New hotline spurring interest in employee ownership conversions
By Karen Kahn
In December 2020, after nearly a year of living with the COVID-19 pandemic, New York City Mayor Bill de Blasio announced Employee Ownership NYC, the nation’s largest municipal investment in transitioning businesses to employee ownership. New York is the first city in the country to put employee ownership at the center of its economic recovery strategy.
The Racial Wealth Gap
“Our goal is to close the racial wealth gap,” says Christine Curella, senior policy advisor to Deputy Mayor Phil Thompson, who has made building a more inclusive economy central to his portfolio. “Employee-owned businesses are more resilient and have a long history as an economic development strategy in communities of color.”
Our goal is to close the racial wealth gap.–Christine Curella, senior policy advisor to NYC Deputy Mayor Phil Thompson
New York City faces enormous challenges as a result of the pandemic. The city has almost a quarter million businesses with fewer than 100 employees, according to the Center for New York City Affairs. Many of those businesses—particularly in hospitality, retail, food service, and personal care—have closed, with some estimating that 60 percent may not re-open.
Additionally, the difference in income between Latinx and Black households vs. white households, even before the pandemic, was extreme. Analyzing data from 2018, Citizen’s Committee for Children of New York found that households with incomes below $25,000 were 75 percent Latinx and Black, while households earning more than $150,000 were 57 percent white.
Employee Ownership NYC
Employee Ownership NYC has launched the Owner2Owners hotline through which business owners can find out more about employee ownership as a possible succession strategy. Through the hotline, owners connect with technical assistance organizations that provide free services to assess the viability of an employee ownership transition and support that process. Business owners can receive up to $10,000 in free technical assistance. The program is expected to reach 20,000 businesses.
New York City is the first city in the country to put employee ownership at the center of its economic recovery strategy.
“Enabling workers to buy their businesses is a proven model to address the wealth gap in this city—and it will be a transformative approach for businesses looking for creative ways to recover from the challenges posed by COVID-19,” said Mayor de Blasio in a press release. “This approach helps anchor small businesses in the communities they serve, and I’m excited to see workers take a greater leadership role in their companies.”
The community-based organizations that will be supporting business transitions include the Democracy At Work Institute, The Working World, the ICA Group, and the Business Outreach Center Network. All of the partner organizations, along with Curella, participated in a workshop describing the significance of the program at the recent Mid-Year Fellows Meeting in Honor of Louis O. Kelso sponsored by the Rutgers Institute for the Study of Employee Ownership and Profit Sharing.
Proof of Concept: The Worker Cooperative Business Development Initiative
Five years ago, the New York City Council launched its Worker Cooperative Business Development Initiative (WCBDI), which has successfully demonstrated that worker-owned businesses can provide a powerful economic development strategy for marginalized communities. Over FY2017-2019, New York City formally launched 51 new worker cooperatives and soft-launched an additional 82. Through these new businesses, the city created 442 new jobs in communities often left out of traditional economic development strategies.
Says Curella, WCBDI, which members of the City Council championed, laid the groundwork for Employee Ownership NYC. Not only did it prove to economic development agencies that the worker-owned cooperative is a viable business model, but through their experiences supporting nascent cooperatives in the City, the cooperative development partners identified critical gaps in communication, education, and infrastructure that Employee Ownership NYC is designed to address. The new hotline, which is being promoted through a large-scale marketing effort, is the centerpiece of the program.
Owner to Owners Hotline
In just the first month of operation, the hotline has already received 76 inquiries, explained Olga Prushinskaya of Democracy at Work Institute. Of these calls, 75 percent were from business owners, most of whom were referred to technical assistance partners. Notably, 85 percent of callers were unfamiliar with employee ownership as a succession option.
The majority of callers represented minority- and women-owned businesses, most of them with fewer than 10 employees. The workers at these businesses are also majority (61 percent) people of color. The greatest share, 25 percent, were food service businesses such as cafés, delis, bars and restaurants; another 14 percent were personal care businesses, such as salons and barbershops. Both types of businesses have suffered from closures and social distancing rules.
The launching of Employee Ownership NYC, said Brendan Martin of the Working World, is directly attributable to the city’s leadership. “There is nothing else like it,” Martin remarked. “Already, through the hotline we are reaching far more businesses than any previous effort.”
Agencies like the Department of Small Business Services (SBS), which reaches thousands of small businesses, now steer people toward the cooperative model.
Through WCBDI, key economic development agencies have become familiar with worker ownership and have added it to the menu of options, whether supporting an entrepreneur who is starting out or one who is considering retirement. Agencies like the Department of Small Business Services (SBS), which reaches thousands of small businesses, now steer people toward the cooperative model. The impact of core economic development agencies like SBS working in concert to promote employee ownership is enormous, says Martin.
Employee Ownership NYC also builds on the Equitable Industrial Development Initiative, an effort to keep small manufacturers in the City. Industrial service organizations, including the Business Outreach Center Network, work with these manufacturers on multiple fronts, including planning succession strategies that help to retain good jobs, paying on average $60,000 annually for a workforce that is 80 percent people of color.
The Working World has educated the industrial service organizations about employee ownership, giving technical assistance providers like Quincy Ely-Cate, who spoke on the Rutgers panel, another tool to keep small manufacturers in the City. Ely-Cate noted that of about 80 businesses he has consulted with, a dozen are seriously considering converting to cooperatives.
Curella is pleased with the launch of Employee Ownership NYC but said that the hotline is only the first step in building out the program. More work needs to be done to educate workers regarding the benefits of employee ownership, she says. Also, a finance gap remains. The Working World and the ICA Group have worked together to bring financial partners to the table for individual conversions, but to go to scale, particularly in the current crisis, more robust financing will be needed.
Additionally, Curella identified policy levers that could be used to remove barriers to worker ownership and accelerate conversions—for example, connecting employee-owned businesses to public contracting and ensuring that collective ownership still allows for minority- and women-owned certification. Finally, additional strategies, to help microbusinesses join together in purchasing or distribution co-ops or gig workers to become platform owners, are part of future plans to address the economic needs of those hit hardest by the pandemic.
“COVID has accelerated the need for an equitable economic development strategy, with innovation for and led by communities of color,” says Curella. “We want to marry this moment of crisis with an agenda for stabilizing and strengthening businesses of color, and employee ownership is a concrete strategy that allows us to do just that.”
Karen Kahn is a communications consultant and the editor of Employee Ownership News.