Concerns over business closures reignite interest among lawmakers
by Karen Kahn
With a $150,000 appropriation from the Massachusetts State Legislature, the state Office of Business Development has hired the ICA Group and Working Wealth, two Massachusetts-based nonprofits dedicated to growing employee ownership, to revive the Office of Employee Involvement and Ownership (OEIO). The two organizations are working together to grow knowledge of employee ownership among business owners and their advisors—and to support conversions when employee ownership offers a viable exit plan.
Our objective is to make sure all businesses know that employee ownership is an option, and that it could save jobs.— David Hammer, executive director of the ICA Group
David Hammer, executive director of the ICA Group, says, “Our objective is to make sure all businesses know that employee ownership is an option, and that it could save jobs. We want businesses to know that there is support for them, if they choose this path.”
The OEIO, which had been funded at similar levels for nearly two decades, lost its funding during the Great Recession. Last year, Representative Paul Mark from Berkshire County found an ally in Senator Julian Cyr, who represents Cape Cod and the Islands, and then in Senate President Karen Spilka as well. According to the Boston Globe, Spilka, who helped write the original legislation as a Senate staffer in the 1980s, made sure the money for reviving the office was included in the budget for 2019.
According to Hammer, research, outreach, and technical assistance comprise OEIO’s core activities. Two initial research projects include a census of employee-owned businesses across the state and a detailed look at ownership and business transitions.
The ICA Group estimates that as many as 28,000 Massachusetts businesses with between 10 and 100 employees could be up for sale through 2025.
In looking at existing employee-owned businesses, Hammer says, they are interested in understanding the distribution of these businesses, their impact, their growth trajectories, what challenges they are facing, and what they need for support. This research—which will provide a deeper understanding of the state of employee ownership across the Commonwealth—is being done in partnership with Ed Carberry, an associate professor of management at the University of Massachusetts/Boston. The OEIO includes supporting and growing these existing businesses in its mandate.
The second research piece is directed specifically at understanding the coming business closure crisis. The ICA Group estimates that as many as 28,000 Massachusetts businesses with between 10 and 100 employees could be up for sale through 2025. “The real crisis is likely to hit around 2021,” says Hammer. “That’s the year in which baby boomers begin turning 75 years old.” It is right around their early 70s that business owners become serious about the need for an exit plan, he observes.
A more nuanced understanding of future business closures will help municipal and regional planning leaders understand what businesses and economic sectors pose the greatest risk to future economic prosperity. “This information,” says Hammer, “will be of real importance to the economic development community across the Commonwealth.”
With so many business owners close to retirement, due to the baby boomer retirement wave, business closures could be a profound disruption to local economies over the next decade.
According to a report released last year from Capital Impact Partners, among independent businesses with 20 to 100 employees operating for 25 years or more in five key sectors, nine businesses are closing for every one that is sold. With so many business owners close to retirement, due to the baby boomer retirement wave, this could be a profound disruption to local economies over the next decade. Transitioning more businesses to employee ownership would save jobs—and provide retiring business owners access to the wealth they have built for retirement.
“The best way to create jobs is to save jobs,” says Hammer. “With a clearer understanding of the future of independent businesses that are so crucial to main streets across the Commonwealth, we can focus on interventions to help these businesses survive. We want to identify the tools and resources that will be most useful to communities as they face these challenges.”
In addition to using its research to understand the state of employee ownership and the future of business closures across the Commonwealth, the OEIO is building awareness and providing technical assistance among business owners and advisors. The office is building a website that will market the benefits of employee ownership and connect business owners to critical resources; holding public events; and participating in events held by trade associations and business groups. Hammer believes it is especially important to engage the business community around the need for succession planning. “This has to be part of the state’s economic development programs,” he says. “The presumption isn’t that employee ownership is the right option for everyone, but that everyone needs an exit plan, and one path to consider is employee ownership.”
For businesses that are interested in exit planning, the OEIO provides a “pre-feasibility assessment.” This process involves understanding the goals and values of the owner, assessing the various options, and providing a roadmap for next steps. If the business owner decides to pursue an ESOP or cooperative, then the OEIO connects the business to the appropriate technical support. Currently, the office is working with four firms as they consider whether employee ownership is a feasible exit plan.
Karen Kahn provides communications consulting and editorial support for Fifty by Fifty.