Principle of Profit Sharing in Business

Fred C. Lariviere May 1 1908

Principle of Profit Sharing in Business

Fred C. Lariviere May 1 1908

Principle of Profit Sharing in Business

Early History of the Movement and its Development. A Skilful Formula in the New Code of Social Economy. Its Application as a Solution to Problem of Labor vs. Capital. Method of Operation

By Fred C. Lariviere

FROM time almost immemorial, the social question of Capital and Labor has been the subject of deep thought in the commercial and industrial world. Governments have attempted to pass legislation in hope of effecting its satisfactory solution. Religious authorities have also become greatly interested in the conflict and, from time to time, the pulpit and the press have offered most commendable advice.

Canada has not remained behind time in the study of this subject; and as early as in 1889 Sir J. A. Chapleau, then Secretary of State, delegated Mr. Jules Helbronner to the Paris Exhibition, with instructions to study and report the work of a royal commission th]en and there instituted for the purpose of investigating this social question.

In 1879, Traders and Manufacturers, in France, had organized themselves into an association. One of the main objects of this society was to study the practical workings of “Profit-sharing” between employers and employees in the commercial and industrial enterprises.

The result of this investigation (published in various of their reports) proved to be so much in favor of profit-sharing that in order to spread the knowledge of its great advantages, and extend its use, this French society undertook the immense work and went to the great expense of organizing two international conventions: in 1889, pre-

sided by Mr. Chas. Robert; and in 1900, presided by Mr. Paul Delombre, the present head of the Society.

Every three months, the French Association publishes “The Bulletin of Profit-sharing,” a journal containing the names of those who have adopted the principle, the different forms of its application, and full report of their meetings.

For the purpose of development, 1 propose to divide this subject into five parts, vfz., Origin and development of profit sharing; Its objects and purposes; contradictory opinions upon the subject; Various methods of distributing profits ; Practical results and conclusions.

Profit-sharing between employer and employe is not an innovation. It is recognized that success in many cases depends upon the good will, work and judgment of Employes and that in most of them they have received, directly or indirectly, a share in the gain. In a work entitled “Profit-sharing of Labor,” from the pen of a wellknown French economist, Mr. Chas. Robert, it is related that a writingdated 167t and entitled “Judgment of Orleon, Usages and Customs of the Sea,” by Cleivac, “Seamen received their salary part in money and part in the profits.”

Cabmen, not proprietors of their hacks, receive generally one-third of their daily earnings. Advertising agents, if I mistake not, receive also a salary and a certain percentage for their work. It is easy to conclude that managers of large establishments as well as proprietors of same have no real opposition to profit-sharing. They are simply indifferent. To interest them, we need now but to prove through examples all its merits and advantages. Mr. Leclair, more prudent than Messrs. Briggs, had always avoided great publicity. He foresaw, that if a strong wind would precipitate a conflagration, so would a breath extinguish the spark. Many captains of industry have spent nearly every day of their lives in trying to solve this difficult problem. Profit-sharing should not stand on purely philosophical grounds, but on sound, co-operative principles which would give workmen a real interest in the enterprise.. The increase of salary desired, claimed, and sometimes clamorously demanded, would naturally bring about a proportionate increase in the cost of goods which may cause a reduction in the demand, a loss of trade, and prepare the final ruin of the enterprise. On the other hand, employes should accept with carefulness all fair offers coming from their masters. If an employer should abstain from such an offer, he should be informed if his employes are prepared to receive it. All employes should strive by their own good conduct to search the good of profit-sharing. They should gradually gain the confidence and heart of the employer. Too much pressure on their part is of poor policy and may appear to him as an act of intimidation. Let us remember: “We obtain more by kindness than by violence.” We can expect a great deal from mutual confidence and satisfaction ; at the same time we must take it for granted that the master should know the wishes of his helps, but in principle such a reform should come from the chief who would naturally like to have to his credit the merit of such ideas. Frequent ■ intercourse and meetings between employer and employed are most useful. They tend to destroy prejudice and prevent the gathering of clouds and storms. Profitsharing is entering two wide fields of action. In one it will remain a permanent and most useful institution and the other, offering more difficulties and perhaps more glory, is the road leading to the temple of co-operation.

If we consider profit-sharing from an historical point of view, leaving aside farming and sea-fishing, we notice that it was founded in France in 1842, and during the following years by Edm. Jean Leclair, in Paris. He was soon followed by Edmund Laroche Joubert at Angouleme, and by Francois Bartholemy in the Orleans Railway. This reform appeared to take a new impetus at the time of the French Revolution, when it was established by Messrs. Laurent & Duberny, in their type foundry, then in the General Insurance Co., in 1850, and in the Union Insurance towards 1854.

A brief biographical sketch of Jean Leclair, the originator of profit-sharing, would, no doubt, interest ycur readers. Born in 1801, when 17 years of age started in life as an apprentice in a paint shop. He was a master painter at 20. Two years later he began to undertake large contracts in his line of work. In 1838 he organized a benevolent and savings society amongst his workmen and brought profit-sharing into practice in 1842. A fact worthy of note is that Jean Leclair’s humanist career was somewhat checked by the representatives of law and order in France. The Parisian police authorities even refused him the privilege of calling meetings of his own workmen for the purpose of discussing how the profits realized from his own enterprises should be divided between himself and his employes. The workmen themselves, misled by a journal called “L’Atelier,” accused him of scheming for the purpose of lowering salaries. Mistrusting his straightforward intentions, they expressed their doubts as to the good

faith of the proposed payment of their shares of profits.

Jean Leclair overcame these difficulties in a masterly way. It was in 1842. Having finished his inventory in 1841, he got his workmen together and throwing a bag of gold upon the table he proceeded to give each one his share of profits, the total of which amounted to $2,377. In spite of opposition from the State and even from his own workmen, Jean Leclair originated profit-sharing or industrial co-partnership. Great benevolent enterprises, like great thoughts, come from the heart of man. The Leclair House has done for profit-sharing in France, what the “Equitable Pioneers” of Rochdale did for the Consumers’ Co-operative Association in England. From that time this Capital and Labor reform grew into practice, notably in the period raging from 1864 to 1870. In 1865 it was used by the Bord Piano Factory. After the events of 1870-71 a number of French industrial and commercial houses adopted it, notably, the “Chaix Printing” establishment and the “Bon Marche Store.” From France, it went into Switzerland where it was inaugurated by Messrs. Billeon & Isaac. Profit-sharing next found its way in the coal mining districts of England, where it succeeded for a time and then had a sensational check in its career. In this case the failure was due to three main causes :

1. The influence brought to bear against it by trades unions.

2. The inability of workmen to understand (through lack of education, instruction and sufficient preparation) the full meaning of profit-sharing, its advantages and their own interests.

3. Some administrative measures more or less opportune or justifiable brought to bear by the Mining Co., of which Messrs. Briggs were the managers.

A few years afterwards Mr. Sedley Taylor, by his writings and by his lectures, brought about a reaction against the Briggs’ failure. The great success of profit-sharing in France and Mr. Taylor’s efforts brought back faith in the method. To-day industrial partnership is strong and flourishing in many English enterprises, particularly at the “Carleton Iron Works.” “Blundell, Spence Co.” of London, “N. Thompson & Sons.” Huddersfield, “Columbo Iron Works,” London, “Hepburn Co.,” Collompton.

The writings of Sedley Taylor have carried in England and in the United States the true facts, the combinations, the regulations and the statutes of profit-sharing which have been received and used by a number of American houses. The first, “Houghton & Co.,” in 1872 ; the second, “Peace, Dale Co.,” in 1878; the third, “Rand McNally & Co.”, of Chicago, and then by thirty others, among them being “Stats Zeitung,” New York, “Ara Crushman Co.”, Auburn, “W. E. Fette,” Boston, “N.

O. Nelson,” St. Louis, Missouri, “Yale & Towne Mfg. Co.”, Stamford.

As to its extension in other countries we have the following dates: Alsace, 1847; Mecklemburg, 1847; Prussia, 1854; Russia, 1862; Bavaria, 1866; Hesse, 1866: Switzerland, 1867; Saxe, 1869; Denmark, 1870; Belgium, 1872; Italy, 1873; Holland, 1880; Austria-Hungaria, 1881 ; Portugal, 1888.

Profit-sharing is not a universal and infallible remedy for all evils. It is not the “opus operatum,” having a miraculous or magical effect such as we often notice in “patent medicines” advertisements. It is a skilful formula in the new code of social economy. The fruitful action, very often, depends on the condition of the patient, of his good will and of the professional ability of the doctor.

The disease to be cured is the precarious situation of the modern workman, the passion which sometimes excites him into a feverish frenzy. The doctor is very often the employer, and among them we find a variety of opinions as to the value of the medicine or the opportunity of applying it.

Some of those who at first rejectedprofit-sharing as a useless innovation now adopt it as the only solution of the problem. Others, who glorified in having first introduced it into practice even in a small way, but who were forced to give it up through unforeseen or unavoidable circumstances, now show the cool indifference of reformers having lost their illusions.

The same condition of things exists, to some extent, amongst the patients. Some laborers listening to the ill-advice of agitators refuse to wait for the yearly dividend ; then with the madness of their inflamed imagination see nothing but strikes, boycotting, rest and fight. Others not having patience enough to wait for a yearly dividend risk everything in the hope of immediate gain. Such difficulties have already occurred and will continue to take place until such a time as the laboring classes are sufficiently posted as to the full meaning of profitsharing. Wherever this commendable reform has met with disfavor, the causes of its failure should be investigated.

Profit-sharing is meant to maintain together two principles apparently much opposed to each other. They are :

1. Suitable security for the workman’s interests.

2. Proper authority in the hands of the employers.

If, on the other hand, laborers could be induced not to expect the desired increase as the maximum sum required for immediate daily wants or for such savings as they propose to make, industrial and commercial enterprises would be protected against unexpected rises in the cost of goods, competition could be more easily met, and in consequence, an increase of business would fully guarantee the workman’s share of profits, as the fruit of success won by their own wise conduct.

Well understood and properly applied profit-sharing could bring into play all the latent energy concentrated in the human will. Otherwise such valuable forces are to a great extent undeveloped and unused for the want of a proper stimulant. Human will, so important in manufacturing industry, is a still larger factor in agriculture where the carelessness and mistakes of one man may cause the waste of enormous quantities of natural energy. For instance, in a shop, a mechanic commanding 15,000 to 20,000 h.p., is in a position to do harm. It is evident, therefore, in such a field of labor success is only possible by the use of sound theory and vigilant practice, and by a combination of the financial interest of both capital and labor. We must not forget that all does not depend on labor, properly speaking, but also in the active good will of the workmen, prompted by sobriety, perseverance, regularity, vigilance and respect for the employer. In fact, we must rely on the full amount of activity given by each man as if the enterprise were his own.

In order to expect good results from profit-sharing the employer’s

offer must be sincere, without any thoughts of retaining even a part of what he promised, through false stock-taking or tricky settlement. It is a poor policy to offer much and give very little. Such a case would be disastrous, particularly after a first labor conflict; because poor treaties of peace prepare new wars.

Instead of wasting time in trying to pay employes in premiums, with a fixed price for their personal labor, and in that way prevent them from knowing the general profits obtained either through the commercial part of the enterprise, the ability of the directors, and the good management of the capital, a share of all these advantages should be divided amongst all employes if it is expected that they should all give their individual attention to the success of the house.

Further contributions on this interesting topic will appear in future issues of the Busy Man’s Magazine,

in which the writer will discuss the subject of “Profit-sharing” from the standpoint of “Methods of Distribution,” “Contradictory Arguments Against Profit-sharing,” “Some of Its Practical Results,” and “Arguments for and Against the System.”