While employee-owned companies have generally outperformed their conventional competitors, there have been a number of highly publicized failures of majority employee-owned firms. Hyatt Clark, Rath Packing, Seymour Specialty Wire, and the plywood cooperatives in the Pacific Northwest quickly come to mind.
Employee ownership failed to survive in some Ohio ESOPs as well. Commercial Lovelace, a Columbus-based 51% employee-owned trucking firm went out of business in the aftermath of deregulation. Republic Hose, an industrial hose producer in Youngstown that was 100% owned by management and employees through conventional stock ownership, was sold but shut down by the buyer (the American subsidiary of Sweden's Trelleborg Rubber). North Coast Brass, a 100% ESOP brass and copper rolling mill in Cleveland, shut its doors in 1990 after two years of employee ownership, but was reopened under conventional ownership by a Korean firm. Mansfield Ferrous Castings, a 100% ESOP foundry, was sold during troubled times by the employees but continued to operate as a conventionally organized firm after the purchase. A similar transaction permitted the financially troubled Ironton Iron to continue operating, and the employees even retained some ownership rights.
Thus in three of these five Ohio cases, employee ownership saved jobs that otherwise would have been lost. In addition, in Ironton, hundreds of new jobs were created. In these situations, employee ownership proved to be a transitional phase between conventional owners. But the fact remains that employee ownership as an alternative was ultimately unsuccessful in all of these companies.
Why did these firms fail to sustain an employee-owned structure? Did democratic employee ownership and participatory structures themselves play a role in the failure? And what can we learn from their stories about how to structure more robust and successful employee-owned firms in the future?