tool for collective voice or power sharing. The primary purpose of these trusts, however, is to proactively include employees in the affairs of companies as organizational citizens. They will ultimately also lead to significant wealth-sharing between employers and employees who hold stock in those trusts.

Two additional ideas fit into this conversation. First, it is clear that the financial value of the shareholdings of founders of these utopian corporations, many of which are based in Silicon Valley (though an older East Coast utopian called Michael Bloomberg also comes to mind), far outstrips what they, their personal foundations, or their lineal descendants could practically need. These trusts will not beggar their families or their favorite charitable pursuits. Gifts of stock to favorite charities can, in fact, be monetized by encouraging those charities to sell stock back to these trusts.

Second, there is the matter of passing the organizational torch. Company founders can continue feudal-like traditions and pass on the ownership and governance of their companies to a select few, or they can set in place institutional structures that would allow the cultivation of a genuinely democratic workplace culture that breaks free from the human rental relationship that stains so much of the modern economy.

Here, a much-neglected philanthropic fact also needs to be surfaced. The most significant charitable gift that wealthy business founders can realize lies hidden in plain sight: in the community of largely disenfranchised workers and managers whose original efforts helped to create the founder’s fortune. The disenfranchisement of wage and salaried employees can be reversed by installing permanent employee stakeholder trusts…