August 19, 2002

If United Airlines goes bankrupt, will it give employee stock ownership plans a black eye?

Because United has the nation's second-largest employee stock ownership plan, there's some concern that the company's possible bankruptcy will throw a shadow over the whole concept of employee ownership, said Ron Gilbert, of Virginia-based ESOP Services Inc.

The stock ownership plan with the largest number of employees is at Florida-based Publix Supermarkets.

United's employee ownership plan was flawed from the start because it was rooted in crisis, said Corey Rosen, executive director and co-founder of the National Center for Employee Ownership in Oakland, Calif.

It started in 1995 during labor negotiations when stock was traded for wage concessions that employees accepted because they feared the company would break up into four regional airlines. Today, United employees own more than 50 percent of the company although the plan to continue transferring ownership to employees was abandoned after five years.

The stock is held in trusts and can't be sold by employees unless they leave employment with the airline.

The plan was doomed to fail because the plan never included flight attendants and efforts to transfer greater responsibility to employees were abandoned after a year, Rosen said.

And simply giving stock to employees was no cure for the company's long-embedded labor animosity, Rosen said.

"The unions hate each other. Management hates the unions. The unions hate management," he said. "They hated each other before employee ownership and they hated each other after employee ownership."

Although the warring factions of United may make it seem that clear leadership is impossible under an employee ownership plan, that's not the case, Gilbert said.

"Employee ownership does not mean management by committee," he said.

Rosen said studies have shown that companies with employee ownership plans are less likely to go out of business, pay higher wages and still grow at a faster pace in terms of sales, employment and productivity when compared to similar companies without employee ownership plans.

And the concept can work in the airline industry, Rosen said.

Employees own at least 15 percent of Dallas-based Southwest Airlines, which boasts 29 straight profitable years in its 30-year history and has plans to expand service to the east.

The difference is that Southwest employees have been given the authority to make decisions, Rosen said.