The Sale of Hughes Aircraft

One of the curious non-issues of our time is the sale of Hughes Aircraft Co. to another of our large corporate entities. Such a sale is assumed to yield the largest return to the current owner, the Hughes Medical Institute, and the fiduciary responsibilities of the institute’s trustees apparently are solely to obtain the highest immediate return, thus limiting the options to be considered.

There have been times in the past when the U.S. government, properly regarding Hughes as a critical national asset, limited the options of company ownership in pursuing its own corporate goals. It may be appropriate to do so again. The long-term vigor of the company, and its long-term value, would probably be enhanced if ownership were widely diffused, and if the current employees were able to purchase a share of ownership in the company.

The Northrop Corp. is an example of an aerospace company that is owned in large measure (more than 30%) by its workers. This undoubtedly contributes to the esprit and productivity of the employees in that highly successful company. Is there any reason to doubt that the same beneficial effect would obtain at any other company? It has been said that the principal assets of Hughes go down the elevator at night. One would think that the degree of commitment of those “assets” to corporate goals would be of some concern to the owners.

The answer usually given when employee ownership is proposed is that employees don’t command the necessary assets. But neither do General Motors or anyone else have the assets. Companies are simply granted the necessary borrowing capability, and the newly acquired stock is used as collateral. Company resources are bled off to pay the interest. If employee ownership were really to be sought, employees could be given the same option of borrowing against the collateral stock.

By allowing the option of converting savings plan assets to company stock, and by arranging for bank borrowing on the same favorble terms that would be available to General Motors, at least 30% of the company could be sold to the current employees. The rest could be sold on the open market. The combination should yield a comparable value to what is obtainable by auction among the favored conglomerates, and over the long term should yield a greater value than the alternative currently being pursued.

In this regard, the Hughes Medical Institute should not be left to its own devices.

SIEGFRIED OTHMER

Sherman Oaks