Previous

Part - III

What we need is fewer executive stock options and more equal employee ownership. Out-sized executive compensation relies heavily on large stock option awards and stock grants. The Enron situation points to why these are not only unfair but also bad business practice. Excessive option awards reinforce the mindset that executives are set apart from other employees. By giving executives more than their share, firms reward them for cheating lesser employees. They also provide executives a direct financial incentive to look out for their own interests at the expense of others, and imply that doing so is OK. There is not much moral distance from taking more than your share to cooking the books. In the case of Enron, aggressive accounting would not likely have occurred in the absence of large executive stock option packages. Had the executives held stocks more in line with the average employee-shareholder, there would have been less incentive to push the envelope so far.

The way to correct this problem is more ownership, not less. Such ownership must be independent of management, so that it can raise a voice against bad business practices and prevent excessive executive compensation. Since direct legislation mandating such limitations will most likely be opposed, expanded ownership by the rank and file is the best option.

In his classic book, The Practice of Management, Peter Drucker famously said that 'in a good, a moral, a lasting society the public good must always rest on private virtue. . . It is management's public responsibility to make whatever is genuinely in the public good become the enterprise's own self interest.' If such ideals aren't being realized today, employee ownership creates a culture where they might be.

In companies where ownership is shared broadly, there is a premium on trust. When you share the risk of ownership together, you have to trust each other. Trust means confidence in the face of risk. Companies that build long-term relationships based on trust and interdependence will be better able to integrate ethical behaviour into their business operations.

To a large extent, the free market itself is based upon trust and the expectation of ethical behaviour. Trillions of dollars change hands every day in the global economy. Though much commerce is impersonal, requiring a few strokes on a keyboard, such transactions are rooted in trust of legal norms and expectations of fair dealing. The expectation of ethical behaviour is a given. In the context of employee ownership, that translates into an expectation to be informed about developments affecting the enterprise, and to have a degree of input in decision making.

Next

* Contributed by -
Swastik Rath,
Class of 2004,
Goa Institute of Management,
Ribandar, Goa.