Worker Participation: Employee Ownership and Representation

The Harvard Law School Forum on Corporate Governance and Financial Regulation 2020-01-23

Posted by Irene Bucelli, Silvia Gatti, and Federica Soro, Glass, Lewis & Co., on Thursday, January 23, 2020
Editor's Note: Irene Bucelli, Silvia Gatti, and Federica Soro are senior research analysts at Glass, Lewis & Co. This post is based on their Glass Lewis memorandum. Related research from the Program on Corporate Governance includes Toward Fair and Sustainable Capitalism by Leo E. Strine, Jr., (discussed on the Forum here).

In the past thirty years, more and more attention has been paid to the effects of employee participation on company performance. What might be the effect of it on long-term company performance? How could increased employee influence affect corporate strategy and decision-making?

There are two main forms through which employees can participate directly to the life of a publicly traded company: through ownership of the company’s shares, and through representation on the board of directors.

Employee ownership usually results from “direct participation plans”, which provide a streamlined (and often discounted, tax-efficient) means for workers to invest in the company, with clearly established caps and conditions. Employee representation on the board of directors means that employees themselves, or a body representing employees, can appoint a representative to sit on the board of directors.