Employee-owned firms continue to demonstrate resiliency during pandemic
by Karen Kahn
As the pandemic upends local economies, employee-owned businesses are finding creative ways to stay afloat, proving themselves to be more resilient than conventionally owned businesses. The strategies employee-owned businesses are using to flourish during the pandemic is just one of many topics discussed by scholars at the Mid-Year Fellows Workshop in Honor of Louis O. Kelso sponsored by the Rutgers Institute for the Study of Employee Ownership and Profit Sharing January 9-10, 2021.
The annual symposium is an opportunity for academics and practitioners to share research related to broad-based forms of capital ownership and capital income, including employee ownership trusts, profit sharing, and gain sharing. This year’s virtual conference included wide-ranging presentations exploring employee ownership in the US and overseas. Sessions addressed how firms build employee-ownership cultures, public policies that could facilitate employee ownership transitions, factors that contribute to successful cooperatives, worker ownership in purpose-driven organizations, capital strategies, and much more.
The strategies employee-owned businesses are using to flourish during the pandemic is just one of many topics discussed by scholars at the Mid-Year Fellows Workshop in Honor of Louis O. Kelso.
ESOPS respond to the pandemic
Nancy Wiefeck from the National Center on Employee Ownership (NCEO), Melissa Hoover from the Democracy at Work Institute, and Douglas Kruse from the Rutgers Institute, along with James Bonham, president and CEO of the Employee Ownership Association, presented data on how ESOP firms and worker cooperatives have fared during the past year.
Wiefeck shared results from an online survey of private ESOP firms conducted from September through November 2020. Firms varied in size and revenues, with more than half reporting over 100 employees; 46 percent reported revenues that fell between $10 and $50 million.
Among the respondents to the NCEO survey, just over half reported a “moderate negative effect” from the pandemic. This varied by whether a firm was considered “essential.” Of nonessential businesses, 63 percent reported a moderate negative effect, as compared to 50 percent of essential businesses. About 13 percent of all businesses reported a moderate or large positive effect, including 10 percent of nonessential businesses. Of the respondents, 76 percent applied for PPP loans to weather the crisis. Only 18 percent had dipped into their cash reserves to survive.
To manage the loss of business during the pandemic, the surveyed firms took a variety of steps, including layoffs, furloughs, and pay cuts. About 40 percent of the surveyed firms took these actions, though 18 percent indicated that employees who had been furloughed or laid off had returned to work. Executives (15 percent) and top managers (11 percent) experienced pay cuts more often than non-management employees (8 percent).
To manage the loss of business during the pandemic, the surveyed firms took a variety of steps, including layoffs, furloughs, and pay cuts.
The NCEO data runs parallel to a study conducted by the Employee Ownership Foundation and the Institute for the Study of Employee Ownership and Profit Sharing, in which responses to the pandemic at ESOP firms were compared to those of conventional firms. That study, presented by Kruse and Bonham, included data from August and September 2020. The survey found that employee-owned firms were three to four times more likely to retain staff as compared to other firms, and half as likely to cut employee hours.
Worker cooperatives respond to the pandemic
Hoover’s presentation focused specifically on how worker cooperatives are responding to the pandemic. Hoover reported on a survey of 250 democratic workplaces, most of which were contacted between June and July 2020. She noted that worker cooperatives are increasingly becoming a critical tool for business development in communities of color. Among those working at cooperatives, the Democracy at Work Institute’s annual survey indicates that 59 percent are people of color, and 62.5 percent are female. Nearly 2 percent identify as non-binary.
Worker cooperatives have taken a variety of actions to stay afloat during the pandemic, including applying for Economic Injury Disaster Loans (68 percent) and Paycheck Protection Program loans (42 percent). As a result of advocacy from the cooperative community, Hoover noted, the loan programs’ personal guarantee requirements were tweaked to make it easier for cooperatives to secure these all-important loans.
Cooperatives made other adjustments as well, including changing their pay structures, pivoting to new lines of business (for example, food businesses moved to take out and delivery), and coming together to form distribution cooperatives or to provide mutual aid. For example, local food producers in the Seattle area—worker cooperatives and other small producers—formed New Day Cooperative Distribution to get their products to customers. In a time of desperate need, Opportunity Threads, a sewing cooperative in North Carolina, began to produce masks for New York City’s Cooperative Home Care Associates, a home care agency that early in the pandemic could not find the personal protective equipment needed to keep their workers safe.
Taken together, these studies confirm earlier research indicating that employee-owned firms are more resilient during recessions. Noting that employee-owned firms that did not receive government support through the PPP program laid off fewer workers than conventional firms in the last year, the ESOP Association makes the case that public policies to support employee ownership would be a better investment than bailing out firms during economic crises.
Karen Kahn is a communications consultant and the editor of Employee Ownership News.