Resurrected, recovered, but still didn’t survive? A case study on the viability of employee-owned companies

Abstract

1. IntroductionFor what reasons do employee-owned companies (EOC) often transform into classic enterprises in the medium term? The and answers regarding the viability of EOC have become relevant against the backdrop of some broad discussions about alternative forms of companies and management throughout the past few decades. The theoretical key question (Dow, 2003, p. 5) of this debate is: Why do only a limited number of EOCs exist? After all, they promise to combine the preferred characteristics of democratic corporate governance with some advantages in productivity, in an increasingly-complex production environment?There is, unfortunately, no uniform definition or concept in the literature of companies that are owned to a considerable extent by their employees. In this paper, we analyze an empirical case of an EOC with the legal and organizational form of a limited liability company. For practical purposes, we conceptualize EOCs as the organizational and legal form of a 'worker capitalist' company, where employees share capital to purchase their company and hold at least a majority share of 51% of the equity, thereby consciously excluding from this working definition cooperatives and other alternative forms like kibbutzim.Unfortunately, we only possess rather rough data about the frequency of EOCs in Germany. Duhm (1990), for instance, was only able to identify about 40 cases. It was later estimated that more than 3000 companies had been privatised in East Germany through management- or employee-buyouts (Schwien, 1995; Gros, 1998); however, we do not know how many EOCs have resulted and how many of them have survived.The scientific debate on the viability of EOCs is clearly dominated by some formalistic model assumptions (for an overview, see Dow, 2003), while in-depth case studies remain fairly rare. This is particularly true for private companies, while cooperatives have been well researched in the past. The aim of this paper, thus, is to critically the existing explanations of EOC viability and, if possible, to enrich and deepen our respective knowledge. This will be done on the basis of a broadlydeveloped single case study of an EOC that emanated from a case of insolvency and, several years later, lost its EOC characteristics and transformed into a 'normal' company.In the following chapter, we critically review the state of the literature on EOC viability. Subsequently, the methods of both data gathering and analysis will be outlined. The description and explanation of the case study are then dealt with extensively. This will be followed by a discussion of the findings as well as of some implications and limitations of our study.2. State of researchEOC has been a topic of academic interest since the early 20th century (Jensen, 2011; for the ideological bases, see Vanek, 1975). Since the 1970s at least, several studies have given more in-depth consideration to two basic problems. On the one hand, they asked for the reasons behind the relative rarity of this organizational form, in spite of its promises to combine the desired characteristics of democratic governance struc- tures with productivity advantages against the background of an increasingly complex production regime. On the other hand, they explored the viability of EOCs and the reasons for their potential viability deficits and their higher degeneration and mortality rates.The following analysis is limited to capitalist economic systems and renounces some more general or system comparative approaches. We focus instead on the organizational level and do not explicitly engage in any macroeconomic considerations (e.g. on the so-called 'labour-managed economies'). We also abstain from examining some cooperatives and other unique forms of community ownership (e.g. kibbutzim). Finally, given the particular character of our case study, we also leave aside any discussions about productivity advantages or disadvantages here. …