KARACHI, May 10: Employees’ share-ownership spurs productivity and company growth as workers’ interest are aligned with other shareholders. This is borne out by experience in emerging as well as developed markets.

In Pakistan, there is a success story of employees take-over of a multinational company, driven by staff commitment and modern corporate culture. In a decade following the change in management, Engro has shown continuous growth. This has tempted the Dawood group to acquire substantial stakes in the company and accept the Employee Group’s management. Of course, differing outcomes or failures are explained by diversity in company cultures.

Various US surveys have established that productivity per hour rises by 4-5 per cent in firms in the first year of the employees’ share-ownership, double the average for all American firms. The high productivity growth is sustained in the later years. Tracing the rising trend in employment ownership, American scholars have discovered that 20 per cent of the American employees own shares in companies they work for. To quote The Economist there are 10,000 large or medium-sized firms in the US with employees’ stake over four per cent of the capital.

The employees have 17-18 per cent stakes in Engro, down from 28 per cent when they took over the firm in 1991. During this period, to quote the company president Zaffar A Khan, the capacity of the company’s urea plant at Dharki has been increased from 2,60,000 tons to 850,000 tons with an investment of $250 million. Besides, three joint ventures with 50 per cent equity have been set up: These include Engro Vopak Terminal (cost $70 million) and Engro Asahi PVC resin manufacturing plant (cost $80 mn). Last week, the company announced acquisition of 51 per cent stakes in Innovative Automation and Engineering, Lahore, with investment in the range of Rs82-88 million. And its 100 per cent owned ventures are $10 million NPK fertilizer company and seeds trading and producing unit.

But Engro’s progress has not been trouble-free. Over the years, the employees’ shareholding has declined. Some sold their shares because of family commitments and others owing to retirement from the service. As the ownership was broad-based and the Engro scrips were heavily traded in the market, the Dawood group acquired 28 per cent stakes.

In a statesman-like approach, says Mr Zaffar, the Employees Group and Dawoods reached an agreement that employees share ownership will not be interfered with and it will be further encouraged. The management is looking at various options to increase the employees’ stakes. The partners — Dawood’s two directors and Employees Group’s five members in the 12-member board — will provide stability in the share holding structure. They include two non-elected members who represent lenders, International Finance Corporation and the Commonwealth Development Corporation.

Mr Zaffar confidently asserts that uncertainty has been removed and the agreement allows the rich culture of Engro to be maintained.

The employees’ management has brought good dividends. During the decade 1993-2002, the company’s net sales went up from Rs2,325 million to Rs10,893 million and after-tax profit swelled from Rs275 million to Rs1133 million. The dividend payout rate improved to 104 per cent from 27.2 per cent. The ownership of the company has become more broad-based with shareholders up from 37.4 million to 139 million. And what is no less significant that the successor to the top slot is groomed for the take-over, with the incumbent retiring according to the service rules with no extensions.

The company’s ambitions are translated in its vision “to be the premier Pakistani enterprise with a global reach.” Engro is working on a feasibility of a 850,000-ton fertilizer plant in Oman. It will be a joint venture with 50 per cent Engro equity and the Oman Oil will contribute 30 per cent. In the present phase of social exclusion, Engro’s social spending qualifies the company to be a good corporate citizen.