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October 31, 2003
"John Logue, Ohio Employee Ownership Center"
An interview with John Logue, Director of the Ohio Employee Ownership Center, and a 2003 Leadership for a Changing World awardee. Questions and answers will appear below starting at 1 pm EST on Friday, October 31. You may ask a question in advance by clicking on the "Submit a Question" button. Due to time constraints, not all questions will be answered. You may need to refresh your screen during the interview to read the most recent responses. Read background Leadership for a Changing World
Welcome to Leadership Talks with Dr. John Logue, Director of the Ohio Employee Ownership Center in Kent, Ohio. Dr. Logue is a professor at Kent State University, and is a 2003 recipient of the Leadership for a Changing World award.
John, what brought you to social justice work?
John Logue
I’m afraid it’s a genetic defect. I grew up in Denton, Texas. My parents were Texas liberals – then, as now, an endangered species. I grew up enjoying politics, enjoying the good fight and the occasional victories. My first political memory was waiting at Dallas Love Field for Adlai Stevenson to arrive in the 1952 campaign; I was still little enough that Daddy had me up on his shoulders. I wasn’t much bigger the first time when they took me to hear Ralph Yarborough for the first time on the Denton County courthouse steps, when we was running for Governor. It must have been 1954. They hosted fund-raisers for the Texas Observer, the conscience of Texas politics, in our living room. They lost a lot more than they won. Their views and examples have always colored my thinking.
Their friends pretty much had the same views. I ran across recently the piece that my parents’ old friend Martin Shockley -- who died at 95 this last August -- wrote on the death of Frank Dobie, the folklorist and one of the genuinely outstanding Texas men of letters, for the Observer in 1964. It really resonates with me, so let me quote him:
“Addressing the Texas Institute of Letters, Harry Ransom said that he had tried hard to understand Frank Dobie, and had decided that the fundamental principle of Dobie’s life had been to pitch in on the side of the underdog. I thought then, and have not changed my opinion, that I know no more honorable principle for a good man’s life.
“Now that he is gone, each of us bears a larger responsibility for the support of these ideals which were more ably supported while he lived: to stand up taller on the side of decency; to speak out more courageously for the cause of justice; to extend more generously to others those rights which we most cherish for ourselves. A man who fights for his rights is a brave man, and I respect him; but a man who fights for the rights of others is a noble man, and I honor him.”
That’s not a bad standard for life.
I remember like it was yesterday my Dad saying of the sons of a friend of his who had taken high paid jobs with a corporate law firm to make a good living defending corporate wrong doing. “Their dad must sure be ashamed of them,” he said.
I’d like to think that my parents would be proud of the work I do if they were still alive. In some ways, working with employee ownership is a practical way of honoring them and their lives.
NY, NY
Was it difficult to take an idea that worked in a foreign country and make it work in the US? If so, what was the most difficult challenge of transitioning that model?
John Logue
The Mondragon co-op system in Spain was one of our inspirations. This cooperative complex in the Basque region now employs more than 50,000 people in about 125 manufacturing cooperatives and several large retail, distribution, and financial cooperatives. It’s become one of the largest industrial companies in Spain and its bank, the Caja Laboral, is one of Spain’s largest financial institutions. The Mondragon cooperatives have been exceptionally successful in part because of Basque nationalism. One obvious problem in Ohio is we don’t have enough Basques. I think from our perspective, Mondragon was more of an inspiration than a model to replicate. Mondragon used a series of second-order cooperatives to grow its industrial cooperatives. That is something we can obviously do in the U.S. Ohio’s Employee-Owned Network is patterned on the Mondragon Training Program, we’ve developed a purchasing coop for network members, and we’re in the process of assuming the management of a revolving loan fund which we hope will provide financing for expansion of employee ownership in Ohio.
Alexandria, Va
John, can you talk about what you witness in the community when a company goes out of buisness. I think many people think folks just simply get "other" jobs.
John Logue
When you come to work on Monday morning and find the plant gate locked you feel both shocked and, in many ways, helpless. The fundamental problem that many Americans face is that the jobs that are disappearing pay good wages and good benefits while the “other jobs” that they can find generally pay poor wages and have no benefits except those required by law. We’ve lost 3.8 million manufacturing jobs in the last 3 years. The service sector jobs that are created to replace them pay a fraction of the wages and a smaller fraction of the benefits of the jobs that have been lost.
The employees in many of the plants that we work with that are affected by shutdown are in their forties and fifties. It’s especially hard for older workers in their fifties or early sixties to find any employment that provides health care benefits. While workers who lose their jobs are legally entitled to maintain their health care benefits under COBRA, few workers on unemployment compensation – often 50 to 60 percent of their previous wages – have the wherewithal to pay for health insurance.
Under these circumstances an effort to buy the plant to save their jobs makes sense to an awful lot of employees, even if the deck is stacked against an employee purchase.
Gary, Indiana
How does employee owndership work? How do profits get distributed, and what stake do the employees get that makes them "owners"?
John Logue
There are two basic mechanisms for employee ownership. The most commonly used is the employee stock ownership plan or ESOP. There are about 11,000 ESOPs in the U.S. with more than 8 million employee owners. The less common mechanism is a worker cooperative. There are several hundred worker co-ops with perhaps 20,000 employee owners.
Employee ownership through an ESOP is a big complex because an ESOP is a “qualified employee benefit plan” under our pension law. In an ESOP the pension plan owns the stock in the company and each employee participant has an account within the ESOP which holds his or her share of the company stock. Stock is issued on an annual basis to employee accounts at the discretion of the board or as the company pays down bank loans borrowed to buy the stock. Some ESOPs pass through full voting rights to employees; others only meet legal minimums. Similarly, some ESOP companies pay dividends on corporate stock which are passed through to employee owners; others don’t.
Additionally, many ESOP companies have profit-sharing programs that distribute annual bonuses based on this year’s profits to employees regardless of how much stock they have accumulated over the years in the ESOP plan. Employees cash out their stock on retirement or after other separation from the company.
A worker co-op is a simpler system. It works much like a credit union or an agricultural co-op. It’s a membership association in which the company’s retained earnings are paid to members in patronage dividends with a portion generally retained in the company to provide for growth and expansion. So each employee accumulates financial value in a membership account within the cooperative.
Co-ops are by definition democratic. Usually they work on a one-member, one-vote basis regardless of financial investment in the cooperative. Under Ohio’s co-op law at least a majority of the members of the board of directors have to be elected by co-op members. If you want more information on how ESOPs work check out the ESOP Basics in the left column of our Website, www.kent.edu/oeoc
Marietta, GA
The idea of employee ownership is very interesting. But what evidence is there that employee owned companies outperform traditionally-structured companies?
John Logue
Since the US General Accounting Office did its pathbreaking study of Employee Stock Ownership Plan (ESOP) companies in 1985, EVERY study that has looked at the internal structures of employee-owned companies has found that companies that encourage employee participation in decision-making outperform those which do not.
What seems to work is the combination of employee ownership with employee participation in decision making, open communication of information about how the business is doing, and enough employee education to understand business information and use the participation system effectively. It’s what we can call “informed employee participation.”
To take just one example, our Ohio ESOP study found that only 3% of ESOP companies that did not increase “informed employee participation” improved their profits relative to their industry after becoming ESOPs. On the other hand, 48% of those that made full use of “informed employee participation” increased their profits relative to their industry.
Those are pretty compelling numbers.
Interestingly, we also found a high correlation between having non-managerial employee representatives on the board of directors and improved performance. If you are interested in more evidence, have a look at our recent book The Real World of Employee Ownership (Cornell University Press, 2001).
Chicago, IL
One of your hopes was that employee-owned firms would do more business with each other. OEOC has been around for over 10 years, have you seen any examples where this is happening?
John Logue
A few. Inside our network of employee-owned companies in Ohio we have published a products and services catalogue which company purchasing agents use. That was an initiative from our annual CEO meeting.
Several of the companies that we work with have also been active in encouraging ESOPs among their suppliers and in some cases among their customers. They do that primarily when the owners of their suppliers and customer are nearing retirement and don’t have obvious heirs to continue the business. Incidentally, that’s one of the best uses for employee ownership: employees buying good businesses that retiring owners want to see continue.
We also had one very interesting case in which a well-established employee-owned company, Fastener Industries, in Berea, Ohio, helped the employees at Brainard Rivet in Girard, Ohio, buy their plant, which had been shut, and include the Brainard employees in the Fastener ESOP.
We’d like to see a lot more of that sort of activity. Employee-owned companies have a lot to gain from doing business with each other and, in the long run, from helping to set up new employee-owned companies.
Minneapolis
Can you describe the attributes of a business that make it a good candidate for employee ownership?
Are there certain industries that are easier to convert, e.g. high tech vs. low tech, local market-oriented vs. national or international market-oriented?
John Logue
The basic characteristics of companies that we look at to see if they’re good candidate for employee ownership are pretty much as follows. One, is the company profitable or otherwise worth owning? Two, is the owner willing to sell? Three, do the potential employee owners have the expertise and knowledge to improve the business? Four, is there a good management team on board or can the selling owner be kept in for some years to train a new management team and pass on his or her expertise? When you have a company with employees who believe it’s worth owning and have got the knowledge and experience to improve operations and an owner who wants to sell and willing to sell gradually to the employees over a period of time, you have an ideal situation.
On the other hand, employee ownership doesn’t work very well in companies where your employees are transitory, the skill level is minimal, the boss is a rank exploiter, and nobody wants to continue working in the company. Employee ownership works best where the employees see these jobs as jobs they want to work in for years.
In terms of industries, we have seen employee ownership work well in practically every industrial sector. It seems to work equally well in old-line manufacturing and in new high-tech industries. As far as we can see, it works particularly well with “knowledge workers” who take the company capital home with them when they leave at 5 o’clock. Employee ownership makes them real owners of the assets of the company they work for, which are their own knowledge and expertise.
On the local versus national or international market question, we have seen companies succeed as employee-owned companies in all markets. It may be somewhat easier for employees to understand local and national markets than international markets, however. There are also days when the Fortune 500 companies seem not to understand the ins and outs of currency hedging and other international market problems.
Seattle, WA
How does the declining economy and growing unemployment affect OEOC's work?
John Logue
It means that we have more to do and less resources to do it with.
Wichita, KS
What lessons have you learned from working with diverse groups like business owners, employees, banks, etc.?
John Logue
In a plant shutdown situation, the first lesson is that it doesn’t matter whether you are a Democrat or a Republican, you want to keep jobs in your district You want to keep your constituents working. The same is true for labor unions and the chamber of commerce: keep those jobs. It won’t surprise you that the local government and local churches have the same position.
While advocating employee ownership of the means of production may seem to be radical in the abstract, in any concrete situation it’s a no-brainer for the whole community. The only question is whether it is feasible for the employees to buy the assets and run the business successfully.
The second lesson is that winning financial support for employee ownership from banks and investors in shutdown situations is tough. We really need employee-friendly equity funds. The United States Employee Ownership Bank Act that is before Congress (HR 2969) would really help too, especially because of its loan guarantee feature. There’s more information on that legislation on our website at http://dept.kent.edu/oeoc/oeoclibrary/eobankreprint.pdf.
Cleveland, Ohio
John: congratulations on this recognition, from your friends at WIRE-Net in Cleveland.
My question: what do you think are the limitations of the strategy you've taken in your work? What important approaches are needed to complement what you do to reach deeper levels of impact?
John Logue
Thanks for the kind comments and congratulations on the great work you’re doing at WIRE-Net. Employee ownership is a useful tool to save jobs that might be lost in some circumstances. It’s even more useful as a strategy for ownership succession in closely held businesses. (There’s a big tax break for business owners who sell 30 percent or more of the stock in their company to their employees through an ESOP or a co-op. They can avoid paying capital gains taxes on the proceeds.)
That said, employee ownership has lots of limits. It doesn’t work well in starting entrepreneurial businesses. It is hard for employees to buy plants from owners who refuse to sell – we’ve never succeeded with that in Ohio except in one case. It’s hard to find friendly equity capital.
I think employee ownership is a useful tool to have in the toolbox of every community development corporation and something that you at WIRE-Net can use when you hit a company that fits. But it can’t or shouldn’t be your only tool any more than any other single tool is the be-all and end-all for economic development. Employee ownership is a good way to anchor capital and jobs in a neighborhood or community, but so is strong family ownership.
If I had my druthers, I’d like to have some new tools. I’d like a labor-sponsored investment fund in Ohio like those in Canada. Did you know that the labor-sponsored Crocus Investment Fund in Manitoba has raised over $170 million for investment in growing small and medium-sized Manitoba businesses? Crocus has a preference for investing with the employees and for selling its stake to the employees when it exits from an investment. And here’s the kicker: The Province of Manitoba has a population of 1.1 million, less than that of Greater Cleveland. Can you imagine what we could do with an equity fund to reinvest $170 million in growing small- and medium-sized businesses in the WIRE-Net area and the rest of Cleveland?
Charleston, WV
How do you work to build the leadership among employee groups to purchase a company?
John Logue
The truth is, in plant shutdowns, is that the leadership is there. It’s amazing how many people will come forward to volunteer their time and talents to help save their jobs and those of their fellow employees.
Denver, CO
What are the challenges and advantages of working in two worlds - the academic world and the "real" world?
John Logue
Frankly, there are many advantages in combining the two. There IS a benefit from combining theory and practice. There are real advantages teaching about things you work with concretely. Combining the two imposes more of a sense of intellectual integrity on what we write and our research. There are also some unique advantages in being able to pose academic research questions that have immediate implications for our own applied work in the field. I’m not certain that all my colleagues know exactly what it is that I do when I’m outside university, but they’ve been quite supportive; so has the university administration.
I might also note that of the state employee ownership programs that were set up in the late eighties, at the same time our center was set up, we alone have survived and prospered. I think our university placement has a lot to do with that.
San Diego, CA
How do you see other social justice organizations working with the employee-ownership company movement? Do you collaborate with other organizations on broader economic and social issues?
John Logue
At its core employee ownership is about broadening ownership of productive assets so that working men and women own and control their economic destiny. The ties to other social justice objectives I think are obvious.
At the same time, employee ownership does little for those outside the labor force. In an ideal world, resources would be available to help provide entrepreneurial leadership for co-ops that employee those peripheral to the labor force. There are a few examples of success in that area. Cooperative Home Care Associates (CHCA) in New York are certainly an outstanding success. It has built a business that employs and is owned primarily by women of color and many of them recent immigrants. In one of the lowest wage industries in the country CHCA provides better wages and far better benefits than its competitors and still turns a profit. My hat is off to Rick Surpin and his associates who helped build that company. We need more like them, but it’s very hard work.
I think our work, working with ownership transition and with retaining jobs in existing companies, is easier. In effect, we are simply a catalyst for helping people help themselves. Our knowledge and assistance leverages their experience and skills. That’s what’s enabled us to have so much impact.
Leadership for a Changing World
Thank you, Dr. Logue, for joining us today. We have time for one more question:
Where do you see OEOC, and the employee ownership movement, headed in the next few years?
John Logue
Employee ownership is one key to anchoring capital and jobs in our communities, and to broaden ownership of productive assets among working men and women. It’s certainly not the only tool, but it’s a good one.
We need it now more than ever as we hemorrhage good jobs with good benefits. We’ve had a net loss of 2.7 million jobs in the last 3 years. Manufacturing job losses are worse: According to the US Bureau of Labor Statistics, from September 2000 to September 2003, manufacturing employment fell from 18,365,000 to 14,556,000, a decline of 3.8 million jobs. That’s downright scary. We’ve lost 160,000 manufacturing jobs in Ohio alone – 10% of our state manufacturing base. We’re supposedly in an economic expansion, but you sure can’t tell it in the job picture.
If this is the job picture in economic expansion today, I’d hate to see a recession!
What’s happening is that the big multinational corporations are sending our jobs overseas. The Fortune 500 are net liquidators of jobs in the United States. It’s local business, small and medium-sized companies that create jobs. So we need strategies to grow local business and local jobs: community loan funds, local banks, community venture capital, credit unions that get the sophistication to do commercial lending, pension funds that reinvest locally. It’s definitely time to stop using our pension money to finance job flight!
If we look forward to my vision for employee ownership in Ohio, in five years we’ll have a good size employee-ownership loan fund with upwards of $2-3 million to help finance growth in the employee-owned sector. We’ll have an equity fund to bring timely, friendly equity for employee buyouts and for expansion of existing employee-owned businesses. We’ll have a strong purchasing cooperative for the 61 companies in Ohio’s Employee Owned Network.
I see an Ohio employee-owned sector that will continue to grow from the current 400 or so companies to 500 or more within 5 years. I see our Network – which includes the most participatory employee-owned companies in the state which are most committed to establishing a culture of ownership inside their companies – doubling in size. I see us developing a multi-company mechanism for pre-funding retiree medical care -- already a looming crisis. And I see some employee-owned companies beginning to take very practical steps to encourage the development of new employee-owned companies in their communities.
But I see our staff motto at the Ohio Employee Ownership Center still being the same: “Hold the flag high, but keep your feet on the ground.”
Leadership for a Changing World
Thank you for joining us today for Leadership Talks. For more information about Dr. John Logue and the Ohio Employee Ownership Center:
John Logue
Ohio Employee Ownership Center
309 Franklin Hall
Kent State University
Kent, OH 44242
Phone: 330-672-3028
Email: jlogue@kent.edu
Web: www.kent.edu/oeoc
Please join us for future Leadership Talks.
John Logue
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