The Citizen’s Share:History, Research, Policy Highlights

Professor Joseph R. BlasiKeynote

J. Robert Beyster Professor of Employee Stock OwnershipRutgers University School of Management and Labor Relations

E*Trade Share Plan Client ConferenceMay 15, 2013

My Talk This MorningWhere the idea of employee shares came from?

Who has shares today?

Why broad-based employee shares are a good idea?

Some issues to consider.

The First Story of Employee Shares in

American History

The Founding of the United States

The Cod Fishery: 1789

A World Market

One of Our Main Exports

George Washington

Thomas Jefferson

The First Evidence on Broad-based Shares

“The Captain and the Crew drew one half, and agreed among themselves in what Proportion to divide thefare. Sometimes the Owners hire the men by theMonth and give them Common Seaman’s wages….theywere generally found the most attentive when theirDependence was on a Share of what they caught.”--Joseph Anthony, the leading merchant inPhiladelphia, Letter to the Assistant Secretary of the United States Treasury

The First Legislation on Broad-based Shares

Signed by President George Washington on February 16, 1792

Gave tax incentives and tax credits to ships that used broad-based shares in the cod fishery

The tax credits went 3/8th to the shareholders of the ship and 5/8th to the crew to encourage performance

Alexander Hamilton Oversaw the Credits

Where Did The Share Idea Come From?

The Founders of the U.S. including Second President John Adams and third President James Madison envisioned a nation of self-employed farmers and artisans who completely owned their own businesses and received the full share of profits from their businesses

They believed that a democracy could not exist without broad-based ownership of business, in this case land and craft shops and shipping.

They believed that owners were more productive and more likely to support a free market economy.

The alternative reminded them of English feudalism where a small group owned everything, however the idea had to be extended to women and minorities.

President John Adams

Adams’ WordsThe Balance of Power in a Society,accompanies the Balance of Property inLand. The only possible Way then of preservingthe Balance of Power on the side of equalLiberty and public Virtue, is to make theAcquisition of Land easy to every Member ofSociety.

President James Madison

Madison’s WordsThe United States have a precious advantage… in the actual distribution of property, particularly the landed property, and the universal hope of acquiring property…. (It) can generally inspire a like sympathy with the rights of property.

The Founders Pushed Land Shares for a CenturyThe Northwest Ordinance of 1787. Encouraged land

shares and prohibited slavery in Ohio, Indiana, Illinois, Wisconsin, Michigan, Wisconsin, and Minnesota - “the most important law since the Declaration of Independence”

The Louisiana Purchase of 1803 – Jefferson bought the land making up 15 states from France to encourage land shares and “the empire of liberty.”

The Homestead Act of 1862 – Lincoln offered grants of 160 acres including women and extended to the black community after the Civil War.

The Homestead Act

The PrinciplesEvery citizen should own part of the economy

and receive income from this share so that they could be economically and socially independent.

They expected citizens who shared fully in ownership and profits to create a more productive economy.

This independence made small government, low taxes, less corruption, and a healthier civil society possible.

The New Idea: Corporate Shares, Once Land Ran

OutMadison feared the country would run out of

land for citizens’ shares and worried about the alternative.

Galusha Grow, the Republican Speaker of the U.S. House of Representatives under President Abraham Lincoln said shares of corporations were the way of the future in order to achieve broad-based ownership.

Corporate property would expand without limit.

Republican Speaker of the House Galusha Grow

Who Has Shares Today?A national share census by the U.S. General

Social Survey in 2010

18% of adults own shares in the company where they work or about 19 million citizens

9% hold stock options in the company where they work or about 9 million citizens

Studying If Shares Are a Good Idea?

The three largest studies ever on employee shares.A study of a representative sample of the entire

U.S. population using the U.S. General Social Survey at the University of Chicago

A study of 40,000 employees in 14 corporations of all sizes sponsored by the National Bureau of Economic Research funded by Sage and Rockefeller

A study of 300,000 employees in 800 companies from 2005 to 2006 from the Great Place to Work survey funded by the Alfred P. Sloan Foundation

The Evidence on SharesComparing employees in the same situation with shares

and without shares in the same company and across companies

Employees with shares: are more loyal, more willing to work harder for the firm, & more willing to innovate.

They make more suggestions, monitor each other more closely, trust the company more, have a special kind of supervision, and participate more in problem-solving.

They have significantly lower turnover.A supportive company culture is essential.Fair fixed wages are a precondition to positive outcomes.

The Market EvidenceCorporations with significant shares have

meaningfully higher Return on Equity when employee empowerment is also high.

Corporations with shares have higher productivity based on definitive governmental studies conducted by the British Treasury.

It appears that lower supervisory costs, more cooperation between workers, and more innovation drive these results.

Issues to Think AboutResearch on the level and the management of risk

in employee portfoliosPresenting evidence to institutional investors more

forthrightly on the benefits of sharesThe need to speak up about government policy

because huge policy errors by the Federal government are the rule not the exception

Graduate students and young scholars who are research fellows are interested in volunteering to study your company and your share programs.

THE ENDThank you for your kind attention!Any questions, please?