Fathi Fakhfakh, Nathalie Magne, Thibault Mirabel and Virginie Pérotin
France is the third country in Europe after Italy and Spain for the number of employee-owned firms, with some 2,600 worker cooperatives (SCOPs). The authors propose a…
Abstract
Purpose
France is the third country in Europe after Italy and Spain for the number of employee-owned firms, with some 2,600 worker cooperatives (SCOPs). The authors propose a comprehensive review of SCOPs and any barriers to their expansion.
Design/methodology/approach
The authors analyse relevant legislation; review the rich empirical economic literature on SCOPs; and offer new descriptive empirical evidence comparing SCOPs and other French firms.
Findings
SCOPs benefit from a consistent legal framework and a well-structured and supportive cooperative movement. Cooperative laws allow attracting external capital, provide barriers against degeneration and encourage profit allocations that favour investment and labour. SCOPs are distributed across a wide range of industries; are larger than conventional firms, as capital intensive, more productive and survive better. Despite this good performance their number remains modest, perhaps because of information barriers.
Research limitations/implications
An examination of the Italian and Spanish experiences and the relationship between SCOPs and the French labour movement might contribute to explaining the modest number of SCOPs.
Originality/value
The first comprehensive review of French worker cooperatives in four decades and the first with extensive comparative data on SCOPs and conventional French firms. With some of the best data on worker cooperatives in the world, findings have international relevance.
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Jens Lowitzsch, John D. Menke, Denis Suarsana, Graeme Nuttall, Tej Gonza and Thibault Mirabel
With a third of business successions failing, the EU is still confronted with a haemorrhage of around 150,000 enterprises and 600,000 jobs every year. Although 30 years of…
Abstract
Purpose
With a third of business successions failing, the EU is still confronted with a haemorrhage of around 150,000 enterprises and 600,000 jobs every year. Although 30 years of research have confirmed the positive effects of employee share ownership (ESO) for European enterprises and its important function for business succession, best practice, such as the US ESOP, is thinly spread across the EU. Nevertheless, Member States (MS) have developed a broad variety of ESO schemes involving intermediary entities to acquire and administer employee shares in the employer firm in particular for the transfer of businesses to employees. However, for small and medium enterprise (SME) owners the main barrier is still a lack of clearcut and transparent options to sell their enterprise to their employees and corresponding incentives to do so. In this light, this paper proposes a European approach, that is, a European Employee Stock Ownership Plan (European ESOP).
Design/methodology/approach
A “Common European ESOP Regime”, as a first step towards a “Common European Regime on EFP” would complement existing national laws aiming primarily at their harmonisation. As the name suggests, this would be a second contract law regime parallel to national legislation on ESO. Its objective is to eliminate obstacles to the single market that mainly, though not exclusively, stem from heterogeneous regulatory density. The existing obstacles are due to the multifarious development of national laws governing employee financial participation (EFP) in the MS. The “Common European ESOP Regime” would offer employers and employees a choice between two alternative EFP regimes one originating in national legislation, the other in European legislation. The choice between these two alternatives would be entirely optional, as in the case of the European Company Statute.
Findings
The European ESOP is modelled on the US ESOP and EU best practices. It embraces six European types of legal vehicles, i.e. the employee ownership trust (EOT), the French employee ownership mutual fund (FCPE), the Austrian civil law foundation, the Spanish Sociedad Laboral, the cooperative and the closely held limited liability company.
Originality/value
The “Common European ESOP regime” would neither replace nor override national legislation but would serve as a cross-border alternative to national laws, to be used at the discretion of the parties involved. Regarding its contents, it would contain best practice rules derived from each of the ESOP vehicles discussed to reflect the entire life cycle of SMEs (starting up, consolidation and succession).
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Various theories predict that firm buyouts survive longer than newly created firms. The study aims to know whether it is the case for worker-owned firms (WOFs), i.e. firms owned…
Abstract
Purpose
Various theories predict that firm buyouts survive longer than newly created firms. The study aims to know whether it is the case for worker-owned firms (WOFs), i.e. firms owned and controlled mostly by their workers.
Design/methodology/approach
The author conducted a comparative survival analysis of French WOFs distinguished by their entry mode (i.e. newly created, worker buyouts (WBOs) of sound conventional firms, WBOs of conventional firms in difficulty or WBOs of non-profit organizations).
Findings
The hazard of exit is 32% lower for WBOs of sound conventional firms than newly created WOFs, 18% for WBOs of conventional firms in difficulty and 64% for WBOs of non-profit organizations. The current study confirms that WBOs, even of conventional firms in difficulty, have on average a survival advantage over newly created WOFs. Surprisingly, the author also shows that this survival advantage is similar across sectors with different knowledge intensity but is lower in high capital-intensive sectors than in low capital-intensive ones.
Research limitations/implications
Endogeneity issues limit the scope of the results and should be tackled in future research. Overall, these findings show that WOFs are composed of groups with different survival likelihoods that are obscured if one only looks at the aggregate population.
Practical implications
With caution, support agencies could foster WBOs of firms in difficulty and of non-profit organizations as viable forms of entrepreneurship.
Originality/value
The current study offers the first survival analysis distinguishing four modes of entry among WOFs.
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This paper reviews the evolution, current state and ongoing trends of the empirical literature on employee-owned firms (EOFs).
Abstract
Purpose
This paper reviews the evolution, current state and ongoing trends of the empirical literature on employee-owned firms (EOFs).
Design/methodology/approach
Using a structured literature review methodology, I analyze 280 empirical publications on EOFs published in English peer-reviewed academic journals over the 1970–2019 period.
Findings
Two generations (before and after 2001) of the EOF empirical literature are identified and characterized in terms of authors, journals, topics, methods, targets, relations to theoretical modeling and countries studied. Two research trends are structuring the current generation: one investigating diverse research questions engaging EOFs as emblematic forms of social economy, and the other comparing EOFs to conventional firms to offer insights mainly into the seminal question of the EOF relative rarity.
Research limitations/implications
The sample studied does not take into account articles written in languages other than English and does not include books.
Originality/value
This article displays the first structured literature review of the EOF empirical literature.
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From the first PEPPER report in 1991 until this PEPPER V Report the EU has not only expanded from 12 Members States to currently 27 but also faced complex and urgent challenges…
Abstract
Purpose
From the first PEPPER report in 1991 until this PEPPER V Report the EU has not only expanded from 12 Members States to currently 27 but also faced complex and urgent challenges. Both the financial crisis of 2008/09 and the coronavirus disease 2019 (COVID-19) pandemic 2020/21 have left their marks on “Social Europe”. Although the overall dynamic of employee financial participation (EFP) across the EU 27 is positive, EFP is declining in terms of its share of household income in the light of the concentration of capital ownership and of capital income. Along with the issue of distributive justice, other challenges, such as business succession in small and medium enterprises (SMEs) that have been on the agenda for decades, and new ones like the extension of EFP to social enterprises, are calling for action.
Design/methodology/approach
From the comparison of the countries, the cluster analysis and the background of the importance of legal framework and fiscal incentives, two general principles can be derived: (1) establishing EFP schemes through legislation is of primary importance as countries that provide a stable and transparent regulatory framework for EFP also show a wider implementation of EFP practices; (2) when properly designed, fiscal incentives promote the spread of EFP effectively as both countries with a long tradition of tax incentives for EFP (e.g. UK, France) and those with a more recent development (e.g. Austria) confirm.
Findings
It is against this background that the following policy recommendations should be read. Tax incentives should (and in most countries they actually do) target those taxes, which constitute the heaviest burden in the national taxation system. (1) Tax incentives should be provided for both employees and the employer company. (2) Even substantial tax incentives may prove inefficient when the pre-conditions for eligibility are too restrictive, complex or inflexible. (3) Some forms of tax incentives are more suitable for certain types of plans, e.g. deferred taxation for employee share ownership (ESO), capital gains tax in lieu of personal income tax for dividends and sale of shares, or tax exemptions for matching contributions for European Employee Stock Ownership Plans (ESOPs).
Originality/value
In light of this need for SME action and the great potential for introducing ESO in this enterprise segment, from our recommendations we emphasise in particular: Alleviating the evaluation problem in unlisted SMEs through debt-to-equity-swaps. ESO may initially take the form of an employee loan to the company, creating corporate debt, which is subsequently converted into company shares. Facilitating share transfers in privately held limited liability companies (LLCs) by ending the requisite for notarial certification (Italy and France) or limiting it to the identity of seller and buyer. ESO in SMEs via intermediary entities, e.g. trusts, foundations, LLCs or other special purpose vehicle (SPVs) to hold and administer employee shares (AT, IE, UK, HU, FR, SI, USA).
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Denis Suarsana and Jens Lowitzsch
As this article reports, in recent years most legislative activities focused on start-ups, with as many as 12 European Union (EU) Member States having introduced tax incentives…
Abstract
Purpose
As this article reports, in recent years most legislative activities focused on start-ups, with as many as 12 European Union (EU) Member States having introduced tax incentives for employee share ownership (ESO) in this type of small and middle-sized enterprise (SME). But incentivising ESO in SMEs should be extended to all SMEs, the engine of the European economy, including those from the social economy, having shown their crucial function for the resilience of our societies during the COVID-19 pandemic.
Design/methodology/approach
Against the background of this recent and very dynamic development this article, it provides an overview of the start-up business segment in comparison to other types of companies, particularly focusing on differences with the SME sector; examines the legal regulations that hinder a broader adoption of ESO in European start-ups; presents best-practice examples to demonstrate the favourable conditions already established in some EU Member States and discussed whether these reforms and best practice examples could be extended and – as is already the case in some countries – applied to the whole SME population including social economy enterprises.
Findings
Since the European Commission launched the 2011 Social Business Initiative (SBI) followed by the 2016 Start-up and Scale-up initiative, many actions to support social enterprises in view of their potential to address societal challenges and contribute to sustainable economic growth have followed. Most recently, the 2021 Social Economy Action Plan of the European Commission gave important impulses. The potential of employee buyouts offering a continuation perspective to SMEs owners looking for successors was highlighted in the 2022 EC report “Transition Pathway for Proximity and Social Economy,” calling for the implementation of Employee Stock Ownership Plans (ESOPs).
Originality/value
The situation of employee share ownership in start-ups has some parallels with that in traditional SMEs, but in many respects, they differ fundamentally. Although, on the other hand, social enterprises may also have to compete with large firms for qualified staff and face challenges when growing or scaling their activities, the reason why ESO in this enterprise segment is not widespread in the EU is altogether different. In the absence of a prescribed legal form of incorporation, social enterprises operate in various forms (be it for profit or non-profit), e.g. cooperatives, closely held limited liability companies, mutuals, associations, voluntary organisations or foundations. Therefore, this article looks into the extension of the incentives for ESO to social enterprises inasmuch as they are organised in legal forms allowing for share ownership, above all in the form of limited liability companies.
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Marco Lomuscio, Ermanno Celeste Tortia and Andrea Cori
In Italy, worker cooperatives (WCs), whose workers hold major control rights over collectively-owned assets, are the leading vehicle for the promotion and development of employee…
Abstract
Purpose
In Italy, worker cooperatives (WCs), whose workers hold major control rights over collectively-owned assets, are the leading vehicle for the promotion and development of employee ownership. Worker cooperatives are present in all regions and in most economic sectors, employing about 506,000 workers and generating a turnover of about €22 bn. Despite their history and diffusion, the high prevalence of WCs in Italy is under-researched and -thematised and requires new research.
Design/methodology/approach
The paper leverages unpublished primary and secondary data from Centro Studi Legacoop databank, the Aida-Bureau Van Dijk databank and the Cooperative Registry of the Ministry of Economic Development (CRMED) to explain the spread of WCs in Italy.
Findings
This paper reveals descriptive statistics of WCs and investigates their distribution across economic sectors and regions, their economic and financial performance and gives an overview of the relevant legislation. The paper indicates that older small- and medium-sized cooperatives located in central and north-eastern Italy perform best economically. However, in recent years, an increasing number of young cooperatives has emerged in South Italy thanks to favourable legislation, cooperative finance and the diffusion of cooperative know-how. Limitations to such results are reported in the conclusions.
Originality/value
The paper sheds light on past and recent development trends of WCs in Italy, highlights their growth in South Italy and revitalises the debate on the drivers, structures and rationales of employee-owned enterprises in Italy. Findings generate implications for research and practice. Given the tendency of WCs to better protect jobs than investor-owned enterprises, the spread of these enterprises may help workers find better and more stable jobs, counter-cyclically mitigating the dangerous effects of macro- and meso-economic fluctuations and instability.