Employee ownership is an appropriate solution to improve corporate performance

In late 1992, the employees of United Airlines agreed to buy 53% of the company (63% if the stock price hit certain levels in the plan’s first year) in exchange for about $5 billion in wage and work-rule concessions over the next six years. This is the biggest and most dramatic example of a growing trend toward employee ownership. The objective of the employees in designing this deal was to save their jobs. To stay employed, they were willing to pay cuts of 10 to 17 percent. In addition, there were other concessions, like unpaid lunch breaks and reduced pension plan contributions. It is unlikely that they would have been willing to make these concessions without majority ownership to guarantee the management of their choice. Interestingly, however, the 13-member board of directors has seats for only four employee representatives, one from each of the three unions and one to represent non-union employees.

Following severe setbacks, including the post-September 11 increase in expenses and decrease in air travel, United Airlines filed for bankruptcy in late 2002, promising it would be seeking deep cuts from its pilots, mechanics, flight attendants, and other employees, the “owners” of the company. The employees sued the money managers for holding on to the United stock.

Bankruptcy Judge Eugene Wedoff approved United’s plan to terminate employee pensions, clearing the way for the largest corporate-pension default in American history. United made two rounds of severe labor cuts, with more than $3 billion in annual savings. It borrowed $3 billion and emerged from bankruptcy in 2006.

(Source: Robert A.G. Monks and Nell Minow. (2016). Corporate Governance, New Delhi: Wiley India 

Pvt. Ltd.)

Do you agree that employee ownership is an appropriate solution to improve corporate performance? Support your view with TWO logical justifications. In context to stakeholder theory, suggest TWO measures to United Airlines which could have saved the company.Explain the TWO dominant reasons which contributed the downfall of United Airlines.