By Jessica Rose, Director of Employee Ownership Programs at The Democracy Collaborative
As we head into the final months of 2018, I’m amazed at the distance we’ve come in catalyzing discussion, innovation, and real growth in employee ownership. We’ve seen the passage of the Main Street Employee Ownership Act, the first piece of legislation in decades designed to facilitate employee ownership conversions. New research and market analysis is laying the groundwork to spur new investments. And new institutions are emerging to catalyze those investments.
Fifty by Fifty has been participating in all of these efforts, bringing our expertise to wide-ranging discussions and initiatives, as we discuss below.
Tuesday, November 13, saw the launch of Evergreen Cooperative Corporation’s Fund for Employee Ownership, a groundbreaking new investment fund that will acquire small and medium businesses and, by converting these businesses to employee ownership, preserve jobs and build wealth in low- and middle-income communities in the greater Cleveland area. By acquiring businesses from owners who are approaching retirement, the Fund will help these owners access the wealth they have created while preserving their legacy. The strategy is a win-win-win for exiting business owners, workers, and the Northeast Ohio community
As a strategic advisor to the fund, I am thrilled about the Fund’s potential to catalyze employee ownership. The number of employee-owned companies in the U.S—about 7000—has been stagnant for decades. Our theory is that the lack of growth is caused by a lack of agency: No one is incentivized to promote employee ownership in a way that can compete with traditional private equity, which has nearly 2000 funds actively seeking deals every day. The Fund for Employee Ownership, which will raise patient capital from mission-driven investors, will compete in this arena, buying businesses at fair market value but then using the expertise of Evergreen Cooperatives to convert these businesses to employee ownership, build an ownership culture, and support them by bringing them into the Evergreen Network. It is our ambition that The Fund will demonstrate a new innovation in community wealth building and employee-owned business development that will continue Evergreen’s legacy as an inspirational model for the field.
The Fifty by Fifty team through research, publications, and conference presentations has continued our work to raise awareness, deepening understanding, and growing support for employee ownership.
Most recently, I presented at two important gatherings, SOCAP#18 and “Financing the Preservation of Legacy Businesses,” a meeting hosted by Capital Impact Partners with the ICA Group, Working world, Democracy at Work, and Citi Community Development. The convening highlighted findings from Capital Impact’s newly released report, Coop Conversions at Scale: A Market Assessment for Expanding Co-op Conversions in Key Regions and Sectors. Fifty by Fifty did the first employee-ownership presentation at SOCAP two years ago, and interest has grown so much that SOCAP#18 featured an entire track on alternative ownership models. At both these conferences I spoke about the role of capital in taking employee ownership to scale—a theory that Marjorie Kelly and I are researching and supporting some hypothesis testing with the launch of the Fund for Employee Ownership (see above) and other partnerships.
Marjorie Kelly spoke about employee ownership at a recent gathering focused on bringing concern about inequality into business schools. It was sponsored by the Aspen Institute Business and Society Program and the University of Michigan Ross School of Business. Joseph Blasi of Rutgers, who joined Marjorie on the panel, said that of 115 or so scholars researching employee ownership in his network, only 10 to 15 are from business schools.
Developing New Employee Ownership Models
In addition, Fifty by Fifty has released a new paper, The Corporation as Living System: Enterprise Design for a Sustainable, Equitable Economy, based on research supported by Partners for a New Economy. This paper builds on our series of blogs exploring the relationship between employee ownership and ecological sustainability. Our initial findings support our core hypothesis: Ownership by workers, combined with mission-driven governance, is an emerging model — viable in today’s economy — that embodies critically needed design elements required for true environmental and social sustainability. The employee-owned benefit corporation stands in stark contrast to publicly owned companies with distant shareholders who have only one interest—short-term profit gains.
As we grow our presence through our blog and social media, please follow @democracycollab and @marjorie_kelly using the hashtag #fiftybyfifty.
Creating Policy Incentives
In August, the Main Street Employee Ownership Act (MSEOA), having been tucked into the National Defense Authorization Act, became law. The MSEOA is intended to make it easier for businesses converting to employee ownership to access loans through the Small Business Administration preferred lender program, but newly proposed regulations may present obstacles.
Fifty by Fifty will be submitting comments during the public comment period (through November 27), and we encourage individuals and organizations that support employee ownership to do the same. We have all the information you need to submit comments here.
We’ve heard a lot lately about the “forgotten Americans.” Growing inequality and lack of opportunity, whether in inner cities or rural communities, are hurting the future of our nation. Employee ownership is a proven path to better jobs, increased wealth, and stronger local economies. We look forward to building the strength of our movement so that we can reach our goal of 50 million employee owners by 2050.
Fifty by Fifty, an initiative to expand employee ownership to 50 million employee owners by 2050, convened by The Democracy Collaborative, released the following statement from Jessica Rose, CFO and Director of Employee Ownership Programs, in support of the Main Streets Employee Ownership Act.
The Main Street Employee Ownership Act creates a powerful set of tools—including access to loans and technical assistance—that will make it easier for retiring business owners to sell their companies to their employees and support those businesses in succeeding, post-transaction. By working within existing Small Business Administration programs and lending infrastructure, the bill will create tremendous economic benefit for families, firms, and communities without creating a single new government program.
Employee ownership is a proven strategy to build broad-based prosperity, and it is about time America’s small business lending infrastructure aligned with the clear benefits to working families and communities that employee ownership provides. Fifty by Fifty celebrates this tremendously well-conceived, responsive, bipartisan legislative advance, which will empower thousands more firms to transition successfully from traditional private ownership to employee ownership.
We congratulate all of the MSEOA’s bipartisan sponsors and wish especially to thank Senator Kirsten Gillibrand for her leadership in developing this important legislation.
The Main Street Employee Ownership Act of 2018 was signed into law on August 13 as part of the John McCain National Defense Authorization Act. The bipartisan legislation is the first law in support of expanding employee ownership to pass Congress since 1997. Senator Kirsten Gillibrand (D-NY) introduced the Senate bill, while Representative Nydia Velazquez (D-NY) introduced the bill in the House.
As the United States faces the imminent retirement of millions of baby boomers, the future of 2.3 million companies is at stake. Only a small percentage of these businesses will be passed on to family members or sold to other buyers. Half of owners have no exit plan—and without planning, many of these businesses will close. This could result in a significant loss of jobs and economic activity in communities all across the nation.
Employee ownership provides an elegant solution, keeping business assets and jobs in local communities an creating more broadly shared wealth. Notably employee ownership has been shown to:
Employee-owned companies operate in the market similarly to other for-profit enterprises. But their unique ownership structures mean that they may have slightly different financing needs. While the private financial services sector offers many products to meet these needs, employee-owned firms can also benefit from public programs that help other small- and medium-sized companies across America to grow and succeed.
The Main Street Employee Ownership Act will make Small Business Administration (SBA) section 7(a) loans more available to employee-owned businesses, support smooth transitions to employee ownership, and provide education and technical assistance to business owners interested in transitioning to employee ownership through the nation’s 900 Small Business Development Centers. Specifically, the bill:
If employee ownership is so great, why isn’t there more of it? That was the question my colleagues and I began exploring nearly two years ago, leading into the first Fifty by Fifty convening of national partners in employee ownership. The experts agreed on interventions with the greatest potential to increase employee ownership. Top of my list were:
In recent months, Fifty by Fifty—in collaboration with others —has committed to moving the ball forward in each of these areas.
We and our partners launched the Fifty by Fifty blog and news service, featuring writing by some of the best employee ownership advocates, professional service providers, and innovators. Within a year, the subscriber list has grown to over 1400 readers, helping to spread a practical message to influencers nationwide. In this way, we’re helping to elevate leading voices and promote shared narratives. We’ve also published articles, such as this one on employee ownership in rural areas.
In addition to traditional approaches to influencing succession – where professional service providers support owners in selling to employees – our hypothesis is that mobilized capital could also play a role, knocking on doors and helping to drive expansion of employee ownership. The role of capital has become my particular focus, and I’ve been pleased to see growing interest in this approach.
In April, I sat in on two landmark conversations on this topic. The first, hosted by Rutgers University School of Management and Labor Relations, was a gathering on Private Equity Transactions and Employee Ownership. It featured case studies and new models where modest-income employees benefit from participating in employee ownership or profit sharing plans in portfolio companies. Participants included Mosaic Capital, Merit Capital, Long Point Capital, KKR, Blue Wolf Capital, and American Working Capital.
The second meeting, in London, was hosted by Open Society Foundations and looked at the role that philanthropic capitalboth grants and investments – could play in encouraging shared ownership as a way to reduce income inequality and the lack of democratic participation in economic decision making. Other U.S. attendees were Transform Finance and The Working World, both leading thought leaders and expert practitioners in how capital can be used to increase employee ownership.
Creating Policy Incentives
We’re also pleased to see increased volume and quality in employee ownership policy at the federal, state, and local level. Just this month, the U.S. House passed H.R. 5236, the Main Street Employee Ownership Act (MSEOA). In addition, Sen. Kirsten Gillibrand introduced the bipartisan Senate companion bill, S.2786, on April 26 with the support of three co-sponsors from both major parties.
The MSEOA is one of the most well-researched and responsive pieces of legislation in recent years, thanks in large part to research by Senator Gillibrand’s office, whose efforts we were honored to support. By working within existing Small Business Administration programs and lending infrastructure, the bill would create a powerful set of tools making it easier for retiring business owners to sell their companies to their employees, and supporting those businesses, post-transaction.
Building Strategic Partnerships and Curating Conversations
My colleague Sarah Stranahan in June is chairing a panel on scaling employee ownership, at CommonBound, the annual conference of the New Economy Coalition. Be sure to check it out, if you are attending.
In addition, last month, I co-hosted a panel at the NCEO conference in Atlanta, called “Why Aren’t There More ESOPs?”, with my colleague Steve Buchanan. We had nearly 50 attendees, including the NCEO State Employee Ownership Task Force and staff from the Beyster Institute at the University of California, San Diego, but there were also fresh faces from ESOP companies across the nation. Although the question we posed was essentially the same as the original question of Fifty by Fifty, this time felt different. There was a level of sophistication in the work of our partner organizations, and a sense of momentum—even inevitability—that I hadn’t seen before.
Visit this space—or sign up for our e-newsletter—for future updates on this growing movement.
Director of Employee Ownership Programs @ The Democracy Collaborative
Winimac, Indiana – population 2,500, more than 60 miles from the nearest airport—is a pretty unlikely place to find hope for the future of our economy. It’s home to the headquarters of Galfab, a manufacturer of waste-hauling equipment, which is the kind of company that used to be, and in some parts of the country still is, the bedrock of the American economy. It’s the kind of company that employs Americans to make things and has no intention of sending those jobs overseas. Today, this commitment is stronger than ever for Galfab, which recently opted to transition to employee ownership. “Taking care of all the employees was foremost in our mind,” said CEO Jerry Samson, in announcing the recent transition. “The desire to create an ownership opportunity in Galfab for our over 150 employees was always the top priority for us. Our employees are the heart and soul of Galfab.”
What if there were a way to run a business that generated lasting wealth for employees and helped anchor companies in the U.S.? What if communities, entrepreneurs, and lawmakers joined efforts to promote these businesses as a way of retaining jobs and creating strong local economies? It sounds impossible but businesses that are owned by employees have all these benefits and efforts to create more of them are gaining serious momentum throughout New York.
As we wrap the second year of the Fifty by Fifty project — aimed at getting to 50 million worker owners by 2050 — we’re more convinced than ever that the time is right for strategic interventions to catalyze the employee ownership field to a much larger scale. The retirement of the baby boom generation — the silver tsunami — paired with rising concern about income inequality, is creating an unprecedented opening for this solution. Yet employee ownership numbers have not grown as they could over the past 25 years. The field has not seen itself as a unified employee ownership field, uniting worker co-ops with ESOPs and other forms of employee ownership. Creating that unity is one of the aims of Fifty by Fifty.
Fifty by Fifty
Millions of Americans already have an ownership stake in their workplace. More than 7,000 U.S. companies are owned wholly or in part by their employees—the people who work there every day.