Employees as Stakeholders: The Challenges of Building an Ownership Culture

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Employees as Stakeholders The Challenges of
Building an Ownership Culture

• Dr. Demir Yener
• Yener Global Finance Associates
• Third OECD South Eastern Europe
• Corporate Governance Round Table
• Zagreb, Croatia
• 21-22 November 2002

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Purpose of the Presentation

• To discuss
• The role of stakeholders
• The role of employees
• The role of culture in progress
• The implications of culture on Corporate
  Governance
• The challenges of employee ownership

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Culture and Politics

• The central conservative truth is that culture,
  not politics, determines the success of a
  society. The central liberal truth is that
  politics can change a culture and save it from
  itself.
• Daniel Patrick Moynihan,
• US Senator, NY

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Whats Culture?

• Culture is the
• Values
• Attitudes
• Beliefs
• Orientations
• Underlying Assumptions
• that prevail among people in a society.
• Samuel Huntington

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Major Issues in the Culture Paradigm (Lawrence
Harrison)

1. The linkage between values and progress
2. The universality of values
3. Geography and culture
4. The relationship between culture and institutions
5. Cultural changes

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Stakeholders and Shareholders

• Primary Stakeholders
• Shareholders
• Boards of Directors/Managing Boards
• Executive Management
• Other Stakeholders
• Managers
• Employees
• Customers
• Community at Large
• Suppliers
• Financial Markets
• Environment in general

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• Enabling Environment
• International Auditing Accounting Standards
  (IASISA)
• Securities Markets Legal and Regulatory
  Frameworks (IOSCO)
• Financial Sector Participants investors,
  issuers, intermediaries (interaction between
  participants)
• Financial Market Infrastructure and Architecture
• Product and Factor Competitiveness
• Foreign Direct Investments
• Corporate Control (Corporate Governance OECD
  Principles)
• Enabling, prudentially regulated business
  environment, with creative incentive structure

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Four Values of Good Corporate Governance

• Transparency
• Accountability
• Responsibility
• Fairness

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Efficient Ownership

• Sufficient concentration of control in a firm by
  owners to be able to monitor and influence
  management effectively.

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The Goal of the Firm

• To maximize the wealth of its shareholders.

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Role of Employees

• As stakeholders
• As owners

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Cultural Obstacles to Employee Ownership

• Feudal Culture
• Investor Culture
• Participatory Culture
• Shareholder Culture
• Entrepreneurial Culture
• (Blasi and Kruse, 1991)

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Challenges in Building Employee Ownership Culture

1. Technical
2. Psychological
3. Ideological
4. Structural

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Challenges in Building Employee Ownership Culture

• Technical Challenges
• Circumstances about employee ownership
• Legal framework
• Adequate understanding of financial and
  managerial issues and constraints of operating a
  business

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Challenges in Building Employee Ownership Culture

• Psychological Challenge
• Resistance to changes
• Democratic consensus building
• Referenda
• Top-down autocratic process

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Challenges in Building Employee Ownership Culture

• The Ideological Challenge
• Political questions about the possible and
  desirable aspects of property concept
• Justice is the foundation for Patrimony
• The cultural and legal sense of ownership seek to
  balance between
• Organizational rights responsibilities
• Economic Risks and rewards

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Challenges in Building Employee Ownership Culture

• Structural Challenges
• Ownership culture involves the technical,
  psychological and ideological issues around
  power, authority and accountability.
• The institutional frameworks that will serve the
  needs of employee owners and shareholders
• Mechanisms and elements of CG

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Conclusion

• Employees play an important role as stakeholders
  and shareholders in CG
• Culture has an important role to play in
  development and progress
• Four important cultural challenges (Technical,
  Psychological, Ideological, Structural) impede
  employee ownership
• Cultural impediments to ownership must be
  overcome in order for employees to become more
  effective owners and stakeholders