Employee Ownership: One More Way of Coping

Is employee ownership a guide through the minefield of the American workplace today? “It’s no panacea, but it can help if it’s handled well,� says Joseph Vittoria, chairman of Avis Inc., the “We try harder� car renter that is one of the most successful of employee-owned companies.

Vittoria, 59, may soon get an even larger challenge in employee ownership. He’s scheduled to become a director of the new United Airlines if an employee buyout of the carrier gets shareholder approval in a vote expected at the end of June.

Right now, United seems a prime example of labor-management anger and bitterness. The buyout proposal, in which pilots, machinists and salaried employees would get control in return for wage and work-rule concessions, ran into further skepticism from a major investor last week. Vanguard Windsor Fund, which owns almost 10% of United parent UAL Corp., said it didn’t look right to exchange 55% of the airline for promises to work more efficiently and give up hypothetical pay raises.

United’s unions, in turn, emphasized their threat to wreak Armageddon on the airline in the form of strikes.

The dispute erupted against a backdrop of concern over work in America and the report a week ago of a government commission, led by former Labor Secretary John Dunlop, that the U.S. workplace is a disaster zone of widening wage gaps and insecure employment.

What’s going on? Fast-paced technological change is arousing resistance and desperation but not traditional labor bargaining. In United’s case, for example, the company’s pension and mutual fund owners would be happy to unload the business if somebody would give them cash at the proposed buyout price, set in December, of roughly $160 a share.

But UAL stock currently trades at $115 a share. So investors may have to take promissory notes and stay with the employee-run airline if the buyout is approved.

Employees, meanwhile, know a strike of any duration would send UAL into Chapter 11 bankruptcy, and hurt them perhaps most of all. “The employees feel they’re the only ones with a real stake in the company, their livelihoods,� says Robert Mann of R.W. Mann Co., a New York airline consulting firm.

As investors and employees look around, the prospects seem fraught. TWA has lost almost 60% of its value since coming out of bankruptcy last November with 45% employee ownership. The airline said last week that it would have to lay off 300 employees in another cost-cutting move.

Casualty lists come daily. Delta Air Lines is cutting 15,000 workers over the next three years; Sara Lee, the Chicago-based conglomerate, said last week that it would cut 8,500 employees.

What’s happening is that communications technology is changing business profoundly.

In the Beverly Hills offices of International Creative Management, for example, microphones hang from an acoustic ceiling in a conference room with an enormous U-shaped table, numerous chairs and a large video screen. The room is used by up to 30 people for teleconferences with the talent agency’s New York and London offices.

And that kind of setup is repeated all over the country these days, cutting down dramatically on business travel.

That’s one reason full-fare business passengers, who used to account for more than half of all air travel, are down to 40% and declining. In fact, U.S. air travel has shown no growth in five years, except for the low-cost operations of Southwest Airlines and now CALite, the no-frills service launched by Continental Airlines.

That’s not a short-term or a short-hop phenomenon. The newest Boeing 737s, with transcontinental range, will be delivered to Southwest in a few years, bringing low fares to cross-country flights. United and other airlines must meet that competition or fade.

Such competition brings pressure on workers. But note that it’s not low-wage or foreign competition. The no-frills airlines pay as well as others, but they work harder and use technology more efficiently.

They also have a higher-than-average degree of employee ownership and involvement in decision making. “Technology requires business to change,� says Corey Rosen, head of Oakland’s National Center for Employee Ownership. “Those who try to retain the old structures of management and labor become bureaucracies with vested interests�--a condition many companies are struggling to overcome.

A great variety of companies have overcome difficulties by making employee ownership work: Kroger Co. and other supermarket chains; Herman Miller Inc., the office furniture supplier; Hallmark Cards; Parsons Corp., the Pasadena engineering company, and several steel companies, which have gone through more than a decade of restructuring.

“A stake in ownership helps employees accept difficult changes,� says Joseph Blasi, co-author of “The New Owners.�

“Don’t only look at large companies. There are thousands of small, employee-owned companies that are successful,� says Vittoria, who took Avis into employee ownership in 1987 after five years in which it had five different owners in the junk bond takeover follies.

Avis, which had a strong balance sheet, borrowed $1.3 billion to buy stock for the employee stock ownership plan. More than 90% of that debt has been paid from company profits; the 13,000 employees literally have earned equity.

But employee ownership is not about finance, says Vittoria, who holds an MBA from Columbia University and has spent most of his career with Avis. It’s about communications. “You have to over-communicate to get everybody thinking about how to make their jobs better, and then you have to empower them, depend on them to make decisions.�

Avis has 150 employee participation groups at locations around the United States. Vittoria spends a lot of time visiting them, “not always traveling, sometimes by conference calls,� he says.

Something is working. Despite rough times and heavy competition, Avis has increased its value 244% in seven years of employee ownership. Maybe ownership and commitment are just longer words for trying harder.