Employee ownership transitions could speed economic recovery, says the ICA Group
by Karen Kahn
“For meaningful and swift action to save jobs and main street businesses, employee ownership must be a central part of the economic response,” writes the ICA Group in a statement in response to the economic crisis now gripping the nation as it responds to the coronavirus pandemic.
“Even in these challenging times, workers can become owners,” says ICA Executive Director Dave Hammer.
Over the last several years, employee ownership advocates have highlighted the business succession crisis unfolding as baby boomers reached retirement age, most without clear exit strategies. That crisis has just gotten much deeper and immediate with a pandemic raging. Baby boomer owners on the cusp of retirement face difficult decisions: taking on new debt to climb out of the hole created by a near-complete business shutdown or perhaps shutter their businesses permanently.
Even in these challenging times, workers can become owners.–Dave Hammer, executive director of the ICA Group
Businesses will close, as they did during the Great Recession of 2008. And when those businesses close, local jobs will be lost. During the Great Recession, as small manufacturers and specialty services closed their doors, many “middle skill” jobs such as sales managers, administrative assistants, and technicians were lost. ICA Group highlights data showing that middle skill jobs made up 60 percent of jobs lost during the Great Recession, and only 22 percent of new jobs created during the recovery. By contrast, low-wage jobs represented 21 percent of jobs lost and 58 percent of new jobs post the recession.
To avoid a similar outcome that will further exacerbate wealth and income inequality, policymakers should put in place financial incentives and educational and technical resources to support employee buyouts. Close-to-retirement owners are not in a position to take on additional debt to breathe life back into their businesses, but employee-owners might afford to do so over a longer time horizon and with the right financing and supports.
“To accomplish this,” says Hammer, “technical assistance providers need to focus on the short-term recovery and immediate business plans for companies considering a transition to worker ownership. Involving the workers in the transition process will help build confidence in managing difficult situations while also strengthening the business. A clear path forward motivates everyone to save jobs worth owning.
“Flexible financing will also be essential for conversions to happen during this period, “ Hammer continues. “As companies slowly recover, transactions will require a combination of bank financing, seller financing, earn-outs, equity options, and more.”
Hammer also emphasizes the need for public policy to support employee ownership transitions. Among his organization’s key recommendations to federal, state, and local leaders are the following actions:
- Fund the Main Street Employee Ownership Act so that intermediaries supporting employee ownership can work with Small Business Development Centers to accelerate succession planning and legacy business preservation through business education and technical support.
- Include the needs of employee-owned companies in broad public relief packages—e.g., relax personal guarantee requirements and adopt loan forgiveness to firms that sell to their employees.
- Provide additional capital to Community Development Financial Institutions to finance transitions to employee ownership.
- Launch an employee ownership bank to provide low interest loans to employees to purchase their companies, and consider innovations such as an Employee Equity Loan Program, which would provide federal loan guarantees.
Business owners can only choose employee ownership as a succession strategy if they are aware of the option. Now more than ever, there is an urgent need to get the message out so that Main Street is not permanently shuttered in the wake of COVID-19.
“This is not the time for business as usual,” says Hammer, “but it is the time for worker ownership.”
Karen Kahn is a communications consultant and the editor of Employee Ownership News.