Will the employee-ownership plans be successful at Chrysler and General Motors?

If the reorganizations of Chrysler and General Motors go as planned, employees will own big chunks of their companies. The record owner will be the trusts set up to pay retiree health care benefits, and those trusts will be controlled by the United Auto Workers. The trusts will own 55% of Chrysler and close to 40% of General Motors. The question is, will employee ownership be successful at these companies?

Employee ownership is a mixed bag. Some employee-owned companies succeed, when workers work and managers manage. Among them is the $24 billion Lakeland, Florida. Publix supermarket chain and SAIC, the San Diego defense contractor that grew to revenues of $8 billion as an employee-owned company before going public in 2006.

But there are disasters too. The Tribune Company's employees agreed to an employee ownership plan when Samuel Zell bought the company last year, but the company declared bankruptcy before a single ownership share was allocated to employees. A 1994 reorganization of United Airlines gave employees more than half the company but left flight attendants bitterly opposed. After some initial success, UAL entered bankruptcy in 2002 and the plan was scrapped.

When National Steel decided to shut its Weirton Steel operations in 1984, the Weirton workers bought the company to save it. It worked, for a while. Weirton went public in 1989 but then bankrupt in 2003 during tough times for the domestic steel industry. Weirton is now a division of ArcelorMittal. So while the company eventually left the employee-owners with worthless stock, the move kept the company alive and issuing paychecks for another 20 years.

The most successful employee ownership on record is Graybar Electric. No one wanted to buy Graybar Electric after it was split from Western Electric in 1925. So four years later, just before the crash of 1929, the employees bought it for $9 million. Despite the bad timing, the St. Louis electrical equipment distributor is still going strong 80 years later. Last year sales hit $5.4 billion.

Graybar employees have gotten a cash dividend of at least 10% on their stock every year since 1941, and in good years, like the last three, workers get stock dividends, too. This is what a successful employee ownership looks like. But, will Chrysler and General Motors be as successful with their reorganization plans as Graybar has? Cross your fingers.