Executive Summary

Workers (And Owners) Of The World: UNITE!

James F. Van Houten
President & CEO of MSI Insurance

February 1994

There is a great deal of outdated thinking about business ownership, the role of profit, and the extent of the conflict between owner and employee stakeholders.

This gap between perception and reality was demonstrated at Weirton Steel in West Virginia, McLouth Steel in Michigan, Bliss-Salem in Ohio, and at the Pittsburg Forgings Company, among others. Each of these firms, owned by their workers, announced lay-offs and wage cuts of the same approximate magnitude and duration as those by their publicly traded competitors. As Harry Lester, the United Steelworkers official at McLouth, explained, "You just can't keep employees because they own the company, or there's not going to be any company to own." (Business Week, Sept. 9, 1991, p. 66).

The growing correlation between motivations of employees and of owners is even more evident when we move from individual firms to the economy as a whole.

The three largest share-holders of publicly traded firms in the U.S. are the National Teachers Retirement System, the California Public Employees Retirement System, and the New York State Retirement System. These three union pension plans have more than $200 billion under management, and are investing $40 million more every day. In aggregate, the ten largest pension funds control about six percent of all U.S. shares. No other owner group has this much power.

And there are thousands of other pension funds. An additional 40 percent of the U.S. stock market is controlled by mutual fund managers. It's an easy conclusion that the majority of the voting shares of U.S. corporations are owned by people whose sources of income are wages and pension payments, and not investment banking fees or capital gains. And these worker-retiree shareholders demand performance. If you doubt this, just consider Vanguard Mutual Funds' support for activist Robert Mork's candidacy for the Sears Roebuck board (Fortune, July 29, 1991, p. 132).

The old arguments that profit creates organizational behavior that damages society have also lost their credibility. In fact, the teaching of a dichotomy of strategies for profit and non-profit firms has been replaced by a more universal model in our business schools. As demonstrated by Harvard's Michael Porter, among others, it is now widely accepted that the strategy issues facing all non-government organizations are more similar than different.

All this brings me back to my original point. The contention that profit is the root cause of conflict between workers and owners, and between firms and society, is just wrong. Profit is certainly a requirement for some firms, just as effective fundraising is for others, but it is not the driver of stakeholder conflict. I believe that this realization by workers is one reason unions are winning fewer organizing elections than in the past. Employees understand that their interests and those of owners are often complementary.

The greatest imbalance of power today is not between owners and workers but between government and private institutions. That imbalance in favor of government is now at least as one-sided as was that of the early capitalists. And it was just this sort of power imbalance that started an earlier revolution advocated in the famous 1848 pamphlet by Karl Marx and Friedrich Engels.

So I suggest a new challenge. It's time for a new economic manifesto. Workers and owners of the world, unite!

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