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Employees as Stakeholders: The Challenges of Building an Ownership Culture

Employees as Stakeholders: The Challenges of Building an Ownership Culture. Dr. Demir Yener Yener Global Finance Associates Third OECD South Eastern Europe Corporate Governance Round Table Zagreb, Croatia 21-22 November 2002. Purpose of the Presentation. To discuss:

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Employees as Stakeholders: The Challenges of Building an Ownership Culture

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  1. Employees as Stakeholders: The Challenges of Building an Ownership Culture Dr. Demir Yener Yener Global Finance Associates Third OECD South Eastern Europe Corporate Governance Round Table Zagreb, Croatia 21-22 November 2002

  2. Purpose of the Presentation To discuss: • The role of stakeholders • The role of employees • The role of culture in progress • The implications of culture on Corporate Governance • The challenges of employee ownership

  3. Culture and Politics “The central conservative truth is that culture, not politics, determines the success of a society. The central liberal truth is that politics can change a culture and save it from itself.” Daniel Patrick Moynihan, US Senator, NY

  4. What’s Culture? Culture is the… • Values • Attitudes • Beliefs • Orientations • Underlying Assumptions that prevail among people in a society. Samuel Huntington

  5. Major Issues in the Culture Paradigm (Lawrence Harrison) • The linkage between values and progress • The universality of values • Geography and culture • The relationship between culture and institutions • Cultural changes

  6. Stakeholders and Shareholders Primary Stakeholders • Shareholders • Boards of Directors/Managing Boards • Executive Management Other Stakeholders • Managers • Employees • Customers • Community at Large • Suppliers • Financial Markets • Environment in general

  7. Internal Elementsof Corporate Governance External Elementsof Corporate Governance • Factors of Sound • Corporate Governance • Shareholders rights protection • Rights and responsibilities of Board of Directors and Shareholders • Quality of Disclosure • Monitoring • Effectiveness of the core management functions • Principal Factors • Stakeholders • Takeovers/acquisitions • Bankruptcy frameworks • Collateral and Foreclosure rules • Enterprise Restructuring • Investor and Creditors • Agents: Management • Enabling Environment • International Auditing & Accounting Standards (IAS&ISA) • Securities Markets Legal and Regulatory Frameworks (IOSCO) • Financial Sector Participants : investors, issuers, intermediaries (interaction between participants) • Financial Market Infrastructure and Architecture • Product and Factor Competitiveness • Foreign Direct Investments • Corporate Control (Corporate Governance: OECD Principles) • Enabling, prudentially regulated business environment, with creative incentive structure

  8. Four Values of Good Corporate Governance • Transparency • Accountability • Responsibility • Fairness

  9. Efficient Ownership Sufficient concentrationofcontrol in a firm by owners to be able to monitor and influence management effectively.

  10. The Goal of the Firm To maximize the wealth of its shareholders.

  11. Role of Employees • As stakeholders • As owners

  12. Cultural Obstacles to Employee Ownership • Feudal Culture • Investor Culture • Participatory Culture • Shareholder Culture • Entrepreneurial Culture (Blasi and Kruse, 1991)

  13. Challenges in Building Employee Ownership Culture • Technical • Psychological • Ideological • Structural

  14. Challenges in Building Employee Ownership Culture • Technical Challenges • Circumstances about employee ownership • Legal framework • Adequate understanding of financial and managerial issues and constraints of operating a business

  15. Challenges in Building Employee Ownership Culture • Psychological Challenge • Resistance to changes • Democratic consensus building • Referenda • Top-down autocratic process

  16. Challenges in Building Employee Ownership Culture • The Ideological Challenge • Political questions about the possible and desirable aspects of property concept • Justiceis the foundation for Patrimony • The cultural and legal sense of ownership seek to balance between: • Organizational: rights & responsibilities • Economic: Risks and rewards

  17. Challenges in Building Employee Ownership Culture • Structural Challenges • Ownership culture involves the technical, psychological and ideological issues around power, authority and accountability. • The institutional frameworks that will serve the needs of employee owners and shareholders • Mechanisms and elements of CG

  18. Conclusion • Employees play an important role as stakeholders and shareholders in CG • Culture has an important role to play in development and progress • Four important culturalchallenges(Technical, Psychological, Ideological, Structural) impede employee ownership • Cultural impediments to ownership must be overcome in order for employees to become more effective owners and stakeholders

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