Business Opinion: The efforts of the ESB employee share ownership plan (ESOP) - which owns 5 per cent of the €7 billion national power company - to establish a grey market in the company's shares speaks volumes.
Later this year, the ESOP wants to start distributing the shares it holds in trust for the 10,000 or so past and present employees of the ESB. The reason for the distribution is twofold: firstly it now makes sense from a tax point of view to distribute them and secondly, and perhaps more significantly, the members want to get their hands on what is theirs.
The problem is that since the ESB is not a private company - and unlikely to be anytime soon - there is only a very limited market for the shares.
Under the original terms of the ESOP, the only people allowed to buy shares are company employees - and employees that leave the ESB must sell them within three years of leaving, at the internal market price.
The ESOP now argue that the changes in the make-up of the ESB workforce mean that this mechanism is no longer practical. Some 4,000 eligible members have left the company and would have to sell their shares.
The problem is that there are only around 6,000 eligible purchasers and the vast bulk of these, around 5,000, will have just received a sizeable share grant of their own. The other 1,000 or so are new staff members, who although not entitled to share in the distribution, are entitled to buy the shares in the grey market.
The ESOP claims to have run various simulation models of what would happen to the price of shares in a grey market under these circumstances. The result, according to the ESOP, is that the former ESOP members - as forced sellers - would be badly short changed. As a result, the ESOP now wants the deadline by which they must sell their shares tweaked and the obligation on them to accept the market price at the end of three years modified.
At one level, it is a reasonable request and will cost the company and the taxpayer nothing. Indeed, there is a strong argument that it is grossly unfair that former employees should lose out as they would have long service and contributed to the success of the business.
But, as ever, it is not that straightforward. ESOPs are complex beasts, and something of a peculiarity to the Irish State sector, but in many ways they are quite simple. The purpose of the vast majority of them has been to ease the passage of a State company into the private sector by giving the employees a share in the fruits of privatisation and a say in the running of the company after its sale. This is what happened at Eircom, Aer Lingus, ICC Bank and ACC Bank.
When these ESOPs were being set up, nobody worried too much about the predictable problem that now confronts the ESB ESOP, because it was taken for granted that there would be a "liquidity event", either a sale of the business or a flotation.
Indeed, given the pretty poor dividend record of State companies - the ESB excepted - there was very little point giving staff a minority stake, unless its value was going to be crystalised by such an event.
On this basis, the past and present ESB employees must accept some responsibility for the situation that confronts the ESOP. They have successfully opposed the sale of the company and thus prevented the crystalisation of the value of their shares in the company.
There are many strong arguments put forward for the retention of the ESB in State hands, but the consequences are not all beneficial for the employees. Put simply, they cannot have it both ways, eg, the intangible benefits of working for a State-owned monopoly and the tangible financial benefits of owning tradable shares in their company.
But that is not to say that they can't try. And it will be very interesting to see what happens to the price of ESB shares in a grey market as envisioned by the ESOP. The only real comparison can be drawn with Aer Lingus, where a grey market existed from the mid-1990s - when the staff were given a stake under a restructuring agreement - until last year's flotation. There was no shortage of buyers at Aer Lingus - mostly pilots - but the market was always underpinned by the prospect of a sale of the company, the chances of which waxed and waned but never disappeared.
Government policy is that there will be no sale of the ESB and any such move is vehemently opposed by the staff. They also oppose the splitting up of the company into sperate generation and grid businesses, which might have allowed some sort of liquidity event.
All of this should ensure that even the sort of grey market in ESB shares envisioned by the ESOP will be a pretty lacklustre affair, with no real momentum behind the shares. However, one suspects that it could actually turn out to be the opposite case, with what all that implies about how the staff really think and feel about the future status of the ESB.
