Employee Ownershipat the

Herend Porcelainmanufactory Ltd.

The Impact of Financial Investors on EnterprisesEmployee Financial Participation

Brussels - 2010 July 5th

Introduction of Herend

Herend Village

Herend Porcelain Manufactory

Road to political and economic independence for Herend & Hungary

• 1956 Revolution in Hungary• 1968 Economic reforms (gulash communism)• 1978 FIM Ceramic Holding Co. dissolved• 1985 License to export independently• 1987 Enterprise Council (Yugoslav model)• 1989 East German migration via Hungary • 1989 Berlin Wall

Idea of employee-s participation in Herend’s privatization

Trade Union conference in Budapest (1989)- Key Figures (Imre Palkovics, Janos Lukacs,

Robert Oakeshott)

Study visits in England (1990 – 1992) - Oxford ESOP Conferences- John Lewis - Baxi - Tullis Russel- Chesterfield Transport

Preparations and Implementation of ESOP at Herend

Hungarian Parliament’s resolution for ESOP legislation - Law No. 1992. XLIV

First general meeting of the Herend ESOP Trust was convened (1993)

- constitution accepted

Ownership within ESOP at Herend

Share Allocation

• 50 % acquired by employees - individually- cash down payment- transfer of company bonds- ESOP Trust share distribution

• 25 % kept collectively by ESOP Trust

• 25 % remain with the Hungarian State

Primary function of the ESOP Trust

25% of Shares kept together by ESOP Trustto ensure that active employees

own majority of shares, by:

- buying back shares from retired / leaving employees

- issue / sell shares to new employees

Structure of the ESOP Trust

ESOP General Assembly (yearly)1 500 employee – shareholders decide how the 25% „collective

shares” should vote on the AGM of the Ltd. Co.

Board of Trustees7 elected trustees

Honorary position (no financial compensation)

ESOP Administration2 part-time administrators

Accounting, financial transactions, share transactions, organizing of General Assembly, documentation, etc.

Employee-s voice in important decisions

• Annual Shareholders Meetings (25 % collective + 50 % individual)

• ESOP Forums

• Management by “big coalition”

Employee-s voice in important decisions

Balance of power

– Board of Directors - 1 ESOP delegate– Supervisory Board - 1 worker delegate– ESOP Board of Trustees (management and

independent delegates)– Works Council (blue collar delegates)– Trade Union

„Lessons” of employee ownership

• slow & complex decision making

• save company from “predator management”

• ensures worker-friendly management decisions

• laws & by-laws to prevent management buy-out

CONCLUSION

ESOPs - as a form of self governance -can offer a good economic model

following - the failures of the centrally-planned communist economies

&instead - of the stumbling capitalist market

economy with its current economic crisis

☺

Thank you for

your attention !