What's Happening?
Across the United States, a significant number of small and midsized business owners are approaching retirement, posing a risk to local economies as these businesses may be sold to outside buyers or shut
down. Nancy Forster-Holt, a business professor at the University of Rhode Island, highlights that individuals aged 61 to 79 own approximately 2.3 million businesses employing nearly 25 million people. To address this issue, nonprofits are advocating for employee ownership as a proactive strategy to preserve jobs and wealth within communities. Employee stock ownership plans (ESOPs), worker cooperatives, and employee ownership trusts are some of the models being promoted. These models have shown to increase median wealth among Latinx and Black employees compared to national averages. Despite the benefits, worker purchases of businesses are not common enough, and many opportunities are missed due to gaps in field knowledge.
Why It's Important?
The transition to employee ownership is crucial for maintaining the stability of local economies and preventing the loss of vital services and jobs. By converting businesses to worker ownership, communities can retain wealth and provide employees with a stake in their workplace, fostering a culture of empowerment and leadership. This approach not only preserves jobs but also offers pathways for workers, particularly in low-wage industries, to accumulate assets and participate in decision-making. As private equity and retiring owners threaten the survival of these businesses, nonprofits and civic leaders have a limited window to intervene and support education, financing, and policy advocacy for employee ownership.
What's Next?
Nonprofits and foundations that are not specialists in employee ownership can play a significant role by acting as trusted messengers and connecting business owners to technical assistance providers. Building trust with selling owners and educating them about the benefits of selling to employees is essential. Additionally, fostering an ownership culture within employee-owned companies can shift workers' mindsets, encouraging them to step up, solve problems, and lead with confidence. As the movement for employee ownership gains momentum, there is a need for continued advocacy and support to ensure that small and midsized businesses thrive and remain integral parts of their communities.
Beyond the Headlines
Employee ownership is more than a technical model; it is a vital wealth-building strategy for communities and individuals. It empowers workers to contribute to their company's growth and rewards them with a real stake in its success. However, the transition to employee ownership requires careful planning and realistic expectations. Businesses must have minimal debt, strong financial performance, and a positive future forecast to be viable candidates for employee purchase. Identifying and transferring the 'secret sauce' of a business to future employee-owners is crucial for ensuring its continued success.
