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The debate on the share economy

Employee share-ownership:

agreement at Dalmine while debate resumes

Download article in original language IT0007270FIT.DOC

At the end of May 2000, an important agreement on employee share-ownership was reached at Dalmine, a leading Italian manufacturer of unwelded steel tubes. The agreement also provides for the possibility of a representative of worker shareholders sitting on the board of directors. At the same time, a speech by the governor of the Bank of Italy, Antonio Fazio, has sparked debate on the so-called "share economy", based on workforce involvement, in which share ownership would be an important component.
Two significant recent events have directed attention to employee share-ownership (partecipazione azionaria dei dipendenti) in Italy in summer 2000. First, an agreement signed at Dalmine Spa has introduced a share-ownership scheme for the company's employees, while also envisaging the possibility of allocating a seat on the board of directors to a representative of the employee shareholders. Second, a speech by the governor of the Bank of Italy has provoked a lively debate on the so-called "share economy" - that is an economy based on participation - which has involved trade unions, employees and industrial relations experts. The main issue of discussion is how to combine greater wage flexibility, linked to company performance, with closer workforce involvement both from an organisational point of view and in company decision-making.

The Dalmine agreement

On 23 May 2000, Dalmine and the metalworking sector trade union confederations, Fim-Cisl, Fiom-Cgil and Uilm-Uil, together with the company Rsu s (plant-level union representation bodies), signed an agreement to introduce an employee share-ownership scheme in the company. This was the last stage of a long process that began in 1996 with the privatisation of Dalmine, which was then a state-owned enterprise. A general understanding reached at the time on the allocation of shares to the company's employees was followed by a company-level agreement signed in July 1998, which created a joint study committee to examine the technical aspects of the project. With this latter agreement, the actual process began of setting up a share-ownership scheme for the 3,600 or so employees of Dalmine, a world leader in the manufacture of unwelded steel tubes.
The main points of the agreement are the following:
  • participation in the share-ownership scheme is individual and voluntary;
  • all workers employed by Dalmine on an open-ended employment contract for at least one year (around 3,000 employees) are entitled to shares;
  • the shares held by employees will amount to between 10% and 15% of the company's capital. Should the shares "reserved" by employees in the six months following the agreement not reach 10% of the capital, the joint committee will be reconvened in order to define alternative ways to implement the agreement;
  • participants in the scheme must undertake not to sell their shares for three years after subscribing to them;
  • the shareholding scheme will be set up within a year of the agreement's conclusion through a suitable increase in capital at an average price calculated on the company's stock market quotation during the 60 days prior to the capital increase;
  • in order to purchase shares, employees may use up to 70% of their end-of-service allowance (Tfr- a portion of worker's pay set aside and paid as a lump sum at the end of the employment relationship) or they may draw on the facilitated credit to be made available by special arrangements between Dalmine and a number of banks;
  • employee shareholders will be represented by a specific association (AssoDalmine) set up by the trade unions which signed the agreement. This association may nominate a representative to sit on the board if the proportion of shares owned by employees amounts to at least 10% of the total; and
  • the agreement is valid for three years and will terminate when the constraints on the disposal of shares by employees expire.
The unions which signed the agreement have emphasised that a clear distinction must be drawn between trade union representation and shareholder representation. It is the latter that will be ensured by AssoDalmine, on whose board the signatory unions, as founder partners, will have three of the 11 seats. The occupants of the other eight seats will be nominated by the general shareholders' assembly, in which each employee shareholder will have one vote regardless of the number of shares in his or her possession.

The debate on the share economy

In a speech delivered at the beginning of July 2000 at the Employers' Association of Turin (Unione Industriale di Torino, the Turin province employers' organisation), the governor of the Bank of Italy, Antonio Fazio, argued that greater flexibility of wages and working hours linked to company performance and the demand cycle may reduce the difficulties of companies in periods of crisis, while also preserving employment levels. Moreover, this type of workforce involvement in the success of a company may be reinforced by forms of employee share-ownership, thereby giving rise to a model of "share economy" based on participation.
Reactions to Mr Fazio's speech have been varied. On the trade union side, the most positive comment has been made by Sergio D'Antoni, general secretary of the Cisl confederation, who in the past has repeatedly advocated employee share-ownership as a means to encourage workforce involvement in company decisions (IT9905113N). According to Mr D'Antoni, the statements by the governor of the Bank of Italy should provide an important incentive for the government and the social partners to define a new bargaining system, which places greater emphasis on the linking of pay to productivity and consequently on the company and territorial bargaining levels, and forms of economic democracy, supported by workforce shareholding and involvement in decision-making. As far as share-ownership is concerned, Mr D'Antoni said that the unions should encourage the introduction of such schemes, while the employee shareholders should be represented by specific associations. The Uil confederation has also expressed itself in favour of the distribution of shares to employees, emphasising the importance of the effective involvement of workers in company decisions. Cgil, however, has been highly critical of Mr Fazio's analysis. First, Cgil argues that the creation of an employee shareholding scheme must not be at the expense of wages, and that the end-of-service allowance must instead be used to finance supplementary pension funds. Second, share-ownership schemes would tie workers to the fate of their company as both employees and shareholders, and this would constitute too high a concentration of risk. Third, Cgil does not believe that share-ownership and seats on the board are the best ways to achieve the effective involvement of workers.
According to the Confindustria employers' confederation, the distribution of shares among employees, by means of a stock option system, would be an important factor in a more dynamic and flexible economic system that would give companies easier access to quotation on the stock exchange. However, Guidalberto Guidi, Confindustria's delegate director for industrial relations and social affairs, has ruled out employee share-ownership giving rise to forms of co-management, and he believes that the distribution of a proportion of wages in the form of shares should not take place with the mediation of the unions.
The minister of labour, Cesare Salvi, has declared that the question of employee shareholding is an interesting issue for discussion by the social partners, bearing in mind, however, the priority of reforming the end-of-service allowance and its possible use to finance supplementary pension schemes (IT9906119N).

Commentary

The complexity of the debate on the "share economy" is mainly due to the overlapping of diverse issues: wage flexibility; the bargaining system; worker participation in company decision-making; forms of representation; and reform of the pensions system. The case of Dalmine prompts a number of general considerations. First, it seems unlikely that employee share-ownership can be a structural means to achieve wage flexibility, and it appears that its contribution may be marginal at most. Significant forms of wage/shares exchange typically arise - as in the USA- at times of corporate crisis and restructuring (as in the case of Alitalia- IT9706306F). Employee share-ownership schemes are also relatively common when state-owned enterprises are privatised: Dalmine itself may be considered a case in point, while other examples are Telecom Italia and Enel (IT9911256F). These, however, are "one-off" situations. Moreover, as numerous commentators have pointed out, an economic system like Italy's - based as it is on small and medium-sized firms, very few of which are quoted on the stock exchange - imposes substantial limitations on any widespread use of employee share-ownership schemes. The road to wage flexibility may rather be through a reform of the bargaining system and of the relationship between the minimum collectively agreed wage and performance-related pay - but this is a different matter.
The second aspect is the relationship between shareholding and worker involvement. It is the possibility of establishing such a link that prompts the support of some trade unions, and Cisl in particular, for employee share-ownership. Such a possibility is obviously conditioned by the limitations on the spread of employee share-ownership already mentioned. In any event, if the relationship is to work, the presence of a management committed to forms of worker participation is probably crucial (as is apparently the case at Gucci- IT0004149N), as well as the existence of institutional instruments to ensure the effective and stable collective representation of employee shareholders, lest share-ownership becomes nothing more than a wage supplement, with a strong incentive to workers to sell their shares. Both these conditions appear to be necessary ones: the presence of a participatory attitude in the company is crucial because employees are usually allocated only minority stakes and therefore have very little ability to influence corporate decisions through the mechanisms ordinarily available to shareholders. Collective representation is indispensable if the limitations of a minority shareholding divided among a large number of individuals are to be overcome, at least to some extent. The difficulties and failures that have to date beset the few employee share-ownership schemes introduced in Italy (generally in the course of privatisations) have been due to the absence of one or both of these conditions. In particular, the lack of specific legislation on employee shareholding has severely hampered the introduction of effective forms of collective representation.
A further issue is the relationship between representation of the employee shareholders' interests and the trade unions. Here a certain degree of differentiation among roles may be advisable. However, given that employee shareholders find themselves in a structurally weak position (with minority shares and a lack of collective representation), the unions are probably bound to play a crucial role both when schemes are set up (as at Dalmine) and thereafter. Accordingly, employee share-ownership in Italy may become a component of a participatory system of industrial relations, providing the unions with an area of involvement to be kept distinct from bargaining, albeit one substantially supplementary to it. However, the lack of willingness shown by employers to consider this possible outcome seems, at least for the time being, greatly to reduce the likelihood of its emergence.
The final issue is the relationship between shareholding, the end-of-service allowance (Tfr) and supplementary pensions. To date, the Tfr has been a readily available means to finance employee share-ownership schemes, but the proposed reform of the Tfr and pensions system may restrict such use (IT9906119N), both in order to foster the development of pension funds and to avoid the "concentration of risk" - a point emphasised mainly by Cgil, but which may be taken into account by workers when they have to decide the allocation of their Tfr. As a consequence, the potential scope of employee share-ownership schemes may be even further restricted in the future.
The alternative to "collective" employee shareholding is the introduction of individual schemes, concentrated on key positions or in particularly dynamic sectors, and implemented mainly by means of the stock option mechanism. A system of this kind seems to be attractive to employers because it would enable them to individualise the employment relationship and forms of worker involvement. The challenge facing the unions is to encourage the growth of "collective" shareholding, but this will require a more participatory stance by all the social partners, while, for such schemes to be consolidated, a proven effectiveness in promoting worker involvement will probably be important (Roberto Pedersini, Fondazione Regionale Pietro Seveso).
 

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