As part of the GM-UAW
settlement, GM is paying $29.9 billion upfront into an animal called a VEBA,
or Voluntary Employees’ Beneficiary Association. It will also add somewhere
between $5.4 billion and $7 billion more to that VEBA down the road. That’s
a lot of money, but GM gets a lot of benefit, too: it has now managed to transfer
its enormous healthcare lilabilities off its own balance sheet and into the
hands of the VEBA. In fact, the VEBA will have so much money that, should it
be so inclined, it could buy GM outright.
Now the VEBA, according to the WSJ, is a union-run
trust – which means that the UAW now controls more than enough money
to buy GM.
Of course, the VEBA is designed to pay healthcare costs, not to run a car company.
So what it should probably be doing is trying to place its investments with
money managers mandated to beat some kind of healthcare-cost benchmark. And
the obvious way to do that would be to invest in hospitals, pharmaceutical companies,
health insurers and the like – rather than in the declining US auto sector.
On the other hand, there are obvious advantages to the union owning the company
– it would be very unlikely to go on strike, for starters. And there wouldn’t
be a conflict between shareholders wanting to maximize dividends and workers
wanting to maximize earnings.
Back in January 2006, Portfolio’s Jesse Eisinger was already thinking along
similar lines, writing the Long & Short column for the WSJ:
"There is almost a universal recognition that the union already owns
the majority of this enterprise. This crystallizes it," [Rod] Lache [of
Deutsche Bank] says.
The academic research suggests that employee-ownership plans work best if
employees are given some say in the management. It has rarely been tried on
a grand scale. United Airlines became majority owned by the employees, but
failed for myriad reasons having to do with an ill-designed plan and the industry’s
"Just owning a piece of the action without affecting the value has no
value," says Avner Ben-Ner, a professor of industrial relations at the
University of Minnesota’s Carlson School of Management.
So in order to make up for the loss of benefits and the risk of stock ownership,
the plan would give GM workers board seats and thereby a say in running the
The employee-owner solution isn’t easy. Management and the union have very
prickly relations, which would make negotiations tough. There would be complicated
tax implications and legal hurdles requiring legions of lawyers and investment
bankers, and, probably, congressional intervention.
Lache’s plan back then was to give the union some of the equity in
the company, which would indeed cause problems. But if the union buys all
the equity in the company, I have a feeling that a lot of those problems go
GM’s workers are presumably proud of their work. How would they feel if given
an opportunity to own their company?