Companies Owned by Employees and Managers

Companies Owned by Employees and Managers

During Margaret Thatcher's time as Prime Minister, she began a worldwide trend. It's a process that's known as privatization. It consisted of the transfer of control of a state-owned firm to the private sector. This was accomplished by selling the company's stock. In certain cases, the state remained in charge, but the financial gains that came from holding shares were sold to private investors in some cases. The dividend yield of the shares and the increase in their value (as a result of the private sector's engagement) are both examples of such economic advantages.

When it came to privatization, though, it wasn't totally homogenous or clear.

The equity of a few companies was sold to a single person or small group in a privately negotiated deal. With the sale of a "controlling share" (nucleus), a premium paid by private investors for the control of the sold enterprise was apparently yielded to the state.

This form of privatization was characterized as "crony capitalism." For whatever reason, one set of businesses, all buddies of the governing political class, seemed to gain the most. Their detractors say that they purchased the majority shareholding for an absurdly cheap sum of money. The "cronies" acquired the shares at a far lower price than they subsequently sold them for on the stock market, which they cited as evidence of their theory. Because of privatization, greater administration, and financial control, the "cronies" were outraged. Maybe. But the recurrence of the same names in every big privatization agreement still seemed a little suspect. '

The second option was the direct sale of stock in the newly privatized companies to the general public. There were two ways to do this:

An equal distribution of the state's amassed wealth might be achieved by the sale of stock (a monetary technique) or the distribution of vouchers to all of the country's adult residents. The vouchers may be exchanged for shares in state-owned firms on a predetermined list (a non-chash method).

One set of nations, on the other hand, decided to privatize their economies in a completely different way. Instead of privatizing the state-owned company, they opted to transform it.

To put it another way, Macedonia's approach to transformation is a shift in the ownership of a company and/or the economic rewards it provides for its shareholders.

The transition represents a significant divergence from traditional privatization in this regard.

Any one or more of the following organizations, or a combination thereof, may take ownership of the reformed company.

The firm's workers, management, and a select group within the company are all options for buyouts. A group like this leverages the company's assets, both present and prospective, as collateral to get the financing they need to buy stock in the company. This is referred to as a "Leveraged BuyOut" since the firm's own assets are used to buy it (LBO).

Finally, in a debt to stock swap, the business's creditors might band together and agree to convert their loans to the firm into equity (DES).

In certain cases, even after a company has been privatized or altered, the government still has a stake in it. Natural monopolies, utilities, infrastructure, and defense sectors are particularly susceptible to this. Strategic considerations of national interest include all of the aforementioned factors and concerns. Russia and Israel are two examples of nations that still have a "Golden Share." With this very specialized kind of security, governments may take control of corporate problems that are critical to their own safety, financial well-being, or even their own traditions by using decision-making authorities like vetoes and other forms of control. Because Israel has a majority stake in EI AI, the national airline, it may halt all flights into and out of the country on the Sabbath.

At best, transformation was seen as a sterile, make-believe exercise in the West, according to conventional thought at the time. Corruption and cronyism were found in the worst instances. Both privateering and privatization were options. However, there were some legitimate points to be made:

The primary motivation for privatization was to breathe new life into a stale and deteriorating state-owned enterprise. As dinosaurs, state-owned enterprises were seen as outmoded because of their illogical combination of economic and non-business (political, social, and geopolitical) concerns in their decision-making process. The majority of people chose to regard them as extinct as the extinct reptiles that they were. An infusion of private initiative became an idealistic remedy for the public sector's business malaise.

The Transformation version lacked this same feature. It had nothing new to offer: no new management, no new ideas, and, most importantly, no new cash because of this predilection for old over new.

They respond by saying that one new ingredient, personal capitalistic incentives, dominates the rest of the old ones. The change of the state company is expected to follow and be heralded by the implementation of an incentive-driven project.

If you're motivated by money, you're motivated to change and innovate immediately.

The transformation process blurred the distinction between employees, managers, and owners.People in the new firms functioned as prospective managers and co-owners. One of the most fundamental concepts in management-hierarchy-was trampled upon. There can be no ship without a captain. The separation of ownership and management functions was not done in vain. Every facet of corporate governance and the correct conduct of a company is the subject of disagreement among employees, managers, and owners alike.

Managers and shareholders, on the other hand, aim to reduce this characteristic and its impact on the company's bottom line. For their own reasons, workers and owners want to keep their remuneration as low as possible, while managers want to increase it for their own benefit.

The new entity's "chain of command" was broken, resulting in dysfunction, financial mismanagement, a lack of clarity in vision and day-to-day operations, and labor dissatisfaction as a result of this dispersion (when the unrealistic expectations of the workforce are not met).

At first, in the 1980s, the West supported privatization and the transformation of state-owned companies. There is an increasing amount of evidence that privatization has had a positive impact on the privatized companies. A six-fold increase in production was seen in certain circumstances. The private sector now accounts for 60 to 80 percent of GNP in the West, and the drive to privatize what little public sector exists continues apace.

The same investigations, however, showed a less pleasant phenomenon: privatization only favored a narrow set of merchants. The irrational fears of those who opposed this procedure were confirmed without a shadow of a doubt. Something went horribly wrong when privatization was put into action. As a whole, the economy took a hit.

As a result, a new social consciousness emerged.More individuals are falling into poverty or becoming homeless, and the financial disparity between the wealthy and the poor has become more pronounced as a result. Nonetheless, the apparent corruption in the privatization process served only to amplify this pattern.

Another major and prevalent development that coincided with this increased social consciousness was the establishment of small enterprises by first-time entrepreneurs. These people had dual roles in their businesses: they were business owners, but they also worked there as workers. In the United States alone, there were more than 16 million owner-workers (1995 figures). Most of the 22 million firms that have been licensed in the United States are small enterprises. These numbers would be impossible to ignore for any economic planner or politician. In the service and high-technology sectors of the economy, employee-owned businesses have overtaken traditional corporations.

These two tendencies converged in the West, which shifted away from privatization, away from the separation of ownership and labor, and away from the difference between capital and labor. The West was returning to change. This is a big shift in the way things are done.

The Organization for Economic Co-operation and Development (OECD) created an institution to monitor developments in developing nations, formally known as "Economies in Transition." The CCET is here.

According to the latest CCET assessment, privatization is progressing unevenly throughout the former Eastern Bloc. Nearly every country in the world has done so. It's been claimed that others have finished it, yet they haven't even begun it. Since the privatization of state-owned enterprises (i.e., businesses with social capital) in certain countries, such as Macedonia, managers and employees have mostly not paid for the shares they received. There is no guarantee that they will do so. The company's ownership will be returned to the state if the management and employees fail to meet their financial responsibilities to it. This is the privatization of paper, a shift in the nature of what people anticipate. If new owners of businesses fail to meet their financial duties, no one can say that the transition is complete.

Overall, the privatization of small enterprises was more expedited across the globe. It was far more difficult to sell the larger companies. Numerous profit and loss centers are found in most of these enormous corporations. Accounts and guarantees were held in common by all of the businesses. Subsidized and supported by the more lucrative sections of a firm, they were less skilled and losing components. Investors found this unappealing.

Heartwarming statistics have been released. The proportion of small businesses that were privatized: Albania, the Czech Republic, Estonia, Hungary, Lithuania, Poland, and Slovakia all privatized 90% of their businesses. 70 percent of Russians and Latvians have Internet access.

It's a little more murky when it comes to the larger companies: the Czech Republic (81 percent), Hungary (75 percent), Estonia (75 percent). Lithuania (57% of the vote)Russia (55%), Latvia (46%), and Slovakia (46%), Mongolia (41%), and Poland (32%).Romania (13%), Moldavia (27%).Belarus, Bulgaria (11%), and Georgia (2%).

What's really going on here, though?

The Czech Republic is notorious for its cronyism and the huge transfer of wealth to the hands of a few people who are connected to the government's leadership.

Poland's condition seems to be somewhat better on the surface: a universal voucher system was implemented. A total of 14 management funds accepted deposits of shares from the public. In addition, these funds purchased a portion of the company's stock, making them shareholders. More than 500 businesses are currently under their stewardship, accounting for 5% of the country's GDP.

Because some of these funds are 50% owned by foreigners, they have strong Western management and moral standards.Yet rumors abound, not only about those things.

Is privatization or transformation better?

The message may be that we're all just like each other. Human errors and ambitions, corruption and suspicions of corruption affect any approach. Because it benefits a larger number of individuals, transformation seems to be more equitable. Ultimately, this is a bad idea since it results in companies going bankrupt and harms both the economy and the employees who work there. Is it better to own a failed company or work for one that is still running but where you have no ownership stake? This is not an issue of ideology or philosophy; it is a matter of fact. Ask Pelagonija Construction Group staff.

At least in this case, privatization ensures the long-term viability of businesses and the long-term employment of their employees.

In this economic reality, fairness (or the appearance of justice) may have to be sacrificed in order to ensure the survival of employees.

In my opinion, privatization is a better option than transformation.