Business does not see “ownership” as relevant to the creation of productive, participative and more harmonious workplaces.

By Gary Scarrabelotti^*

Given yesterday’s triumph of Julia Gillard over Kevin Rudd, let’s turn our gaze with relief from the appalling malice of it all to contemplate for a moment something constructive: how to build a better Australia in which to live and work.

The springboard for my thoughts is a series of articles published in The Australian Financial Review, beginning on 11 February this year, under the title “Workplaces of the Future”.

Paradoxically, though, the stimulus to my reflections was not so much what the articles said, but what they didn’t say.

What they said — more or less and for the most part — was that the Labor government’s Fair Work Act has restored class warfare to the workplace and has re-entrenched the ancien régime privileged position of the trade union movement.

This restoration of an antique ritual combat between “bosses” and “workers” has meant that workplaces, gradually freed-up by a long period of IR reforms which began with Paul Keating and continued deep into the Howard years, have been chained up again by an essentially reactionary piece of Julia Gillard legislation.

Unhappily, not a lot of what was contributed to this series of articles and reports – some 30 odd spread over a week – was of much account.  But the standout piece was that with which the series began: Anna Booth’s “Co-operation for the common good” (The Australian Financial Review, 11 – 12 February 2012).

It really is worth quoting:

“It is easy to see where the language of conflict and adversarialism [in our workplaces] comes in.  Workers joined unions early in our industrial history to assert their interests.  Our ensuing and still persisting workplace relations architecture is essentially an attempt to institutionalise conflict, not to forge productive workplaces …

“… While better than the law of the jungle, it is nevertheless adversarial.

 “… this … approach will not allow us to achieve the workplaces that we all apparently want …”

The trouble with the pieces that followed upon Booth’s opener was that they added little flesh to the bare bones of aspiration.  There was an ambition for highly productive, worker-participative and harmonious workplaces, but no road map (not even a sketch map) of how to get there.

In the thousands of words devoted to “Workplaces of the Future” there was no mention of employee share ownership, no mention of employee share ownership plans (ESOPs), and no mention, in concrete terms, of the kinds of workplace cultural changes, or possibilities for shop floor managerial re-design, that would contribute to the development of more productive, more democratic and more harmonious workplaces.

Needless to say, there was no discussion of how workplace cultural transformation and employee ownership fit together.

After spending 15 years representing organisations deeply committed to — and very active in — promoting legislative reform of federal provisions governing ESOPs, only now do I begin better to appreciate why we achieved so little over so long a time.

I understand the role that complacency and scepticism and exhaustion of reforming zeal played in the approach of the Howard government to employee share ownership.

I understand the instinctive preference of the Rudd and Gillard Labor governments for promoting superannuation reform over ESOP reform.

What I did not understand – and certainly did not foresee – was how a major public discussion could be held on the subject of “Workplaces of the Future” without Australia’s corporate leaders and business gurus giving a role to employee ownership in the remaking of the Australian workplace.

At last I get it: Australian business does not see “ownership” in any way relevant to the motivations of employees or to the creation of productive, participative and more harmonious workplaces.

Obviously we ESOP activists failed to communicate our message to our own constituency.

Yet there are still things about this that I just don’t get.

Like, how is it possible for a CEO instinctively to comprehend the “ownership interest” of ordinary (and really quite remote) shareholders and its relevance to business success, but not to see the potential implications for business success of an employee “ownership interest” — and that an interest by people who come into intimate daily contact with the business itself and upon whose fortunes they depend for their daily bread?

Lack of vision, or what?

In the 2008 Budget the Rudd government proposed a radical overhaul of the tax law governing ESOPs. Had the then government got away with its proposals – sprung upon a still new government by a Treasury traditionally hostile to employee share plans – employee ownership would have been destroyed in Australia.

Thanks to a big retreat by the Rudd government, forced upon it by an unexpectedly widespread and firey reaction by Australian business, the ESOP survives.  Unfortunately, it survives in an unpalatable form.

The kind of share plans now explicitly defined in tax law are, in some important ways, a much improved instrument for promoting employee ownership.  But they’ve been made ugly to administer by over-the-top tax integrity provisions.

Theoretically, ordinary workers stand to benefit handsomely from these new “Division 83A” share plans.  The problem is that compliance and administrative costs have proved too high a barrier for small- and mid-sized companies where the mass of workers are employed.

 A world of worker-owners would be a world in which trade unions would finally step, long overdue, into their graves.

One reason why these “83A” ESOPs were finally legislated in this user-unfriendly form was that business gave up the fight too early.

How come?

Part of the reason was the natural instinct to strike a bargain, especially when big concessions had been wrung already from the government.

I now realise, however, there was another factor at work.  Except for a handful of notable exceptions, Australian business leaders are not really interested in promoting wide-scale and deep employee share ownership among rank-and-file workers.  What was a stake for most businesses in the 2008 ESOP stoush was not worker ownership but “exec rem”.

Let me be clear.  I don’t believe it was a case of ill will toward the workers.  It was a conceptual thing.

For the typical publicly listed company, ESOPs are just another remuneration tool.  There’s wages and salary; there’s bonuses and profit shares; there’s “super”; there are FBT-exempt benefits; and then there are ESOPs.

If ESOPs get too clumsy, or too hot, to handle, well, business will drop them like the proverbial.  For delivering “rem” to employees high and low, plenty of options remain: a bigger bonus here, a dash of profit share there. It’s a whole lot simpler and cheaper; and the impact on employees is more immediate. Easy peasy!

The problem is that ESOPs are not a remuneration tool, at least not primarily. Certainly, they were never originally conceived of in this way or designed for this purpose.  Their real purpose has become obscured, if not corrupted, by the pragmatism of business managers. ESOPs are really ownership transfer tools.  They were designed to enable people who would never normally become business owners to become co-owners of the places where they work.

ESOPs were designed to break down the class barriers, founded on the division between capital and labor. By turning workers into employer-owners, old-style capitalism would be transformed into a new-style shared capitalism. 

This, by the way, is better understood by the trade movement than by most business leaders — which is why, for the most part, Australia’s trade union leadership, both left and right, range from wary about to hostile toward employee share plans.  A world of worker-owners would be a world in which trade unions would finally step, long overdue, into their graves.

What really stupefies me is that, except for group of people that you could count on your fingers, the penny has not dropped either for business or for the so-called “party of business”, the Liberal Party.

^*Gary Scarrabelotti is Managing Director of the Canberra-based consulting firm Aequum: Political & Business Strategies. During the period 1995 to 2002 he served as Executive Consultant to the Australian Employee Ownership Association and from 2002 to 2011 as Group Secretary for the Employee Ownership Group.