COVID-19 has accelerated need for succession planning and ensuring business owners know employee ownership is on the menu
By Steve Storkan
Ever since the formation of the Ohio Employee Ownership Center in 1987, state centers for employee ownership have slowly become more and more successful in driving the formation of new Employee Stock Ownership Plans (ESOPs). In fact, U.S. Department of Labor data shows that from 2014 through 2017, 40 percent of all new ESOPs were headquartered in the eight states that had state centers. In 2017 that number increased to 48 percent.
The success of these state centers was the impetus for the National Center for Employee Ownership (NCEO) to form a task force to explore the resources needed to create more state centers across the country. In 2018, the hard work and dedication of the NCEO task force members led to the creation the Employee Ownership Expansion Network (EOX), a grassroots organization whose mission is to “significantly expand employee ownership in the United States by establishing and supporting a network of independent nonprofit State Centers for Employee Ownership.” Since January 2019, as the first executive director of EOX, I have been working with employee ownership advocates in multiple states, and despite COVID-19, we have been able to launch six new state centers in North Carolina, Minnesota, Georgia, Tennessee, Florida, and Texas. A center in Missouri is likely to launch before the end of the year.
While the six new centers are “official,” having created organizational documents, filed for approval with both the state and federal governments, and appointed boards of directors, they are all in different phases of operation. The North Carolina Employee Ownership Center (NCEOC) and the Minnesota Center for Employee Ownership Center (MNCEO), the first two centers that opened, are the furthest along, having raised enough money to hire interim executive directors.
Connecting to the local business community, economic development sectors, and social justice nonprofits is crucial to building a local constituency that understands and supports employee ownership.
The key to opening states centers is having a passionate group of employee ownership advocates, or what we call “ambassadors.” For the most part, these ambassadors have come from the ESOP community—either from existing ESOP firms or ESOP service providers. But to execute their mission to grow employee ownership locally, these ambassadors need to bring others to the table. We have found that connecting to the local business community, economic development sectors, and social justice nonprofits is crucial to building a local constituency that understands and supports employee ownership.
A great example of a successful approach is that of the North Carolina Employee Ownership Center (NCEOC). Anne Claire Broughton is a passionate advocate, particularly with regard to bringing employee ownership to black and brown communities that face obstacles in terms of investment, business activity, and job growth. Even before EOX was launched, Broughton was gathering support from a diverse group of community leaders, including those working in the worker cooperative space, for a state employee ownership center.
The 10-member board of the center represents this work: it is made up of individuals with different networks and strengths who are in a position to educate business owners and community leaders all across the state about employee ownership and how it can serve as a viable succession strategy. By reaching beyond the ESOP community to cooperative advocates, Broughton strengthened connections to community leaders and grassroots social justice organizations in her state. Recently, the city of Durham formally partnered with the NCEOC to support Durham’s Legacy Business Preservation Program, which seeks to retain minority-owned businesses, especially Black-owned businesses.
By reaching beyond the ESOP community to cooperative advocates, Broughton strengthened connections to community leaders and grassroots social justice organizations in her state.
In Minnesota, Sue Crockett, onetime leader of the local ESOP Association chapter, has been the driving force behind the early success of the Minnesota Center for Employee Ownership (MNCEO). After bringing together approximately 25 passionate individuals who supported the formation of the MNCEO, the center is now taking off as it connects to municipalities, other nonprofits, and community leaders.
Having raised enough money to hire interim executive directors, NCEOC and MNCEO have begun to fully implement their mission of education and outreach, as well as connecting prospective businesses with the resources they need to determine the feasibility of converting to employee ownership. Both organizations have been making online presentations to business owners and other stakeholders regarding all forms of employee ownership, including ESOPs, worker cooperatives, and Employee Ownership Trusts.
Despite not yet having hired staff members, the volunteers of the other EOX state centers in Georgia, Tennessee, Florida, and Texas have also started to ramp up their outreach and education activities, along with the year-end fundraising necessary to support hiring staff in early 2021. COVID-19 has been an impediment, but it has not stopped the work. For now, webinars and Zoom calls have replaced in-person meetings, but not forever. We know that a one-on-one meeting with a business owner or advisor who wants to learn more about employee ownership and the process for converting a business is still the most effective route to building a business pipeline.
Even before COVID-19, over two million baby boomer business owners were facing the challenge of determining how and when to exit their business. While we expected this wave of business transitions to begin sometime in the next five years, COVID-19 has considerably accelerated that timeline. That wave is beginning to swell now. Whether their business is struggling or thriving, close-to-retirement owners are recognizing that they have not focused enough on succession planning, and they are looking for answers. Our job is to ensure that employee ownership is front and center as an exit option as they make their plans.
The success of long-time state centers in Pennsylvania, Ohio, Vermont, Colorado, and Indiana, give us confidence that our boots-on-the-ground approach will work in the states where we have landed. But we are not close to being done. We look forward to opening many more state centers in the years ahead.
To support the work of EOX or to inquire on how you might become involved in this grass roots movement in your state, go to www.eoxnetwork.org or email me at email@example.com.
Steve Storkan is the executive director of the Employee Ownership Expansion Network. He has been involved with employee stock ownership plans for over 25 years, most recently as the director of ESOP Administration for Alerus Retirement and Benefits. For 11 years, Storkan served as a member of the board of directors of the Minnesota-Dakotas Chapter of the ESOP Association.
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